UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended December 31, 2021
or
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ___________ to ___________
Commission file number: 001-39213
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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(Address of principal executive offices)
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(Zip code)
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(Registrant’s telephone number, including area code): (678 )
541-6300
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Title of Each Class
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Trading Symbol(s)
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Name of Each Exchange on Which Registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The registrant had 13,852,296 shares of Class A common stock, par value $0.01 per share, and 1,429,940 shares of Class B common stock, par value $0.01 per share, outstanding as of January 24, 2022.
ONEWATER MARINE INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2021
TABLE OF CONTENTS
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Page
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Item 1.
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5 |
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| 6 |
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| 7 |
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| 8 |
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| 9 |
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Item 2.
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21 |
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Item 3.
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33 |
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Item 4.
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34 |
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| 34 | ||
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Item 1.
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34 | |
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Item 1A.
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34 | |
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Item 2.
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34 | |
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Item 3.
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34 | |
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Item 4.
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34 | |
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Item 5.
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34 | |
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Item 6.
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35 |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The information in this Quarterly Report on Form 10-Q includes “forward-looking
statements.” All statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended
to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on
currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the headings “Risk
Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report on Form 10-K for the year ended September 30, 2021, filed with the U.S. Securities and Exchange
Commission (the “SEC”) on December 17, 2021, and under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q. These forward-looking
statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.
Forward-looking statements may include statements about:
| • |
the impact of the novel coronavirus (“COVID-19”) on our business and results of operations;
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| • |
general economic conditions, including changes in employment levels, consumer demand, preferences and confidence levels, fuel prices, levels of discretionary income, consumer spending patterns, and uncertainty regarding the timing,
pace and extent of an economic recovery in the United States;
|
| • |
economic conditions in certain geographic regions in which we primarily generate our revenue;
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| • |
credit markets and the availability and cost of borrowed funds;
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| • |
our business strategy, including acquisitions and same-store growth;
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| • |
our ability to integrate acquired dealer groups;
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| • |
our ability to maintain our relationships with manufacturers, including meeting the requirements of our dealer agreements and receiving the benefits of certain manufacturer incentives;
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| • |
our ability to finance working capital and capital expenditures;
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| • |
general domestic and international political and regulatory conditions, including changes in tax or fiscal policy and the effects of current restrictions on various commercial and economic activities in response to the COVID-19
pandemic;
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| • |
global public health concerns, including the COVID-19 pandemic;
|
| • |
demand for our products and our ability to maintain acceptable pricing for our products and services, including financing, insurance and extended service contracts;
|
| • |
our operating cash flows, the availability of capital and our liquidity;
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| • |
our future revenue, same-store sales, income, financial condition, and operating performance;
|
| • |
our ability to sustain and improve our utilization, revenue and margins;
|
| • |
competition;
|
| • |
seasonality and inclement weather such as hurricanes, severe storms, fire and floods, generally and in certain geographic regions in which we primarily generate our revenue;
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•
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effects of industry-wide supply chain challenges and our ability to manage our inventory;
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|
•
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our ability to retain key personnel;
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| • |
environmental conditions and real or perceived human health or safety risks;
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| • |
any potential tax savings we may realize as a result of our organizational structure;
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| • |
uncertainty regarding our future operating results and profitability;
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| • |
other risks associated with the COVID-19 pandemic including, among others, the ability to safely operate our stores, access to inventory and customer demand; and
|
| • |
plans, objectives, expectations and intentions contained in this Form 10-Q that are not historical.
|
We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Should one or more of the
risks or uncertainties occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. These risks include, but are not limited to, decline
in demand for our products and services, the effects of the COVID-19 pandemic on the Company’s business, the seasonality and volatility of the boat industry, our acquisition strategies, the inability to comply with the financial and other
covenants and metrics in our Credit Facilities, cash flow and access to capital, the timing of development expenditures and the other risks described under “Risk Factors” and discussed elsewhere in our Annual Report on Form 10-K for the year
ended September 30, 2021 and discussed elsewhere in this Quarterly Report on Form 10-Q.
All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also
be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as otherwise required by applicable law, we disclaim any duty to update any
forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
| Item 1. |
Condensed Consolidated
Financial Statements (Unaudited)
|
ONEWATER MARINE INC.
($ in thousands, except par value and share data)
|
December 31,
2021
|
September 30,
2021 |
|||||||
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Assets
|
||||||||
|
Current assets:
|
||||||||
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Cash
|
$
|
|
$
|
|
||||
|
Restricted cash
|
|
|
||||||
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Accounts receivable, net
|
|
|
||||||
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Inventories
|
|
|
||||||
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Prepaid expenses and other current assets
|
|
|
||||||
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Total current assets
|
|
|
||||||
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Property and equipment, net
|
|
|
||||||
| Operating lease right-of-use assets |
||||||||
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Other assets:
|
||||||||
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Deposits
|
|
|
||||||
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Deferred tax assets
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|
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||||||
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Identifiable intangible assets
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|
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||||||
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Goodwill
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|
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||||||
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Total other assets
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|
|
||||||
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Total assets
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$
|
|
$
|
|
||||
|
Liabilities and Stockholders’ Equity
|
||||||||
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Current liabilities:
|
||||||||
|
Accounts payable
|
$
|
|
$
|
|
||||
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Other payables and accrued expenses
|
|
|
||||||
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Customer deposits
|
|
|
||||||
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Notes payable – floor plan
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|
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||||||
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Current portion of operating lease liabilities
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||||||||
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Current portion of long-term debt
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Current portion of tax receivable agreement liability
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Total current liabilities
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|
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Long-term Liabilities:
|
||||||||
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Other long-term liabilities
|
|
|
||||||
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Tax receivable agreement liability
|
|
|
||||||
| Noncurrent operating lease liabilities | ||||||||
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Long-term debt, net of current portion and unamortized debt issuance costs
|
|
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||||||
| Total liabilities |
||||||||
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Stockholders’ Equity:
|
||||||||
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Preferred stock, $
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|
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||||||
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Class A common stock, $
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|
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||||||
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Class B common stock, $
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|
|
||||||
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Additional paid-in capital
|
|
|
||||||
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Retained earnings
|
|
|
||||||
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Total stockholders’ equity attributable to OneWater Marine Inc.
