MALIBU BOATS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited interim condensed consolidated financial statements and notes thereto
included herein.
Malibu Boats, Inc. is a Delaware corporation with its principal offices in
Loudon, Tennessee . We use the terms "Malibu," the "Company," "we," "us," "our"
or similar references to refer to Malibu Boats, Inc. , its subsidiary, Malibu
Boats Holdings, LLC , or the LLC, and its subsidiary Malibu Boats, LLC , or Boats,
LLC and its consolidated subsidiaries, including Cobalt Boats, LLC , PB Holdco,
LLC , through which we acquired the assets of Pursuit, and MBG Holdco, Inc. ,
through which we acquired all of the outstanding stock of Maverick Boat Group,
Inc.
Overview
We are a leading designer, manufacturer and marketer of a diverse range of
recreational powerboats, including performance sport boats, sterndrive and
outboard boats. Our product portfolio of premium brands are used for a broad
range of recreational boating activities including, among others, water sports,
general recreational boating and fishing. Our passion for consistent innovation,
which has led to propriety technology such as Surf Gate, has allowed us to
expand the market for our products by introducing consumers to new and exciting
recreational activities. We design products that appeal to an expanding range of
recreational boaters and water sports enthusiasts whose passion for boating and
water sports is a key component of their active lifestyle and provide consumers
with a better customer-inspired experience. With performance, quality, value and
multi-purpose features, our product portfolio has us well positioned to broaden
our addressable market and achieve our goal of increasing our market share in
the expanding recreational boating industry.
We currently sell our boats under eight brands-(Malibu; Axis; Pursuit; Maverick;
Cobia; Pathfinder; Hewes; and Cobalt), and we report our results of operations
under three reportable segments, (Malibu, Saltwater Fishing and Cobalt), as
shown in the table below. See Note 17 to our unaudited interim condensed
consolidated financial statements for more information about our reporting
segments.
% of Total Revenues
Three
Months Ended Fiscal year ended
Segment Brands September 30, 2021 2021
Malibu Malibu 46.6% 52.2%
Axis
Pursuit
Maverick
Saltwater Fishing Cobia 30.3% 26.2%
Pathfinder
Hewes
Cobalt Cobalt 23.1% 21.6%
Our Malibu segment participates in the manufacturing, distribution, marketing
and sale throughout the world of Malibu and Axis performance sports boats. Our
flagship Malibu boats offer our latest innovations in performance, comfort and
convenience, and are designed for consumers seeking a premium performance sport
boat experience. We are the market leader in the United States in the
performance sport boat category through our Malibu and Axis Wake Research boat
brands. Our Axis boats appeal to consumers who desire a more affordable
performance sport boat product but still demand high performance, functional
simplicity and the option to upgrade key features. Retail prices of our Malibu
and Axis boats typically range from $65,000 to $215,000 .
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Our Saltwater Fishing segment participates in the manufacturing, distribution,
marketing and sale throughout the world of Pursuit boats and the Maverick Boat
Group family of boats (Maverick, Cobia, Pathfinder and Hewes). Our Pursuit boats
expand our product offerings into the saltwater outboard fishing market and
include center console, dual console and offshore models. We recently acquired
Maverick Boat Group and added Maverick, Cobia, Pathfinder and Hewes to our
brands. Our Maverick Boat Group family of boats are highly complementary to
Pursuit, expanding our saltwater outboard offerings with a strong focus in
length segments under 30 feet. We are among the market leaders in the fiberglass
outboard fishing boat category with the brands in our Saltwater Fishing segment.
Retail prices for our Saltwater Fishing boats typically range from $45,000 to
$1,200,000 .
Our Cobalt segment participates in the manufacturing, distribution, marketing
and sale throughout the world of Cobalt boats. Our Cobalt boats consist of mid
to large-sized luxury cruisers and bowriders that we believe offer the ultimate
experience in comfort, performance and quality. We are the market leader in the
United States in the 20' - 40' segment of the sterndrive boat category through
our Cobalt brand. Retail prices for our Cobalt boats typically range from
$65,000 to $500,000 .
We sell our boats through a dealer network that we believe is the strongest in
the recreational powerboat category. As of July 1, 2021 , our worldwide
distribution channel consisted of over 400 dealer locations globally. Our dealer
base is an important part of our consumers' experience, our marketing efforts
and our brands. We devote significant time and resources to find, develop and
improve the performance of our dealers and believe our dealer network gives us a
distinct competitive advantage.
Our operations have continued to be impacted by a variety of external factors.
The COVID-19 pandemic has impacted our operations and financial results since
the third quarter of fiscal year 2020 and continues to have an impact on us. We
elected to suspend operations at all of our facilities from March 2020 until
late April and early May 2020 , depending on the facility. As a result, we were
not able to ship boats to our dealers during the period of shut- down, which
negatively impacted our net sales for the second half of fiscal year 2020.
During the first half of fiscal 2021, we constrained our production levels in an
attempt to allow our supply chain to more fully recover from the impacts of
COVID-19 in preparation of higher wholesale manufacturing volumes that we
planned for the second half of fiscal 2021. While our net sales for fiscal year
2021 were impacted by our lower production levels, retail sales improved during
fiscal year 2021 as consumers turned to boating as a form of outdoor, socially
distanced recreation during the COVID-19 pandemic. The increase in retail sales
during fiscal year 2021 combined with our lower wholesale shipment levels during
the second half of fiscal year 2020 and constrained production in the first half
of fiscal year 2021 has resulted in lower inventory levels at our dealers.
Additionally, we experienced an increase in supply chain disruptions during our
first quarter that we believe were driven by numerous factors, including labor
shortages, ongoing domestic logistical constraints, West Coast port challenges
and rising prices to our suppliers, in part due to inflationary pressures. Such
supply chain disruptions along with increased costs for raw materials, shipping
and labor, are having industry-wide impacts affecting us and our suppliers,
dealers and customers.
The future impact of COVID-19, ongoing supply chain disruptions and increases in
costs on our financial condition and results of operations, however, will depend
on a number of factors, including factors that we may not be able to forecast at
this time. See the risk factors around COVID-19 impact, supply chain disruptions
and increases in costs under Part I. Item 1A. on our Form 10- K for the year
ended June 30, 2021 .
