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

~~SECURITIES EXCHANGE ACT OF 1934~~

For the quarterly period ended March 31, ~~2019~~2020

☐

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

MALIBU BOATS, INC.

(Exact Name of Registrant as specified in its charter)

Delaware

5075 Kimberly Way,
~~Loudon, Tennessee 37774~~

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)	~~(865)~~ 458-5478
		(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01	MBUU	Nasdaq 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 þ☑ 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 þ☑ 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

☐

~~Large accelerated filer~~

~~Accelerated filer~~

Non-accelerated filer

¨☐

Smaller reporting company

¨☐

Emerging growth company

þ☐

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. þ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

☐

☑

~~Securities registered pursuant to Section 12(b) of the Act:~~



~~Title of each class~~			~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Class A Common Stock, par value $0.01~~	~~MBUU~~	~~Nasdaq Global Select Market~~



Class A Common Stock, par value $0.01, outstanding as of May ~~8, 2019:~~6, 2020:	~~20,851,097~~20,537,469	shares
Class B Common Stock, par value $0.01, outstanding as of May ~~8, 2019:~~6, 2020:	15	shares

Table of Contents

TABLE OF CONTENTS




	Page
PART I		FINANCIAL INFORMATION	23
Item 1.		Financial Statements	23
		Condensed Consolidated Statements of Operations and Comprehensive Income ~~(Loss)~~ (Unaudited)	23
		Condensed Consolidated Balance Sheets (Unaudited)	34
		Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	45
		Condensed Consolidated Statements of Cash Flows (Unaudited)	57
		Notes to Unaudited Condensed Consolidated Financial Statements	68
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	2325
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	4345
Item 4.		Controls and Procedures	4345

PART II		OTHER INFORMATION	4546
Item 1.		Legal Proceedings	4546
Item 1A.		Risk Factors	4546
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	4548
Item 3.		Defaults Upon Senior Securities	4548
Item 4.		Mine Safety Disclosures	4548
Item 5.		Other Information	4548
Item 6.		Exhibits	4649

SIGNATURES				4750

Table of Contents

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 March 31,						Nine Months Ended March 31,
	2020		2019		2020		2019
Net sales	$	182,310	$	199,918	$	534,502	$	489,194
Cost of sales	136,461		150,196		408,784		370,656
Gross profit	45,849		49,722		125,718		118,538
Operating expenses:
Selling and marketing	4,572		5,273		14,304		13,372
General and administrative	9,643		12,324		30,389		32,527
Amortization	1,501		1,563		4,622		4,381
Operating income	30,133		30,562		76,403		68,258
Other (income) expense, net:
Other income, net	(1,660)		(712)		(1,679)		(746)
Interest expense	940		1,750		3,064		4,765
Other (income) expense, net	(720)		1,038		1,385		4,019
Income before provision for income taxes	30,853		29,524		75,018		64,239
Provision for income taxes	6,987		7,321		16,872		15,023
Net income	23,866		22,203		58,146		49,216
Net income attributable to non-controlling interest	1,088		1,104		2,787		2,562
Net income attributable to Malibu Boats, Inc.	$	22,778	$	21,099	$	55,359	$	46,654

Comprehensive income:
Net income	$	23,866	$	22,203	$	58,146	$	49,216
Other comprehensive income (loss), net of tax:
Change in cumulative translation adjustment	(2,078)		99		(2,086)		(672)
Other comprehensive income (loss), net of tax	(2,078)		99		(2,086)		(672)
Comprehensive income, net of tax	21,788		22,302		56,060		48,544
Less: comprehensive income attributable to non-controlling interest, net of tax	993		1,111		2,692		2,527
Comprehensive income attributable to Malibu Boats, Inc., net of tax	$	20,795	$	21,191	$	53,368	$	46,017

Weighted average shares outstanding used in computing net income per share:
Basic	20,630,741		20,901,547		20,684,034		20,805,912
Diluted	20,775,108		21,007,933		20,827,958		20,943,548
Net income available to Class A Common Stock per share:
Basic	$	1.11	$	1.01	$	2.68	$	2.24
Diluted	$	1.09	$	1.01	$	2.66	$	2.23

Three Months Ended March 31, Nine Months Ended March 31,
2019 2018 2019 2018
Net sales $ 199,918
$ 140,429
$ 489,194
$ 358,343
Cost of sales 150,196
104,066
370,656
271,541
Gross profit 49,722
36,363
118,538
86,802
Operating expenses:

Selling and marketing 5,273
3,263
13,372
9,974
General and administrative 12,324
7,862
32,527
22,371
Amortization 1,563
1,291
4,381
3,903
Operating income 30,562
23,947
68,258
50,554
Other (income) expense, net:

Other income, net (712 ) (17 ) (746 ) (27,753 )
Interest expense 1,750
923
4,765
4,136
Other (income) expense, net 1,038
906
4,019
(23,617 )
Income before provision for income taxes 29,524
23,041
64,239
74,171
Provision for income taxes 7,321
6,245
15,023
56,545
Net income 22,203
16,796
49,216
17,626
Net income attributable to non-controlling interest 1,104
1,124
2,562
2,452
Net income attributable to Malibu Boats, Inc. $ 21,099
$ 15,672
$ 46,654
$ 15,174

Comprehensive income:
Net income $ 22,203
$ 16,796
$ 49,216
$ 17,626
Other comprehensive income (loss), net of tax:
Change in cumulative translation adjustment 99
(268 ) (672 ) (34 )
Other comprehensive income (loss), net of tax 99
(268 ) (672 ) (34 )
Comprehensive income, net of tax 22,302
16,528
48,544
17,592
Less: comprehensive income attributable to non-controlling interest, net of tax 1,111
1,104
2,527
2,464
Comprehensive income attributable to Malibu Boats, Inc., net of tax $ 21,191
$ 15,424
$ 46,017
$ 15,128

Weighted average shares outstanding used in computing net income per share:
Basic 20,901,547
20,544,488
20,805,912
20,050,958
Diluted 21,007,933
20,657,010
20,943,548
20,135,064
Net income available to Class A Common Stock per share:
Basic $ 1.01
$ 0.76
$ 2.24
$ 0.76
Diluted $ 1.01
$ 0.76
$ 2.23
$ 0.76

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

Table of Contents

MALIBU BOATS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)


	March 31, 2019			June 30, 2018				March 31, 2020		June 30, 2019
Assets							Assets
Current assets							Current assets
Cash	$	15,489		$	61,623		Cash	$	134,162	$	27,392
Trade receivables, net	38,811			24,625			Trade receivables, net	21,722		27,961
Inventories, net	74,043			44,268			Inventories, net	88,865		67,768
Prepaid expenses and other current assets	4,979			3,298			Prepaid expenses and other current assets	6,018		4,530
Income tax receivable	137			100

Total current assets	133,459			133,914			Total current assets	250,767		127,651
Property, plant and equipment, net	61,515			40,845			Property, plant and equipment, net	88,320		65,756
Goodwill	51,474			32,230			Goodwill	50,605		51,404
Other intangible assets, net	147,655			94,221			Other intangible assets, net	141,249		146,061
Deferred tax assets	62,078			64,105			Deferred tax assets	53,016		60,407
Other assets	251			453			Other assets	14,707		35
Total assets	$	456,432		$	365,768		Total assets	$	598,664	$	451,314
Liabilities							Liabilities
Current liabilities							Current liabilities

Accounts payable	$	31,815		$	24,349		Accounts payable	$	31,507	$	21,174
Accrued expenses	46,232			35,685			Accrued expenses	53,001		49,097
Income taxes and tax distribution payable	1,067			1,420			Income taxes and tax distribution payable	639		1,469
Payable pursuant to tax receivable agreement, current portion	3,932			3,932			Payable pursuant to tax receivable agreement, current portion	3,477		3,592
Total current liabilities	83,046			65,386			Total current liabilities	88,624		75,332
Deferred tax liabilities	232			341			Deferred tax liabilities	41		145
Other liabilities							Other liabilities	15,901		1,689
Payable pursuant to tax receivable agreement, less current portion	53,082			51,114			Payable pursuant to tax receivable agreement, less current portion	49,067		50,162
Long-term debt	128,769			108,487			Long-term debt	192,738		113,633
Other long-term liabilities	1,405			569
Total liabilities	266,534			225,897			Total liabilities	346,371		240,961
Commitments and contingencies (See Note 16)
Commitments and contingencies (See Note 17)							Commitments and contingencies (See Note 17)
Stockholders' Equity							Stockholders' Equity
Class A Common Stock, par value $0.01 per share, 100,000,000 shares authorized; 20,851,097 shares issued and outstanding as of March 31, 2019; 20,555,348 issued and outstanding as of June 30, 2018	207			204
Class B Common Stock, par value $0.01 per share, 25,000,000 shares authorized; 15 shares issued and outstanding as of March 31, 2019; 17 shares issued and outstanding as of June 30, 2018	—			—
Preferred Stock, par value $0.01 per share; 25,000,000 shares authorized; no shares issued and outstanding as of March 31, 2019 and June 30, 2018	—			—
Class A Common Stock, par value $0.01 per share, 100,000,000 shares authorized; 20,537,469 shares issued and outstanding as of March 31, 2020; 20,852,640 issued and outstanding as of June 30, 2019							Class A Common Stock, par value $0.01 per share, 100,000,000 shares authorized; 20,537,469 shares issued and outstanding as of March 31, 2020; 20,852,640 issued and outstanding as of June 30, 2019	204		207
Class B Common Stock, par value $0.01 per share, 25,000,000 shares authorized; 15 shares issued and outstanding as of March 31, 2020; 15 shares issued and outstanding as of June 30, 2019							Class B Common Stock, par value $0.01 per share, 25,000,000 shares authorized; 15 shares issued and outstanding as of March 31, 2020; 15 shares issued and outstanding as of June 30, 2019	—		—
Preferred Stock, par value $0.01 per share; 25,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2020 and June 30, 2019							Preferred Stock, par value $0.01 per share; 25,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2020 and June 30, 2019	—		—
Additional paid in capital	112,286			108,360			Additional paid in capital	102,284		113,004
Accumulated other comprehensive loss	(2,656		)	(1,984		)	Accumulated other comprehensive loss	(4,914)		(2,828)
Accumulated earnings	74,441			27,789			Accumulated earnings	147,508		93,852
Total stockholders' equity attributable to Malibu Boats, Inc.	184,278			134,369			Total stockholders' equity attributable to Malibu Boats, Inc.	245,082		204,235
Non-controlling interest	5,620			5,502			Non-controlling interest	7,211		6,118
Total stockholders’ equity	189,898			139,871			Total stockholders’ equity	252,293		210,353
Total liabilities and stockholders' equity	$	456,432		$	365,768		Total liabilities and stockholders' equity	$	598,664	$	451,314

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

Table of Contents

MALIBU BOATS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

(In thousands, except number of Class B shares)


	Class A Common Stock				Class B Common Stock				Additional Paid In Capital		Accumulated Other Comprehensive Loss		Accumulated Earnings		Non-controlling Interest in LLC		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2019	20,853	$	207	15	$	—	$	113,004	$	(2,828)	$	93,852	$	6,118	$	210,353
Net income	—	—		—	—		—		—		15,859		823		16,682
Stock based compensation, net of withholding taxes on vested equity awards	(5)	—		—	—		435		—		—		—		435
Issuances of equity for services	—	—		—	—		80		—		—		—		80
Repurchase and retirement of common stock	(383)	(4)		—	—		(11,119)		—		—		—		(11,123)
Cumulative-effect transition adjustment for ASC 842	—	—		—	—		—		—		(1,703)		—		(1,703)
Distributions to LLC Unit holders	—	—		—	—		—		—		—		(399)		(399)
Foreign currency translation adjustment	—	—		—	—		—		(623)		—		(25)		(648)
Balance at September 30, 2019	20,465	$	203	15	$	—	$	102,400	$	(3,451)	$	108,008	$	6,517	$	213,677
Net income	—	—		—	—		—		—		16,722		876		17,598
Stock based compensation, net of withholding taxes on vested equity awards	116	1		—	—		236		—		—		—		237
Issuances of equity for services	2	—		—	—		655		—		—		—		655
Distributions to LLC Unit holders	—	—		—	—		—		—		—		(446)		(446)
Foreign currency translation adjustment	—	—		—	—		—		615		—		25		640
Balance at December 31, 2019	20,583	$	204	15	$	—	$	103,291	$	(2,836)	$	124,730	$	6,972	$	232,361
Net income	—	—		—	—		—		—		22,778		1,088		23,866
Stock based compensation, net of withholding taxes on vested equity awards	1	—		—	—		789		—		—		—		789
Issuances of equity for services	—	—		—	—		58		—		—		—		58
Issuances of equity for exercise of stock options	12	—		—	—		377		—		—		—		377
Repurchase and retirement of common stock	(100)	(1)		—	—		(2,709)		—		—		—		(2,710)
Increase in payable pursuant to the tax receivable agreement	—	—		—	—		(440)		—		—		—		(440)
Increase in deferred tax asset from step-up in tax basis	—	—		—	—		574		—		—		—		574
Exchange of LLC Units for Class A Common Stock	41	1		—	—		344		—		—		(344)		1
Distributions to LLC Unit holders	—	—		—	—		—		—		—		(421)		(421)
Foreign currency translation adjustment	—	—		—	—		—		(2,078)		—		(84)		(2,162)
Balance at March 31, 2020	20,537	$	204	15	$	—	$	102,284	$	(4,914)	$	147,508	$	7,211	$	252,293

Table of Contents


	Class A Common Stock			Class B Common Stock				Additional Paid In Capital				Accumulated Other Comprehensive Loss				Accumulated Earnings				Non-controlling Interest in LLC				Total Stockholders' Equity						Class A Common Stock							Class B Common Stock							Additional Paid In Capital				Accumulated Other Comprehensive Loss				Accumulated Earnings				Non-controlling Interest in LLC				Total Stockholders' Equity
	Shares	Amount		Shares		Amount																	Shares				Amount				Shares		Amount
Balance at June 30, 2018	20,555	$	204	17		$	—				$	108,360			$				(1,984	)		$	27,789					$	5,502	$	139,871	Balance at June 30, 2018		20,555		$	204		17			$	—			$	108,360			$	(1,984)			$	27,789			$	5,502		$	139,871
Net income	—	—		—		—		—				—				46,654				2,562				49,216
Net Income																											Net Income			—		—			—		—			—					—				11,298				717				12,015
Stock based compensation, net of withholding taxes on vested equity awards	53	1		—		—		667				—				—				—				668			Stock based compensation, net of withholding taxes on vested equity awards			(4)		—			—		—			(50)				—				—				—				(50)
Issuances of equity for services	—	—		—		—		729				—				—				—				729			Issuances of equity for services			—		—			—		—			71				—				—				—				71
Issuance of equity for exercise of options	29	—		—		—		749																749
Issuances of equity for exercise of options																											Issuances of equity for exercise of options			26		—			—		—			672				—				—				—				672
Increase in payable pursuant to the tax receivable agreement	—	—		—		—		(2,676		)		—				—				—				(2,676		)	Increase in payable pursuant to the tax receivable agreement			—		—			—		—			(2,553)				—				—				—				(2,553)
Increase in deferred tax asset from step-up in tax basis	—	—		—		—		3,321				—				—				—				3,321			Increase in deferred tax asset from step-up in tax basis			—		—			—		—			3,138				—				—				—				3,138
Exchange of LLC Units for Class A Common Stock	214	2		—		—		1,136				—				—				(1,136		)		2
Exchange of LLC for Class A Common Stock																											Exchange of LLC for Class A Common Stock			199		2			—		—			1,047				—				—				(1,047)				2
Cancellation of Class B Common Stock	—	—		(2	)	—		—				—				—				—				—			Cancellation of Class B Common Stock			—		—			(1)		—			—				—				—				—				—
Distributions to LLC Unit holders	—	—		—		—		—				—				(2		)		(1,277		)		(1,279		)
Distributions to LLC Unit Holders																											Distributions to LLC Unit Holders			—		—			—		—			—				—				—				(354)				(354)
Foreign currency translation adjustment																											Foreign currency translation adjustment			—		—			—		—			—				(404)				—				(15)				(419)
Balance at September 30, 2018																											Balance at September 30, 2018			20,776		$	206		16		$	—		$	110,685			$	(2,388)			$	39,087			$	4,803			$	152,393
Net Income																											Net Income			—		—			—		—			—				—				14,257				741				14,998
Stock based compensation, net of withholding taxes on vested equity awards																											Stock based compensation, net of withholding taxes on vested equity awards			57		1			—		—			(12)				—				—				—				(11)
Issuances of equity for services																											Issuances of equity for services			—		—			—		—			597				—				—				—				597
Issuances of equity for exercise of options																											Issuances of equity for exercise of options			3		—			—		—			77				—				—				—				77
Distributions to LLC Unit Holders																											Distributions to LLC Unit Holders			—		—			—		—			—				—				2				(364)				(362)
Foreign currency translation adjustment																											Foreign currency translation adjustment			—		—			—		—			—				(367)				—				(20)				(387)
Balance at December 31, 2018																											Balance at December 31, 2018			20,836		$	207		16		$	—		$	111,347			$	(2,755)			$	53,346			$	5,160			$	167,305
Net Income																											Net Income			—		—			—		—			—				—				21,099				1,104				22,203
Stock based compensation, net of withholding taxes on vested equity awards																											Stock based compensation, net of withholding taxes on vested equity awards			—		—			—		—			729				—				—				—				729
Issuances of equity for services																											Issuances of equity for services			—		—			—		—			61				—				—				—				61
Increase in payable pursuant to the tax receivable agreement																											Increase in payable pursuant to the tax receivable agreement			—		—			—		—			(123)				—				—				—				(123)
Increase in deferred tax asset from step-up in tax basis																											Increase in deferred tax asset from step-up in tax basis			—		—			—		—			183				—				—				—				183
Exchange of LLC for Class A Common Stock																											Exchange of LLC for Class A Common Stock			15		—			(1)		—			89				—				—				(89)				—
Distributions to LLC Unit Holders																											Distributions to LLC Unit Holders			—		—			—		—			—				—				(4)				(559)				(563)
Foreign currency translation adjustment	—	—		—		—		—				(672		)		—				(31		)		(703		)	Foreign currency translation adjustment			—		—			—		—			—				99				—				4				103
Balance at March 31, 2019	20,851	$	207	15		$	—	$	112,286			$	(2,656	)		$	74,441			$	5,620			$	189,898		Balance at March 31, 2019			20,851		$	207		15		$	—		$	112,286			$	(2,656)			$	74,441			$	5,620			$	189,898

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

Table of Contents

MALIBU BOATS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Nine Months Ended March 31,
	2020		2019
Operating activities:
Net income	$	58,146	$	49,216
Adjustments to reconcile net income to net cash provided by operating activities:

Non-cash compensation expense	2,306		1,866
Non-cash compensation to directors	621		606
Depreciation	9,040		7,102
Amortization	4,622		4,381
Deferred income taxes	7,876		5,252


Adjustment to tax receivable agreement liability	(1,650)		(707)

Other items, net	1,731		396
Change in operating assets and liabilities:
Trade receivables	6,217		(14,067)
Inventories	(21,601)		(21,592)
Prepaid expenses and other assets	(213)		(1,234)
Accounts payable	8,717		7,780
Income taxes payable	(2,122)		(350)
Accrued expenses	2,192		6,927
Other liabilities	(1,701)		835
Net cash provided by operating activities	74,181		46,411
Investing activities:
Purchases of property, plant and equipment	(30,143)		(10,728)

Payment for acquisition, net of cash acquired	—		(100,073)
Net cash used in investing activities	(30,143)		(110,801)
Financing activities:


Proceeds from revolving credit facility	103,800		55,000
Payments on revolving credit facility	(25,000)		(35,000)




Proceeds received from exercise of stock option	377		749
Cash paid for withholding taxes on vested restricted stock	(831)		(1,190)
Distributions to LLC Unit holders	(1,415)		(1,228)
Repurchase and retirement of common stock	(13,833)		—
Net cash provided by financing activities	63,098		18,331
Effect of exchange rate changes on cash	(366)		(75)
Changes in cash	106,770		(46,134)
Cash—Beginning of period	27,392		61,623
Cash—End of period	$	134,162	$	15,489

Supplemental cash flow information:
Cash paid for interest	$	2,964	$	4,302
Cash paid for income taxes	10,323		8,877

Nine Months Ended March 31,
2019 2018
Operating activities:
Net income $ 49,216
$ 17,626
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash compensation expense 1,866
1,410
Non-cash compensation to directors 606
622
Depreciation and amortization 11,483
9,005
Amortization of deferred financing costs 282
1,138
Deferred income taxes 5,252
48,436
Adjustment to tax receivable agreement liability (707 ) (27,702 )
Other items, net 114
(349 )
Change in operating assets and liabilities, net of effects of acquisitions:
Trade receivables (14,067 ) (9,485 )
Inventories (21,592 ) (5,625 )
Prepaid expenses and other assets (1,234 ) (1,455 )
Accounts payable 7,780
6,839
Income taxes receivable and payable (350 ) 2,846
Accrued expenses and other liabilities 7,762
3,664
Net cash provided by operating activities 46,411
46,970
Investing activities:
Purchases of property, plant and equipment (10,728 ) (8,146 )
Payment for acquisition, net of cash acquired (100,073 ) (125,552 )
Net cash used in investing activities (110,801 ) (133,698 )
Financing activities:
Principal payments on long-term borrowings —
(50,000 )
Proceeds from long-term borrowings —
105,000
Proceeds from revolving credit facility 55,000
—
Payments on revolving credit facility (35,000 ) —
Payment of deferred financing costs —
(1,148 )
Proceeds from issuance of Class A Common Stock in offering, net of underwriting discounts —
55,317
Payments of costs directly associated with offering —
(650 )
Proceeds received from exercise of stock option 749
—
Cash paid for withholding taxes on vested restricted stock (1,190 ) (543 )
Distributions to LLC Unit holders (1,228 ) (940 )
Net cash provided by financing activities 18,331
107,036
Effect of exchange rate changes on cash (75 ) 26
Changes in cash (46,134 ) 20,334
Cash—Beginning of period 61,623
32,822
Cash—End of period $ 15,489
$ 53,156

Supplemental cash flow information:
Cash paid for interest $ 4,302
$ 3,130
Cash paid for income taxes 8,877
4,185
Non-cash investing and financing activities:
Establishment of deferred tax assets from step-up in tax basis 3,321
2,734
Establishment of amounts payable under tax receivable agreements 2,676
1,484
Exchange of LLC Units by LLC Unit holders for Class A common stock 1,136
806
Tax distributions payable to non-controlling LLC Unit holders 559
686
Capital expenditures in accounts payable 711
640

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

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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"). Malibu Boats Holdings, LLC was formed in 2006 with Malibu's acquisition by an investor group, including affiliates of Black Canyon Capital LLC, Horizon Holdings, LLC and then-current management. The LLC, through its wholly owned subsidiary, Malibu 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. On July 6, 2017, the Company acquired all outstanding units of Cobalt Boats, LLC (“Cobalt”) further expanding the Company's product offering across a broader segment of the recreational boating industry including performance sport boats, sterndrive and outboard boats. As a result of the acquisition, the Company consolidates the financial results of Cobalt. On October 15, 2018, ~~our~~the Company's subsidiary Malibu Boats, LLC, purchased the assets of Pursuit Boats ("Pursuit") from S2 Yachts, Inc., expanding the Company's product offering into the fiberglass outboard fishing boat market. As

COVID-19 Pandemic

In March 2020, the World Health Organization characterized the coronavirus (“COVID-19”) a ~~result~~pandemic, and the President of the ~~acquisition,~~United States declared the COVID-19 outbreak a national emergency. The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States. The COVID-19 pandemic has impacted the Company’s operations and financial results. Due to the impact of the COVID-19 pandemic, the Company ~~consolidates~~elected to suspend operations at all of its facilities on March 24, 2020, which impacted the ~~financial results~~last week of ~~Pursuit. Refer~~fiscal third quarter. The shut-down continued into the fourth quarter with operations resuming between late April and early May, depending on the facility. Due to ~~Note 4. The~~the rapidly changing business environment, unprecedented market volatility and heightened degree of uncertainty resulting from COVID-19, the Company ~~reports~~cannot reasonably estimate the length or severity of the pandemic or its impact on the Company’s liquidity, results of operations, ~~under four reportable segments: Malibu U.S., Malibu Australia, Cobalt~~ and ~~Pursuit, based on their boat manufacturing operations.~~financial condition, which could have a material adverse effect.