|
|
|
||||||
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Equity attributable to non-controlling interests
|
|
|
||||||
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Total stockholders’ equity
|
|
|
||||||
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Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
||||
ONEWATER MARINE INC.
($ in thousands except per share data)
(Unaudited)
|
Three Months Ended
December 31,
|
||||||||
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2021
|
2020
|
|||||||
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Revenues
|
||||||||
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New boat
|
$
|
|
$
|
|
||||
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Pre-owned boat
|
|
|
||||||
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Finance & insurance income
|
|
|
||||||
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Service, parts & other
|
|
|
||||||
|
Total revenues
|
|
|
||||||
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Cost of sales (exclusive of depreciation and amortization shown separately below)
|
||||||||
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New boat
|
|
|
||||||
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Pre-owned boat
|
|
|
||||||
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Service, parts & other
|
|
|
||||||
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Total cost of sales
|
|
|
||||||
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Selling, general and administrative expenses
|
|
|
||||||
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Depreciation and amortization
|
|
|
||||||
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Transaction costs
|
|
|
||||||
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Change in fair value of contingent consideration
|
|
|
||||||
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Income from operations
|
|
|
||||||
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Other expense (income)
|
||||||||
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Interest expense – floor plan
|
|
|
||||||
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Interest expense – other
|
|
|
||||||
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Other expense (income), net
|
|
(
|
)
|
|||||
|
Total other expense, net
|
|
|
||||||
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Income before income tax expense
|
|
|
||||||
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Income tax expense
|
|
|
||||||
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Net income
|
|
|
||||||
| Less: Net income attributable to non-controlling interests |
||||||||
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Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC
|
(
|
)
|
(
|
)
|
||||
|
Net income attributable to OneWater Marine Inc
|
$
|
|
$
|
|
||||
|
Earnings per share of Class A common stock – basic
|
$
|
|
$
|
|
||||
|
Earnings per share of Class A common stock – diluted
|
$
|
|
$
|
|
||||
|
Basic weighted-average shares of Class A common stock outstanding
|
|
|
||||||
|
Diluted weighted-average shares of Class A common stock outstanding
|
|
|
|
|||||
ONEWATER MARINE INC.
($ in thousands)
(Unaudited)
|
Class A Common Stock
|
Class B Common Stock
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional Paid-in Capital
|
Retained Earnings
|
Non-controlling Interest
|
Total Stockholders’ Equity
|
|||||||||||||||||||||||||
|
Balance at September 30, 2021
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Net income
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||
|
Distributions to members
|
-
|
|
-
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||
|
Non-controlling interest in subsidiary
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||
|
Exchange of B shares for A shares
|
|
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
|
|||||||||||||||||||||
|
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis
|
-
|
|
-
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Shares issued upon vesting of equity-based awards, net of tax withholding
|
|
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Shares issued in connection with a business combination
|
||||||||||||||||||||||||||||||||
|
Equity-based compensation
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||
|
Balance at December 31, 2021
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Class A Common Stock
|
Class B Common Stock
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional Paid-in Capital
|
Retained Earnings
|
Non-controlling Interest
|
Total Stockholders’ Equity
|
|||||||||||||||||||||||||
|
Balance at September 30, 2020
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Net income
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||
|
Distributions to members
|
-
|
|
-
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||||||||
|
Effect of September offering, including underwriter exercise of option to purchase shares
|
|
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Exchange of B shares for A shares
|
|
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
|
|||||||||||||||||||||
|
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis
|
-
|
|
-
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Adjustment to adopt Topic 842
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||
|
Equity-based compensation
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||
|
Balance at December 31, 2020
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
For the Three Months Ended December 31
|
2021
|
2020
|
||||||
|
Cash flows from operating activities
|
||||||||
|
Net income
|
$
|
|
$
|
|
||||
|
Adjustments to reconcile net income to net cash used in operating activities:
|
||||||||
|
Depreciation and amortization
|
|
|
||||||
|
Equity-based awards
|
|
|
||||||
|
Gain on asset disposals
|
(
|
)
|
(
|
)
|
||||
|
Non-cash interest expense, net
|
|
|
||||||
|
Deferred income tax provision
|
|
(
|
)
|
|||||
|
Loss on change in fair value of contingent consideration
|
||||||||
|
(Increase) decrease in assets:
|
||||||||
|
Accounts receivable
|
|
|
||||||
|
Inventories
|
(
|
)
|
(
|
)
|
||||
|
Prepaid expenses and other current assets
|
|
|
||||||
|
Deposits
|
(
|
)
|
(
|
)
|
||||
|
Increase (decrease) in liabilities:
|
||||||||
|
Accounts payable
|
|
(
|
)
|
|||||
|
Other payables and accrued expenses
|
(
