| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this report to the "Company," "we," "us," and "our" refer to OneWater Marine Inc. and its consolidated subsidiaries. The following discussion and analysis should be read in conjunction with the accompanying financial statements and related notes. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those factors discussed above in “Cautionary Statement Regarding Forward-Looking Statements” and described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended September 30, 2020,2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 3, 2020,17, 2021, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
We believe that we are one of the largest and fastest-growing premium recreational boatmarine retailers in the United States with 69 stores comprising 24 dealer groups in 10 states.75 retail locations, 8 distribution centers/warehouses and multiple online marketplaces as of December 31, 2021. Our dealer groupsretail locations are located in highly attractive markets throughout the Southeast, Gulf Coast, Mid-Atlantic and Northeast, including Texas, Florida, Alabama, North Carolina, South Carolina, Georgia and Ohio,many of which collectively comprise seven of theare in top twenty states for marine retail expenditures. We believe that we are a market leader by volume in sales of premium boats in 1213 out of the 1518 markets in which we operate. In fiscal year 2020,2021, we sold over 10,100approximately 9,500 new and pre-owned boats, many of which we believe approximately 40% were sold to customers who had a trade-in or with whom we had otherwise established relationships. The combination of our significant scale, diverse inventory and revenue streams, access to premium boat brands and meaningful dealer group brand equity enable us to provide a consistently professional experience as reflected in the number of our repeat customers and same-store sales growth.
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.retail locations. Since the combination in 2014, we have acquired a total of 4955 additional storesretail locations, 8 distribution centers/warehouses and multiple online marketplaces through 2026 acquisitions. Our current portfolio of companies as of MarchDecember 31, 2021 consistedconsists of 24 differentmultiple brands which are recognized on a local, and regional dealer groups.or national basis. Because of this, we believe we are one of the largest and fastest-growing premium recreational boatmarine retailers in the United States based on number of stores and total boats sold. While we have opportunistically opened new storeslocations in select markets, we believe that it is generally more effective economically and operationally to acquire existing storeslocations with experienced staff and established reputations.
The boat dealer marketmarine retail industry is highly fragmented, and is comprised ofas evidenced by the over 4,000 storesboat dealers nationwide. Most competing boat retailers offer new boat sales, pre-owned boat sales, finance and insurance products, repair and maintenance services and parts and accessories and are operated by local business owners who ownwith three or fewer stores. Despite our size, we comprise less than 2%3% 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.
Impact of COVID-19
The COVID-19 pandemic and its related effects, including restraints on U.S. economic and leisure activities, have hadhas and may continue to have a significant impact on our operations and financial condition. WeNational, state and local governments in affected regions have implemented and may continue to implement safety precautions, including shelter in place the utmost importance on the safetyorders, travel restrictions, business closures, cancellations of public gatherings, including boat shows, and well-being ofother measures. At times, these measures have affected our employeesability to sell and in compliance with guidelines issued by the World Health Organization (WHO), the Centers for Disease Control and Prevention (CDC) and federal, stateservice boats, required us to temporarily close or local authorities, we closed or reduced staffing atpartially close certain locations during portions ofand may require additional closures in the fiscal year ended September 30, 2020. We have implemented cleaning and social distancing techniques at each of our locations.future. In light of the current environment, our sales team members are fully engaged with customers and are providing them with virtual walkthroughs of inventory and/or private, at home or on water, showings, while our service departments are working hard to deliver boats and keep customers on the water.
The COVID-19 pandemic and its related effects have, to date, positively impacted our sales as more customers desire to engage in outdoor recreational activities that can be enjoyed close to first or second homes, in a socially distanced manner. However, the COVID-19 pandemic has also caused significant supply chain challenges as suppliers were, and continue to be, faced with business closures and shipping delays. This has led to an industry wide inventory shortage of boats, engines and certain marine parts. 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, we have not experienced any significant shortages of inventory, but due to the COVID-19 pandemic and increased sales generally across the industry, there has been industry-wide supply chain constraints. It is possible that a significant shortage could occur as a result of the COVID-19 pandemic and its effects on, among other things, supply chains, operations and consumer demand.
On April 1, 2020, our executive management team elected to undertake salary cuts in response to the impacts of COVID-19. Additionally, the Board elected to forgo their cash compensation for a period of six months. However, given trends in demand, the cash compensation and salaries of our directors and executive management team, as applicable, were restored to their pre-COVID levels as of July 3, 2020, and our directors and executive management team received a one-time cash payment equal to their reduction in compensation.
While we continue to monitor the impact of the COVID-19 pandemic on our business and operations, our financial results for the three and six months ended MarchDecember 31, 2021 suggest that spending in all our regions and across product lines has proven remarkably resilient despite the challenges posed by the pandemic as familiescustomers have increasingly focusedcontinued to focus on socially-distanced,socially distanced outdoor recreation, driving a material increase in sales.
Though the COVID-19 pandemic did not adversely affect our financial position for the three and six months ended March 31, 2021 relative to the three and six months ended March 31, 2020, therecreations. The ultimate impact of the COVID-19 pandemic on our business remains uncertain and dependent on various factors including consumer demand, a possible resurgence of COVID-19, including variants of the virus in certain geographic areas, our ability to safely operate stores and the existence and extent of a prolonged economic downturn, the resurgence of COVID19 in certain geographic areas, emergence of new strain variants thereof, consumer demand and the ability to safely and legally operate our stores.downturn.
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 49a total of 55 additional storesretail locations, 8 distribution centers/warehouses and multiple online marketplaces through 20 dealer group26 acquisitions. Our team remains focused on expanding our dealershipretail locations in regions with strong boating cultures, enhancing the customer experience, and generating value for our shareholders. Additionally, we continue to evaluate acquisitions of companies who focus primarily on parts and accessory sales, further strengthening that area of our business.
We have an extensive acquisition track record within the boatingmarine retail 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.group. 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 dealersmarine retailers 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-month basis and believe that we will be able to continue to make attractive acquisitions within this range.
In the six months ended March 31, 2021, we completed 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 six months ended March 31, 2021 was $93.0 million and was paid with $85.5 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 $30.7 million to our consolidated revenue and $3.3 million to our income before income tax expense for the three months ended March 31, 2021. Included in our results for the six months ended March 31, 2021, the acquisitions contributed $32.8 million to our consolidated revenue and $3.4 million to our income before income tax expense. Costs related to acquisitions are included 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 $0.4 million and $0.6 million for the three and six months ended March 31, 2021, respectively.
