MASTERCRAFT BOAT HOLDINGS, INC. DISCUSSION AND ANALYSIS OF MANAGEMENT’S FINANCIAL POSITION AND RESULTS. (Form 10-Q)

The following discussion and analysis should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. In addition, the statements in this discussion and analysis regarding our expectations regarding the performance of our business, anticipated financial results, liquidity and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks and uncertainties described above under “Cautionary Note Regarding Forward-Looking Statements” and in our 2022 Annual Report under “Risk Factors” Form 10-K. Our actual results could differ materially from those contained or implied in any forward-looking statements.

Certain statements in the following discussion 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 condition, or cash flows that excludes amounts, or is subject to adjustments that cause the exclusion of amounts that are most directly included in the comparable measure calculated and presented in Accordance with US GAAP on the issuer’s income statement, balance sheet or statement of cash flows; or includes, or is subject to adjustments to, amounts that result in including amounts that are excluded from the most directly comparable measure so calculated and presented. Non-GAAP financial measures exclude operational and statistical measures. The Company includes non-GAAP financial measures in management’s discussion and analysis because the Company’s management believes those measures and the information they provide are useful to users of the financial statements, including investors, because they: Allow users of the financial statements to better evaluate the company’s performance using the same tools that management uses and to better evaluate the company’s ongoing business performance. To better align the Company’s reported results with internal measures used by management to evaluate business performance and to allow for better comparisons with prior periods and peer data, non-GAAP measures include the impact of business-related amortization of the purchase account from acquisitions.

Discontinued Operations

On September 2, 2022, the company completed the sale of its NauticStar business. This business, previously reported as the Company’s NauticStar segment, is reported as discontinued operations for all periods presented. The Company’s results for all periods presented, as discussed in management’s discussion and analysis, are presented on a continuing operations basis, with prior year amounts recalculated to ensure visibility and comparability. See Note 3 in Notes to the Unaudited Condensed Consolidated Financial Statements for more information on discontinued operations.

overview

All segments contributed to the strong performance, reporting significant net sales and improved profitability despite ongoing supply chain disruptions and macroeconomic volatility. Net sales increased $38.9 million, or 29.7 percent, compared to the same period last year. Gross margin increased 370 basis points on higher net sales and improved manufacturing efficiencies. The increase was partially offset by higher costs due to inflationary pressures. In addition, incentive costs for dealers rose as dealer pipeline inventories return to healthier levels after historically low inventories as a result of the COVID-19 pandemic. In addition, the incentive costs for dealers increased due to higher interest rates, which affected the cost of financing the floor plan.

outlook

Our sales are affected by general economic conditions, which affect demand for our products, optional features, availability and cost of credit to our dealer and retail customers, and general consumer confidence. While the shipping industry benefited from changes in consumer preferences accelerated by the COVID-19 pandemic in fiscal years 2021 and 2022, macroeconomic headwinds could adversely impact our financial results in fiscal year 2023. However, as retail trends continue to evolve, we believe our highly flexible business model will allow us to mitigate any downward pressure for fiscal 2023.

We will continue to actively monitor the impact of general economic conditions, supply chain disruptions, macroeconomic volatility, inflation and other evolving factors on our business. However, the full extent of the impact on our business, operations and financial results cannot be predicted. See Part I. Item 1A. Risk factors listed in our 2022 Annual Report on Form 10-K.

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