On a consolidated basis, we achieved first quarter fiscal 2022 net sales, gross
profit, net income and adjusted EBITDA of $253.5 million , $59.8 million , $27.9
million and $44.7 million , respectively, compared to $181.0 million , $45.7
million , $22.0 million and $36.3 million , respectively, for the first quarter of
fiscal 2021. For the first quarter of fiscal 2022, net sales increased 40.1%,
gross profit increased 30.6%, net income increased 26.7% and adjusted EBITDA
increased 23.1% as compared to the first quarter of fiscal 2021. For the
definition of adjusted EBITDA and a reconciliation to net income, see "GAAP
Reconciliation of Non-GAAP Financial Measures."
Outlook
Industry-wide marine retail registrations continue to recover from the years
following the global financial crisis. According to Statistical Surveys, Inc. ,
domestic retail registration volumes of performance sport boats, fiberglass
sterndrive and fiberglass outboards increased at a compound annual growth rate
of approximately 5.8% between 2011 and 2020, for the 50 reporting states. Within
the recreational powerboat categories, the performance sport boats category,
which we primarily serve with our Malibu and Axis brands, has produced a
double-digit compound annual growth rate between 2011 and 2020. Outboard boats
and fiberglass sterndrive boats have seen their combined market grow at a 5.0%
compound annual growth rate between 2011 and 2020. This combined growth has been
driven primarily by the outboard market. We target the outboard market with our
Pursuit, Cobia, Pathfinder, Maverick and Hewes brands, as well as our Cobalt
brand, which is a new entrant to the outboard market, and we plan to
meaningfully expand our share of the fiberglass outboard category in the future.
We cater to the sterndrive market through our Cobalt brand. While the market for
sterndrive propulsion, particularly in lower foot length
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products, has been challenged, Cobalt's performance continues to be helped by
the higher foot length product market it serves, which has grown and through
gains in market share by Cobalt. While retail growth in powerboats was
negatively impacted by weak retail sales in March and April 2020 due to
COVID-19, domestic retail demand growth for powerboats accelerated during
calendar year 2020, in part because consumers turned to boating as a form of
outdoor, socially distanced recreation during the COVID-19 pandemic. Despite the
impact of COVID-19 early in 2020, the increased demand during 2020 was broad
based across recreational powerboat categories. Year-over-year domestic retail
growth rates for 2020 in the performance sport boat, fiberglass outboard and
sterndrive segments were approximately 22%, 10% and 9%, respectively. The first
half of 2021 saw continued strong year-over-year retail growth, however, in May
2021 , we saw lower growth and in certain markets year-over-year decreases in
retail registrations driven by the lack of available inventory at our dealers
and the high growth in those months during 2020. Retail registration activity
declined meaningfully during the third calendar quarter of 2021 versus the
comparable period in 2020 given the limited available inventory and the strong
sales activity and resulting destocking in 2020 and the first half of 2021. We
believe that despite recent retail registration declines, retail activity at our
dealers continues to be strong and but for a lack of inventory would be
meaningfully higher.
The combination of continued strong retail market activity through 2020 and into
early 2021 and supply chain disruptions we have experienced in 2021 have
depleted our current inventory levels at our dealers below prior year levels.
Operational challenges and supply chain constraints created by severe winter
weather delayed our ability to add to depleted inventory levels in the second
half of fiscal 2021, and we experienced increased challenges with our supply
chain in the first quarter of fiscal 2022 that we believe will continue to
challenge our ability to meet our wholesale production goals for fiscal 2022. As
a result of these lower dealer inventory levels and lower wholesale production
volumes, we expect to see meaningful wholesale demand to restock our dealer
inventories through the remainder of fiscal year 2022 and beyond. We expect
lower dealer inventory levels will support our wholesale shipments and financial
performance through fiscal year 2022. We believe that strength is likely to
continue into fiscal year 2023. The duration of our dealer restocking demand may
be extended by our suppliers' ability to increase production to match our
desired wholesale production targets.
We experienced an increase in supply chain disruptions during our first quarter
that we believe were driven by numerous factors, including labor shortages,
ongoing domestic logistical constraints, West Coast port challenges and rising
prices to our suppliers, in part due to inflationary pressures. The length and
duration of these challenges is unknown and they may meaningfully impact our
ability to restock our dealers inventories in a timely manner. We anticipate raw
material, components and transportation costs will remain at inflated levels
through at least the remainder of the calendar year, and, to combat this, we
have announced price increases across all brands that take effect on December 1,
2021 . These higher prices could negatively impact retail demand, but we believe
will not impact our wholesale shipments in fiscal 2022. Numerous other variables
also have the potential to impact our volumes, both positively and negatively.
For example, we believe a substantial increase or decrease in the price of oil,
strength or weakness of the U.S. dollar and tariffs can result in greater or
reduced demand for our boats in certain markets. To date, growth in our domestic
market has offset the significantly diminished demand from economies that are
driven by the oil industry and international markets. Consumer confidence,
expanded or eroded, is a variable that can also impact demand for our products
in both directions. Other challenges that could impact demand for recreational
powerboats include higher interest rates reducing retail consumer appetite for
our product, the availability of credit to our dealers and retail consumers,
fuel costs, a meaningful reduction in the value of global or domestic equity
markets, the continued acceptance of our new products in the recreational
boating market, our ability to compete in the competitive power boating
industry, and the costs of labor and certain of our raw materials and key
components.
Since 2008, we have increased our market share among manufacturers of
performance sport boats with new product development, improved distribution, new
models, and innovative features. Our market remains highly competitive however
and our competitors have become more aggressive in their product introductions,
increased their distribution and launched surf systems competitive with our
patented Surf Gate system. Notwithstanding this increasingly competitive
environment, we expanded our market share lead in 2019 in the performance sport
boats category over our nearest competitors. However, we believe decreased
dealer inventory levels driven by strong retail growth in the second half of
2020 led to a reduction in our market share for 2020; however, we continue to
maintain the leading market share in the performance sport boat category. In
addition, we continue to be the market share leader in both the premium and
value-oriented product sub- categories for performance sports boats, we continue
to maintain the number one market share position in the United States for the
24'-29' segment of the sterndrive boat category, and we have the number two
market share position in the outboard fiberglass fishing market. Our ability to
continue to increase inventory levels at our dealers will be important to
maintain and grow our market share across our brands. We believe our new product
pipeline, strong dealer network and ability to increase production will allow us
to maintain and potentially expand our industry leading market position in
performance sports boats.
