| 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,"“Company,” “we,” “us,” and "our"“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, and any subsequently filed Quarterly Reports on Form 10-Q,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 in75 retail locations, 10 states.distribution centers/warehouses and multiple online marketplaces as of March 31, 2022. 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, 10 distribution centers/warehouses and multiple online marketplaces through 2028 acquisitions. Our current portfolio of companies, as of June 30, 2021 consistedMarch 31, 2022, consists 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 & 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. Recently, we have seen shortages of inventory due to the COVID-19 pandemic, increased sales generally across the industry, and industry-wide supply chain constraints.
While we continue to monitor the impact of the COVID-19 pandemic on our business and operations, our financial results for the three and ninesix months ended June 30, 2021March 31, 2022 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 gross profit.
Though the COVID-19 pandemic did not adversely affect our profitability for the three and nine months ended June 30, 2021 relative to the three and nine months ended June 30, 2020, certain supply chain constraints and lack of inventory did cause a modest decline in overall sales for the three months ended June 30, 2021 and may continue to adversely affect sales for future periods. It is possible that further shortages could occur as a result of the COVID-19 pandemic and its effects on, among other things, supply chains, operations and consumer demand.recreations. 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 COVID-19 in certain geographic areas, emergence of new strain variants thereof, supply chain constraints, inventory availability, consumer demand and the ability to safely and legally operate our stores.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, 10 distribution centers/warehouses and multiple online marketplaces through 20 dealer group28 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 nine months ended June 30, 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 nine months ended June 30, 2021 was $91.0 million and was paid with $83.5 million in cash, and the remaining $7.5 million was financed with $5.5 million estimated acquisition contingent consideration and a $2.1 million seller notes payable. The acquisitions contributed $42.7 million to our consolidated revenue and $6.8 million to our income before income tax expense for the three months ended June 30, 2021. Included in our results for the nine months ended June 30, 2021, the acquisitions contributed $75.5 million to our consolidated revenue and $10.3 million to our income before income tax expense. Costs related to acquisitions are 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 $0.1 million and $0.6 million for the three and nine months ended June 30, 2021, respectively.
For a summary of our recently announced acquisitions, see Note 14 in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.
General Economic Conditions
General economic conditions and consumer spending patterns can negatively impact our operating results. Unfavorable local, regional, national, or global economic developments or uncertainties, including the adverse economic effects of the COVID-19 pandemic, including supply chain constraints, and inventory availability, or a prolonged economic downturn, could reduce consumer spending and adversely affect our business. Consumer spending on discretionary goods may also decline as a result of lower consumer confidence levels, higher interest rates or higher fuel costs, 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 the impacta 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 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. 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 $4.1 million and $2.3 million as of March 31, 2022 and September 30, 2021, respectively.
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 and six months ended March 31, 2022.
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 history indicates 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 manufactured and assembled parts and accessories is determined using standard costing. The cost of acquired 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 $1.1 million and $0.8 million at March 31, 2022 and September 30, 2021, respectively.
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.
Identifiable intangible assets consist of trade names, design libraries and customer relationships 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. Design libraries and customer relationships are amortized over their estimated useful lives of ten years and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
Impairment testing requires the assessment of both qualitative and quantitative factors, including, but not limited to whether there has been a significant or adverse change in the business climate that could affect the value of an asset and/or significant or adverse changes in cash flow projections or earnings forecasts. These assessments require management to make judgements, assumptions and estimates. We did not perform impairment testing related to goodwill and identifiable intangible assets for the six months ended March 31, 2022 as no triggering events have occurred.
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, design libraries and customer relationships. 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. Management estimated the fair value of the trade names and design libraries using the relief from royalty method and customer relationships using the multi-period excess earnings method. The fair value determination of the trade names and design libraries required management to make significant estimates and assumptions related to future revenues and the selection of the royalty rate and discount rate. The fair value determination of the customer relationships required management to make significant estimates and assumptions related to future revenues attributable to existing customers, future EBITDA margins and the selection of the customer attrition rate and discount rate.
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 11.1% and 8.7% to revenue in the three months ended June 30, 2021 and 2020, respectively, and 10.8% and 9.6% in the nine months ended June 30, 2021 and 2020, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 24.7% and 27.5% to gross profit in the three months ended June 30, 2021 and 2020, respectively, and 25.8% and 28.8% to gross profit in the nine months ended June 30, 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 17.2% and 10.3% to revenue in the three months ended March 31, 2022 and 2021, respectively, and 15.8% and 10.6% to revenue in the six months ended March 31, 2022 and 2021, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 28.9% and 25.6% to gross profit in the three months ended March 31, 2022 and 2021, respectively, and 27.9% and 26.7% to gross profit in the six months ended March 31, 2022 and 2021, 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.
Same-Store Sales
We assess the organic growth of our revenue on a same-store basis. We believe that our assessment on a same-store basis represents an important indicator of comparative financial results and provides relevant information to assess our performance. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership and revenues are only included for identical months in the same-store base periods. Stores relocated within an existing market remain in the comparable store base for all periods. Additionally, amounts related to closed stores are excluded from each comparative base period. Because same-store sales may be defined differently by other companies in our industry, our definition of this measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
Adjusted EBITDA
We define Adjusted EBITDA as net income before interest expense – other, income 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, loss onchange 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 GAAP.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 Year2022 Year-to-date 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.
Effective February 1, 2022, we acquired JIF Marine, a leading supplier of stainless steel ladders, dock products and other accessories which is based in Tennessee.
Effective March 1, 2022, we acquired YakGear, a leading supplier of kayak equipment, paddle sport accessories and boat mounting accessories which is based in Texas.
We refer to the acquisitions described above collectively as the ‘‘2022 Acquisitions.’’ Naples Boat Mart is fully reflected in our unaudited Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2022. The acquisitions of T-H Marine, Norfolk Marine Company and Quality Boats are fully reflected in our unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and partially reflected for the six months ended March 31, 2022. The acquisitions of JIF Marine and YakGear were partially included in the unaudited Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2022.
Fiscal 2021 Acquisitions
Effective December 1, 2020, we acquired Tom George Yacht Sales, Inc.,Inc, a full-service marine retailer based in Florida with two stores.locations.
Effective December 31, 2020, we acquired Walker Marine Group, Inc., a full-service marine retailer based in Florida with five stores.locations.
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.
Effective August 1, 2021, we acquired substantially all of the assets of Stone Harbor Marine, Inc., a full-service marine retailer based in New Jersey with one store.
Effective September 1, 2021, we acquired substantially all of the assets of PartsVu, an online marketplace for OEM marine parts, electronics and accessories.
We refer to the fiscal year 2021 acquisitions described above collectively as the ‘‘2021 Acquisitions.’’ The 2021Tom George Yacht Sales, Inc, Walker Marine Group, Inc. and Roscioli Yachting Center Inc. acquisitions are fully reflected in our unaudited Condensed Consolidated Statements of Operations for the three and nine months ended June 30,March 31, 2021 fromand partially reflected for the datesix months ended March 31, 2021. Stone Harbor Marine, Inc. and PartsVu are not reflected in the unaudited Condensed Consolidated Statements of acquisition forward.Operations for the three and six months ended March 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 24.1%24.4% of pre-tax earnings for the ninesix months ended June 30, 2021. OneWater Inc. was subject to U.S. federal, state and local taxes at an estimated blended statutory rate of 24.6% from February 11, 2020 through June 30, 2020, the period following our initial public offering (the "Offering").March 31, 2022.
As we further implement controls, processes and infrastructure applicable to companies with publicly traded equity securities, it is likely that we will incur additional SG&A expenses relative to historical periods. See ‘‘—Post-Offering Taxation and Public Company Costs.’’
Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy.
Results of Operations
Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020
| | | For the Three Months Ended June 30, 2021 | | | For the Three Months Ended June 30, 2020 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | | ($ in thousands) | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat | | $ | 288,222 | | | | 71.3 | % | | $ | 294,678 | | | | 72.2 | % | | $ | (6,456 | ) | | | (2.2 | )% |
| Pre-owned boat | | | 71,116 | | | | 17.6 | % | | | 78,213 | | | | 19.2 | % | | | (7,097 | ) | | | (9.1 | )% |
| Finance & insurance income | | | 15,238 | | | | 3.8 | % | | | 16,639 | | | | 4.1 | % | | | (1,401 | ) | | | (8.4 | )% |
| Service, parts and other | | | 29,631 | | | | 7.3 | % | | | 18,743 | | | | 4.6 | % | | | 10,888 | | | | 58.1 | % |
| Total revenues | | | 404,207 | | | | 100.0 | % | | | 408,273 | | | | 100.0 | % | | | (4,066 | ) | | | (1.0 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat | | | 77,081 | | | | 19.1 | % | | | 54,029 | | | | 13.2 | % | | | 23,052 | | | | 42.7 | % |
| Pre-owned boat | | | 18,550 | | | | 4.6 | % | | | 14,619 | | | | 3.6 | % | | | 3,931 | | | | 26.9 | % |
Finance & insurance income
| | | 15,238 | | | | 3.8 | % | | | 16,639 | | | | 4.1 | % | | | (1,401 | ) | | | (8.4 | )% |
| Service, parts & other | | | 16,083 | | | | 4.0 | % | | | 9,398 | | | | 2.3 | % | | | 6,685 | | | | 71.1 | % |
| Total gross profit | | | 126,952 | | | | 31.4 | % | | | 94,685 | | | | 23.2 | % | | | 32,267 | | | | 34.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 60,476 | | | | 15.0 | % | | | 43,134 | | | | 10.6 | % | | | 17,342 | | | | 40.2 | % |
| Depreciation and amortization | | | 1,475 | | | | 0.4 | % | | | 824 | | | | 0.2 | % | | | 651 | | | | 79.0 | % |