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 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 thea downturn 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 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, which is generally upon acceptance by or delivery to the customer. At the time of acceptance or delivery, the customer is able to direct the use of the product and obtain substantially all of the benefits at such time. We are the principal with respect to revenue from new, pre-owned 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, 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. Satisfaction of this performance obligation creates an asset with no alternative use for which an enforceable right to payment for performance to date exists within our contractual agreements. 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. The Company recorded contract assets in prepaid expenses and other current assets of $3.0 million and $2.3 million as of December 31, 2021 and September 30, 2021, respectively. Revenue from parts and accessories sold directly to a customer (not on a repair order) are recognized when control of the items is transferred to the customer, which is typically upon shipment.
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. We are acting as an agent in the transaction, therefore the commissions are recorded on a net basis. Subject to our agreements and in the event of early cancellation, prepayment or default of such loans or insurance contracts by the customer, we may be assessed a chargeback for a portion of the commission paid by the third-party financial institutions and insurance companies. We reserve for these chargebacks based on our historical experience with repayments or defaults. Chargebacks were not material to the unaudited condensed consolidated financial statements for the three months ended December 31, 2021.
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. There are inherent uncertainties in assessing net realizable value as management must make assumptions and apply judgment to changes in the market, brands and other factors that drive consumer preferences and spending. We typically do not maintain a boat inventory reserve. 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 approximately $0.8 million at December 31, 2021 and September 30, 2021.
Goodwill and Other Intangible Assets
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.
The quantitative goodwill impairment test requires a determination of whether the fair value of a reporting unit is less than its carrying value. We estimate the fair value of our reporting unit using an “income” valuation approach, which discounts projected free cash flows of the reporting unit at a computed weighted average cost of capital as the discount rate. The income valuation approach requires the use of significant estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions. In connection with this process, we also reconcile the estimated aggregate fair value of our reporting unit to our market capitalization, including consideration of a control premium that represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest. We believe that this reconciliation process is consistent with a market participant perspective. We base our cash flow forecasts on our knowledge of the industry, our recent performance, our expectations of our future performance, and other assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
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 are 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.
The quantitative impairment test for trade names requires the comparison of the trade names’ estimated fair value to carrying value on an individual basis. Fair values of trade names are estimated using Level 3 inputs by discounting expected future cash flows of the trade name. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions, and other marketplace data we believe to be reasonable. Financial statement risk exists to the extent identifiable intangibles become impaired due to the decrease in the fair value of the identifiable assets.
Business Combinations
We account for business combinations using the acquisition method of accounting, which requires recognition of assets acquired and liabilities assumed at fair value as of the date of the acquisition. Determination of the estimated fair value assigned to each asset acquired or liability assumed can materially impact the net income in subsequent periods through depreciation and amortization and potential impairment charges.
The most critical areas of judgment in applying the acquisition method include selecting the appropriate valuation techniques and assumptions that are used to measure the acquired assets and assumed liabilities at fair value, particularly for inventory, acquisition contingent consideration, trade names and goodwill. The fair value of acquired inventory is based on manufacturer invoice cost, curtailments, and market data. The significant estimates used to value acquisition contingent consideration are future earnings and discount rates. We apply an income approach for the fair value of trade names, which discounts the estimate of future net cash flow using an appropriate discount rate that reflects the risks associated with such projected future cash flow.
In selecting the techniques and assumptions noted above, we generally engage third-party, independent valuation professionals to assist us in developing the assumptions and applying the valuation techniques to a particular business combination transaction. In particular, the discount rates selected are compared to and evaluated with (i) the industry weighted-average cost of capital, (ii) the inherent risks associated with each type of asset and (iii) the level and timing of future cash flows appropriately reflecting market participant assumptions.
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 approximately 10.3% and 10.0% to revenue in the three months ended March 31, 2021 and 2020, respectively, and 10.6% and 10.7% in the six months ended March 31, 2021 and 2020, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 25.6% and 29.8% to gross profit in the three months ended March 31, 2021 and 2020, respectively, and 26.7% and 30.4% to gross profit in the six months ended March 31, 2021 and 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 continue to focus on all aspects of our business including non-boat sales of finance & insurance products, repair and maintenance services, and parts and accessories. Although non-boat sales contributed 13.9% and 11.1% to revenue in the three months ended December 31, 2021 and 2020, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 26.3% and 28.6% to gross profit in the three months ended December 31, 2021 and 2020, respectively. 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.
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 EBITDAGross Profit
We define Adjusted EBITDAcalculate gross profit as net income before interest expense – other, income tax expense,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, and other (income) expense, further adjusted to eliminate the effectswhich is presented separately in our consolidated statements of items such as the change in fair value of warrant liability, loss on contingent consideration, loss on extinguishment of debt 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.operations.
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 2021 Acquisitions
Effective December 1, 2020, we acquired Tom George Yacht Sales, Inc., a full-service marine retailer based in Florida with two stores.
Effective December 31, 2020, we acquired Walker Marine Group, Inc., a full-service marine retailer based in Florida with five stores.
Effective December 31, 2020, we acquired Roscioli Yachting Center, Inc., a full-service marina and yachting facility located in Florida, including the related real estate and in-water slips.
We refer to the fiscal year 2021 acquisitions described above collectively as the ‘‘2021 Acquisitions.’’ The 2021 acquisitions are reflected in our unaudited Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2021 from the date of acquisition forward.
Other Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of OperationsGross Profit Margin
Our historical financial results discussed below may not be comparable tooverall gross profit margin varies with our future financial results for the reasons described below.
OneWater Inc. 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. OneWater Inc. was subject to U.S. federal, state and local taxes at an estimated blended statutory rate of 24.1% for the six months ended March 31, 2021. OneWater Inc. was subject to U.S. federal, state and local taxes at an estimated blended statutory rate of 24.3% from February 11, 2020 through March 31, 2020, the period following the Offering.