We believe that our track record of expanding our market share with our Malibu
and Axis brands due to new product development, improved distribution, new
models, and innovative features is directly transferable to our Cobalt, Pursuit
and Maverick Boat Group acquisitions. We have seen the impact of this strategy
at Cobalt as we have realized consistent and growing market share with the
introduction of nine new products in the last fifteen months. While Cobalt,
Pursuit and the
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Maverick Boat Group brands are market leaders in certain areas, we believe our
experience positions us to execute a strategy to drive enhanced share by
expanding the Cobalt, Pursuit and Maverick Boat Group product offerings with
different foot lengths, different boat types and different propulsion
technologies. Our new product development efforts at Pursuit and Maverick Boat
Group will take time and our ability to influence near-term model introductions
is limited, but we have already begun to execute on this strategy. With respect
to Cobalt, we introduced six new models of boats during fiscal year 2021 and we
have included Splash and Stow and a new electronic flip down Swim Step for model
year 2021 boats. For the Pursuit brand, our focus has been on expanding the
award-winning Dual Console, Sport and Offshore product offerings that continue
to combine innovative features and dependable performance in refined designs
that accommodate a broad array of activities on the water, including the
Electric Sliding Entertainment Center on the new S 378. Our newest acquisition,
Maverick Boat Group , is in the very early stages of integration into the
business and meaningful product and innovation changes will be developed for
coming years. We believe enhancing new product development combined with
diligent management of the Cobalt, Pursuit and Maverick Boat Group dealer
networks will position us to meaningfully improve our share of the sterndrive
and outboard markets over time.
Factors Affecting Our Results of Operations
We believe that our results of operations and our growth prospects are affected
by a number of factors, such as the economic environment and consumer demand for
our products, our ability to develop new products and innovate, our product mix,
our ability to manage manufacturing costs, sales cycles and inventory levels,
the strength of our dealer network, our ability to offer dealer financing and
incentives and our vertical integration efforts. We discuss each of these
factors in more detail under the heading "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting Our
Results of Operations" in our Form 10-K for the year ended June 30, 2021 . While
we do not have control of all factors affecting our results from operations, we
work diligently to influence and manage those factors which we can impact to
enhance our results of operations.
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Components of Results of Operations
Net Sales
We generate revenue from the sale of boats to our dealers. The substantial
majority of our net sales are derived from the sale of boats, including optional
features included at the time of the initial wholesale purchase of the boat. Net
sales consists of the following:
•Gross sales from:
•Boat and trailer sales-consists of sales of boats and trailers to our dealer
network. Nearly all of our boat sales include optional feature upgrades
purchased by the consumer, which increase the average selling price of our
boats; and
•Parts and other sales-consists of sales of replacement and aftermarket boat
parts and accessories to our dealer network; and consists of royalty income
earned from license agreements with various boat manufacturers, including
Nautique, Chaparral, Mastercraft, and Tige related to the use of our
intellectual property.
•Net sales are net of:
•Sales returns-consists primarily of contractual repurchases of boats either
repossessed by the floor plan financing provider from the dealer or returned by
the dealer under our warranty program; and
•Rebates and free flooring-consists of incentives, rebates and free flooring, we
provide to our dealers based on sales of eligible products. For our Malibu and
Cobalt segments, if a domestic dealer meets its monthly or quarterly commitment
volume, as well as other terms of the dealer performance program, the dealer is
entitled to a specified rebate. For our Saltwater Fishing segment, if a dealer
meets its quarterly or annual retail volume goals, the dealer is entitled to a
specific rebate applied to their wholesale volume purchased. For Malibu, Cobalt
and select Saltwater Fishing models, our dealers that take delivery of current
model year boats in the offseason, typically July through April in the U.S. , are
also entitled to have us pay the interest to floor the boat until the earlier of
(1) the sale of the unit or (2) a date near the end of the current model year,
which incentive we refer to as "free flooring." From time to time, we may extend
the flooring program to eligible models beyond the offseason period.
Cost of Sales
Our cost of sales includes all of the costs to manufacture our products,
including raw materials, components, supplies, direct labor and factory
overhead. For components and accessories manufactured by third-party vendors,
such costs represent the amounts invoiced by the vendors. Shipping costs and
depreciation expense related to manufacturing equipment and facilities are also
included in cost of sales. Warranty costs associated with the repair or
replacement of our boats under warranty are also included in cost of sales.
Operating Expenses
Our operating expenses include selling and marketing, general and administrative
and amortization costs. Each of these items includes personnel and related
expenses, supplies, non-manufacturing overhead, third-party professional fees
and various other operating expenses. Further, selling and marketing
expenditures include the cost of advertising and various promotional sales
incentive programs. General and administrative expenses include, among other
things, salaries, benefits and other personnel related expenses for employees
engaged in product development, engineering, finance, information technology,
human resources and executive management. Other costs include outside legal and
accounting fees, investor relations, risk management (insurance) and other
administrative costs. General and administrative expenses also include product
development expenses associated with our engines vertical integration initiative
and acquisition or integration related expenses. Amortization expenses are
associated with the amortization of intangibles.
Other (Income) Expense, Net
Other (income) expense, net consists of interest expense and other income or
expense, net. Interest expense consists of interest charged under our
outstanding debt and amortization of deferred financing costs on our credit
facilities. Other income or expense includes adjustments to our tax receivable
agreement liability.
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Income Taxes
Malibu Boats, Inc. is subject to U.S. federal and state income tax in multiple
jurisdictions with respect to our allocable share of any net taxable income of
the LLC. The LLC is a pass-through entity for federal purposes but incurs income
tax in certain state jurisdictions. Maverick Boat Group is separately subject to
U.S. federal and state income tax with respect to its net taxable income.
Net Income Attributable to Non-controlling Interest
As of September 30, 2021 and 2020, we had a 97.2% and 96.7% controlling economic
interest, respectively, and 100% voting interest in the LLC and, therefore, we
consolidate the LLC's operating results for financial statement purposes. Net
income attributable to non-controlling interest represents the portion of net
income attributable to the non-controlling LLC members.
