We were formed in 2014 as One Water Marine Holdings, LLC (“OneWater LLC”) through the combination of Singleton Marine and Legendary Marine, which created a marine retail platform that collectively owned and operated 19 stores. Since the combination in 2014, we have acquired a total of 4049 additional stores through 1720 acquisitions. Our current portfolio as of June 30, 2020 consists2021 consisted of 2124 different local and regional dealer groups. Because of this, we believe we are one of the largest and one of the fastest-growing premium recreational boat retailers in the United States based on number of stores and total boats sold. While we have opportunistically opened new stores in select markets, we believe that it is generally more effective economically and operationally to acquire existing stores with experienced staff and established reputations.
The boat dealer market is highly fragmented and is comprised of over 4,000 stores nationwide. Most competing boat retailers are operated by local business owners who own three or fewer stores. Despite our size, we comprise less than 2% of total industry sales. Our scale and business model allow us to leverage our extensive inventory to provide consumers with the ability to find a boat that matches their preferences (e.g., make, model, color, configuration and other options) and to deliver the boat within days while providing a personalized sales experience. We are able to operate with a comparatively higher degree of profitability than other independent retailers because we allocate support resources across our store base, focus on high-margin products and services, utilize floor plan financing and provide core back-office functions on a scale that many independent retailers are unable to match. We seek to be the leading boat retailer by total market share within each boating market and within the product segments in which we participate. To the extent that we are not, we will evaluate acquiring other local retailers in order to increase our sales, to add additional brands or to provide us with additional high-quality personnel.
The COVID-19 pandemic and its related effects may continue to interfere with the ability of our employees, contractors, customers, suppliers, and other business partners to perform our and their respective responsibilities and obligations with respect to the operation of our business. To date,Recently, we have not experienced anyseen shortages of inventory but it is possible that such a shortage could occur as a result ofdue to the COVID-19 pandemic, increased sales generally across the industry, and its effects on, among other things,industry-wide supply chains, operations and consumer demand.chain constraints.
On April 1, 2020, our executive management team elected to undertake salary cuts in response to the impacts24
While we continue to monitor the impact of the COVID-19 pandemic on our business and operations, our financial results for the three and nine months ended June 30, 20202021 suggest that spending in all our regions and across product lines has proven remarkably resilient despite the challenges posed by the pandemic as families have increasingly focused on socially-distanced, outdoor recreation, driving a material increase in sales. We believe that, as a result of COVID-19, the cancellation of summer activities including air travel and vacations that have historically competed with time on the water has led to increased sales during the three months ended June 30, 2020.gross profit.
Though the COVID-19 pandemic did not adversely affect our financial positionprofitability for the three and nine months ended June 30, 20202021 relative to the three and nine months ended June 30, 2019,2020, certain supply chain constraints and lack of inventory did cause a modest decline in overall sales for the three months ended June 30, 2021 and may continue to adversely affect sales for future periods. It is possible that further shortages could occur as a result of the COVID-19 pandemic and its effects on, among other things, supply chains, operations and consumer demand. The ultimate impact of the COVID-19 pandemic on our business remains uncertain and dependent on various factors, including the existence and extent of a prolonged economic downturn, the resurgence of COVID-19 in certain geographic areas, emergence of new strain variants thereof, supply chain constraints, inventory availability, consumer demand and the ability to safely and legally operate our stores.
Trends and Other Factors Impacting Our Performance
Acquisitions
We are a highly acquisitive company. Since the combination of Singleton Marine and Legendary Marine in 2014, we have acquired 4049 additional stores through 1720 dealer group acquisitions. Our team remains focused on expanding our dealership in regions with strong boating cultures, enhancing the customer experience, and generating value for our shareholders.
We have an extensive acquisition track record within the boating industry and believe we have developed a reputation for treating sellers and their staff in an honest and fair manner. We typically retain the management team and name of the acquired dealerships. We believe this practice preserves the acquired dealer’s customer relationships and goodwill in the local marketplace. We believe our reputation and scale have positioned us as a buyer of choice for boat dealers who want to sell their businesses. To date, 100% of our acquisitions have been sourced from inbound inquiries, and the number of annual inquiries we receive has consistently increased over time. Our strategy is to acquire stores at attractive EBITDA multiples and then grow same-store sales while benefitting from cost-reducing synergies. Historically, we have typically acquired dealer groups for less than 4.0x EBITDA on a trailing twelve monthtwelve-month basis and believe that we will be able to continue to make attractive acquisitions within this range.While
In the nine months ended June 30, 2021, we previously announcedcompleted the following transactions:
On December 1, 2020, Tom George Yacht Group with two locations in Florida
On December 31, 2020, Walker Marine Group with five locations in Florida
On December 31, 2020, Roscioli Yachting Center with one location in Florida
Total purchase price of the acquisitions during the nine months ended June 30, 2021 was $91.0 million and was paid with $83.5 million in cash, and the remaining $7.5 million was financed with $5.5 million estimated acquisition contingent consideration and a $2.1 million seller notes payable. The acquisitions contributed $42.7 million to our decisionconsolidated revenue and $6.8 million to pause our acquisition strategy due to the COVID-19 pandemic, given our financial resultsincome before income tax expense for the three months ended June 30, 2020, we2021. Included in our results for the nine months ended June 30, 2021, the acquisitions contributed $75.5 million to our consolidated revenue and $10.3 million to our income before income tax expense. Costs related to acquisitions are recommencingincluded in transaction costs and primarily relate to legal, accounting, and valuation fees, which are charged directly to operations in the consolidated statements of operations as incurred in the amount of $0.1 million and $0.6 million for the three and nine months ended June 30, 2021, respectively.
For a summary of our acquisition strategy and opportunistically evaluating future acquisitions.recently announced acquisitions, see Note 14 in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.
General Economic Conditions
General economic conditions and consumer spending patterns can negatively impact our operating results. Unfavorable local, regional, national, or global economic developments or uncertainties, including the adverse economic effects of the COVID-19 pandemic, including supply chain constraints and inventory availability, or a prolonged economic downturn, could reduce consumer spending and adversely affect our business. Consumer spending on discretionary goods may also decline as a result of lower consumer confidence levels, even if prevailing economic conditions are otherwise favorable. Economic conditions in areas in which we operate stores, particularly in the Southeast, can have a major impact on our overall results of operations. Local influences, such as corporate downsizing and inclement weather such as hurricanes and other storms, environmental conditions, global public health concerns and events could adversely affect our operations in certain markets and in certain periods. Any extended period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business.
Our business was significantly impacted during the recessionary period that began in 2007. This period of weakness in consumer spending and depressed economic conditions had a substantial negative effect on our operating results. In response to these conditions we reduced our inventory purchases, closed certain stores and reduced headcount. Additionally, in an effort to counteract the downturn, we increased our focus on pre-owned sales, parts and repair services, and finance and insurance services. As a result, we surpassed our pre-recession sales levels in less than 24 months. While we believe the measures we took significantly reduced the impact of the downturn on the business, we cannot guarantee similar results in the event of a future downturn. Additionally, we cannot predict the timing or length of unfavorable economic or industry conditions, including a downturnthe impact as a result of the COVID-19 pandemic, or the extent to which they could adversely affect our operating results.
Although past economic conditions have adversely affected our operating results, we believe we are capable of responding in a manner that allows us to substantially outperform the industry and gain market share. We believe our ability to capture such market share enables us to align our retail strategies with the desires of customers. We expect our core strengths, including retail and acquisition strategies, will allow us to capitalize on growth opportunities as they occur, despite market conditions.
Critical Accounting Policies and Significant Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (‘‘GAAP’’) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of the financial statements, and revenues and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements. Set forth below are the policies and estimates that we have identified as critical to our business operations and understanding our results of operations, based on the high degree of judgment or complexity in their application.
Revenue Recognition
Revenue is recognized from the sale of products and commissions earned on new and pre-owned boats (including used, brokerage, consignment and wholesale) when ownership is transferred to the customer. We are the principal with respect to revenue from new, used and consignment sales and such revenue is recorded at the gross sales price. With respect to brokerage transactions, we are acting as an agent in the transaction, and therefore the fee or commission is recorded on a net basis.
Revenue from parts and service operations (boat maintenance and repairs) is recorded over time as services are performed. Each boat maintenance and repair service is a single performance obligation that includes both the parts and labor associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a period of one year or less from contract inception. Prior to the adoption of ASU 2014-09 (as defined below), revenue from parts and service operations were recognized when the customer took delivery of the part or serviced boat.
Deferred revenue from storage and marina operations is recognized on a straight-line basis over the term of the contract as services are completed. Revenue from arranging financing, insurance and extended warranty contracts to customers through various third-party financial institutions and insurance companies is recognized when the related boats are sold. We do not directly finance our customers’ boat, motor or trailer purchases. Subject to our agreements and in the event of early cancellation of such loans or insurance contracts by the customer, we may be assessed a charge back for a portion of the transaction price by the third-party financial institutions and insurance companies. We constrain our estimate of variable consideration associated with chargebacks based on our historical experience with repayments or defaults. Chargebacks were not material to the unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2020 and June 30, 2019.
Vendor Consideration Received
Consideration received from vendors is accounted for in accordance with FASB Accounting Standards Codification 330, ‘‘Inventory’’ (‘‘ASC 330’’). Pursuant to ASC 330, manufacturer incentives based upon cumulative volume of sales and purchases are recorded as a reduction of inventory cost and related cost of sales when the amounts are probable and reasonably estimable.
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of new and pre-owned boat inventory is determined using the specific identification method. New and pre-owned boat sales histories indicated that the overwhelming majority of such boats are sold for, or in excess of, the cost to purchase those boats. In assessing the lower of cost or net realizable value, we consider the aging of the boats, historical sales of a particular product and current market conditions. Therefore, we generally do not maintain a reserve for boat inventory. The cost of parts and accessories is determined using the weighted average cost method. Inventory is reported net of write downs for obsolete and slow moving items of $0.9 million and $0.5 million at June 30, 2020 and September 30, 2019, respectively.
Goodwill and Other Intangible Assets
Goodwill and intangible assets are accounted for in accordance with FASB Accounting Standards Codification 350, ‘‘Intangibles — Goodwill and Other’’ (‘‘ASC 350’’), which provides that the excess of cost over the fair value of the net assets of businesses acquired, including other identifiable intangible assets, is recorded as goodwill. ASC 350 also states that if an entity determines, based on an assessment of certain qualitative factors, that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then a quantitative goodwill impairment test is unnecessary. Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. In accordance with ASC 350, goodwill is tested for impairment at least annually, or more frequently when events or circumstances indicate that impairment might have occurred.
In accordance with ASC 350, we review goodwill for impairment annually in the fourth fiscal quarter, or more often if events or circumstances indicate that impairment may have occurred. When evaluating goodwill for impairment, if the fair value of a reporting unit is less than its carrying value, the difference would represent the amount of required goodwill impairment in accordance with ASC 350. To the extent the reporting unit’s earnings decline significantly or there are changes in one or more of these inputs that would result in a lower valuation, it could cause the carrying value of the reporting unit to exceed its fair value and thus require the Company to record goodwill impairment. As of June 30, 2020, and based on upon our most recent quantitative assessment on March 31, 2020, we determined that it is not “more likely than not” that the fair value of our reporting unit is less than its carrying value. As a result, we were not required to perform a quantitative goodwill impairment test.
We performed a qualitative assessment as of September 30, 2019, and we determined that it was not “more likely than not” that the fair value of our reporting unit was less than its carrying amount.
Identifiable intangible assets consist of trade names related to the acquisitions we have completed. We have determined that trade names have an indefinite life, as there is no economic, contractual or other factors that limit their useful lives and they are expected to generate value as long as the trade name is utilized by the dealer group, and therefore, are not subject to amortization. Financial statement risk exists to the extent identifiable intangibles become impaired due to the decrease in the fair value of the identifiable assets. As of June 30, 2020, and based upon our most recent quantitative assessments on March 31, 2020, we determined that it is not “more likely than not” that the fair values of our identifiable intangible assets are less than their carrying values. As a result, we were not required to perform quantitative identifiable intangible asset impairment tests.
We performed qualitative assessments as of September 30, 2019, and we determined that it was not “more likely than not” that the fair value of our reporting units were less than their carrying amounts.
Impairment of Long-Lived Assets
FASB ASC 360-10-40, “Property, Plant, and Equipment – Impairment or Disposal of Long-Lived Assets” (‘‘ASC 360-10-40’’), requires that long-lived assets, such as property, equipment and purchased intangibles subject to amortization, be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such an indication is present, the carrying amount of the asset is compared to the estimated undiscounted cash flows related to that asset. We would conclude that an asset is impaired if the sum of such expected future cash flows is less than the carrying amount of the related asset. If an asset is impaired, the impairment loss would be the amount by which the carrying amount of the related asset exceeds its fair value. The Company did an assessment of potential triggering events and considered qualitative factors noting no impairment existed as of June 30, 2020. We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions used to test for recoverability which would result in a material effect on our operating results.
Fair Value of Financial Instruments
In determining fair value, we use various valuation approaches including market, income and cost approaches. FASB Topic 820, Fair Value Measurements, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from independent sources. Unobservable inputs are those that reflect our expectation of the assumptions that market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.
The grant date fair value of equity-based compensation and the fair value of certain warrants previously held by affiliates of Goldman Sachs & Co. LLC and certain of its affiliates (collectively, “Goldman”) and affiliates of The Beekman Group (“Beekman”) (such warrants, the “LLC Warrants”) were both based upon inputs that are unobservable and significant to the overall fair value measurement. Our valuation considered both a market approach and an income approach in determining fair value. While both approaches resulted in similar values, the market approach was weighted 25% and the income approach was weighted 75% since there are very few comparable marine related market participants. For the income approach, we projected long-term growth rates and cash flows and then discounted such values using a weighted average cost of capital. Such fair value measurements are highly complex and subjective in nature. Accordingly, a significant degree of judgment is required to estimate these fair value measurements.