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 March 31, 2021, Compared to Three Months Ended March 31, 2020
| | | For the Three Months Ended March 31, 2021 | | | For the Three Months Ended March 31, 2020 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | | ($ in thousands) | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat | | $ | 239,654 | | | | 72.7 | % | | $ | 132,719 | | | | 69.9 | % | | $ | 106,935 | | | | 80.6 | % |
| Pre-owned boat | | | 56,082 | | | | 17.0 | % | | | 38,186 | | | | 20.1 | % | | | 17,896 | | | | 46.9 | % |
| Finance & insurance income | | | 11,789 | | | | 3.6 | % | | | 8,083 | | | | 4.3 | % | | | 3,706 | | | | 45.8 | % |
| Service, parts and other | | | 22,086 | | | | 6.7 | % | | | 10,975 | | | | 5.8 | % | | | 11,111 | | | | 101.2 | % |
| Total revenues | | | 329,611 | | | | 100.0 | % | | | 189,963 | | | | 100.0 | % | | | 139,648 | | | | 73.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat | | | 52,507 | | | | 15.9 | % | | | 24,465 | | | | 12.9 | % | | | 28,042 | | | | 114.6 | % |
| Pre-owned boat | | | 13,534 | | | | 4.1 | % | | | 6,843 | | | | 3.6 | % | | | 6,691 | | | | 97.8 | % |
| Finance & insurance | | | 11,789 | | | | 3.6 | % | | | 8,083 | | | | 4.3 | % | | | 3,706 | | | | 45.8 | % |
| Service, parts & other | | | 10,956 | | | | 3.3 | % | | | 5,193 | | | | 2.7 | % | | | 5,763 | | | | 111.0 | % |
| | | 88,786 | | | | 26.9 | % | | | 44,584 | | | | 23.5 | % | | | 44,202 | | | | 99.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 48,348 | | | | 14.7 | % | | | 32,383 | | | | 17.0 | % | | | 15,965 | | | | 49.3 | % |
| Depreciation and amortization | | | 1,378 | | | | 0.4 | % | | | 791 | | | | 0.4 | % | | | 587 | | | | 74.2 | % |
| Transaction costs | | | 368 | | | | 0.1 | % | | | 2,925 | | | | 1.5 | % | | | (2,557 | ) | | | -87.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 38,692 | | | | 11.7 | % | | | 8,485 | | | | 4.5 | % | | | 30,207 | | | | 356.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 330 | | | | 0.1 | % | | | 2,525 | | | | 1.3 | % | | | (2,195 | ) | | | -86.9 | % |
| Interest expense - other | | | 1,215 | | | | 0.4 | % | | | 2,457 | | | | 1.3 | % | | | (1,242 | ) | | | -50.5 | % |
| Other expense (income), net | | | 5 | | | | 0.0 | % | | | 52 | | | | 0.0 | % | | | (47 | ) | | | -90.4 | % |
| Income before income tax expense | | | 37,142 | | | | 11.3 | % | | | 3,451 | | | | 1.8 | % | | | 33,691 | | | | 976.3 | % |
| Income tax expense | | | 6,550 | | | | 2.0 | % | | | 472 | | | | 0.2 | % | | | 6,078 | | | | 1287.7 | % |
| Net income | | | 30,592 | | | | 9.3 | % | | | 2,979 | | | | 1.6 | % | | | 27,613 | | | | 926.9 | % |
| Less: Net income attributable to non-controlling interest | | | - | | | | | | | | 103 | | | | | | | | (103 | ) | | | -100.0 | % |
| Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC | | | 10,117 | | | | | | | | 1,791 | | | | | | | | 8,326 | | | | 464.9 | % |
| Net income attributable to One Water Marine Inc. | | $ | 20,475 | | | | | | | $ | 1,085 | | | | | | | $ | 19,390 | | | | 1787.1 | % |
Revenue
Overall, revenue increased by $139.6 million, or 73.5%, to $329.6 million for the three months ended March 31, 2021 from $190.0 million for the three months ended March 31, 2020. Revenue generated from same-store sales increased 57.4% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, driven by an increase in sales across all boating categories and higher finance & insurance and service, parts and other sales. The increase in revenue was primarily driven by an increase in both the number of boats sold and the average selling pricemix. Sales of new and pre-owned boats. Overallboats, which have comparable margins, generally result in a lower gross profit margin than our non-boat sales. As a result, when revenue increased by $139.6 millionfrom non-boat sales increases as a resultpercentage of a $108.3 million increase in same-storetotal 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 a $31.4 million increase from stores not eligible for inclusionincentive 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.
We assess the organic growth of our revenue on a same-store sales base.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. AsStores 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 March 31, 2021, we had acquired eight stores in fiscal year 2021. We didthis measure may not make any acquisitions in fiscal year 2020.be comparable to similarly titled measures of other companies, thereby diminishing its utility.
New Boat
New boat revenue increased by $106.9 million, or 80.6%, to $239.7 million for the three months ended March 31, 2021 from $132.7 for the three months ended March 31, 2020. The increase was primarily attributable to our robust same-store sales growth. During the three months ended March 31, 2021 we experienced an increase in unit sales of approximately 26.4% and an increase in average unit prices of approximately 42.9% over the three months ended March 31, 2020. We believe the increase in units sold was primarily due to the shift towards outdoor leisure activity during the COVID-19 pandemic as well as the continued execution of operational improvements on previously acquired dealers. The 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, as well as supply and demand forces as manufacturer replenishments have been slowed by the COVID-19 pandemic providing us increased leverage in the sales cycle.
Pre-owned Boat
Pre-owned boat revenue increased by $17.9 million, or 46.9%, to $56.1 million for the three months ended March 31, 2021 from $38.2 million for the three months ended March 31, 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 March 31, 2021 experienced a 2.7% decrease in the number of units sold due to industry-wide supply constraints. We benefited from a 39.4% 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 increased by $3.7 million, or 45.8%, to $11.8 million for the three months ended March 31, 2021 from $8.1 million for the three months ended March 31, 2020. The increase was primarily due to the additional new and pre-owned boat revenues, which were primarily attributable to our same-store sales growth and the 2021 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 decreased as a percentage of total revenue to 3.6% in the three months ended March 31, 2021 from 4.3% for the three months ended March 31, 2020, primarily due to the 2021 Acquisitions as well as the 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 $11.1 million, or 101.2%, to $22.1 million for the three months ended March 31, 2021 from $11.0 million for the three months ended March 31, 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, sales attributable to our same-store sales growth and the impact of the 2021 Acquisitions.
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.
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 tax expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in fair value of warrant liability, change in fair value of contingent consideration, loss on extinguishment of debt 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 accounting principles generally accepted in the United States of America (“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 First Quarter 2022 Acquisitions
Effective October 1, 2021, we acquired Naples Boat Mart, a full-service marine retailer with one location in Florida.
Effective November 30, 2021, we acquired T-H Marine, a leading provider of branded marine parts and accessories, with locations in Alabama, Florida, Illinois, Indiana, Oklahoma and Texas.
Effective December 1, 2021, we acquired Norfolk Marine Company, a full-service marine retailer with one location in Virginia.
Effective December 31, 2021, we acquired a majority interest in Quality Boats, a full-service marine retailer with three locations in Florida.
We refer to the fiscal first quarter 2022 acquisitions described above collectively as the ‘‘2022 Acquisitions.’’ The acquisitions of Naples Boat Mart, T-H Marine and Norfolk Marine Company are partially reflected in our unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2021. The majority interest in Quality Boats was not included in the unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2021 as the acquisition was completed on the last day of the period.
Fiscal First Quarter 2021 Acquisitions
Effective December 1, 2020, we acquired Tom George Yacht Sales, Inc, a full-service marine retailer based in Florida with two stores.
Effective December 31, 2020, we acquired Walker Marine Group, Inc., a full-service marine retailer based in Florida with five stores.