|
)
|
(
|
)
|
||||
|
Tax receivable agreement liability
|
||||||||
|
Customer deposits
|
|
|
||||||
|
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from investing activities
|
||||||||
|
Purchases of property and equipment and construction in progress
|
(
|
)
|
(
|
)
|
||||
|
Proceeds from disposal of property and equipment
|
|
|
||||||
|
Cash used in acquisitions
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities
|
||||||||
|
Net borrowings from floor plan
|
|
|
||||||
|
Proceeds from long-term debt
|
|
|
||||||
|
Payments on long-term debt
|
(
|
)
|
(
|
)
|
||||
|
Payments of debt issuance costs
|
(
|
)
|
(
|
)
|
||||
|
Payments of September 2020 offering costs
|
|
(
|
)
|
|||||
|
Payments of tax withholdings for equity-based awards
|
(
|
)
|
||||||
|
Distributions to members
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by financing activities
|
|
|
||||||
|
Net change in cash
|
|
(
|
)
|
|||||
|
Cash and restricted cash at beginning of period
|
|
|
||||||
|
Cash and restricted cash at end of period
|
$
|
|
$
|
|
||||
|
Supplemental cash flow disclosures
|
||||||||
|
Cash paid for interest
|
$
|
|
$
|
|
||||
|
Cash paid for income taxes
|
|
|
||||||
|
Noncash items
|
||||||||
|
Acquisition purchase price funded by seller notes payable
|
$
|
|
$
|
|
||||
|
Acquisition purchase price funded by contingent consideration
|
|
|
||||||
|
Accrued purchase consideration
|
||||||||
|
Acquisition purchase price funded by issuance of Class A common stock
|
||||||||
|
Purchase of property and equipment funded by long-term debt
|
|
|
||||||
| Initial operating lease right-of-use assets for adoption of Topic 842 |
||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | ||||||||
| Distributions, declared not yet paid |
||||||||
OneWater Marine Inc. and Subsidiaries
(Unaudited)
| 1. |
Description of Company and Basis of Presentation
|
Description of the Business
OneWater Marine Inc. (“OneWater Inc.”) was incorporated in Delaware on
April 3, 2019 and was a wholly-owned subsidiary of One Water Marine Holdings, LLC (“OneWater LLC”). Pursuant to a reorganization on February 11, 2020 into a holding company structure for the purpose of facilitating an initial public
offering (the “IPO”) and related transactions in order to carry on the business of OneWater LLC and its subsidiaries (together with OneWater Marine Inc., the “Company”), OneWater Inc. is the holding company and its sole material asset is
the equity interest in OneWater LLC. OneWater LLC was organized as a limited liability company under the law of the State of Delaware in 2014 and is the parent company of One Water Assets & Operations (“OWAO”), and its wholly-owned
and majority-owned subsidiaries.
The Company is one of the largest recreational boat retailers in the
United States. The Company engages primarily in the retail sale, brokerage, and service of new and pre-owned boats, motors, trailers, marine parts and accessories, and offers slip and storage accommodations in certain locations. The
Company also arranges related boat financing, insurance, and extended service contracts for customers with third-party lenders and insurance companies. As of December 31, 2021, the Company operated a total of 75 retail locations, 8
distribution centers/warehouses and multiple online marketplaces in fifteen states, several of which are in the top twenty
states for marine retail expenditures.
Operating results are generally subject to seasonal variations. Demand
for products is generally highest during the third and fourth quarters of the fiscal year and, accordingly, revenues are generally expected to be higher during these periods. General economic conditions and consumer spending patterns can
negatively impact the Company’s operating results. Unfavorable local, regional, national, or global economic developments, global public health concerns, including the COVID-19 pandemic, or uncertainties could reduce consumer spending and
adversely affect the Company’s business. Consumer spending on discretionary goods may also decline as a result of lower consumer confidence levels, even if prevailing economic conditions are otherwise favorable. Economic conditions in
areas in which the Company operates stores, particularly in the Southeast, can have a major impact on the Company’s overall results of operations. Local influences such as corporate downsizing, inclement weather such as hurricanes and
other storms, environmental conditions, and other events could adversely affect the Company’s 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 the Company’s business.
Sales of new boats from the Company’s top ten brands represent approximately 34.5 %
and 41.2 % of total sales for the three months ended December 31, 2021 and 2020, respectively, making them major suppliers of
the Company. Of this amount, Malibu Boats, Inc., including its brands Malibu, Axis, Cobalt, Pursuit, Maverick, Hewes, Cobia and Pathfinder accounted for 14.1 % and 13.7 % of consolidated revenue for the three months ended
December 31, 2021 and 2020, respectively. As is typical in the industry, the Company contracts with most manufacturers under renewable annual dealer agreements, each of which provides the right to sell various makes and models of boats
within a given geographic region. Any change or termination of these agreements, or the agreements discussed above, for any reason, or changes in competitive, regulatory, or marketing practices, including rebate or incentive programs,
could adversely affect results of operations. Pre-owned boats are usually trade-ins from retail customers who are purchasing a boat from the Company.
Principles of Consolidation
As the sole managing member of OneWater LLC, OneWater Inc. operates and
controls all of the businesses and affairs of OneWater LLC, and through OneWater LLC and its wholly-owned subsidiaries as well as majority-owned subsidiaries over which the Company exercises control, conducts its business. As a result,
OneWater Inc. consolidates the financial results of OneWater LLC and its subsidiaries and reports non-controlling interests related to the portion of economic interest not owned units of OneWater LLC (the “OneWater LLC Units”) not owned
by OneWater Inc., which will reduce net income (loss) attributable to OneWater Inc.’s Class A stockholders. As of December 31, 2021, OneWater Inc. owned 90.6 % of the economic interest of OneWater LLC.