Post-Offering Taxation and Public Company Costs
One Water Marine Holdings, LLC (“OneWater LLC”) is and has been organized as a pass-through entity for U.S. federal income tax purposes and is therefore not subject to entity-level U.S. federal income taxes. OneWater Marine Inc. (“OneWater Inc”) was incorporated as a Delaware corporation on April 3, 2019 and therefore, after the consummation of the initial public offering (the “Offering”), is subject to U.S. federal income taxes and additional state and local taxes with respect to its allocable share of any taxable income of OneWater LLC and will be taxed at the prevailing corporate tax rates. In addition to tax expenses, OneWater Inc also will incur expenses related to its operations, plus payment obligations under the Tax Receivable Agreement, which are expected to be significant. To the extent OneWater LLC has available cash and subject to the terms of any current or future debt instruments, the Amended and Restated Limited Liability Company Agreement of OneWater LLC (the ‘‘OneWater LLC Agreement’’) will require OneWater LLC to make pro rata cash distributions to OneWater Unit Holders (as defined below), including OneWater Inc, in an amount sufficient to allow OneWater Inc to pay its taxes and to make payments under the Tax Receivable Agreement. In addition, the OneWater LLC Agreement will require OneWater LLC to make non-pro rata payments to OneWater Inc to reimburse it for its corporate and other overhead expenses, which payments are not treated as distributions under the OneWater LLC Agreement. See ‘‘—Tax Receivable Agreement’’ and ‘‘Certain Relationships and Related Party Transactions—Tax Receivable Agreement’’ in our Final Prospectus.
In addition, we expect to incur incremental, non-recurring costs related to our transition to a publicly traded corporation, including the costs of the Offering and the costs associated with the initial implementation of our internal control reviews and testing pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the ‘‘Sarbanes-Oxley Act’’). We also expect to incur additional significant and recurring expenses as a publicly traded corporation, including costs associated with compliance under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’), annual and quarterly reports to common stockholders, registrar and transfer agent fees, national stock exchange fees, audit fees, incremental director and officer liability insurance costs and director and officer compensation.
How We Evaluate Our Operations
Revenue
We have a diversified revenue profile that is comprised of new boat sales, pre-owned boat sales, F&I products, repair and maintenance services, and parts and accessories. Although non-boat sales contributed 8.7%approximately 11.1% and 10.2%8.7% to revenue in the three months ended June 30, 20202021 and 2019,2020, respectively, and 9.6%10.8% and 11.0%9.6% in the nine months ended June 30, 20202021 and 2019,2020, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 27.5%24.7% and 31.3%27.5% to gross profit in the three months ended June 30, 20202021 and 2019,2020, respectively, and 28.8%25.8% and 31.1%28.8% to gross profit in the nine months ended June 30, 20202021 and 2019,2020, respectively. During different phases of the economic cycle, consumer behavior may shift away from new boats; however, we are well-positioned to benefit from revenue from pre-owned boats, repair and maintenance services, and parts and accessories, which have all historically increased during periods of economic uncertainty. We generate pre-owned sales from boats traded-in for new and pre-owned boats, boats purchased from consumers, brokerage transactions, consignment sales and wholesale sales. We have also diversified our business across geographies and dealership types (e.g., fresh water and salt water) in order to reduce the effects of seasonality. In addition to seasonality, revenue and operating results may also be significantly affected by quarter-to-quarter changes in economic conditions, manufacturer incentive programs, adverse weather conditions and other developments outside of our control.
Gross Profit
We calculate gross profit as revenue less cost of sales. Cost of sales consists of actual amounts paid for products, costs of services (primarily labor), transportation costs from manufacturers to our retail stores and vendor consideration. Gross profit excludes depreciation and amortization, which is presented separately in our consolidated statements of operations.
Gross Profit Margin
Our overall gross profit margin varies with our revenue mix. Sales of new and pre-owned boats, which have comparable margins, generally result in a lower gross profit margin than our non-boat sales. As a result, when revenue from non-boat sales increases as a percentage of total revenue, we expect our overall gross profit margin to increase.
Selling, General and Administrative Expenses
Selling, general, and administrative (‘‘SG&A’’) expenses consist primarily of salaries and incentive-based compensation, advertising, rent, insurance, utilities, and other customary operating expenses. A portion of our cost structure is variable (such as sales commissions and incentive compensation), or controllable (such as advertising), which we believe allows us to adapt to changes in the retail environment over the long term. We typically evaluate our variable expenses, selling expenses and all other SG&A expenses in the aggregate as a percentage of total revenue.
Same-Store Sales
We assess the organic growth of our revenue on a same-store basis. We believe that our assessment on a same-store basis represents an important indicator of comparative financial results and provides relevant information to assess our performance. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership and revenues are only included for identical months in the same-store base periods. Stores relocated within an existing market remain in the comparable store base for all periods. Additionally, amounts related to closed stores are excluded from each comparative base period. Because same-store sales may be defined differently by other companies in our industry, our definition of this measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
Adjusted EBITDA
We define Adjusted EBITDA as net income before interest expense – other, income taxes,tax expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in the fair value of warrants, gain (loss)warrant liability, loss on settlementcontingent consideration, loss on extinguishment of contingent considerationdebt and transaction costs. See ‘‘—Comparison of Non-GAAP Financial Measure’’ for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
Summary of Acquisitions
The comparability of our results of operations between the periods discussed below is naturally affected by the acquisitions we have completed during such periods. We are also continuously evaluating and pursuing acquisitions on an ongoing basis, and such acquisitions, if completed, will continue to impact the comparability of our financial results. While we expect continued growth and strategic acquisitions in the future, our acquisitions may have materially different characteristics than our historical results, and such differences in economics may impact the comparability of our future results of operations to our historical results.
Fiscal Year 20192021 Acquisitions
Effective December 1, 2018, OneWater LLC2020, we acquired substantially all of the assets of The Slalom Shop, LLC, a dealer group based in Texas with two stores.
Effective February 1, 2019, OneWater LLC acquired substantially all of the assets of Ray Clepper, Inc., d/b/a Ray Clepper Boat Center, a dealer group based in South Carolina with one store.
Effective February 1, 2019, OneWater LLC acquired substantially all of the assets of Ocean BlueTom George Yacht Sales, LLC,Inc., a dealer groupfull-service marine retailer based in Florida with threetwo stores.
Effective May 1, 2019, OneWater LLCDecember 31, 2020, we acquired substantially all of the assets of Caribee Boat Sales and Marina,Walker Marine Group, Inc., a dealer groupfull-service marine retailer based in Florida with one store.five stores.
Effective August 1, 2019, OneWater LLCDecember 31, 2020, we acquired substantially all of the assets of Central Marine,Roscioli Yachting Center, Inc., a dealer group basedfull-service marina and yachting facility located in Florida, with three stores.including the related real estate and in-water slips.
We refer to the fiscal year 20192021 acquisitions described above collectively as the ‘‘20192021 Acquisitions.’’ The 2019 Acquisitions2021 acquisitions are fully reflected in our unaudited condensed consolidated financial statementsCondensed Consolidated Statements of Operations for the three and nine months ended June 30, 2020 and will be fully reflected in our consolidated financial statements for2021 from the fiscal year ending September 30, 2020 but are only partially reflected in our unaudited condensed consolidated financial statements for the three and nine months ending June 30, 2019.date of acquisition forward.
Other Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations
Our historical financial results discussed below may not be comparable to our future financial results for the reasons described below.
OneWater IncInc. is subject to U.S. federal, state and local income taxes as a corporation. Our accounting predecessor, OneWater LLC, was and is treated as a partnership for U.S. federal income tax purposes, and as such, was generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to its taxable income is passed through to its members. Accordingly, the financial data attributable to our predecessor contains no provision for U.S. federal income taxes or income taxes in any state or locality. We currently estimate that OneWater Inc will beInc. was subject to U.S. federal, state and local taxes at aan estimated blended statutory rate of 24.1% for the nine months ended June 30, 2021. OneWater Inc. was subject to U.S. federal, state and local taxes at an estimated blended statutory rate of 24.6% of pre-tax earnings for periods afterfrom February 11, 2020 through June 30, 2020, the Offering.period following our initial public offering (the "Offering").
As of September 30, 2019, the outstanding balance of the preferred units in One Water Assets & Operations, LLC (“OWAO”) held by Goldman and Beekman in the aggregate was $87.3 million, exclusive of $1.3 million in issuance costs. In connection with the Offering, we used the net proceeds therefrom, together with cash on hand and borrowings under the Amended and Restated Credit and Guaranty Agreement (the “Term and Revolver Credit Facility”) by and among OneWater Inc, OneWater LLC and its subsidiaries, with Goldman Sachs Specialty Lending Group, L.P., to fully redeem these preferred units, which eliminates the amount recorded as Redeemable Preferred Interest in Subsidiary in our balance sheet and also eliminates any future dividends related to the preferred units for all periods after the Offering.
As of September 30, 2019, Goldman and Beekman held the LLC Warrants, which contained conversion features that caused them to be accounted for as a liability on our balance sheet. Changes in this liability were recognized as income or expense on our statements of operations and increased or reduced our net income in historical periods. In connection with the Offering, Goldman and Beekman exercised all of the LLC Warrants for common units of OneWater LLC. Giving effect to the Offering and the exercise of the LLC Warrants for common units of OneWater LLC held by Goldman and Beekman, we have eliminated the fair value adjustment for the LLC Warrants for all periods after the Offering, which eliminates the corresponding impact on our statements of operations.
As we further implement controls, processes and infrastructure applicable to companies with publicly traded equity securities, it is likely that we will incur additional SG&A expenses relative to historical periods. See ‘‘—Post-Offering Taxation and Public Company Costs.’’
Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy.
Results of Operations
Three Months Ended June 30, 2020,2021, Compared to Three Months Ended June 30, 20192020
| | | For the Three Months Ended June 30, 2021 | | | For the Three Months Ended June 30, 2020 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | | ($ in thousands) | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat | | $ | 288,222 | | | | 71.3 | % | | $ | 294,678 | | | | 72.2 | % | | $ | (6,456 | ) | | | (2.2 | )% |
| Pre-owned boat | | | 71,116 | | | | 17.6 | % | | | 78,213 | | | | 19.2 | % | | | (7,097 | ) | | | (9.1 | )% |
| Finance & insurance income | | | 15,238 | | | | 3.8 | % | | | 16,639 | | | | 4.1 | % | | | (1,401 | ) | | | (8.4 | )% |
| Service, parts and other | | | 29,631 | | | | 7.3 | % | | | 18,743 | | | | 4.6 | % | | | 10,888 | | | | 58.1 | % |
| Total revenues | | | 404,207 | | | | 100.0 | % | | | 408,273 | | | | 100.0 | % | | | (4,066 | ) | | | (1.0 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat | | | 77,081 | | | | 19.1 | % | | | 54,029 | | | | 13.2 | % | | | 23,052 | | | | 42.7 | % |
| Pre-owned boat | | | 18,550 | | | | 4.6 | % | | | 14,619 | | | | 3.6 | % | | | 3,931 | | | | 26.9 | % |
Finance & insurance income
| | | 15,238 | | | | 3.8 | % | | | 16,639 | | | | 4.1 | % | | | (1,401 | ) | | | (8.4 | )% |
| Service, parts & other | | | 16,083 | | | | 4.0 | % | | | 9,398 | | | | 2.3 | % | | | 6,685 | | | | 71.1 | % |
| Total gross profit | | | 126,952 | | | | 31.4 | % | | | 94,685 | | | | 23.2 | % | | | 32,267 | | | | 34.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 60,476 | | | | 15.0 | % | | | 43,134 | | | | 10.6 | % | | | 17,342 | | | | 40.2 | % |
| Depreciation and amortization | | | 1,475 | | | | 0.4 | % | | | 824 | | | | 0.2 | % | | | 651 | | | | 79.0 | % |
| Transaction costs | | | 65 | | | | 0.0 | % | | | 31 | | | | 0.0 | % | | | 34 | | | | 109.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 64,936 | | | | 16.1 | % | | | 50,696 | | | | 12.4 | % | | | 14,240 | | | | 28.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 956 | | | | 0.2 | % | | | 2,298 | | | | 0.6 | % | | | (1,342 | ) | | | (58.4 | )% |
| Interest expense - other | | | 1,083 | | | | 0.3 | % | | | 3,082 | | | | 0.8 | % | | | (1,999 | ) | | | (64.9 | )% |
| Other (income), net | | | (158 | ) | | | 0.0 | % | | | (43 | ) | | | 0.0 | % | | | (115 | ) | | | 267.4 | % |
| Income before income tax expense | | | 63,055 | | | | 15.6 | % | | | 45,359 | | | | 11.1 | % | | | 17,696 | | | | 39.0 | % |
| Income tax expense | | | 11,498 | | | | 2.8 | % | | | 4,737 | | | | 1.2 | % | | | 6,761 | | | | 142.7 | % |
| Net income | | | 51,557 | | | | 12.8 | % | | | 40,622 | | | | 9.9 | % | | | 10,935 | | | | 26.9 | % |
| Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC | | | 17,054 | | | | | | | | 26,255 | | | | | | | | (9,201 | ) | | | (35.0 | )% |
| Net income attributable to One Water Marine Inc. | | $ | 34,503 | | | | | | | $ | 14,367 | | | | | | | $ | 20,136 | | | | 140.2 | % |
| | | For the three months ended June 30, 2020 | | | For the three months ended June 30, 2019 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | | ($ in thousands) | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat sales | | $ | 286,984 | | | | 70.3 | % | | $ | 180,668 | | | | 65.7 | % | | $ | 106,316 | | | | 58.8 | % |
| Pre-owned boat sales | | | 85,907 | | | | 21.0 | % | | | 66,114 | | | | 24.1 | % | | | 19,793 | | | | 29.9 | % |
| Finance & insurance income | | | 16,639 | | | | 4.1 | % | | | 10,007 | | | | 3.6 | % | | | 6,632 | | | | 66.3 | % |
| Service, parts and other sales | | | 18,743 | | | | 4.6 | % | | | 18,035 | | | | 6.6 | % | | | 708 | | | | 3.9 | % |
| Total revenues | | | 408,273 | | | | 100.0 | % | | | 274,824 | | | | 100.0 | % | | | 133,449 | | | | 48.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat gross profit | | | 53,607 | | | | 13.1 | % | | | 32,441 | | | | 11.8 | % | | | 21,166 | | | | 65.2 | % |
| Pre-owned boat gross profit | | | 15,041 | | | | 3.7 | % | | | 10,637 | | | | 3.9 | % | | | 4,404 | | | | 41.4 | % |
| Finance & insurance gross profit | | | 16,639 | | | | 4.1 | % | | | 10,007 | | | | 3.6 | % | | | 6,632 | | | | 66.3 | % |
| Service, parts & other gross profit | | | 9,398 | | | | 2.3 | % | | | 9,646 | | | | 3.5 | % | | | (248 | ) | | | -2.6 | % |
| Total gross profit | | | 94,685 | | | | 23.2 | % | | | 62,731 | | | | 22.8 | % | | | 31,954 | | | | 50.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 43,152 | | | | 10.6 | % | | | 34,713 | | | | 12.6 | % | | | 8,439 | | | | 24.3 | % |
| Depreciation and amortization | | | 824 | | | | 0.2 | % | | | 691 | | | | 0.3 | % | | | 133 | | | | 19.2 | % |
| Transaction costs | | | 31 | | | | 0.0 | % | | | 419 | | | | 0.2 | % | | | (388 | ) | | | -92.6 | % |
| Gain on settlement of contingent consideration | | | - | | | | 0.0 | % | | | (19 | ) | | | 0.0 | % | | | 19 | | | | -100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 50,678 | | | | 12.4 | % | | | 26,927 | | | | 9.8 | % | | | 23,751 | | | | 88.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 2,298 | | | | 0.6 | % | | | 2,734 | | | | 1.0 | % | | | (436 | ) | | | -15.9 | % |
| Interest expense - other | | | 3,082 | | | | 0.8 | % | | | 1,869 | | | | 0.7 | % | | | 1,213 | | | | 64.9 | % |
| Change in fair value of warrant liability | | | - | | | | 0.0 | % | | | (10,373 | ) | | | -3.8 | % | | | 10,373 | | | | -100.0 | % |
| Other (income) expense, net | | | (61 | ) | | | 0.0 | % | | | 17 | | | | 0.0 | % | | | (78 | ) | | | -458.8 | % |
| Income before income tax expense | | | 45,359 | | | | 11.1 | % | | | 32,680 | | | | 11.9 | % | | | 12,679 | | | | 38.8 | % |
| Income tax expense | | | 4,737 | | | | 1.2 | % | | | - | | | | 0.0 | % | | | 4,737 | | | | 100.0 | % |
| Net income | | | 40,622 | | | | 9.9 | % | | | 32,680 | | | | 11.9 | % | | | 7,942 | | | | 24.3 | % |
| Less: Net income attributable to non-controlling interest | | | - | | | | | | | | (772 | ) | | | | | | | 772 | | | | -100.0 | % |
| Net income attributable to One Water Marine Holdings, LLC | | | | | | | | | | $ | 31,908 | | | | | | | | | | | | | |
| Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC | | | (26,255 | ) | | | | | | | | | | | | | | | | | | | | |
| Net income attributable to One Water Marine Inc. | | $ | 14,367 | | | | | | | | | | | | | | | | | | | | | |
Revenue
Overall, revenue was relatively flat, decreasing by $4.1 million, or 1.0%, to $404.2 million for the three months ended June 30, 2021 from $408.2 million for the three months ended June 30, 2020. Revenue generated from same-store sales declined 10.9% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, driven lower by industry-wide supply constraints. Additionally, revenues for the three months ended June 30, 2020 were aided by pending new and pre-owned boat sales from March 2020 being delayed until April and May of 2020 due to the initial shutdowns related to the COVID-19 pandemic. However, we saw a strong increase in the average unit selling price of new and pre-owned boats in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The overall integration of our 2021 Acquisitions has gone well with those locations, which are not eligible for inclusion in the same-store sales base, generating $42.7 million in revenue for the three months ended June 30, 2021. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership, and revenues are only included for identical months in the same-store base periods. As of June 30, 2021, we had acquired eight stores in fiscal year 2021. We did not make any acquisitions in fiscal year 2020.