Effective December 31, 2020, we acquired Roscioli Yachting Center, Inc., a full-service marina and yachting facility located in Florida, including the related real estate and in-water slips.
We refer to the fiscal first quarter 2021 acquisitions described above collectively as the ‘‘2021 Acquisitions.’’ The Tom George Yacht Sales, Inc. acquisition is partially reflected in our unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2020 and fully reflected for the three months ended December 31, 2021. The Walker Marine Group, Inc. and Roscioli Yachting Center, Inc. acquisitions were not included in the unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2020 as they were completed on the last day of the period but are fully reflected in the three months ended December 31, 2021.
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 Inc. 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. OneWater Inc. was subject to U.S. federal, state and local taxes at an estimated blended statutory rate of 24.0% of pre-tax earnings for the three months ended December 31, 2021.
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. 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 December 31, 2021, Compared to Three Months Ended December 31, 2020
| | | For the three months ended December 31, 2021 | | | For the three months ended December 31, 2020 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | | ($ in thousands) | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat | | $ | 236,198 | | | | 70.2 | % | | $ | 151,828 | | | | 70.9 | % | | $ | 84,370 | | | | 55.6 | % |
| Pre-owned boat | | | 53,449 | | | | 15.9 | % | | | 38,580 | | | | 18.0 | % | | | 14,869 | | | | 38.5 | % |
| Finance & insurance income | | | 9,307 | | | | 2.8 | % | | | 5,963 | | | | 2.8 | % | | | 3,344 | | | | 56.1 | % |
| Service, parts and other | | | 37,318 | | | | 11.1 | % | | | 17,712 | | | | 8.3 | % | | | 19,606 | | | | 110.7 | % |
| Total revenues | | | 336,272 | | | | 100.0 | % | | | 214,083 | | | | 100.0 | % | | | 122,189 | | | | 57.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat | | | 60,302 | | | | 17.9 | % | | | 29,296 | | | | 13.7 | % | | | 31,006 | | | | 105.8 | % |
| Pre-owned boat | | | 14,079 | | | | 4.2 | % | | | 8,128 | | | | 3.8 | % | | | 5,951 | | | | 73.2 | % |
| Finance & insurance | | | 9,307 | | | | 2.8 | % | | | 5,963 | | | | 2.8 | % | | | 3,344 | | | | 56.1 | % |
| Service, parts & other | | | 17,277 | | | | 5.1 | % | | | 9,049 | | | | 4.2 | % | | | 8,228 | | | | 90.9 | % |
| Total gross profit | | | 100,965 | | | | 30.0 | % | | | 52,436 | | | | 24.5 | % | | | 48,529 | | | | 92.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 59,096 | | | | 17.6 | % | | | 34,860 | | | | 16.3 | % | | | 24,236 | | | | 69.5 | % |
| Depreciation and amortization | | | 1,749 | | | | 0.5 | % | | | 963 | | | | 0.4 | % | | | 786 | | | | 81.6 | % |
| Transaction costs | | | 3,045 | | | | 0.9 | % | | | 200 | | | | 0.1 | % | | | 2,845 | | | | 1422.5 | % |
| Loss on contingent consideration | | | 5,746 | | | | 1.7 | % | | | 377 | | | | 0.2 | % | | | 5,369 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 31,329 | | | | 9.3 | % | | | 16,036 | | | | 7.5 | % | | | 15,293 | | | | 95.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 877 | | | | 0.3 | % | | | 920 | | | | 0.4 | % | | | (43 | ) | | | -4.7 | % |
| Interest expense - other | | | 1,529 | | | | 0.5 | % | | | 924 | | | | 0.4 | % | | | 605 | | | | 65.5 | % |
| Other expense (income), net | | | 548 | | | | 0.2 | % | | | (94 | ) | | | 0.0 | % | | | 642 | | | | -683.0 | % |
| Income before income tax expense | | | 28,375 | | | | 8.4 | % | | | 14,286 | | | | 6.7 | % | | | 14,089 | | | | 98.6 | % |
| Income tax expense | | | 4,889 | | | | 1.5 | % | | | 2,511 | | | | 1.2 | % | | | 2,378 | | | | 100.0 | % |
| Net income | | | 23,486 | | | | 7.0 | % | | | 11,775 | | | | 5.5 | % | | | 11,711 | | | | 99.5 | % |
| Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC | | | (3,467 | ) | | | | | | | (3,987 | ) | | | | | | | | | | | | |
| Net income attributable to One Water Marine Inc. | | $ | 20,019 | | | | | | | $ | 7,788 | | | | | | | | | | | | | |
Revenue
Overall, revenue increased by $122.2 million, or 57.1%, to $336.3 million for the three months ended December 31, 2021 from $214.1 million for the three months ended December 31, 2020. Revenue generated from same-store sales increased 27.9% for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020, primarily due to an increase in the average selling price of new and pre-owned boats, the model mix of boats sold, an increase in finance & insurance sales and an increase in service, parts and other sales. Overall revenue increased by $122.2 million as a result of a $59.6 million increase in same-store sales and a $62.6 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.
New Boat Sales
New boat sales increased by $84.4 million, or 55.6%, to $236.2 million for the three months ended December 31, 2021 from $151.8 for the three months ended December 31, 2020. The increase was primarily attributable to our same-store sales growth, our acquisitions and an increase in our average unit price. We believe the increase in sales was primarily due to continued execution of operational improvements on previously acquired dealers, the mix of boat brands and models sold, and product improvements in the functionality of technology of boats which drove average unit prices higher. New boat unit sales for the three months ended December 31, 2021 as compared to December 31, 2020 were flat due to industry-wide inventory and supply chain constraints.
Pre-owned Boat Sales
Pre-owned boat sales increased by $14.9 million, or 38.5%, to $53.4 million for the three months ended December 31, 2021 from $38.6 million for the three months ended December 31, 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 unit sales for the three months ended December 31, 2021 as compared to December 31, 2020 were flat due to industry-wide supply constraints. The average sales price per pre-owned unit for the three months ended December 31, 2021 increased 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.
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 $3.3 million, or 56.1%, to $9.3 million for the three months ended December 31, 2021 from $6.0 million for the three months ended December 31, 2020. The increase was primarily a result of the increase in same-store sales. 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 held steady as a percentage of total revenue at 2.8% in the three months ended December 31, 2021 and 2020. 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. Since finance & insurance income is fee-based, we do not incur any related cost of sale.
Service, Parts & Other Sales
Service, parts & other sales increased by $19.6 million, or 110.7%, to $37.3 million for the three months ended December 31, 2021 from $17.7 million for the three months ended December 31, 2020. The increase in service, parts & other sales is primarily due to increases across the board in labor, parts, fuel and storage sales, driven by ancillary sales generated from our increase in new and pre-owned boat sales and the impact of our 2021 and 2022 Acquisitions.
