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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-36290
mbuu-20220930_g1.jpg
MALIBU BOATS, INC.
(Exact Name of Registrant as specified in its charter)
Delaware
5075 Kimberly Way, Loudon, Tennessee 37774
46-4024640
(State or other jurisdiction of
incorporation or organization)
(Address of principal executive offices,
including zip code)
(I.R.S. Employer
Identification No.)
(865) 458-5478
(Registrant’s telephone number,
including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.01 MBUUNasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer   Accelerated filer 
Non-accelerated filer 
  
  Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
Class A Common Stock, par value $0.01, outstanding as of November 2, 2022:
20,345,317 shares
Class B Common Stock, par value $0.01, outstanding as of November 2, 2022:
10 shares



TABLE OF CONTENTS
 
 Page

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Form 10-Q are forward-looking statements, including statements regarding the effects of the COVID-19 pandemic on us; demand for our products and expected industry trends, our business strategy and plans, our prospective products or products under development, our vertical integration initiatives, our acquisition strategy and management’s objectives for future operations. In particular, many of the statements under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” the negative of these terms, or by other similar expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements. These statements are only predictions, involving known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Such factors include, but are not limited to: general industry, economic and business conditions; our large fixed cost base; increases in the cost of, or unavailability of, raw materials, component parts and transportation costs; disruptions in our suppliers’ operations; our reliance on third-party suppliers for raw materials and components and any interruption of our informal supply arrangements; our reliance on certain suppliers for our engines and outboard motors; our ability to meet our manufacturing workforce needs; exposure to workers' compensation claims and other workplace liabilities; our ability to grow our business through acquisitions and integrate such acquisitions to fully realize their expected benefits; our growth strategy which may require us to secure significant additional capital; our ability to protect our intellectual property; disruptions to our network and information systems; our success at developing and implementing a new enterprise resource planning system; risks inherent in operating in foreign jurisdictions; the effects of the COVID-19 pandemic on us; a natural disaster, global pandemic or other disruption at our manufacturing facilities; increases in income tax rates or changes in income tax laws; our dependence on key personnel; our ability to enhance existing products and market new or enhanced products; the continued strength of our brands; the seasonality of our business; intense competition within our industry; increased consumer preference for used boats or the supply of new boats by competitors in excess of demand; competition with other activities for consumers’ scarce leisure time; changes in currency exchange rates; inflation and increases in interest rates; an increase in energy and fuel costs; our reliance on our network of independent dealers and increasing competition for dealers; the financial health of our dealers and their continued access to financing; our obligation to repurchase inventory of certain dealers; our exposure to claims for product liability and warranty claims; changes to U.S. trade policy, tariffs and import/export regulations; any failure to comply with laws and regulations including environmental, workplace safety and other regulatory requirements; our holding company structure; covenants in our credit agreement governing our revolving credit facility which may limit our operating flexibility; our variable rate indebtedness which subjects us to interest rate risk; our obligation to make certain payments under a tax receivables agreement; and any failure to maintain effective internal control over financial reporting or disclosure controls or procedures. We discuss many of these factors, risks and uncertainties in greater detail under the heading “Item 1A. Risk Factors” in our Form 10-K for the year ended June 30, 2022, filed with the Securities and Exchange Commission on August 25, 2022, as such disclosures may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission, including subsequent annual reports on Form 10-K and quarterly reports on Form 10-Q.
You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from those suggested by the forward-looking statements for various reasons. Except as required by law, we assume no obligation to update forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations.
ii

Part I - Financial Information


Item 1. Financial Statements
MALIBU BOATS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(In thousands, except share and per share data)
 Three Months Ended 
September 30,
 20222021
Net sales$302,211 $253,497 
Cost of sales227,606 193,745 
Gross profit74,605 59,752 
Operating expenses:  
Selling and marketing5,186 5,117 
General and administrative19,220 16,091 
Amortization1,716 1,856 
Operating income48,483 36,688 
Other expense, net:  
Other expense (income), net70 (13)
Interest expense1,285 684 
Other expense, net1,355 671 
Income before provision for income taxes47,128 36,017 
Provision for income taxes11,023 8,084 
Net income 36,105 27,933 
Net income attributable to non-controlling interest1,222 989 
Net income attributable to Malibu Boats, Inc.$34,883 $26,944 
Comprehensive income:
Net income$36,105 $27,933 
Other comprehensive loss:
Change in cumulative translation adjustment(1,436)(835)
Other comprehensive loss(1,436)(835)
Comprehensive income34,669 27,098 
Less: comprehensive income attributable to non-controlling interest1,173 959 
Comprehensive income attributable to Malibu Boats, Inc.$33,496 $26,139 
Weighted-average shares outstanding used in computing net income per share:
Basic20,459,849 20,849,981 
Diluted20,632,727 21,132,902 
Net income available to Class A Common Stock per share:
Basic$1.70 $1.29 
Diluted $1.69 $1.28 
`