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 Boats, Inc. and subsidiaries for the year ended June 30, ~~2018,~~2019, included in the Company's Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments considered necessary to present fairly the Company’s financial position at March 31, ~~2019,~~2020, and the results of its operations for the three and nine month periods ended March 31, ~~2019~~2020 and March 31, ~~2018,~~2019, and its cash flows for the nine month periods ended March 31, ~~2019~~2020 and March 31, ~~2018.~~2019. Operating results for the three and nine months ended March 31, ~~2019,~~2020, are not necessarily indicative of the results that may be expected for the full year ending June 30, ~~2019.~~2020. Certain reclassifications have been made to the prior period presentation to conform to the current period presentation. Units and shares are presented as whole numbers while all dollar amounts are presented in thousands, unless otherwise noted.

Segment Information

Effective July 1, 2019, the Company revised its segment reporting to conform to changes in its internal management reporting based on the Company’s boat manufacturing operations. Segment information has been revised for comparison purposes for all periods presented in the condensed consolidated financial statements. The Company previously had 4 reportable segments, Malibu U.S., Malibu Australia, Cobalt and Pursuit. The Company now aggregates Malibu U.S. and Malibu Australia into 1 reportable segment as they have similar economic characteristics and qualitative factors. As a result

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the Company now has 3 reportable segments, Malibu, Cobalt and Pursuit. See Note 18 for revised segment information for the current and prior periods.

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.

~~Pursuit Acquisition~~

On October 15, 2018, our subsidiary Malibu Boats, LLC, purchased the assets of Pursuit from S2 Yachts, Inc. for a purchase price of $100,073. Pursuit, located in Fort Pierce, Florida, is a leader in the saltwater outboard fishing boat market through its offering of 15 models of offshore, dual console and center console boats.

Recent Accounting Pronouncements

~~On July 1, 2018, the Company adopted the new accounting standard, ASC Topic 606,~~ ~~Revenue from Contracts with Customers,~~ and all the related amendments (“ASC 606”) and applied the provisions of the standard to all contracts using the modified retrospective method. The cumulative effect of adopting the new revenue standard was immaterial and no adjustment has been recorded to the opening balance of retained earnings. Prior year information has not been restated and continues to be reported under the accounting standards in effect for those periods. Substantially all of the Company’s revenue continues to be recognized at a point in time when the product is either shipped or received from the Company's facilities and control of the product is transferred to the customer. New controls and processes designed to meet the requirements of the standard were

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implemented, and the required new disclosures are presented in Note 2. The adoption of ASC Topic 606 did not have a material impact on the amounts reported in the Company's unaudited condensed consolidated financial position, results of operations or cash flows.

In February 2016, the FASB issued Accounting Standards Update (ASU) ~~2016‑02,~~ 2016-02, Leases (Topic 842). The amendments in this update create ASC Topic 842, Leases, and supersede the requirements in ASC Topic 840, Leases. ASC Topic 842 requires lessees to recognize on the balance sheet a ~~right‑of‑use~~right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. In June 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvement, which provides entities with an additional (optional) transition method to adopt the new lease standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ~~The~~On July 1, 2019, the Company adopted the new ~~leases~~leasing standard ~~is effective for fiscal years beginning after December 15, 2018. Early application is permitted.~~and all the related amendments. The Company ~~is currently developing a project plan~~elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to ~~guide~~carry forward the ~~implementation of ASU 2016-02.~~ historical lease classification.

The Company ~~is making progress~~made an accounting policy election to not record leases with an initial term of 12 months or less on ~~this plan including surveying~~ the ~~Company’s businesses, assessing the Company’s portfolio of leases and compiling information on active leases.~~balance sheet. The Company ~~is currently identifying~~also elected the practical expedient to not separate non-lease components from the lease components to which they relate, and ~~implementing appropriate changes to its policies, business processes, systems~~instead account for each separate lease and ~~controls to support~~non-lease component associated with that lease accounting and disclosures under Topic 842. The Company does not expect that its results of operations or cash flows will be materially impacted by this standard. The Company expects to record right of use assets andcomponent as a single lease ~~liabilities on its consolidated balance sheets upon adoption of this standard, which may be material.~~component for all underlying asset classes. Accordingly, all payments associated with a lease contract are accounted for as lease cost.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~. This guidance provides specific classification of how certain cash receipts and cash payments are presented in the statement of cash flows. The ASU was applied using a retrospective transition method. The adoption of ~~this ASU on July 1, 2018~~ASC Topic 842 did not have a material impact on the ~~Company's~~Company’s consolidated ~~financial statements.~~results of operations, equity or cash flows as of the adoption date. Under the optional transition approach, comparative information was not restated, but will continue to be reported under the standards in effect for those periods. See Note 11 for further information regarding the Company’s leases.

In ~~January 2017,~~June 2016, the FASB issued ASU ~~2017-01,~~ ~~Business Combinations~~2016-13, Financial Instruments - Credit Losses (Topic ~~805)~~326): ~~Clarifying~~Measurement of Credit Losses on Financial Instruments, and in November 2018 issued a subsequent amendment, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. ASU 2018-19 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the ~~Definition~~scope of ~~a Business. The guidance clarifies~~this amendment that have the ~~definition of a business that provides a two-step analysis in~~contractual right to receive cash. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019, and is effective for the determination of whether an acquisition or derecognition is a business or an asset. The update removes the evaluation of whether a market participant could replace any missing elements and provides a framework to assist entities in evaluating whether both an input and a substantive process are present. This guidance will be applied on a prospective basis for transactions that occur after the effective date.Company’s fiscal year beginning July 1, 2020. The adoption of ~~this~~the ASU ~~on July 1, 2018 did~~is not expected to have a material impact on the ~~Company's~~Company’s consolidated financial ~~statements.~~position, results of operations, equity or cash flows.

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.

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2. Revenue Recognition

The following table disaggregates the Company's revenue by major product type and geography:


	Three Months Ended March 31, 2019										Nine Months Ended March 31, 2019											Three Months Ended March 31, 2020														Nine Months Ended March 31, 2020
	Malibu US		Cobalt		Pursuit		Malibu Australia		Consolidated		Malibu US		Cobalt		Pursuit		Malibu Australia		Consolidated			Malibu		Cobalt		Pursuit		Consolidated		Malibu		Cobalt		Pursuit		Consolidated
Revenue by product:																					Revenue by product:
Boat and trailer sales	$	98,836	$	55,619	$	36,276	$	5,545	$	196,276	$	245,944	$	148,418	$	66,128	$	18,226	$	478,716	Boat and trailer sales	$	100,037	$	45,580	$	33,472	$	179,089	$	276,470	$	143,459	$	102,993	$	522,922
Part and other sales	2,764		422		182		274		3,642		7,607		1,729		257		885		10,478		Part and other sales	2,567		448		206		3,221		9,341		1,714		525		11,580
Total revenue	$	101,600	$	56,041	$	36,458	$	5,819	$	199,918	$	253,551	$	150,147	$	66,385	$	19,111	$	489,194	Total revenue	$	102,604	$	46,028	$	33,678	$	182,310	$	285,811	$	145,173	$	103,518	$	534,502

Revenue by geography:																					Revenue by geography:
North America	$	96,394	$	53,820	$	34,711	$	—	$	184,925	$	246,534	$	141,965	$	61,544	$	—	$	450,043	North America	$	94,250	$	43,601	$	32,720	$	170,571	$	262,810	$	139,181	$	98,085	$	500,076
International	5,206		2,221		1,747		5,819		14,993		7,017		8,182		4,841		19,111		39,151		International	8,354		2,427		958		11,739		23,001		5,992		5,433		34,426
Total revenue	$	101,600	$	56,041	$	36,458	$	5,819	$	199,918	$	253,551	$	150,147	$	66,385	$	19,111	$	489,194	Total revenue	$	102,604	$	46,028	$	33,678	$	182,310	$	285,811	$	145,173	$	103,518	$	534,502


	Three Months Ended March 31, 2019														Nine Months Ended March 31, 2019
	Malibu		Cobalt		Pursuit		Consolidated		Malibu		Cobalt		Pursuit		Consolidated
Revenue by product:
Boat and trailer sales	$	104,381	$	55,619	$	36,276	$	196,276	$	264,170	$	148,418	$	66,128	$	478,716
Part and other sales	3,038		422		182		3,642		8,492		1,729		257		10,478
Total revenue	$	107,419	$	56,041	$	36,458	$	199,918	$	272,662	$	150,147	$	66,385	$	489,194

Revenue by geography:
North America	$	96,394	$	53,820	$	34,711	$	184,925	$	246,534	$	141,965	$	61,544	$	450,043
International	11,025		2,221		1,747		14,993		26,128		8,182		4,841		39,151
Total revenue	$	107,419	$	56,041	$	36,458	$	199,918	$	272,662	$	150,147	$	66,385	$	489,194

Boat and Trailer Sales

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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 our 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 statement of operations and comprehensive income represents the portion of earnings attributable to the economic interest in the Company's subsidiary, Malibu Boats Holdings, 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

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holders, based on the portion of the LLC Units owned by such Unit holders. The ownership of Malibu Boats Holdings, LLC is summarized as follows:


	As of March 31, 2019			As of June 30, 2018				As of March 31, 2020				As of June 30, 2019
	Units	Ownership %		Units	Ownership %			Units	Ownership %		Units	Ownership %
Non-controlling LLC Unit holders ownership in Malibu Boats Holdings, LLC	830,152	3.8	%	1,043,186	4.8	%	Non-controlling LLC Unit holders ownership in Malibu Boats Holdings, LLC	789,152	3.7	%	830,152	3.8	%
Malibu Boats, Inc. ownership in Malibu Boats Holdings, LLC	20,851,097	96.2	%	20,555,348	95.2	%	Malibu Boats, Inc. ownership in Malibu Boats Holdings, LLC	20,537,469	96.3	%	20,852,640	96.2	%
	21,681,249	100.0	%	21,598,534	100.0	%		21,326,621	100.0	%	21,682,792	100.0	%

Issuance of Additional LLC Units

Under the first amended and restated limited liability 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 nine months ended March 31, ~~2019,~~2020, the Company caused the LLC to issue a total of ~~319,956~~184,241 LLC Units to the Company in connection with (i) the Company's issuance of Class A Common Stock to a non-employee director for ~~his~~her services, (ii) 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"), (iii) the issuance of restricted Class A Common Stock granted under the Incentive Plan, (iv) the issuance of Class A Common Stock to LLC Unit holders ~~for~~in exchange of their LLC Units and ~~(iv)~~(v) the issuance of Class A Common Stock for the exercise of ~~vested stock~~ options granted under the Incentive Plan. During the nine months ended March 31, ~~2019, 24,207~~2020, 15,733 LLC Units were canceled in connection with the vesting of share-based equity awards to satisfy employee tax withholding requirements and the retirement of ~~24,207~~15,733 treasury shares in accordance with the LLC Agreement. During the nine months ended March 31, 2020, 483,679 LLC Units were redeemed and canceled by the LLC in connection with the purchase and retirement of 483,679 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), Malibu Boats Holdings, 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 March 31, ~~2019~~2020 and June 30, ~~2018,~~2019, tax distributions payable to non-controlling LLC Unit holders were ~~$559~~$421 and ~~$511,~~$568, respectively. During the nine months ended March 31, ~~2019~~2020 and ~~2018,~~2019, tax distributions paid to the non-controlling LLC Unit holders were $1,415 and $1,228, ~~and $963,~~ respectively.

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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. Acquisitions

Pursuit

On October 15, 2018, the Company completed its acquisition of the assets of Pursuit. The aggregate purchase price for the transaction was $100,073, funded with cash and borrowings under the Company's credit agreement. The aggregate purchase price was subject to certain adjustments, including customary adjustments for the amount of working capital in the business at the closing date. The Company accounted for the transaction in accordance with ASC Topic 805, Business Combinations.

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The total consideration given to the former owners of Pursuit has been allocated to the assets acquired and liabilities assumed based on estimates of fair value as of the date of the acquisition. The ~~preliminary~~ measurements of fair value were determined based upon estimates utilizing the assistance of third party valuation specialists, and are subject to change within the measurement period (up to one year from the acquisition date). The Company expects appraisals of tangible and intangible assets and working capital adjustments to be finalized during fourth quarter of fiscal 2019.specialists.

The following table summarizes the ~~preliminary~~ purchase price allocation based on the estimated fair values of the assets acquired and liabilities of Pursuit assumed at the acquisition date:

Consideration:
Cash consideration paid $ 100,073

Recognized preliminary amounts of identifiable assets acquired and (liabilities assumed), at fair value:
Inventories $ 8,332
Other current assets 350
Property, plant and equipment 17,454
Identifiable intangible assets 57,900
Current liabilities (3,488 )
Fair value of assets acquired and liabilities assumed 80,548
Goodwill 19,525
Total purchase price $ 100,073


Consideration:
Cash consideration paid	$	100,073

Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:


Inventories	$	8,332
Other current assets	350
Property, plant and equipment	17,454
Identifiable intangible assets	57,900
Current liabilities	(3,488)
Fair value of assets acquired and liabilities assumed	80,548
Goodwill	19,525
Total purchase price	$	100,073

The ~~preliminary~~ fair value estimates for the Company's identifiable intangible assets acquired as part of the acquisition are as follows:


	Estimates of Fair Value		Estimated Useful Life (in years)
Definite-lived intangibles:
Dealer relationships	$	25,400	20
Total definite-lived intangibles	25,400
Indefinite-lived intangible:
Trade name	32,500
Total intangible assets	$	57,900

The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less an estimated cost to complete and a reasonable profit margin. The fair value of the identifiable intangible assets were determined based on the following approaches:

Dealer Relationships - The value associated with Pursuit's dealer relationships is attributed to its long standing dealer distribution network. The estimate of fair value assigned to this asset was determined using the income approach, which requires an estimate or forecast of the expected future cash flows from the dealer relationships

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~~through the application of the multi-period excess earnings approach. The estimated remaining useful life of dealer relationships is approximately twenty years.~~

~~Trade Name -~~ The value attributed to Pursuit's trade name was determined using a variation of the income approach called the relief from royalty method, which requires an estimate or forecast of the expected future cash flows. The trade name has an indefinite life.

The fair value of the definite-lived intangible assets are being amortized using the straight-line method to general and administrative expenses over their estimated useful lives. Indefinite-lived intangible assets are not amortized, but instead are evaluated for potential impairment on an annual basis in accordance with the provisions of ASC Topic 350, ~~Intangibles—Goodwill and Other~~. The weighted average useful life of identifiable definite-lived intangible assets acquired was 20 years. Goodwill of $19,525 arising from the acquisition consists of expected synergies and cost savings as well as intangible assets that do not qualify for separate recognition. The indefinite-lived intangible asset and goodwill acquired are expected to be deductible for income tax purposes.

Acquisition-related costs of $2,846, which were incurred by the Company in the first nine months of fiscal year 2019 related to the Pursuit acquisition, were expensed in the period incurred, and are included in general and administrative expenses in the consolidated statement of operations and comprehensive income for the nine months ended March 31, 2019.

~~Pro Forma Financial Information (unaudited):~~

The following unaudited pro forma consolidated results of operations for the three and nine months ended March 31, 2019 and 2018, assumes that the acquisition of Pursuit occurred as of July 1, 2017. The unaudited pro forma financial information combines historical results of Malibu and Pursuit, with adjustments for depreciation and amortization attributable to preliminary fair value estimates on acquired tangible and intangible assets for the respective periods. Non-recurring pro forma adjustments associated with the fair value step up of inventory were included in the reported pro forma cost of sales and earnings. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2018 or the results that may occur in the future:

Three Months Ended March 31, Nine Months Ended March 31,
2019 2018 2019 2018
Net sales $ 199,918
$ 176,387
$ 530,836
$ 451,687
Net income 22,203
21,285
53,223
18,853
Net income attributable to Malibu Boats, Inc. 21,099
19,838
50,430
16,066
Basic earnings per share $ 1.01
$ 0.97
$ 2.42
$ 0.80
Diluted earnings per share $ 1.01
$ 0.96
$ 2.41
$ 0.80

~~Cobalt~~

~~On July 6, 2017, the Company completed its acquisition of Cobalt. T~~he aggregate purchase price for the transaction was $130,525, consisting of $129,525 funded with cash and borrowings under the Company's credit agreement and $1,000 in equity equal to 39,262 shares of the Company's Class A Common Stock based on the closing stock price of $25.47 per share on June 27, 2017. The aggregate purchase price was subject to certain adjustments, including customary adjustments for the amount of working capital in the business at the closing date and subject to adjustment for any judgment or settlement in connection with a pending litigation matter between Cobalt and Sea Ray Boats, Inc. and Brunswick Corporation. William Paxson St. Clair, Jr., a former owner of Cobalt, was appointed as a director to the Company's Board of Directors and as President of Cobalt. ~~The Company accounted for the transaction in accordance with ASC 805,~~ ~~Business Combinations~~.

The total consideration given to the former members of Cobalt has been allocated to the assets acquired and liabilities assumed based on estimates of fair value as of the date of the acquisition. The measurements of fair value were determined based upon estimates utilizing the assistance of third party valuation specialists.

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~~The following table summarizes the purchase price allocation based on the estimated fair values of the assets acquired and liabilities of Cobalt assumed at the acquisition date:~~

Consideration:
Cash consideration paid $ 129,525
Equity consideration paid 1,000
Fair value of total consideration transferred $ 130,525

Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:
Cash $ 3,973
Accounts receivable 2,329
Inventories 14,343
Other current assets 363
Property, plant and equipment 12,934
Identifiable intangible assets 89,900
Current liabilities (13,108 )
Fair value of assets acquired and liabilities assumed 110,734
Goodwill 19,791
Total purchase price $ 130,525

~~The fair value estimates for the Company's identifiable intangible assets acquired as part of the acquisition are as follows:~~

Estimates of Fair Value Estimated Useful Life (in years)
Definite-lived intangibles:
Dealer relationships $ 56,300
20
Patent 2,600
15
Total definite-lived intangibles 58,900

Indefinite-lived intangible:
Trade name 31,000

Total intangible assets $ 89,900

~~Dealer Relationships~~ ~~- The value associated with Cobalt's~~ dealer relationships is attributed to its long standing dealer distribution network. The estimate of fair value assigned to this asset was determined using the income approach, which requires an estimate or forecast of the expected future cash flows from the dealer relationships through the application of the multi-period excess earnings approach. The estimated remaining useful life of dealer relationships is approximately twenty years.

~~Patent -~~ The value associated with the patented technology was based on financial projections and the patent's estimated remaining legal life of approximately fifteen years using a variation of the income approach called the royalty savings method.

Trade Name - The value attributed to ~~Cobalt's~~Pursuit's trade name was determined using a variation of the income approach called the relief from royalty method, which requires an estimate or forecast of the expected future cash flows. The trade name has an indefinite life.

The fair value of the definite-lived intangible assets are being amortized using the straight-line method to general and administrative expenses over their estimated useful lives. Indefinite-lived intangible assets are not amortized, but instead are evaluated for potential impairment on an annual basis in accordance with the provisions of ASC Topic 350, Intangibles—Goodwill and Other. The weighted average useful life of identifiable definite-lived intangible assets acquired was ~~19.8~~20 years. Goodwill of ~~$19,791~~$19,525 arising from the acquisition consists of expected synergies and cost savings as well as intangible assets

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that do not qualify for separate recognition. The indefinite-lived intangible asset and goodwill acquired are expected to be deductible for income tax purposes.

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Pro Forma Financial Information (unaudited):

The following unaudited pro forma consolidated results of operations for the three ~~months~~ and nine months ended March 31, ~~2019~~2020 and ~~2018,~~2019, assumes that the acquisition of ~~Cobalt~~Pursuit occurred as of July 1, ~~2016.~~2018. The unaudited interim pro forma financial information combines historical results of Malibu and ~~Cobalt,~~Pursuit, with adjustments for depreciation and amortization attributable to preliminary fair value estimates on acquired tangible and intangible assets for the respective periods. Non-recurring pro forma adjustments associated with the fair value step up of inventory were included in the reported pro forma cost of sales and earnings. The unaudited interim pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year ~~2017~~2019 or the results that may occur in the future:


	Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended March 31,						Nine Months Ended March 31,
	2019		2018		2019		2018			2020		2019		2020		2019
Net sales	$	199,918	$	140,429	$	489,194	$	358,343	Net sales	$	182,310	$	199,918	$	534,502	$	530,836
Net income	22,203		16,796		49,216		17,626		Net income	23,866		22,203		58,146		53,223
Net income attributable to Malibu Boats, Inc.	21,099		15,672		46,654		15,174		Net income attributable to Malibu Boats, Inc.	22,778		21,099		55,359		50,430
Basic earnings per share	$	1.01	$	0.76	$	2.24	$	0.76	Basic earnings per share	$	1.11	$	1.01	$	2.68	$	2.42
Diluted earnings per share	$	1.01	$	0.76	$	2.23	$	0.76	Diluted earnings per share	$	1.09	$	1.01	$	2.66	$	2.41

5. Inventories

Inventories, net consisted of the following:


	As of March 31, 2019		As of June 30, 2018			As of March 31, 2020		As of June 30, 2019
Raw materials	$	51,798	$	28,851	Raw materials	$	62,644	$	45,910
Work in progress	12,933		6,164		Work in progress	14,837		10,839
Finished goods	9,312		9,253		Finished goods	11,384		11,019
Total inventories	$	74,043	$	44,268	Total inventories	$	88,865	$	67,768

6. Property, Plant and Equipment

Property, plant and equipment, net consisted of the following:


	As of March 31, 2019			As of June 30, 2018				As of March 31, 2020		As of June 30, 2019
Land	$	2,194		$	634		Land	$	2,194	$	2,194
Building and leasehold improvements	28,883			20,110			Building and leasehold improvements	34,971		28,957
Machinery and equipment	44,254			32,471			Machinery and equipment	52,986		46,618
Furniture and fixtures	6,275			4,667			Furniture and fixtures	7,278		6,734
Construction in process	6,312			5,636			Construction in process	28,312		9,764
	87,918			63,518				125,741		94,267
Less: Accumulated depreciation	(26,403		)	(22,673		)	Less: Accumulated depreciation	(37,421)		(28,511)
Property, plant and equipment, net	$	61,515		$	40,845		Property, plant and equipment, net	$	88,320	$	65,756

Depreciation expense was $2,938 and $2,744 for the three months ended March 31, 2020 and 2019, respectively, and $9,040 and $7,102 for the nine months ended March 31, 2020 and 2019, respectively, substantially all of which was recorded in cost of sales. During the first quarter of fiscal 2019, ~~and the first quarter of fiscal 2018,~~ the Company disposed of various molds for models not currently in production with zero net book value and historical costs of $3,285 and $2,122, respectively. Depreciation expense was $2,744 and $1,685 for the three months ended March 31, 2019 and 2018, and $7,102 and $5,102 for the nine months ended March 31, 2019 and 2018, respectively, substantially all of which was recorded in cost of sales.$3,285.