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Results of Operations
The table below sets forth our unaudited interim consolidated results of
operations, expressed in thousands (except unit volume and net sales per unit)
and as a percentage of net sales, for the periods presented. Our unaudited
interim consolidated financial results for these periods are not necessarily
indicative of the consolidated financial results that we will achieve in future
periods. Certain totals for the table below will not sum to exactly 100% due to
rounding.
Three Months Ended
2021 2020
$ % Revenue $ % Revenue
Net sales 253,497 100.0 % 180,984 100.0 %
Cost of sales 193,745 76.4 % 135,243 74.7 %
Gross profit 59,752 23.6 % 45,741 25.3 %
Operating expenses:
Selling and marketing 5,117 2.0 % 3,612 2.0 %
General and administrative 16,091 6.4 % 11,654 6.5 %
Amortization 1,856 0.7 % 1,524 0.8 %
Operating income 36,688 14.5 % 28,951 16.0 %
Other expense, net:
Other income, net (13) - % (10) - %
Interest expense 684 0.3 % 556 0.3 %
Other expense, net 671 0.3 % 546 0.3 %
Income before provision for income taxes 36,017 14.2 % 28,405 15.7 %
Provision for income taxes 8,084 3.2 % 6,367 3.5 %
Net income 27,933 11.0 % 22,038 12.2 %
Net income attributable to
non-controlling interest 989 0.4 % 945 0.5 %
Net income attributable to Malibu Boats,
Inc. 26,944 10.6 % 21,093 11.7 %
Three Months Ended
2021 2020
Unit Volumes % Total Unit Volumes % Total
Volume by Segment
Malibu 1,059 52.3 % 1,031 63.1 %
Saltwater Fishing 485 24.0 % 146 8.9 %
Cobalt 480 23.7 % 458 28.0 %
Total units 2,024 100.0 % 1,635 100.0 %
Net sales per unit $ 125,246 $ 110,694
Comparison of the Three Months Ended September 30, 2021 to the Three Months
Ended September 30, 2020
Net Sales
Net sales for the three months ended September 30, 2021 increased $72.5 million ,
or 40.1%, to $253.5 million as compared to the three months ended September 30,
2020 . The increase in net sales was driven primarily by a favorable model mix in
our Malibu and Cobalt segments, year over year price increases and increased
unit volumes primarily due to the acquisition of Maverick Boat Group on December
31, 2020 . We recognized an increase in net sales and unit volumes across all
three segments during the three months ended September 30, 2021 . Unit volume for
the three months ended September 30, 2021 ,
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increased 389 units, or 23.8%, to 2,024 units as compared to the three months
ended September 30, 2020 . Our unit volume increased primarily due to the
acquisition of Maverick Boat Group on December 31, 2020 .
Net sales attributable to our Malibu segment increased $18.4 million , or 18.5%,
to $118.3 million for the three months ended September 30, 2021 , compared to the
three months ended September 30, 2020 . Unit volumes attributable to our Malibu
segment increased 28 units for the three months ended September 30, 2021 ,
compared to the three months ended September 30, 2020 . The increase in net sales
was driven primarily by a favorable model mix and year over year price
increases.
Net sales attributable to our Saltwater Fishing segment increased $40.1 million ,
or 109.2%, to $76.7 million , for the three months ended September 30, 2021 ,
compared to the three months ended September 30, 2020 . Unit volume increased 339
units for the three months ended September 30, 2021 compared to the three months
ended September 30, 2020 . The increase in net sales was driven primarily by the
acquisition of Maverick Boat Group on December 31, 2020 and year over year price
increases.
Net sales attributable to our Cobalt segment increased $14.0 million , or 31.6%,
to $58.5 million for the three months ended September 30, 2021 , compared to the
three months ended September 30, 2020 . Unit volumes attributable to Cobalt
increased 22 units for the three months ended September 30, 2021 compared to the
three months ended September 30, 2020 . The increase in net sales was driven
primarily by a favorable model mix and year over year price increases.
Overall consolidated net sales per unit increased 13.1% to $125,246 per unit for
the three months ended September 30, 2021 , compared to the three months ended
September 30, 2020 . Net sales per unit for our Malibu segment increased 15.3% to
$111,664 per unit for the three months ended September 30, 2021 , compared to the
three months ended September 30, 2020 , driven primarily by a favorable model mix
and year over year price increases. Net sales per unit for our Saltwater Fishing
segment decreased 37.0% to $158,200 per unit for the three months ended
September 30, 2021 driven primarily by mix of models due mostly to the inclusion
of lower priced models from our acquisition of Maverick Boat Group on December
31, 2020 , partially offset by year over year price increases. Net sales per unit
for our Cobalt segment increased 25.5% to $121,913 per unit for the three months
ended September 30, 2021 , compared to the three months ended September 30, 2020 ,
driven primarily by a favorable model mix and year over year price increases.
Cost of Sales
Cost of sales for the three months ended September 30, 2021 increased $58.5
million , or 43.3%, to $193.7 million as compared to the three months ended
September 30, 2020 . The increase in cost of sales was driven by higher costs
related to higher net sales in all our segments, increased prices due to limited
supply from supply chain disruptions and inflationary pressures that have
increased prices on parts and components (as discussed above in "Outlook"). In
the Malibu segment, higher per unit material and labor costs contributed $10.9
million to the increase in cost of sales and were driven by an increased mix of
larger product that corresponded with higher net sales per unit. Within our
Saltwater Fishing segment, higher volumes, primarily related to the acquisition
of Maverick Boat Group , drove $29.9 million of increase in cost of sales which
was also modestly impacted by higher per unit costs. In the Cobalt segment,
higher per unit material and labor costs contributed $9.7 million to the
increase in cost of sales and were driven by an increased mix of larger product
that corresponded with higher net sales per unit.
Gross Profit
Gross profit for the three months ended September 30, 2021 increased $14.0
million , or 30.6%, to $59.8 million compared to the three months ended
September 30, 2020 . The increase in gross profit was driven primarily by higher
sales revenue partially offset by the increased cost of sales for the reasons
noted above. Gross margin for the three months ended September 30, 2021
decreased 170 basis points from 25.3% to 23.6% driven primarily by mix of models
due mostly to the inclusion of lower priced models from the Maverick Boat Group ,
which we acquired on December 31, 2020 .