Additionally, the Company owns 80 % of the economic interest of Quality Assets and Operations, over which the Company exercises control and the minority interest in this
subsidiary has been recorded accordingly. See Note 4 for additional information regarding the acquisition.
Basis of Financial Statement Preparation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements, which do not include all the information and notes required by such accounting
principles for annual financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with OneWater Inc.’s Annual Report on Form 10-K for the year ended September 30, 2021. All adjustments,
consisting of only normal recurring adjustments considered necessary for fair presentation, have been reflected in these unaudited condensed consolidated financial statements.
All intercompany transactions have been eliminated in consolidation.
The Company operates on a fiscal year basis with the first day of the fiscal year being October 1, and the last day of the year ending on September 30. Additionally, since there are no differences between net income and comprehensive
income, all references to comprehensive income have been excluded from the accompanying unaudited condensed consolidated financial statements.
COVID-19 Pandemic
In March 2020, the Company began seeing the impact of the COVID-19
global pandemic on its business. During the subsequent months the Company followed the guidance of local governments and health officials, we temporarily closed or reduced staffing at certain departments and locations. All locations have
reopened and the Company has implemented cleaning and social distancing techniques at each of its locations. In light of the current environment, the Company’s sales team members are providing customers with the option of in-person or
virtual walkthroughs of inventory and/or private, at home or on water showings. The duration and related impact on the Company’s consolidated financial statements is currently uncertain, and it is possible that the pandemic, including the
resurgence of COVID-19 in certain geographic areas or the emergence of variant strains of the virus, may negatively impact the Company’s future results of operations. 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. The Company is monitoring and assessing the situation and preparing for implications to the business, including the ability to safely operate its stores,
access to inventory and customer demand.
| 2. |
Summary of Significant Accounting Policies
|
Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts
receivable, accounts payable, other payables and accrued expenses, floor plan notes payable, term note payable and revolving note payable with Truist Bank, seller notes payable and company vehicle notes payable. The carrying values approximate their fair values because of the nature of their terms and current market rates of these instruments.
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of
the new and pre-owned boat inventory is determined using the specific identification method. In assessing lower of cost or net realizable value, the Company considers the aging of the boats, historical sales of a brand and current market
conditions. The cost of parts and accessories is determined using the weighted average cost method.
Goodwill and Other Identifiable Intangible Assets
Goodwill
and intangible assets are accounted for in accordance with the Financial Accounting Standards Board (‘‘FASB’’) Accounting Standards Codification (‘‘ASC’’) 350, ‘‘Intangibles - Goodwill and Other’’ (‘‘ASC 350’’), which provides that the excess of cost over the fair value of the net assets
of businesses acquired, including other identifiable intangible assets, is recorded as goodwill. Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business
combination that are not individually identified and separately recognized. In accordance with ASC 350, Goodwill is tested for impairment at least annually, or more frequently when events or circumstances indicate that impairment might have occurred. ASC 350 also
states that if an entity determines, based on an assessment of certain qualitative factors, that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then a quantitative goodwill impairment test
is unnecessary.
In
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. 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 related to the acquisitions
the Company has completed. The Company has 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. Financial statement risk exists to the extent identifiable intangibles become impaired due to the decrease in the fair value of the identifiable assets.
Sales Tax
The Company collects sales tax on all of the Company’s sales to nonexempt
customers and remits the entire amount to the states that imposed the sales tax on and concurrent with specific sales transactions. The Company’s accounting policy is to exclude the tax collected and remitted to the states from revenues and cost of
sales.
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 or delivery to the customer. At the time of acceptance or delivery, the customer is able to
direct the use of, and obtain substantially all of the benefits at such time. We are the principal with respect to revenue from new, pre-owned and consignment sales and such revenue is recorded at the gross sales price. With respect to brokerage
transactions, we are acting as an agent in the transaction, therefore the fee or commission is recorded on a net basis.
Revenue from parts and service operations (boat maintenance and repairs) are recorded over time as services
are performed. Satisfaction of this performance obligation creates an asset with no alternative use for which an enforceable right to payment for performance to date exists within our contractual agreements. Each boat maintenance and repair
service is a single performance obligation that includes both the parts and labor associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a
period of one year or less from contract inception. The Company recorded contract assets in prepaid expenses and other current assets of $3.0
and $2.3 million as of December 31, 2021 and September 30, 2021, respectively. Revenue from parts and accessories sold directly to a
customer (not on a repair order) are recognized when control of the items is transferred to the customer, which is typically upon shipment.
Certain
parts and service transactions require the Company to perform shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to delivery). They are considered fulfillment activities, and
accordingly, the costs are accrued when the related revenue is recognized and are included in selling, general and administrative expenses.
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 commission is 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 charge back for a portion of the commission paid by the third-party financial institutions and insurance companies. We reserve for
these chargebacks based on our historical experience with repayments or defaults. Chargebacks were not material to the unaudited condensed consolidated financial statements for the three months ended December 31, 2021.