7. Goodwill and Other Intangible Assets

~~Table of Contents~~

Changes in the carrying amount of goodwill for the nine months ended March 31, ~~2019~~2020 were as follows:

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Goodwill as of June 30, 2018 $ 32,230
Addition related to the acquisition of Pursuit 19,525
Effect of foreign currency changes on goodwill (281 )
Goodwill as of March 31, 2019 $ 51,474


Goodwill as of June 30, 2019	$	51,404

Effect of foreign currency changes on goodwill	(799)
Goodwill as of March 31, 2020	$	50,605

The components of other intangible assets were as follows:


	As of March 31, 2019			As of June 30, 2018			Estimated Useful Life (in years)	Weighted Average Remaining Useful Life (in years)		As of March 31, 2020		As of June 30, 2019		Estimated Useful Life (in years)	Weighted Average Remaining Useful Life (in years)
Definite-lived intangibles:									Definite-lived intangibles:
Reacquired franchise rights	$	1,277		$	1,333		5	0.6	Reacquired franchise rights	$	1,105	$	1,264	5	0.0
Dealer relationships	111,364			86,062			8-20	18.5	Dealer relationships	111,057		111,339		8-20	17.5
Patent	3,986			3,986			12-15	13.3	Patent	3,986		3,986		12-15	12.3
Trade name	24,667			24,667			15	2.5	Trade name	24,667		24,667		15	1.6
Non-compete agreement	50			52			10	5.6	Non-compete agreement	43		49		10	4.6
Backlog	89			93			0.3	0.0	Backlog	77		88		0.3	0.0
Total	141,433			116,193					Total	140,935		141,393
Less: Accumulated amortization	(57,278		)	(52,972		)			Less: Accumulated amortization	(63,186)		(58,832)
Total definite-lived intangible assets, net	84,155			63,221					Total definite-lived intangible assets, net	77,749		82,561
Indefinite-lived intangible:									Indefinite-lived intangible:
Trade name	63,500			31,000					Trade name	63,500		63,500
Total other intangible assets, net	$	147,655		$	94,221				Total other intangible assets, net	$	141,249	$	146,061

Amortization expense recognized on all amortizable intangibles was ~~$1,563~~$1,501 and ~~$1,291~~$1,563 for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$4,381~~$4,622 and ~~$3,903~~$4,381 for the nine months ended March 31, 2020 and 2019, ~~and 2018.~~respectively.

The estimated future amortization of definite-lived intangible assets is as follows:

Fiscal years ending June 30:
Remainder of 2019 $ 1,576
2020 6,139
2021 6,059
2022 4,558
2023 4,421
Thereafter 61,402
$ 84,155


Fiscal years ending June 30:				Amount
	Remainder of 2020	$	1,507
	2021	6,038
	2022	4,537
	2023	4,400
	2024	4,400
	2025 and thereafter	56,867
		$	77,749

8. Accrued Expenses

Accrued expenses consisted of the following:


	As of March 31, 2019		As of June 30, 2018			As of March 31, 2020		As of June 30, 2019
Warranties	$	22,085	$	17,217	Warranties	$	27,398	$	23,820
Dealer incentives	8,914		5,770		Dealer incentives	9,679		7,394
Accrued compensation	10,525		9,034		Accrued compensation	8,684		13,122
Current operating lease liabilities					Current operating lease liabilities	1,998		—
Accrued legal and professional fees	705		915		Accrued legal and professional fees	912		740
Accrued interest	194		242		Accrued interest	152		161
Other accrued expenses	3,809		2,507		Other accrued expenses	4,178		3,860
Total accrued expenses	$	46,232	$	35,685	Total accrued expenses	$	53,001	$	49,097

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9. Product Warranties

~~Effective for model year 2016, the Company began providing~~Malibu and Axis brands have a limited warranty for a period up to five years for both Malibu and Axis brand boats. ~~For model years prior~~Prior to fiscal year 2016, the Company provided a limited warranty for a period of up to three years for its Malibu brand boats and two years for its ~~Malibu and~~ Axis ~~brands, respectively.~~boats. For its Cobalt brand boats, the Company provides a structural warranty of up to ten years which covers the hull, deck joints, bulkheads, floor, transom, stringers, and motor mount. In addition, the Company provides a five year bow-to-stern warranty on all components manufactured or purchased (excluding hull and deck structural components), including canvas and upholstery. ~~For Pursuit boats, the Company provides a structural warranty of up to five years which covers structural defects in materials and workmanship on the deck and hull.~~ Gelcoat is covered up to three years for Cobalt and one year for Malibu and Axis. ~~In each~~For Pursuit boats, the Company provides a limited warranty for a period of ~~our brands, some~~up to five years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom. Some materials, components or parts of the boat that are not covered by ~~our~~the Company’s limited product warranties are separately warranted by their manufacturers or suppliers. These other warranties include warranties covering engines purchased from suppliers and other components. The Company provides a limited warranty of up to five years or five-hundred hours on engines that it manufactures for Malibu and Axis models.

The Company’s standard warranties require the Company or its dealers to repair or replace defective products during such warranty period at no cost to the consumer. The Company estimates the costs that may be incurred under its limited warranty and records a liability for such costs at the time the product revenue is recognized. 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 by brand on a quarterly basis and adjusts the amounts as necessary. The Company utilizes historical claims trends and analytical tools to assist in determining the appropriate warranty liability.

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 March 31,						Nine Months Ended March 31,
	2020		2019		2020		2019
Beginning balance	$	26,710	$	20,943	$	23,820	$	17,217
Add: Warranty expense	3,665		2,918		12,767		8,941
Additions for acquisitions	—		—		—		1,872
Less: Warranty claims paid	(2,977)		(1,776)		(9,189)		(5,945)
Ending balance	$	27,398	$	22,085	$	27,398	$	22,085

Three Months Ended March 31, Nine Months Ended March 31,
2019 2018 2019 2018
Beginning balance $ 20,943
$ 15,517
$ 17,217
$ 10,050
Add: Warranty expense 2,918
2,927
8,941
7,652
Additions for acquisitions —
—
1,872
4,404
Less: Warranty claims paid (1,776 ) (1,586 ) (5,945 ) (5,248 )
Ending balance $ 22,085
$ 16,858
$ 22,085
$ 16,858

10. Financing

Outstanding debt consisted of the following:


	As of March 31, 2019			As of June 30, 2018				As of March 31, 2020		As of June 30, 2019
Term loans	$	110,000		$	110,000		Term loans	$	75,000	$	75,000
Revolving credit loan	20,000			—			Revolving credit loan	118,800		40,000
Less unamortized debt issuance costs	(1,231		)	(1,513		)	Less unamortized debt issuance costs	(1,062)		(1,367)
Total debt	128,769			108,487			Total debt	192,738		113,633
Less current maturities	—			—			Less current maturities	—		—
Long-term debt less current maturities	$	128,769		$	108,487		Long-term debt less current maturities	$	192,738	$	113,633

Long-Term Debt

~~Credit Agreement~~.The Company currently has a revolving credit facility with borrowing capacity of up to $120,000 and a $75,000 term loan outstanding. As of March 31, 2020, the Company had $118,800 outstanding under its revolving credit facility and $1,170 in outstanding letters of credit. On ~~June 28, 2017,~~March 19, 2020 the Company elected to draw the remaining available funds of $98,800 from the revolving credit facility. The revolving credit facility matures on July 1, 2024 and the term loan matures on July 1, 2022. The revolving credit facility and term loan are governed by a credit agreement (the “Credit Agreement”) with Malibu Boats, LLC (“Boats LLC”) as the borrower ~~("Boats LLC"), entered into the Second Amended~~ and ~~Restated Credit Agreement with~~Truist Financial Corp. (previously known as SunTrust ~~Bank,~~Bank), as the administrative agent, swingline lender and issuing ~~bank, to refinance the prior credit facility and to provide funds for the purchase~~bank. The obligations of ~~Cobalt. It provided~~ Boats LLC with a term loan facility in an aggregate principal amount of $160,000 ($55,000 of which was drawn on June 28, 2017 to refinance our previous credit facility and $105,000 of which was drawn on July 6, 2017 to fund the payment of the purchase price for the Cobalt acquisition and to pay certain fees and expenses related to entering intounder the Credit Agreement ~~and a revolving credit facility of up to $35,000. On August 17, 2017, Boats LLC made a voluntary principal payment on~~are guaranteed by the term loans in the amount of $50,000 with a portion of the net proceeds from the Company’s equity offering completed on August 14, 2017. On August 21, 2018, in connection with the acquisition of Pursuit, Boats LLC entered into the First Incremental Facility Amendment and First

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~~Amendment~~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 ~~Second Amended and Restated~~ Credit Agreement dated as of June 28, 2017 (as amended, the “Credit Agreement”). The amendment increased the amount available under the revolving credit facility by $50,000 (the “Incremental Revolving Commitment”) from $35,000 to $85,000. Each of the term loans and the revolving credit facility are scheduled to mature on July 1, 2022. In connection with the completion of the acquisition of Pursuit, the Company borrowed $50,000 under its revolving credit facility on October 15, 2018.

Agreement.

Borrowings under the Credit Agreement bear interest at a rate equal to either, at ~~Boats LLC's~~the Company's 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 applicable margin ranging from ~~1.75%~~1.25% to ~~3.00%~~2.25% with respect to LIBOR borrowings and ~~0.75%~~0.25% to ~~2.00%~~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. ~~Boats LLC~~As of March 31, 2020, the interest rate on the Company’s term loan and revolving credit facility was 2.24%. The Company is required to pay a commitment fee for ~~the~~any unused portion of the revolving credit facility which ~~ranges~~will range from ~~0.25%~~0.20% to ~~0.50%~~0.40% per annum, depending on the LLC’s and its subsidiaries’ consolidated leverage ratio. Boats LLC was also required to pay a ticking fee at a rate of 0.30% per annum on the $50,000 Incremental Revolving Commitment from August 21, 2018 until the date that the conditions for the lenders to provide the Incremental Revolving Commitment were met, which occurred on October 15, 2018, the closing date of the Company's purchase of assets of Pursuit. The Company is not a party to the Credit Agreement, and 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 pursuant to the Second Amended and Restated Security Agreement, by and among Boats LLC, the LLC, the subsidiary guarantors, and SunTrust Bank, as administrative agent, dated as of June 28, 2017, and other collateral documents. The weighted average interest rate on the term loan was 4.3% for the nine months ended March 31, 2019.

The Credit Agreement permits prepayment of the term loan ~~facilities~~ without ~~penalty. The $55,000~~any penalties. On August 17, 2017 the Company made a voluntary principal payment on the term loan ~~is subject to quarterly installments~~in the amount of approximately $700 per quarter until March 31, 2019, then approximately $1,000 per quarter until June 30, 2021, and approximately $1,400 per quarter through March 31, 2021. The $105,000 term loan is subject to quarterly installments$50,000 with a portion of ~~approximately $1,300 per quarter until March 31, 2019, then approximately $2,000 per quarter until June 30, 2021, and approximately $2,600 per quarter through March 31, 2022. The Company used~~the net proceeds from anits equity offering completed on August 14, ~~2017 to repay $50,000 on its term loans under the Credit Agreement and~~2017. The Company exercised its option to apply the prepayment in forward order to principal installments on its term loan through December 31, 2021 and a portion of the principal installments due on March 31, 2022. ~~Accordingly, no principal payments are required under~~As a result, the ~~Credit Agreement until~~term loan is subject to a quarterly installment of approximately $3,000 on March 31, 2022 and as such, all borrowings as of June 30, 2018 and March 31, 2019, are reflected as noncurrent. The $50,000 repayment resulted in a write-off of deferred financing costs of $829 which was included in amortization expense on the ~~condensed consolidated statement of operations and comprehensive income. The~~ balance of ~~both~~the term ~~loans~~loan is due on the scheduled maturity date of July 1, 2022. The Credit Agreement is also subject to 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.

As of March 31, 2020, the outstanding principal amount of the Company’s term loan and revolving credit facility was $193,800.

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 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 $2,000 in any fiscal year, and (iv) share repurchase payments up to ~~$20,000~~$35,000 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 ~~$6,000~~$10,000 in any fiscal year, subject to compliance with other financial covenants.

In connection with entering into the Credit Agreement, the Company capitalized $2,074 in deferred financing costs during fiscal ~~2018.~~2017. These costs, in addition to the unamortized balance related to costs associated with the Company's previous credit facility of $671, are being amortized over the term of the Credit Agreement into interest expense using the effective interest method and presented as a direct offset to the total debt outstanding on the consolidated balance sheet.

As described above, the Company used proceeds from an offering on August 24, 2017 to repay $50,000 on its term loan under the Credit Agreement and exercised its option to apply the prepayment to principal installments through December 31, 2021, and a portion of principal installments due on March 31, 2022. Accordingly, no principal payments are required under the Credit Agreement until March 31, 2022, and as such, all borrowings as of March 31, ~~2019~~2020 and June 30, ~~2018.~~2019, are reflected as noncurrent. The $50,000 repayment resulted in a write off of deferred financing costs of $829 in fiscal year 2018, which was included in amortization expense on the consolidated statement of operations and comprehensive income.

On May 8, 2019, the Company entered into the Second Incremental Facility Amendment and Second Amendment (the “Amendment”) to the Credit Agreement dated as of June 28, 2017. The Amendment converted $35,000 of the outstanding principal amount under the term loan to outstanding borrowings under the revolving credit facility, increased the borrowing capacity of the revolving credit facility by $35,000 and extended the maturity date of the revolving credit facility by two years to July 1, 2024. In connection with the Amendment, the Company wrote off $137 of deferred financing costs and capitalized an additional $370 of deferred financing cost related to insubstantial modification leaving an unamortized balance of $1,367 in deferred financing costs. These are being amortized into interest expense using the effective interest method and presented as a direct offset to the total debt outstanding on the consolidated balance sheet.

Covenant Compliance

1516

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As of March 31, ~~2019,~~2020, the Company was in compliance with the covenants contained in the Credit Agreement.

Interest Rate Swap

On July 1, 2015, the Company entered into a five year floating to fixed interest rate swap with an effective start date of July 1, 2015. The swap is based on a one-month LIBOR rate versus a 1.52% fixed rate on a notional value of $39,250, which was equal to 50% of the outstanding balance of the term loan at the time of the swap arrangement. Under ASC Topic 815, Derivatives and Hedging, all derivative instruments are recorded on the unaudited interim condensed consolidated balance sheets at fair value as either short term or long term assets or liabilities based on their anticipated settlement date. Refer to Fair Value Measurements in Note ~~12.~~13. The Company has elected not to designate its interest rate swap as a hedge for accounting purposes; therefore, changes in the fair value of the derivative instrument are being recognized in earnings in the Company's unaudited interim condensed consolidated statements of operations and comprehensive income. The swap matured on March 31, 2020. For the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 the Company recorded a loss of ~~$93~~$10 and ~~a gain of $138,~~$93, respectively, and for ~~the~~ the nine months ended March 31, ~~2019~~2020 and ~~2018,~~2019 the Company recorded a loss of ~~$225~~$68 and ~~a gain of $341,~~$225, respectively, for the change in fair value of the interest rate swap, which is included in interest expense in the unaudited interim condensed consolidated statements of operations and comprehensive income.

11. 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. The Company recorded right-of-use assets, included in other assets on the balance sheet, totaling $16,142 as of July 1, 2019. Leases with an initial term of 12 months or less are not recorded on the balance sheet. 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. Lease expense recorded in the three month and nine month period ended March 31, 2020 under ASC Topic 842 was not materially different from lease expense that would have been recorded under the previous lease accounting standard.

Other information concerning the Company's operating leases accounted for under ASC Topic 842 is as follows (in thousands):

Classification

As of March 31, 2020

Assets

Right-of-use assets

Other assets

14,675

Liabilities

Current operating lease liabilities

Accrued expenses

1,998

Long-term operating lease liabilities

Other liabilities

14,397

Total lease liabilities

16,395


Classification				Three Months Ended March 31, 2020		Nine Months Ended March 31, 2020
Operating lease costs ⁽¹⁾	Cost of sales	$	491	$	1,441
	Selling, general and administrative	211		654

Sublease income	Other income (expense)	10		29

Cash paid for amounts included in the measurement of operating lease liabilities	Cash flows from operating activities	653		1,955

⁽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.

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The weighted average remaining lease term is 7.52 years. The weighted average discount rate determined based on the Company's incremental borrowing rate is 3.65%, as of March 31, 2020.

Future annual minimum lease payments for the following fiscal years as of March 31, 2020 are as follows:


	Amount
Remainder of 2020	$	646
2021	2,517
2022	2,360
2023	2,410
2024	2,536
2025 and thereafter	8,316
Total	18,785
Less imputed interest	(2,390)
Present value of lease liabilities	$	16,395

The following represents the Company's future minimum rental payments at June 30, 2019 for agreements classified as operating leases under ASC Topic 840:


	Amount
2020	$	2,552
2021	2,541
2022	2,432
2023	2,489
2024	2,649
2025 and thereafter	8,577
Total	$	21,240

12. Tax Receivable Agreement Liability

The Company has a tax receivable agreement with the pre-IPO owners of the LLC that provides for 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 Topic 450, Contingencies, since the contractual payment obligations were deemed to be probable and reasonably estimable. 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.

For purposes of the tax receivable agreement, the benefit deemed realized by the Company will be 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.

The following table reflects the changes to the Company's tax receivable agreement liability:

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	As of March 31, 2019			As of June 30, 2018				As of March 31, 2020		As of June 30, 2019
Payable pursuant to tax receivable agreement	$	55,046		$	82,291		Payable pursuant to tax receivable agreement	$	53,754	$	55,046
Additions (reductions) to tax receivable agreement:							Additions (reductions) to tax receivable agreement:
Exchange of LLC Units for Class A Common Stock	2,675			1,685			Exchange of LLC Units for Class A Common Stock	440		2,676
Adjustment for change in estimated tax rate	(707		)	(24,637		)	Adjustment for change in estimated tax rate	(1,650)		(103)
Payments under tax receivable agreement	—			(4,293		)	Payments under tax receivable agreement	—		(3,865)
	57,014			55,046				52,544		53,754
Less current portion under tax receivable agreement	(3,932		)	(3,932		)	Less current portion under tax receivable agreement	(3,477)		(3,592)
Payable pursuant to tax receivable agreement, less current portion	$	53,082		$	51,114		Payable pursuant to tax receivable agreement, less current portion	$	49,067	$	50,162

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

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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.

During the second quarter of fiscal 2018, the U.S. Congress enacted tax legislation called the Tax Cuts and Jobs Act of 2017 ("the Tax Act") on December 22, 2017, which, among other provisions, lowered the Company's U.S. corporate tax rate from 35% to 21%, effective January 1, 2018. The Tax Act lowered the estimated tax rate used to compute the Company's future tax obligations and, in turn, reduced the future tax benefit expected to be realized by the Company related to increased tax basis from previous sales and exchanges of LLC Units by pre-IPO owners of the LLC. The change in the underlying tax-rate assumptions used to estimate the tax receivable agreement liability, resulted in a decrease in the tax receivable agreement liability of $30,317 during the second quarter of fiscal 2018.

Also, during the first quarter of fiscal 2018, the Company acquired Cobalt, which expanded the Company's footprint into new state tax jurisdictions. This change in the Company's state tax posture increased the estimated tax rate used in computing the Company's future tax obligations and, in turn, increased the future tax benefit expected to be realized by the Company related to increased tax basis from previous sales and exchanges of LLC Units by pre-IPO owners of the LLC. The change in the underlying tax-rate assumptions used to estimate the tax receivable agreement liability resulted in an increase in the tax receivable agreement liability of $6,047 during the first quarter of fiscal 2018. These amounts are included in other (income) expense, net in the accompanying unaudited condensed consolidated statements of operations and comprehensive income. Additionally, during the second quarter of fiscal 2019, the Company analyzed the impact of the Pursuit acquisition on its state footprint and determined that there was an immaterial change to the estimated tax rate used in computing the Company's future tax obligations.

As of March 31, ~~2019~~2020 and June 30, ~~2018,~~2019, the Company had deferred tax assets of ~~$110,451~~$110,726 and ~~$107,293,~~$110,545, respectively, associated with basis differences in assets upon acquiring an interest in Malibu Boats Holdings, 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 which was filed on March ~~14, 2019.~~13, 2020.

~~12.~~13. Fair Value Measurements

In determining the fair value of certain assets and liabilities, the Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As defined in ASC Topic 820, Fair Value Measurements and Disclosures, fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). Financial assets and financial liabilities recorded on the unaudited interim condensed consolidated balance sheets at fair value are categorized based on the reliability of inputs to the valuation techniques as follows:

•Level 1—Financial assets and financial liabilities whose values are based on unadjusted quoted prices in active markets for identical assets.

•Level 2—Financial assets and financial liabilities whose values are based on quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in non-active markets; or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

•Level 3—Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities.

The hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

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Assets and liabilities that had recurring fair value measurements were as follows:


										Fair Value Measurements at Reporting Date Using
										Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of March 31, 2020:									As of March 31, 2020:
Assets									Assets
Interest rate swap not designated as cash flow hedge									Interest rate swap not designated as cash flow hedge	$	—	$	—	$	—	$	—
Total assets at fair value									Total assets at fair value	$	—	$	—	$	—	$	—

As of June 30, 2019:									As of June 30, 2019:
Assets									Assets
Interest rate swap not designated as cash flow hedge									Interest rate swap not designated as cash flow hedge	$	68	$	—	$	68	$	—
Total assets at fair value									Total assets at fair value	$	68	$	—	$	68	$	—

	Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of March 31, 2019:
Assets
Interest rate swap not designated as cash flow hedge	$	193	$	—	$	193	$	—
Total assets at fair value	$	193	$	—	$	193	$	—

As of June 30, 2018:
Assets
Interest rate swap not designated as cash flow hedge	$	418	$	—	$	418	$	—
Total assets at fair value	$	418	$	—	$	418	$	—

Fair value measurements for the Company’s interest rate swap are classified under Level 2 because such measurements are based on significant other observable inputs. There were no transfers of assets or liabilities between Level 1 and Level 2 as of March 31, ~~2019~~2020 or June 30, ~~2018.~~2019.

The Company’s nonfinancial assets and liabilities that have nonrecurring fair value measurements include property, plant and equipment, goodwill and intangibles.

In assessing the need for goodwill impairment, management relies on a number of factors, including operating results, business plans, economic projections, anticipated future cash flows, transactions and marketplace data. Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy. The Company generally uses projected cash flows, discounted as necessary, to estimate the fair values of property, plant and equipment and intangibles using key inputs such as management’s projections of cash flows on a held-and-used basis (if applicable), management’s projections of cash flows upon disposition and discount rates. Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy. These assets and certain liabilities are measured at fair value on a nonrecurring basis as part of the Company’s impairment assessments and as circumstances require.

~~13.~~14. Income Taxes

Malibu Boats, Inc. 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.

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 March 31, ~~2019~~2020 and June 30, ~~2018,~~2019, the Company maintained a total valuation allowance of ~~$13,298~~$14,296 and ~~$12,716,~~$14,252, 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. The increase in the valuation allowance is due to the exchanges of LLC Units into Class A common stock by certain LLC Unit holders during the nine months ended March 31, 2019. Also as of March 31, 2019,This also includes a valuation allowance ~~was recorded~~ in the amount of ~~$761~~$580 related to foreign tax credit carryforward that is not expected to be utilized in the future.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted which, among a number of its provisions, lowered the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018. 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

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operates. Significant or unusual items, including those related to the change in U.S. tax law noted above as well as other adjustments to accruals for tax uncertainties, are recognized in the quarter in which the related event occurs.