| Transaction costs | | | 65 | | | | 0.0 | % | | | 31 | | | | 0.0 | % | | | 34 | | | | 109.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 64,936 | | | | 16.1 | % | | | 50,696 | | | | 12.4 | % | | | 14,240 | | | | 28.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 956 | | | | 0.2 | % | | | 2,298 | | | | 0.6 | % | | | (1,342 | ) | | | (58.4 | )% |
| Interest expense - other | | | 1,083 | | | | 0.3 | % | | | 3,082 | | | | 0.8 | % | | | (1,999 | ) | | | (64.9 | )% |
| Other (income), net | | | (158 | ) | | | 0.0 | % | | | (43 | ) | | | 0.0 | % | | | (115 | ) | | | 267.4 | % |
| Income before income tax expense | | | 63,055 | | | | 15.6 | % | | | 45,359 | | | | 11.1 | % | | | 17,696 | | | | 39.0 | % |
| Income tax expense | | | 11,498 | | | | 2.8 | % | | | 4,737 | | | | 1.2 | % | | | 6,761 | | | | 142.7 | % |
| Net income | | | 51,557 | | | | 12.8 | % | | | 40,622 | | | | 9.9 | % | | | 10,935 | | | | 26.9 | % |
| Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC | | | 17,054 | | | | | | | | 26,255 | | | | | | | | (9,201 | ) | | | (35.0 | )% |
| Net income attributable to One Water Marine Inc. | | $ | 34,503 | | | | | | | $ | 14,367 | | | | | | | $ | 20,136 | | | | 140.2 | % |
Results of Operations
Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021
| | | For the Three Months Ended March 31, 2022 | | | For the Three Months Ended March 31, 2021 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | | ($ in thousands) | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat | | $ | 290,020 | | | | 65.6 | % | | $ | 239,654 | | | | 72.7 | % | | $ | 50,366 | | | | 21.0 | % |
| Pre-owned boat | | | 75,854 | | | | 17.2 | % | | | 56,082 | | | | 17.0 | % | | | 19,772 | | | | 35.3 | % |
| Finance & insurance income | | | 14,948 | | | | 3.4 | % | | | 11,789 | | | | 3.6 | % | | | 3,159 | | | | 26.8 | % |
| Service, parts and other | | | 61,305 | | | | 13.9 | % | | | 22,086 | | | | 6.7 | % | | | 39,219 | | | | 177.6 | % |
| Total revenues | | | 442,127 | | | | 100.0 | % | | | 329,611 | | | | 100.0 | % | | | 112,516 | | | | 34.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat | | | 81,414 | | | | 18.4 | % | | | 52,507 | | | | 15.9 | % | | | 28,907 | | | | 55.1 | % |
| Pre-owned boat | | | 19,895 | | | | 4.5 | % | | | 13,534 | | | | 4.1 | % | | | 6,361 | | | | 47.0 | % |
| Finance & insurance | | | 14,948 | | | | 3.4 | % | | | 11,789 | | | | 3.6 | % | | | 3,159 | | | | 26.8 | % |
| Service, parts & other | | | 26,285 | | | | 5.9 | % | | | 10,956 | | | | 3.3 | % | | | 15,329 | | | | 139.9 | % |
| Total gross profit | | | 142,542 | | | | 32.2 | % | | | 88,786 | | | | 26.9 | % | | | 53,756 | | | | 60.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 75,492 | | | | 17.1 | % | | | 48,348 | | | | 14.7 | % | | | 27,144 | | | | 56.1 | % |
| Depreciation and amortization | | | 4,727 | | | | 1.1 | % | | | 1,378 | | | | 0.4 | % | | | 3,349 | | | | 243.0 | % |
| Transaction costs | | | 776 | | | | 0.2 | % | | | 368 | | | | 0.1 | % | | | 408 | | | | 110.9 | % |
| Change in fair value of contingent consideration | | | 2,158 | | | | 0.5 | % | | | - | | | | 0.0 | % | | | 2,158 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 59,389 | | | | 13.4 | % | | | 38,692 | | | | 11.7 | % | | | 20,697 | | | | 53.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 1,048 | | | | 0.2 | % | | | 330 | | | | 0.1 | % | | | 718 | | | | 217.6 | % |
| Interest expense - other | | | 3,097 | | | | 0.7 | % | | | 1,215 | | | | 0.4 | % | | | 1,882 | | | | 154.9 | % |
| Other expense (income), net | | | 109 | | | | 0.0 | % | | | 5 | | | | 0.0 | % | | | 104 | | | | * | |
| Income before income tax expense | | | 55,135 | | | | 12.5 | % | | | 37,142 | | | | 11.3 | % | | | 17,993 | | | | 48.4 | % |
| Income tax expense | | | 12,781 | | | | 2.9 | % | | | 6,550 | | | | 2.0 | % | | | 6,231 | | | | 95.1 | % |
| Net income | | | 42,354 | | | | 9.6 | % | | | 30,592 | | | | 9.3 | % | | | 11,762 | | | | 38.4 | % |
| Less: Net income attributable to non-controlling interest | | | 1,011 | | | | | | | | - | | | | | | | | 1,011 | | | | 100.0 | % |
| Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC | | | 5,046 | | | | | | | | 10,117 | | | | | | | | (5,071 | ) | | | -50.1 | % |
| Net income attributable to One Water Marine Inc. | | $ | 36,297 | | | | | | | $ | 20,475 | | | | | | | $ | 15,822 | | | | 77.3 | % |
Revenue
Overall, revenue was relatively flat, decreasingincreased by $4.1$112.5 million, or 1.0%34.1%, to $404.2$442.1 million for the three months ended June 30, 2021March 31, 2022 from $408.2$329.6 million for the three months ended June 30, 2020.March 31, 2021. Revenue generated from same-store sales declined 10.9%increased 8.0% for the three months ended June 30, 2021March 31, 2022 as compared to the three months ended June 30, 2020, driven lower by industry-wide supply constraints. Additionally, revenues for the three months ended June 30, 2020 were aided by pending new and pre-owned boat sales from March 2020 being delayed until April and May of 2020 due to the initial shutdowns related to the COVID-19 pandemic. However, we saw a strong increase in the average unit selling price of new and pre-owned boats in the three months ended June 30,31, 2021, as compared to the three months ended June 30, 2020. The overall integration of our 2021 Acquisitions has gone well with those locations, which are not eligible for inclusion in the same-store sales base, generating $42.7 million in revenue for the three months ended June 30, 2021. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership, and revenues are only included for identical months in the same-store base periods. As of June 30, 2021, we had acquired eight stores in fiscal year 2021. We did not make any acquisitions in fiscal year 2020.
New Boat
New boat revenue decreased by $6.5 million, or 2.2%, to $288.2 million for the three months ended June 30, 2021 from $294.7 for the three months ended June 30, 2020. We believe this decrease was primarily attributable to a drop in unit sales due to a slowdown of manufacturer replenishments of new inventory caused by the COVID-19 pandemic. However, we experienced an increase in average sales price due in part to the mix of boat brands and models sold, product improvements in the functionality and technology of boats, which continues to be a driver of consumer demand, as well as a lower supply of new boat inventory as manufacturer replenishments have been slowed by the COVID-19 pandemic.
Pre-owned Boat
Pre-owned boat revenue decreased by $7.1 million, or 9.1%, to $71.1 million for the three months ended June 30, 2021 from $78.2 million for the three months ended June 30, 2020. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. Pre-owned boat sales for the three months ended June 30, 2021 experienced a decrease in the number of units sold due to industry-wide supply constraints as customers continue to use their boats, and remain reluctant to trade-in inventory or end up sell in person-to-person transactions. Additionally, the decrease in sales was driven by a change in our sales mix as brokerage sales increased 150.5%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Brokerage sales are recorded net of cost of sales while all other sales arrangements are recorded on a gross basis. We benefited from an increase in average unit price largely due to the mix of pre-owned products, the composition of the brands and models sold during the period as well as the industry-wide supply restrictions driving prices higher.
Finance & Insurance Income
We generate revenue from arranging finance & insurance products, including financing, insurance and extended warranty contracts, to customers through various third-party financial institutions and insurance companies. Finance & insurance income decreased by $1.4 million, or 8.4%, to $15.2 million for the three months ended June 30, 2021 from $16.6 million for the three months ended June 30, 2020. The decrease was primarily due to the reduction in new and pre-owned boat revenues. We remain very focused on improving sales of finance & insurance products throughout our dealer network and implementing best practices at acquired dealer groups and existing stores. Finance & insurance products decreased as a percentage of total revenue to 3.8% in the three months ended June 30, 2021 from 4.1% for the three months ended June 30, 2020, primarily due to the decline in boat sales and an increase in service, parts and other revenue as a portion of our total revenue. Since finance & insurance income is fee-based, we do not incur any related cost of sale. Finance & insurance income is recorded net of related fees, including fees charged back due to any early cancellation of loan or insurance contracts by a customer.
Service, Parts & Other
Service, parts & other revenue increased by $10.9 million, or 58.1%, to $29.6 million for the three months ended June 30, 2021 from $18.7 million for the three months ended June 30, 2020. This increase in service, parts & other revenue is primarily due to ancillary sales generated from our increase in new and pre-owned boat sales since the beginning of the COVID-19 pandemic and the impact of the 2021 Acquisitions.
Gross Profit
Overall, gross profit increased by $32.3 million, or 34.1%, to $127.0 million for the three months ended June 30, 2021 from $94.7 million for the three months ended June 30, 2020. This increase was primarily due to a shift in the mix and size of boat models sold, the Company’s focus on dynamic pricing, an increase in service, parts & other sales and the emphasis on meeting customer demand. Overall gross margins increased 822 basis points to 31.4% for the three months ended June 30, 2021 from 23.2% for the three months ended June 30, 2020 due to the factors noted below.
New Boat
New boat gross profit increased by $23.1 million, or 42.7%, to $77.1 million for the three months ended June 30, 2021 from $54.0 million for the three months ended June 30, 2020. New boat gross profit as a percentage of new boat revenue was 26.7% for the three months ended June 30, 2021 as compared to 18.3% in the three months ended June 30, 2020. The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations and the expansion of new boat gross profit margins created by a lower supply of new boat inventory in the three months ended June 30, 2021.
Pre-owned Boat
Pre-owned boat gross profit increased by $3.9 million, or 26.9%, to $18.6 million for the three months ended June 30, 2021 from $14.6 million for the three months ended June 30, 2020. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 26.1% and 18.7% for the three months ended June 30, 2021 and 2020, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal fluctuations in pre-owned boat gross profit as a percentage of revenue. In the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, we experienced an increase in our gross profit on pre-owned sales for each of the different sales arrangements. Margins were also driven higher by a lower supply of pre-owned inventory in the market for the three months ended June 30, 2021.
Finance & Insurance
Finance & insurance gross profit decreased by $1.4 million, or 8.4%, to $15.2 million for the three months ended June 30, 2021 from $16.6 million for the three months ended June 30, 2020. Finance & insurance income is fee-based revenue for which we do not recognize incremental cost of sale.
Service, Parts & Other
Service, parts & other gross profit increased by $6.7 million, or 71.1%, to $16.1 million for the three months ended June 30, 2021 from $9.4 million for the three months ended June 30, 2020. The increase in service, parts & other gross profit was primarily driven by our new and pre-owned boat sales growth since the onset of the COVID-19 pandemic as well as the impact of the 2021 Acquisitions. Service, parts & other gross profit as a percentage of service, parts & other revenue was 54.3% and 50.1% for the three months ended June 30, 2021 and 2020, respectively. This increase was the result of the mix of products sold and services provided as the gross profit shifted more towards service work, which has a higher margin. Additionally, due to the increased demand, we experienced an increase in the productivity of our service technicians, which drove margins higher.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by $17.3 million, or 40.2%, to $60.5 million for the three months ended June 30, 2021 from $43.1 million for the three months ended June 30, 2020. Selling, general & administrative expenses experienced a $12.9 million increase in personnel expenses, a $0.9 million increase in selling and administrative expenses and a $1.4 million increase in fixed expenses. Selling, general & administrative expenses as a percentage of revenue increased to 15.0% from 10.6% for the three months ended June 30, 2021 and 2020, respectively. The increase in selling, general & administrative expenses as a percentage of revenue was primarily due to higher variable-based compensation expense as a result of the Company’s increased net profit margin.