New Boat
New boat revenue decreased by $6.5 million, or 2.2%, to $288.2 million for the three months ended June 30, 2021 from $294.7 for the three months ended June 30, 2020. We believe this decrease was primarily attributable to a drop in unit sales due to a slowdown of manufacturer replenishments of new inventory caused by the COVID-19 pandemic. However, we experienced an increase in average sales price due in part to the mix of boat brands and models sold, product improvements in the functionality and technology of boats, which continues to be a driver of consumer demand, as well as a lower supply of new boat inventory as manufacturer replenishments have been slowed by the COVID-19 pandemic.
Pre-owned Boat
Pre-owned boat revenue decreased by $7.1 million, or 9.1%, to $71.1 million for the three months ended June 30, 2021 from $78.2 million for the three months ended June 30, 2020. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. Pre-owned boat sales for the three months ended June 30, 2021 experienced a decrease in the number of units sold due to industry-wide supply constraints as customers continue to use their boats, and remain reluctant to trade-in inventory or end up sell in person-to-person transactions. Additionally, the decrease in sales was driven by a change in our sales mix as brokerage sales increased 150.5%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Brokerage sales are recorded net of cost of sales while all other sales arrangements are recorded on a gross basis. We benefited from an increase in average unit price largely due to the mix of pre-owned products, the composition of the brands and models sold during the period as well as the industry-wide supply restrictions driving prices higher.
Finance & Insurance Income
We generate revenue from arranging finance & insurance products, including financing, insurance and extended warranty contracts, to customers through various third-party financial institutions and insurance companies. Finance & insurance income decreased by $1.4 million, or 8.4%, to $15.2 million for the three months ended June 30, 2021 from $16.6 million for the three months ended June 30, 2020. The decrease was primarily due to the reduction in new and pre-owned boat revenues. We remain very focused on improving sales of finance & insurance products throughout our dealer network and implementing best practices at acquired dealer groups and existing stores. Finance & insurance products decreased as a percentage of total revenue to 3.8% in the three months ended June 30, 2021 from 4.1% for the three months ended June 30, 2020, primarily due to the decline in boat sales and an increase in service, parts and other revenue as a portion of our total revenue. Since finance & insurance income is fee-based, we do not incur any related cost of sale. Finance & insurance income is recorded net of related fees, including fees charged back due to any early cancellation of loan or insurance contracts by a customer.
Service, Parts & Other
Service, parts & other revenue increased by $133.4$10.9 million, or 48.6%58.1%, to $408.3$29.6 million for the three months ended June 30, 2021 from $18.7 million for the three months ended June 30, 2020. This increase in service, parts & other revenue is primarily due to ancillary sales generated from our increase in new and pre-owned boat sales since the beginning of the COVID-19 pandemic and the impact of the 2021 Acquisitions.
Gross Profit
Overall, gross profit increased by $32.3 million, or 34.1%, to $127.0 million for the three months ended June 30, 2021 from $94.7 million for the three months ended June 30, 2020. This increase was primarily due to a shift in the mix and size of boat models sold, the Company’s focus on dynamic pricing, an increase in service, parts & other sales and the emphasis on meeting customer demand. Overall gross margins increased 822 basis points to 31.4% for the three months ended June 30, 2021 from 23.2% for the three months ended June 30, 2020 due to the factors noted below.
New Boat
New boat gross profit increased by $23.1 million, or 42.7%, to $77.1 million for the three months ended June 30, 2021 from $54.0 million for the three months ended June 30, 2020. New boat gross profit as a percentage of new boat revenue was 26.7% for the three months ended June 30, 2021 as compared to 18.3% in the three months ended June 30, 2020. The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations and the expansion of new boat gross profit margins created by a lower supply of new boat inventory in the three months ended June 30, 2021.
Pre-owned Boat
Pre-owned boat gross profit increased by $3.9 million, or 26.9%, to $18.6 million for the three months ended June 30, 2021 from $14.6 million for the three months ended June 30, 2020. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 26.1% and 18.7% for the three months ended June 30, 2021 and 2020, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal fluctuations in pre-owned boat gross profit as a percentage of revenue. In the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, we experienced an increase in our gross profit on pre-owned sales for each of the different sales arrangements. Margins were also driven higher by a lower supply of pre-owned inventory in the market for the three months ended June 30, 2021.
Finance & Insurance
Finance & insurance gross profit decreased by $1.4 million, or 8.4%, to $15.2 million for the three months ended June 30, 2021 from $16.6 million for the three months ended June 30, 2020. Finance & insurance income is fee-based revenue for which we do not recognize incremental cost of sale.
Service, Parts & Other
Service, parts & other gross profit increased by $6.7 million, or 71.1%, to $16.1 million for the three months ended June 30, 2021 from $9.4 million for the three months ended June 30, 2020. The increase in service, parts & other gross profit was primarily driven by our new and pre-owned boat sales growth since the onset of the COVID-19 pandemic as well as the impact of the 2021 Acquisitions. Service, parts & other gross profit as a percentage of service, parts & other revenue was 54.3% and 50.1% for the three months ended June 30, 2021 and 2020, respectively. This increase was the result of the mix of products sold and services provided as the gross profit shifted more towards service work, which has a higher margin. Additionally, due to the increased demand, we experienced an increase in the productivity of our service technicians, which drove margins higher.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by $17.3 million, or 40.2%, to $60.5 million for the three months ended June 30, 2021 from $43.1 million for the three months ended June 30, 2020. Selling, general & administrative expenses experienced a $12.9 million increase in personnel expenses, a $0.9 million increase in selling and administrative expenses and a $1.4 million increase in fixed expenses. Selling, general & administrative expenses as a percentage of revenue increased to 15.0% from 10.6% for the three months ended June 30, 2021 and 2020, respectively. The increase in selling, general & administrative expenses as a percentage of revenue was primarily due to higher variable-based compensation expense as a result of the Company’s increased net profit margin.
Depreciation and Amortization
Depreciation and amortization expense increased $0.7 million, or 79.0%, to $1.5 million for the three months ended June 30, 2021 compared to $0.8 million for the three months ended June 30, 2020. The increase in depreciation and amortization expense for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily attributable to an increase in property and equipment from our 2021 Acquisitions.
Transaction Costs
Transaction costs increased to $65,098 during the three months ended June 30, 2021 as compared to $30,650 for the three months ended June 30, 2020.
Income from Operations
Income from operations increased $14.2 million, or 28.1%, to $64.9 million for the three months ended June 30, 2021 compared to $50.7 million for the three months ended June 30, 2020. The increase was primarily attributable to the $32.3 million increase in gross profit for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, partially offset by a $17.3 million increase in selling, general & administrative expenses during the same periods.
Interest Expense – Floor Plan
Interest expense – floor plan decreased $1.3 million, or 58.4%, to $1.0 million for the three months ended June 30, 2021 compared to $2.3 million for the three months ended June 30, 2020. This decrease was primarily attributable to a $67.9 million decrease in the outstanding borrowings on our Sixth Amended and Restated Inventory Financing Agreement (the “Inventory Financing Facility”), falling interest rates, and interest assistance received from our manufacturers and banks.
Interest Expense – Other
The decrease in interest expense – other of $2.0 million, or 64.9%, to $1.1 million for the three months ended June 30, 2021 compared to $3.1 million for the three months ended June 30, 2020 from $274.8was primarily attributable to the July 22, 2020 payoff of our Term and Revolver Credit Facility (as defined below) and entry into the Refinanced Credit Facility (as defined below), which offers a more favorable interest rate.
Other Expense (Income), Net
Other income increased to $0.2 million during the three months ended June 30, 2021 as compared to other income of $43,227 for the three months ended June 30, 2019. Revenue generated from same-store sales increased 43.9%2020.
Income Tax Expense
The $6.8 million increase in income tax expense for the three months ended June 30, 20202021 as compared to the three months ended June 30, 2019,2020 was primarily due to increased sales due to the impactresult of the COVID-19 pandemic$17.7 million increase in income before income tax expense. Additionally, as many summer activities that have historically competedClass B common stock was exchanged for Class A common stock (in accordance with time on the water have been canceled. Boating provides a safe, outdoor leisure activity that allowsterms of the fourth amended and restated limited liability company agreement of OneWater LLC (the "OneWater LLC Agreement")), the proportion of consolidated income before income tax expense allocated to OneWater Inc. increased, yielding higher income tax expense.
Net Income
Net income increased by $10.9 million to $51.6 million for maintenance of social distance policies.the three months ended June 30, 2021 compared to $40.6 million for the three months ended June 30, 2020. The increase was primarily driven by both anattributable to the $32.3 million increase in gross profit for the number of newthree months ended June 30, 2021 compared to June 30, 2020. The increase was partially offset by the $17.3 million increase in selling, general & administrative expenses and pre-owned units soldthe $6.8 million increase in income tax expense for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
Nine Months Ended June 30, 2021, Compared to Nine Months Ended June 30, 2020
| | | For the Nine Months Ended June 30, 2021 | | | For the Nine Months Ended June 30, 2020 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | | ($ in thousands) | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat | | $ | 679,704 | | | | 71.7 | % | | $ | 530,249 | | | | 70.5 | % | | $ | 149,455 | | | | 28.2 | % |
| Pre-owned boat | | | 165,778 | | | | 17.5 | % | | | 149,470 | | | | 19.9 | % | | | 16,308 | | | | 10.9 | % |
| Finance & insurance income | | | 32,990 | | | | 3.5 | % | | | 29,047 | | | | 3.9 | % | | | 3,943 | | | | 13.6 | % |
| Service, parts and other | | | 69,429 | | | | 7.3 | % | | | 43,168 | | | | 5.7 | % | | | 26,261 | | | | 60.8 | % |
| Total revenues | | | 947,901 | | | | 100.0 | % | | | 751,934 | | | | 100.0 | % | | | 195,967 | | | | 26.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat | | | 158,884 | | | | 16.8 | % | | | 95,391 | | | | 12.7 | % | | | 63,493 | | | | 66.6 | % |
| Pre-owned boat | | | 40,212 | | | | 4.2 | % | | | 26,667 | | | | 3.5 | % | | | 13,545 | | | | 50.8 | % |
Finance & insurance income
| | | 32,990 | | | | 3.5 | % | | | 29,047 | | | | 3.9 | % | | | 3,943 | | | | 13.6 | % |
| Service, parts & other | | | 36,088 | | | | 3.8 | % | | | 20,353 | | | | 2.7 | % | | | 15,735 | | | | 77.3 | % |
| Total gross profit | | | 268,174 | | | | 28.3 | % | | | 171,458 | | | | 22.8 | % | | | 96,716 | | | | 56.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 143,685 | | | | 15.2 | % | | | 103,822 | | | | 13.8 | % | | | 39,863 | | | | 38.4 | % |
| Depreciation and amortization | | | 3,816 | | | | 0.4 | % | | | 2,375 | | | | 0.3 | % | | | 1,441 | | | | 60.7 | % |
| Transaction costs | | | 633 | | | | 0.1 | % | | | 3,393 | | | | 0.5 | % | | | (2,760 | ) | | | (81.3 | )% |
| Loss on contingent consideration | | | 377 | | | | 0.0 | % | | | - | | | | 0.0 | % | | | 377 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 119,663 | | | | 12.6 | % | | | 61,868 | | | | 8.2 | % | | | 57,795 | | | | 93.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 2,206 | | | | 0.2 | % | | | 7,482 | | | | 1.0 | % | | | (5,276 | ) | | | (70.5 | )% |
| Interest expense - other | | | 3,222 | | | | 0.3 | % | | | 7,392 | | | | 1.0 | % | | | (4,170 | ) | | | (56.4 | )% |
| Change in fair value of warrant liability | | | - | | | | 0.0 | % | | | (771 | ) | | | (0.1 | )% | | | 771 | | | | (100.0 | )% |
| Other (income) expense, net | | | (247 | ) | | | 0.0 | % | | | 22 | | | | 0.0 | % | | | (269 | ) | | | (1222.7 | )% |
| Income before income tax expense | | | 114,482 | | | | 12.1 | % | | | 47,743 | | | | 6.3 | % | | | 66,739 | | | | 139.8 | % |
| Income tax expense | | | 20,559 | | | | 2.2 | % | | | 5,209 | | | | 0.7 | % | | | 15,350 | | | | 294.7 | % |
| Net income | | | 93,923 | | | | 9.9 | % | | | 42,534 | | | | 5.7 | % | | | 51,389 | | | | 120.8 | % |
| Less: Net income attributable to non-controlling interest | | | - | | | | | | | | 350 | | | | | | | | (350 | ) | | | (100.0 | )% |
| Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC | | | 31,158 | | | | | | | | 26,732 | | | | | | | | 4,426 | | | | 16.6 | % |
| Net income attributable to One Water Marine Inc. | | $ | 62,765 | | | | | | | $ | 15,452 | | | | | | | $ | 47,313 | | | | 306.2 | % |
Revenue
Overall, revenue increased by $196.0 million, or 26.1%, to $947.9 million for the nine months ended June 30, 2021 from $751.9 million for the nine months ended June 30, 2020. Revenue generated from same-store sales increased 16.3% for the nine months ended June 30, 2021 as well ascompared to the nine months ended June 30, 2020, primarily due to an increase in the average unitselling price of new and pre-owned boats and the model mix of boats sold. Overall revenue increased by $133.4$121.9 million as a result of a $119.3 millionour increase in same storesame-store sales and a $14.1$74.1 million increase from stores not eligible for inclusion in the same-store sales base. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership, and revenues are only included for identical months in the same-store base periods. As of June 30, 20192021, we had acquired seveneight stores in fiscal year 2019, including one store in the three months ended June 30, 2019.2021. We havedid not mademake any acquisitions in fiscal year 2020.