Contract
liabilities consist of deferred revenues from marina and storage operations and customer deposits and are classified in customer deposits in the Company’s unaudited condensed consolidated balance sheets. Deposits received from customers are
recorded as a liability until the related sales orders have been fulfilled by us and control of the vessel or part/accessory is transferred to the customer. The activity in customer deposits for the three months ended December 31, 2021 is as
follows:
|
($ in thousands)
|
Three Months Ended
December 31, 2021
|
|||
|
Beginning contract liability
|
$
|
|
||
|
Revenue recognized from contract liabilities
included in the beginning balance
|
( |
) | ||
|
Increases due to cash received, net of amounts
recognized in revenue during the period
|
||||
|
Ending contract liability
|
$
|
|
||
The following tables set forth percentages on the timing of revenue recognition
for the three months ended December 31, 2021 and 2020.
| Three Months Ended
December 31, 2021
|
Three Months Ended December 31, 2020 |
|||||||
|
Goods and services transferred at a point in time
|
|
%
|
|
%
|
||||
|
Goods and services transferred over time
|
|
%
|
|
%
|
||||
|
Total Revenue
|
|
%
|
|
%
|
||||
Income Taxes
OneWater Inc. is a corporation and as a result, is subject to U.S. federal, state
and local income taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the consolidated
financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the book value and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period in which the enactment date occurs. We recognize deferred tax assets to the extent we believe
these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income,
tax planning strategies and recent results of operations.
OneWater LLC is treated as a partnership for U.S. federal income tax purposes and
therefore does not pay U.S. federal income tax on its taxable income. Instead, the OneWater LLC members are liable for U.S. federal income tax on their respective shares of the Company’s taxable income reported on the members’ U.S. federal income
tax returns.
When there are situations with uncertainty as to the timing of the deduction, the
amount of the deduction, or the validity of the deduction, the Company adjusts the financial statements to reflect only those tax positions that are more-likely-than-not to be sustained. Positions that meet this criterion are measured using the
largest benefit that is more than 50% likely to be realized. Interest and penalties related to income taxes are included in the benefit (provision) for income taxes in the consolidated statements of operations.
Vendor Consideration Received
Consideration received from vendors is accounted for in accordance with FASB
Accounting Standards Codification 330, ‘‘Inventory’’ (‘‘ASC 330’’). Pursuant to ASC 330, manufacturer incentives based upon cumulative volume of sales and purchases are recorded as a reduction of inventory cost and related cost of sales when the
amounts are probable and reasonably estimable.
Use of 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, disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses
during the periods presented. Actual results could differ materially from these estimates. Estimates and assumptions are reviewed periodically, and the effects of any revisions are reflected in the consolidated financial statements in the period
they are determined to be necessary. Significant estimates made in the accompanying unaudited condensed consolidated financial statements include, but are not limited to, those relating to inventory mark downs, certain assumptions related to
intangible and long-lived assets, share based compensation, valuation of acquisition contingent consideration and accruals for expenses relating to business operations.
Segment Information
As of December 31, 2021 and September 30, 2021, the Company had one
| 3. |
New Accounting Pronouncements
|
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes”. The pronouncement is effective for a public company’s annual reporting periods beginning after December 15,
2020, and interim periods within those annual periods. The Company adopted the new guidance in fiscal first quarter 2022. The adoption of the guidance did not have a material impact on the Company’s financial statement.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform”,
which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the
potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. The guidance is effective upon issuance and expires on December 31, 2022. The Company is
currently assessing the impact of the LIBOR transition and this ASU on the Company’s financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers”, which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an
acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The pronouncement is effective for a public company’s annual reporting periods beginning after December 15, 2022, and
interim periods within those annual periods. The Company is currently evaluating the impact that this standard will have on the consolidated financial statements. The Company plans to adopt the pronouncement in fiscal year 2024.
| 4. |
Acquisitions
|
The results of operations of acquisitions are included in the
accompanying unaudited condensed consolidated financial statements from the acquisition date. The purchase price of acquisitions is allocated to identifiable tangible assets and intangible assets acquired based on their estimated fair
values at the acquisition date, with the excess being allocated to goodwill. Under the acquisition method of accounting, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on
information currently available. For the fiscal first quarter 2022 acquisitions, the valuation of tangible assets, assumed liabilities and identifiable intangible assets are preliminary as the acquisitions are subject to certain customary
closing and post-closing adjustments and certain valuations are not complete. Any changes to the value of identifiable intangible assets will be reclassified from goodwill upon the completion of the valuations.
Fiscal First Quarter 2022
For the three months ended December 31, 2021, the Company completed the following
transactions:
|
•
|
On October 1, 2021, Naples Boat Mart with
|
|
•
|
On November 30, 2021, T-H Marine, a leading provider of branded marine parts and accessories, with locations in Alabama, Florida, Illinois, Indiana,
Oklahoma and Texas
|
|
•
|
On December 1, 2021, Norfolk Marine Company with
|
|
•
|
On December 31, 2021, a majority interest in Quality Boats with
|
Consideration paid for the acquisitions was $302.1 million with $278.8 million paid at closing (net of cash acquired), $1.1
million financed through a note payable to the sellers bearing interest at a rate of 4.0 % per year, estimated payments of $10.0 million in contingent consideration, $5.4
million in accrued purchase consideration and the remaining $6.8 million with the issuance of shares of Class A common stock.
The notes are payable in one lump sum on December 1, 2024, with interest payments due quarterly. The estimated payments of contingent consideration are part of multiple earnouts varying from the achievement of certain post-acquisition
increases in adjusted EBITDA of the Company to the generation of acquisition leads for the Company. The acquisition contingent consideration was developed using weighted average projections based on the Company’s historical experience,
current forecasts for the industry and current expectations of the ability to generate viable acquisition leads. There are no
minimum payouts on the acquisition contingent consideration and the maximum payout is $18.8 million.