Depreciation and Amortization
Depreciation and amortization expense increased $0.7 million, or 79.0%, to $1.5 million for the three months ended June 30, 2021 compared to $0.8 million for the three months ended June 30, 2020. The increase in depreciation and amortization expense for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily attributable to an increase in property and equipment from our 2021 Acquisitions.
Transaction Costs
Transaction costs increased to $65,098 during the three months ended June 30, 2021 as compared to $30,650 for the three months ended June 30, 2020.
Income from Operations
Income from operations increased $14.2 million, or 28.1%, to $64.9 million for the three months ended June 30, 2021 compared to $50.7 million for the three months ended June 30, 2020. The increase was primarily attributable to the $32.3 million increase in gross profit for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, partially offset by a $17.3 million increase in selling, general & administrative expenses during the same periods.
Interest Expense – Floor Plan
Interest expense – floor plan decreased $1.3 million, or 58.4%, to $1.0 million for the three months ended June 30, 2021 compared to $2.3 million for the three months ended June 30, 2020. This decrease was primarily attributable to a $67.9 million decrease in the outstanding borrowings on our Sixth Amended and Restated Inventory Financing Agreement (the “Inventory Financing Facility”), falling interest rates, and interest assistance received from our manufacturers and banks.
Interest Expense – Other
The decrease in interest expense – other of $2.0 million, or 64.9%, to $1.1 million for the three months ended June 30, 2021 compared to $3.1 million for the three months ended June 30, 2020 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 income increased to $0.2 million during the three months ended June 30, 2021 as compared to other income of $43,227 for the three months ended June 30, 2020.
Income Tax Expense
The $6.8 million increase in income tax expense for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 was primarily the result of the $17.7 million increase in income before income tax expense. Additionally, as Class B common stock was exchanged for Class A common stock (in accordance with the terms of the fourth amended and restated limited liability company agreement of OneWater LLC (the "OneWater LLC Agreement")), the proportion of consolidated income before income tax expense allocated to OneWater Inc. increased, yielding higher income tax expense.
Net Income
Net income increased by $10.9 million to $51.6 million for the three months ended June 30, 2021 compared to $40.6 million for the three months ended June 30, 2020. The increase was primarily attributable to the $32.3 million increase in gross profit for the three months ended June 30, 2021 compared to June 30, 2020. The increase was partially offset by the $17.3 million increase in selling, general & administrative expenses and the $6.8 million increase in income tax expense for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
Nine Months Ended June 30, 2021, Compared to Nine Months Ended June 30, 2020
| | | For the Nine Months Ended June 30, 2021 | | | For the Nine Months Ended June 30, 2020 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | | ($ in thousands) | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat | | $ | 679,704 | | | | 71.7 | % | | $ | 530,249 | | | | 70.5 | % | | $ | 149,455 | | | | 28.2 | % |
| Pre-owned boat | | | 165,778 | | | | 17.5 | % | | | 149,470 | | | | 19.9 | % | | | 16,308 | | | | 10.9 | % |
| Finance & insurance income | | | 32,990 | | | | 3.5 | % | | | 29,047 | | | | 3.9 | % | | | 3,943 | | | | 13.6 | % |
| Service, parts and other | | | 69,429 | | | | 7.3 | % | | | 43,168 | | | | 5.7 | % | | | 26,261 | | | | 60.8 | % |
| Total revenues | | | 947,901 | | | | 100.0 | % | | | 751,934 | | | | 100.0 | % | | | 195,967 | | | | 26.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat | | | 158,884 | | | | 16.8 | % | | | 95,391 | | | | 12.7 | % | | | 63,493 | | | | 66.6 | % |
| Pre-owned boat | | | 40,212 | | | | 4.2 | % | | | 26,667 | | | | 3.5 | % | | | 13,545 | | | | 50.8 | % |
Finance & insurance income
| | | 32,990 | | | | 3.5 | % | | | 29,047 | | | | 3.9 | % | | | 3,943 | | | | 13.6 | % |
| Service, parts & other | | | 36,088 | | | | 3.8 | % | | | 20,353 | | | | 2.7 | % | | | 15,735 | | | | 77.3 | % |
| Total gross profit | | | 268,174 | | | | 28.3 | % | | | 171,458 | | | | 22.8 | % | | | 96,716 | | | | 56.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 143,685 | | | | 15.2 | % | | | 103,822 | | | | 13.8 | % | | | 39,863 | | | | 38.4 | % |
| Depreciation and amortization | | | 3,816 | | | | 0.4 | % | | | 2,375 | | | | 0.3 | % | | | 1,441 | | | | 60.7 | % |
| Transaction costs | | | 633 | | | | 0.1 | % | | | 3,393 | | | | 0.5 | % | | | (2,760 | ) | | | (81.3 | )% |
| Loss on contingent consideration | | | 377 | | | | 0.0 | % | | | - | | | | 0.0 | % | | | 377 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 119,663 | | | | 12.6 | % | | | 61,868 | | | | 8.2 | % | | | 57,795 | | | | 93.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 2,206 | | | | 0.2 | % | | | 7,482 | | | | 1.0 | % | | | (5,276 | ) | | | (70.5 | )% |
| Interest expense - other | | | 3,222 | | | | 0.3 | % | | | 7,392 | | | | 1.0 | % | | | (4,170 | ) | | | (56.4 | )% |
| Change in fair value of warrant liability | | | - | | | | 0.0 | % | | | (771 | ) | | | (0.1 | )% | | | 771 | | | | (100.0 | )% |
| Other (income) expense, net | | | (247 | ) | | | 0.0 | % | | | 22 | | | | 0.0 | % | | | (269 | ) | | | (1222.7 | )% |
| Income before income tax expense | | | 114,482 | | | | 12.1 | % | | | 47,743 | | | | 6.3 | % | | | 66,739 | | | | 139.8 | % |
| Income tax expense | | | 20,559 | | | | 2.2 | % | | | 5,209 | | | | 0.7 | % | | | 15,350 | | | | 294.7 | % |
| Net income | | | 93,923 | | | | 9.9 | % | | | 42,534 | | | | 5.7 | % | | | 51,389 | | | | 120.8 | % |
| Less: Net income attributable to non-controlling interest | | | - | | | | | | | | 350 | | | | | | | | (350 | ) | | | (100.0 | )% |
| Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC | | | 31,158 | | | | | | | | 26,732 | | | | | | | | 4,426 | | | | 16.6 | % |
| Net income attributable to One Water Marine Inc. | | $ | 62,765 | | | | | | | $ | 15,452 | | | | | | | $ | 47,313 | | | | 306.2 | % |
Revenue
Overall, revenue increased by $196.0 million, or 26.1%, to $947.9 million for the nine months ended June 30, 2021 from $751.9 million for the nine months ended June 30, 2020. Revenue generated from same-store sales increased 16.3% for the nine months ended June 30, 2021 as compared to the nine months ended June 30, 2020, primarily due to an increase in the average selling price of new and pre-owned boats, and the model mix of boats sold.sold, an increase in finance & insurance sales and an increase in service, parts and other sales. Overall revenue increased by $121.9$112.5 million as a result of oura $26.4 million increase in same-store sales and $74.1a $86.1 million increase from stores not eligible for inclusion in the same-store sales base. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership and revenues are only included for identical months in the same-store base periods. As of June 30, 2021, we had acquired eight stores in fiscal year 2021. We did not make any acquisitions in fiscal year 2020.
New Boat Sales
New boat revenuesales increased by $149.5$50.4 million, or 28.2%21.0%, to $679.7$290.0 million for the ninethree months ended June 30, 2021March 31, 2022 from $530.2 million$239.7 for the ninethree months ended June 30, 2020.March 31, 2021. The increase was the result ofprimarily attributable to our same-store sales growth, during the periodour acquisitions and the increased sales attributable to the 2021 Acquisitions.an increase in our average unit price. We believe the increase in sales 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. Additionally, we saw an increase in average sales price due in part todealers, the mix of boat brands and models sold, and product improvements in the functionality andof technology of boats which continues to be a driver of consumer demand, as well as a lower supply of new boat inventory as manufacturer replenishments have been slowed by the COVID-19 pandemic.drove average unit prices higher.
Pre-owned Boat Sales
Pre-owned boat revenuesales increased by $16.3$19.8 million, or 10.9%35.3%, to $165.8$75.9 million for the ninethree months ended June 30, 2021March 31, 2022 from $149.5$56.1 million for the ninethree months ended June 30, 2020.March 31, 2021. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. Pre-owned boat sales for the nine months ended June 30, 2021 experienced a decrease in the number of units sold due to industry-wide supply constraints. The average sales price per pre-owned unit infor the ninethree months ended June 30, 2021March 31, 2022 increased 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.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 $3.9$3.2 million, or 13.6%26.8%, to $33.0$14.9 million for the ninethree months ended June 30, 2021March 31, 2022 from $29.0$11.8 million for the ninethree months ended June 30, 2020.March 31, 2021. The increase was primarily a result of the increase in same-store sales and additional revenue attributabledue to the 2021 Acquisitions.additional new and pre-owned boat revenues. We remain very focused on improving sales of finance & insurance products throughout our dealer network and implementing best practices at acquired dealer groups and existing stores. Finance & insurance products decreased slightly decreased as a percentage of total revenue to 3.5%3.4% in the ninethree months ended June 30, 2021March 31, 2022 from 3.9% for3.6% in the ninethree months ended June 30, 2020. Since finance & insurance income is fee-based, we do not incur any related cost of sale.March 31, 2021. 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 revenuesales increased by $26.3$39.2 million, or 60.8%177.6%, to $69.4$61.3 million for the ninethree months ended June 30, 2021March 31, 2022 from $43.2$22.1 million for the ninethree months ended June 30, 2020. ThisMarch 31, 2021. The increase in service, parts & other revenuesales is primarily due to the acquisition of T-H Marine as well as 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 Acquisitions.sales.
Gross Profit
Overall, gross profit increased by $96.7$53.8 million, or 56.4%60.5%, to $268.2$142.5 million for the ninethree months ended June 30, 2021March 31, 2022 from $171.5$88.8 million for the ninethree months ended June 30, 2020.March 31, 2021. This increase was primarily due to our overall increase in same-store sales primarilywhich was driven by an increaseincreases in newall revenue streams, the impact of the 2022 Acquisitions 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.pricing. Overall gross margins increased 550530 basis points to 28.3%32.2% for the ninethree months ended June 30, 2021March 31, 2022 from 22.8%26.9% for the ninethree months ended June 30, 2020March 31, 2021 due to the factors noted below.