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements (Unaudited).
1

MALIBU BOATS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
September 30, 2022June 30, 2022
Assets  
Current assets  
Cash$43,051 $83,744 
Trade receivables, net46,416 51,598 
Inventories, net182,366 157,002 
Prepaid expenses and other current assets9,604 6,155 
Total current assets281,437 298,499 
Property, plant and equipment, net178,236 170,718 
Goodwill100,413 100,804 
Other intangible assets, net226,522 228,304 
Deferred tax assets41,543 42,314 
Other assets10,166 10,687 
Total assets$838,317 $851,326 
Liabilities  
Current liabilities  
Current maturities of long-term obligations$ $1,563 
Accounts payable52,043 44,368 
Accrued expenses81,618 87,742 
Income taxes and tax distribution payable9,918 1,670 
Payable pursuant to tax receivable agreement, current portion3,958 3,958 
Total current liabilities147,537 139,301 
Deferred tax liabilities27,345 26,965 
Other liabilities11,317 11,855 
Payable pursuant to tax receivable agreement, less current portion41,583 41,583 
Long-term debt70,095 118,054 
Total liabilities297,877 337,758 
Commitments and contingencies (See Note 15)
Stockholders' Equity  
Class A Common Stock, par value $0.01 per share, 100,000,000 shares authorized; 20,345,317 shares issued and outstanding as of September 30, 2022; 20,501,081 issued and outstanding as of June 30, 2022
202 203 
Class B Common Stock, par value $0.01 per share, 25,000,000 shares authorized; 10 shares issued and outstanding as of September 30, 2022; 10 shares issued and outstanding as of June 30, 2022
  
Preferred Stock, par value $0.01 per share; 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2022 and June 30, 2022
  
Additional paid in capital78,237 85,294 
Accumulated other comprehensive loss(4,943)(3,507)
Accumulated earnings456,067 421,184 
Total stockholders' equity attributable to Malibu Boats, Inc.529,563 503,174 
Non-controlling interest10,877 10,394 
Total stockholders’ equity540,440 513,568 
Total liabilities and stockholders' equity$838,317 $851,326 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements (Unaudited).
2

MALIBU BOATS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
(In thousands, except number of Class B shares)
 
Class A Common StockClass B Common StockAdditional Paid In CapitalAccumulated Other Comprehensive LossAccumulated EarningsNon-controlling Interest in LLCTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at June 30, 202220,501 $203 10 $ $85,294 $(3,507)$421,184 $10,394 $513,568 
Net income— — — — — — 34,883 1,222 36,105 
Stock based compensation, net of withholding taxes on vested equity awards(12)— — — 743 — — — 743 
Issuances of equity for services— — — — 67 — — — 67 
Repurchase and retirement of common stock(144)(1)— — (7,867)— — — (7,868)
Distributions to LLC Unit holders— — — — — — — (696)(696)
Foreign currency translation adjustment— — — — — (1,436)— (43)(1,479)
Balance at September 30, 202220,345 $202 10 $ $78,237 $(4,943)$456,067 $10,877 $540,440 

Class A Common StockClass B Common StockAdditional Paid In CapitalAccumulated Other Comprehensive LossAccumulated EarningsNon-controlling Interest in LLCTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at June 30, 202120,847 $207 10 $ $111,308 $(1,639)$263,552 $7,726 $381,154 
Net income— — — — — — 26,944 989 27,933 
Stock based compensation, net of withholding taxes on vested equity awards(7)— — — 728 — — — 728 
Issuances of equity for services— — — — 58 — — — 58 
Distributions to LLC Unit holders— — — — — — — (558)(558)
Foreign currency translation adjustment— — — — — (835)— (24)(859)
Balance at September 30, 202120,840 $207 10 $ $112,094 $(2,474)$290,496 $8,133 $408,456 


The accompanying notes are an integral part of the Condensed Consolidated Financial Statements (Unaudited).
3

MALIBU BOATS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 Three Months Ended September 30,
 20222021
Operating activities:
Net income$36,105 $27,933 
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash compensation expense1,635 1,258 
Non-cash compensation to directors290 218 
Depreciation 5,296 4,918 
Amortization1,716 1,856 
Deferred income taxes1,137 660 
Other items, net617 502 
Change in operating assets and liabilities:
Trade receivables5,153 8,608 
Inventories(25,714)(22,209)
Prepaid expenses and other assets(3,784)(4,677)
Accounts payable7,154 5,518 
Income taxes payable8,846 5,399 
Accrued expenses(6,195)(5,778)
Other liabilities(567)(520)
Net cash provided by operating activities31,689 23,686 
Investing activities:
Purchases of property, plant and equipment(12,362)(13,892)
Net cash used in investing activities(12,362)(13,892)
Financing activities:
Proceeds from revolving credit facility121,700  
Principal payments on long-term borrowings(23,125)(313)
Payments on revolving credit facility(147,000)(20,000)
Payment of deferred financing costs(1,362) 
Cash paid for withholding taxes on vested restricted stock(871)(516)
Distributions to LLC Unit holders(1,045)(687)
Repurchase and retirement of common stock(7,868) 
Net cash used in financing activities(59,571)(21,516)
Effect of exchange rate changes on cash(449)(257)
Changes in cash(40,693)(11,979)
Cash—Beginning of period83,744 41,479 
Cash—End of period$43,051 $29,500 
Supplemental cash flow information:
Cash paid for interest$1,056 $535 
Cash paid for income taxes760 2,024 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements (Unaudited).
4