The table below summarizes the preliminary fair values of the assets
acquired and liabilities assumed at the acquisition date, including the goodwill recorded as a result of the transaction:
|
Summary of Assets Acquired and Liabilities Assumed
|
||||||||||||||||
|
($ in thousands)
|
T-H Marine
|
Quality Boats
|
Other
Acquisitions
|
Total
Acquisitions |
||||||||||||
|
Accounts receivable
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Inventories
|
|
|
|
|
||||||||||||
|
Prepaid expenses
|
|
|
|
|
||||||||||||
|
Property and equipment
|
|
|
|
|
||||||||||||
| Operating lease right-of-use assets |
||||||||||||||||
| Identifiable intangible assets |
||||||||||||||||
|
Goodwill
|
|
|
|
|
||||||||||||
|
Accounts payable
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Accrued expenses
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Customer deposits
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
| Operating lease liabilities |
( |
) | ( |
) | ( |
) | ||||||||||
|
Aggregate acquisition date fair value
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Consideration transferred
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Fair value of non-controlling interests
|
|
|
|
|
||||||||||||
|
Aggregate acquisition date fair value
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Included in our results for the three months ended December 31, 2021,
the acquisitions contributed $14.2 million to our consolidated revenue and $1.1 to our income before income tax expense, respectively. Costs related to acquisitions are included in transaction costs and primarily relate to legal, accounting,
valuation and other fees, which are charged directly to operations in the accompanying consolidated statements of operations as incurred in the amount of $3.0 for the three months ended December 31, 2021. Comparatively, we recorded $0.2
million in acquisition related transaction costs for the three months ended December 31, 2020.
The following unaudited pro forma summary presents consolidated
information as if all acquisitions in the three month periods ended December 31, 2021 and 2020, had occurred on October 1, 2020:
|
Three Months Ended
December 31, 2021
|
Three Months Ended
December 31, 2020
|
|||||||
|
($ in thousands)
|
||||||||
|
(Unaudited)
|
||||||||
|
Pro forma revenue
|
$
|
|
$
|
|
||||
|
Pro forma net income
|
$
|
|
$
|
|
||||
The amounts have been calculated by applying our accounting policies and estimates. The results of the acquired stores
have been adjusted to reflect the following: the reversal of goodwill amortization under the Private Company Council accounting alternative and the payment of management fees. Certain acquired entities completed acquisitions during the
periods presented, prior to our acquisition of the business. Their acquisitions are included in the results of their operations from the acquisition date forward but were not included on a pro forma basis. Pro forma net income has been
tax affected based on the Company’s effective tax rate in the historical periods presented.
We expect substantially all of the goodwill related to completed
acquisitions to be deductible for federal income tax purposes.
| 5. |
Inventories
|
Inventories consisted of the following at:
|
($ in thousands)
|
December 31,
2021
|
September 30,
2021
|
||||||
|
New vessels
|
$
|
|
$
|
|
||||
|
Pre-owned vessels
|
|
|
||||||
|
Work in process, parts and accessories
|
|
|
||||||
|
$
|
|
$
|
|
|||||
| 6. |
Goodwill and Other Identifiable Intangible Assets
|
Our acquisitions have resulted in the recording of goodwill and other identifiable intangible assets.
Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Identifiable intangible
assets consist of trade names related to the acquisitions the Company has completed. The changes in goodwill and identifiable intangible assets are as follows:
|
($ in thousands)
|
Goodwill
|
|||
|
Balance as of September 30, 2021
|
$
|
|
||
|
Goodwill acquisitions during the
three months ended December 31, 2021
|
|
|||
|
Balance as of December 31, 2021
|
$
|
|
||
|
($ in thousands)
|
Identifiable
Intangible Assets
|
|||
|
Balance as of September 30, 2021
|
$
|
|
||
|
Acquired identifiable intangible assets
during the three months ended December 31, 2021
|
|
|||
|
Balance as of December 31, 2021
|
$
|
|
||
| 7. |
Notes Payable — Floor Plan
|
The Company maintains an ongoing wholesale marine products inventory
financing program with a syndicate of banks. The program is administered by Wells Fargo Commercial Distribution Finance, LLC (“Wells Fargo”). On December 29, 2021, the Company entered into the Seventh Amended and Restated Inventory
Financing Agreement (the “Inventory Financing Facility”) to increase the maximum borrowing amount available to $500.0 million.
The Inventory Financing Facility expires on December 1, 2023. The outstanding balance of the facility was $195.6 million and $114.2 million, as of December 31, 2021 and September 31, 2021, respectively.
On December
1, 2021, the Company entered into the Fifth Amendment to the Sixth Amended and Restated Inventory Financing Agreement to, among other things, increase the amount of Permitted Indebtedness to $380 million and to extend the term of the Inventory Financing Facility to January 1, 2022 . The maximum borrowing amount available and interest rates remained unchanged.
On October
29, 2021, the Company entered into the Fourth Amendment to the Sixth Amended and Restated Inventory Financing Agreement, to, among other things, increase the amount of Permitted Indebtedness to $360 million and to extend the term of the Inventory Financing Facility to December 1, 2021 . The maximum borrowing amount available and interest rates remained unchanged.
On
September 23, 2021, the Company entered into the Third Amendment to the Sixth Amended and Restated Inventory Financing Agreement, to, among other things, address the future discontinuance of LIBOR by clarifying the mechanics related to
the transition to a replacement benchmark rate and to extend the term of the Inventory Financing Facility to November 1, 2021. The maximum borrowing amount available remained unchanged
Effective October 1, 2021, interest on new boats and for rental units
is calculated using the Adjusted Average SOFR (as defined in the Inventory Financing Facility) (“SOFR”) plus an
applicable margin of 2.75 % to 5.00 %
depending on the age of the inventory. Interest on pre-owned boats is calculated at the new boat rate plus 0.25 %. Wells Fargo
will finance 100.0 % of the vendor invoice price for new boats, engines and trailers. As of December 31, 2021 the interest rate
on the Inventory Financing Facility ranged from 2.91 % to 5.16 % for new inventory and 3.16 % to 5.41 % for pre-owned inventory. As of September 30, 2021 the interest rate on the Inventory Financing Facility was calculated under the legacy
London Inter-Bank Offering Rate and ranged from 3.08 % to 5.33 % for new inventory and 3.33 % to 5.58 % for pre-owned inventory. Borrowing capacity available at December 31, 2021 and September 30, 2021 was $304.4 million and $278.3
million, respectively.