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~~On October 15, 2018, the Company completed its acquisition of Pursuit. This did not have a significant impact to the effective tax rate.~~ For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the Company's effective tax rate was ~~24.8%~~22.6% and ~~27.1%~~24.8%, respectively. For the nine months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the Company's effective tax rate was ~~23.4%~~22.5% and ~~76.2%~~23.4%, respectively. For the three and nine months ended March 31, ~~2019,~~2020, 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. This increase was partially offset by the benefits of the foreign derived intangible income deduction, the research and development tax credit, a windfall benefit generated by certain stock-based compensation, and the impact of non-controlling interests in the LLC. For the three and nine months ended March 31, 2019, the Company's effective tax rate exceeded the statutory federal income tax rate of 21% due to the impact of U.S. state taxes and remeasurement of deferred taxes. This increase 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. ~~For~~

On Friday March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act contains significant business tax provisions, including modifications to the rules limiting the deductibility of net operating losses (NOLs), expensing of qualified improvement property (QIP) and business interest in Internal Revenue Code Sections 172(a) and 163(j), respectively. 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 and nine months ended March 31, ~~2018, the principal differences in the Company's effective tax rate with the blended statutory federal income tax rate of approximately 28% relates~~2020 relating to the remeasurement of deferred taxes. Additionally, the Company's effective tax rate for the three months ended March 31, 2018 is related to impact of the non-controlling interests in the LLC, a pass-through entity for U.S. federal tax purposes, state income taxes attributable to the LLC, and the benefit of deductions under Section 199 of the Internal Revenue Code.CARES Act.

~~14.~~15. 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 March 31, ~~2019, 854,974~~2020, 714,911 shares remain available for future issuance under the long term incentive plan. Readers should refer to Note 13 to the fiscal 2018 audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2018, for additional information related to the Company's awards and

On November 22, 2019, under the Incentive ~~Plan.~~

~~On August 22, 2018,~~Plan, the Company granted ~~50,000 options~~approximately 43,000 restricted service-based stock units and 28,000 restricted service based stock awards to ~~certain~~ key employees ~~to purchase from~~under the ~~Company shares~~Incentive Plan. The grant date fair value of ~~Class A Common Stock at~~these awards was $2,714 based on a stock price of ~~$42.13~~$38.05 per ~~share. The term~~share on the date of ~~the options commenced on August 22, 2018 and will expire on August 21, 2024, the day before the sixth anniversary of the grant date.~~grant. Under the terms of the agreements, approximately 60% of the awards will vest ratably over three years beginning on November 6, 2019 and approximately 40% of the awards will vest ratably over four years beginning on each anniversary of their grant date. At August 22, 2018, the fair value of the option awards was $733 and was estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free rate of 2.7%, expected volatility of 38.4%, expected term of 4.25 years, and no dividends.November 6, 2019. Stock-based compensation expense attributable to the service based ~~options~~units and awards is amortized on a straight-line basis over the requisite service period.

On November 22, 2019, under the Incentive Plan, the Company granted to key employees a target amount of approximately 21,000 restricted stock awards with a performance condition. The number of shares that will ultimately be issued, if any, is based on the attainment of a specified amount of earnings during the fiscal year ending June 30, 2022. The maximum number of shares that can be issued if an elevated earnings target is met is approximately 32,000. The grant date fair value of the awards were estimated to be $810, based on a stock price of $38.05. Compensation costs associated with the performance ~~based option~~ awards are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, Compensation—Stock ~~Compensation~~.Compensation.

On November ~~1, 2018,~~22, 2019, under the Incentive Plan, the Company granted ~~35,000 restricted stock units and 48,000 restricted stock awards~~ to key employees ~~under~~a target amount of approximately 21,000 stock awards with a market condition. The number of shares that will ultimately be issued, if any, is based on a total shareholder return ("TSR") computation that involves comparing the ~~Incentive Plan.~~movement in the Company's stock price to movement in a market index from the grant date through November 22, 2022. The maximum number of shares that can be issued if an elevated TSR target is met is approximately 42,000. The grant date fair value of ~~these awards was $3,474 based on a stock price of $41.85 per share on the date of grant. Under the terms of the agreements, 71% of~~ the awards ~~will vest ratably over four years beginning on November 6, 2019~~were estimated to be $1,039, which is estimated using a Monte Carlo simulation. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and ~~approximately 29% of~~calculates the ~~awards will vest in tranches based on~~fair market value for the ~~achievement of annual or cumulative performance targets.~~stock award. Compensation costs ~~associated with performance based awards~~ are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, Compensation—Stock Compensation.

On January 14, 2019, the Company granted 19,973 options to certain key employees to purchase from the Company shares of Class A Common Stock at a price of $37.55 per share. The term of the options commenced on January 14, 2019 and will expire on January 13, 2025, the day before the sixth anniversary of the grant date. Under the terms of the agreements, the awards will vest ratably over four years on each anniversary of their grant date. At January 14, 2019, the fair value of the option awards was $263 and was estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free rate of 2.53%, expected volatility of 39.0%, expected term of 4.25 years, and no dividends. Stock-based compensation expense attributable to the service based options is amortized on a straight-line basis over the requisite service period. Compensation costs associated with performance based option awards are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, ~~Compensation—Stock Compensation~~.

~~Risk-free interest rate.~~ ~~The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant.~~

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~~Expected term.~~ The Company used the simplified method to estimate the expected term of stock options. The simplified method assumes that employees will exercise share options evenly between the period when the share options are vested and ending on the date when the share options would expire.

~~Expected volatility.~~ ~~The Company determined expected volatility based on its historical volatility calculated using daily observations of the closing price of its publicly traded common stock.~~

~~Expected dividend.~~ ~~The Company has not estimated any dividend yield as the Company currently does not pay a dividend and does not anticipate paying a dividend over the expected term.~~

The following is a summary of the changes in the Company's stock options for the nine months ended March 31, ~~2019:~~2020:

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March 31, 2019
Shares Price or range per share Weighted Average Exercise Price/Share
Total outstanding options at June 30, 2018 144,000
$27.24 $ 27.24

Options granted 69,973
37.55 - 42.13 40.82

Options exercised (28,500 ) (25.85) - (30.87) (26.29 )
Outstanding options at end of period 185,473
25.85 - 42.13 32.51

Exercisable at end of period 7,500
$30.87 $ 30.87



	Shares	Weighted Average Exercise Price/Share
Total outstanding options as of June 30, 2019	185,473	$	32.51
Options granted	—	—
Options exercised	(12,125)	31.08

Outstanding options as of March 31, 2020	173,348	32.61
Exercisable as of March 31, 2020	48,869	$	31.71

The following is a summary of the changes in non-vested restricted stock units and restricted stock awards for the nine months ended March 31, ~~2019:~~

2020:


							Number of Restricted Stock Units and Restricted Stock Awards Outstanding	Weighted Average Grant Date Fair Value
	Number of Restricted Stock Units and Restricted Stock Awards Outstanding		Weighted Average Grant Date Fair Value
Total Non-vested Restricted Stock Units and Restricted Stock Awards as of June 30, 2018	227,154		$	20.84
Total Non-vested Restricted Stock Units and Restricted Stock Awards as of June 30, 2019						Total Non-vested Restricted Stock Units and Restricted Stock Awards as of June 30, 2019	226,240	$	29.64
Granted	105,952		41.66			Granted	166,037	37.60
Vested	(100,217	)	(22.81		)	Vested	(110,073)	26.85
Forfeited	(4,424	)	(25.00		)	Forfeited	(4,062)	33.71
Total Non-vested Restricted Stock Units and Restricted Stock Awards as of March 31, 2019	228,465		$	29.56
Total Non-vested Restricted Stock Units and Restricted Stock Awards as of March 31, 2020						Total Non-vested Restricted Stock Units and Restricted Stock Awards as of March 31, 2020	278,142	$	35.44

Stock compensation expense attributable to the Company's share-based equity awards was ~~$735~~$816 and ~~$560~~$735 for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$1,866~~$2,306 and ~~$1,410~~$1,866 for the nine months ended March 31, ~~2019~~2020 and ~~2018,~~2019, 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 statement of operations and comprehensive income. Awards vesting during the three and nine months ended March 31, ~~2019,~~2020 include ~~16,294~~1,409 and 20,195, respectively, fully vested restricted stock units issued to non-employee directors for their service as directors for the Company.

~~15.~~16. Net Earnings Per Share

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 shareholders 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.

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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):

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	Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended March 31,						Nine Months Ended March 31,
	2019		2018		2019		2018			2020		2019		2020		2019
Basic:									Basic:
Net income attributable to Malibu Boats, Inc.	$	21,099	$	15,672	$	46,654	$	15,174	Net income attributable to Malibu Boats, Inc.	$	22,778	$	21,099	$	55,359	$	46,654
Shares used in computing basic net income per share:									Shares used in computing basic net income per share:
Weighted-average Class A Common Stock	20,710,202		20,371,072		20,621,522		19,886,970		Weighted-average Class A Common Stock	20,417,829		20,710,202		20,479,874		20,621,522
Weighted-average participating restricted stock units convertible into Class A Common Stock	191,345		173,416		184,390		163,988		Weighted-average participating restricted stock units convertible into Class A Common Stock	212,912		191,345		204,160		184,390
Basic weighted-average shares outstanding	20,901,547		20,544,488		20,805,912		20,050,958		Basic weighted-average shares outstanding	20,630,741		20,901,547		20,684,034		20,805,912
Basic net income per share	$	1.01	$	0.76	$	2.24	$	0.76	Basic net income per share	$	1.11	$	1.01	$	2.68	$	2.24

Diluted:									Diluted:
Net income attributable to Malibu Boats, Inc.	$	21,099	$	15,672	$	46,654	$	15,174	Net income attributable to Malibu Boats, Inc.	$	22,778	$	21,099	$	55,359	$	46,654

Shares used in computing diluted net income per share:									Shares used in computing diluted net income per share:
Basic weighted-average shares outstanding	20,901,547		20,544,488		20,805,912		20,050,958		Basic weighted-average shares outstanding	20,630,741		20,901,547		20,684,034		20,805,912
Restricted stock units granted to employees	101,271		112,522		126,239		84,106		Restricted stock units granted to employees	105,096		101,271		109,225		126,239
Stock options granted to employees	5,115		—		11,397		—		Stock options granted to employees	13,535		5,115		8,963		11,397
Market performance awards granted to employees									Market performance awards granted to employees	25,736		—		25,736		—
Diluted weighted-average shares outstanding ¹	21,007,933		20,657,010		20,943,548		20,135,064		Diluted weighted-average shares outstanding ¹	20,775,108		21,007,933		20,827,958		20,943,548
Diluted net income per share	$	1.01	$	0.76	$	2.23	$	0.76	Diluted net income per share	$	1.09	$	1.01	$	2.66	$	2.23

¹The Company excluded (i) ~~946,875~~889,500 and ~~1,238,727~~946,875 potentially dilutive shares from the calculation of diluted net income per share for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, and (ii) ~~930,125~~890,750 and ~~1,233,227~~930,125 potentially dilutive shares from the calculation of diluted net income per share for the nine months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, as these units would have been antidilutive.

The shares of Class B Common Stock do not share in the earnings or losses of Malibu Boats, Inc. and are therefore not included in the calculation. Accordingly, basic and diluted net earnings per share of Class B Common Stock has not been presented.

~~16.~~17. Commitments and Contingencies

Repurchase Commitments

In connection with its dealers’ wholesale floor plan financing of boats, the Company has entered into repurchase agreements with various lending institutions. The reserve methodology used to record an estimated expense and loss reserve in each accounting period is based upon an analysis of likely repurchases based on current field inventory and likelihood of repurchase. Subsequent to the inception of the repurchase commitment, the Company evaluates the likelihood of repurchase and adjusts the estimated loss reserve accordingly. When a potential loss reserve is recorded it is presented in accrued liabilities in the accompanying unaudited interim condensed consolidated balance sheet. If the Company were obligated to repurchase a significant number of units under any repurchase agreement, its business, operating results and financial condition could be adversely affected. The total amount financed under the floor financing programs with repurchase obligations was ~~$320,897~~$327,806 and ~~$163,626~~$239,315 as of March 31, ~~2019~~2020 and June 30, ~~2018,~~2019, respectively.

Repurchases and subsequent sales are recorded as a revenue transaction. The net difference between the repurchase price and the resale price is recorded against the loss reserve and presented in cost of sales in the accompanying unaudited interim condensed consolidated statements of operations and comprehensive income. ~~The~~As of March 31, 2020 there have been no repurchases and the Company has not been notified about any probable repossessions. Therefore, the Company did not carry a reserve for repurchases as of March 31, ~~2019 and~~2020 consistent with June 30, ~~2018.~~2019.

The Company has collateralized receivables financing arrangements with a third-party floor plan financing provider for European dealers. Under terms of these arrangements, the Company transfers the right to collect a trade receivable to the financing provider in exchange for cash but agrees to repurchase the receivable if the dealer defaults. Since the transfer of the receivable to the financing provider does not meet the conditions for a sale under ASC Topic 860~~Transfers and Servicing~~, ~~the~~

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Transfers and Servicing, the Company continues to report the transferred trade receivable in other current assets with an offsetting balance recorded as a secured obligation in accrued expenses in the Company's unaudited condensed consolidated balance sheet. As of March 31, ~~2019~~2020 and June 30, ~~2018,~~2019, the Company had financing receivables of ~~$589~~$412 and ~~$453,~~$768, respectively, recorded in other current assets and accrued expenses related to these arrangements.

Contingencies

Certain conditions may exist which could result in a loss, but which will only be resolved when future events occur. The Company, in consultation with its legal counsel, assesses such contingent liabilities, and such assessments inherently involve an exercise of judgment. If the assessment of a contingency indicates that it is probable that a loss has been incurred, the Company accrues for such contingent loss when it can be reasonably estimated. If the assessment indicates that a potentially material loss contingency is not probable but reasonably estimable, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed. If the assessment of a contingency deemed to be both probable and reasonably estimable involves a range of possible losses, the amount within the range that appears at the time to be a better estimate than any other amount within the range would be accrued. When no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued even though the minimum amount in the range is not necessarily the amount of loss that will be ultimately determined.

Estimates of potential legal fees and other directly related costs associated with contingencies are not accrued but rather are expensed as incurred. Except as disclosed below under "Legal Proceedings," management does not believe there are any pending claims (asserted or unasserted) at March 31, ~~2019 (unaudited) or June 30, 2018~~2020 that may have a material adverse impact on the Company’s financial condition, results of operations or cash flows.

Legal Proceedings

On January 12, 2018, the Company filed suit against Skier’s Choice, Inc., or "Skier’s Choice," in the U.S. District Court for the Eastern District of Tennessee, seeking monetary and injunctive relief. The Company's complaint alleges Skier’s Choice’s infringement of three utility patents - U.S. Patent Nos. 9,260,161, 8,578,873, and 9,199,695 - related to wake surfing technology. Skier’s Choice denied liability arising from the causes of action alleged in the Company's complaint and filed counterclaims alleging invalidity of the asserted patents. On June 19, 2019, the Company filed a second action against Skier’s Choice in the U.S. District Court for the Eastern District of Tennessee, seeking monetary and injunctive relief. The ~~parties are currently engaged~~Company’s complaint alleges Skier’s Choice’s surf systems on its Moomba and Supra lines of boats infringe U.S. Patent No. 10,322,777, a patent related to wake surfing technology. Skier’s Choice denied liability arising from the causes of action alleged in ~~discovery.~~the Company's complaint and filed counterclaims alleging invalidity of the asserted patents. On June 27, 2019, Skier’s Choice filed a motion to consolidate these 2 actions, and to continue deadlines in the earlier case for nine months, which the Company opposed. On August 22, 2019, the motion for consolidation was referred by Judge Thomas Varlan to Magistrate Judge Bruce Guyton, and the 2 cases were stayed pending resolution of that motion. On November 27, 2019, Judge Guyton ordered the 2 cases to be consolidated. On January 7, 2020, the consolidated cases were reassigned to Judge Jon McCalla. On January 23, 2020, Judge McCalla issued a Scheduling Order, scheduling trial on the consolidated cases to begin on September 29, 2020. The Company intends to vigorously pursue this litigation to enforce its rights in its patented technology and believes that Skier’s Choice’s counterclaims are without merit. ~~Trial is set for October 21, 2019.~~

~~On January 21, 2015, Cobalt, a wholly owned indirect subsidiary of~~18. Segment Information

Effective July 1, 2019, the Company ~~filed a patent infringement lawsuit against~~revised its segment reporting to conform to changes in its internal management reporting based on the Brunswick Corporation and its subsidiary Sea Ray Boats, Inc. alleging that certain of the Sea Ray's branded boats infringed upon Cobalt's patented submersible swim step technology (U.S. Patent No. 8,375,880). On October 31, 2017, the US District CourtCompany’s boat manufacturing operations. Segment information has been revised for comparison purposes for all periods presented in the ~~Eastern District~~condensed consolidated financial statements. The Company previously had 4 reportable segments, Malibu U.S., Malibu Australia, Cobalt and Pursuit. The Company now aggregates Malibu U.S. and Malibu Australia into 1 reportable segment as they have similar economic characteristics and qualitative factors. As a result the Company now has 3 reportable segments, Malibu, Cobalt and Pursuit. The Malibu segment participates in the manufacturing, distribution, marketing and sale of ~~Virginia entered an amended judgment on~~Malibu and Axis performance sports boats throughout the ~~jury verdict~~world. The Cobalt and Pursuit segments participate in ~~favor~~the manufacturing, distribution, marketing and sale of ~~Cobalt.~~

~~17. Segment Information~~Cobalt and Pursuit boats, respectively, throughout the world.

The following tables present financial information for the Company’s reportable segments for the three and nine months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, and the Company’s financial position at March 31, ~~2019~~2020 and June 30, ~~2018,~~2019, respectively:

2224

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	Three Months Ended March 31, 2020														Nine Months Ended March 31, 2020
	Malibu		Cobalt		Pursuit		Total		Malibu		Cobalt		Pursuit		Total
Net sales	$	102,604	$	46,028	$	33,678	$	182,310	$	285,811	$	145,173	$	103,518	$	534,502



Income before provision for income taxes	$	21,669	$	6,178	$	3,006	$	30,853	$	48,331	$	16,937	$	9,750	$	75,018




	Three months ended March 31, 2019														Nine Months Ended March 31, 2019
	Malibu		Cobalt		Pursuit		Total		Malibu		Cobalt		Pursuit		Total
Net sales	$	107,419	$	56,041	$	36,458	$	199,918	$	272,662	$	150,147	$	66,385	$	489,194



Income before provision for income taxes	$	19,754	$	7,202	$	2,568	$	29,524	$	39,684	$	19,466	$	5,089	$	64,239


	As of March 31, 2020		As of June 30, 2019
Assets
Malibu	$	311,541	$	185,154
Cobalt	157,988		151,481
Pursuit	129,135		114,679
Total assets	$	598,664	$	451,314

Three Months Ended March 31, 2019 Nine Months Ended March 31, 2019
Malibu US Cobalt Pursuit Malibu Australia Eliminations Total Malibu U.S. Cobalt Pursuit Malibu Australia Eliminations Total
Net sales $ 106,803
$ 56,041
$ 36,458
$ 5,819
$ (5,203 ) $ 199,918
$ 264,510
$ 150,147
$ 66,385
$ 19,111
$ (10,959 ) $ 489,194
Affiliate (or intersegment) sales 5,203
—
—
—
(5,203 ) —
10,959
—
—
—
(10,959 ) —
Net sales to external customers 101,600
56,041
36,458
5,819
—
199,918
253,551
150,147
66,385
19,111
—
489,194
Income before provision for income taxes $ 19,776
$ 7,202
$ 2,568
$ 305
$ (327 ) $ 29,524
$ 38,855
$ 19,466
$ 5,089
$ 1,222
$ (393 ) $ 64,239
Three months ended March 31, 2018 Nine Months Ended March 31, 2018
Malibu US Cobalt Pursuit Malibu Australia Eliminations Total Malibu U.S. Cobalt Pursuit Malibu Australia Eliminations Total
Net sales $ 88,160
$ 49,922
$ —
$ 4,826
$ (2,479 ) $ 140,429
$ 221,418
$ 126,207
$ —
$ 17,514
$ (6,796 ) $ 358,343
Affiliate (or intersegment) sales 2,479
—
—
—
(2,479 ) —
6,796
—
—
—
(6,796 ) —
Net sales to external customers 85,681
49,922
—
4,826
—
140,429
214,622
126,207
—
17,514
—
358,343
Income before provision for income taxes $ 16,245
$ 6,720
$ —
$ 203
$ (127 ) $ 23,041
$ 60,963
$ 11,912
$ —
$ 1,439
$ (143 ) $ 74,171

As of March 31, 2019 As of June 30, 2018
Assets

Malibu U.S. $ 377,034
$ 327,181
Cobalt 153,413
157,616
Pursuit 112,228
—
Malibu Australia 24,072
20,128
Eliminations (210,315 ) (139,157 )
Total assets $ 456,432
$ 365,768

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Some of the information in this Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included in this Form 10-Q, including, without limitation, certain statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, may constitute forward-looking statements. In some cases you can identify these “forward-looking statements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of those words and other comparable words. Any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results to vary materially from our future results, performance or achievements, or those of our industry, expressed or implied in such forward-looking statements. Such factors include, among others: the ~~impact of our recent acquisition~~effects of the ~~assets of Pursuit Boats ("Pursuit");~~COVID-19 pandemic on us; general industry, economic and business conditions; our ability to grow our business through acquisitions ~~or strategic alliances~~ and ~~new partnerships; general industry, economic and business conditions; demand for our products; changes in consumer preferences; competition within our industry;~~integrate such acquisitions to fully realize their expected benefits; our reliance on our network of independent dealers and increasing competition for dealers; ~~our ability to manage our manufacturing levels and~~ our large fixed cost base; intense competition within our industry; increased consumer preference for used boats or the supply of new boats by competitors in excess of demand; the successful introduction of ~~our~~ new products; ~~and~~our ability to execute our manufacturing strategy successfully; the success of our engines integration ~~strategy as well as~~strategy; and other factors affecting us discussed under the heading ~~“Item~~“Part II. Item 1A - Risk Factors” appearing elsewhere in this Quarterly Report on Form 10-Q and “Part I. "Item 1A-Risk Factors” appearing in ~~the Company’s~~our Annual Report on Form 10-K for the year ended June 30, ~~2018,~~2019, filed with the Securities and Exchange Commission (“SEC”) on ~~September 6, 2018~~August 29, 2019 ("Form 10-K"). Many of these risks and uncertainties are outside our control, and there may be other risks and uncertainties which we do not currently anticipate because they relate to events and depend on circumstances that may or may not occur in the future. We do not intend and undertake no obligation to update any forward-looking information to reflect actual results or future events or circumstances.

The following discussion and analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto included herein.

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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 and its consolidated subsidiaries, including Cobalt Boats, LLC and PB Holdco, LLC, through which we acquired the assets of Pursuit.

Overview

We are a leading designer, manufacturer and marketer of a diverse range of recreational powerboats, including performance sport boats, sterndrive and outboard boats. ~~Malibu Boats, Inc. is~~We are the market leader in the United States in the performance sport boat category through our Malibu and Axis Wake Research boat brands, the leader in the United States in the 20’ - 40’ segment of the sterndrive boat category through our Cobalt brand and in a leading position in the fiberglass outboard fishing boat market with our Pursuit brand. 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 four brands—Malibu; Axis; Cobalt; and Pursuit. 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. Retail prices of our Malibu boats typically range from ~~$55,000~~$60,000 to ~~$180,000.~~$190,000. We launched our Axis boats in 2009 to 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 Axis boats typically range from ~~$55,000~~$60,000 to ~~$105,000.~~$110,000. 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. Retail prices for our Cobalt boats typically range from ~~$55,000~~$60,000 to ~~$750,000.~~$770,000. Our recent acquisition of Pursuit expands our product offerings into the saltwater outboard fishing market and includes center console, dual console and offshore models. Retail prices for our Pursuit boats typically range from $80,000 to $800,000.

We sell our boats through a dealer network that we believe is the strongest in the recreational powerboat ~~industry.~~category. As of July 1, ~~2018,~~2019, our worldwide distribution channel consisted of over ~~300~~350 dealer locations globally. ~~Our acquisition of Pursuit has added approximately 40 new dealers.~~ 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.