New Boat Gross Profit
New boat gross profit increased by $63.5$28.9 million, or 66.6%55.1%, to $158.9$81.4 million for the ninethree months ended June 30, 2021March 31, 2022 from $95.4$52.5 million for the ninethree months ended June 30, 2020.March 31, 2021. This increase was primarily due to our overall increase in same-store sales as well as the impact of the 2022 Acquisitions. New boat gross profit as a percentage of new boat revenue was 23.4%28.1% for the ninethree months ended June 30, 2021March 31, 2022 as compared to 18.0%21.9% in the ninethree months ended June 30, 2020.March 31, 2021. 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 nine months ended June 30, 2021.chain constraints.
Pre-owned Boat Gross Profit
Pre-owned boat gross profit increased by $13.5$6.4 million, or 50.8%47.0%, to $40.2$19.9 million for the ninethree months ended June 30, 2021March 31, 2022 from $26.7$13.5 million for the ninethree months ended June 30, 2020.March 31, 2021. 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 2021the impact of the 2022 Acquisitions. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 24.3%26.2% and 17.8%24.1% for the ninethree months ended June 30,March 31, 2022 and 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 ninethree months ended June 30, 2021March 31, 2022 as compared to the ninethree months ended June 30, 2020,March 31, 2021, 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 supplyarrangements with the exception of pre-owned inventory in the market for the nine months ended June 30, 2021.wholesale.
Finance & Insurance Gross Profit
Finance & insurance gross profit increased by $3.9$3.2 million, or 13.6%26.8%, to $33.0$14.9 million for the ninethree months ended June 30, 2021March 31, 2022 from $29.0$11.8 million for the ninethree months ended June 30, 2020.March 31, 2021. 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 $15.7$15.3 million, or 77.3%139.9%, to $36.1$26.3 million for the ninethree months ended June 30, 2021March 31, 2022 from $20.4$11.0 million for the ninethree months ended June 30, 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.March 31, 2021. Service, parts & other gross profit as a percentage of service, parts & other revenue was 52.0%42.9% and 47.1%49.6% for the ninethree months ended June 30,March 31, 2022 and 2021, and 2020, respectively. ThisThe increase in gross profit was primarily the result of our same-store sales growth as well as contributions from the 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 the productivity of ourlower margin percentage than service technicians, which drove margins higher.and other sales.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by $39.9$27.1 million, or 38.4%56.1%, to $143.7$75.5 million for the ninethree months ended June 30, 2021March 31, 2022 from $103.8$48.3 million for the ninethree months ended June 30, 2020.March 31, 2021. This increase was primarily due to the impact of expenses incurred to support the overall increase in same-store sales. Selling,revenues and gross profit. The selling, general & administrative expensesincrease primarily consisted of a $34.8$18.5 million increase in personnel expenses, a $1.0 million decrease in selling and administrative expenses, and $2.9 million increase in fixed expenses. Selling, general & administrative expenses as a percentage of revenue increased to 15.2%17.1% from 13.8%14.7% for the ninethree months ended June 30,March 31, 2022 and 2021, and 2020, respectively. The increase 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 increased netgross profit margin.
Depreciation and Amortization
Depreciation and amortization expense increased $1.4$3.3 million, or 60.7%243.0%, to $3.8$4.7 million for the ninethree months ended June 30, 2021March 31, 2022 compared to $2.4$1.4 million for the ninethree months ended June 30, 2020.March 31, 2021. The increase in depreciation and amortization expense for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020 was primarily attributable to ana $2.6 million increase in propertyamortization of design libraries and equipmentcustomer relationships from our 2021the 2022 Acquisitions.
Transaction Costs
The decreaseincrease in transaction costs of $2.8$0.4 million, or 81.3%110.9%, to $0.6$0.8 million for the ninethree months ended June 30, 2021March 31, 2022 compared to $3.4$0.4 million for the ninethree months ended June 30, 2020March 31, 2021 was primarily attributable to $2.3 millionexpenses related to the 2022 Acquisitions.
Change in Fair Value of expenses recognized for the nine months ended June 30, 2020 in conjunction with the Offering that were not able to be capitalized.
Loss on Contingent Consideration
During the ninethree months ended June 30, 2021,March 31, 2022, we incurred an expenseexpenses of $0.4$2.2 million on the settlement of a contingent payment related to aupdated forecasts and accretion of contingent consideration liabilities for acquisitions completed in fiscal year 2019 acquisition. There were no adjustments to contingent consideration for the nine months ended June 30, 2020.2021 and 2022.
Income from Operations
Income from operations increased $57.8$20.7 million, or 93.4%53.5%, to $119.7$59.4 million for the ninethree months ended June 30, 2021March 31, 2022 compared to $61.9$38.7 million for the ninethree months ended June 30, 2020.March 31, 2021. The increase was primarily attributable to the $96.7$53.8 million increase in gross profit for the ninethree months ended June 30, 2021March 31, 2022 as compared to the ninethree months ended June 30, 2020,March 31, 2021, partially offset by a $39.9$27.1 million increase in selling, general & administrative expenses and a $3.3 million increase in depreciation and amortization during the same periods.
Interest Expense – Floor Plan
Interest expense – floor plan decreased $5.3increased $0.7 million or 70.5%, to $2.2$1.0 million for the ninethree months ended June 30, 2021March 31, 2022 compared to $7.5$0.3 million for the ninethree months ended June 30, 2020. This decreaseMarch 31, 2021. The increase in floor plan interest expense was primarily attributable to a $67.9 million decreasethe increase in average inventory for the outstanding borrowings onthree months ended March 31, 2022 as compared to the Inventory Financing Facility, falling interest rates, and interest assistance received from our manufacturers and banks.three months ended March 31, 2021.
Interest Expense – Other
Interest expense – other increased by $1.9 million, or 154.9%, to $3.1 million for the three months ended March 31, 2022 compared to $1.2 million for the three months ended March 31, 2021. The decreaseincrease in interest expense – other of $4.2 million, or 56.4%, to $3.2 million for the nine months ended June 30, 2021 compared to $7.4 million for the nine months ended June 30, 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.
Change in Fair Value of Warrant Liability
The change in fair value of warrant liability of $0.8 million for the nine months ended June 30, 2020 was attributableused to an overall change in the enterprise valuefund certain of the Company. No charge was recorded for the nine months ended June 30, 2021 as the warrants were exercised in conjunction with the Offering.2022 Acquisitions.
Other Expense (Income), Net
Other expense (income), net was income of approximately $247,000increased slightly to $0.1 million for the ninethree months ended June 30, 2021 and expense of approximately $22,000March 31, 2022 compared to $4,882 for the ninethree months ended June 30, 2020.March 31, 2021.
Income Tax Expense
The $15.4 million increase in incomeIncome tax expense increased $6.2 million, or 95.1%, to $12.8 million for the ninethree months ended June 30, 2021 asMarch 31, 2022 compared to $6.6 million for the ninethree months ended June 30, 2020March 31, 2021. The increase was primarily attributable to the result of the $66.7 million48.4% increase in income before income tax expense and the Offering and the taxability of OneWater Inc. as a corporation for the full ninethree months ended June 30,March 31, 2022 as compared to March 31, 2021 versus onlyas well as the period subsequent to the Offering for the nine months ended June 30, 2020. Additionally, as Class B common stock was exchanged for Class A common stock (in accordance with the terms of the OneWater LLC Agreement), theincreased proportion of consolidated income before income tax expense that is allocated to OneWater Marine Inc. increased, yielding higher income tax expense.and therefore taxable due to exchanges of shares of Class B common stock for shares of Class A common stock.
Net Income
Net income increased by $51.4$11.8 million to $93.9$42.4 million for the ninethree months ended June 30, 2021March 31, 2022 compared to $42.5$30.6 million for the ninethree months ended June 30, 2020.March 31, 2021. The increase was primarily attributable to the $96.7$53.8 million increase in gross profit for the ninethree months ended June 30, 2021March 31, 2022 compared to June 30, 2020.March 31, 2021. The increase was partially offset by the $39.9$27.1 million increase in selling, general & administrative expenses, $6.2 million increase in income tax expense and the $3.3 million increase in depreciation and amortization for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
Six Months Ended March 31, 2022, Compared to Six Months Ended March 31, 2021
| | | For the Six Months Ended March 31, 2022 | | | For the Six Months Ended March 31, 2021 | | | | | | | |
| | | Amount | | | % of Revenue | | | Amount | | | % of Revenue | | | $ Change | | | % Change | |
| | | ($ in thousands) | |
| Revenues | | | | | | | | | | | | | | | | | | |
| New boat | | $ | 526,218 | | | | 67.6 | % | | $ | 391,482 | | | | 72.0 | % | | $ | 134,736 | | | | 34.4 | % |
| Pre-owned boat | | | 129,303 | | | | 16.6 | % | | | 94,662 | | | | 17.4 | % | | | 34,641 | | | | 36.6 | % |
| Finance & insurance income | | | 24,255 | | | | 3.1 | % | | | 17,752 | | | | 3.3 | % | | | 6,503 | | | | 36.6 | % |
| Service, parts and other | | | 98,623 | | | | 12.7 | % | | | 39,798 | | | | 7.3 | % | | | 58,825 | | | | 147.8 | % |
| Total revenues | | | 778,399 | | | | 100.0 | % | | | 543,694 | | | | 100.0 | % | | | 234,705 | | | | 43.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | | | | |
| New boat | | | 141,716 | | | | 18.2 | % | | | 81,803 | | | | 15.0 | % | | | 59,913 | | | | 73.2 | % |
| Pre-owned boat | | | 33,974 | | | | 4.4 | % | | | 21,662 | | | | 4.0 | % | | | 12,312 | | | | 56.8 | % |
| Finance & insurance | | | 24,255 | | | | 3.1 | % | | | 17,752 | | | | 3.3 | % | | | 6,503 | | | | 36.6 | % |
| Service, parts & other | | | 43,562 | | | | 5.6 | % | | | 20,005 | | | | 3.7 | % | | | 23,557 | | | | 117.8 | % |
| Total gross profit | | | 243,507 | | | | 31.3 | % | | | 141,222 | | | | 26.0 | % | | | 102,285 | | | | 72.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 134,588 | | | | 17.3 | % | | | 83,208 | | | | 15.3 | % | | | 51,380 | | | | 61.7 | % |
| Depreciation and amortization | | | 6,476 | | | | 0.8 | % | | | 2,341 | | | | 0.4 | % | | | 4,135 | | | | 176.6 | % |
| Transaction costs | | | 3,821 | | | | 0.5 | % | | | 568 | | | | 0.1 | % | | | 3,253 | | | | 572.7 | % |
| Change in fair value of contingent consideration | | | 7,904 | | | | 1.0 | % | | | 377 | | | | 0.1 | % | | | 7,527 | | | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 90,718 | | | | 11.7 | % | | | 54,728 | | | | 10.1 | % | | | 35,990 | | | | 65.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense - floor plan | | | 1,925 | | | | 0.2 | % | | | 1,250 | | | | 0.2 | % | | | 675 | | | | 54.0 | % |
| Interest expense - other | | | 4,626 | | | | 0.6 | % | | | 2,139 | | | | 0.4 | % | | | 2,487 | | | | 116.3 | % |
| Other (income) expense, net | | | 657 | | | | 0.1 | % | | | (89 | ) | | | 0.0 | % | | | 746 | | | | * | |
| Income before income tax expense | | | 83,510 | | | | 10.7 | % | | | 51,428 | | | | 9.5 | % | | | 32,082 | | | | 62.4 | % |
| Income tax expense | | | 17,670 | | | | 2.3 | % | | | 9,061 | | | | 1.7 | % | | | 8,609 | | | | 95.0 | % |
| Net income | | | 65,840 | | | | 8.5 | % | | | 42,367 | | | | 7.8 | % | | | 23,473 | | | | 55.4 | % |
| Less: Net income attributable to non-controlling interest | | | 1,011 | | | | | | | | - | | | | | | | | 1,011 | | | | 100.0 | % |
| Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC | | | 8,513 | | | | | | | | 14,104 | | | | | | | | (5,591 | ) | | | -39.6 | % |
| Net income attributable to One Water Marine Inc. | | $ | 56,316 | | | | | | | $ | 28,263 | | | | | | | $ | 28,053 | | | | 99.3 | % |
Revenue
Overall, revenue increased by $234.7 million, or 43.2%, to $778.4 million for the six months ended March 31, 2022 from $543.7 million for the six months ended March 31, 2021. Revenue generated from same-store sales increased 15.8% for the six months ended March 31, 2022 as compared to the six months ended March 31, 2021, 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 $234.7 million as a result of a $86.0 million increase in same-store sales and a $148.8 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 $134.7 million, or 34.4%, to $526.2 million for the six months ended March 31, 2022 from $391.5 for the six months ended March 31, 2021. 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.