Operating Expenses
Selling and marketing expenses for the three months ended September 30, 2021
increased $1.5 million , or 41.7% to $5.1 million compared to the three months
ended September 30, 2020 . The increase was driven primarily by incremental
selling and marketing expenses from the acquisition of Maverick Boat Group and
by increased travel and promotional events that have since resumed in the three
months ended September 30, 2021 after being suspended for COVID-19 during the
three months ended September 30, 2020 . As a percentage of sales, selling and
marketing expenses remained flat compared to the same period in the prior fiscal
year. General and administrative expenses for the three months ended
September 30, 2021 increased $4.4 million , or 38.1%, to $16.1 million as
compared to the three months ended September 30, 2020 driven primarily by an
increase in compensation and personnel related expenses, travel related
expenses, information technology infrastructure expenses and incremental general
and administrative expenses due to the acquisition of Maverick Boat Group offset
by lower professional
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fees. As a percentage of sales, general and administrative expenses decreased 10
basis points to 6.4% for the three months ended September 30, 2021 compared to
6.5% for the three months ended September 30, 2020 . Amortization expense for the
three months ended September 30, 2021 increased $0.3 million , or 21.8% to $1.9
million compared to the three months ended September 30, 2020 . The increase is
due to amortization of intangibles acquired as part of the acquisition of
Maverick Boat Group on December 31, 2020 .
Other Expense, Net
Other expense, net for the three months ended September 30, 2021 increased by
$0.1 million , or 22.9% to expense of $0.7 million , compared to $0.6 million for
the three months ended September 30, 2020 . The increase in other expense
resulted primarily from increased interest expense due higher average
outstanding debt during the three months ended September 30, 2021 compared to
the three months ended September 30, 2020 .
Provision for Income Taxes
Our provision for income taxes for the three months ended September 30, 2021 ,
increased $1.7 million , or 27.0%, to $8.1 million compared to the three months
ended September 30, 2020 . The increase primarily resulted from increased pre-tax
earnings. For the three months ended September 30, 2021 and 2020, our effective
tax rate on each date of 22.4% exceeded the statutory federal income tax rate of
21% primarily due to the impact of U.S. state taxes. This increase in tax rate
was partially offset by the benefits of the foreign derived intangible income
deduction, the research and development tax credit, and the impact of
non-controlling interests in the LLC.
Non-controlling Interest
Non-controlling interest represents the ownership interests of the members of
the LLC other than us and the amount recorded as non-controlling interest in our
unaudited interim condensed consolidated statements of operations and
comprehensive income is computed by multiplying pre-tax income for the
applicable period, by the percentage ownership in the LLC not directly
attributable to us. For the three months ended September 30, 2021 and 2020, the
weighted average non-controlling interest attributable to ownership interests in
the LLC not directly attributable to us was 2.8% and 3.4%, respectively.
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GAAP Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures that
are used by management as well as by investors, commercial bankers, industry
analysts and other users of our financial statements.
We define adjusted EBITDA as net income before interest expense, income taxes,
depreciation, amortization and non-cash, non-recurring or non-operating
expenses, including certain professional fees and non-cash compensation expense.
We define adjusted EBITDA margin as adjusted EBITDA divided by net sales.
Adjusted EBITDA and adjusted EBITDA margin are not measures of net income as
determined by GAAP. Management believes adjusted EBITDA and adjusted EBITDA
margin allow investors to evaluate the Company's operating performance and
compare our results of operations from period to period on a consistent basis by
excluding items that management does not believe are indicative of our core
operating performance. Management uses Adjusted EBITDA to assist in highlighting
trends in our operating results without regard to our financing methods, capital
structure and non-recurring or non-operating expenses. We exclude the items
listed above from net income in arriving at adjusted EBITDA because these
amounts can vary substantially from company to company within our industry
depending upon accounting methods and book values of assets, capital structures,
the methods by which assets were acquired and other factors. Adjusted EBITDA has
limitations as an analytical tool and should not be considered as an alternative
to, or more meaningful than, net income as determined in accordance with GAAP or
as an indicator of our liquidity. Certain items excluded from adjusted EBITDA
are significant components in understanding and assessing a company's financial
performance, such as a company's cost of capital and tax structure, as well as
the historical costs of depreciable assets. Our presentation of adjusted EBITDA
and adjusted EBITDA margin should not be construed as an inference that our
results will be unaffected by unusual or non-recurring items. Our computations
of adjusted EBITDA and adjusted EBITDA margin may not be comparable to other
similarly titled measures of other companies.
The following table sets forth a reconciliation of net income as determined in
accordance with GAAP to adjusted EBITDA and presentation of net income margin
and adjusted EBITDA margin for the periods indicated (dollars in thousands):
Three Months Ended September 30,
2021 2020
Net income $ 27,933 $ 22,038
Provision for income taxes 8,084 6,367
Interest expense 684 556
Depreciation 4,918 3,486
Amortization 1,856 1,524
Professional fees 1 - 1,565
Stock-based compensation expense 2 1,258 811
Adjusted EBITDA $ 44,733 $ 36,347
Net Sales $ 253,497 $ 180,984
Net Income Margin 3 11.0 % 12.2 %
Adjusted EBITDA Margin 3 17.6 % 20.1 %
(1) For the three months ended
related to our litigation with
interim condensed consolidated financial statements included elsewhere in this
Quarterly Report.
(2) Represents equity-based incentives awarded to key employees under the Malibu Boats,
Inc. Long-Term Incentive Plan and profit interests issued under the previously existing
limited liability company agreement of the LLC. For more information, see Note 14
to our unaudited interim condensed consolidated financial statements included elsewhere
in this Quarterly Report.
(3) We calculate net income margin as net income divided by net sales and we define
adjusted EBITDA margin as adjusted EBITDA divided by net sales.