New Boat Sales
New boat salesrevenue increased by $106.3$149.5 million, or 58.8%28.2%, to $287.0$679.7 million for the threenine months ended June 30, 20202021 from $180.7$530.2 million for the threenine months ended June 30, 2019.2020. The increase was primarily attributable tothe result of our same-store sales growth during the period and the increased unit sales attributable to the impact of our 20192021 Acquisitions. During the three months ended June 30, 2020 we experienced an increase in unit sales of 43.6% and an increase in average unit prices of 10.4% over the three months ended June 30, 2019. We believe the increase in units soldsales was primarily due to the impactshift towards outdoor leisure activity during the COVID-19 pandemic, hadas well as, the continued execution of operational improvements on many summer activities thatpreviously acquired dealers. Additionally, we have historically competed against for time. Thesaw an increase in average sales price was due in part to the mix of boat brands and models sold and product improvements in the functionality and technology of boats, which continues to be a driver of consumer demand.demand, as well as a lower supply of new boat inventory as manufacturer replenishments have been slowed by the COVID-19 pandemic.
Pre-owned Boat Sales
Pre-owned boat sales increased by $19.8 million, or 29.9%, to $85.9 million for the three months ended June 30, 2020 from $66.1 million for the three months ended June 20, 2019. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. Pre-owned boat sales for the three months ended June 30, 2020 benefited from a 22.9% increase in the number of units sold and a 2.6% increase in average unit price largely due to the mix of pre-owned products and the composition of the brands and models sold during the period, the increase in same-store sales, the impact of 2019 acquisitions and the impact of COVID-19 on the recreational boating market.
Finance & Insurance Income
We generate revenue from arranging finance & insurance products, including financing, insurance and extended warranty contracts, to customers through various third-party financial institutions and insurance companies. Finance & insurance income increased by $6.6 million, or 66.3%, to $16.6 million for the three months ended June 30, 2020 from $10.0 million for the three months ended June 30, 2019. The increase was primarily due to process improvements and the additional new and pre-owned sales revenue, which were primarily attributable to the same-store sales growth. We remain very focused on improving sales of finance & insurance products throughout our dealer network and implementing best practices at acquired dealer groups and existing stores. Finance & insurance products increased as a percentage of total revenue to 4.1% in the three months ended June 30, 2020 from 3.6% for the three months ended June 30, 2019. Since finance & insurance income is fee-based, we do not incur any related cost of sale. Finance & insurance income is recorded net of related fees, including fees charged back due to any early cancellation of loan or insurance contracts by a customer.
Service, Parts & Other Sales
Service, parts & other sales increased by $0.7 million, or 3.9%, to $18.7 million for the three months ended June 30, 2020 from $18.0 million for the three months ended June 30, 2019. This increase in service, parts & other sales is primarily due to ancillary sales generated from our increase in new and pre-owned boat sales and sales attributable to our same-store sales growth, partially offset by the impact of shelter in place orders during the period which impacted our ability to transact retail service and parts sales.Gross Profit
Overall, gross profit increased by $32.0 million, or 50.9%, to $94.7 million for the three months ended June 30, 2020 from $62.7 million for the three months ended June 30, 2019. This increase was primarily due to our overall increase in same-store sales, primarily driven by an increase in new and pre-owned boat sales, the Company’s focus on dynamic pricing and the increase in finance & insurance income. Overall gross margins increased 40 basis points to 23.2% for the three months ended June 30, 2020 from 22.8% for the three months ended June 30, 2019 due to the factors noted below.
New Boat Gross Profit
New boat gross profit increased by $21.2 million, or 65.2%, to $53.6 million for the three months ended June 30, 2020 from $32.4 million for the three months ended June 30, 2019. This increase was primarily due to our overall increase in same-store sales. New boat gross profit as a percentage of new boat revenue was 18.7% for the three months ended June 30, 2020 as compared to 18.0% in the three months ended June 30, 2019. The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations and our emphasis on expanding new boat gross profit margins, while continuing to leverage the progress we have made in previous quarters on finance and insurance.
Pre-owned Boat Gross Profit
Pre-owned boat gross profit increased by $4.4 million, or 41.4%, to $15.0 million for the three months ended June 30, 2020 from $10.6 million for the three months ended June 30, 2019. The increase in pre-owned gross profit was driven by the increase in pre-owned revenue primarily as a result of our same-store sales growth. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 17.5% and 16.1% for the three months ended June 30, 2020 and 2019, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal fluctuations in pre-owned boat gross profit as a percentage of revenue. In the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, we experienced an increase in our gross profit on pre-owned sales for each of the different sales arrangements.
Finance & Insurance Gross Profit
Finance & insurance gross profit increased by $6.6 million, or 66.3%, to $16.6 million for the three months ended June 30, 2020 from $10.0 million for the three months ended June 30, 2019. Finance & insurance income is fee-based revenue for which we do not recognize incremental cost of sale.
Service, Parts & Other Gross Profit
Service, parts & other gross profit remained relatively flat, decreasing by $0.2 million, or 2.6%, to $9.4 million for the three months ended June 30, 2020 from $9.6 million for the three months ended June 30, 2019. Service, parts & other gross profit as a percentage of service, parts & other revenue was 50.1% and 53.5% for the three months ended June 30, 2020 and 2019, respectively. This decrease was the result of the mix of products sold and services provided. Additionally, service, parts & other gross profit was partially impacted by shelter in place orders during the period which limited our ability to transact retail service and parts sales early in the period.Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by $8.4 million, or 24.3%, to $43.2 million for the three months ended June 30, 2020 from $34.7 million for the three months ended June 30, 2019. This increase was primarily due to expenses incurred to support the overall increase in revenues and gross profit. The increase primarily consisted of an $8.4 million increase in personnel expenses. Selling, general & administrative expenses as a percentage of revenue decreased to 10.6% from 12.6% for the three months ended June 30, 2020 and 2019, respectively. The reduction in selling, general & administrative expenses as a percentage of revenue was mainly due to the increased volume of units sold and the cost reduction actions enacted following the acceleration of COVID-19.
Depreciation and Amortization
Depreciation and amortization expense increased $0.1 million, or 19.2%, to $0.8 million for the three months ended June 30, 2020 compared to $0.7 million for the three months ended June 30, 2019. The increase in depreciation and amortization expense for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily attributable to an increase in property and equipment with shorter useful lives.
Transaction Costs
The decrease in transaction costs of $0.4 million, or 92.6%, to $30,650 for the three months ended June 30, 2020 compared to $0.4 million for the three months ended June 30, 2019 was primarily attributable to the acquisition completed during the three months ended June 30, 2019 with no acquisition occurring during the three months ended June 30, 2020.
Gain on Settlement of Contingent Consideration
During the three months ended June 30, 2019, we reduced our estimate of contingent consideration related to the Texas Marine, Grande Yachts, and USA Marine Sales, Inc. acquisitions in the amount of $19,199. There was no gain on settlement of contingent consideration for the three months ended June 30, 2020.
Income from Operations
Income from operations increased $23.8 million, or 88.2%, to $50.7 million for the three months ended June 30, 2020 compared to $26.9 million for the three months ended June 30, 2019. The increase was primarily attributable to the $32.0 million increase in gross profit for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, partially offset by a $8.4 million increase in selling, general & administrative expenses during the same periods.
Interest Expense – Floor Plan
Interest expense – floor plan decreased $0.4 million, or 15.9%, to $2.3 million for the three months ended June 30, 2020 compared to $2.7 million for the three months ended June 30, 2019 and was primarily attributable to falling interest rates as well as a $58.9 million decrease in the outstanding borrowings on our Sixth Amended and Restated Inventory Financing Agreement (the “Inventory Financing Facility”) as of June 30, 2020 compared to June 30, 2019.
Interest Expense – Other
The increase in interest expense – other of $1.2 million, or 64.9%, to $3.1 million for the three months ended June 30, 2020 compared to $1.9 million for the three months ended June 30, 2019 was primarily attributable to a $42.4 million increase in our long-term debt as of June 30, 2020 compared to June 30, 2019, which was primarily increased to fully redeem the preferred interest in subsidiary in conjunction with the Offering.
Change in Fair Value of Warrant Liability
The change in fair value of warrant liability of $10.4 million for the three months ended June 30, 2019 was attributable to an overall change in the enterprise value of the Company. No charge was recorded for the three months ended June 30, 2020 as the warrants were exercised in conjunction with the Offering.
Other (Income) Expense, Net
Other income (expense) remained relatively flat, increasing to $61,310 for the three months ended June 30, 2020 compared to $(16,773) for the three months ended June 30, 2019.
Income Tax Expense
The $4.7 million increase in income tax expense for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 was the result of the Offering and the taxability of OneWater Inc as a corporation.
Net Income (Loss)
Net income increased by $7.9 million to $40.6 million for the three months ended June 30, 2020 compared to net income of $32.7 million for the three months ended June 30, 2019. The increase was primarily attributable to the $32.0 million increase in gross profit for the three months ended June 30, 2020 compared to June 30, 2019. The increase was partially offset by the $10.4 million charge for the change in fair value of warrant liability for the three months ended June 30, 2019 compared to the three months ended June 30, 2020, in which no charge was taken, the $8.4 million increase in selling, general and administrative expenses and the $4.7 million increase in income tax expense for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.
Nine Months Ended June 30, 2020, Compared to Nine Months Ended June 30, 2019
| | | For the nine months ended June 30, 2020 | | | For the nine months ended June 30, 2019 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | |
| | | | | | ($ in thousands) | | | | | | | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat sales | | $ | 512,999 | | | | 68.2 | % | | $ | 375,160 | | | | 67.1 | % | | $ | 137,839 | | | | 36.7 | % |
| Pre-owned boat sales | | | 166,720 | | | | 22.2 | % | | | 122,043 | | | | 21.8 | % | | | 44,677 | | | | 36.6 | % |
| Finance & insurance income | | | 29,047 | | | | 3.9 | % | | | 18,525 | | | | 3.3 | % | | | 10,522 | | | | 56.8 | % |
| Service, parts and other sales | | | 43,168 | | | | 5.7 | % | | | 43,144 | | | | 7.7 | % | | | 24 | | | | 0.1 | % |
| Total revenues | | | 751,934 | | | | 100.0 | % | | | 558,872 | | | | 100.0 | % | | | 193,062 | | | | 34.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat gross profit | | | 94,233 | | | | 12.5 | % | | | 66,831 | | | | 12.0 | % | | | 27,402 | | | | 41.0 | % |
| Pre-owned boat gross profit | | | 27,825 | | | | 3.7 | % | | | 19,847 | | | | 3.6 | % | | | 7,978 | | | | 40.2 | % |
| Finance & insurance gross profit | | | 29,047 | | | | 3.9 | % | | | 18,525 | | | | 3.3 | % | | | 10,522 | | | | 56.8 | % |
| Service, parts & other gross profit | | | 20,353 | | | | 2.7 | % | | | 20,571 | | | | 3.7 | % | | | (218 | ) | | | -1.1 | % |
| Total gross profit | | | 171,458 | | | | 22.8 | % | | | 125,774 | | | | 22.5 | % | | | 45,684 | | | | 36.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 103,738 | | | | 13.8 | % | | | 83,890 | | | | 15.0 | % | | | 19,848 | | | | 23.7 | % |
| Depreciation and amortization | | | 2,375 | | | | 0.3 | % | | | 1,883 | | | | 0.3 | % | | | 492 | | | | 26.1 | % |
| Transaction costs | | | 3,393 | | | | 0.5 | % | | | 1,161 | | | | 0.2 | % | | | 2,232 | | | | 192.2 | % |
| Gain on settlement of contingent consideration | | | - | | | | 0.0 | % | | | (1,674 | ) | | | -0.3 | % | | | 1,674 | | | | -100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 61,952 | | | | 8.2 | % | | | 40,514 | | | | 7.2 | % | | | 21,438 | | | | 52.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 7,482 | | | | 1.0 | % | | | 6,730 | | | | 1.2 | % | | | 752 | | | | 11.2 | % |
| Interest expense - other | | | 7,392 | | | | 1.0 | % | | | 4,391 | | | | 0.8 | % | | | 3,001 | | | | 68.3 | % |
| Change in fair value of warrant liability | | | (771 | ) | | | -0.1 | % | | | (2,773 | ) | | | -0.5 | % | | | 2,002 | | | | -72.2 | % |
| Other expense (income), net | | | 106 | | | | 0.0 | % | | | (73 | ) | | | 0.0 | % | | | 179 | | | | -245.2 | % |
| Income before income tax expense | | | 47,743 | | | | 6.3 | % | | | 32,239 | | | | 5.8 | % | | | 15,504 | | | | 48.1 | % |
| Income tax expense | | | 5,209 | | | | 0.7 | % | | | - | | | | 0.0 | % | | | 5,209 | | | | 100.0 | % |
| Net income | | | 42,534 | | | | 5.7 | % | | | 32,239 | | | | 5.8 | % | | | 10,295 | | | | 31.9 | % |
| Less: Net income attributable to non-controlling interest | | | (350 | ) | | | | | | | (1,318 | ) | | | | | | | 968 | | | | -73.4 | % |
| Net income attributable to One Water Marine Holdings, LLC | | | | | | | | | | $ | 30,921 | | | | | | | | | | | | | |
| Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC | | | (26,732 | ) | | | | | | | | | | | | | | | | | | | | |
| Net income attributable to One Water Marine Inc. | | $ | 15,452 | | | | | | | | | | | | | | | | | | | | | |
Revenue
Overall, revenue increased by $193.1$16.3 million, or 34.5%10.9%, to $751.9$165.8 million for the nine months ended June 30, 20202021 from $558.9$149.5 million for the nine months ended June 30, 2019. Revenue generated from same-store sales increased 24.1% for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019, primarily due to an increase in the average selling price of new and pre-owned boats, the model mix of boats sold and an increase in the number of new and pre-owned boats sold. We believe that COVID-19 has had a positive overall impact on the recreational boating market during a portion of the nine months ended June 30, 2020. Overall revenue increased by $133.1 million as a result of our increase in same-store sales and $59.9 million from stores not eligible for inclusion in the same-store sales base. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership, and revenues are only included for identical months in the same-store base periods. For the nine months ended June 30, 2019, we acquired seven stores. We have not made any acquisitions in the nine months ended June 30, 2020.