Pre-owned Boat Sales
Pre-owned boat sales increased by $34.6 million, or 36.6%, to $129.3 million for the six months ended March 31, 2022 from $94.7 million for the six months ended March 31, 2021. 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. The average sales price per pre-owned unit for the six months ended March 31, 2022 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 $6.5 million, or 36.6%, to $24.3 million for the six months ended March 31, 2022 from $17.8 million for the six months ended March 31, 2021. The increase was primarily due to the additional new and pre-owned boat revenues. We remain very focused on improving sales of finance & insurance products throughout our dealer network and implementing best practices at acquired dealer groups and existing stores. Finance & insurance products decreased slightly as a percentage of total revenue to 3.1% in the six months ended March 31, 2022 from 3.3% in the six months ended March 31, 2021. 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 $58.8 million, or 147.8%, to $98.6 million for the six months ended March 31, 2022 from $39.8 million for the six months ended March 31, 2021. The increase in service, parts & other sales is primarily due to the acquisition of T-H Marine as well as 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.
Gross Profit
Overall, gross profit increased by $102.3 million, or 72.4%, to $243.5 million for the six months ended March 31, 2022 from $141.2 million for the six months ended March 31, 2021. This increase was primarily due to our overall increase in same-store sales which was driven by increases in all revenue streams, the impact of the 2021 and 2022 acquisitions and the Company’s focus on dynamic pricing. Overall gross margins increased 530 basis points to 31.3% for the six months ended March 31, 2022 from 26.0% for the six months ended March 31, 2021 due to the factors noted below.
New Boat Gross Profit
New boat gross profit increased by $59.9 million, or 73.2%, to $141.7 million for the six months ended March 31, 2022 from $81.8 million for the six months ended March 31, 2021. This increase was primarily due to our overall increase in same-store sales as well as the impact of the 2021 and 2022 acquisitions. New boat gross profit as a percentage of new boat revenue was 26.9% for the six months ended March 31, 2022 as compared to 20.9% in the six months ended March 31, 2021. 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, our emphasis on expanding new boat gross profit margins amid the industry wide inventory and supply chain constraints.
Pre-owned Boat Gross Profit
Pre-owned boat gross profit increased by $12.3 million, or 56.8%, to $34.0 million for the six months ended March 31, 2022 from $21.7 million for the six months ended March 31, 2021. The increase in pre-owned gross profit was driven by the increase in pre-owned revenue as a result of our same-store sales growth and the impact of the 2021 and 2022 acquisitions. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 26.3% and 22.9% for the six months ended March 31, 2022 and 2021, 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, 2022 as compared to the six months ended March 31, 2021, we experienced an increase in our gross profit on pre-owned sales for each of the different sales arrangements with the exception of wholesale.
Finance & Insurance Gross Profit
Finance & insurance gross profit increased by $6.5 million, or 36.6%, to $24.3 million for the six months ended March 31, 2022 from $17.8 million for the six months ended March 31, 2021. 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 $23.6 million, or 117.8%, to $43.6 million for the six months ended March 31, 2022 from $20.0 million for the six months ended March 31, 2021. Service, parts & other gross profit as a percentage of service, parts & other revenue was 44.2% and 50.3% for the six months ended March 31, 2022 and 2021, respectively. The increase in gross profit was primarily the result of our same-store sales growth as well as contributions from the 2021 and 2022 acquisitions. The decrease in gross profit margin percentage was due to a shift in the mix of products sold towards parts & accessories which has a lower margin percentage than service and other sales.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by $51.4 million, or 61.7%, to $134.6 million for the six months ended March 31, 2022 from $83.2 million for the six months ended March 31, 2021. This increase was primarily due to expenses incurred to support the overall increase in revenues and gross profit which included a $35.5 million increase in personnel expenses. Selling, general & administrative expenses as a percentage of revenue increased to 17.3% from 15.3% for the six months ended March 31, 2022 and 2021, respectively. The increase 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 increased gross profit margin.
Depreciation and Amortization
Depreciation and amortization expense increased $4.1 million, or 176.6%, to $6.5 million for the six months ended March 31, 2022 compared to $2.3 million for the six months ended March 31, 2021. The increase in depreciation and amortization expense was primarily attributable to a $2.6 million increase in amortization of design libraries and customer relationships from the 2022 Acquisitions as well as an increase in property, plant and equipment.
Transaction Costs
The increase in transaction costs of $3.3 million, or 572.7%, to $3.8 million for the six months ended March 31, 2022 compared to $0.6 million for the six months ended March 31, 2021 was primarily attributable to expenses related to the 2022 Acquisitions.
Change in Fair Value of Contingent Consideration
During the six months ended March 31, 2022, we incurred expenses of $7.9 million related to updated forecasts and accretion of contingent consideration liabilities for acquisitions completed in fiscal year 2021 and 2022. During the six months ended March 31, 2021, we incurred an 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 $36.0 million, or 65.8%, to $90.7 million for the six months ended March 31, 2022 compared to $54.7 million for the six months ended March 31, 2021. The increase was primarily attributable to the $102.3 million increase in gross profit for the six months ended March 31, 2022 as compared to the six months ended March 31, 2021, partially offset by a $51.4 million increase in selling, general & administrative expenses, and a $7.5 million increase in the $15.4change in fair value of contingent consideration during the same periods.
Interest Expense – Floor Plan
Interest expense – floor plan increased $0.7 million to $1.9 million for the six months ended March 31, 2022 compared to $1.3 million for the six months ended March 31, 2021. The increase in floor plan interest expense was primarily attributable to the increase in average inventory for the six months ended March 31, 2022 as compared to the six months ended March 31, 2021.
Interest Expense – Other
Interest expense – other increased by $2.5 million, or 116.3%, to $4.6 million for the six months ended March 31, 2022 compared to $2.1 million for the six months ended March 31, 2021. The increase in interest expense – other was related to the increase in our long-term debt which was used to fund certain 2022 acquisitions.
Other Expense (Income), Net
Other expense (income), net increased by $0.7 million to expense of $0.7 million for the six months ended March 31, 2022 compared to income of $0.1 million for the six months ended March 31, 2021. The increase in expense was primarily due to the impact of tax rate changes on our tax receivable agreement liability.
Income Tax Expense
Income tax expense increased $8.6 million, or 95.0%, to $17.7 million for the six months ended March 31, 2022 compared to $9.1 million for the six months ended March 31, 2021. The increase was primarily attributable to the 62.4% increase in income before income tax expense for the six months ended March 31, 2022 as compared to March 31, 2021 as well as the increased proportion of consolidated income before income tax expense that is allocated to OneWater Marine Inc. and therefore taxable due to exchanges of shares of Class B common stock for shares of Class A common stock.
Net Income
Net income increased by $23.5 million to $65.9 million for the six months ended March 31, 2022 compared to $42.4 million for the six months ended March 31, 2021. The increase was primarily attributable to the $102.3 million increase in gross profit for the six months ended March 31, 2022 compared to March 31, 2021. The increase was partially offset by a $51.4 million increase in selling, general & administrative expenses, a $8.6 million increase in income tax expense forand a $7.5 million increase in the nine months ended June 30, 2021 compared tochange in fair value of contingent consideration during the nine months ended June 30, 2020.same periods.
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 of directors, (the "Board"), management team and lenders use Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense 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 June 30, 2021,March 31, 2022, Compared to Three Months Ended June 30, 2020March 31, 2021
| | | Three Months Ended June 30 | | | Three months ended March 31, | |
| Description | | 2021 | | | 2020 | | | 2022 | | | 2021 | |
| | | ($ in thousands) | | | ($ in thousands) | |
| Net income | | $ | 51,557 | | | $ | 40,622 | | | $ | 42,354 | | | $ | 30,592 | |
| Interest expense – other | | 1,083 | | | 3,082 | | | 3,097 | | | 1,215 | |
| Income tax expense | | 11,498 | | | 4,737 | | | 12,781 | | | 6,550 | |
| Depreciation and amortization | | 1,475 | | | 824 | | | 4,791 | | | 1,378 | |
| Change in fair value of contingent consideration | | | 2,158 | | | - | |
| Transaction costs | | 65 | | | 31 | | | 776 | | | 368 | |
| Other income, net | | | (158 | ) | | | (43 | ) | |
| Other expense (income), net | | | | 109 | | | | 5 | |
| Adjusted EBITDA | | $ | 65,520 | | | $ | 49,253 | | | $ | 66,066 | | | $ | 40,108 | |
Adjusted EBITDA increased $16.3 million or 33.0% to $65.5was $66.1 million for the three months ended June 30, 2021March 31, 2022 compared to $49.3$40.1 million for the three months ended June 30, 2020.March 31, 2021. The increase in Adjusted EBITDA resulted primarily from anour 8.0% increase in same-store sales growth for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, the impact of the 2022 Acquisitions and our ability to increase gross profit partially offset by an increase inmargins and control selling, general &and administrative expense.expenses.