MALIBU BOATS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per unit and per share data)
1. Organization, Basis of Presentation, and Summary of Significant Accounting Policies
Organization
Malibu Boats, Inc. (together with its subsidiaries, the “Company” or "Malibu"), a Delaware corporation formed on November 1, 2013, is the sole managing member of Malibu Boats Holdings, LLC, a Delaware limited liability company (the "LLC"). The Company operates and controls all of the LLC's business and affairs and, therefore, pursuant to Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 810, Consolidation, consolidates the financial results of the LLC and its subsidiaries, and records a non-controlling interest for the economic interest in the Company held by the non-controlling holders of units in the LLC ("LLC Units"). The LLC was formed in 2006. The LLC, through its wholly owned subsidiary, Malibu Boats, LLC, (“Boats LLC”), is engaged in the design, engineering, manufacturing and marketing of innovative, high-quality, recreational powerboats that are sold through a world-wide network of independent dealers. The Company sells its boats under eight brands -- Malibu, Axis, Pursuit, Maverick, Cobia, Pathfinder, Hewes and Cobalt brands. The Company reports its results of operations under three reportable segments -- Malibu, Saltwater Fishing and Cobalt.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim condensed financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and disclosures of results of operations, financial position and changes in cash flow in conformity with GAAP for complete financial statements. Such statements should be read in conjunction with the audited consolidated financial statements and notes thereto of Malibu and subsidiaries for the year ended June 30, 2022, included in the Company's Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Units and shares are presented as whole numbers while all dollar amounts are presented in thousands, unless otherwise noted.
Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the operations and accounts of the Company and all subsidiaries thereof. All intercompany balances and transactions have been eliminated upon consolidation.
Recent Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting, which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The elective amendments provide expedients to contract modification, affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this guidance apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. This guidance is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The guidance can be applied immediately through December 31, 2022. The Company will adopt this standard when LIBOR is discontinued and does not expect a material impact to its financial condition, results of operations or disclosures based on the current debt portfolio and capital structure.
There are no other new accounting pronouncements that are expected to have a significant impact on the Company's consolidated financial statements and related disclosures.
5