Gross Profit
Overall, gross profit increased by $44.2$48.5 million, or 99.1%92.5%, to $88.8$101.0 million for the three months ended MarchDecember 31, 2021 from $44.6$52.4 million for the three months ended MarchDecember 31, 2020. This increase was primarily due to our overall increase in same-store sales a shiftwhich was driven by increases in all revenue streams, the miximpact of the 2021 and size of boat models sold,2022 Acquisitions and the Company’s focus on dynamic pricing, an increase in service, parts & other sales, finance & insurance, and the emphasis on meeting customer demand.pricing. Overall gross margins increased 340550 basis points to 26.9%30.0% for the three months ended MarchDecember 31, 2021 from 23.5%24.5% for the three months ended MarchDecember 31, 2020 due to the factors noted below.
New Boat Gross Profit
New boat gross profit increased by $28.0$31.0 million, or 114.6%105.8%, to $52.5$60.3 million for the three months ended MarchDecember 31, 2021 from $24.5$29.3 million for the three months ended MarchDecember 31, 2020. 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 21.9%25.5% for the three months ended MarchDecember 31, 2021 as compared to 18.4%19.3% in the three months ended MarchDecember 31, 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 ofour emphasis on expanding new boat gross profit margins created by a loweramid the industry wide inventory and supply of new boat inventory in the three months ended March 31, 2021.chain constraints.
Pre-owned Boat Gross Profit
Pre-owned boat gross profit increased by $6.7$6.0 million, or 97.8%73.2%, to $13.5$14.1 million for the three months ended MarchDecember 31, 2021 from $6.8$8.1 million for the three months ended MarchDecember 31, 2020. 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 and the 2021 Acquisitions.growth. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 24.1%26.3% and 17.9%21.1% for the three months ended MarchDecember 31, 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 MarchDecember 31, 2021 as compared to the three months ended MarchDecember 31, 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 March 31, 2021.
Finance & Insurance Gross Profit
Finance & insurance gross profit increased by $3.7$3.3 million, or 45.8%56.1%, to $11.8$9.3 million for the three months ended MarchDecember 31, 2021 from $8.1$6.0 million for the three months ended MarchDecember 31, 2020. 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 increased by $5.8$8.2 million, or 111.0%90.9%, to $11.0$17.3 million for the three months ended MarchDecember 31, 2021 from $5.2$9.0 million for the three months ended MarchDecember 31, 2020. The increase in service, parts & other gross profit was primarily driven by our same-store sales growth as well as the impact of the 2021 Acquisitions. Service, parts & other gross profit as a percentage of service, parts & other revenue was 49.6%46.3% and 47.3%51.1% for the three months ended MarchDecember 31, 2021 and 2020, respectively. ThisThe increase in gross profit was primarily the result of our same-store sales growth as well as the 2021 and 2022 acquisitions. The decrease in gross profit margin percentage was due to a shift in the mix of products sold and services provided as the gross profit shifted more towards service work,parts & accessories which has a higher margin. Additionally, due to the increased demand, we experienced an increase in utilization of ourlower margin percentage than service technicians which drove margins higher.and other sales.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by $16.0$24.2 million, or 49.3%69.5%, to $48.3$59.1 million for the three months ended MarchDecember 31, 2021 from $32.4$34.9 million for the three months ended MarchDecember 31, 2020. This increase was primarily due to expenses incurred to support the overall increase in revenues and gross profit. Selling, general & administrative expenses experiencedThe increase primarily consisted of a $15.3$17.0 million increase in personnel expenses, a $0.5 million decrease in selling and administrative expenses and a $1.2 million increase in fixed expenses. Selling, general & administrative expenses as a percentage of revenue decreasedincreased to 14.7%17.6% from 17.0%16.3% for the three months ended MarchDecember 31, 2021 and 2020, respectively. The reductionincrease in selling, general &and administrative expenses as a percentage of revenue was primarily due to higher variable-based compensation expense as a result of the Company’s ability to leverage its existing expense structure to support the increase in revenue, as well as a reduction in selling expenses related to the cancellation of boat shows.increased net profit margin.
Depreciation and Amortization
Depreciation and amortization expense increased $0.6$0.8 million, or 74.2%81.6%, to $1.4$1.7 million for the three months ended MarchDecember 31, 2021 compared to $0.8$1.0 million for the three months ended MarchDecember 31, 2020. The increase in depreciation and amortization expense for the three months ended MarchDecember 31, 2021 compared to the three months ended MarchDecember 31, 2020 was primarily attributable to an increase in property and equipment from our 2021 Acquisitions.
Transaction Costs
The decreaseincrease in transaction costs of $2.6$2.8 million, or 87.4%1,422.5%, to $0.4$3.0 million for the three months ended MarchDecember 31, 2021 compared to $2.9$0.2 million for the three months ended MarchDecember 31, 2020 was primarily attributable to $2.3 millionexpenses related to the 2022 Acquisitions.
Change in Fair Value of expenses recognized in conjunction with the Offering that were not able to be capitalized forContingent Consideration
During the three months ended MarchDecember 31, 2020.2021, we incurred an expense of $5.7 million related to updated forecasts and accretion of two contingent consideration liabilities for acquisitions completed in fiscal year 2021. During the three months ended December 31, 2020, we incurred expense of $0.4 million related to the settlement of contingent consideration from a fiscal year 2019 acquisition.
Income from Operations
Income from operations increased $30.2$15.3 million, or 356.0%95.4%, to $38.7$31.3 million for the three months ended MarchDecember 31, 2021 compared to $8.5$16.0 million for the three months ended MarchDecember 31, 2020. The increase was primarily attributable to the $44.2$48.5 million increase in gross profit for the three months ended MarchDecember 31, 2021 as compared to the three months ended MarchDecember 31, 2020, partially offset by a $16.0$24.2 million increase in selling, general & administrative expenses and a $5.4 million increase in change in fair value of contingent consideration during the same periods.
Interest Expense – Floor Plan
Interest expense – floor plan decreased $2.2was flat at $0.9 million or 86.9%, to $0.3 million for each of the three months ended MarchDecember 31, 2021 compared to $2.5 million for the three months ended Marchand December 31, 2020. This decrease was primarily attributableFloor plan related interest expense remained flat despite our acquisitional growth due to falling interest rates, an increase in interest assistance received from our manufacturersreduced levels of inventory and bank, as well as a $110.5 million decrease in the outstanding borrowings on our Sixth Amended and Restated Inventory Financing Agreement (the “Inventory Financing Facility”) as of March 31, 2021 compared to March 31, 2020.elevated inventory turns.