NineSix Months Ended June 30, 2021,March 31, 2022, Compared to NineSix Months Ended June 30, 2020March 31, 2021
| | | Nine Months Ended June 30 | | | Six months ended March 31, | |
| Description | | 2021 | | | 2020 | | | 2022 | | | 2021 | |
| | | ($ in thousands) | | | ($ in thousands) | |
| Net income | | $ | 93,923 | | | $ | 42,534 | | | $ | 65,840 | | | $ | 42,367 | |
| Interest expense – other | | 3,222 | | | 7,392 | | | 4,626 | | | 2,139 | |
| Income tax expense | | 20,559 | | | 5,209 | | | 17,670 | | | 9,061 | |
| Depreciation and amortization | | 3,816 | | | 2,375 | | | 6,540 | | | 2,341 | |
| Loss on contingent consideration | | 377 | | | - | | |
| Change in fair value of contingent consideration | | | 7,904 | | | 377 | |
| Transaction costs | | 633 | | | 3,393 | | | 3,821 | | | 568 | |
| Change in fair value of warrant liability | | - | | | (771 | ) | |
| Other (income) expense, net | | | (247 | ) | | | 22 | | |
| Other expense (income), net | | | | 657 | | | | (89 | ) |
| Adjusted EBITDA | | $ | 122,283 | | | $ | 60,154 | | | $ | 107,058 | | | $ | 56,764 | |
Adjusted EBITDA increased $62.1 million or 103.3% to $122.3was $107.1 million for the ninesix months ended June 30, 2021March 31, 2022 compared to $60.2$56.8 million for the ninesix months ended June 30, 2020.March 31, 2021. The increase in Adjusted EBITDA resulted primarily from anour 15.8% increase in gross profit due to our same-store sales growth for the six months ended March 31, 2022 as compared to the six months ended March 31, 2021, the impact of the 2021 and 20212022 Acquisitions partially offset by anand our ability to increase ingross profit margins and control selling, general &and administrative expense.expenses.
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 Facilitiescredit facilities and proceeds from any future public or private issuances of debt or equity to fund our current operations, to make share repurchases and to fund essential capital expenditures and acquisitions for the next twelve months.months and beyond.
Cash needs for acquisitions have historically been financed with our Credit Facilitiescredit facilities 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 June 30, 2021,March 31, 2022, 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.
Cash Flows
Analysis of Cash Flow Changes Between the NineSix Months Ended June 30,March 31, 2022 and 2021 and 2020
The following table summarizes our cash flows for the periods indicated:
| | | Nine Months Ended June 30, | |
| Description | | 2021 | | | 2020 | | | Change | |
| | | ($ in thousands) | |
| Net cash provided by operating activities | | $ | 153,195 | | | $ | 152,596 | | | $ | 599 | |
| Net cash used in investing activities | | | (91,120 | ) | | | (2,307 | ) | | | (88,813 | ) |
| Net cash used in financing activities | | | (9,542 | ) | | | (70,712 | ) | | | 61,170 | |
| Net change in cash | | $ | 52,533 | | | $ | 79,577 | | | $ | (27,044 | ) |
| | | Six Months ended March 31, | |
| | | | | | | | | | |
| Description |
| 2022 |
|
| 2021 |
|
| Change | |
| | | ($ in thousands) | |
| Net cash (used in) provided by operating activities | | $ | (43,422 | ) | | $ | 30,581 | | | $ | (74,003 | ) |
| Net cash used in investing activities | | | (296,865 | ) | | | (90,507 | ) | | | (206,358 | ) |
| Net cash provided by financing activities | | | 355,295 | | | | 79,255 | | | | 276,040 | |
| Net change in cash | | $ | 15,008 | | | $ | 19,329 | | | $ | (4,321 | ) |
Operating Activities. Net cash provided byused in operating activities was $153.2$43.4 million for the ninesix months ended June 30, 2021March 31, 2022 compared to net cash provided by operating activities of $152.6$30.6 million for the ninesix months ended June 30, 2020.March 31, 2021. The $0.6$74.0 million increasedecrease in cash provided by operating activities was primarily attributable to a $51.4 million increase in net income, a $23.1 million decrease in the change in accounts receivable and a $13.5 million increase in the change in customer deposits for the nine months ended June 30, 2021 as compared to the nine months ended June 30, 2020. These amounts were partially offset by a $58.9$83.3 million increase in the change in inventory and a $13.3$21.7 million increase in the change in prepaid expenses and other current assetsaccounts receivable for the ninesix months ended June 30, 2021March 31, 2022 as compared to the ninesix months ended June 30, 2020.March 31, 2021. This amount was partially offset by a $23.5 million increase in net income and a $13.4 million increase in the change in accounts payable for the six months ended March 31, 2022 as compared to the six months ended March 31, 2021.
Investing Activities. Net cash used in investing activities was $91.1$296.9 million for the ninesix months ended June 30, 2021March 31, 2022 compared to $2.3net cash used in investing activities of $90.5 million for the ninesix months ended June 30, 2020.March 31, 2021. The $88.8$206.4 million increase in cash used forin investing activities was primarily attributable to $83.5a $203.4 million ofincrease in cash used in acquisitions for the ninesix months ended June 30, 2021March 31, 2022 as compared to none for the ninesix months ended June 30, 2020.March 31, 2021.
Financing Activities. Net cash used inprovided by financing activities was $9.5$355.3 million for the ninesix months ended June 30, 2021March 31, 2022 compared to $70.7net cash provided by financing activities of $79.3 million for the ninesix months ended June 30, 2020.March 31, 2021. The $61.2$276.0 million decrease in cash usedincrease in financing activitiescash flow was primarily attributable to a $90.5$210.0 million decreaseincrease in the distributions to redeemable preferred interest members, partially offset by a $59.2borrowings on long-term debt and an $84.9 million decrease in proceeds from the issuance of Class A common stock sold in the Offering, net of offering costs, and a $21.9 million decreaseincrease in net borrowings from floor planon our Inventory Financing Facility for the ninesix months ended June 30, 2021March 31, 2022 as compared to the ninesix months ended June 30, 2020.March 31, 2021.
DividendsShare Repurchase Program
On June 17, 2021, OneWater LLC approvedMarch 30, 2022, our Board authorized a distributionshare repurchase program of $1.80 per unit in OneWater LLCup to its unitholders (“OneWater Unit Holders”), including OneWater Inc. On June 17, 2021, the Board declared a special cash dividend$50 million of $1.80 per share (the “Special Dividend”) to holders of its Class A common stock, to be made from the proceeds of the OneWater LLC distribution. The cash dividend of approximately $27.1 million was paid on July 19, 2021 to OneWater Unit Holders and, ultimately, to the holdersoutstanding shares of Class A common stock. Additionally,As of March 31, 2022, no shares had been repurchased under the program. The repurchase program does not have a $0.7 million cash dividend for restricted stock unit holders will be paid to holders upon vesting of the awards. Holders of our Class B common stock are not entitled to participate in any dividends declared by the Board.
predetermined expiration date.
Debt Agreements
Term and Revolver Credit Facility
On October 28, 2016, OneWater LLC and certain of our subsidiaries entered into a Credit and Guaranty Agreement with OWM BIP Investor, LLC, as a lender, Goldman Sachs Specialty Lending Group, L.P., as a lender, administrative agent and collateral agent, and various lender parties thereto (as amended, the “GS/BIP Credit Facility”). The as amended terms of the GS/BIP Credit Facility immediately preceding the Offering consisted of an up to $60.0 million multi-draw term loan facility (the “Multi-Draw Term Loan”) and a $5.0 million revolving line of credit (the “Revolving Facility”).
On February 11, 2020, in connection with the Offering, OneWater Inc. entered into an Amended and Restated Credit and Guaranty Agreement (the “Term and Revolver Credit Facility”), which, among other things, modified the terms of the GS/BIP Credit Facility to (i) increase the Revolving Facility from $5.0 million to $10.0 million, (ii) increase the maximum available under the Multi-Draw Term Loan from $60.0 million to $100.0 million, (iii) provide an uncommitted and discretionary multi-draw term loan accordion feature of up to $20.0 million, (iv) amend the repayment schedule of the Multi-Draw Term Loan to commence on March 31, 2022, (v) amend the scheduled maturity date of the Revolving Facility and Multi-Draw Term Loan to be February 11, 2025 and (vi) remove OWM BIP Investor, LLC as a lender. The Term and Revolver Credit Facility bore interest at a rate that was equal to, at OneWater Inc.’s option, (a) the London Inter-Bank Offered Rate ("LIBOR") for such interest period (subject to a 1.50% floor) plus an applicable margin of up to 7.00%, subject to step-downs to be determined based on certain financial leverage ratio measures, or (b) a base rate (subject to a 4.50% floor) plus an applicable margin of up to 6.00%, subject to step-downs to be determined based on certain financial leverage ratio measures. Interest was payable quarterly for base rate borrowings and up to quarterly for LIBOR borrowings. The Term and Revolver Credit Facility included the option for the Company to defer cash payments of interest for twelve months and add the accrued interest to the outstanding principal of the note payable. The election of this feature was made during the nine months ended June 30, 2020, and as a result, the interest rate increased by 2.0% for the corresponding twelve months.
The Company borrowed an additional $35.3 million on the Multi-Draw Term Loan immediately upon closing of the agreement to bring our total indebtedness to $100 million.
On July 22, 2020, the Company repaid in full all indebtedness outstanding under the then-existing credit facility evidenced by the Term and Revolver Credit Facility, and in connection with such repayment, all commitments thereunder were terminated and all guarantees and security interests granted in connection therewith were released. See “—Refinanced Credit Facility” for additional information.
Refinanced Credit Facility
Effective July 22, 2020, we and certain of our subsidiaries terminated and repaid all indebtedness outstanding under the Term and Revolver Credit Facility and entered into the Credit Agreement (the “Refinanced Credit(as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit Facility”) with Truist Bank as administrative agent, collateral agent, swingline lender and issuing bank, SunTrust Robinson Humphrey, Inc. and Synovus Bank as joint lead arrangers and joint bookrunners, Synovus Bank as documentation agent, and the other lenders from time to time party thereto (collectively, the “Refinancing”).thereto. The Refinanced Credit Facility provides for (i) a $30.0$50.0 million revolving credit facility that may be used for revolving credit loans (including up to $5.0 million in swingline loans)loans and up to $5.0 million in letters of credit from time to time, and (ii) a $80.0 million term loan which was advancedfacility (which includes incremental term loans as provided in full on July 22, 2020.the First Incremental Amendment and Second Incremental Amendment). Subject to certain conditions, the available amount under the revolving credit facility and the term loans may be increased by $50.0 million in the aggregate.increased. The revolving credit facility matures on July 22, 2025. The term loan is repayable in installments beginning on March 31, 2021, with the remainder due on the earlier of (i) July 22, 2025.2025 or (ii) the date on which the principal amount of all outstanding term loans have been declared or automatically have become due and payable pursuant to the terms of the Credit Facility
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
On November 30, 2021, we entered into the First Incremental Amendment No. 2 (the “Second Incremental Amendment”) to the proceedsCredit Facility to provide for, among other things, an incremental term loan (the “Second Incremental Term Loan”) to OWAO in an aggregate principal amount equal to $200.0 million, which will be added to, and constitute a part of, the existing $110.0 million term loan. The Second Incremental Term Loan were usedAmendment further provides for a $20.0 million increase in the existing revolving commitment (the “Incremental Revolving Increase”), which was added to, pay offand constitutes a part of, the balanceexisting $30.0 million revolving commitment. As of March 31, 2022, we had $297.9 million outstanding under the term loan and $40.0 million outstanding under the revolving credit facility, under which an aggregate of $30.0 million was outstanding as of February 1, 2021.facility.