2. Revenue Recognition
The following tables disaggregate the Company's revenue by major product type and geography:
Three Months Ended September 30, 2022
MalibuSaltwater FishingCobaltConsolidated
Revenue by product:
Boat and trailer sales$140,163 $91,893 $63,630 $295,686 
Part and other sales5,005 340 1,180 6,525 
Total revenue$145,168 $92,233 $64,810 $302,211 
Revenue by geography:
North America$130,650 $88,941 $62,281 $281,872 
International14,518 3,292 2,529 20,339 
Total revenue$145,168 $92,233 $64,810 $302,211 
Three Months Ended September 30, 2021
MalibuSaltwater FishingCobaltConsolidated
Revenue by product:
Boat and trailer sales$113,611 $76,409 $57,833 $247,853 
Part and other sales4,641 318 685 5,644 
Total revenue$118,252 $76,727 $58,518 $253,497 
Revenue by geography:
North America$103,219 $73,712 $54,639 $231,570 
International15,033 3,015 3,879 21,927 
Total revenue$118,252 $76,727 $58,518 $253,497 
Boat and Trailer Sales
Consists of sales of boats and trailers to the Company's dealer network, net of sales returns, discounts, rebates and free flooring incentives. Boat and trailer sales also includes optional boat features. Sales returns consist of boats returned by dealers under the Company's warranty program. Rebates, free flooring and discounts are incentives that the Company provides to its dealers based on sales of eligible products.
Part and Other Sales
Consists primarily of parts and accessories sales, royalty income and clothing sales. Parts and accessories sales include replacement and aftermarket boat parts and accessories sold to the Company's dealer network. Royalty income is earned from license agreements with various boat manufacturers, including Nautique, Chaparral, Mastercraft, and Tige related to the use of the Company's intellectual property.
3. Non-controlling Interest
The non-controlling interest on the unaudited interim condensed consolidated statements of operations and comprehensive income represents the portion of earnings or loss attributable to the economic interest in the Company's subsidiary, the LLC, held by the non-controlling LLC Unit holders. Non-controlling interest on the unaudited interim condensed consolidated balance sheets represents the portion of net assets of the Company attributable to the non-controlling LLC Unit holders, based
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on the portion of the LLC Units owned by such Unit holders. The ownership of the LLC is summarized as follows:
 As of September 30, 2022As of June 30, 2022
UnitsOwnership %UnitsOwnership %
Non-controlling LLC Unit holders ownership in Malibu Boats Holdings, LLC600,919 2.9 %600,919 2.8 %
Malibu Boats, Inc. ownership in Malibu Boats Holdings, LLC20,345,317 97.1 %20,501,081 97.2 %
20,946,236 100.0 %21,102,000 100.0 %
Issuance of Additional LLC Units
Under the first amended and restated limited liability company agreement of the LLC, as amended (the "LLC Agreement"), the Company is required to cause the LLC to issue additional LLC Units to the Company when the Company issues additional shares of Class A Common Stock. Other than in connection with the issuance of Class A Common Stock in connection with an equity incentive program, the Company must contribute to the LLC net proceeds and property, if any, received by the Company with respect to the issuance of such additional shares of Class A Common Stock. The Company must cause the LLC to issue a number of LLC Units equal to the number of shares of Class A Common Stock issued such that, at all times, the number of LLC Units held by the Company equals the number of outstanding shares of Class A Common Stock. During the three months ended September 30, 2022, the Company caused the LLC to issue a total of 1,546 LLC Units to the Company in connection with the issuance of Class A Common Stock for the vesting of awards granted under the Malibu Boats, Inc. Long-Term Incentive Plan (the "Incentive Plan"). During the three months ended September 30, 2022, 13,551 LLC Units were canceled in connection with the vesting of share-based equity awards to satisfy employee tax withholding requirements and the retirement of 13,551 treasury shares in accordance with the LLC Agreement. Also during the three months ended September 30, 2022, 143,759 LLC Units were redeemed and canceled by the LLC in connection with the purchase and retirement of 143,759 treasury shares under the Company's stock repurchase program.
Distributions and Other Payments to Non-controlling Unit Holders
Distributions for Taxes
As a limited liability company (treated as a partnership for income tax purposes), the LLC does not incur significant federal, state or local income taxes, as these taxes are primarily the obligations of its members. As authorized by the LLC Agreement, the LLC is required to distribute cash, to the extent that the LLC has cash available, on a pro rata basis, to its members to the extent necessary to cover the members’ tax liabilities, if any, with respect to their share of LLC earnings. The LLC makes such tax distributions to its members based on an estimated tax rate and projections of taxable income. If the actual taxable income of the LLC multiplied by the estimated tax rate exceeds the tax distributions made in a calendar year, the LLC may make true-up distributions to its members, if cash or borrowings are available for such purposes. As of September 30, 2022 and June 30, 2022, tax distributions payable to non-controlling LLC Unit holders were $696 and $1,045, respectively. During the three months ended September 30, 2022 and 2021, tax distributions paid to the non-controlling LLC Unit holders were $1,045 and $687, respectively.
Other Distributions
Pursuant to the LLC Agreement, the Company has the right to determine when distributions will be made to LLC members and the amount of any such distributions. If the Company authorizes a distribution, such distribution will be made to the members of the LLC (including the Company) pro rata in accordance with the percentages of their respective LLC Units.
4. Inventories
Inventories, net consisted of the following:
 As of September 30, 2022As of June 30, 2022
Raw materials$148,997 $129,233 
Work in progress25,119 20,929 
Finished goods8,250 6,840 
Total inventories$182,366 $157,002 

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5. Property, Plant and Equipment
Property, plant and equipment, net consisted of the following:
 As of September 30, 2022As of June 30, 2022
Land$4,905 $4,905 
Building and leasehold improvements84,283 81,030 
Machinery and equipment84,205 82,469 
Furniture and fixtures10,997 10,805 
Construction in process60,411 52,852 
244,801 232,061 
Less: Accumulated depreciation(66,565)(61,343)
Property, plant and equipment, net$178,236 $170,718 
Depreciation expense was $5,296 and $4,918 for the three months ended September 30, 2022 and 2021, respectively, substantially all of which was recorded in cost of sales.
6. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the three months ended September 30, 2022 were as follows:
MalibuSaltwater FishingCobaltConsolidated
Goodwill as of June 30, 2022
$12,299 $68,714 $19,791 $100,804 
Effect of foreign currency changes on goodwill(391)  (391)
Goodwill as of September 30, 2022
$11,908 $68,714 $19,791 $100,413 
The components of other intangible assets were as follows:
As of September 30, 2022As of June 30, 2022Estimated Useful Life (in years)Weighted-Average Remaining Useful Life
(in years)
Definite-lived intangibles:
Dealer relationships$131,668 $131,806 
15-20
16.4
Patent2,600 2,600 
 15
9.8
Trade name100 100 157.7
Non-compete agreement45 48 102.1
Total134,413 134,554 
Less: Accumulated amortization(26,091)(24,450)
Total definite-lived intangible assets, net108,322 110,104 
Indefinite-lived intangible:
Trade name118,200 118,200 
Total other intangible assets, net$226,522 $228,304 
Amortization expense recognized on all amortizable intangibles was $1,716 and $1,856 for the three months ended September 30, 2022 and 2021, respectively.
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The estimated future amortization of definite-lived intangible assets is as follows:
Fiscal years ending June 30:Amount
Remainder of 2023$5,088 
20246,802 
20256,799 
20266,798 
20276,798 
2028 and thereafter76,037 
$108,322 