New Boat Sales
New boat sales increased by $137.8 million, or 36.7%, to $513.0 million for the nine months ended June 30, 2020 from $375.2 for the nine months ended June 30, 2019. The increase was the result of our same-store sales growth during the twelve month period and the increased unit sales attributable to the 2019 Acquisitions. During the nine months ended June 30, 2020, we experienced an increase in unit sales of 24.4% and an increase in average unit prices of 10.5% over the nine months ended June 30, 2019. The increase in both units sold and average sales price was due in part to the mix of boat brands and models sold and product improvements in the functionality and technology of boats, which continues to be a driver of consumer demand. Additionally, we believe the increase in units sold was enhanced due to the impact the COVID-19 pandemic had on many summer activities that we have historically competed against for time.
Pre-owned Boat Sales
Pre-owned boat sales increased by $44.7 million, or 36.6%, to $166.7 million for the nine months ended June 30, 2020 from $122.0 million for the nine months ended June 30, 2019. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. Pre-owned boat sales for the nine months ended June 30, 2020 benefited from2021 experienced a 21.8% increasedecrease in the number of units sold due to the increase in same-store sales and the impact of the fiscal year 2019 Acquisitions.industry-wide supply constraints. The average sales price per pre-owned unit in the nine months ended June 30, 20202021 increased 11.2% largely due to the mix of pre-owned products and the composition of the brands and models sold during the period. Additionally, we believeperiod as well as the increase in units sold was enhanced due to the impact the COVID-19 pandemic had on many summer activities that we have historically competed against for time.industry-wide supply restrictions driving prices higher.
Finance & Insurance Income
We generate revenue from arranging finance & insurance products, including financing, insurance and extended warranty contracts, to customers through various third-party financial institutions and insurance companies. Finance & insurance income increased by $10.5$3.9 million, or 56.8%13.6%, to $33.0 million for the nine months ended June 30, 2021 from $29.0 million for the nine months ended June 30, 2020 from $18.5 million for the nine months ended June 30, 2019.2020. The increase was primarily a result of the increase in same-store sales process improvements and additional revenue attributable to the fiscal year 20192021 Acquisitions. We remain very focused on improving sales of finance & insurance products throughout our dealer network and implementing best practices at acquired dealer groups and existing stores. Finance & insurance products increasedslightly decreased as a percentage of total revenue to 3.9%3.5% in the nine months ended June 30, 20202021 from 3.3%3.9% for the nine months ended June 30, 2019.2020. Since finance & insurance income is fee-based, we do not incur any related cost of sale. Finance & insurance income is recorded net of related fees, including fees charged back due to any early cancellation of loan or insurance contracts by a customer.
Service, Parts & Other Sales
Service, parts & other sales remained relatively flat, increasingrevenue increased by $26.3 million, or 60.8%, to $69.4 million for the nine months ended June 30, 2021 from $43.2 million for the nine months ended June 30, 2020 from $43.1 million for the nine months ended June 30, 2019.2020. This increase in service, parts & other salesrevenue is primarily due to increasesancillary sales generated from our increase in parts, fuelnew and storagepre-owned boat sales partially offset by a decrease in labor sales.and the impact of our 2021 Acquisitions.
Gross Profit
Overall, gross profit increased by $45.7$96.7 million, or 36.3%56.4%, to $268.2 million for the nine months ended June 30, 2021 from $171.5 million for the nine months ended June 30, 2020 from $125.8 million for the nine months ended June 30, 2019.2020. This increase was mainlyprimarily due to our overall increase in same-store sales, primarily driven by an increase in new boat sales, as well as higherand pre-owned boat sales, service, parts and other sales, the Company’s focus on dynamic pricing and the increase in finance & insurance income. The increase in gross profit was also a result of an increase in the number of stores due to the fiscal year 20192021 Acquisitions. Overall gross margins remained relatively flat, increasing 30increased 550 basis points to 28.3% for the nine months ended June 30, 2021 from 22.8% for the nine months ended June 30, 2020 from 22.5% for the nine months ended June 30, 2019 due to the factors noted below.
New Boat Gross Profit
New boat gross profit increased by $27.4$63.5 million, or 41.0%66.6%, to $94.2$158.9 million for the nine months ended June 30, 20202021 from $66.8$95.4 million for the nine months ended June 30, 2019. This increase was due to our overall increase in same-store sales and acquired stores during fiscal year 2019.2020. New boat gross profit as a percentage of new boat revenue was 18.4%23.4% for the nine months ended June 30, 20202021 as compared to 17.8%18.0% in the nine months ended June 30, 2019.2020. The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations and our emphasis on expandingthe expansion of new boat gross profit margins while continuing to leveragecreated by a lower supply of new boat inventory in the progress we have made in previous quarters on finance and insurance.nine months ended June 30, 2021.
Pre-owned Boat Gross Profit
Pre-owned boat gross profit increased by $8.0$13.5 million, or 40.2%50.8%, to $27.8$40.2 million for the nine months ended June 30, 20202021 from $19.8$26.7 million for the nine months ended June 30, 2019. This2020. The increase in pre-owned gross profit was primarily due to an overalldriven by the increase in pre-owned revenue primarily as a result of our same-store sales growth and acquired stores during fiscal year 2019.our 2021 Acquisitions. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 16.7%24.3% and 16.3%17.8% for the nine months ended June 30, 20202021 and 2019,2020, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal fluctuations in pre-owned boat gross profit as a percentage of revenue. In the nine months ended June 30, 20202021 as compared to the nine months ended June 30, 2019,2020, we experienced an increase in our gross profit on pre-owned sales for each of the different sales arrangements. Margins were also driven higher by a lower supply of pre-owned inventory in the market for the nine months ended June 30, 2021.
Finance & Insurance Gross Profit
Finance & insurance gross profit increased by $10.5$3.9 million, or 56.8%13.6%, to $33.0 million for the nine months ended June 30, 2021 from $29.0 million for the nine months ended June 30, 2020 from $18.5 million for the nine months ended June 30, 2019.2020. Finance & insurance income is fee-based revenue for which we do not recognize incremental expense.cost of sale.
Service, Parts & Other Gross Profit
Service, parts & other gross profit remained relatively flat, decreasingincreased by $0.2$15.7 million, or 1.1%77.3%, to $36.1 million for the nine months ended June 30, 2021 from $20.4 million for the nine months ended June 30, 2020 from $20.6 million for2020. The increase in service, parts & other gross profit was primarily driven by our same-store sales growth as well as the nine months ended June 30, 2019.impact of the 2021 Acquisitions. Service, parts & other gross profit as a percentage of service, parts & other revenue was 47.1%52.0% and 47.7%47.1% for the nine months ended June 30, 20202021 and 2019,2020, respectively. This decrease in gross profit marginincrease was the result of a decrease in partsthe mix of products sold and services provided as the gross profit margin, partially offset by increasesshifted more towards service work, which has a higher margin. Additionally, due to the increased demand, we experienced an increase in the productivity of our service gross profit margin and storage and other gross profit margin.technicians, which drove margins higher.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by $19.8$39.9 million, or 23.7%38.4%, to $103.7$143.7 million for the nine months ended June 30, 20202021 from $83.9$103.8 million for the nine months ended June 30, 2019.2020. This increase was primarily due to the impact of acquisitions and expenses incurred to support the overall increase in same-store sales. The increase in selling,Selling, general & administrative expenses primarily consisted of a $16.0$34.8 million increase in personnel expenses, a $1.0 million decrease in selling and a $3.4administrative expenses, and $2.9 million increase in fixed expenses. Selling, general & administrative expenses as a percentage of revenue decreasedincreased to 13.8%15.2% from 15.0%13.8% for the nine months ended June 30, 20202021 and 2019,2020, respectively. The reductionincrease in selling, general & administrative expenses as a percentage of revenue was mainlyprimarily due to higher variable-based compensation expense as a result of the Company’s increased volume of units sold and the cost reduction actions enacted following the acceleration of COVID-19.net profit margin.
Depreciation and Amortization
Depreciation and amortization expense increased $0.5$1.4 million, or 26.1%60.7%, to $3.8 million for the nine months ended June 30, 2021 compared to $2.4 million for the nine months ended June 30, 2020 compared to $1.9 million for the nine months ended June 30, 2019.2020. The increase in depreciation and amortization expense for the nine months ended June 30, 20202021 compared to the nine months ended June 30, 20192020 was primarily attributable to an increase in property and equipment with shorter useful lives.from our 2021 Acquisitions.
Transaction Costs
The increasedecrease in transaction costs of $2.2$2.8 million, or 192.2%81.3%, to $0.6 million for the nine months ended June 30, 2021 compared to $3.4 million for the nine months ended June 30, 2020 compared to $1.2 million for the nine months ended June 30, 2019 was primarily attributable to $2.3 million of expenses recognized for the nine months ended June 30, 2020 in conjunction with the Offering that were not able to be capitalized.
GainLoss on Settlement of Contingent Consideration
During the nine months ended June 30, 2019,2021, we reduced our estimateincurred an expense of $0.4 million on the settlement of a contingent considerationpayment related to the Texas Marine, Grande Yachts, and USA Marine Sales, Inc. acquisitions in the amount of $1.7 million.a fiscal year 2019 acquisition. There waswere no gain on settlement ofadjustments to contingent consideration for the nine months ended June 30, 2020.
Income from Operations
Income from operations increased $21.4$57.8 million, or 52.9%93.4%, to $62.0$119.7 million for the nine months ended June 30, 20202021 compared to $40.5$61.9 million for the nine months ended June 30, 2019.2020. The increase was primarily attributable to the $45.7$96.7 million increase in gross profit for the nine months ended June 30, 20202021 as compared to the nine months ended June 30, 2019,2020, partially offset by a $19.8$39.9 million increase in selling, general & administrative expenses during the same period.periods.
Interest Expense – Floor Plan
Interest expense – floor plan increased $0.8decreased $5.3 million, or 11.2%70.5%, to $2.2 million for the nine months ended June 30, 2021 compared to $7.5 million for the nine months ended June 30, 2020 compared2020. This decrease was primarily attributable to $6.7a $67.9 million decrease in the outstanding borrowings on the Inventory Financing Facility, falling interest rates, and interest assistance received from our manufacturers and banks.
Interest Expense – Other
The decrease in interest expense – other of $4.2 million, or 56.4%, to $3.2 million for the nine months ended June 30, 2019 and was primarily attributable to a $22.8 million increase in the average outstanding borrowings on our Inventory Financing Facility for the nine months ended June 30, 20202021 compared to the nine months ended June 30, 2019.
Interest Expense – Other
The increase in interest expense – other of $3.0 million, or 68.3%, to $7.4 million for the nine months ended June 30, 2020 compared to $4.4 million for the nine months ended June 30, 2019 was primarily attributable to the payoff of our Term and Revolver Credit Facility (as defined below) and entry into the Refinanced Credit Facility (as defined below), which offers a $42.4 million increase in our long-term debt which was primarily increased to fully redeem the preferredmore favorable interest in subsidiary in conjunction with the Offering.rate.
Change in Fair Value of Warrant Liability
The decrease in change in fair value of warrant liability of $2.0$0.8 million or 72.2%, to $(0.8) million income for the nine months ended June 30, 2020 compared to $(2.8) million income for the nine months ended June 30, 2019 was primarily attributable to an overall change in the enterprise value of the Company due to a change in the implied value of other market participants.
Other (Income) Expense, Net
The decrease in other income of $0.2 millionCompany. No charge was recorded for the nine months ended June 30, 2020 compared to2021 as the nine months ended June 30, 2019warrants were exercised in conjunction with the Offering.
Other Expense (Income), Net
Other expense (income), net was primarily attributable to a $0.1 million increase in loss on disposalincome of property and equipmentapproximately $247,000 for the nine months ended June 30, 2020 as compared to2021 and expense of approximately $22,000 for the nine months ended June 30, 2019.2020.
Income Tax Expense
The $5.2$15.4 million increase in income tax expense for the nine months ended June 30, 20202021 as compared to the nine months ended June 30, 20192020 was primarily the result of the $66.7 million increase in income before income tax expense and the Offering and the taxability of OneWater IncInc. as a corporation.corporation for the full nine months ended June 30, 2021 versus only the period subsequent to the Offering for the nine months ended June 30, 2020. Additionally, as Class B common stock was exchanged for Class A common stock (in accordance with the terms of the OneWater LLC Agreement), the proportion of consolidated income before income tax expense allocated to OneWater Inc. increased, yielding higher income tax expense.
Net Income (Loss)
Net income increased by $10.3$51.4 million to $93.9 million for the nine months ended June 30, 2021 compared to $42.5 million for the nine months ended June 30, 2020 compared to $32.2 million for the nine months ended June 30, 2019.2020. The increase was primarily attributable to the $45.7$96.7 million increase in gross profit for the nine months ended June 30, 20202021 compared to June 30, 2019.2020. The increase was partially offset by a $19.8the $39.9 million increase in selling, general and& administrative expenses and the $15.4 million increase in income tax expense for the nine months ended June 30, 20202021 compared to the nine months ended June 30, 2019, as well as a $5.2 million increase in income tax expense and a $3.0 million increase in interest expense - other for the same period.2020.