Interest Expense – Other
The decrease in interestInterest expense – other of $1.2increased by $0.6 million, or 50.5%65.5%, to $1.2$1.5 million for the three months ended MarchDecember 31, 2021 compared to $2.5$0.9 million for the three months ended March 31, 2020 was 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 expense decreased to $4,881 during the three months ended March 31, 2021 as compared to $51,492 for the three months ended March 31, 2020.
Income Tax Expense
The $6.1 million increase in income tax expense for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was primarily the result of the $33.7 million increase in income before income tax expense, the Offering and the taxability of OneWater Inc. as a corporation for the full three months ended March 31, 2021 versus only the period subsequent to the Offering for the three months ended March 31, 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
Net income increased by $27.6 million to $30.6 million for the three months ended March 31, 2021 compared to a $3.0 million for the three months ended March 31, 2020. The increase was primarily attributable to the $44.2 million increase in gross profit for the three months ended March 31, 2021 compared to March 31, 2020. The increase was partially offset by the $16.0 million increase in selling, general & administrative expenses and the $6.1 million increase in income tax expense for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.
Six Months Ended March 31, 2021, Compared to Six Months Ended March 31, 2020
| | | For the Six Months Ended March 31, 2021 | | | For the Six Months Ended March 31, 2020 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | | ($ in thousands) | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat | | $ | 391,482 | | | | 72.0 | % | | $ | 235,571 | | | | 68.5 | % | | $ | 155,911 | | | | 66.2 | % |
| Pre-owned boat | | | 94,662 | | | | 17.4 | % | | | 71,257 | | | | 20.7 | % | | | 23,405 | | | | 32.8 | % |
| Finance & insurance income | | | 17,752 | | | | 3.3 | % | | | 12,408 | | | | 3.6 | % | | | 5,344 | | | | 43.1 | % |
| Service, parts and other | | | 39,798 | | | | 7.3 | % | | | 24,425 | | | | 7.1 | % | | | 15,373 | | | | 62.9 | % |
| Total revenues | | | 543,694 | | | | 100.0 | % | | | 343,661 | | | | 100.0 | % | | | 200,033 | | | | 58.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat | | | 81,803 | | | | 15.0 | % | | | 41,362 | | | | 12.0 | % | | | 40,441 | | | | 97.8 | % |
| Pre-owned boat | | | 21,662 | | | | 4.0 | % | | | 12,048 | | | | 3.5 | % | | | 9,614 | | | | 79.8 | % |
| Finance & insurance | | | 17,752 | | | | 3.3 | % | | | 12,408 | | | | 3.6 | % | | | 5,344 | | | | 43.1 | % |
| Service, parts & other | | | 20,005 | | | | 3.7 | % | | | 10,955 | | | | 3.2 | % | | | 9,050 | | | | 82.6 | % |
| Total gross profit | | | 141,222 | | | | 26.0 | % | | | 76,773 | | | | 22.3 | % | | | 64,449 | | | | 83.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 83,208 | | | | 15.3 | % | | | 60,688 | | | | 17.7 | % | | | 22,520 | | | | 37.1 | % |
| Depreciation and amortization | | | 2,341 | | | | 0.4 | % | | | 1,551 | | | | 0.5 | % | | | 790 | | | | 50.9 | % |
| Transaction costs | | | 568 | | | | 0.1 | % | | | 3,362 | | | | 1.0 | % | | | (2,794 | ) | | | -83.1 | % |
| Loss on contingent consideration | | | 377 | | | | 0.1 | % | | | - | | | | 0.0 | % | | | 377 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 54,728 | | | | 10.1 | % | | | 11,172 | | | | 3.3 | % | | | 43,556 | | | | 389.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 1,250 | | | | 0.2 | % | | | 5,184 | | | | 1.5 | % | | | (3,934 | ) | | | -75.9 | % |
| Interest expense - other | | | 2,139 | | | | 0.4 | % | | | 4,310 | | | | 1.3 | % | | | (2,171 | ) | | | -50.4 | % |
| Change in fair value of warrant liability | | | - | | | | 0.0 | % | | | (771 | ) | | | -0.2 | % | | | 771 | | | | -100.0 | % |
| Other (income) expense, net | | | (89 | ) | | | 0.0 | % | | | 65 | | | | 0.0 | % | | | (154 | ) | | | -236.9 | % |
| Income before income tax expense | | | 51,428 | | | | 9.5 | % | | | 2,384 | | | | 0.7 | % | | | 49,044 | | | | 2057.2 | % |
| Income tax expense | | | 9,061 | | | | 1.7 | % | | | 472 | | | | 0.1 | % | | | 8,589 | | | | 1819.7 | % |
| Net income | | | 42,367 | | | | 7.8 | % | | | 1,912 | | | | 0.6 | % | | | 40,455 | | | | 2115.8 | % |
| 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 | | | 14,104 | | | | | | | | 477 | | | | | | | | 13,627 | | | | 2856.8 | % |
| Net income attributable to One Water Marine Inc. | | $ | 28,263 | | | | | | | $ | 1,085 | | | | | | | $ | 27,178 | | | | 2504.9 | % |
Revenue
Overall, revenue increased by $200.0 million, or 58.2%, to $543.7 million for the six months ended March 31, 2021 from $343.7 million for the six months ended March 31, 2020. Revenue generated from same-store sales increased 48.7% for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020, 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 boats sold. Overall revenue increased by $166.1 million as a result of our increase in same-store sales and $33.9 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. As of March 31, 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 increased by $155.9 million, or 66.2%, to $391.5 million for the six months ended March 31, 2021 from $235.6 for the six months ended March 31, 2020. The increase was the result of our same-store sales growth during the twelve month period and the increased unit sales attributable to the 2021 Acquisitions. During the six months ended March 31, 2021, we experienced an increase in unit sales of 27.9% and an increase in average unit prices of 29.9% over the six months ended March 31, 2020. We believe the increase in units sold was primarily due to the shift towards outdoor leisure activity during the COVID-19 pandemic as well as the continued execution of operational improvements on previously acquired dealers. The 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, as well as supply and demand forces as manufacturer replenishments have been slowed by the COVID-19 pandemic providing us increased leverage in the sales cycle.
Pre-owned Boat
Pre-owned boat revenue increased by $23.4 million, or 32.8%, to $94.7 million for the six months ended March 31, 2021 from $71.3 million for the six months ended March 31, 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 six months ended March 31, 2021 experienced a 4.8% decrease in the number of units sold due to industry-wide supply constraints. The average sales price per pre-owned unit in the six months ended March 31, 2021 increased 33.8% largely due to the mix of pre-owned products and 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 increased by $5.3 million, or 43.1%, to $17.8 million for the six months ended March 31, 2021 from $12.4 million for the six months ended March 31, 2020. The increase was primarily a result of the increase in same-store sales and additional revenue attributable to the 2021 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 slightly decreased as a percentage of total revenue to 3.3% in the six months ended March 31, 2021 from 3.6% for the six months ended March 31, 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
Service, parts & other revenue increased by $15.4 million, or 62.9%, to $39.8 million for the six months ended March 31, 2021 from $24.4 million for the six months ended March 31, 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 and the impact of our 2021 Acquisitions.