30-------------------------------------------------------------------------------- Table of Contents Adjusted Fully Distributed Net Income We define Adjusted Fully Distributed Net Income as net income attributable toMalibu Boats, Inc. (i) excluding income tax expense, (ii) excluding the effect of non-recurring or non-cash items, (iii) assuming the exchange of all LLC Units into shares of Class A Common Stock, which results in the elimination of non-controlling interest in the LLC, and (iv) reflecting an adjustment for income tax expense on fully distributed net income before income taxes at our estimated effective income tax rate. Adjusted Fully Distributed Net Income is a non-GAAP financial measure because it represents net income attributable toMalibu Boats, Inc. , before non-recurring or non-cash items and the effects of non-controlling interests in the LLC. We use Adjusted Fully Distributed Net Income 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 GAAP, provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. We believe Adjusted Fully Distributed Net Income assists our board of directors, management and investors in comparing our net income on a consistent basis from period to period because it removes non-cash or non-recurring items, and eliminates the variability of non-controlling interest as a result of member owner exchanges of LLC Units into shares of Class A Common Stock. In addition, because Adjusted Fully Distributed Net Income is susceptible to varying calculations, the Adjusted Fully Distributed Net Income measures, as presented in this Quarterly Report, may differ from and may, therefore, not be comparable to similarly titled measures used by other companies. The following table shows the reconciliation of the numerator and denominator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock for the periods presented (in thousands except share and per share data):
Three Months Ended
2021 2020
Reconciliation of numerator for net income available to Class A
Common Stock per share to Adjusted Fully Distributed Net Income
per Share of Class A Common Stock:
Net income attributable to
$ 26,944 $ 21,093
Provision for income taxes 8,084 6,367
Professional fees 1 - 1,565
Acquisition and integration related expenses 2 1,677 1,073
Stock-based compensation expense 3 1,258 811
Net income attributable to non-controlling interest 4 989 945
Fully distributed net income before income taxes 38,952 31,854
Income tax expense on fully distributed income before income taxes 5
9,271 7,518
Adjusted fully distributed net income $
29,681
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Three Months Ended September 30,
2021 2020Reconciliation of denominator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock: Weighted average shares outstanding of Class A Common Stock used for basic net income per share:
20,849,981 20,651,929
Adjustments to weighted average shares of Class A Common Stock: Weighted-average LLC Units held by non-controlling unit holders 6
600,919 714,261
Weighted-average unvested restricted stock awards issued to management 7
224,165 179,048
Adjusted weighted average shares of Class A Common Stock outstanding used in computing Adjusted Fully Distributed Net Income per Share of Class A Common Stock:
21,675,065 21,545,238
The following table shows the reconciliation of net income available to Class A
Common Stock per share to Adjusted Fully Distributed Net Income per Share of
Class A Common Stock for the periods presented:
Three
Months Ended
2021 2020
Net income available to Class A Common Stock per share $ 1.29 $ 1.02
Impact of adjustments:
Provision for income taxes 0.39 0.31
Professional fees 1 - 0.08
Acquisition and integration related expenses 2 0.08 0.05
Stock-based compensation expense 3 0.06 0.04
Net income attributable to non-controlling interest 4 0.05 0.05
Fully distributed net income per share before income taxes 1.87 1.55
Impact of income tax expense on fully distributed income before income taxes 5
(0.44) (0.36)
Impact of increased share count 8 (0.06) (0.06)
Adjusted Fully Distributed Net Income per Share of Class A
Common Stock $ 1.37 $ 1.13
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(1) For the three months ended
related to our litigation with
interim condensed consolidated financial statements included elsewhere in this
Quarterly Report.
(2) For the three months ended
acquired in connection with the acquisitions of
Cobalt. For the three months ended
intangibles acquired in connection with the acquisitions of Pursuit and Cobalt.
(3) Represents equity-based incentives awarded to certain of our employees under the
previously existing limited liability company agreement of the LLC. See Note 14 to
our unaudited interim condensed consolidated financial statements included elsewhere
in this Quarterly Report.
(4) Reflects the elimination of the non-controlling interest in the LLC as if all LLC
members had fully exchanged their LLC Units for shares of Class A Common Stock. (5) Reflects income tax expense at an estimated normalized annual effective income tax
rate of 23.8% and 23.6% of income before income taxes for the three month periods
ended
Units into shares of Class A Common Stock. The estimated normalized annual effective
income tax rate for fiscal year 2022 is based on the federal statutory rate plus a
blended state rate adjusted for the research and development tax credit, the foreign
derived intangible income deduction, and foreign income taxes attributable to our
Australian subsidiary. (6) Represents the weighted average shares outstanding of LLC Units held by
non-controlling interests assuming they were exchanged into Class A Common Stock on a
one-for-one basis. (7) Represents the weighted average unvested restricted stock awards included in
outstanding shares during the applicable period that were convertible into Class A
Common Stock and granted to members of management. (8) Reflects impact of increased share counts assuming the exchange of all weighted
average shares outstanding of LLC Units into shares of Class A Common Stock and the
conversion of all weighted average unvested restricted stock awards included in
outstanding shares granted to members of management.
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Liquidity and Capital Resources
Our primary sources of funds are cash provided by operating activities and
borrowings under our credit agreement. Our primary use of funds has been for
capital investments, repayments under our debt arrangements, acquisitions and
cash payments under our tax receivable agreement. The following table summarizes
the cash flows from operating, investing and financing activities (dollars in
thousands):
Three Months Ended September 30,
2021 2020
Total cash (used in) provided by:
Operating activities $ 23,686 $ 32,762
Investing activities (13,892) (5,432)
Financing activities (21,516) (8,752)
Impact of currency exchange rates on cash balances (257) 73
(Decrease) increase in cash $ (11,979) $ 18,651
Comparison of the Three Months Ended September 30, 2021 to the Three Months
Ended September 30, 2020
Operating Activities
Net cash provided by operating activities was $23.7 million for the three months
ended September 30, 2021 , compared to $32.8 million for the three months ended
September 30, 2020 , a decrease of $9.1 million . The decrease in cash provided by
operating activities primarily resulted from a net decrease in operating assets
and liabilities of $15.6 million related to the timing of collections of
accounts receivables, payments for accruals and payables, and purchases of
inventory offset by an increase of $6.5 million in net income (after
consideration of non-cash items included in net income, primarily related to
depreciation, amortization, deferred tax assets and non-cash compensation).