7. Accrued Expenses
Accrued expenses consisted of the following:
 As of September 30, 2022As of June 30, 2022
Warranties$39,399 $38,673 
Dealer incentives11,008 16,357 
Accrued compensation18,260 21,076 
Current operating lease liabilities2,148 2,121 
Accrued legal and professional fees2,410 1,939 
Customer deposits5,056 4,851 
Other accrued expenses3,337 2,725 
Total accrued expenses$81,618 $87,742 

8. Product Warranties
Malibu and Axis brand boats have a limited warranty for a period up to five years. Cobalt brand boats have (1) a structural warranty of up to ten years which covers the hull, deck joints, bulkheads, floor, transom, stringers, and motor mount and (2) a five year bow-to-stern warranty on all components manufactured or purchased (excluding hull and deck structural components), including canvas and upholstery. Gelcoat is covered up to three years for Cobalt and one year for Malibu and Axis. Pursuit brand boats have (1) a limited warranty for a period of up to five years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom and (2) a bow-to-stern warranty of two years (excluding hull and deck structural components). Maverick, Pathfinder and Hewes brand boats have (1) a limited warranty for a period of up to five years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom and (2) a bow-to-stern warranty of one year (excluding hull and deck structural components). Cobia brand boats have (1) a limited warranty for a period of up to ten years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom and (2) a bow-to-stern warranty of three years (excluding hull and deck structural components). For each boat brand, there are certain materials, components or parts of the boat that are not covered by the Company’s warranty and certain components or parts that are separately warranted by the manufacturer or supplier (such as the engine). Engines that the Company manufactures for Malibu and Axis models have a limited warranty of up to five years or five-hundred hours.
The Company’s standard warranties require it or its dealers to repair or replace defective products during the warranty period at no cost to the consumer. The Company estimates warranty costs it expects to incur and records a liability for such costs at the time the product revenue is recognized. The Company utilizes historical claims trends and analytical tools to develop the estimate of its warranty obligation on a per boat basis, by brand and warranty year. Factors that affect the Company’s warranty liability include the number of units sold, historical and anticipated rates of warranty claims and cost per claim. The Company assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Beginning in model year 2016, the Company increased the term of its limited warranty for Malibu brand boats from three years to five years and for Axis brand boats from two years to five years. Beginning in model year 2018, the Company increased the term of its bow-to-stern warranty for Cobalt brand boats from three years to five years. As a result of these changes, all of the Company’s Malibu, Axis and Cobalt brand boats with historical claims experience that are no longer covered under warranty had warranty terms shorter than the current warranty term of five years. Accordingly, the Company has limited historical claims
9

experience for warranty years four and five, and as such, these estimates give rise to a higher level of estimation uncertainty. Future warranty claims may differ from the Company’s estimate of the warranty liability, which could lead to changes in the Company’s warranty liability in future periods.
Changes in the Company’s product warranty liability, which is included in accrued expenses on the unaudited interim condensed consolidated balance sheets, were as follows:
 Three Months Ended September 30,
20222021
Beginning balance$38,673 $35,035 
Add: Warranty expense6,405 4,742 
Less: Warranty claims paid(5,679)(4,080)
Ending balance$39,399 $35,697 