Comparison of Non-GAAP Financial Measure
We view Adjusted EBITDA as an important indicator of performance. We define Adjusted EBITDA as net income (loss) before interest expense – other, income taxes,tax expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in the fair value of warrants,warrant liability, gain (loss) on settlementcontingent consideration, loss on extinguishment of contingent considerationdebt and transaction costs.
Our Board,board of directors (the "Board"), management team and lenders use Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense)expense and debt extinguishment charges), asset base (such as depreciation and amortization) and other items (such as the fair value adjustment of the warrants, gain (loss) on settlement of contingent consideration and transaction costs) that impact the comparability of financial results from period to period. We present Adjusted EBITDA because we believe it provides useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. We believe that the presentation of this non-GAAP financial measure will provide useful information to investors and analysts in assessing our financial performance and results of operations across reporting periods by excluding items we do not believe are indicative of our core operating performance. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. Our non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. You are encouraged to evaluate each of these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in the future, and any such modification may be material. Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
The following tables present a reconciliation of net income (loss) to Adjusted EBITDA, which is the most directly comparable GAAP measure for the periods presented.
Three Months Ended June 30, 2020,2021, Compared to Three Months Ended June 30, 20192020
| | | Three Months Ended June 30 | |
| Description | | 2021 | | | 2020 | |
| | | ($ in thousands) | |
| Net income | | $ | 51,557 | | | $ | 40,622 | |
| Interest expense – other | | | 1,083 | | | | 3,082 | |
| Income tax expense | | | 11,498 | | | | 4,737 | |
| Depreciation and amortization | | | 1,475 | | | | 824 | |
| Transaction costs | | | 65 | | | | 31 | |
| Other income, net | | | (158 | ) | | | (43 | ) |
| Adjusted EBITDA | | $ | 65,520 | | | $ | 49,253 | |
| | | Three months ended June 30 | |
| Description | | 2020 | | | 2019 | |
| | | ($ in thousands) | |
| Net income | | $ | 40,622 | | | $ | 32,680 | |
Interest expense – other | | | 3,082 | | | | 1,869 | |
Income taxes | | | 4,737 | | | | - | |
Depreciation and amortization | | | 824 | | | | 691 | |
Gain on settlement of contingent consideration | | | - | | | | (19 | ) |
Transaction costs (1) | | | 31 | | | | 419 | |
Change in fair value of warrant liability (2) | | | - | | | | (10,373 | ) |
| Other (income) expense, net | | | (61 | ) | | | 17 | |
| Adjusted EBITDA | | $ | 49,235 | | | $ | 25,284 | |
33
(1) | Consists of transaction costs related to the fiscal year 2019 Acquisitions and costs related to the Offering. |
(2) | Represents the non-cash expense recognized during the period for the change in the fair value of the LLC Warrants, which were accounted for as a liability on our balance sheets. |
Adjusted EBITDA was $49.2increased $16.3 million or 33.0% to $65.5 million for the three months ended June 30, 20202021 compared to $25.3$49.3 million for the three months ended June 30, 2019.2020. The increase in Adjusted EBITDA resulted primarily from our 43.9%an increase in same-store sales growth for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, combined with the results of the fiscal year 2019 Acquisitions and our ability to increase gross profit, margins and controlpartially offset by an increase in selling, general and& administrative expenses.expense.
Nine Months Ended June 30, 2020,2021, Compared to Nine Months Ended June 30, 20192020
| | | Nine months ended June 30 | |
| Description | | 2020 | | | 2019 | |
| | | ($ in thousands) | |
| Net income | | $ | 42,534 | | | $ | 32,239 | |
Interest expense – other | | | 7,392 | | | | 4,391 | |
Income taxes | | | 5,209 | | | | - | |
Depreciation and amortization | | | 2,375 | | | | 1,883 | |
Gain on settlement of contingent consideration | | | - | | | | (1,674 | ) |
Transaction costs (1) | | | 3,393 | | | | 1,161 | |
Change in fair value of warrant liability (2) | | | (771 | ) | | | (2,773 | ) |
| Other expense (income), net | | | 106 | | | | (73 | ) |
| Adjusted EBITDA | | $ | 60,238 | | | $ | 35,154 | |
(1) | Consists of transaction costs related to the fiscal year 2019 Acquisitions and costs related to the Offering. |
(2) | Represents the non-cash expense recognized during the period for the change in the fair value of the LLC Warrants, which were accounted for as a liability on our balance sheets. |
| | | Nine Months Ended June 30 | |
| Description | | 2021 | | | 2020 | |
| | | ($ in thousands) | |
| Net income | | $ | 93,923 | | | $ | 42,534 | |
| Interest expense – other | | | 3,222 | | | | 7,392 | |
| Income tax expense | | | 20,559 | | | | 5,209 | |
| Depreciation and amortization | | | 3,816 | | | | 2,375 | |
| Loss on contingent consideration | | | 377 | | | | - | |
| Transaction costs | | | 633 | | | | 3,393 | |
| Change in fair value of warrant liability | | | - | | | | (771 | ) |
| Other (income) expense, net | | | (247 | ) | | | 22 | |
| Adjusted EBITDA | | $ | 122,283 | | | $ | 60,154 | |
Adjusted EBITDA wasincreased $62.1 million or 103.3% to $122.3 million for the nine months ended June 30, 2021 compared to $60.2 million for the nine months ended June 30, 2020 compared to $35.2 million for the nine months ended June 30, 2019.2020. The increase in Adjusted EBITDA resulted primarily from our 24.1%an increase in gross profit due to our same-store sales growth for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019, combined with the results of the fiscal year 2019and 2021 Acquisitions, and our ability topartially offset by an increase gross profit margins and controlin selling, general and& administrative expenses.expense.
Seasonality
Our business, along with the entire recreational boating industry, is highly seasonal, and such seasonality varies by geographic market. With the exception of Florida, we generally realize significantly lower sales and higher levels of inventories, and related floor plan borrowings, in the quarterly periods ending December 31 and March 31. Revenue generated from our stores in Florida serves to offset generally lower winter revenue in our other states and enables us to maintain a more consistent revenue stream. The onset of the public boat and recreation shows in January stimulates boat sales and typically allows us to reduce our inventory levels and related floor plan borrowings throughout the remainder of the fiscal year. The impact of seasonality on our results of operations could be materially impacted based on the location of our acquisitions. For example, our operations could be substantially more seasonal if we acquire dealer groups that operate in colder regions of the United States. Our business is also subject to weather patterns, which may adversely affect our results of operations. For example, prolonged winter conditions, reduced rainfall levels or excessive rain, may limit access to boating locations or render boating dangerous or inconvenient, thereby curtailing customer demand for our products and services. In addition, unseasonably cool weather and prolonged winter conditions may lead to a shorter selling season in certain locations. Hurricanes and other storms could result in disruptions of our operations or damage to our boat inventories and facilities, as has been the case when Florida and other markets were affected by hurricanes. We believe our geographic diversity is likely to reduce the overall impact to us of adverse weather conditions in any one market area.
Liquidity and Capital Resources
Overview
Our cash needs are primarily for growth through acquisitions and working capital to support our retail operations, including new and pre-owned boat and related parts inventories and off-season liquidity. We routinely monitor our cash flow to determine the amount of cash available to complete acquisitions of dealer groups and stores. We monitor our inventories, inventory aging and current market trends to determine our current and future inventory and related floorplan financing needs. Based on current facts and circumstances, we believe we will have adequate cash flow from operations, borrowings under our credit facilitiesCredit Facilities and proceeds from any future issuances of debt or equity, to fund our current operations and essential capital expenditures for the next twelve months.
Cash needs for acquisitions have historically been financed with our Term and Revolver Credit FacilityFacilities and cash generated from operations. Our ability to utilize the Term and RevolverRefinanced Credit Facility (as defined below) to fund operations depends upon Adjusted EBITDA and compliance with covenants of the Term and RevolverRefinanced Credit Facility. Cash needs for inventory have historically been financed with our Inventory Financing Facility. Our ability to fund inventory purchases and operations depends on the collateral levels and our compliance with the covenants of the Inventory Financing Facility. As of June 30, 2020,2021, we were in compliance with all covenants under the Term and RevolverRefinanced Credit Facility and the Inventory Financing Facility.
Effective July 22, 2020 (the “Closing Date”), we and certain of our subsidiaries terminated and repaid all indebtedness outstanding under the Term and Revolver Credit Facility in accordance with its terms and entered into the Credit Agreement (the “Refinanced Credit Facility”) with Truist Bank as administrative agent, collateral agent, swingline lender and issuing bank, SunTrust Robinson Humphrey, Inc. and Synovus Bank as joint lead arrangers and joint bookrunners, Synovus Bank as documentation agent, and the lenders from time to time party thereto (collectively, the “Refinancing”). The proceeds of the term loan portion of the Refinanced Credit Facility, together with cash on the Company’s balance sheet, have been used (i) to pay for the Refinancing, (ii) to pay the fees and expenses incurred in connection with the Refinancing and (iii) for working capital and general corporate purposes. We are subject to certain financial and non-financial covenants under the Refinanced Credit Facility.
Cash Flows
Analysis of Cash Flow Changes Between the Nine Months Ended June 30, 20202021 and 20192020
The following table summarizes our cash flows for the periods indicated:
| | | Nine Months Ended June 30, | |
| Description | | 2021 | | | 2020 | | | Change | |
| | | ($ in thousands) | |
| Net cash provided by operating activities | | $ | 153,195 | | | $ | 152,596 | | | $ | 599 | |
| Net cash used in investing activities | | | (91,120 | ) | | | (2,307 | ) | | | (88,813 | ) |
| Net cash used in financing activities | | | (9,542 | ) | | | (70,712 | ) | | | 61,170 | |
| Net change in cash | | $ | 52,533 | | | $ | 79,577 | | | $ | (27,044 | ) |
| | | Nine Months ended June 30, | |
| | | | | | | | | | |
| Description | | 2020 | | | 2019 | | | Change | |
| | | ($ in thousands) | |
| Net cash provided by (used in) operating activities | | $ | 152,596 | | | $ | (23,024 | ) | | $ | 175,620 | |
| Net cash used in investing activities | | | (2,307 | ) | | | (7,989 | ) | | | 5,682 | |
| Net cash (used in) provided by financing activities | | | (70,712 | ) | | | 41,690 | | | | (112,402 | ) |
| Net change in cash | | $ | 79,577 | | | $ | 10,677 | | | $ | 68,900 | |
Operating Activities. Net cash provided by operating activities was $153.2 million for the nine months ended June 30, 2021 compared to net cash provided by operating activities of $152.6 million for the nine months ended June 30, 2020 compared to net cash used in operating activities of $23.0 million for the nine months ended June 30, 2019.2020. The $175.6$0.6 million increase in cash provided by operating activities was primarily attributable to a $149.2$51.4 million increase in net income, a $23.1 million decrease in the change in accounts receivable and a $13.5 million increase in the change in inventory, a $14.7 million increase in the change in accounts payable, a $8.7 million increase in the change in other payables and accrued expenses and a $10.3 million increase in net incomecustomer deposits for the nine months ended June 30, 2020 as compared to the nine months ended June 20, 2019. These amounts were partially offset by a $22.2 million decrease in the change accounts receivable for the nine months ended June 30, 20202021 as compared to the nine months ended June 30, 2019.2020. These amounts were partially offset by a $58.9 million increase in the change in inventory and a $13.3 million increase in the change in prepaid expenses and other current assets for the nine months ended June 30, 2021 as compared to the nine months ended June 30, 2020.
Investing Activities. Net cash used in investing activities was $91.1 million for the nine months ended June 30, 2021 compared to $2.3 million for the nine months ended June 30, 20202020. The $88.8 million increase in cash used for investing activities was primarily attributable to $83.5 million of cash used in acquisitions for the nine months ended June 30, 2021 as compared to $8.0none for the nine months ended June 30, 2020.
Financing Activities. Net cash used in financing activities was $9.5 million for the nine months ended June 30, 2019. The $5.7 million decrease in cash used in investing activities was primarily attributable to a $2.1 million decrease in cash used in acquisitions, a $2.0 million decrease in purchases of property and equipment and construction in process and a $1.5 million increase in proceeds on disposal of property and equipment for the nine months ended June 30, 2020 as2021 compared to the nine months ended June 30, 2019.
Financing Activities. Net cash used in financing activities was $70.7 million for the nine months ended June 30, 2020 compared to net cash provided by financing activities of $41.7 million for the nine months ended June 30, 2019.2020. The $112.4$61.2 million decrease in cash used in financing cash flowactivities was primarily attributable to an $88.0a $90.5 million increasedecrease in the distributions to redeemable preferred interest members, partially offset by a $98.6$59.2 million decrease in net borrowings on our Inventory Financing Facility and a $12.4 million increase in payments on long-term debt, partially offset by $59.2 million in proceeds from the issuance of Class A common stock sold in the Offering, net of offering costs, and a $37.2$21.9 million increasedecrease in proceeds on long-term debtnet borrowings from floor plan for the nine months ended June 30, 20202021 as compared to the nine months ended June 30, 2019.2020.
Dividends
On June 17, 2021, OneWater LLC approved a distribution of $1.80 per unit in OneWater LLC to its unitholders (“OneWater Unit Holders”), including OneWater Inc. On June 17, 2021, the Board declared a special cash dividend of $1.80 per share (the “Special Dividend”) to holders of its Class A common stock, to be made from the proceeds of the OneWater LLC distribution. The cash dividend of approximately $27.1 million was paid on July 19, 2021 to OneWater Unit Holders and, ultimately, to the holders of Class A common stock. Additionally, a $0.7 million cash dividend for restricted stock unit holders will be paid to holders upon vesting of the awards. Holders of our Class B common stock are not entitled to participate in any dividends declared by the Board.
Debt Agreements
Term and Revolver Credit Facility
On October 28, 2016, OneWater LLC and certain of our subsidiaries entered into a Credit and Guaranty Agreement with OWM BIP Investor, LLC, as a lender, Goldman Sachs Specialty Lending Group, L.P., as a lender, administrative agent and collateral agent, and various lender parties thereto (as amended, the “GS/BIP Credit Facility”). The as amended terms of the GS/BIP Credit Facility immediately preceding the Offering consisted of an up to $60.0 million multi-draw term loan facility (the “Multi-Draw Term Loan”) and a $5.0 million revolving line of credit.credit (the “Revolving Facility”).