Impact of the COVID-19 Pandemic

~~Table~~The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States. The COVID-19 pandemic has impacted our operations and financial results and we expect it to continue to impact our operations and financial results, including during any recovery period. As a result of ~~Contents~~

the pandemic, we elected to suspend operations at all of our facilities on March 24, 2020. We have since resumed operations at our Loudon, Tennessee facility (Malibu and Axis boats) on April 20, 2020, our Neodesha, Kansas facility (Cobalt boats) on April 27, 2020 and our Fort Pierce, Florida facility (Pursuit boats) on May 4, 2020. We also elected to draw the remaining available funds of $98.8 million from our revolving credit facility in late March 2020 to ensure we maintain financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic.

On a consolidated basis, we achieved third quarter fiscal 2019 net sales, gross profit, net income and adjusted EBITDA of $199.9 million, $49.7 million, $22.2 million and $37.8 million, respectively, compared to $140.4 million, $36.4 million, $16.8 million and $28.5 million, respectively,Our financial results for the third quarter of fiscal ~~2018. For~~year 2020 were impacted by the COVID-19 pandemic primarily due to the temporary shutdown of our facilities that affected the last week of the third fiscal quarter. We were not able to ship boats to our dealers during the suspension of our operations, which negatively impacted our net sales. As a result, both net sales and unit sales declined by $17.6 million, or 8.8% and 298 units, or 14.2%, respectively, for the three months ended March 31, 2020 compared to the same period last year. We experienced a decrease in net sales for each of our Malibu/Axis, Cobalt, and Pursuit brands for the three months ended March 31, 2020 compared to the same period last year. While costs of sales also declined, we still recognized a decrease in gross profit of $3.9 million, or 7.8%, for the third quarter of fiscal ~~2019, net sales increased 42.4%, gross profit increased 36.7%, net income increased 32.2% and adjusted EBITDA increased 32.4% as~~year 2020 compared to the same period last year, primarily related to declines in sales volumes resulting from our suspension of operations which impacted the last week of our third quarter of fiscal ~~2018. On~~year 2020.

In addition to our operations, the COVID-19 pandemic has also impacted our dealers and suppliers, which could cause further disruptions to our business. While some of our dealers have had to suspend their operations during the pandemic, many of our dealers continue to operate and we are not aware of any that have closed permanently. We are expecting to build and

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ship substantially all confirmed orders to our dealers that are for retail customers who have requested delivery prior to Memorial Day weekend. Our dealers rely on continued access to adequate financing sources, which is typically provided through floor plan financing. If floor plan financing becomes less available to our dealers as a ~~consolidated basis, for~~result of the ~~first nine months of fiscal 2019 net~~COVID-19 pandemic, our sales ~~gross profit, net income~~ and ~~adjusted EBITDA of $489.2 million, $118.5 million, $49.2 million~~potentially our working capital levels could be adversely affected. In addition, if our dealers are not able to maintain their payment obligations under their floor plan financing arrangements, the boats could be repossessed by the floor plan financing provider and ~~$90.0 million, respectively, compared~~returned to $358.3 million, $86.8 million, $17.6 million and $66.8 million, respectively, for the for the first nine months of fiscal 2018. For the first nine months of fiscal 2019, net sales increased 36.5%, gross profit increased 36.6%, net income increased 179.2% and adjusted EBITDA increased 34.8% as compared to the first nine months of fiscal 2018. Our results for fiscal 2019 include Pursuit since our acquisition of Pursuitus, which would have an adverse impact on ~~October 15, 2018. For the definition of adjusted EBITDA and a reconciliation to net income, see “GAAP Reconciliation of Non-GAAP Financial Measures.”~~

We currently report our results of operations under four reportable segments: Malibu U.S., Malibu Australia, Cobalt and Pursuit, based on our boat manufacturing operations. The Malibu U.S. and Malibu Australia segments participate in the manufacturing, distribution, marketing and sale of Malibu and Axis performance sport boats. The Malibu U.S. segment primarily serves markets in North America, South America, Europe, and Asia while the Malibu Australia operating segment principally serves the Australian and New Zealand markets. Our Cobalt segment participates in the manufacturing, distribution, marketing and sale of Cobalt boats throughout the world. Our Pursuit segment participates in the manufacturing, distribution, marketing and sale of Pursuit boats throughout the world. Malibu U.S. is our largest segment and represented 51.8% and 59.9% of our net sales ~~for the nine months ended March 31, 2019~~ and ~~March 31, 2018, respectively. Cobalt represented 30.7% and 35.2%~~may result in downward pressure on pricing of our ~~net sales for the nine months ended March 31, 2019 and March 31, 2018, respectively. We completed the acquisition of Pursuit on October 15, 2018 and Pursuit represented 13.6%~~boats. Some of our ~~net sales~~dealers have informed us that their financing sources have provided relief for ~~the nine months ended March 31, 2019 . Malibu Australia represented 3.9%~~our dealers through interest payment deferrals and ~~4.9%~~curtailments. We are also evaluating ways in which we may be able to support our dealers with respect to their financing obligations, but we currently have no definitive plans. In addition to our dealers, many of our ~~net sales~~suppliers have also experienced temporary closures. If our suppliers are delayed in resuming their operations, it could impact our ability to receive certain components and materials that are essential to the construction of our boats. To date, we have not experienced a meaningful impact from a delay in our supplies. However, if we do not receive sufficient supplies of materials for production of boats, we may experience delays in our production of boats which could result in a decrease in boats available for sale and an increase in our cost of sales.

We believe we are well-positioned to withstand the ~~nine months ended March 31, 2019 and March 31, 2018, respectively. See Note 17 to our unaudited condensed consolidated financial statements for more information about our reporting segments.~~

~~Acquisition of Pursuit~~

~~On October 15, 2018, we completed our acquisition of assets of the Pursuit Boats division of S2 Yachts, Inc., pursuant to an asset purchase agreement dated as of August 21, 2018.~~current economic environment. We paid an aggregate purchase price of $100.1 million. A portion of the purchase price was deposited into an escrow account to secure certain post-closing obligations of the sellers. We paid the purchase price for the acquisition with $50.1have approximately $113.0 million of cash on hand as of May 5, 2020. Further, we have a flexible cost structure that allows us to more closely align our costs with expected lower wholesale shipments that will likely result from the COVID-19 pandemic and ~~$50.0 million~~related economic recovery. While we expect our leading market share positions, flexible cost structure and liquidity position will help us to navigate through these uncertain times, we expect the COVID-19 pandemic will have a larger impact on our results of ~~borrowings under~~operations for our ~~revolving credit facility.~~

fourth quarter of fiscal year 2020 and beyond than that which has been reflected in our results for our third quarter of fiscal year 2020. Further, the pandemic could have a stronger impact on our results for the fiscal year 2021 because our dealers have traditionally experienced stronger sales of our products during the spring and summer months, which, if meaningfully impacted, would result in our dealers having excess inventory and likely result in reduced wholesale shipments during fiscal year 2021. As ~~noted, we borrowed $50.0 million under our revolving credit facility to fund a portion~~shelter-in-place orders began around the start of the ~~purchase price~~spring and could be extended through the summer, we expect that sales of ~~Pursuit. Our subsidiary, Malibu Boats, LLC,~~our boats for this year’s boating season will be negatively impacted. Going forward, given that the COVID-19 pandemic has caused a significant economic slowdown it appears increasingly likely that it could cause a global recession, which could be of an unknown duration, and as ~~the borrower, entered into the First Incremental Facility Amendment~~a result we expect sales of our boats to be adversely impacted by any such economic slowdown.

The ultimate impact of COVID-19 on our financial condition and ~~First Amendment to its existing Second Amendment and Restated Credit Agreement dated as~~results of June 28, 2017 (as amended, the "Credit Agreement"). The amendment increased the amount available under the revolving credit facility by $50.0 million (the “Incremental Revolving Commitment”) from $35.0 million to $85.0 million. The availabilityoperations will depend on all of the ~~Incremental Revolving Commitment was subject~~factors noted above, including other factors that we may not be able to forecast at this time. See the ~~satisfaction~~risk factor “The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, and those of ~~certain conditions set forth in~~our dealers and suppliers, thereby adversely affecting our business, financial condition and results of operations.” underPart II. Item 1A. of this Quarterly Report on Form 10-Q. While we expect the ~~amendment, including~~impacts of COVID-19 to have an adverse effect on our business, financial condition and results of operations, we are unable to predict the ~~closing~~extent of ~~the acquisition of the assets of Pursuit. Malibu was required to pay a ticking fee~~these impacts at a rate of 0.30% per annum on the $50.0 million Incremental Revolving Commitment until the conditions for the lenders to provide the Incremental Revolving Commitment were met, which occurred on October 15, 2018, the closing date of the acquisition. Revolving loans made pursuant to the amendment have terms and conditions identical to revolving loans under the Credit Agreement.this time.

Outlook

Industry-wide marine retail registrations ~~continue~~continued to recover from the years following the global financial ~~crisis.~~crisis through 2019. 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 ~~6.0%~~5.2% between 2011 and ~~2018,~~2019, for the 50 reporting states. This has been led by growth in our core market, performance sport boats, having produced a ~~double digit~~double-digit compound annual growth rate over that period. ~~Domestic retail demand growth has continued in performance sport boats for calendar year 2018 and, in fact, has accelerated versus 2017.~~ Fiberglass sterndrive and outboard boats, the target markets for our Cobalt and Pursuit branded products, have seen their combined market grow at a ~~5.4%~~4.5% compound annual growth rate between 2011 and ~~2018.~~2019. That growth has been driven by the outboard market, where Pursuit is focused and Cobalt is a ~~new~~newer entrant and where we plan to meaningfully expand our market share in the future. While ~~Cobalt’s~~sterndrive propulsion, Cobalt's primary market, ~~for sterndrive propulsion~~ has been challenged, ~~their~~Cobalt's performance ~~has been~~continues to be helped by ~~strength in larger sterndrive boats and~~ market share ~~gains.~~gains and they continued to see registration growth through 2019. During 2019 the fiberglass outboard market had actually begun a minor contraction (down 0.3%). However, in foot lengths 23 feet and greater, where Pursuit and Cobalt compete, the market continued to grow. While domestic retail registrations performance sport boats, fiberglass sterndrive and fiberglass outboards continued to grow in 2019, the growth rate decreased compared to 2018. We ~~expect the growing demand for our products to continue, and there are numerous variables that have the potential to impact our volumes, both positively and negatively. For example, we~~ believe the ~~substantial~~lower market growth rates in 2019 were largely driven by negative seasonal weather trends in key months for retail boat sales and the back half of the year represented more robust retail growth.

Strong retail sales in the latter part of 2019 positioned us and our dealers well heading into 2020. Early boat show results were reasonably strong despite lower retail registration data through March and we felt poised for a strong fiscal and calendar 2020. However, the onset of the COVID-19 pandemic and the resulting decrease in economic activity has meaningfully changed the ~~price~~landscape and left us in a position of ~~oil, broad strength~~uncertainty as to where the market is headed. We are aggressively monitoring retail activity at our dealers, internal warranty registrations, retail registrations with states, and flooring liquidation activity. We believe that March and April retail registrations will be lower compared to the same period last year. The temporary suspension of our operations for the ~~U.S. dollar and recently implemented tariffs has resulted in reduced demand for~~COVID-19 pandemic allowed us to reduce the amount of inventory shipped to our ~~boats in certain markets. To date, growth in our~~

dealers, which will

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~~domestic~~give our dealers the opportunity to decrease their inventory levels in preparation for a potentially smaller retail market. While we expect a decrease in retail registrations in March and April and a potentially smaller retail market ~~has offset significantly diminished demand from economies that are driven by~~as a result of the ~~oil industry and international markets. Consumer confidence, expanded or eroded, is~~COVID-19 pandemic, we also have a ~~variable that could also impact demand in both directions. Additionally,~~meaningful order book of confirmed orders for retail customers, most of which we are ~~monitoring the possibility of another federal government shutdown~~targeting to deliver before Memorial Day. We will we continue to monitor retail activity closely in the ~~United States, as~~upcoming months. We believe we ~~believe a prolonged shutdown could result in a negative impact~~are well positioned to manage the current environment with our variable cost structure and strong capital structure. We will also continue to focus on our ~~business. Other challenges that could impact demand for recreational powerboats include higher interest rates reducing retail consumer appetite for our product, the availability~~key strategies of ~~credit to our dealers~~innovation, vertical integration 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.world class manufacturing.

~~Since 2008, we~~We have increased our market share among manufacturers of performance sport boats since 2008 due to new product development, improved distribution, new models, and innovative features. As the market for our product ~~has~~ recovered, our competitors ~~have become~~became more aggressive in their product introductions, increased their distribution and begun to compete with our patented Surf Gate system. This competitive environment has continued ~~throughout~~ the past few years, but we continue to maintain a strong lead over our nearest competitor in terms of market position and we believe the current market conditions present us with another opportunity to distinguish ourselves from our competitors. We also believe that we are well positioned to maintain and expand our industry leading position given our strong dealer network and new product pipeline. ~~In addition,~~Within the performance sport boats market, we also continue to be the market share leader in both the premium and value-oriented product sub-categories.

We believe our track record of expanding our market share ~~due to~~through new product development, improved distribution, new models, and innovative features is directly transferable to our Cobalt and Pursuit acquisitions. While Cobalt and Pursuit are market leaders in certain areas, we believe our experience positions us to execute a strategy to drive enhanced share by expanding both the Cobalt and Pursuit product offerings with different foot lengths, different boat types and different propulsion technologies. Our teams have been focused on new product development efforts at Cobalt and Pursuit ~~will take time~~ and our ~~ability to influence near-term model introductions is limited, but we have already begun to execute on this strategy.~~goal of introducing a meaningful amount of new product over the next two years. We believe enhancing new product development combined with diligent management of the Cobalt and Pursuit dealer networks, even in the face of adverse market conditions, positions 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, including through our vertical integration efforts, sales cycles and inventory levels, the strength of our dealer network and our ability to offer dealer financing and incentives. 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 ~~primarily~~ generate revenue from sales of boats to our dealers. The substantial majority of our net sales are derived from the sale of boats, ~~and trailers,~~ including optional features added 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 ~~in limited circumstances and at our discretion~~ under our warranty program; and

•Rebates, free flooring and discounts—consists of incentives, rebates and free flooring, we provide to our dealers based on sales of eligible products. For our Malibu and Axis models, if a domestic dealer meets its monthly or quarterly commitment volume, ~~based on tier,~~ as well as other terms of the ~~rebate~~dealer performance program, the dealer is entitled to a specified ~~rebate tied to each tier.~~rebate. Cobalt dealers are entitled to volume-based discounts taken at the time of invoice. For our Pursuit models, if a dealer meets its quarterly or annual retail volume goals, the dealer is entitled to a specific rebate ~~tied to each tier and~~ applied to their wholesale volume purchased from Pursuit. For Malibu and Cobalt models and select Pursuit 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, and general and administrative 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.

Other (Income) Expense, Net

Other (income) expense, net consists of interest expense and other income or ~~(expense),~~expense, net. Interest expense consists of interest charged ~~on our term loan and borrowings~~ under our ~~revolving credit facility,~~outstanding debt, interest on our interest rate swap arrangement and change in the fair value of our interest rate swap we entered into on July 1, 2015, which matured on March 31,2020, and amortization of deferred financing costs on our ~~amended and restated~~ credit ~~agreement and~~facilities. Other income expense, net consists mostly of adjustments to our tax receivable agreement liability.

Income Taxes

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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. The provision for income taxes reflects an estimated effective income tax rate attributable to Malibu Boats, Inc.'s share of income. The estimated effective income tax rate used to determine the provision for income taxes typically differs from the statutory federal income tax rate due to the impact of state taxes, our ability to utilize certain tax credits and the impact of the non-controlling interests in the LLC. Our effective tax rate also reflects the impact of our share of the LLC's permanent items such as stock compensation expense attributable to profits interests.

Net Income Attributable to Non-controlling Interest

As of March 31, 2020 and 2019, we had a 96.3% and 96.2% 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.

Segment Reporting

Effective July 1, 2019, we revised our segment reporting to conform to changes in our internal management reporting based on our boat manufacturing operations. Segment information has been revised for comparison purposes for all periods presented in the condensed consolidated financial statements. We now have three reportable segments, Malibu, Cobalt and Pursuit. The Malibu segment participates in the manufacturing, distribution, marketing and sale of Malibu and Axis performance sports boats throughout the world. The Cobalt and Pursuit segments participate in the manufacturing, distribution, marketing and sale of Cobalt and Pursuit boats, respectively, throughout the world. Malibu is our largest segment and represented 53.5% and 55.7% of our net sales for the nine months ended March 31, 2020 and March 31, 2019, respectively. Cobalt represented 27.1% and 30.7% of our net sales for the nine months ended March 31, 2020 and March 31, 2019, respectively. We completed the acquisition of Pursuit on October 15, 2018 and Pursuit represented 19.4% and 13.6% of our net sales for the nine months ended March 31, 2020 and March 31, 2019. See Note 18 to our unaudited interim condensed consolidated financial statements for more information about our reporting segments.

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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 March 31,										Nine Months Ended March 31,											Three Months Ended March 31,														Nine Months Ended March 31,
	2019					2018					2019					2018						2020						2019						2020				2019
	$			% Revenue		$			% Revenue		$			% Revenue		$			% Revenue			$		% Revenue		$		% Revenue		$		% Revenue		$		% Revenue
Net sales	199,918			100.0	%	140,429			100.0	%	489,194			100.0	%	358,343			100.0	%	Net sales	182,310		100.0	%	199,918		100.0	%	534,502		100.0	%	489,194		100.0	%
Cost of sales	150,196			75.1	%	104,066			74.1	%	370,656			75.8	%	271,541			75.8	%	Cost of sales	136,461		74.9	%	150,196		75.1	%	408,784		76.5	%	370,656		75.8	%
Gross profit	49,722			24.9	%	36,363			25.9	%	118,538			24.2	%	86,802			24.2	%	Gross profit	45,849		25.1	%	49,722		24.9	%	125,718		23.5	%	118,538		24.2	%
Operating expenses:																					Operating expenses:
Selling and marketing	5,273			2.6	%	3,263			2.3	%	13,372			2.7	%	9,974			2.8	%	Selling and marketing	4,572		2.5	%	5,273		2.6	%	14,304		2.7	%	13,372		2.7	%
General and administrative	12,324			6.2	%	7,862			5.6	%	32,527			6.6	%	22,371			6.2	%	General and administrative	9,643		5.3	%	12,324		6.2	%	30,389		5.7	%	32,527		6.6	%
Amortization	1,563			0.8	%	1,291			0.9	%	4,381			0.9	%	3,903			1.1	%	Amortization	1,501		0.8	%	1,563		0.8	%	4,622		0.9	%	4,381		0.9	%
Operating income	30,562			15.3	%	23,947			17.1	%	68,258			14.0	%	50,554			14.1	%	Operating income	30,133		16.5	%	30,562		15.3	%	76,403		14.2	%	68,258		14.0	%
Other expense, net:
Other (income) expense, net:																					Other (income) expense, net:
Other income, net	(712		)	(0.4	)%	(17		)	—	%	(746		)	(0.2	)%	(27,753		)	(7.7	)%	Other income, net	(1,660)		(0.9)	%	(712)		(0.4)	%	(1,679)		(0.3)	%	(746)		(0.2)	%
Interest expense	1,750			0.9	%	923			0.7	%	4,765			1.0	%	4,136			1.2	%	Interest expense	940		0.5	%	1,750		0.9	%	3,064		0.5	%	4,765		1.0	%
Other (income) expense, net	1,038			0.5	%	906			0.6	%	4,019			0.8	%	(23,617		)	(6.6	)%	Other (income) expense, net	(720)		(0.4)	%	1,038		0.5	%	1,385		0.2	%	4,019		0.8	%
Income before provision for income taxes	29,524			14.8	%	23,041			16.4	%	64,239			13.2	%	74,171			20.7	%	Income before provision for income taxes	30,853		16.9	%	29,524		14.8	%	75,018		14.0	%	64,239		13.2	%
Provision for income taxes	7,321			3.7	%	6,245			4.4	%	15,023			3.1	%	56,545			15.8	%	Provision for income taxes	6,987		3.8	%	7,321		3.7	%	16,872		3.2	%	15,023		3.1	%
Net income	22,203			11.1	%	16,796			12.0	%	49,216			10.1	%	17,626			4.9	%	Net income	23,866		13.1	%	22,203		11.1	%	58,146		10.8	%	49,216		10.1	%
Net income attributable to non-controlling interest	1,104			0.6	%	1,124			0.8	%	2,562			0.5	%	2,452			0.7	%	Net income attributable to non-controlling interest	1,088		0.6	%	1,104		0.6	%	2,787		0.5	%	2,562		0.5	%
Net income attributable to Malibu Boats, Inc.	21,099			10.5	%	15,672			11.2	%	46,654			9.6	%	15,174			4.2	%	Net income attributable to Malibu Boats, Inc.	22,778		12.5	%	21,099		10.5	%	55,359		10.3	%	46,654		9.6	%

	Three Months Ended March 31,										Nine Months Ended March 31,											Three Months Ended March 31,														Nine Months Ended March 31,
	2019					2018					2019					2018						2020						2019						2020				2019
	Unit Volumes			% Total		Unit Volumes			% Total		Unit Volumes			% Total		Unit Volumes			% Total			Unit Volumes		% Total		Unit Volumes		% Total		Unit Volumes		% Total		Unit Volumes		% Total
Volume by Segment																					Volume by Segment
Malibu U.S.	1,233			58.9	%	1,109			62.1	%	3,091			57.6	%	2,769			60.4	%
Malibu																					Malibu	1,139		63.4	%	1,306		62.4	%	3,254		61.1	%	3,343		62.3	%
Cobalt	645			30.8	%	615			34.4	%	1,773			33.0	%	1,594			34.8	%	Cobalt	521		29.0	%	645		30.8	%	1,652		31.0	%	1,773		33.0	%
Pursuit	143			6.8	%	—			—	%	254			4.7	%	—			—	%
Australia	73			3.5	%	62			3.5	%	252			4.7	%	221			4.8	%
Total units	2,094					1,786					5,370					4,584

Volume by Brand
Malibu	869			41.5	%	823			46.1	%	2,288			42.6	%	2,112			46.1	%
Axis	437			20.9	%	348			19.5	%	1,055			19.7	%	878			19.1	%
Cobalt	645			30.8	%	615			34.4	%	1,773			33.0	%	1,594			34.8	%
Pursuit	143			6.8	%	—			—	%	254			4.7	%	—			—	%
Pursuit¹																					Pursuit¹	136		7.6	%	143		6.8	%	421		7.9	%	254		4.7	%
Total units	2,094					1,786					5,370					4,584					Total units	1,796				2,094				5,327				5,370

Net sales per unit	$	95,472				$	78,628				$	91,098				$	78,173				Net sales per unit	$	101,509			$	95,472			$	100,338			$	91,098

(1) We acquired substantially all of the assets of Pursuit on October 15, 2018.

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Comparison of the Three Months Ended March 31, ~~2019~~2020 to the Three Months Ended March 31, ~~2018~~2019

Net Sales

Net sales for the three months ended March 31, ~~2019 increased $59.5~~2020 decreased $17.6 million, or ~~42.4%~~8.8%, to ~~$199.9~~$182.3 million as compared to the three months ended March 31, ~~2018.~~2019. Unit volume for the three months ended March 31, ~~2019, increased 308~~2020, decreased 298 units, or ~~17.2%~~14.2%, to ~~2,094~~1,796 units as compared to the three months ended March 31, ~~2018.~~2019. The decrease in net sales and unit volumes was driven primarily by the precautionary suspension of operations at all of our manufacturing facilities commencing on March 24,

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2020 as a result of the COVID-19 pandemic. As a result of our suspension of operations, we were not able to ship boats to our dealers during the last week of the fiscal quarter, which negatively impacted our net sales for the quarter.In addition to the pandemic, but to a lesser effect, we also had planned lower production ratesat Cobalt to reduce wholesale shipments and dealer inventories that negatively impacted sales versus the prior year period. This decrease was partially offset by a higher average selling price due to model mix and year-over-year price increases.