Borrowings under the Refinanced Credit Facility bear interest, at the Company’sOWAO’s option, at either (a) a base rate (the “Base Rate”) equal to the highest of (i) the prime rate (as announced by Truist Bank from time to time), (ii) the Federal Funds Rate, as in effect from time to time, plus 0.50%, (iii) the Adjusted LIBO Rate (defined below) determined on a daily basis for an interest period of one month, plus 1.00%, or (iv) 1.75%, plus an applicable margin of up to 2.00%, or (b) the rate per annum obtained by dividing (i) the LIBORLondon Interbank Offered Rate for such interest period by (ii) a percentage equal to 1.001.00% minus the Eurodollar Reserve Percentage (the “Adjusted LIBO Rate”) plus an applicable margin of up to 3.00%. Interest on swingline loans shall be the Base Rate plus an applicable margin of up to 2.00%. All applicable interest margins are subject to stepdownsstep-downs based on certain consolidated leverage ratio measures.
The Refinanced Credit Facility is subject to certain financial covenants related to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio. The Credit Facility also contains non-financial covenants and restrictive provisions that, among other things, limit the ability of the Company to incur additional debt, transfer or dispose of all of its assets, make certain investments, loans or payments and engage in certain transactions with affiliates. The Company was in compliance with all covenants as of March 31, 2022.
Inventory Financing Facility
On June 14, 2018, OneWater LLC and certain of our subsidiaries entered intoDecember 29, 2021, the Fourth Amended and Restated Inventory Financing Agreement with Wells Fargo Commercial Distribution Finance, LLC and various lender parties thereto (“Wells Fargo”) (as subsequently amended and restated, the ‘‘Inventory Financing Facility’’ and, together with the Refinanced Credit Facility, the ‘‘Credit Facilities’’). On September 21, 2018, OneWater LLC and certain of our subsidiaries entered into the First Amendment to the Fourth Amended and Restated Inventory Financing Agreement which, among other things, increased the maximum amount of borrowing available under the Inventory Financing Facility from $200.0 million to $275.0 million. On April 5, 2019, OneWater LLCCompany and certain of its subsidiaries further amendedentered into the Inventory Financing Facility to, among other things, increase the maximum borrowing amount of borrowing available to $500.0 million. Loans under the Inventory Financing Facility may be extended from $275.0 milliontime to $292.5 million. On November 26, 2019, OneWater LLC andtime to enable the Company to purchase inventory from certain of its subsidiaries entered into the Fifth Amended and Restated Inventory Financing Agreement with Wells Fargo to, among other things, increase the maximum amount of borrowing available under themanufacturers. The Inventory Financing Facility from $292.5 million to $392.5 million.Expires on December 1, 2023.
Effective February 11, 2020, in connection with the Offering, the CompanyInterest on new boats and certain of its subsidiaries entered into the Sixth Amended and Restated Inventory Financing Agreement with Wells Fargo, which amended and restated the Fifth Amended and Restated Inventory Financing Agreement, dated as of November 26, 2019, to, among other things, permit certain payments and transactions contemplated by or in connection with the Offering, including payments under the Tax Receivable Agreement. The maximum amount of borrowing available, interest rates and the termination date of the Inventory Financing Facility remained unchanged.
On July 22, 2020, the Company and certain of its subsidiaries entered into the First Amendment (the “First Amendment”) to the Inventory Financing Facility. The First Amendment amended the Inventory Financing Facility, to, among other things, address the Refinancing, permit the amount of indebtedness allowed under the Refinanced Credit Facility to be $160.0 million (which includes the potential for a $50.0 million increase under the Refinanced Credit Facility), permit the payment of fees and expenses in connection with the termination of the Term and Revolver Credit Facility and the payment of present and future transaction costs incurred in connection with the negotiation, closing and ongoing administration of the Refinanced Credit Facility.
On December 10, 2020, the Company and certain of its subsidiaries entered into the Second Amendment to the Sixth Amended and Restated Inventory Financing Agreement to change certain compliance reporting from weekly to monthly. The maximum borrowing amount available, interest rates and the termination date of the agreement remained unchanged.
The interest rate for amounts outstanding under the Inventory Financing Facilityrental units is calculated using the one month LIBORAdjusted 30-Day Average SOFR (as defined in the Inventory Financing Facility) (“SOFR”) plus an applicable margin of 2.75% to 5.00% for newdepending on the age of the inventory. Interest on pre-owned boats andis calculated at the new boat rate plus 0.25% for pre-owned boats. If LIBOR is less than 2.96%, 25 basis points. Loans are added when calculating the interest rate. Loans will be extended from time to time to enable us to purchase inventory from certain manufacturers and to lease certain boats and related parts to customers. The applicable financial terms, curtailment schedule and maturity for each loan will beare set forth in separate program terms letters that were entered into from time to time. The collateral for the Inventory Financing Facility consistsconsisted primarily of our inventory that iswas financed through the Sixth Inventory Financing Facility and related assets, including accounts receivable, bank accounts, and proceeds of the foregoing, and excludes the collateral that underliessecures the Refinanced Credit Facility.
We are required to comply with certain financial and non-financial covenants under the Inventory Financing Facility, including certain provisions thatrelated to 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 ourthe 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 underlyingsecuring 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 interestinterests 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 itstheir 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 certain of its subsidiaries are generally restricted from, among other things, making cash dividends or distributions without the prior written consent of Wells Fargo Commercial Distribution Finance, LLC (the “Agent”).Fargo. Under the Inventory Financing Facility, among other exceptions, OneWater LLC may make distributions to its members for certain permitted tax payments subject to certain financial ratios, may make scheduled payments on certain subordinated debt and is permitted to make pro rata distributions to the OneWater Unit Holders, including OneWater Inc., in an amount sufficient to allow OneWater Inc. to pay its taxes and to make payments under the Tax Receivable Agreement. OneWater LLC’s subsidiaries are generally restricted from making loans or advances to OneWater LLC. Our Chief Executive Officer, Philip Austin Singleton, Jr., and our Chief Operating Officer, Anthony Aisquith, provide certain personal guarantees of the Inventory Financing Facility.
On June 16, 2021, OneWater Inc. and OneWater LLC obtained a written consent from the Agent to permit the payment of the Special Dividend.
As of June 30, 2021March 31, 2022 and September 30, 2020,2021, our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled $108.2$254.9 million and $124.0$114.2 million, respectively. Certain of our manufacturers enter into independent agreements with the lenders to the Inventory Financing Facility, which results in a lower effective interest rate charged to us for borrowings related to the products by such manufacturer. As of June 30, 2021March 31, 2022 and September 30, 2020,2021, the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 1.4%1.9% and 4.0%2.0%, respectively. As of June 30, 2021March 31, 2022 and September 30, 2020,2021, our additional available borrowings under our Inventory Financing Facility were $284.3$245.1 million and $268.5$278.3 million, respectively, based upon the outstanding borrowings and the maximum facility amount. The aging of our inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate as our inventory ages.rate. As of June 30, 2021,March 31, 2022, we were in compliance with all covenants under the Inventory Financing Facility.
OWAO Preferred Units
On October 28, 2016, certain affiliates of Goldman Sachs & Co. LLC (collectively, "Goldman") and affiliates of The Beekman Group (collectively, "Beekman") entered into a Subscription Agreement with us and certain of our subsidiaries, pursuant to which Goldman and Beekman purchased preferred units in OWAO (“OWAO Preferred Units”).
Goldman and Beekman purchased 45,000 and 23,000 OWAO Preferred Units, representing 66.2% and 33.8% of the total OWAO Preferred Units outstanding for purchase prices of $44.4 million and $22.7 million, respectively. The holders of the OWAO Preferred Units (“OWAO Preferred Holders”) were entitled to (i) a ‘‘preferred return’’ at a rate of 10% per annum, compounded quarterly, on (a) the aggregate amount of capital contributions made, minus any prior distributions (the ‘‘unreturned preferred amount’’), plus (b) any unpaid preferred returns for prior periods, and (ii) a ‘‘preferred target distribution’’ at a rate of 10% per annum on the unreturned preferred amount multiplied by (a) 40% for the calendar quarters ending December 31, 2018, March 31, 2019, June 30, 2019 and September 30, 2019, (b) 60% for each calendar quarter ending December 31, 2019, March 31, 2020, June 30, 2020 and September 30, 2020, and (c) 80% for each calendar quarter thereafter. The preferred target distribution proportionally adjusts the amount of capital contribution of each OWAO Preferred Holder. OWAO and certain affiliates were required to meet certain financial covenants, including maintenance of certain leverage ratios. Failure by OWAO to pay the preferred return and preferred target distribution, failure to meet certain financial covenants, or repayment in full or acceleration of the obligations under the GS/BIP Credit Facility would permit a majority of the OWAO Preferred Holders to require us to purchase all OWAO Preferred Units equal to the unreturned preferred amount plus any unpaid preferred returns (the ‘‘redemption amount’’). As of September 30, 2019, the redemption amount of the OWAO Preferred Units held by Goldman and Beekman in the aggregate was $87.3 million, exclusive of $1.3 million in issuance costs.
On February 11, 2020, in connection with the Offering, we used the net proceeds from the Offering, together with cash on hand and borrowings under the Term and Revolver Credit Facility, to redeem all of the shares of OWAO Preferred Units held by Goldman and Beekman for $89.2 million.Notes Payable
Notes Payable
Acquisition Notes Payable. In connection with certain of our acquisitions of dealer groups, we have entered into notes payable agreements with the acquired entities to finance these acquisitions. As of June 30, 2021,March 31, 2022, our indebtedness associated with our 42 acquisition notes payable totaled an aggregate of $7.4$3.2 million with a weighted average interest rate of 5.3%5.0% per annum. As of June 30, 2021,March 31, 2022, the principal amount outstanding under these acquisition notes payable ranged from $1.3$1.1 million to $2.2$2.1 million, and the maturity dates ranged from December 1, 20212023 to December 1, 2023.2024.
Commercial Vehicles Notes Payable. Since 2015, we have entered into multiple notes payable with various commercial lenders in connection with our acquisition of certain vehicles utilized in our retail operations. Such notes bear interest ranging from 0.0% to 8.9% per annum, require monthly payments of approximately $113,000,$115,000, and mature on dates ranging from September 2021between April 2022 to July 2028. As of June 30, 2021,March 31, 2022, we had $3.4$3.2 million outstanding under the commercial vehicles notes payable.