9. Financing
Outstanding debt consisted of the following:
 As of September 30, 2022As of June 30, 2022
Term loans$ $23,125 
Revolving credit loan71,700 97,000 
     Less unamortized debt issuance costs(1,605)(508)
Total debt70,095 119,617 
     Less current maturities 1,563 
Long-term debt less current maturities$70,095 $118,054 
Long-Term Debt
As of September 30, 2022, the Company had a revolving credit facility with borrowing capacity of up to $350,000. As of September 30, 2022, the Company had $71,700 outstanding under its revolving credit facility and $1,529 in outstanding letters of credit, with $276,771 available for borrowing. The revolving credit facility matures on July 8, 2027.
On July 8, 2022, Boats LLC entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) that amended and restated its second amended and restated credit agreement dated as of June 28, 2017 (the “Prior Credit Agreement”). The Credit Agreement increased the borrowing capacity of the revolving credit facility from $170,000 to $350,000. Boats LLC has the option to request that lenders increase the amount available under the revolving credit facility by, or obtain incremental term loans of, up to $200,000, subject to the terms of the Credit Agreement and only if existing or new lenders choose to provide additional term or revolving commitments.
The obligations of Boats LLC under the Credit Agreement are guaranteed by the LLC, and, subject to certain exceptions, the present and future domestic subsidiaries of Boats LLC, and all such obligations are secured by substantially all of the assets of the LLC, Boats LLC and such subsidiary guarantors. Malibu Boats, Inc. is not a party to the Credit Agreement.
Borrowings under the Credit Agreement bear interest at a rate equal to either, at the Company's option, (i) the highest of the prime rate, the Federal Funds Rate (as defined in the Credit Agreement) plus 0.5%, or one-month Term SOFR (as defined in the Credit Agreement) plus 1% (the “Base Rate”) or (ii) SOFR (as defined in the Credit Agreement), in each case plus an applicable margin ranging from 1.25% to 2.00% with respect to SOFR borrowings and 0.25% to 1.00% with respect to Base Rate borrowings. The applicable margin will be based upon the consolidated leverage ratio of the LLC and its subsidiaries. As of September 30, 2022, the interest rate on the Company’s term loans and revolving credit facility was 4.23%. The Company is required to pay a commitment fee for any unused portion of the revolving credit facility which will range from 0.15% to 0.30% per annum, depending on the LLC’s and its subsidiaries’ consolidated leverage ratio.
The Credit Agreement contains certain customary representations and warranties, and notice requirements for the occurrence of specific events such as the occurrence of any event of default or pending or threatened litigation. The Credit Agreement also requires compliance with certain customary financial covenants consisting of a minimum ratio of EBITDA to
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interest expense and a maximum ratio of total debt to EBITDA. The Credit Agreement contains certain customary restrictive covenants regarding indebtedness, liens, fundamental changes, investments, dividends and distributions, disposition of assets, transactions with affiliates, negative pledges, hedging transactions, certain prepayments of indebtedness, accounting changes and governmental regulation. For example, the Credit Agreement generally prohibits the LLC, Boats LLC and the subsidiary guarantors from paying dividends or making distributions, including to the Company. The credit facility permits, however, (i) distributions based on a member’s allocated taxable income, (ii) distributions to fund payments that are required under the LLC’s tax receivable agreement, (iii) purchase of stock or stock options of the LLC from former officers, directors or employees of loan parties or payments pursuant to stock option and other benefit plans up to $5,000 in any fiscal year, and (iv) repurchases of the Company's outstanding stock and LLC Units. In addition, the LLC may make unlimited dividends and distributions if its consolidated leverage ratio is 2.75 or less and certain other conditions are met, subject to compliance with certain financial covenants.
The Credit Agreement also contains customary events of default. If an event of default has occurred and continues beyond any applicable cure period, the administrative agent may (i) accelerate all outstanding obligations under the Credit Agreement or (ii) terminate the commitments, amongst other remedies. Additionally, the lenders are not obligated to fund any new borrowing under the Credit Agreement while an event of default is continuing.
Covenant Compliance
As of September 30, 2022, the Company was in compliance with the financial covenants contained in the Credit Agreement.
10. Leases
The Company leases certain manufacturing facilities, warehouses, office space, land, and equipment. The Company determines if a contract is a lease or contains an embedded lease at the inception of the agreement. Leases with an initial term of 12 months or less are not recorded on the unaudited interim condensed consolidated balance sheets. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes. The Company's lease liabilities do not include future lease payments related to options to extend or terminate lease agreements as it is not reasonably certain those options will be exercised.
Other information concerning the Company's operating leases accounted for under ASC Topic 842, Leases is as follows:
ClassificationAs of September 30, 2022As of June 30, 2022
Assets
Right-of-use assetsOther assets$10,132 $10,659 
Liabilities
Current operating lease liabilitiesAccrued expenses$2,148 $2,121 
Long-term operating lease liabilitiesOther liabilities9,481 10,062 
Total lease liabilities$11,629 $12,183 