Investing Activities
Net cash used in investing activities was $13.9 million for the three months
ended September 30, 2021 , compared to $5.4 million for the three months ended
September 30, 2020 , an increase of $8.5 million . The increase in cash used for
investing activities was primarily related to increased capital expenditures
compared to the three months ended September 30, 2020 .
Financing Activities
Net cash used in financing activities was $21.5 million for the three months
ended September 30, 2021 , compared to net cash used by financing activities of
$8.8 million for the three months ended September 30, 2020 , a change of $12.7
million . During the three months ended September 30, 2021 , we repaid $20 million
of borrowings under our revolving credit facility, we repaid $0.3 million on our
term loan, paid $0.5 million on taxes for shares withheld upon the vesting of
restricted stock awards, and paid $0.7 million in distributions to LLC Unit
holders. During the three months ended September 30, 2020 , we repaid $8.8
million of revolving debt and we paid $0.1 million in distributions to LLC unit
holders and $0.1 million on taxes for shares withheld on restricted stock
vestings and we received $0.3 million in proceeds from the exercise of stock
options.
Loans and Commitments
We amended our existing credit agreement on December 30, 2020 in connection with
our acquisition of Maverick Boat Group . As a result of that amendment, we
currently have a revolving credit facility with borrowing capacity of up to
$170.0 million and $99.1 million aggregate principal amount of term loans
outstanding. As of September 30, 2021 , we had $25.0 million outstanding under
our revolving credit facility and $1.3 million in outstanding letters of credit,
with $143.7 million available for borrowing. Our revolving credit facility
matures on July 1, 2024 , our term loan in a principal amount of $25.0 million ,
of which $24.1 million is outstanding as of September 30, 2021 (which we refer
to as the incremental term loan) matures on July 1, 2024 and our term loans in a
principal amount of $75.0 million (which we refer to as the existing term loans,
and together with the incremental term loan, the term loans) mature on July 1,
2022 . The revolving credit facility and term loans are governed by a credit
agreement with Boats LLC as the borrower and Truist Bank , as the administrative
agent, swingline lender and issuing bank. 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 our credit agreement bear interest at a rate equal to either,
at our option, (i) the highest of the prime rate, the Federal Funds Rate plus
0.5%, or one-month LIBOR plus 1% (the "Base Rate") or (ii) LIBOR, in each case
plus an
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applicable margin ranging from 1.25% to 2.25% with respect to LIBOR borrowings
and 0.25% to 1.25% with respect to Base Rate borrowings. The applicable margin
will be based upon the consolidated leverage ratio of the LLC and its
subsidiaries calculated on a consolidated basis. As of September 30, 2021 , the
interest rate on our term loans and revolving credit facility was 1.33%. We are
required to pay a commitment fee for the unused portion of the revolving credit
facility, which will range from 0.20% to 0.40% per annum, depending on the LLC's
and its subsidiaries' consolidated leverage ratio.
The credit agreement permits prepayment of the term loans without any penalties.
The existing term loans require an amortization payment of approximately $3.0
million on March 31, 2022 and the balance of the existing term loans are due on
the scheduled maturity date of July 1, 2022 . The incremental term loan of $25.0
million is subject to quarterly amortization at a rate of 5.0% per year through
December 31, 2022 , 7.5% per year through June 30, 2024 and the balance of the
incremental term loan is due on the scheduled maturity date of July 1, 2024 . The
credit agreement also requires prepayments from the net cash proceeds received
by Boats LLC or any guarantors from certain asset sales and recovery events,
subject to certain reinvestment rights, and from excess cash flow, subject to
the terms and conditions of the credit agreement.
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, including a minimum ratio of EBITDA to fixed charges and a maximum
ratio of total debt to EBITDA. The credit agreement contains certain restrictive
covenants, which, among other things, place limits on certain activities of the
loan parties under the credit agreement, such as the incurrence of additional
indebtedness and additional liens on property and limit the future payment of
dividends or distributions. For example, the credit agreement generally
prohibits the LLC, Boats LLC and the subsidiary guarantors from paying dividends
or making distributions, including to us. 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 $3.0 million in any fiscal year, and (iv)
share repurchase payments up to $35.0 million in any fiscal year subject to
one-year carry forward and compliance with other financial covenants. In
addition, the LLC may make dividends and distributions of up to $10.0 million in
any fiscal year, subject to compliance with other financial covenants.
Potential Impact of LIBOR Transition
The Chief Executive of the U.K. Financial Conduct Authority (the "FCA"), which
regulates the London Interbank Offered Rate, or LIBOR, has announced that the
FCA will no longer persuade or compel banks to submit rates for the calculation
of LIBOR after 2021. However, for U.S dollar LIBOR, the relevant date has been
deferred to at least June 30, 2023 for certain tenors (including overnight and
one, three, six and 12 months), at which time the LIBOR administrator has
indicated that it intends to cease publication of U.S. dollar LIBOR. Despite
this deferral, the LIBOR administrator has advised that no new contracts using
U.S. dollar LIBOR should be entered into after December 31, 2021 . These actions
indicate that the continuation of U.S. LIBOR on the current basis cannot and
will not be guaranteed after June 30, 2023 . Moreover, it is possible that U.S.
LIBOR will be discontinued or modified prior to June 30, 2023 .
All of our $124.1 million of debt outstanding under our credit agreement as of
September 30, 2021 bears interest at a floating rate that uses LIBOR as the
applicable reference rate to calculate the interest. Our credit agreement
provides that, if it is publicly announced that the administrator of LIBOR has
ceased or will cease to provide LIBOR, if it is publicly announced by the
applicable regulatory supervisor that LIBOR is no longer representative or if
either the administrative agent or lenders holding 50% of the aggregate
principal amount of our revolving commitments and term loans elect, we and the
administrative agent may amend our credit agreement to replace LIBOR with an
alternative benchmark rate. This alternative benchmark rate may include a
forward-looking term rate that is based on the secured overnight financing rate,
also known as SOFR, published by the Federal Reserve Bank of New York .
In addition, our tax receivable agreement provides that, if for any reason the
LLC is not able to make a tax distribution in an amount that is sufficient to
make any required payment under the tax receivable agreement or we otherwise
lack sufficient funds, interest would accrue on any unpaid amounts at LIBOR plus
500 basis points until they are paid. Our tax receivable agreement, however,
does not provide for an alternative reference rate to LIBOR and, while we do not
currently anticipate failing to pay any amounts owed under our tax receivable
agreement, it is unclear how we would determine interest on any such amounts
should we fail to pay as required under our tax receivable agreement.