Gross Profit
Overall, gross profit increased by $64.4 million, or 83.9%, to $141.2 million for the six months ended March 31, 2021 from $76.8 million for the six months ended March 31, 2020. 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, 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 2021 Acquisitions. Overall gross margins increased 370 basis points to 26.0% for the six months ended March 31, 2021 from 22.3% for the six months ended March 31, 2020 due to the factors noted below.
New Boat
New boat gross profit increased by $40.4 million, or 97.8%, to $81.8 million for the six months ended March 31, 2021 from $41.4 million for the six months ended March 31, 2020. New boat gross profit as a percentage of new boat revenue was 20.9% for the six months ended March 31, 2021 as compared to 17.6% in the six months ended MarchDecember 31, 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 six months ended March 31, 2021.
Pre-owned Boat
Pre-owned boat gross profit increased by $9.6 million, or 79.8%, to $21.7 million for the six months ended March 31, 2021 from $12.0 million for the six months ended March 31, 2020. 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 and our 2021 Acquisitions. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 22.9% and 16.9% for the six months ended March 31, 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 six months ended March 31, 2021 as compared to the six months ended March 31, 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 six months ended March 31, 2021.
Finance & Insurance
Finance & insurance gross profit increased by $5.3 million, or 43.1%, to $17.8 million for the six months ended March 31, 2021 from $12.4 million for the six months ended March 31, 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 $9.1 million, or 82.6%, to $20.0 million for the six months ended March 31, 2021 from $11.0 million for the six months ended March 31, 2020. The increase in service, parts & other gross profit was primarily driven by our same-store sales growth as well as the impact of the 2021 Acquisitions. Service, parts & other gross profit as a percentage of service, parts & other revenue was 50.3% and 44.9% for the six months ended March 31, 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 utilization of our service technicians which drove margins higher.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by $22.5 million, or 37.1%, to $83.2 million for the six months ended March 31, 2021 from $60.7 million for the six months ended March 31, 2020. This increase was primarily due to the impact of expenses incurred to support the overall increase in same-store sales. Selling, general & administrative expenses consisted of a $21.9 million increase in personnel expenses, a $1.2 million decrease in selling and administrative expenses, and $1.8 million increase in fixed expenses. Selling, general & administrative expenses as a percentage of revenue decreased to 15.3% from 17.7% for the six months ended March 31, 2021 and 2020, respectively. The reduction in selling, general & administrative expenses as a percentage of revenue was primarily due to the Company’s ability to leverage its existing expense structure to support the increase in revenue, as well as a reduction in selling expenses related to the cancellation of boat shows.
Depreciation and Amortization
Depreciation and amortization expense increased $0.8 million, or 50.9%, to $2.3 million for the six months ended March 31, 2021 compared to $1.6 million for the six months ended March 31, 2020. The increase in depreciation and amortization expense for the six months ended March 31, 2021 compared to the six months ended March 31, 2020 was primarily attributable to an increase in property and equipment from our 2021 Acquisitions.
Transaction Costs
The decrease in transaction costs of $2.8 million, or 83.1%, to $0.6 million for the six months ended March 31, 2021 compared to $3.4 million for the six months ended March 31, 2020 was primarily attributable to $2.3 million of expenses recognized for the six months ended March 31, 2020 in conjunction with the Offering that were not able to be capitalized.
Loss on Contingent Consideration
During the six months ended March 31, 2021, we incurred an expense of $0.4 million on the settlement of a contingent payment related to a fiscal year 2019 acquisition. There were no adjustments to contingent consideration for the six months ended March 31, 2020.
Income from Operations
Income from operations increased $43.6 million, or 389.9%, to $54.7 million for the six months ended March 31, 2021 compared to $11.2 million for the six months ended March 31, 2020. The increase was primarily attributable to the $64.4 million increase in gross profit for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020, partially offset by a $22.5 million increase in selling, general & administrative expenses during the same periods.
Interest Expense – Floor Plan
Interest expense – floor plan decreased $3.9 million, or 75.9%, to $1.3 million for the six months ended March 31, 2021 compared to $5.2 million for the six months ended March 31, 2020. This decrease was primarily attributable to falling interest rates, an increase in interest assistance received from our manufacturers and bank as well as a $110.5 million decrease in the outstanding borrowings on our Inventory Financing Facility as of March 31, 2021 compared to March 31, 2020.
Interest Expense – Other
The decrease in interest expense – other of $2.2 million, or 50.4%, to $2.1 million for the six months ended March 31, 2021 compared to $4.3 million for the six months ended March 31, 2020 was primarily attributablerelated to the payoff ofincrease in our Term and Revolver Credit Facility (as defined below) and entry into the Refinanced Credit Facility (as defined below),long-term debt which offers a more favorable interest rate.was used to fund certain 2022 acquisitions.
Change in Fair Value of Warrant Liability
The change in fair value of warrant liability of $0.7 million for the six months ended March 31, 2020 was attributable to an overall change in the enterprise value of the Company. No charge was recorded for the six months ended March 31, 2021 as the warrants were exercised in conjunction with the Offering.
Other Expense (Income), Net
Other expense (income), net wasdecreased by $0.6 million to expense of $0.5 million for the three months ended December 31, 2021 compared to other income of approximately $89,000$0.1 million for the sixthree months ended MarchDecember 31, 2021 and expense2020. The decrease was primarily due to the impact of approximately $65,000 for the six months ended March 31, 2020.tax rate changes on our tax receivable agreement liability.
Income Tax Expense
The $8.6 million increase in incomeIncome tax expense for the six months ended March 31, 2021 as comparedincreased $2.4 million, or 94.7%, to the six months ended March 31, 2020 was primarily the result of the $49.0 million increase in income before income tax expense and the Offering and the taxability of OneWater Inc. as a corporation for the full six months ended March 31, 2021 versus only the period subsequent to the offering for the six months ended March 31, 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
Net income increased by $40.5 million to $42.4$4.9 million for the sixthree months ended MarchDecember 31, 2021 compared to $1.9$2.5 million for the sixthree months ended MarchDecember 31, 2020. The increase was primarily attributable to the $64.598.6% increase in income before income tax expense for the three months ended December 31, 2021 as compared to December 31, 2020.