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ClassificationThree Months Ended September 30, 2022Three Months Ended September 30, 2021
Operating lease costs (1)
Cost of sales$667 $642 
Selling and marketing, and general and administrative219 216 
Sublease incomeOther expense (income), net10 10 
Cash paid for amounts included in the measurement of operating lease liabilitiesCash flows from operating activities623 628 
(1) Includes short-term leases, which are insignificant, and are not included in the lease liability.
The lease liability for operating leases that contain variable escalating rental payments with scheduled increases that are based on the lesser of a stated percentage increase or the cumulative increase in an index, are determined using the stated percentage increase.
The weighted-average remaining lease term as of September 30, 2022 and 2021 was 5.31 years and 6.22 years, respectively. As of September 30, 2022 and 2021, the weighted-average discount rate determined based on the Company's incremental borrowing rate is 3.64% and 3.63%, respectively.
Future annual minimum lease payments for the following fiscal years as of September 30, 2022 are as follows:
 Amount
Remainder of 2023$1,883 
20242,559 
20252,305 
20262,255 
20272,255 
2028 and thereafter1,505 
Total12,762 
Less: imputed interest(1,133)
Present value of lease liabilities$11,629 

11. Tax Receivable Agreement Liability
The Company has a Tax Receivable Agreement with the pre-IPO owners of the LLC that provides for the payment by the Company to the pre-IPO owners (or their permitted assignees) of 85% of the amount of the benefits, if any, that the Company is deemed to realize as a result of (i) increases in tax basis and (ii) certain other tax benefits related to the Company entering into the Tax Receivable Agreement, including those attributable to payments under the Tax Receivable Agreement. These contractual payment obligations are obligations of the Company and not of the LLC. The Company's Tax Receivable Agreement liability was determined on an undiscounted basis in accordance with ASC 450, Contingencies, since the contractual payment obligations were deemed to be probable and reasonably estimable.