On February 11, 2020, in connection with the Offering, OneWater IncInc. entered into the Terman Amended and Restated Credit and Guaranty Agreement (the “Term and Revolver Credit FacilityFacility”), which, among other things, modified the terms of the GS/BIP Credit Facility to (i) increase the Revolving Facility from $5.0 million to $10.0 million, (ii) increase the maximum available under the Multi-Draw Term Loan from $60.0 million to $100.0 million, (iii) provide an uncommitted and discretionary multi-draw term loan accordion feature of up to $20.0 million, (iv) amend the repayment schedule of the Multi-Draw Term Loan to commence on March 31, 2022, (v) amend the scheduled maturity date of the Revolving Facility and Multi-Draw Term Loan to be February 11, 2025 and (vi) remove OWM BIP Investor, LLC as a lender. The Term and Revolver Credit Facility bore interest at a rate that iswas equal to, at OneWater Inc’sInc.’s option, (a) LIBORthe London Inter-Bank Offered Rate ("LIBOR") for such interest period (subject to a 1.50% floor) plus an applicable margin of up to 7.00%, subject to step-downs to be determined based on certain financial leverage ratio measures, or (b) a base rate (subject to a 4.50% floor) plus an applicable margin of up to 6.00%, subject to step-downs to be determined based on certain financial leverage ratio measures. Interest was payable quarterly for base rate borrowings and up to quarterly for LIBOR borrowings. The Term and Revolver Credit Facility includesincluded the option for the Company to defer cash payments of interest for twelve months and add the accrued interest to the outstanding principal of the note payable. The election of this feature was made during the threenine months ended March 31,June 30, 2020, and as a result, the interest rate increased by 2.0% for the corresponding twelve months.
The Company borrowed an additional $35.3 million on the Multi-Draw Term Loan immediately upon closing of the agreement to bring our total indebtedness to $100 million. Additionally, during the three months ended March 31, 2020, the Company elected the option to defer cash interest payments for twelve months. As
35
On July 22, 2020, the Company and certain of its subsidiaries repaid in full all indebtedness outstanding under the then-existing credit facility evidenced by the Term and Revolver Credit Facility, and in connection with such repayment, all commitments thereunder were terminated and all guarantees and security interests granted in connection therewith were released. See “—Refinanced Credit Facility” for additional information.
Refinanced Credit Facility
Effective July 22, 2020, we and certain of our subsidiaries terminated and repaid all indebtedness outstanding under the Term and Revolver Credit Facility and entered into the Refinanced Credit Facility.Agreement (the “Refinanced Credit Facility”) with Truist Bank as administrative agent, collateral agent, swingline lender and issuing bank, SunTrust Robinson Humphrey, Inc. and Synovus Bank as joint lead arrangers and joint bookrunners, Synovus Bank as documentation agent, and the lenders from time to time party thereto (collectively, the “Refinancing”). The Refinanced Credit Facility provides for a $30.0 million revolving credit facility that may be used for revolving credit loans (including up to $5.0 million in swingline loans) and up to $5.0 million in letters of credit from time to time, and a $80.0 million term loan, which was advanced in full on July 22, 2020. Subject to certain conditions, the available amount under the revolving credit facility and the term loans may be increased by $50.0 million in the aggregate. The revolving credit facility matures on July 22, 2025. The term loan is repayable in installments beginning on March 31, 2021, with the remainder due on July 22, 2025. There
On February 2, 2021, we entered into the Incremental Amendment No. 1 (the “First Incremental Amendment”) to the Refinanced Credit Facility to provide for, among other things, an incremental term loan (the “Incremental Term Loan”) to OWAO in an aggregate principal amount equal to $30.0 million, which was added to, and constitutes a part of, the existing $80.0 million term loan. As provided for by the First Incremental Amendment, the proceeds of the Incremental Term Loan were no borrowings outstanding underused to pay off the balance of the revolving credit facility, on the Closing Date.under which an aggregate of $30.0 million was outstanding as of February 1, 2021.
Borrowings under the Refinanced Credit Facility bear interest, at the Company’s option, at either (a) a base rate (the “Base Rate”) equal to the highest of (i) the prime rate (as announced by Truist Bank from time to time), (ii) the Federal Funds Rate, as in effect from time to time, plus 0.50%, (iii) the Adjusted LIBO Rate (defined below) determined on a daily basis for an interest period of one month, plus 1.00%, or (iv) 1.75%, plus an applicable margin of up to 2.00%, or (b) the rate per annum obtained by dividing (i) the London Interbank Offered RateLIBOR for such interest period by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage (the “Adjusted LIBO Rate”) plus an applicable margin of up to 3.00%. Interest on swingline loans shall be the Base Rate plus an applicable margin of up to 2.00%. All applicable interest margins are subject to stepdowns based on certain consolidated leverage ratio measures.
The Refinanced Credit Facility is subject to certain financial covenants related to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio.
The proceeds of the term loan portion of the Refinanced Credit Facility, together with cash on the Company’s balance sheet, have been used (i) to pay for the Refinancing, (ii) to pay the fees and expenses incurred in connection with the Refinancing and (iii) for working capital and general corporate purposes.
Inventory Financing Facility
On June 14, 2018, OneWater LLC and certain of our subsidiaries entered into the Fourth Amended and Restated Inventory Financing Agreement with Wells Fargo Commercial Distribution Finance, LLC and various lender parties thereto (“Wells Fargo”) (as subsequently amended and restated, the ‘‘Inventory Financing Facility’’ and, together with the Term and RevolverRefinanced Credit Facility, the ‘‘Credit Facilities’’). On September 21, 2018, OneWater LLC and certain of our subsidiaries entered into the First Amendment to the Fourth Amended and Restated Inventory Financing Agreement which, among other things, increased the maximum amount of borrowing available under the Inventory Financing Facility from $200.0 million to $275.0 million. On April 5, 2019, OneWater LLC and certain of its subsidiaries further amended the Inventory Financing Facility to, among other things, increase the maximum amount of borrowing available under the Inventory Financing Facility from $275.0 million to $292.5 million. On November 26, 2019, OneWater LLC and certain of its subsidiaries entered into the Fifth Amended and Restated Inventory Financing Agreement with Wells Fargo to, among other things, increase the maximum amount of borrowing available under the Inventory Financing Facility from $292.5 million to $392.5 million.
Effective February 11, 2020, in connection with the Offering, the Company and certain of its subsidiaries entered into the Sixth Amended and Restated Inventory Financing Agreement with Wells Fargo, which amended and restated the Fifth Amended and Restated Inventory Financing Agreement, dated as of November 26, 2019, to, among other things, permit certain payments and transactions contemplated by or in connection with the Offering, including payments under the Tax Receivable Agreement. The maximum amount of borrowing available, interest rates and the termination date of the Inventory Financing Facility remained unchanged.
On July 22, 2020, the Company and certain of its subsidiaries entered into the First Amendment (the “First Amendment”) to the Inventory Financing Facility. The First Amendment amended the Inventory Financing Facility, to, among other things, address the Refinancing, permit the amount of indebtedness allowed under the Refinanced Credit Facility to be $160.0 million (which includes the potential for a $50.0 million increase under the Refinanced Credit Facility), permit the payment of fees and expenses in connection with the termination of the Term and Revolver Credit Facility and the payment of present and future transaction costs incurred in connection with the negotiation, closing and ongoing administration of the Refinanced Credit Facility.
On December 10, 2020, the Company and certain of its subsidiaries entered into the Second Amendment to the Sixth Amended and Restated Inventory Financing Agreement to change certain compliance reporting from weekly to monthly. The maximum borrowing amount available, interest rates and the termination date of the agreement remained unchanged.
The interest rate for amounts outstanding under the Inventory Financing Facility is calculated using the one month LIBOR plus an applicable margin of 2.75% to 5.00% for new boats and at the new boat rate plus 0.25% for pre-owned boats. If LIBOR is less than 2.96%, 25 basis points are added when calculating the interest rate. Loans will be extended from time to time to enable us to purchase inventory from certain manufacturers and to lease certain boats and related parts to customers. The applicable financial terms, curtailment schedule and maturity for each loan will be set forth in separate program terms letters entered into from time to time. The collateral for the Inventory Financing Facility consists primarily of our inventory that is financed through the Inventory Financing Facility and related assets, including accounts receivable, bank accounts, and proceeds of the foregoing, and excludes the collateral that underlies the TermRefinanced Credit Facility.
We are required to comply with certain financial and Revolver Creditnon-financial covenants under the Inventory Financing Facility, including provisions that the Funded Debt to EBITDA Ratio (as defined in the Inventory Financing Facility) of OneWater LLC must not exceed 2.00 to 1.00, and that our Fixed Charge Coverage Ratio (as defined in the Inventory Financing Facility) on a consolidated basis must be at least 1.50 to 1.00. We are also subject to additional restrictive covenants, including restrictions on our ability to (i) use, sell, rent or otherwise dispose of any collateral underlying the Inventory Financing Facility except for the sale of inventory in the ordinary course of business, (ii) incur certain liens, (iii) engage in any material transaction not in the ordinary course of business, (iv) change our business in any material manner or our organizational structure, other than as otherwise provided for in the Inventory Financing Facility, (v) engage in certain mergers or consolidations, (vi) acquire certain assets or ownership interest of any other person or entities, except for certain permitted acquisitions, (vii) guarantee or indemnify or otherwise become in any way liable with respect to certain obligations of any other person or entity, except as provided by the Inventory Financing Facility, (viii) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of the equity of our acquired dealer groups, (ix) make any change in any of our dealer groups’ capital structure or in any of its business objectives or operations which might in any way adversely affect the ability of such dealer group to repay its obligations under the Inventory Financing Facility, (x) incur, create, assume, guarantee or otherwise become or remain liable with respect to certain indebtedness, and (xi) make certain payments of subordinated debt. OneWater LLC and its subsidiaries are generally restricted from, among other things, making cash dividends or distributions without the prior written consent of Wells Fargo Commercial Distribution Finance, LLC (the “Agent”). Under the Inventory Financing Facility, among other exceptions, OneWater LLC may make distributions to its members for certain permitted tax payments subject to certain financial ratios, may make scheduled payments on certain subordinated debt and is permitted to make pro rata distributions to the OneWater Unit Holders, including OneWater Inc., in an amount sufficient to allow OneWater Inc. to pay its taxes and to make payments under the Tax Receivable Agreement. OneWater LLC’s subsidiaries are generally restricted from making loans or advances to OneWater LLC. Our Chief Executive Officer, Philip Austin Singleton, Jr., and our Chief Operating Officer, Anthony Aisquith, provide certain personal guarantees of the Inventory Financing Facility.
On June 16, 2021, OneWater Inc. and OneWater LLC obtained a written consent from the Agent to permit the payment of the Special Dividend.
As of June 30, 20202021 and September 30, 2019,2020, our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled $176.1$108.2 million and $225.4$124.0 million, respectively. Certain of our manufacturers enter into independent agreements with the lenders to the Inventory Financing Facility, which results in a lower effective interest rate charged to us for borrowings related to the products by such manufacturer. As of June 30, 20202021 and September 30, 2019,2020, the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 4.1%1.4% and 4.9%4.0%, respectively. As of June 30, 20202021 and September 30, 2019,2020, our additional available borrowings under our Inventory Financing Facility were $216.4$284.3 million and $67.1$268.5 million, respectively, based upon the outstanding borrowings and the maximum facility amount. The aging of our inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate as our inventory ages. As of June 30, 2020,2021, we were in compliance with all covenants under the Inventory Financing Facility.
On July 22, 2020, the Company entered into the First Amendment (the “First Amendment”) to the Inventory Financing Facility. The First Amendment amended the Inventory Financing Facility, to, among other things, address the Refinancing, permit the amount of indebtedness allowed under the Refinanced Credit Facility to be $160.0 million (which includes the $50.0 increase facility under the Refinanced Credit Facility), permit the payment of fees and expenses in connection with the termination of the Term and Revolver Credit Facility and the payment of present and future transaction costs incurred in connection with the negotiation, closing and ongoing administration of the Refinanced Credit Facility.
OWAO Preferred Units
On October 28, 2016, certain affiliates of Goldman Sachs & Co. LLC (collectively, "Goldman") and affiliates of The Beekman Group (collectively, "Beekman") entered into a Subscription Agreement with us and certain of our subsidiaries, pursuant to which Goldman and Beekman purchased preferred units in OWAO (“OWAO Preferred Units”).
Goldman and Beekman purchased 45,000 and 23,000 OWAO Preferred Units, representing 66.2% and 33.8% of the total OWAO Preferred Units outstanding for purchase prices of $44.4 million and $22.7 million, respectively. The holders of the OWAO Preferred Units (“OWAO Preferred Holders”) were entitled to (i) a ‘‘preferred return’’ at a rate of 10% per annum, compounded quarterly, on (a) the aggregate amount of capital contributions made, minus any prior distributions (the ‘‘unreturned preferred amount’’), plus (b) any unpaid preferred returns for prior periods, and (ii) a ‘‘preferred target distribution’’ at a rate of 10% per annum on the unreturned preferred amount multiplied by (a) 40% for the calendar quarters ending December 31, 2018, March 31, 2019, June 30, 2019 and September 30, 2019, (b) 60% for each calendar quarter ending December 31, 2019, March 31, 2020, June 30, 2020 and September 30, 2020, and (c) 80% for each calendar quarter thereafter. The preferred target distribution proportionally adjusts the amount of capital contribution of each OWAO Preferred Holder. OWAO and certain affiliates were required to meet certain financial covenants, including maintenance of certain leverage ratios. Failure by OWAO to pay the preferred return and preferred target distribution, failure to meet certain financial covenants, or repayment in full or acceleration of the obligations under the GS/BIP Credit Facility would permit a majority of the OWAO Preferred Holders to require us to purchase all OWAO Preferred Units equal to the unreturned preferred amount plus any unpaid preferred returns (the ‘‘redemption amount’’). As of September 30, 2019, the redemption amount of the OWAO Preferred Units held by Goldman and Beekman in the aggregate was $87.3 million, exclusive of $1.3 million in issuance costs.
On February 11, 2020, in connection with the Offering, we used the net proceeds from the Offering, together with cash on hand and borrowings under the Term and Revolver Credit Facility, to redeem all of the shares of OWAO Preferred Units held by Goldman and Beekman for $89.2 million.
Notes Payable
Acquisition Notes Payable. In connection with certain of our acquisitions of dealer groups, we have entered into notes payable agreements with the acquired entities to finance these acquisitions. As of June 30, 2020,2021, our indebtedness associated with our 84 acquisition notes payable totaled an aggregate of $13.0$7.4 million with a weighted average interest rate of 5.8%5.3% per annum. As of June 30, 2020,2021, the principal amount outstanding under these acquisition notes payable ranged from $0.8$1.3 million to $3.1$2.2 million, and the maturity dates ranged from JulyDecember 1, 20202021 to FebruaryDecember 1, 2022.2023.