Net sales attributable to our Malibu ~~U.S.~~ segment ~~increased $15.9~~decreased $4.8 million, or ~~18.6%~~4.5%, to ~~$101.6~~$102.6 million for the three months ended March 31, ~~2019,~~2020, compared to the three months ended March 31, ~~2018.~~2019. Unit volumes attributable to our Malibu ~~U.S.~~ segment ~~increased 124~~decreased 167 units for the three months ended March 31, ~~2019,~~2020, compared to the three months ended March 31, ~~2018.~~2019. The ~~increase~~decrease in net sales and unit ~~volume for Malibu U.S.~~volumes was driven primarily by ~~strong demand for new models and optional features, which led to a higher net sales per unit for~~the precautionary suspension of operations at our Malibu and Axis ~~models. Net sales~~facilities commencing on March 24, 2020 as a result of the COVID-19 pandemic. This decrease was ~~also impacted~~partially offset by mix of our new larger models and year-over-year price increases on all of our Malibu and Axis models.

Net sales from our Cobalt segment ~~increased $6.1~~decreased $10.0 million, or ~~12.3%~~17.9%, to ~~$56.0~~$46.0 million for the three months ended March 31, ~~2019,~~2020, compared to the three months ended March 31, ~~2018.~~2019. Unit volumes attributable to Cobalt ~~increased 30~~decreased 124 units for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018.~~2019. The ~~increase~~decrease in ~~Cobalt~~ net sales and unit ~~volume was~~volumes were driven primarily by ~~strong demand for~~the precautionary suspension of operations at our ~~R series models. Net~~Cobalt facility commencing on March 24, 2020 as a result of the COVID-19 pandemic. In addition to the pandemic, but to a lesser effect, we also had planned lower production rates at Cobalt to reduce wholesale shipments and dealer inventories that negatively impacted sales versus the prior year period. The decrease was ~~also impacted~~partially offset by year-over-year price increases on ~~all of~~ our Cobalt models.

~~Since our acquisition of Pursuit on October 15, 2018, net sales and unit volume contributed by Pursuit were $36.5 million and 143 units, respectively, for the three months ended March 31, 2019.~~

Net sales from our ~~Malibu Australia~~Pursuit segment ~~increased $1.0~~decreased $2.8 million, or ~~20.6%~~7.6%, to ~~$5.8~~$33.7 million, for the three months ended March 31, ~~2019,~~2020, compared to the three months ended March 31, ~~2018.~~2019. Unit volumes attributable to Pursuit decreased seven units for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The decrease in net sales and unit volumes were driven primarily by the precautionary suspension of operations at our Pursuit facility commencing on March 24, 2020 as a result of the COVID-19 pandemic. Additionally, the decrease in Pursuit net sales was driven by the lower average selling price due to the mix of models sold partially offset by year-over-year price increases on our Pursuit models.

Overall consolidated net sales per unit increased ~~21.4%~~6.3% to ~~$95,472~~$101,509 per unit for the three months ended March 31, ~~2019,~~2020, compared to the three months ended March 31, ~~2018.~~2019. Net sales per unit for our Malibu ~~U.S.~~ segment increased ~~6.7%~~9.5% to ~~$82,401~~$90,083 per unit for the three months ended March 31, ~~2019,~~2020, compared to the three months ended March 31, ~~2018,~~2019, driven by ~~strong demand for~~higher sales of new, more expensive models and optional features and year-over-year price increases. Net sales per unit for our Cobalt segment increased ~~7.0%~~1.7% to ~~$86,885~~$88,345 per unit for the three months ended March 31, ~~2019,~~2020, compared to the three months ended March 31, ~~2018,~~2019, driven by ~~a favorable mix of R series models which have a higher average selling price as well as~~ year-over-year price increases. Net sales per unit for Pursuit segment decreased 2.9% to $247,632 for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, ~~was $254,951.~~driven by a lower average selling price due to the mix of models sold offset slightly by year-over-year price increases.

Cost of Sales

Cost of sales for the three months ended March 31, ~~2019 increased $46.1~~2020 decreased $13.7 million, or ~~44.3%~~9.1%, to ~~$150.2~~$136.5 million as compared to the three months ended March 31, ~~2018.~~2019. The ~~increase~~decrease in cost of sales was driven primarily by ~~incremental costs contributed by Pursuit since its acquisition in October 2018 and an increase in unit volumes~~the precautionary suspension of operations at all of our ~~Malibu U.S. and Cobalt businesses.~~manufacturing facilities commencing on March 24, 2020 as a result of the COVID-19 pandemic.

Gross Profit

Gross profit for the three months ended March 31, ~~2019 increased $13.4~~2020 decreased $3.9 million, or ~~36.7%~~7.8%, to ~~$49.7~~$45.8 million compared to the three months ended March 31, ~~2018.~~2019. The ~~increase~~decrease in gross profit was driven primarily by lower sales revenue due ~~mainly~~ to ~~higher unit volumes.~~the precautionary suspension of operations at all of our manufacturing facilities commencing on March 24, 2020 as a result of the COVID-19 pandemic. Gross margin for the three months ended March 31, ~~2019 decreased 100~~2020 increased 20 basis points from ~~25.9%~~24.9% to 24.9% over the same period in the prior fiscal year primarily due to the integration of Pursuit. Our gross margins increased year-over-year for our comparable businesses primarily as a result of our operational efficiency initiatives.25.1%.

Operating Expenses

Selling and marketing expenses for the three ~~month period~~months ended March 31, ~~2019, increased $2.0~~2020, decreased $0.7 million, or ~~61.6%~~13.3% to $4.6 million compared to the three months ended March 31, ~~2018 due primarily to the incremental expenses incurred as a result of the acquisition of Pursuit.~~2019. As a percentage of sales, selling and marketing expenses ~~increased 30~~decreased 10 basis points compared to the same period in the prior fiscal year. General and administrative expenses for the three months ended March 31, ~~2019, increased $4.5~~2020, decreased $2.7 million, or ~~56.8%~~21.8%, to ~~$12.3~~$9.6 million as compared to the three months ended March 31, ~~2018, largely~~2019, due primarily to ~~incremental general and administrative expenses attributable to Pursuit, integration~~a decrease in incentive compensation for the three months ended March 31, 2020. In addition, we incurred acquisition related expenses in the three months ended March 31, 2019 for our acquisition of ~~Pursuit and higher legal expenses related to intellectual property litigation.~~Pursuit. As a percentage of sales, general and administrative expenses ~~increased 60~~decreased 90 basis points to ~~6.2%~~5.3% for the three months ended

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March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018.~~2019. Amortization expense for the three ~~month period~~months ended March 31, ~~2019, increased $0.3 million, or 21.1% to $1.6~~2020 remained flat at $1.5 million compared to the three months ended March 31, ~~2018 due to additional amortization expense related to intangibles acquired as part of the Pursuit acquisition.~~

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2019.

Other (Income) Expense, Net

Other (income) expense, net for the three ~~month period~~months ended March 31, ~~2019~~2020 changed by ~~$0.1~~$1.7 million to income of $0.7 million as compared to expense of $1.0 million, for the three months ended March 31, ~~2018 from $0.9 million of expense to $1.0 million of expense. The change is~~2019 primarily due to ~~higher~~decreased interest expense ~~on loans because of an overall higher average principal balance for the three month period ended March 31, 2019 compared to the same prior year period, as~~and a ~~result of our $50.0~~$1.7 million ~~of borrowing under our revolving credit facility to finance a portion of the purchase price for Pursuit. This increase was partially offset by other income we recognized from an adjustment~~reduction in our tax receivable agreement liability, which resulted in us recognizing a corresponding amount as ~~a result~~other income during the period. The reduction of ~~a decrease in the estimated~~our tax ~~rate used in computing our future tax obligations and, in turn, a decrease in~~receivable agreement liability decreased the future tax benefit we expect to pay under our tax receivable ~~agreement~~agreements with our pre-IPO owners. Interest expense decreased due to a lower interest rate and lower average outstanding debt during the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019. We expect our interest expense to increase in the fourth quarter of fiscal year 2020 because of our borrowing of $98.8 million under our revolving credit facility in March to provide us financial flexibility during the COVID-19 pandemic.

Provision for Income Taxes

Our provision for income taxes for the three months ended March 31, ~~2019, increased $1.1~~2020, decreased $0.3 million, or 4.6%, to ~~$7.3~~$7.0 million compared to the three months ended March 31, ~~2018.~~ 2019. This decrease was primarily driven by remeasurement of deferred taxes in prior year, partially offset by increased consolidated earnings this year. For the three months ended March 31, 2020, our effective tax rate of 22.6% exceeded the statutory federal income tax rate of 21% primarily due to the impact of U.S. state taxes. This increase was ~~primarily due to~~partially offset by the ~~recording~~benefits of ~~an adjustment for U.S. state taxes~~the foreign derived intangible income deduction, the research and development tax credit, a windfall benefit generated by certain stock based compensation, and the ~~remeasurement~~impact of ~~deferred taxes.~~ non-controlling interests in the LLC.For the three months ended March 31, 2019, our effective tax rate of 24.8% ~~differed from~~exceeded the statutory federal income tax rate of 21% ~~primarily~~ due to the impact of U.S. state taxes and remeasurement of deferred taxes. This increase 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. For the three months ended March 31, 2018, our effective tax rate of 27.1% differed from the blended statutory federal income tax rate of approximately 28% primarily due to the remeasurement of deferred taxes, the impact of non-controlling interests in the LLC, a pass through for U.S. federal income tax purposes, state income taxes attributable to the LLC, and the benefit of deductions under Section 199 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code").

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 ~~three month~~applicable period, ~~ended March 31, 2019,~~ by the percentage ownership in the LLC not directly attributable to us. For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the weighted average non-controlling interest attributable to ownership interests in the LLC not directly attributable to us was ~~3.9%~~3.8% and ~~5.0%~~3.9%, respectively.

Comparison of the Nine Months Ended March 31, ~~2019~~2020 to the Nine Months Ended March 31, ~~2018~~2019

Net Sales

Net sales for the nine months ended March 31, ~~2019~~2020 increased ~~$130.8~~$45.3 million, or ~~36.5%~~9.3%, to ~~$489.2~~$534.5 million as compared to the nine months ended March 31, ~~2018.~~2019. Unit volume for the nine months ended March 31, ~~2019, increased 786~~2020, decreased 43 units, or ~~17.1%~~0.8%, to ~~5,370~~5,327 units as compared to the nine months ended March 31, ~~2018.~~2019. The increase in net sales was primarily driven by an increase in unit volumes due to the acquisition of Pursuit on October 15, 2018, as well as increased mix for our Malibu and Axis brands coupled with year-over-year price increases across all brands. This increase was partially offset by a decrease in unit volumes at Cobalt and Malibu for the nine months ended March 31, 2020 due primarily to the precautionary suspension of operations at all of our manufacturing facilities commencing on March 24, 2020 as a result of the COVID-19 pandemic.

Net sales attributable to our Malibu ~~U.S.~~ segment increased ~~$38.9~~$13.2 million, or ~~18.1%~~4.8%, to ~~$253.6~~$285.8 million for the nine months ended March 31, ~~2019,~~2020, compared to the nine months ended March 31, ~~2018.~~2019. Unit volumes attributable to our Malibu ~~U.S.~~ segment ~~increased 322~~decreased 89 units for the nine months ended March 31, ~~2019,~~2020, compared to the nine months ended March 31, ~~2018.~~2019. The increase in net sales ~~and unit volume~~ for Malibu ~~U.S.~~ was driven primarily by ~~strong demand~~higher sales for new, more expensive models and optional features, which led to a higher net sales per unit for Malibu and Axis models. ~~Net sales~~This increase was ~~also impacted~~partially offset by ~~year-over-year price increases on all~~a decrease in unit volumes for the nine months ended March 31, 2020 due primarily to the precautionary suspension of operations at our Malibu and Axis ~~models.~~facilities commencing on March 24, 2020 as a result of the COVID-19 pandemic.

Net sales from our Cobalt segment ~~increased $23.9~~decreased $5.0 million, or ~~19%~~3.3%, to ~~$150.1~~$145.2 million for the nine months ended March 31, ~~2019,~~2020, compared to the nine months ended March 31, ~~2018.~~2019. Unit volumes attributable to Cobalt ~~increased 179~~decreased 121 units for the nine months ended March 31, ~~2019~~2020 compared to the nine months ended March 31, ~~2018.~~2019. The ~~increase~~decreases in ~~Cobalt~~ net sales and unit volume was primarily driven ~~primarily~~ by ~~strong demand for~~the precautionary suspension of operations at our ~~R series models. Net~~Cobalt facility commencing on March 24, 2020 as a result of the COVID-19 pandemic. The decrease in net sales was ~~also impacted~~partially offset by year-over-year price increases on ~~all of~~ our Cobalt models.

~~Since our acquisition~~

Table of ~~Pursuit on October 15, 2018, net sales and unit volume contributed by Pursuit were $66.4 million and 254 units, respectively, for the nine months ended March 31, 2019.~~Contents

Net sales from our ~~Malibu Australia~~Pursuit segment increased ~~$1.6~~$37.1 million, or ~~9.1%,~~55.9% to ~~$19.1~~$103.5 million for the nine months ended March 31, ~~2019,~~2020 compared to the nine months ended March 31, ~~2018.~~

~~Overall consolidated net sales per unit~~2019. Unit volumes attributable to Pursuit increased ~~16.5% to $91,098~~167 units for the nine months ended March 31, ~~2019,~~2020 compared to the nine months ended March 31, 2019. The increase in Pursuit net sales resulted from a full nine months of sales from Pursuit in the first nine months of fiscal 2020 compared to a partial six months in the first nine months of fiscal 2019 and year-over-year price increases, partially offset by the lower average selling price due to the mix of models sold and the precautionary suspension of operations at our Pursuit facility commencing on March 24, 2020 as a result of the COVID-19 pandemic. We acquired the assets of Pursuit on October 15, 2018. ~~Net~~

Overall consolidated net sales per unit ~~for our Malibu U.S. segment~~ increased ~~5.8%~~10.1% to ~~$82,029~~$100,338 per unit for the

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nine months ended March 31, ~~2019,~~2020, compared to the nine months ended March 31, ~~2018,~~ 2019 driven by ~~strong demand~~a higher mix of Pursuit models which have a higher average selling price per unit than our other brands, sold in the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019 since the acquisition of Pursuit on October 15, 2018. Net sales per unit for our Malibu segment increased 7.7% to $87,834 per unit for the nine months ended March 31, 2020, compared to the nine months ended March 31, 2019, driven by higher sales for new, more expensive models and optional features and year-over-year price increases. Net sales per unit for our Cobalt segment increased ~~7.0%~~3.8% to ~~$84,685~~$87,877 per unit for the nine months ended March 31, ~~2019,~~2020, compared to the nine months ended March 31, ~~2018,~~2019, driven by ~~a favorable mix of R series models which have a higher average selling price as well as~~ year-over-year price increases. Net sales per unit for Pursuit segment decreased 5.9% to $245,886 for the ~~three~~nine months ended March 31, 2020, compared to the nine months ended March 31, 2019, ~~was $261,358.~~driven by lower average selling price due to the mix of models sold offset slightly by year-over-year price increases.

Cost of Sales

Cost of sales for the nine months ended March 31, ~~2019~~2020 increased ~~$99.1~~$38.1 million, or ~~36.5%~~10.3%, to ~~$370.7~~$408.8 million as compared to the nine months ended March 31, ~~2018.~~2019. The increase in cost of sales was driven primarily by incremental costs ~~contributed by~~associated with the inclusion of Pursuit ~~and~~for the first full nine months, as opposed to a partial six months in the same period in the prior fiscal year, as well as, a higher cost of sales per unit that corresponded with an increase in ~~unit volumes at our Malibu U.S. and Cobalt businesses.~~average selling price.

Gross Profit

Gross profit for the nine months ended March 31, ~~2019~~2020 increased ~~$31.7~~$7.2 million, or ~~36.6%~~6.1%, to ~~$118.5~~$125.7 million compared to the nine months ended March 31, ~~2018.~~2019. The increase in gross profit was due ~~mainly~~ to a higher ~~unit volumes.~~gross profit per unit. Gross margin for the nine months ended March 31, ~~2019 remained flat at~~2020 decreased 70 basis points from 24.2% to 23.5% over the same period in the prior fiscal year primarily due to ~~costs associated with~~ the integration ~~and acquisition~~ of Pursuit ~~offset by our operational efficiencies gained~~and $2.6 million in ~~our Cobalt business.~~costs related to the United Auto Workers' ("UAW") strike against General Motors.

Operating Expenses

Selling and marketing expenses for the nine ~~month period~~months ended March 31, ~~2019,~~2020, increased ~~$3.4~~$0.9 million, or ~~34.1%~~7.0%, to $14.3 million compared to the nine months ended March 31, ~~2018~~2019 due primarily to the incremental expenses ~~incurred as a result of the acquisition of~~attributable to Pursuit. As a percentage of sales, selling and marketing expenses ~~decreased 10 basis points~~remained flat compared to the same period in the prior fiscal year. General and administrative expenses for the nine months ended March 31, ~~2019, increased $10.2~~2020, decreased $2.1 million, or ~~45.4%~~6.6%, to ~~$32.5~~$30.4 million as compared to the nine months ended March 31, ~~2018,~~2019, largely due to expenses related to the acquisition of Pursuit in the nine months ended March 31, 2019 that were not incurred during the nine months ended March 31, 2020, partially offset by incremental general and administrative expenses attributable to Pursuit ~~integration related expenses for our acquisition of Pursuit and higher legal expenses related to intellectual property litigation.~~during the nine months ended March 31, 2020. As a percentage of sales, general and administrative expenses ~~increased 40~~decreased 90 basis points from 6.6% to ~~6.6%~~5.7% for the nine months ended March 31, ~~2019~~2020 compared to the nine months ended March 31, ~~2018.~~2019. Amortization expense for the nine months ended March 31, ~~2019,~~2020, increased ~~$0.5~~$0.2 million, or ~~12.2%~~5.5% to ~~$4.4~~$4.6 million compared to the nine months ended March 31, ~~2018 primarily~~2019 due to additional amortization expense related to intangibles acquired as part of the Pursuit acquisition.

Other (Income) Expense, Net

Other (income) expense, net for the nine months ended March 31, ~~2019 changed by $27.6~~2020 decreased $2.6 million, asor 65.5%, to $1.4 million compared to the nine months ended March 31, ~~2018 from income of $23.6 million for the nine months ended March 31, 2018 to expense of $4.0 million for the nine months ended March 31, 2019. The change was primarily~~2019 due to lower interest expense on our outstanding debt and a ~~$27.7~~$1.7 million ~~reduction in~~adjustment to our tax receivable agreement liability, ~~for the nine months ended March 31, 2018,~~ which resulted in us recognizing a corresponding amount as other income during the ~~same~~ period. The reduction of our tax receivable agreement liability ~~primarily resulted from a decrease in the estimated tax rate used in computing our future tax obligations as a result of the Tax Act, which, in turn,~~ decreased the future tax benefit we expect to pay under our tax receivable agreements with our pre-IPO owners. ~~For~~Interest expense decreased due to a lower interest rate and lower average outstanding debt during the nine months ended March 31, ~~2019, we recognized higher interest expense on our loans because of an overall higher average principal balance~~2020 compared to the same prior year period, as a result of our $50.0 million of borrowing under our revolving credit facility to finance a portion of the purchase price for Pursuit. This higher interest expense was partially offset by other income we recognized from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and, in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners.nine months ended March 31, 2019.

Provision for Income Taxes

Our provision for income taxes for the nine months ended March 31, ~~2019, decreased $41.5~~2020, increased $1.8 million, or 12.3%, to ~~$15.0~~$16.9 million compared to the nine months ended March 31, ~~2018.~~2019. This increase was primarily due to increased consolidated

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earnings, including Pursuit for the nine months ended March 31, 2020, and a remeasurement of deferred taxes for the same period in the prior fiscal year. For the nine months ended March 31, ~~2018, we recorded a non-cash increase to~~2020, our effective tax rate of 22.5% exceeded the statutory federal income tax ~~expense~~rate of ~~$47.2 million for~~ 21% primarily due to the ~~remeasurement~~impact of ~~deferred taxes on~~U.S. state taxes. This increase was partially offset by the ~~enactment date~~benefits of the ~~Tax Act~~foreign derived intangible income deduction, the research and ~~deferred~~development tax credit, a windfall benefit generated by certain stock based compensation, and the impact ~~related to the reduction~~of non-controlling interests in the ~~tax receivable agreement liability.~~ LLC. For the nine months ended March 31, 2019, our effective tax rate of 23.4% ~~differed from~~exceeded the statutory federal income tax rate of 21% ~~primarily~~ due to the impact of U.S. state taxes and remeasurement of deferred taxes. This increase 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. For the nine months ended March 31, 2018, our effective tax rate of 76.2% differed from the blended statutory federal income tax rate of approximately 28% primarily due to the impact of the Tax Act previously mentioned and the impact of the additional jurisdictions in which we were taxed as a result of the Cobalt acquisition in July 2017. Our effective tax rate was also impacted

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to a lesser extent, by the noncontrolling interests in the LLC, state income taxes attributable to the LLC, and the benefit of deductions under Section 199 of the Internal Revenue Code. Our effective tax rate also reflects the impact of our share of the LLC's permanent items such as stock compensation expense attributable to profits interests.