The Inventory Financing Facility has certain financial and
non-financial covenants as specified in the agreement. The financial covenants include requirements to comply with a maximum Funded Debt to EBITDA Ratio (as defined in the Inventory Financing Facility) as well as a minimum Fixed Charge
Coverage Ratio (as defined in the Inventory Financing Facility). In addition, certain non-financial covenants could restrict the Company’s ability to sell assets (excluding inventory in the normal course of business), engage in certain
mergers and acquisitions, incur additional debt and pay cash dividends or distributions, among others. The Company was in compliance with all covenants at December 31, 2021.
The collateral for the Inventory Financing Facility consists primarily
of our inventory that is financed through the Inventory Financing Facility and related assets, including accounts receivable, bank accounts and proceeds of the foregoing, and excludes the collateral that underlies the term note payable to
Truist Bank.
| 8. |
Long-term Debt and Line of Credit
|
On November 30, 2021, the Company entered into an Incremental Amendment No. 2 (the “Second Amendment”) to the Credit Facility.
The Second Amendment amends the Credit Facility to, among other things, provide for an incremental term loan (the “Incremental Term Loan) in an aggregate principal amount equal to $200.0 million, which will be added to, and constitute part of, the existing $110.0
million term loan and will be on the same terms. Additionally, the Second Amendment further provides a $20.0 million increase
in the revolving commitment, which will be added to, and constitute part of, the existing $30.0 revolving commitment.
The Credit Agreement is collateralized by certain real and personal property (including certain capital stock) of the Company
and its subsidiaries. The collateral does not include inventory and certain other assets of the Company’s subsidiaries financed under the Inventory Financing Facility. The Credit Agreement is subject to certain financial covenants related
to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio. The credit agreement also contains non-financial covenants and restrictive provisions that, among other things, limit the ability of
the Company to incur additional debt, transfer or dispose of all of its assets, make certain investments, loans or payments and engage in certain transactions with affiliates. The Company was in compliance with all covenants at December
31, 2021.
Long-term debt consisted of the following at:
|
($ in thousands)
|
December 31, 2021
|
September 30, 2021
|
||||||
|
Term note payable to Truist Bank, secured
and bearing interest at
|
$
|
|
$
|
|
||||
|
Revolving note payable for an amount up
to $
|
|
|
||||||
|
Note payable to commercial vehicle
lenders secured by the value of the vehicles bearing interest at rates ranging from
|
|
|
||||||
|
Note payable to Central Marine Services,
Inc., unsecured and bearing interest at
|
|
|
||||||
|
Note payable to Tom George Yacht Sales,
Inc., unsecured and bearing interest at
|
|
|
||||||
|
Note payable to Ocean Blue Yacht Sales,
unsecured and bearing interest at
|
|
|
||||||
|
Note payable to Norfolk Marine Company,
unsecured and bearing interest at
|
|
|
||||||
|
Note payable to Slalom Shop, LLC,
unsecured and bearing interest at
|
|
|
||||||
|
Total debt outstanding
|
|
|
||||||
|
Less current portion (net of debt
issuance costs)
|
(
|
)
|
(
|
)
|
||||
|
Less unamortized portion of debt issuance
costs
|
(
|
)
|
(
|
)
|
||||
|
Long-term debt, net of current portion of
unamortized debt issuance costs
|
$
|
|
$
|
|
||||
| 9. |
Stockholders’ and Members’ Equity
|
Equity-Based Compensation
We maintain the OneWater Marine Inc. Omnibus Incentive Plan (the “LTIP”) to incentivize individuals
providing services to OneWater Inc. and its subsidiaries and affiliates. The LTIP provides for the grant, from time to time, at the discretion of the board of directors of OneWater Marine Inc. (the “Board”) or a committee thereof, of (1) stock
options, (2) stock appreciation rights, (3) restricted stock, (4) restricted stock units, (5) stock awards, (6) dividend equivalents, (7) other stock-based awards, (8) cash awards, (9) substitute awards and (10) performance awards. The total
number of shares reserved for issuance under the LTIP that may be issued pursuant to incentive stock options (which generally are stock options that meet the requirements of Section 422 of the Code) is 1,528,224 . The LTIP is and will continue to be administered by the Board, except to the extent the Board elects a committee of directors to administer the LTIP. Class A
common stock subject to an award that expires or is cancelled, forfeited, exchanged, settled in cash or otherwise terminated without delivery of shares (including forfeiture of restricted stock awards) and shares withheld to pay the exercise
price of, or to satisfy the withholding obligations with respect to, an award will again be available for delivery pursuant to other awards under the LTIP.
During the three months ended December 31, 2021, the Board approved the grant
of 52,227 performance-based restricted stock units, which represents 100 % of the target award. Performance-based restricted stock units provide an opportunity for the recipient to receive a number of shares of our common stock based on our
performance during fiscal year 2022 as measured against objective performance goals as determined by the Board. The actual number of units earned may range from 0 % to 200 % of the target number of units depending upon achievement of the performance goals.