Net Income
Net income increased by $11.7 million to $23.5 million for the three months ended December 31, 2021 compared to $11.8 million for the three months ended December 31, 2020. The increase was primarily attributable to the $48.5 million increase in gross profit for the sixthree months ended MarchDecember 31, 2021 compared to MarchDecember 31, 2020. The increase was partially offset by the $22.5$24.2 million increase in selling, general & administrative expenses and the $8.6$5.4 million increase in income tax expensechange in fair value of contingent consideration for the sixthree months ended MarchDecember 31, 2021 compared to the sixthree months ended MarchDecember 31, 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 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 warrant liability, gain (loss) onchange in fair value of contingent consideration, loss on extinguishment of debt and transaction costs.
Our Board,board of directors, 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 and debt extinguishment charges)expense), asset base (such as depreciation and amortization) and other items (such as the fair value adjustment of the warrants, change in fair value of contingent consideration, gain (loss) on contingent considerationextinguishment of debt 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 Adjusted EBITDA to our net income, (loss) to Adjusted EBITDA, which is the most directly comparable GAAP measure for the periods presented.
Three Months Ended MarchDecember 31, 2021, Compared to Three Months Ended MarchDecember 31, 2020
| | | Three Months Ended March 31 | | | Three months ended December 31, | |
| Description | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| | | ($ in thousands) | | | ($ in thousands) | |
| Net income | | $ | 30,592 | | | $ | 2,979 | | | $ | 23,486 | | | $ | 11,775 | |
| Interest expense – other | | 1,215 | | | 2,457 | | | 1,529 | | | 924 | |
| Income tax expense | | 6,550 | | | 472 | | | 4,889 | | | 2,511 | |
| Depreciation and amortization | | 1,378 | | | 791 | | | 1,749 | | | 963 | |
Change in fair value of contingent consideration | | | 5,746 | | | 377 | |
| Transaction costs | | 368 | | | 2,925 | | | 3,045 | | | 200 | |
| Other expense, net | | | 5 | | | | 52 | | |
Other expense (income), net | | | | 548 | | | | (94 | ) |
| Adjusted EBITDA | | $ | 40,108 | | | $ | 9,676 | | | $ | 40,992 | | | $ | 16,656 | |
Adjusted EBITDA increased $30.4 million or 314.5% to $40.1was $41.0 million for the three months ended MarchDecember 31, 2021 compared to $9.7$16.7 million for the three months ended MarchDecember 31, 2020. The increase in Adjusted EBITDA resulted primarily from anour 27.9% increase in gross profit due to our same-store sales growth partially offset by anfor the three months ended December 31, 2021 as compared to the three months ended December 31, 2020, combined with the results of our ability to increase ingross profit margins and control selling, general &and administrative expense.expenses.
Six Months Ended March 31, 2021, Compared to Six Months Ended March 31, 2020
| | | Six Months Ended March 31 | |
| Description | | 2021 | | | 2020 | |
| | | ($ in thousands) | |
| Net income | | $ | 42,367 | | | $ | 1,912 | |
| Interest expense – other | | | 2,139 | | | | 4,310 | |
| Income tax expense | | | 9,061 | | | | 472 | |
| Depreciation and amortization | | | 2,341 | | | | 1,551 | |
| Loss on contingent consideration | | | 377 | | | | - | |
| Transaction costs | | | 568 | | | | 3,362 | |
| Change in fair value of warrant liability | | | - | | | | (771 | ) |
| Other (income) expense, net | | | (89 | ) | | | 65 | |
| Adjusted EBITDA | | $ | 56,764 | | | $ | 10,901 | |
Adjusted EBITDA increased $45.9 million or 420.7% to $56.8 million for the six months ended March 31, 2021 compared to $10.9 million for the six months ended March 31, 2020. The increase in Adjusted EBITDA resulted primarily from an increase in gross profit due to our same-store sales growth, partially offset by an increase in selling, general & administrative 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. Additionally, due to the COVID-19 pandemic, our seasonal trends may also change as a result of, among other things, store closures, disruptions to the supply chain and inventory availability, manufacturer delays, and cancellation of boat shows.
Liquidity and Capital Resources
Overview
OneWater Inc. is a holding company with no operations and is the sole managing member of OneWater LLC. OneWater Inc’s principal asset consists of common units of OneWater LLC. Our earnings and cash flows and ability to meet our obligations under the Credit Facility, and any other debt obligations will depend on the cash flows resulting from the operations of our operating subsidiaries, and the payment of distributions by such subsidiaries. Our Credit Facility and Inventory Financing Facility (described below) contain certain restrictions on distributions or transfers from our operating subsidiaries to their members or unitholders, as applicable, as described in the summaries below under “—Debt Agreements—Credit Facility” and “—Inventory Financing Facility.” Accordingly, the operating results of our subsidiaries may not be sufficient for them to make distributions to us. As a result, our ability to make payments under the Credit Facility and any other debt obligations or to declare dividends could be limited.
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.acquisitions. 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 Facilities and proceeds from any future issuances of debt or equity to fund our current operations, and essential capital expenditures and acquisitions for the next twelve months.months and beyond.
Cash needs for acquisitions have historically been financed with our credit facilities, including the Credit FacilitiesFacility and cash generated from operations. Our ability to utilize the Refinanced Credit Facility (as defined below) to fund operations depends upon Adjusted EBITDA and compliance with covenants of the Refinanced 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 MarchDecember 31, 2021, we were in compliance with all covenants under the Refinanced Credit Facility and the Inventory Financing Facility.
34We have no material off balance sheet arrangements, except for purchase commitments under supply agreements entered into in the normal course of business.
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 used to pay off the balance of the revolving credit facility, under which an aggregate of $30.0 million was outstanding as of February 1, 2021.
On December 10, 2020, the Company and certain of its subsidiaries entered into the Second Amendment to the Sixth Amended and Restated Inventory Financing AgreementFacility 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.
We are required to comply with certain financial and non-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 except for certain dividends or distributions to OneWater LLC’s members made during specified time frames and in an amount not to exceed 50%without the prior written consent of OneWater LLC’s consolidated net cash flow after taxes for the preceding fiscal year, provided that such dividend or distribution would not result in a default underWells Fargo Commercial Distribution Finance, LLC (the “Agent”). Under the Inventory Financing Facility. Additionally,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.
The Tax Receivable Agreement generally provides for the payment by OneWater Inc. to certain of the OneWater Unit Holders 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 Inc. actually realizes (or is deemed to realize in certain circumstances) in periods after the OfferingIPO as a result of certain tax basis increases and certain tax benefits attributable to imputed interest. OneWater Inc. 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., in an amount sufficient to allow OneWater Inc. 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 Inc. 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 Inc. has available cash but fails to make payments when due, generally OneWater Inc. 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 Inc. 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 Inc. intends to account for any amounts payable under the Tax Receivable Agreement in accordance with ASC Topic 450, Contingencies.