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 ~~nine months ended March 31, 2019,~~applicable period, by the percentage ownership in the LLC not directly attributable to us. For the nine months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the weighted average non-controlling interest attributable to ownership interests in the LLC not directly attributable to us was ~~4.1%~~3.8% and ~~5.5%~~4.1%, 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, acquisition and integration related expenses, ~~non-cash~~non- cash compensation expense, expenses related to our engine development initiative, expenses related to interruption to our engine supply during the labor strike by UAW against General Motors and adjustments to our tax receivable agreement liability. 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 adjusted EBITDA margin for the periods indicated (dollars in thousands):


	Three Months Ended March 31,						Nine Months Ended March 31,							Three Months Ended March 31,									Nine Months Ended March 31,
	2019			2018			2019			2018				2020			2019			2020			2019
Net income	$	22,203		$	16,796		$	49,216		$	17,626		Net income	$	23,866		$	22,203		$	58,146		$	49,216
Provision for income taxes ¹	7,321			6,245			15,023			56,545
Provision for income taxes													Provision for income taxes	6,987			7,321			16,872			15,023
Interest expense	1,750			923			4,765			4,136			Interest expense	940			1,750			3,064			4,765
Depreciation	2,744			1,685			7,102			5,102			Depreciation	2,938			2,744			9,040			7,102
Amortization	1,563			1,291			4,381			3,903			Amortization	1,501			1,563			4,622			4,381
Professional fees ²	189			—			572			26
Acquisition and integration related expenses ³	1,051			144			4,960			2,281
Stock-based compensation expense ⁴	735			560			1,866			1,410
Engine development ⁵	932			899			2,871			3,486

Professional fees ¹													Professional fees ¹	124			189			500			572

Acquisition and integration related expenses ²													Acquisition and integration related expenses ²	—			1,051			—			4,960
Stock-based compensation expense ³													Stock-based compensation expense ³	816			735			2,306			1,866
Engine development ⁴													Engine development ⁴	—			932			—			2,871
UAW strike impact ⁵													UAW strike impact ⁵	877			—			2,564			—

Adjustments to tax receivable agreement liability ⁶	(707		)	—			(707		)	(27,702		)	Adjustments to tax receivable agreement liability ⁶	(1,650)			(707)			(1,650)			(707)
Adjusted EBITDA	$	37,781		$	28,543		$	90,049		$	66,813		Adjusted EBITDA	$	36,399		$	37,781		$	95,464		$	90,049
Adjusted EBITDA Margin	18.9		%	20.3		%	18.4		%	18.6		%	Adjusted EBITDA Margin	20.0		%	18.9		%	17.9		%	18.4		%

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(1)		Provision for income taxes for the nine months ended March 31, 2018 reflects an increase to income tax expense of $47.2 million for the remeasurement of deferred taxes on the enactment date of the Tax Act adopted in December 2017 and deferred tax impact related to the reduction in the tax receivable agreement liability. See Note 13 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
~~(2)~~	~~For the three and nine months ended March 31, 2019, represents~~Represents legal and advisory fees related to our litigation with Skier's Choice, Inc. ~~For the nine months ended March 31, 2018, represents legal and advisory fees related~~See Note 17 to our ~~litigation with MasterCraft Boat Company, LLC ("MasterCraft") which was settled in May 2017. See Note 16 to our~~ unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report.
~~(3)~~(2)			For the three months and nine months ended March 31, 2019, represents ~~integration costs and~~ legal and advisory fees incurred in connection with our acquisition of Pursuit on October 15, ~~2018. For the three~~2018 and ~~nine months ended March 31, 2018 represents~~ integration costs related to our acquisitions of Pursuit and ~~legal and advisory fees incurred in connection with our acquisition of Cobalt on July 6, 2017.~~Cobalt. Integration related expenses for the nine months ended March 31, 2019 include post-acquisition adjustments to cost of goods sold of $0.9 million for the fair value step up of Pursuit inventory acquired, most of which was sold during the second quarter of fiscal 2019. Integration related expenses for the nine months ended March 31, 2018 include post-acquisition adjustments to cost of goods sold of $1.5 million for the fair value step up of Cobalt inventory acquired, most of which was sold during the first quarter of fiscal 2018.
~~(4)~~(3)			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 1415 to our unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report.
~~(5)~~(4)			Represents costs incurred in connection with our vertical integration of engines including product development costs and supplier transition performance incentives.
~~(6)~~(5)			For the three and nine months ended March 31, 2020, represents costs incurred in connection with interruption to our engine supply during the UAW strike against General Motors. We purchase engines from General Motors LLC that we then prepare for marine use for our Malibu and Axis boats. During the UAW strike, General Motors suspended delivery of engine blocks to us and we incurred costs by entering into purchase agreements with two suppliers for additional engines to supplement our inventory of engine blocks for Malibu and Axis boats.
(6)			For the three and nine months ended March 31, 2020 and March 31, 2019 we recognized other income from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners. For the nine months ended March 31, 2018, we recognized other income as a result of a decrease in our estimated tax receivable agreement liability. The reduction in our tax receivable agreement liability resulted from the adoption of the Tax Act, which decreased the estimated tax rate used in computing our future tax obligations and, in turn, decreased the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners. Refer to Note 11 of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

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Adjusted Fully Distributed Net Income

We define Adjusted Fully Distributed Net Income as net income attributable to Malibu 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 to Malibu 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 March 31,						Nine Months Ended March 31,
	2020		2019		2020		2019
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 Malibu Boats, Inc.	$	22,778	$	21,099	$	55,359	$	46,654
Provision for income taxes	6,987		7,321		16,872		15,023
Professional fees ¹	124		189		500		572
Acquisition and integration related expenses ²	1,053		2,217		3,200		8,015
Fair market value adjustment for interest rate swap ³	10		93		68		225
Stock-based compensation expense ⁴	816		735		2,306		1,866


Engine development⁵	—		932		—		2,871
UAW strike impact ⁶	877		—		2,564		—
Adjustments to tax receivable agreement liability ⁷	(1,650)		(707)		(1,650)		(707)
Net income attributable to non-controlling interest ⁸	1,088		1,104		2,787		2,562
Fully distributed net income before income taxes	32,083		32,983		82,006		77,081
Income tax expense on fully distributed income before income taxes ⁹	7,539		7,949		19,271		18,577
Adjusted fully distributed net income	$	24,544	$	25,034	$	62,735	$	58,504

Three Months Ended March 31, Nine Months Ended March 31,
2019 2018 2019 2018
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 Malibu Boats, Inc. $ 21,099
$ 15,672
$ 46,654
$ 15,174
Provision for income taxes ¹
7,321
6,245
15,023
56,545
Professional fees ²
189
—
572
26
Acquisition and integration related expenses ³
2,217
870
8,015
4,393
Fair market value adjustment for interest rate swap ⁴
93
(137 ) 225
(340 )
Stock-based compensation expense ⁵
735
560
1,866
1,410
Engine development⁶
932
899
2,871
3,486
Adjustments to tax receivable agreement liability ⁷
(707 ) —
(707 ) (27,702 )
Net income attributable to non-controlling interest ⁸
1,104
1,124
2,562
2,452
Fully distributed net income before income taxes 32,983
25,233
77,081
55,444
Income tax expense on fully distributed income before income taxes ⁹
7,949
5,854
18,577
15,914
Adjusted fully distributed net income $ 25,034
$ 19,379
$ 58,504
$ 39,530

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	Three Months Ended March 31,		Nine Months Ended March 31,			Three Months Ended March 31,			Nine Months Ended March 31,
	2019	2018	2019	2018		2020	2019	2020	2019
Reconciliation 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:					Reconciliation 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: ¹⁰	20,901,547	20,550,972	20,805,912	20,063,282
Weighted average shares outstanding of Class A Common Stock used for basic net income per share:					Weighted average shares outstanding of Class A Common Stock used for basic net income per share:	20,630,741	20,901,547	20,684,034	20,805,912
Adjustments to weighted average shares of Class A Common Stock:					Adjustments to weighted average shares of Class A Common Stock:
Weighted-average LLC units held by non-controlling unit holders ¹¹	838,496	1,073,830	896,808	1,165,750
Weighted-average unvested restricted stock awards issued to management ¹²	132,549	137,146	129,844	131,182
Weighted-average LLC units held by non-controlling unit holders ¹⁰					Weighted-average LLC units held by non-controlling unit holders ¹⁰	805,822	838,496	822,042	896,808
Weighted-average unvested restricted stock awards issued to management ¹¹					Weighted-average unvested restricted stock awards issued to management ¹¹	181,015	132,549	146,905	129,844
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:	21,872,592	21,761,948	21,832,564	21,360,214	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:	21,617,578	21,872,592	21,652,981	21,832,564

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 March 31,						Nine Months Ended March 31,
	2020		2019		2020		2019
Net income available to Class A Common Stock per share	$	1.11	$	1.01	$	2.68	$	2.24
Impact of adjustments:
Provision for income taxes	0.34		0.35		0.82		0.72
Professional fees ¹	—		0.01		0.02		0.03
Acquisition and integration related expenses ²	0.05		0.11		0.15		0.39
Fair market value adjustment for interest rate swap ³	—		—		—		0.01
Stock-based compensation expense ⁴	0.04		0.04		0.11		0.09


Engine development ⁵	—		0.05		—		0.14
UAW strike impact ⁶	0.04		—		0.12		—
Adjustment to tax receivable agreement liability ⁷	(0.08)		(0.03)		(0.08)		(0.03)
Net income attributable to non-controlling interest ⁸	0.05		0.05		0.13		0.12
Fully distributed net income per share before income taxes	1.55		1.59		3.95		3.71
Impact of income tax expense on fully distributed income before income taxes ⁹	(0.37)		(0.38)		(0.94)		(0.89)
Impact of increased share count ¹²	(0.05)		(0.06)		(0.12)		(0.14)
Adjusted Fully Distributed Net Income per Share of Class A Common Stock	$	1.13	$	1.15	$	2.89	$	2.68

Three Months Ended March 31, Nine Months Ended March 31,
2019 2018 2019 2018
Net income available to Class A Common Stock per share $ 1.01
$ 0.76
$ 2.24
$ 0.76
Impact of adjustments:
Provision for income taxes ¹
0.35
0.30
0.72
2.82
Professional fees ²
0.01
—
0.03
—
Acquisition and integration related expenses ³
0.11
0.04
0.39
0.22
Fair market value adjustment for interest rate swap ⁴
—
(0.01 ) 0.01
(0.02 )
Stock-based compensation expense ⁵
0.04
0.03
0.09
0.07
Engine development ⁶
0.05
0.04
0.14
0.17
Adjustment to tax receivable agreement liability ⁷
(0.03 ) —
(0.03 ) (1.38 )
Net income attributable to non-controlling interest ⁸
0.05
0.05
0.12
0.12
Fully distributed net income per share before income taxes 1.59
1.21
3.71
2.76
Impact of income tax expense on fully distributed income before income taxes ⁹
(0.38 ) (0.28 ) (0.89 ) (0.79 )
Impact of increased share count ¹³
(0.06 ) (0.04 ) (0.14 ) $ (0.13 )
Adjusted Fully Distributed Net Income per Share of Class A Common Stock $ 1.15
$ 0.89
$ 2.68
$ 1.84

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(1)		Provision for income taxes for the nine months ended March 31, 2018 reflects an increase to income tax expense of $47.2 million for the remeasurement of deferred taxes on the enactment date of the Tax Act adopted in December 2017	Represents legal and ~~deferred tax impact~~advisory fees related to ~~the reduction in the tax receivable agreement liability.~~our litigation with Skier's Choice, Inc. See Note 1317 to our unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report.
(2)			For the three months and nine months ended March 31, 2020, represents amortization of intangibles acquired in connection with the acquisition of Pursuit and Cobalt. For the three and nine months ended March 31, 2019, represents legal and advisory fees related to our litigation with Skier's Choice, Inc. For the nine months ended March 31, 2018, represents legal and advisory fees related to our litigation with MasterCraft which was settled in May 2017. See Note 16 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
~~(3)~~	~~For the three and nine months ended March 31, 2019, represents integration costs and legal and advisory fees~~ incurred in connection with our acquisition of Pursuit on October 15, ~~2018. For the three~~2018 and ~~nine months ended March 31, 2018 represents~~ integration costs related to our acquisitions of Pursuit and ~~legal and advisory fees incurred in connection with our acquisition of Cobalt on July 6, 2017.~~Cobalt. Integration related expenses for the nine months ended March 31, 2019 include post-acquisition adjustments to cost of goods sold of $0.9 million for the fair value step up of inventory acquired at Pursuit, most of which was sold during the second quarter of fiscal 2019. In addition, for the three and nine months ended March 31, 2019, integration related expenses includes $0.4 million and $0.8 million respectively, in depreciation and amortization associated with our fair value step up of property, plant and equipment and intangibles acquired in connection with the acquisition of Pursuit. Integration related expenses for the nine months ended March 31, 2018 include post-acquisition adjustments to cost of goods sold of $1.5 million for the fair value step up of inventory acquired, most of which was sold during the first quarter of fiscal 2018. In addition,Also, for the three and nine months ended March 31, ~~2018,~~2019, integration related expenses includes $0.7 million and ~~$2.1~~$2.2 million, respectively, in ~~depreciation and~~ amortization associated with our fair value step up of ~~property, plant and equipment and~~ intangibles acquired in connection with the acquisition of Cobalt.
~~(4)~~(3)			Represents the change in the fair value of our interest rate swap entered into on July 1, 2015. The swap matured on March 31, 2020.
~~(5)~~(4)			Represents equity-based incentives awarded to certain of our 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. See Note 1415 to our unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report.
~~(6)~~(5)			Represents costs incurred in connection with our vertical integration of engines including product development costs and supplier transition performance incentives.
~~(7)~~(6)			For the three and nine months ended March 31, 2020, represents costs incurred in connection with interruption to our engine supply during the UAW strike against General Motors. We purchase engines from General Motors LLC that we then prepare for marine use for our Malibu and Axis boats. During the UAW strike, General Motors suspended delivery of engine blocks to us and we incurred costs by entering into purchase agreements with two suppliers for additional engines to supplement our inventory of engine blocks for Malibu and Axis boats.
(7)			For the three and nine months ended March 31, 2020 and March 31, 2019 we recognized other income from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners. For the nine months ended March 31, 2018, we recognized other income as a result of a decrease in our estimated tax receivable agreement liability. The reduction in our tax receivable agreement liability resulted from the adoption of the Tax Act, which decreased the estimated tax rate used in computing our future tax obligations and, in turn, decreased the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners. Refer to Note 11 of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
(8)			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.
(9)			Reflects income tax expense at an estimated normalized annual effective income tax rate of 23.5% and 24.1% of income before income taxes for the three and nine ~~months~~month periods ended March 31, 2020 and 2019, ~~23.2% for the three months ended March 31, 2018, and 28.7% for the nine months ended March 31, 2018, in each case,~~respectively, assuming the conversion of all LLC Units into shares of Class A Common Stock. The estimated normalized annual effective income tax rate for ~~the three and nine months ended March 31, 2019~~fiscal year 2020 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 ~~based~~ subsidiary. The estimated normalized effective tax rate for the three months ended March 31, 2018 is based on the federal statutory rate plus a blended state rate adjusted for deductions under Section 199 of the Internal Revenue Code , state taxes attributable to the LLC, and foreign income taxes attributable to our Australian based subsidiary. The estimated normalized effective income tax rate for the nine months ended March 31, 2018 is based on the federal statutory rate plus a blended state rate adjusted for deductions under Section 199 of the Internal Revenue Code, state taxes attributable to the LLC, and foreign income taxes attributable to our Australian based subsidiary. The increase in the normalized annual effective income tax rate to 24.1% for the three months ended March 31, 2019 compared to 23.2% for the three months ended March 31, 2018 is primarily the result of estimated effective state taxes as a result of our anticipated state filings following our acquisitions. The decrease in the rate for the nine months ended March 31, 2019 compared to the nine months ended March 31, 2018 is primarily the result of the Tax Act which was effective for periods after January 1, 2018, lowering the corporate tax rate to 21%, as well as an updated blended state rate, which considers the impacts of the Cobalt acquisition and a recent law change in Tennessee.
(10)		The difference in weighted average shares outstanding for the three and nine months ended March 31, 2018 relates to the difference in the weighting of shares outstanding of Class A common stock during this period for the calculation of basic net income per share for our financial statements and basic net income per share for adjusted fully distributed net income.
~~(11)~~	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.
~~(12)~~(11)			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.
~~(13)~~(12)			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 ~~have been~~are cash provided by operating activities and borrowings under our credit agreement. Our primary use of funds has been for acquisitions, repayments under our debt arrangements, capital investments, cash distributions to members of the LLC and cash payments under our tax receivable agreement. As noted above, we elected to draw the remaining available funds of $98.8 million from our revolving credit facility in late March. As of May 5, 2020, we had approximately $113.0 million of cash on hand, with no available amounts for borrowing under our revolving credit facility. Our cash position going forward will depend on multiple factors, including our ability to continue operations and production of boats, the COVID-19 pandemic’s effects on our dealers and customers, the availability of sufficient amounts of financing, and our operating performance. Further, our dealers may seek credit support or other assurances from us that could affect our costs of doing business or liquidity. The following table summarizes the cash flows from operating, investing and financing activities (dollars in thousands):


	Nine Months Ended March 31,
	2020		2019
Total cash provided by (used in):
Operating activities	$	74,181	$	46,411
Investing activities	(30,143)		(110,801)
Financing activities	63,098		18,331
Impact of currency exchange rates on cash balances	(366)		(75)
Increase (decrease) in cash	$	106,770	$	(46,134)

Nine Months Ended March 31,
2019 2018
Total cash provided by (used in):

Operating activities $ 46,411
$ 46,970
Investing activities (110,801 ) (133,698 )
Financing activities 18,331
107,036
Impact of currency exchange rates on cash balances (75 ) 26
(Decrease) increase in cash $ (46,134 ) $ 20,334

Comparison of the Nine Months Ended March 31, ~~2019~~2020 to the Nine Months Ended March 31, ~~2018~~2019

Operating Activities

Net cash provided by operating activities was $74.2 million for the nine months ended March 31, 2020, compared to $46.4 million for the nine months ended March 31, 2019, ~~compared to net cash provided by operating activities~~an increase of ~~$47.0 million for the nine months ended March 31, 2018, a decrease of $0.6~~$27.8 million. The ~~decrease~~increase in cash provided by operating activities primarily resulted from a net ~~decrease~~increase in operating assets and liabilities ~~of$18.5~~of $13.2 million related to the timing of collections of accounts receivables, payments for accruals and payables, and purchases of inventory ~~offset by~~and an increase of ~~$17.9~~$14.6 million due to increases in net income (after consideration of non-cash items included in net income, ~~including an adjustment~~primarily related to ~~our tax receivable agreement liability and an adjustment to our~~depreciation, amortization, deferred tax ~~assets)~~assets and non-cash compensation).

Investing Activities

Net cash used for investing activities was $30.1 million for the nine months ended March 31, 2020, compared to $110.8 million for the nine months ended March 31, 2019, ~~compared~~a decrease of $80.7 million. The decrease in cash used for investing activities was primarily related to ~~$133.7 million~~our acquisition of Pursuit in the nine months ended March 31, 2019, partially offset by the increase in capital outlays for our expansion activities at our Pursuit and Cobalt plants and normal purchases for manufacturing infrastructure, molds and equipment for the nine months ended March 31, 2018, a decrease of $22.9 million. The decrease in cash used was primarily related to the lower purchase price paid for Pursuit in October 2018 compared to the purchase price paid for Cobalt in July 2017. Remaining capital outlays consisted of normal purchases for manufacturing infrastructure and expansion activities, molds, and equipment.2020.

Financing Activities

Net cash provided by financing activities ~~decreased $88.7~~was $63.1 million for the nine months ended March 31, 2020, compared to net cash provided by financing activities of $18.3 million for the nine months ended March 31, 2019, ~~compared to $107.0 million for~~an increase of $44.8 million. For the nine months ended March 31, ~~2018. For~~2020, we received $103.8 million in proceeds from our credit facility primarily to provide financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic. We repurchased $13.8 million of our Class A Common Stock under our previously announced stock repurchase program. We repaid $25.0 million of revolving debt and we paid $1.4 million in distributions to LLC unit holders and $0.8 million on taxes for shares withheld on restricted stock vestings and we received $0.4 million in proceeds from the exercise of stock options during the nine months ended March 31, 2020. During the nine months ended March 31, 2019, we received $55.0 million in proceeds from our ~~revolving~~ credit facility ~~of which $50.0 million was used~~primarily to fund the acquisition of ~~Pursuit. We have~~Pursuit, we repaid $35.0 million ~~on our~~of revolving ~~credit facility during~~debt borrowed for the ~~nine months ended March 31, 2019. We~~Pursuit acquisition, we paid $1.2 million in distributions to LLC unit holders and $1.2 million on taxes for shares withheld on restricted stock vestings and we received $0.7 million proceeds from the exercise of stock options during the nine months ended March 31, 2019. During the nine months ended March 31, 2018, we received proceeds of $105.0 million from our credit facility to fund the acquisition of Cobalt and $55.3 million in proceeds from our equity offering, which we used to repay $50.0 million on our outstanding term debt. In connection with the term debt and equity offering, we paid $1.1 million and $0.7 million in legal and advisory costs, respectively. In addition, during the nine months ended March 31, 2018, we paid $0.9 million in distributions to LLC unit holders and $0.5 million in taxes for shares withheld on restricted stock vestings.options.

Loans and Commitments

We currently have a ~~$110.0 million term loan outstanding and a~~ revolving credit facility with ~~$85.0~~borrowing capacity of up to $120.0 million ~~borrowing capacity.~~and a $75.0 million term loan outstanding. As of March 31, ~~2019,~~2020, we ~~have $20.0~~had $118.8 million outstanding onunder our revolving credit ~~facility.~~facility and $1.2 million in outstanding letters of credit. On March 19, 2020 we elected to draw the remaining available funds of $98.8 million from the

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revolving credit facility to provide financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic. The revolving credit facility matures on July 1, 2024 and the term loan matures on July 1, 2022. The revolving credit facility and term loan are governed by a credit agreement with Malibu Boats, LLC (“Boats LLC”) as the borrower ~~(“Boats LLC”) entered into a Second Amended~~ and ~~Restated Credit Agreement with~~Truist Financial Corp. (formerly known as SunTrust ~~Bank,~~Bank), as the administrative agent, swingline lender and issuing ~~bank, on June 28, 2017, to refinance our prior credit facility and to provide funds for our purchase of Cobalt.~~bank. The credit agreement provided us with a term loan facility in an aggregate principal amount of $160.0 million ($55.0 million of which was drawn on June 28, 2017 to refinance the outstanding loans under our prior credit facility and $105.0 million of which was drawn on July 6, 2017 to fund the payment of the purchase price for our acquisition of Cobalt and certain fees and expenses related to entering into the credit agreement) and a revolving credit facility of up to $35.0

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million. On August 17, 2017 we made a voluntary principal payment on the term loans in the amount of $50.0 million with a portion of the net proceeds from our equity offering completed on August 14, 2017. On August 21, 2018, in connection with the acquisition of Pursuit, Boats LLC entered into the First Incremental Facility Amendment and First Amendment to the Second Amended and Restated Credit Agreement dated as of June 28, 2017. The amendment increased the amount available under the revolving credit facility by $50.0 million (the “Incremental Revolving Commitment”) from $35.0 million to $85.0 million. On October 15, 2018, we borrowed $50.0 million under the revolving credit facility to pay for a portion of the purchase price of Pursuit. Each of the term loans and the revolving credit facility have a maturity date of July 1, 2022.

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 applicable margin ranging from 1.75% to 3.00% with respect to LIBOR borrowings and 0.75% to 2.00% with respect to Base Rate borrowings. The applicable margin will be based upon the consolidated leverage ratio of Malibu Boats Holdings, LLC and its subsidiaries calculated on a consolidated basis. As of March 31, 2019, the interest rate on each of our term loans and revolving credit facility was 4.49%. We are required to pay a commitment fee for the unused portion of the revolving credit facility, which will range from 0.25% to 0.50% per annum, depending on Malibu Boats Holdings, LLC’s and its subsidiaries’ consolidated leverage ratio. We were also required to pay a ticking fee at a rate of 0.30% per annum on the $50.0 million Incremental Revolving Commitment from August 21, 2018 until the date that the conditions for the lenders to provide the Incremental Revolving Commitment were met, which occurred on October 15, 2018, the closing date of our purchase of assets of Pursuit. Malibu Boats, Inc. is not a party to the credit agreement, and the obligations of Boats LLC under the credit agreement are guaranteed by Malibu Boats Holdings, 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 Malibu Boats Holdings LLC, Boats LLC and such subsidiary guarantors. Malibu Boats, Inc. is not a party to the credit agreement.

The credit agreement permits prepayment of the term ~~loans~~loan without any penalties. The $55.0 million term loan is subject to quarterly installments of approximately $0.7 million per quarter until March 31, 2019, then approximately $1.0 million per quarter until June 30, 2021, and approximately $1.4 million per quarter through March 31, 2021. The $105.0 million term loan is subject to quarterly installments of approximately $1.3 million per quarter until March 31, 2019, then approximately $2.0 million per quarter until June 30, 2021, and approximately $2.6 million per quarter through March 31, 2022. The balance of both term loans is due on the scheduled maturity date of July 1, 2022. On August 17, 2017 we made a voluntary principal payment on the term ~~loans~~loan in the amount of $50.0 million with a portion of the net proceeds from our equity offering completed on August 14, 2017. We exercised our option to apply the prepayment in forward order to principal installments on our term ~~loans~~loan through December 31, 2021 and a portion of the principal installments due on March 31, 2022. As a result, the term loan is subject to a quarterly installment of approximately $3.0 million on March 31, 2022 and the balance of the term loan is due on the scheduled maturity date of July 1, 2022. The credit agreement is also subject to 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. As of March 31, ~~2019,~~2020, the outstanding principal amount of our term ~~loans~~loan and revolving credit facility was ~~$130.0~~$193.8 million.

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 Malibu Boats Holdings, 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 $2.0 million in any fiscal year, and (iv) share repurchase payments up to ~~$20.0~~$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 ~~$6.0~~$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. That announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Moreover, it is possible that LIBOR will be discontinued or modified prior to 2021.