If the rate used to calculate interest on our outstanding floating rate debt
under our credit agreement that currently uses LIBOR were to increase by 1.0%
either as a result of an increase in LIBOR or the result of the use of the
alternative benchmark rate, we would expect to incur additional interest expense
on such indebtedness as of September 30, 2021 of approximately $1.2 million on
an annualized basis. While we do not expect the potential impact of any LIBOR
transition to have a material effect on our financial results based on our
currently outstanding debt, uncertainty as to the nature of potential changes to
LIBOR,
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fallback provisions, alternative reference rates or other reforms could
adversely impact our interest expense on our floating rate debt that currently
uses LIBOR as the applicable reference rate. In addition, any alternative
reference rates to LIBOR may result in interest that does not correlate over
time with the payments that would have been made on our indebtedness if LIBOR
was available in its current form. Further, the discontinuance or modification
of LIBOR and uncertainty of an alternative reference rate may result in the
increase in the cost of future indebtedness, which could have a material adverse
effect on our financial condition, cash flow and results of operations. We
intend to closely monitor the financial markets and the use of fallback
provisions and alternative reference rates in anticipation of the discontinuance
or modification of U.S. LIBOR by June 30, 2023 .
Future Liquidity Needs and Capital Expenditures
Management believes that our existing cash and cash flows from operations will
be sufficient to fund our operations for the next 12 months. We estimate that
approximately $3.8 million will be due under the tax receivable agreement within
the next 12 months. In accordance with the tax receivable agreement, the next
payment is anticipated to occur approximately 75 days after filing the federal
tax return which is due on April 15, 2022 .
Our future capital requirements will depend on many factors, including the
general economic environment in which we operate and our ability to generate
cash flow from operations, which are more uncertain as a result of the COVID-19
pandemic and ongoing supply chain disruptions and the impact on the general
economy. Our liquidity needs during this uncertain time will depend on multiple
factors, including our ability to continue operations and production of boats,
the COVID-19 pandemic's effects on our dealers, suppliers and retail customers,
the availability of sufficient amounts of financing, and our operating
performance.
Stock Repurchase Program
On November 3, 2021 , our Board of Directors authorized a stock repurchase
program to allow for the repurchase of up to $70.0 million of our Class A Common
Stock and the LLC's LLC Units (the "Repurchase Program") for the period from
November 8, 2021 to November 8, 2022 . We intend to fund repurchases under the
Repurchase Program from cash on hand.
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Contractual Obligations and Commitments
As of September 30, 2021 , our continuing contractual obligations were as
follows:
Payments Due by Period
Less than 1 More than 5
Total Year 1-3 Years 3-5 Years Years
Bank debt 1 $ 124,063 $ 76,250 $ 47,813 $ - $ -
Interest expense 2 2,503 1,402 1,101 - -
Operating leases 3 15,274 2,482 5,086 4,511 3,195
Purchase obligations 4 197,494 197,494 - - -
Payments pursuant to tax
receivable agreement 5 48,214 3,773 8,006 8,581 27,854
Total $ 387,548 $ 281,401 $ 62,006 $ 13,092 $ 31,049 (1) Principal payments on our outstanding bank debt per terms of our credit agreement,
which is comprised of a
as of
million was outstanding as of
repayments under our revolving credit facility prior to its maturity. The balance of
outstanding term loans matures on
loan bears interest at variable rates. We have calculated future interest obligations
based on the interest rate as of
liability for all leases with terms greater than 12 months as represented on the
balance sheet respective of maturity. (4) As part of the normal course of business, we enter into purchase orders from a variety
of suppliers, primarily for raw materials, in order to manage our various operating
needs. The orders are expected to be purchased throughout fiscal year 2022 and 2023. (5) Reflects amounts owed under our tax receivables agreement that we entered into with our
pre-IPO owners at the time of our IPO. Under the tax receivables agreement, we pay the
pre-IPO owners (or any permitted assignees) 85% of the amount of cash savings, if any,
in
or in some circumstances are deemed to realize, as a result of an expected increase in
our share of tax basis in LLC's tangible and intangible assets, including increases
attributable to payments made under the tax receivable agreement. These obligations
will not be paid if we do not realize cash tax savings.
Off Balance Sheet Arrangements In connection with our dealers' wholesale floor plan financing of boats, we have entered into repurchase arrangements with various lending institutions. The repurchase commitment is on an individual unit basis with a term from the date it is financed by the lending institution through payment date by the dealer, generally not exceeding two and a half years. Such arrangements are customary in the industry and our exposure to loss under such arrangements is limited by the resale value of the inventory which is required to be repurchased. Refer to Note 16 of our unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report for further information on repurchase commitments. Seasonality Our dealers experience seasonality in their business. Retail demand for boats is seasonal, with a significant majority of sales occurring during peak boating season, which coincides with our first and fourth fiscal quarters. In order to minimize the impact of this seasonality on our business, we manage our manufacturing processes and structure dealer incentives to tie our annual volume rebates program to consistent ordering patterns, encouraging dealers to purchase our products throughout the year. In this regard, we may offer free flooring incentives to dealers from the beginning of our model year throughApril 30 of each year. Further, in the event that a dealer does not consistently order units throughout the year, such dealer's rebate is materially reduced. We may offer off-season retail promotions to our dealers in seasonally slow months, during and ahead of boat shows, to encourage retail demand. Critical Accounting Policies As ofSeptember 30, 2021 , there were no other significant 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 endedJune 30, 2021 . Item 3. Quantitative and Qualitative Disclosures About Market Risk 37 -------------------------------------------------------------------------------- Table of Contents Refer to our Annual Report on Form 10-K for the year endedJune 30, 2021 , for a complete discussion on the Company's market risk. There have been no material changes in market risk from those disclosed in the Company's Form 10-K for the year endedJune 30, 2021 . Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in theSEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. As of the end of the period covered by this Quarterly Report, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as ofSeptember 30, 2021 . Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting during the quarter endedSeptember 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 38
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