Commercial Vehicles Notes Payable. Since 2015, we have entered into multiple notes payable with various commercial lenders in connection with our acquisition of certain vehicles utilized in our retail operations. Such notes bear interest ranging from 0.0% to 8.9% per annum, require monthly payments of approximately $75,000,$113,000, and mature on dates betweenranging from September 2021 to July 2020 to May 2026.2028. As of June 30, 2020,2021, we had $2.5$3.4 million outstanding under the commercial vehicles notes payable.
SBA Loans
Between April 20, 2020 and April 22, 2020, certain subsidiaries of the Company entered into separate promissory notes with Hancock Whitney Bank providing for loans under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), administered by the U.S. Small Business Administration (each, an “SBA Loan” and collectively, the “SBA Loans”). Total amounts received were $14.1 million in the aggregate.
Based on its operating results through April 30, 2020, the Company determined that the impact of COVID-19 was not affecting its performance to the extent expected. While the future impact of COVID-19 remains unknown, initial sales trends suggest the impact on the Company will not be as severe as initially believed at this time. Accordingly, the Company elected to return the money received under the CARES Act on May 6, 2020.
Tax Receivable Agreement
The Tax Receivable Agreement generally provides for the payment by OneWater IncInc. to certain of the OneWater Unit Holders (as defined below) of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax (computed using the estimated impact of state and local taxes) that OneWater IncInc. actually realizes (or is deemed to realize in certain circumstances) in periods after the Offering as a result of certain tax basis increases and certain tax benefits attributable to imputed interest. OneWater IncInc. will retain the benefit of the remaining 15% of these net cash savings. To the extent OneWater LLC has available cash and subject to the terms of any current or future debt or other agreements, the OneWater LLC Agreement will require OneWater LLC to make pro rata cash distributions to OneWater Unit Holders, including OneWater Inc,Inc., in an amount sufficient to allow OneWater IncInc. to pay its taxes and to make payments under the Tax Receivable Agreement. We generally expect OneWater LLC to fund such distributions out of available cash. However, except in cases where OneWater IncInc. elects to terminate the Tax Receivable Agreement early, the Tax Receivable Agreement is terminated early due to certain mergers or other changes of control or OneWater IncInc. has available cash but fails to make payments when due, generally OneWater IncInc. may elect to defer payments due under the Tax Receivable Agreement if it does not have available cash to satisfy its payment obligations under the Tax Receivable Agreement or if its contractual obligations limit its ability to make these payments. Any such deferred payments under the Tax Receivable Agreement generally will accrue interest. In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, OneWater IncInc. realizes in respect of the tax attributes subject to the Tax Receivable Agreement. In the case of such an acceleration, where applicable, we generally expect the accelerated payments due under the Tax Receivable Agreement to be funded out of the proceeds of the change of control transaction giving rise to such acceleration. OneWater IncInc. intends to account for any amounts payable under the Tax Receivable Agreement in accordance with ASC Topic 450, Contingencies.
Off Balance Sheet Arrangements
We have no material off balance sheet arrangements, except for operating leases and purchase commitments under supply agreements entered into in the normal course of business.
Recent Accounting Pronouncements
As an ‘‘emerging growth company’’ (‘‘EGC’’), the Jumpstart Our Business Startups Act (‘‘JOBS Act’’) allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.
In May 2014, the FASB issued Accounting Standards Update (‘‘ASU’’) No. 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606)’’ (‘‘ASU 2014-09’’), as subsequently amended, a converged standard on revenue recognition. The new pronouncement requires revenue recognition to depict the transfer We may take advantage of promised goodsthese provisions until September 30, 2025, or services to customers insuch earlier time that we are no longer an amount that reflects the consideration to which the entity expectsEGC. We would cease to be entitled in exchange for those goods or services. The guidance also specifies the accounting for some costs to obtain or fulfil a contract with a customer, as well as enhanced disclosure requirements. ASU 2014-09 is effective for a public company’s annual reporting periods beginning after December 15, 2017. As an EGC upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iii) the date on which we are deemed to be a “large accelerated filer.” We continue to monitor these thresholds so that the Company has electedmay prepare for any future loss of EGC status prior to adopt ASU 2014-09 following the effective dates for private companies beginning with annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company adopted this update on October 1, 2019 using the modified retrospective approach applied only to contracts not completed as of the date of adoption, with no restatement of comparative periods.September 30, 2025.
In August 2016,Refer to Note 3 of the FASBNotes to Unaudited Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for recently adopted and issued ASU 2016-15, ‘‘Statementaccounting pronouncements including the expected dates of Cash Flows (Topic 230)’’ (‘‘ASU 2016-15’’). Additionally, in November 2016, the FASB issued ASU 2016-18, ‘‘Statement of Cash Flows (Topic 230)’’ (‘‘ASU 2016-18’’). These updates require organizations to reclassify certain cash receiptsadoption and cash payments within the Statement of Cash Flows and modify the classification and presentation of restricted cash. These ASU’s are effective for a public company’s annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. As an EGC, the Company has elected to adopt these ASU’s following the effective dates for private companies beginning with annual reporting periods beginning after December 15, 2018, including interim reporting periods within fiscal years beginning after December 15, 2019. The Company adopted this updateestimated effects, if any, on October 1, 2019 and it did not have a material impact on theour consolidated financial statements.
In January 2017,Critical Accounting Policies and Significant Estimates
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the FASB issued ASU 2017-01, ‘‘Business Combinations (Topic 805)’’ (‘‘ASU 2017-01’’). This update clarifiesU.S. for interim financial information. The preparation of our financial statements requires the definitionapplication of a businessthese accounting principles in addition to certain estimates and judgments based on current available information, actuarial estimates, historical results and other assumptions believed to be reasonable. Actual results could differ from these estimates. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Estimates” included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the objectiveSEC on December 3, 2020, for further information regarding our critical accounting policies and significant estimates. As of adding guidance to assist entities with evaluating whether transactions should be accountedJune 30, 2021, there were no changes in our critical accounting policies or the application of those policies from those reported in our Annual Report on Form 10-K for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. As an EGC the Company has elected to adopt ASU 2017-01 following the effective dates for private companies beginning with annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company adopted this update on October 1, 2019 and it did not impact the consolidated financial statements.fiscal year ended September 30, 2020.
| Item 3. | Quantitative and Qualitative Disclosure about Market Risk |
Interest Rate Risk
Our Inventory Financing Facility exposes us to risks caused by fluctuations in interest rates. The interest rate on our Inventory Financing Facility for new boats is calculated using the one-month LIBOR plus an applicable margin. Based on an outstanding balance of $176.1$108.2 million as of June 30, 2020, a change2021, an increase of 100 basis points in the underlying interest rate would have caused a changean increase in interest expense of $1.8 million.$1.1 million for the fiscal period. We do not currently hedge our interest rate exposure. This hypothetical increase does not take into account a corresponding increase to the programs that we may receive from our manufacturers or management’s ability to curtail inventory and related floor plan balances, both of which would reduce the impact of the interest rate increase.
Our Refinanced Credit Facility exposes us to risks caused by fluctuations in interest rates. The interest rate on our Refinanced Credit Facility is calculated using the one-month LIBOR (with a 0.75% floor) plus an applicable margin. Based on an outstanding balance of $107.3 million and the one-month LIBOR as of June 30, 2021, an increase of 100 basis points in the underlying interest rate would have caused a change in interest expense of approximately $0.4 million for the fiscal period. We do not currently hedge our interest rate exposure.
Foreign Currency Risk
We purchase certain of our new boat and parts inventories from foreign manufacturers. Although we purchase our inventories in U.S. dollars, our business is subject to foreign exchange rate risk that may influence manufacturers’ ability to provide their products at competitive prices in the United States. To the extent that we cannot recapture this volatility in prices charged to customers or if this volatility negatively impacts consumer demand for our products, this volatility could adversely affect our future operating results.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports 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 management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) during the three months ended June 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Due to the nature of our business, we are, from time to time, involved in other routine litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment related disputes. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. In the opinion of our management, none of the pending litigation, disputes or claims against us, if decided adversely, would have a material adverse effect on our financial condition, cash flows or results of operations.
In addition to the risks discussed below and other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Final Prospectus,Annual Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the SEC on December 3, 2020, which could materially affect our businesses, financial condition, or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results. There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K for the Final Prospectus,fiscal year ended September 30, 2020, filed with the SEC on December 3, 2020, other than as discusseddescribed below.
The ongoing COVID-19 pandemic may adversely affect our operations and our revenues, results of operations and financial condition.
Our business and operations could be materially adversely affected by the widespread outbreak of a contagious disease, including the recent COVID-19 pandemic. COVID-19 has spread in many of the geographic areas in which we operate. National, state and local governments in affected regions have implemented and may continue to implement safety precautions, including shelter in place orders, travel restrictions, business closures, cancellations of public gatherings, including boat shows, and other measures. These measures have affected our ability to sell and service boats, required us to temporarily close or partially close certain locations decrease staffing in certain locations, and may require additional closures or staffing changes in the future. Organizations and individuals are also taking additional steps to avoid or reduce infection, including limiting travel, staying home, working from home and limiting participation in certain leisure activities.
We continue to monitor federal, state and local government recommendations and have made modifications to our normal operations as a result of COVID-19. While demand for our products has generally increased throughout the course of the COVID-19 pandemic to date, which we believe is due to the cancellation of travel and other activities that traditionally compete with boating and due to consumers’ desire for outdoor, socially-distanced recreational activities, ifIf the negative economic effects of COVID-19 continue for a prolonged period of time, it could lead to a reduction in demand for our products. Such reductions in demand couldproducts, which would adversely affect our results of operations. Additionally, disruptions in the capital markets, as a result of the pandemic, may also adversely affect our ability to access capital and additional liquidity.Theliquidity. The COVID-19 pandemic may also leadhas led to disruptions in our supply chain, including our ability to obtain boats and parts from our suppliers, and labor shortages. There have been industry-wide supply chain constraints due to the COVID-19 pandemic and increased sales generally across the industry. To date, we have experienced shortages of inventory and we believe such shortages resulted in a reduction in our revenues for the three months ended June 30, 2021. Such shortages could continue to adversely and impact our revenues for future periods. It is possible that an inventory shortagesuch shortages could also occurbecome more severe as a result of the COVID-19 pandemic and its effects on, among other things, supply chains, operations and consumer demand. These measures are disrupting normal business operations and may have, significant negative impacts on our business in the future. While we previously announcedare implementing changes to mitigate the impact of COVID-19 on our decision to pause our acquisition strategy due to the COVID-19 pandemic, given our financial results for the three months ended June 30, 2020, we are recommencing our acquisition strategy and opportunistically evaluating future acquisitions. Itbusiness, it is not possible, at this time, to estimate the entirety of the effect that COVID-19 will have on our business, customers, suppliers or other business partners.
While we previously announced our decision to pause our acquisition strategy due to the COVID-19 pandemic, given our financial results for the year ended September 30, 2020, we are recommencing our acquisition strategy and opportunistically evaluating future acquisitions. See “Risk Factors—Our success depends, in part, on our ability to continue to make successful acquisitions at attractive or fair prices and to integrate the operations of acquired dealer groups and each dealer group we acquire in the future.”
Our failure to successfully order and manage our inventory to reflect consumer demand and to anticipate changing consumer preferences and buying trends, or the lack of inventory generally in the industry, could have a material adverse effect on our business, financial condition and results of operations.
Our success depends upon our ability to procure sufficient inventory for our needs and to successfully manage our inventory and to anticipate and respond to product trends and consumer demands in a timely manner. Our products appeal to consumers across a number of states who are, or could become, boat owners. The preferences of these consumers cannot be predicted with certainty and are subject to change. Further, the retail consumer industry, by its nature, is volatile and sensitive to numerous economic factors, including consumer preferences, competition, market conditions, general economic conditions and other factors outside of our control. For example, the impact of COVID-19 on our suppliers and the recent increase in demand for marine retail products has led to industry-wide supply chain constraints.We have experienced inventory shortages in new and pre-owned boats in fiscal year 2021, and it is possible that further shortages could occur. We cannot predict consumer preferences with certainty, and consumer preferences often change over time. We typically order product several months in advance, although such orders are not binding until the merchandise is delivered to our stores. The extended lead times for many of our purchases may make it difficult for us to respond rapidly to new or changing product trends, increases or decreases in consumer demand or changes in prices. If we misjudge either the market for our products or our consumers’ purchasing habits in the future, our revenues may decline significantly and we may not have sufficient quantities of product to satisfy consumer demand or sales orders or we may be required to discount excess inventory, either of which could have a material adverse effect on our business, financial condition and results of operations.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Item 3. | Defaults Upon Senior Securities |
None.
Not Applicable.
The Board has determined that it intends to hold the Company’s Annual Meeting of Stockholders (the “2021 Annual Meeting”) on February 23, 2021 or shortly thereafter, at a time and location to be specified in the Company’s proxy statement for the 2021 Annual Meeting (the “Proxy Statement”). The record date for determining stockholders eligible for notice of, and to vote at, the 2021 Annual Meeting has not yet been set by the Board and will also be included in the Proxy Statement.None.
Pursuant to Rule 14a-8 (“Rule 14a-8”) under the Exchange Act, stockholders of the Company who wish to have a proposal considered for inclusion in the Company’s proxy materials for the 2021 Annual Meeting pursuant to Rule 14a-8 must ensure that their proposal is received by the Secretary of the Company at 6275 Lanier Islands Parkway, Buford, Georgia 30518 by September 15, 2020, which the Company has determined to be a reasonable time before it expects to begin to print and send its proxy materials. Rule 14a-8 proposals must also comply with the requirements of Rule 14a-8 and other applicable laws in order to be eligible for inclusion in the Company’s proxy materials for the 2021 Annual Meeting. The September 15, 2020 deadline will also apply in determining whether notice of a stockholder proposal is timely for purposes of exercising discretionary voting authority with respect to proxies under Rule 14a-4(c) under the Exchange Act.
In addition, in accordance with the requirements contained in the Company’s Amended and Restated Bylaws (the “Bylaws”), stockholders who wish to bring business before the 2021 Annual Meeting outside of Rule 14a-8 or to nominate a person for election as a director must ensure that written notice of such proposal (including all of the information specified in the Bylaws) is received by the Secretary of the Company at the address specified above no earlier than close of business on October 9, 2020 and no later than the close of business on November 8, 2020. Any such proposal must meet the requirements set forth in the Bylaws in order to be brought before the 2021 Annual Meeting.
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.