Tax Receivable Agreement
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.
Off Balance Sheet Arrangements
We have no material off balance sheet arrangements, except for operating leases and purchase commitments under supply agreements entered into in the normal course of business.
Recent Accounting Pronouncements
As an ‘‘emerging growth company’’ (‘‘EGC’’), the Jumpstart Our Business Startups Act (‘‘JOBS Act’’) allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election. We may take advantage of these provisions until September 30, 2025, or such earlier time that we are no longer an EGC. We would cease to be an EGC upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iii) the date on which we are deemed to be a “large accelerated filer.” We continue to monitor these thresholds so that the Company may prepare for any future loss of EGC status prior to September 30, 2025.
Refer toSee Note 3 of the Notes to Unauditedthe Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for recently adopted and issued accounting pronouncements including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.
Critical Accounting Policies and Significant Estimates
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information. The preparation of our financial statements requires the application of these accounting principles in addition to certain estimates and judgments based on current available information, actuarial estimates, historical results and other assumptions believed to be reasonable. Actual results could differ from these estimates. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Estimates” included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the SEC on December 3, 2020, for further information regarding our critical accounting policies and significant estimates. As of June 30, 2021, there were no changes in our critical accounting policies or the application of those policies from those reported in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.Statements.
| Item 3. | Quantitative and Qualitative Disclosure about Market Risk |
Interest Rate Risk
Our Inventory Financing Facility exposes us to risks caused by fluctuations in interest rates. The interest rate on our Inventory Financing Facility for new boats is calculated using the one-month LIBORSOFR plus an applicable margin. Based on an outstanding balance of $108.2$254.9 million as of June 30, 2021, an increaseMarch 31, 2022, a change of 100 basis points in the underlying interest rate would have caused an increasea change in interest expense of $1.1 million for the fiscal period.$2.5 million. We do not currently hedge our interest rate exposure. This hypothetical increase does not take into account a corresponding increase to the programs that we may receive from our manufacturers or management’s ability to curtail inventory and related floor plan balances, both of which would reduce the impact of the interest rate increase.
Our Refinanced Credit Facility exposes us to risks caused by fluctuations in interest rates. The interest rate on our Refinanced Credit Facility is calculated using the one-month LIBOR (with a 0.75% floor) plus an applicable margin. Based on an outstanding balance of $107.3$297.9 million and the one-month LIBOR as of June 30, 2021,March 31, 2022, an increase of 100 basis points in the underlying interest rate would have caused a change in interest expense of approximately $0.4 million for$2.1 million. A basis points reduction in the fiscal period.underlying interest rate would not have caused a change in interest expense. We do not currently hedge our interest rate exposure.
Foreign Currency Risk
We purchase certain of our new boat and parts inventories from foreign manufacturers. Although we purchase our inventories in U.S. dollars, our business is subject to foreign exchange rate risk that may influence manufacturers’ ability to provide their products at competitive prices in the United States. To the extent that we cannot recapture this volatility in prices charged to customers or if this volatility negatively impacts consumer demand for our products, this volatility could adversely affect our future operating results.
| Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. Our disclosure controls and procedures are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met and to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) during the three and six months ended June 30, 2021March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Due to the nature of our business, we are, from time to time, involved in other routine litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment related disputes. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. In the opinion of our management, none of the pending litigation, disputes or claims against us, if decided adversely, would have a material adverse effect on our financial condition, cash flows or results of operations.
In addition to the information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020,2021, filed with the SEC on December 3, 202017, 2021, which could materially affect our businesses, financial condition, or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results. There
Other than the changes set forth below, there have been no material changes in our risk factors from those described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020,2021, filed with the SEC on December 3, 2020, other than as described below.17, 2021.
The ongoing COVID-19 pandemicOur certificate of incorporation and bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our revenues, resultsClass A common stock and could deprive our investors of operations and financial condition.the opportunity to receive a premium for their shares.
Our businesscertificate of incorporation authorizes our board of directors to issue preferred stock without stockholder approval in one or more series, designate the number of shares constituting any series, and fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. If our board of directors elects to issue preferred stock, it could be materially adversely affectedmore difficult for a third party to acquire us. In addition, some provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders. These provisions include:
providing that all vacancies, including newly created directorships, may, except as otherwise required by law or, if applicable, the rights of holders of a series of preferred stock, only be filled by the widespread outbreakaffirmative vote of a contagious disease, including the recent COVID-19 pandemic. COVID-19 has spreadmajority of directors then in manyoffice, even if less than a quorum;
permitting any action by stockholders to be taken only at an annual meeting or special meeting rather than by a written consent of the geographic areas in which we operate. National, statestockholders, subject to the rights of any series of preferred stock with respect to such rights;
permitting special meetings of our stockholders to be called only by our Chief Executive Officer, the chairman of our board of directors and local governments in affected regions have implemented and may continue to implement safety precautions, including shelter in place orders, travel restrictions, business closures, cancellationsour board of public gatherings, including boat shows, and other measures. These measures have affected our ability to sell and service boats, required us to temporarily close or partially close certain locations and may require additional closures in the future. Organizations and individuals are also taking additional steps to avoid or reduce infection, including limiting travel, staying home, working from home and limiting participation in certain leisure activities.
We continue to monitor federal, state and local government recommendations and have made modifications to our normal operations as a result of COVID-19. If the negative economic effects of COVID-19 continue for a prolonged period of time, it could leaddirectors pursuant to a reduction in demand for our products, which would adversely affect our resultsresolution adopted by the affirmative vote of operations. Additionally, disruptions in the capital markets, as a resultmajority of the pandemic, may also adversely affect our ability to access capital and additional liquidity. The COVID-19 pandemic has led to disruptionstotal number of authorized directors whether or not there exist any vacancies in our supply chain, including our ability to obtain boats and parts from our suppliers, and labor shortages. There have been industry-wide supply chain constraints duepreviously authorized directorships;
subject to the COVID-19 pandemic and increased sales generally across the industry. To date, we have experienced shortages of inventory and we believe such shortages resulted in a reduction in our revenues for the three months ended June 30, 2021. Such shortages could continue to adversely and impact our revenues for future periods. It is possible that such shortages could become more severe as a resultrights of the COVID-19 pandemic and its effects on, among other things, supply chains, operations and consumer demand. These measures are disrupting normal business operations and may have, significant negative impacts onholders of shares of any series of our business inpreferred stock, requiring the future. While we are implementing changes to mitigate the impact of COVID-19 on our business, it is not possible, at this time, to estimate the entiretyaffirmative vote of the effect that COVID-19 will have on our business, customers, suppliers or other business partners.
While we previously announced our decisionholders of at least a majority in voting power of all then outstanding common stock entitled to pause our acquisition strategy due to the COVID-19 pandemic, given our financial results for the year ended September 30, 2020, we are recommencing our acquisition strategy and opportunistically evaluating future acquisitions. See “Risk Factors—Our success depends, in part, on our ability to continue to make successful acquisitions at attractive or fair prices and to integrate the operations of acquired dealer groups and each dealer group we acquire in the future.”
Our failure to successfully order and manage our inventory to reflect consumer demand and to anticipate changing consumer preferences and buying trends, or the lack of inventoryvote generally in the industry, could haveelection of directors, voting together as a material adverse effect onsingle class, to remove any of all of the directors from office at any time;
prohibiting cumulative voting in the election of directors;
establishing advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of stockholders;
providing that the board of directors is expressly authorized to adopt, or to alter or repeal our business, financial conditionbylaws; and results
On February 23, 2022, following shareholder approval at our 2022 annual meeting, we revised our certificate of operations.incorporation and bylaws to eliminate our staggered board of directors and supermajority voting provisions.
Our success depends uponIn addition, certain change of control events have the effect of accelerating the payment due under the Tax Receivable Agreement, which could be substantial and accordingly serve as a disincentive to a potential acquirer of our ability to procure sufficient inventory for our needs and to successfully manage our inventory and to anticipate and respond to product trends and consumer demandscompany. Please see “-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 a timely manner. Our products appeal to consumers across a numberrespect of states who are, or could become, boat owners. The preferences of these consumers cannot be predicted with certainty and arethe tax attributes subject to change. Further, the retail consumer industry, by its nature, is volatile and sensitive to numerous economic factors, including consumer preferences, competition, market conditions, general economic conditions and other factors outside of our control. For example, the impact of COVID-19 on our suppliers and the recent increase in demand for marine retail products has led to industry-wide supply chain constraints.We have experienced inventory shortages in new and pre-owned boats in fiscal year 2021, and it is possible that further shortages could occur. We cannot predict consumer preferences with certainty, and consumer preferences often change over time. We typically order product several months in advance, although such orders are not binding until the merchandise is delivered to our stores. The extended lead times for many of our purchases may make it difficult for us to respond rapidly to new or changing product trends, increases or decreases in consumer demand or changes in prices. If we misjudge either the market for our products or our consumers’ purchasing habits in the future, our revenues may decline significantly and we may not have sufficient quantities of product to satisfy consumer demand or sales orders or we may be required to discount excess inventory, either of which could have a material adverse effect on our business, financial condition and results of operations.Tax Receivable Agreement.”
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.On March 30, 2022, the Board authorized a share repurchase program of up to $50 million of outstanding shares of Class A common stock. Repurchases under the share repurchase program may be made at any time or from time to time, without prior notice, in the open market or in privately negotiated transactions at prevailing market prices, or such other means as will comply with applicable state and federal securities laws and regulations, including the provisions of the Securities Exchange Act of 1934, including Rule 10b5-1 and, to the extent practicable or advisable, Rule 10b-18 thereunder, and consistent with the Company’s contractual limitations and other requirements. The Company made no repurchases in the three months ended March 31, 2022. The Company has $50 million remaining under the share repurchase program.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not Applicable.
None.
ONEW 10-Q Exhibit Table
| Exhibit No. |
| Description |
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| Second Amended and Restated Certificate of Incorporation of OneWater Marine Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on February 18, 2020)24, 2022). |
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| Second Amended and Restated Bylaws of OneWater Marine Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on February 18, 2020)24, 2022). |
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| Waiver Letter toIndemnification Agreement, dated as of February 28, 2022, by and among the IFA, dated June 16, 2021, from Wells Fargo Commercial Distribution Finance, LLC, as Agent. |
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| Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). |
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| Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). |
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| Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. |
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| Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. |
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| 101.INS(a) |
| Inline XBRL Instance Document. |
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| 101.SCH(a) |
| Inline XBRL Schema Document. |
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| 101.CAL(a) |
| Inline XBRL Calculation Linkbase Document. |
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| 101.DEF(a) |
| Inline XBRL Definition Linkbase Document. |
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| 101.LAB(a) |
| Inline XBRL Labels Linkbase Document. |
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| 101.PRE(a) |
| Inline XBRL Presentation Linkbase Document. |
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| 104 | | Cover Page Interactive Data File (embedded within the(formatted as Inline XBRL document)and contained in Exhibit 101). |