All of our $193.8 million of debt outstanding under our credit agreement as of March 31, 2020 bears interest at a floating rate that uses LIBOR as the applicable reference rate to calculate the interest. Our credit agreement provides that, if the administrative agent has determined that adequate means do not exist for ascertaining LIBOR or that LIBOR does not adequately and fairly reflect the cost to lenders for making, funding or maintaining their loans, then all of our outstanding loans under the credit agreement will be converted into loans that accrue interest at the alternative Base Rate described above under “Loans and Commitments” on the last day of such interest period that determination is made. Further, the lenders under our credit agreement will no longer be obligated to make loans using LIBOR as the applicable reference rate.

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

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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 Base Rate, we would expect to incur additional interest expense on such indebtedness as of March 31, 2020 of approximately $1.9 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, 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 2020 in anticipation of the discontinuance or modification of LIBOR by the end of 2021.

Future Liquidity Needs and Capital Expenditures

Management believes that our existing cash ~~borrowing capacity under our revolving credit facility~~ and cash flows from operations will be sufficient to fund our operations for the next 12 months. 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. Factors impacting~~operations, which are more uncertain as a result of the COVID-19 pandemic and its impact on the general economy. Our liquidity needs during this uncertain time will depend on multiple factors, including our ~~cash flow from~~ability to continue operations ~~include, but are not limited to,~~and production of boats, the COVID-19 pandemic’s effects on our ~~growth rate~~dealers and customers, the ~~timing~~availability of sufficient amounts of financing, and ~~extent of~~our operating ~~expenses.~~

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performance.

We estimate that approximately ~~$3.9~~$3.5 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 was filed on March ~~14, 2019.~~13, 2020. Management expects minimal effect on our future liquidity and capital resources.

Management expects our capital expenditures for fiscal year ~~2019~~2020 to be higher than our ~~2018~~2019 capital expenditures primarily driven by ~~our recent acquisition of~~facility expansion projects at Cobalt and Pursuit. ~~With respect to our engine vertical integration strategy, we expect a total investment, including investments already made to date, through~~Capital expenditures ~~working capital, and capital expenses of approximately $18.0 million through~~for fiscal year 2020 are expected to consist primarily of the completion of ongoing projects, new tooling, and expenditures to increase production capacity to accommodate future growth.

Stock Repurchase Program

On June 18, 2019, ~~which we~~our Board of Directors authorized a stock repurchase program to allow for the repurchase of up to $35.0 million of our Class A Common Stock and the LLC's LLC Units (the “Repurchase Program”) for the period from July 1, 2019 to July 1, 2020. We intend to ~~finance with~~fund repurchases under the Repurchase Program from cash ~~from operations~~on hand. During the nine months ended March 31, 2020, we repurchased 483,679 shares of Class A Common Stock for $13.8 million in cash including related fees and ~~our revolving credit facility.~~

expenses. As of March 31, 2020, we may repurchase up to an additional $21.2 million in shares of Class A Common Stock and LLC Units under the program.

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Contractual Obligations and Commitments

Since June 30, ~~2018,~~2019, we borrowed ~~$50.0~~a net $78.8 million under our revolving credit facility to ~~pay for a portion~~provide financial flexibility in light of the ~~purchase price of Pursuit Boats.~~current uncertainty resulting from the COVID-19 pandemic. As of March 31, ~~2019,~~2020, we had ~~$20.0~~$118.8 million outstanding under our revolving credit facility and ~~$110.0~~$75.0 million outstanding on our term loans. As of March 31, ~~2019,~~2020, our continuing contractual obligations were as follows:


	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Bank debt ¹	$	193,800	$	—	$	75,000	$	118,800	$	—
Interest expense ²	19,788		5,704		9,719		4,365		—
Operating leases ³	18,785		2,555		4,744		4,908		6,578
Purchase obligations ⁴	67,673		67,673		—		—		—
Payments pursuant to tax receivable agreement ⁵	52,544		3,477		7,300		7,727		34,040
Total	$	352,590	$	79,409	$	96,763	$	135,800	$	40,618

Payments Due by Period
Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years

Bank debt ¹
$ 130,000
$ —
$ —
$ 130,000
$ —
Interest expense ²
17,490
5,285
10,873
1,332
—
Operating leases ³
21,840
2,530
4,973
5,095
9,242
Purchase obligations ⁴
74,962
74,962
—
—
—
Payments pursuant to tax receivable agreement ⁵
57,014
3,932
7,307
7,675
38,100
Total $ 301,306
$ 86,709
$ 23,153
$ 144,102
$ 47,342



(1)		Principal payments on our outstanding bank debt per terms of our Credit Agreement, which is comprised of a ~~$110.0~~$75.0 million term loan and ~~$85.0~~$120.0 million revolving credit facility, of which ~~$20.0~~$118.8 million was outstanding as of March 31, ~~2019.~~2020. Assumes no additional borrowings or repayments under our revolving credit facility prior to its maturity. ~~Both the~~The term loan matures on July 1, 2022 and the revolving credit facility ~~mature~~matures on July 1, ~~2022.~~2024.
(2)		Interest payments on our outstanding term loans and borrowings under our revolving credit facility under our Credit Agreement. Our term loan and revolving credit facility bear interest at variable rates. We have calculated future interest obligations based on the interest rate as of March 31, ~~2019.~~2020.
(3)	~~We sold~~	Pursuant to the adoption of ASC Topic 842, Leases, as of July 1, 2019 our ~~two primary manufacturing and office facilities~~lease liability for ~~a total~~all leases with terms greater than 12 months as represented on the balance sheet respective of $18.3 million in 2008, which resulted in a gain of $0.7 million. Simultaneous with the sale, we entered into an agreement to lease back the buildings for an initial term of 20 years. The net gain of $0.2 million has been deferred and is being amortized in proportion to rent charged over the initial lease term.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 ~~2019.~~2020.
(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 U.S. federal, state and local income tax or franchise tax that we actually realize, 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 1617 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. 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.

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~~Emerging Growth Company~~

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding stockholder advisory “say-on-pay” votes on executive compensation and stockholder advisory votes on golden parachute compensation.

The JOBS Act also provides that an “emerging growth company” can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. Pursuant to Section 107 of the JOBS Act, we have chosen to “opt out” of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.” Under the JOBS Act, our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year during which we had total annual gross revenues of at least $1 billion (as indexed for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the closing of the IPO, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed to be a "large accelerated filer," as defined under the Exchange Act. Accordingly, we will remain an "emerging growth company" until June 30, 2019.

Critical Accounting Policies

As of March 31, ~~2019, other than the adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606,~~ ~~Revenue from Contracts with Customers, on July 1, 2018,~~2020, 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 ended June 30, ~~2018.~~2019.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Refer to our Annual Report on Form 10-K for the year ended June 30, ~~2018,~~2019, for a complete discussion on the Company’s market risk. ~~There~~

We are subject to interest rate risk in connection with borrowings under our revolving credit facility and term loan, which bear interest at variable rates. At March 31, 2020, we had $118.8 million outstanding under our revolving credit facility and $75.0 million outstanding on our term loan. Borrowings under our revolving credit facility and term loan bear interest at our option of (i) the highest of the prime rate, the Federal Funds Rate plus 0.5%, or one-month LIBOR plus 1%, which is the Base Rate, or (ii) LIBOR, in each case plus an applicable margin ranging from 0.25% to 1.25% with respect to Base Rate borrowings and 1.25% to 2.25% with respect to LIBOR borrowings. Therefore, our income and cash flows will be exposed to changes in interest rates to the extent that we do not have effective hedging arrangements in place.

At March 31, 2020, the interest rate on our revolving credit facility and term loan was 2.24%. Based on a sensitivity analysis at March 31, 2020, assuming a 100 basis point increase in interest rates would increase our annual interest expense by approximately $1.9 million.

On July 1, 2015, we entered into a 5-year floating to fixed interest rate swap with a certain counterparty to the previously existing credit agreement to mitigate the risk of interest rate fluctuations associated with our variable rate long term debt. The swap has an effective start date of July 1, 2015 and is based on a one-month LIBOR rate versus a 1.52% fixed rate on a notional value of $39.3 million, which was equal to 50% of the outstanding balance of our term loan at the time of the swap arrangement. The swap matured on March 31, 2020. For the nine months ended March 31, 2020, we recorded a loss of $68,000 for the change in fair value of the interest rate swap, which is included in interest expense in the consolidated statements of operations and comprehensive income.

Other than with respect to our interest rate risk, there have been no material changes in market risk from those disclosed in the Company's Form 10-K for the year ended June 30, ~~2018.~~2019.

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 the SEC'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 of March 31, ~~2019.~~2020.

Changes in Internal Control Over Financial Reporting

During the second quarter ended December 31, 2018, we completed the acquisition of Pursuit. Prior to the acquisition, Pursuit was a privately-held company and was not subject to the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, or other corporate governance requirements applicable to public reporting companies. As part of our ongoing integration activities, we are continuing to incorporate our controls and procedures into Pursuit and to augment our company-wide controls to reflect the risks that may be inherent in acquisitions of privately-held companies.

~~Other than the acquisition of Pursuit, there~~There have been no changes in our internal control over financial reporting during the quarter ended March 31, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control

over financial reporting.

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~~over financial reporting other than new processes and controls implemented in connection with the adoption of FASB ASC Topic 606,~~ ~~Revenue from Contracts with Customers, on July 1, 2018.~~

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Part II - Other Information

Item 1. Legal Proceedings

The discussion of legal matters under the section entitled "Legal Proceedings" is incorporated by reference from Note 1617 of our unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report.

Item 1A. Risk Factors

~~During~~Other than the risk noted below, there were no material changes during the quarter ended March 31, ~~2019, there were no material changes~~2020, to the risk factors discussed in Part I, Item 1A. "Risk Factors” of our Annual Report on Form 10-K for the year ended June 30, ~~2018.~~2019.

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, and those of our dealers and suppliers, thereby adversely affecting our business, financial condition and results of operations.

The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States. As the pandemic continues to grow, consumer fear about becoming ill with the virus and recommendations and/or mandates from federal, state and local authorities to avoid large gatherings of people or self-quarantine have increased. As a result of the pandemic, we suspended operations at all of our facilities on March 24, 2020. We have since resumed operations at our Loudon, Tennessee facility (Malibu and Axis boats) on April 20, 2020, our Neodesha, Kansas facility (Cobalt boats) on April 27, 2020 and our Fort Pierce, Florida facility (Pursuit boats) on May 4, 2020. The disruption we experienced during our temporary closure has resulted in a reduction in our production of boats that we will not recover this fiscal year, in part due to a potential decrease in consumer demand for recreational boats as a result of the economic impact of the pandemic. The temporary shutdown of our facilities also resulted in delays for delivery of our boats to dealers and inability to receive supplies from our vendors. . As a result, we recognized a decrease of $17.6 million, or 8.8%, in net sales and a decrease of 298 units sold, or 14.2%, for the three months ended March 31, 2020 compared to the same period last year.We cannot assure you that we will not have to suspend our operations again, whether voluntarily or as a result of federal, state or local mandates, and such closures could extend for a longer term than the prior shutdown of our facilities.

We expect the COVID-19 pandemic to negatively impact our financial results, more significantly in the fourth quarter of fiscal year 2020 and beyond as compared to the third quarter of fiscal year 2020. Further, the pandemic could have a stronger impact on our results for the fiscal year 2021 because our dealers have traditionally experienced stronger sales of our products during the spring and summer months, which, if meaningfully impacted, would result in our dealers having excess inventory and likely result in reduced wholesale shipments during fiscal year 2021. As shelter-in-place orders began in the spring and could be extended through the summer, we expect sales of our boats to be negatively impacted. While we cannot predict the ultimate impact of the COVID-19 virus on our business at this time, the pandemic and related efforts to mitigate the pandemic could impact our business in a number of ways, including but not limited to:

•decreasing consumer confidence as a result of the economic impact of the pandemic, which could result in a decrease in consumer demand for recreational boats;

•disrupting our manufacturing processes, as has already occurred with the temporary closures of our facilities and the delay of supplies being received;

•adversely impacting the financial health of our dealers who typically require financing to purchase our boats;

•adversely impacting the business of our suppliers, which could result in among other things, delays for delivery of raw materials and components needed for the production of our boats;

•impacting our ability to maintain our workforce during this uncertain time;

•increasing employee absenteeism due to fear of infection;

•increasing possible lawsuits or regulatory actions due to COVID-19 spread in the workplace;

•suffering from reputational risk if we experience COVID-19 spread in our workplace;

•adversely impacting the productivity of management and our employees that are working remotely, including impacting our ability to maintain our financial reporting processes and related controls and our ability to manage complex accounting issues presented by the COVID-19 pandemic, such as impairment analysis.

Any or all of these items may occur, which individually or in the aggregate, may have a material adverse effect on our business, financial condition, results of operations and cash flows. These risks could accelerate or intensify depending on the

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severity and length of the pandemic. In addition, if a resurgence of the COVID-19 virus occurs after the initial outbreak subsides, these factors will be exacerbated.

Given that the COVID-19 pandemic has caused a significant economic slowdown it appears increasingly likely that it could cause a global recession, which could be of an unknown duration and as a result we expect sales of our boats to be negatively impacted. If general economic conditions deteriorate further we cannot predict the duration or strength of an economic recovery, either in the United States or in the specific markets where we sell our products. Further, consumers often finance purchases of our boats and accordingly, consumer credit market conditions also influence demand for our boats. If credit conditions worsen, as is likely in response to the COVID-19 pandemic, and adversely affect the ability of consumers to finance potential purchases at acceptable terms and interest rates, it could result in a decrease in the sales of our products.

In late March 2020, we elected to draw the remaining available funds of $98.8 million from our revolving credit facility to ensure we maintain financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic. As of May 5, 2020, we had approximately $113.0 million of cash on hand, with no available amounts for borrowing under our revolving credit facility. Our cash position will depend on multiple factors, including our ability to continue operations and production of boats, the COVID-19 pandemic’s effects on our dealers and customers, the availability of sufficient amounts of financing, and our operating performance. Further, our dealers may seek credit support or other assurances from us that could affect our costs of doing business or liquidity. As a result of the impacts of the COVID-19 pandemic, we may be required to raise additional capital and such additional debt financing may not be available on commercially reasonable terms, if at all.

Our dealers have also experienced disruptions to their operations, including temporary closures during which they are unable to sell our boats. Because we sell nearly all of our products through dealers, the financial health of our dealers is critical to our success. The ability of our dealers to purchase our boats may be materially impacted depending on the length and severity of the pandemic, including the impact on general economic conditions and consumer confidence. If our dealers suffer material economic harm during the pandemic, the dealers may no longer be able to continue in business or, even if they are, they may not able to maintain their payment obligations under their floor plan financing arrangements and the boats could be repossessed by the floor plan financing provider and returned to us. If boats are returned to us, it would have an adverse impact on our net sales and could result in downward pressure on pricing of our boats. In addition, our dealers rely on continued access to adequate financing sources on a timely basis on reasonable terms, which is typically provided through floor plan financing. Access to floor plan financing generally facilitates our dealers’ ability to purchase boats from us, and their financed purchases reduce our working capital requirements. If floor plan financing becomes less available to our dealers as a result of the COVID-19 pandemic, our sales and our working capital levels would be adversely affected.

In addition to our dealers, our suppliers have also experienced temporary closures, thereby impacting our ability to receive certain components and materials that are essential to the construction of our boats. We may experience delays in production of our products if we do not receive sufficient supplies of materials for production of boats or if we are required to replace one or more suppliers, which could cause a decrease in boats available for sale or an increase in our cost of sales, either of which would adversely affect our business, financial condition and results of operations.

Our financial and accounting teams, along with certain other departments, have been able to work remotely during this time and many continue to work remotely. Remote working arrangements could impact employees’ productivity. While we have resumed operations at all of our facilities, we have continued to implement safety precautions, including enhanced and more frequent cleaning of our facilities, providing facemasks to each employee, enforcing social distancing guidelines and screening employees for potential symptoms. These additional safety precautions may also impact the productivity and profitability at our facilities. In addition, we may experience higher levels of absenteeism during the pandemic due to the fear of becoming ill.

As a result of the COVID-19 outbreak, we are also currently evaluating the impact on long-lived assets for possible impairment. We did not record an impairment charge during the third quarter of fiscal year 2020. However, depending on future events, we may be required to record future impairment charges. In addition, depending on the ongoing impact of the pandemic, we may also be required to reserve for incremental credit losses and/or repurchase commitments. Any material increase in our reserves could have a corresponding effect on our results of operations.

The ultimate magnitude of COVID-19, including the extent of its impact on our financial condition and results of operations, which could be material, will depend on all of the factors noted above, including other factors that we may not be able to forecast at this time. While we expect the impacts of COVID-19 to have an adverse effect on our business, financial condition and results of operations, we are unable to predict the extent of these impacts at this time.

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Any potential government crisis relief assistance could impose significant limitations on our corporate activities, may dilute our stockholders and may not be on terms favorable to us.

Numerous government-sponsored crisis relief programs have been implemented and others are being considered. If any government agrees to provide crisis relief assistance that we accept, it may impose certain requirements on the recipients of the aid including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt, limitations on debt, and other similar restrictions that will apply for a period of time after the aid is repaid or redeemed in full. We cannot assure you that any such government crisis relief assistance will not significantly limit our corporate activities or be on terms that are favorable to us. Such restrictions and terms could adversely impact our business and operations. In addition, such funding could involve the issuance of warrants, which will be dilutive to our stockholders.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

On February ~~20, 2019,~~6, 2020, in connection with the exchange of limited liability company interests of the LLC by a member of the LLC, the Company issued a total of ~~12,500~~40,000 shares of its Class A Common Stock, par value $0.01 per share for nominal consideration to such member in reliance on the exemption under Section 4(a)(2) of the Securities Act.

On ~~March 5, 2019,~~February 6, 2020, in connection with the exchange of limited liability company interests of the LLC by a member of the LLC, the Company issued a total of ~~2,000~~1,000 shares of its Class A Common Stock, par value $0.01 per share for nominal consideration to such member in reliance on the exemption under Section 4(a)(2) of the Securities Act.

Repurchase of Class A Common Stock

This table provides information with respect to purchases by us of shares of our Class A Common Stock under our Repurchase Program during the quarter ended March 31, 2020 (in thousands).


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (1)
January	—	$	—	—	$	23,877
February	—	—		—	23,877
March	100,275	27.05		100,275	21,167
Total	100,275	$	27.05	100,275	$	21,167

(1) On June 18, 2019, our Board of Directors authorized a stock repurchase program to allow for the repurchase of up to $35.0 million of our Class A Common Stock and the LLC’s LLC Units for the period from July 1, 2019 to July 1, 2020. The Repurchase Program was publicly announced on June 20, 2019. Upon repurchase, the shares were classified as treasury stock and then subsequently retired. In accordance with the terms of the LLC’s limited liability company agreement, an equal number of LLC Units were also canceled.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

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Item 6. Exhibits



Exhibit No.			Description
3.1			Certificate of Incorporation of Malibu Boats, Inc. ¹
3.2			Bylaws of Malibu Boats, Inc. ¹
3.3			Certificate of Formation of Malibu Boats Holdings, LLC ¹
3.4			First Amended and Restated Limited Liability Company Agreement of Malibu Boats Holdings, LLC, dated as of February 5, 2014 ²
3.4.1			First Amendment, dated as of February 5, 2014, to First Amended and Restated Limited Liability Company Agreement of Malibu Boats Holdings, LLC ³
3.4.2			Second Amendment, dated as of June 27, 2014, to First Amended and Restated Limited Liability Company Agreement of Malibu Boats Holdings, LLC ⁴
4.1			Description of Class A Common Stock ⁵
4.2			Form of Class A Common Stock Certificate ¹
~~4.2~~4.3			Form of Class B Common Stock Certificate ¹
~~4.3~~4.4			Exchange Agreement, dated as of February 5, 2014, by and among Malibu Boats, Inc. and Affiliates of Black Canyon Capital LLC and Horizon Holdings, LLC ²
~~4.4~~4.5			Exchange Agreement, dated as of February 5, 2014, by and among Malibu Boats, Inc. and the Members of Malibu Boats Holdings, LLC ²
~~4.5~~4.6			Tax Receivable Agreement, dated as of February 5, 2014, by and among Malibu Boats, Inc., Malibu Boats Holdings, LLC and the Other Members of Malibu Boats Holdings, LLC ²
31.1			Certificate of the Chief Executive Officer of Malibu Boats, Inc. pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certificate of the Chief Financial Officer of Malibu Boats, Inc. pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32			Certification of the Chief Executive Officer and Chief Financial Officer of Malibu Boats, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
~~101.INS~~101		~~XBRL Instance Document~~
~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~
~~101.CAL~~	~~XBRL Taxonomy Calculation Linkbase Document~~
~~101.DEF~~	~~XBRL Definition Linkbase Document~~
~~101.LAB~~	~~XBRL Taxonomy Label Linkbase Document~~
~~101.PRE~~	~~XBRL Taxonomy Presentation Linkbase Document~~


~~(1)~~	~~Filed as an exhibit to Amendment No. 1 to~~The following financial statements from the Company’s ~~registration statement on Form S-1 (Registration No. 333-192862) filed on January 8, 2014.~~


~~(2)~~	~~Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 001-36290) filed on February 6, 2014.~~


~~(3)~~	~~Filed as an exhibit to the Company's~~ Quarterly Report on Form ~~10-Q/A (File No. 001-36290) filed on May 13, 2014.~~

	10-Q for the quarter ended March 31, 2020 were formatted in Inline XBRL: (i) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
~~(4)~~104		~~Filed as an exhibit to~~				The cover page from the ~~Company's Current~~Company’s Quarterly Report on Form ~~8-K (File No. 001-36290) filed on June 27, 2014.~~10-Q for the quarter ended March 31, 2020, formatted in Inline XBRL (Included as Exhibit 101).

(1) Filed as an exhibit to Amendment No. 1 to the Company’s registration statement on Form S-1 (Registration No. 333-192862) filed on January 8, 2014.

(2) Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 001-36290) filed on February 6, 2014.

(3) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q/A (File No. 001-36290) filed on May 13, 2014.

(4) Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 001-36290) filed on June 27, 2014.

(5) Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 001-36290) filed on August 29, 2019.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


May 7, 2020			MALIBU BOATS, INC.

~~May 9, 2019~~			~~MALIBU BOATS, INC.~~By:

	~~By:~~	/s/ Jack Springer
				Jack Springer, Chief Executive Officer
				(Principal Executive Officer)
			By:	/s/ Wayne Wilson
				Wayne Wilson, Chief Financial Officer
				(Principal Financial Officer and Principal Accounting Officer)



Consideration:
Cash consideration paid	$	129,525
Equity consideration paid	1,000
Fair value of total consideration transferred	$	130,525

Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:
Cash	$	3,973
Accounts receivable	2,329
Inventories	14,343
Other current assets	363
Property, plant and equipment	12,934
Identifiable intangible assets	89,900
Current liabilities	(13,108		)
Fair value of assets acquired and liabilities assumed	110,734
Goodwill	19,791
Total purchase price	$	130,525



Goodwill as of June 30, 2018	$	32,230
Addition related to the acquisition of Pursuit	19,525
Effect of foreign currency changes on goodwill	(281		)
Goodwill as of March 31, 2019	$	51,474



Fiscal years ending June 30:
	Remainder of 2019	$	1,576
	2020	6,139
	2021	6,059
	2022	4,558
	2023	4,421
	Thereafter	61,402
		$	84,155



	March 31, 2019
	Shares		Price or range per share	Weighted Average Exercise Price/Share
Total outstanding options at June 30, 2018	144,000		$27.24	$	27.24
Options granted	69,973		37.55 - 42.13	40.82
Options exercised	(28,500	)	(25.85) - (30.87)	(26.29		)
Outstanding options at end of period	185,473		25.85 - 42.13	32.51
Exercisable at end of period	7,500		$30.87	$	30.87