For purposes of the Tax Receivable Agreement, the benefit deemed realized by the Company is computed by comparing the actual income tax liability of the Company (calculated with certain assumptions) to the amount of such taxes that the Company would have been required to pay had there been no increase to the tax basis of the assets of the LLC as a result of the purchases or exchanges, and had the Company not entered into the Tax Receivable Agreement.
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The following table reflects the changes to the Company's tax receivable agreement liability:
As of September 30, 2022As of June 30, 2022
Beginning fiscal year balance$45,541 $48,214 
Additions (reductions) to tax receivable agreement:
Adjustment for change in estimated tax rate 1,025 
Payments under tax receivable agreement (3,698)
45,541 45,541 
Less: current portion under tax receivable agreement(3,958)(3,958)
Ending balance$41,583 $41,583 
The Tax Receivable Agreement further provides that, upon certain mergers, asset sales or other forms of business combinations or other changes of control, the Company (or its successor) would owe to the pre-IPO owners of the LLC a lump-sum payment equal to the present value of all forecasted future payments that would have otherwise been made under the Tax Receivable Agreement that would be based on certain assumptions, including a deemed exchange of LLC Units and that the Company would have sufficient taxable income to fully utilize the deductions arising from the increased tax basis and other tax benefits related to entering into the Tax Receivable Agreement. The Company also is entitled to terminate the Tax Receivable Agreement, which, if terminated, would obligate the Company to make early termination payments to the pre-IPO owners of the LLC. In addition, a pre-IPO owner may elect to unilaterally terminate the Tax Receivable Agreement with respect to such pre-IPO owner, which would obligate the Company to pay to such existing owner certain payments for tax benefits received through the taxable year of the election.
When estimating the expected tax rate to use in order to determine the tax benefit expected to be recognized from the Company’s increased tax basis as a result of exchanges of LLC Units by the pre-IPO owners of the LLC, the Company continuously monitors changes in its overall tax posture, including changes resulting from new legislation and changes as a result of new jurisdictions in which the Company is subject to tax.
As of September 30, 2022 and June 30, 2022, the Company recorded deferred tax assets of $115,952 associated with basis differences in assets upon acquiring an interest in the LLC and pursuant to making an election under Section 754 of the Internal Revenue Code of 1986 (the "Internal Revenue Code"), as amended. The aggregate Tax Receivable Agreement liability represents 85% of the tax benefits that the Company expects to receive in connection with the Section 754 election. In accordance with the Tax Receivable Agreement, the next annual payment is anticipated approximately 75 days after filing the federal tax return due by April 15, 2023.
12. Income Taxes
The Company is taxed as a C corporation for U.S. income tax purposes and is therefore subject to both federal and state taxation at a corporate level. The LLC continues to operate in the United States as a partnership for U.S. federal income tax purposes. Maverick Boat Group is separately subject to U.S. federal and state income tax with respect to its net taxable income.
Income taxes are computed in accordance with ASC Topic 740, Income Taxes, and reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. The Company has deferred tax assets and liabilities and maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized. To the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, such deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this determination is made.
As of September 30, 2022 and June 30, 2022, the Company maintained a total valuation allowance of $15,713 and $15,663, respectively, against deferred tax assets related to state net operating losses and future amortization deductions (with respect to the Section 754 election) that are reported in the Tennessee corporate tax return without offsetting income, which is taxable at the LLC. These also include a valuation allowance in the amount of $580 related to foreign tax credit carryforward that is not expected to be utilized in the future.
The Company’s consolidated interim effective tax rate is based upon expected annual income from operations, statutory tax rates and tax laws in the various jurisdictions in which the Company operates. Significant or unusual items, including those related to the change in U.S. tax law as well as other adjustments to accruals for tax uncertainties, are recognized in the quarter in which the related event occurs. On August 16, 2022, the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was signed into law. The Inflation Reduction Act contains significant business tax provisions, including an excise tax on stock
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buybacks (1% for transactions beginning January 1, 2023), increased funding for IRS tax enforcement, expanded energy incentives promoting clean energy investment, and a 15% corporate minimum tax on certain large corporations. The effects of the new legislation are recognized upon enactment. The Company did not recognize any significant impact to income tax expense for the three months ended September 30, 2022 relating to the Inflation Reduction Act.
For the three months ended September 30, 2022 and 2021, the Company's effective tax rate was 23.4% and 22.4%, respectively. For the three months ended September 30, 2022 and 2021, the Company's effective tax rate exceeded the statutory federal income tax rate of 21% primarily due to the impact of U.S. state taxes. For the three months ended September 30, 2022, this increase in tax rate was partially offset by a windfall benefit generated by certain stock-based compensation as well as the benefit of the foreign derived intangible income deduction. For the three months ended September 30, 2021, this increase in tax rate was partially offset by the benefits from the foreign derived intangible income deduction, the research and development tax credit, and the impact of non-controlling interests in the LLC.
13. Stock-Based Compensation
The Company adopted a long term incentive plan which became effective on January 1, 2014, and reserves for issuance up to 1,700,000 shares of Malibu Boats, Inc. Class A Common Stock for the Company’s employees, consultants, members of its board of directors and other independent contractors at the discretion of the compensation committee. Incentive stock awards authorized under the Incentive Plan include unrestricted shares of Class A Common Stock, stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent awards and performance awards. As of September 30, 2022, 492,959 shares remain available for future issuance under the long term incentive plan.
The following is a summary of the changes in the Company's stock options for the three months ended September 30, 2022:
SharesWeighted-Average Exercise Price/Share
Total outstanding options as of June 30, 2022
49,223 $40.46 
Options granted  
Options exercised  
Outstanding options as of September 30, 2022
49,223 40.46 
Exercisable as of September 30, 2022
44,230 $40.79 
The following is a summary of the changes in non-vested restricted stock units and restricted stock awards for the three months ended September 30, 2022:
Number of Restricted Stock Units and Restricted Stock Awards OutstandingWeighted-Average Grant Date Fair Value
Total Non-vested Restricted Stock Units and Restricted Stock Awards as of June 30, 2022
369,649 $55.75 
Granted1,271 52.71 
Vested(41,243)41.21 
Forfeited(957)54.19 
Total Non-vested Restricted Stock Units and Restricted Stock Awards as of September 30, 2022
328,720 $57.56 
Stock compensation expense attributable to the Company's share-based equity awards was $1,635 and $1,258 for the three months ended September 30, 2022 and 2021, respectively. Stock compensation expense attributed to share-based equity awards issued under the Incentive Plan is recognized on a straight-line basis over the terms of the respective awards and is included in general and administrative expense in the Company's unaudited interim condensed consolidated statements of operations and comprehensive income. Awards vesting during the three months ended September 30, 2022 include 1,271 fully vested restricted stock units issued to non-employee directors for their service as directors for the Company.
14. Net Earnings Per Share
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Basic net income per share of Class A Common Stock is computed by dividing net income attributable to the Company's earnings by the weighted-average number of shares of Class A Common Stock outstanding during the period. The weighted-average number of shares of Class A Common Stock outstanding used in computing basic net income per share includes fully vested restricted stock units awarded to directors that are entitled to participate in distributions to common stockholders through receipt of additional units of equivalent value to the dividends paid to Class A Common Stock holders.
Diluted net income per share of Class A Common Stock is computed similarly to basic net income per share except the weighted-average shares outstanding are increased to include additional shares from the assumed exercise of any common stock equivalents using the treasury method, if dilutive. The Company's LLC Units and non-qualified stock options are considered common stock equivalents for this purpose. The number of additional shares of Class A Common Stock related to these common stock equivalents and stock options are calculated using the treasury stock method.
Stock awards with a performance condition that are based on the attainment of a specified amount of earnings are only included in the computation of diluted earnings per share to the extent that the performance condition would be achieved based on the current amount of earnings, and only if the effect would be dilutive.
Stock awards with a market condition that are based on the performance of the Company's stock price in relation to a market index over a specified time period are only included in the computation of diluted earnings per share to the extent that the shares would be issued based on the current market price of the Company's stock in relation to the market index, and only if the effect would be dilutive.
Basic and diluted net income per share of Class A Common Stock has been computed as follows (in thousands, except share and per share amounts):