Performance-based restricted stock units vest in three equal annual installments, commencing on September 30, 2022. Upon vesting, each
performance-based restricted stock unit equals one share of common stock of the Company. As of December 31, 2021, the Company
estimated achievement of the performance targets at 100 %.
During the three months ended December 31, 2021, the Board approved the grant
of 105,880 time-based restricted stock units. 13,062 restricted stock units fully vest on September 30, 2022 and the remaining 92,818 restricted
stock units vest in three equal annual installments commencing on September 30, 2022.
Compensation cost for time-based restricted stock units is based on the closing price of our common stock on the date immediately
preceding the grant and is recognized on a graded basis over the applicable vesting periods. Compensation cost for performance share units is based on the closing price of our common stock on the date immediately preceding the grant and the
ultimate performance level achieved and is recognized on a graded basis over the three-year vesting period. The Company recognized $2.1 million and $1.1 million of
compensation expense for the three months ended December 31, 2021 and 2020, respectively, which includes $1.0 million and $0.4 million of compensation expense for the three months ended December 31, 2021 and 2020, respectively, for performance share units.
The following table further summarizes activity related to restricted stock units for the three months ended December 31, 2021:
|
Restricted Stock Unit Awards
|
||||||||
|
Number of Shares
|
Weighted Average
Grant Date Fair Value
($)
|
|||||||
|
Unvested at September 30, 2021
|
|
$
|
|
|||||
|
Awarded
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Forfeited
|
|
|
||||||
|
Unvested at December 31, 2021
|
|
$
|
|
|||||
As of December 31, 2021, the total unrecognized compensation expense related to outstanding equity
awards was $11.3 million, which the Company expects to recognize over a weighted-average period of 1.5 years.
We issue shares of our Class A common stock upon the vesting of performance-based
restricted stock units and time-based restricted stock units. These shares are issued from our authorized and not outstanding common stock. In addition, in connection with the vesting of restricted stock units, we repurchase a portion of shares
issued equal to the amount of employee income tax withholding.
Earnings Per Share
Basic and diluted earnings per share of Class A common stock is computed by dividing net income
attributable to OneWater Inc. by the weighted-average number of Class A common stock outstanding during the period. Diluted earnings per share is computed by giving effect to all potentially dilutive shares.
The following table sets forth the calculation of earnings per share for the three months ended December
31, 2021 and 2020 (in thousands, except per share data):
|
Earnings per share:
|
Three Months Ended
December 31, 2021
|
Three Months Ended
December 31, 2020
|
||||||
|
Numerator:
|
||||||||
|
Net income attributable to OneWater Inc
|
$
|
|
$
|
|
||||
|
Denominator:
|
||||||||
|
Weighted-average number of unrestricted
outstanding common shares used to calculate basic net income per share
|
|
|
||||||
|
Effect of dilutive securities:
|
||||||||
|
Restricted stock units
|
|
|
||||||
|
Diluted weighted-average shares of Class A common
stock outstanding used to calculate diluted earnings per share
|
|
|
||||||
|
Earnings per share of Class A
common stock – basic
|
$
|
|
$
|
|
||||
|
Earnings per share of Class A
common stock – diluted
|
$
|
|
$
|
|
||||
Shares of Class B common stock and unvested restricted stock units do not share
in the income (losses) of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share under the two-class method has not been presented.
The following number of weighted-average potentially dilutive shares were
excluded from the calculation of diluted earnings per share because the effect of including such potentially dilutive shares would have been antidilutive upon conversion (in thousands):
|
Three Months Ended
December 31, 2021
|
Three Months Ended
December 31, 2020
|
|||||||
|
Class B common stock
|
|
|
||||||
|
Restricted Stock Units
|
|
|
||||||
|
|
|
|||||||
Employee Stock Purchase Plan
At the Company’s 2021 Annual Meeting of Stockholders (the “Annual Meeting”), held on February 23, 2021, the Company’s
stockholders approved the OneWater Marine Inc. 2021 Employee Stock Purchase Plan (the “ESPP”), which was approved and adopted by the Board as of January 13, 2021 (the “Adoption Date”), subject to stockholder approval at the Annual Meeting. The
effective date of the ESPP is February 23, 2021, and, unless earlier terminated, the ESPP will expire on the twentieth anniversary of the Adoption Date. The ESPP will be administered by the Board or by one or more committees to which the Board
delegates such administration.
The ESPP enables eligible employees to purchase shares of the Company’s Class A common stock at a discount through participation
in discrete offering periods. The ESPP is intended to qualify as an employee stock purchase plan under section 423 of the Internal Revenue Code of 1986, as amended. Up to a maximum of 299,505 shares of the Company’s Class A common stock may be issued under the ESPP, subject to certain adjustments as set forth in the ESPP. On the first day of each
fiscal year during the term of the ESPP, beginning on October 1, and ending on (and including) September 30, the number of shares of Class A common stock that may be issued under the ESPP will increase by a number of shares equal to the least
of (i) 1 % of the outstanding shares on the Adoption Date, or (ii) such lesser number of shares (including zero) that the
administrator determines for purposes of the annual increase for that fiscal year. The number of shares of Class A common stock that may be granted to any single participant in any single option period will be subject to certain limitations
set forth in the plan. As of December 31, 2021, there has not yet been an offering period under the ESPP.
Distributions
During the three months ended December 31, 2021, the Company made distributions to OneWater Unit
Holders for certain permitted tax payments.
| 10. |
Fair Value Measurements
|
In determining fair value, the Company uses various valuation approaches including market, income and/or cost approaches. FASB standard ‘‘Fair Value Measurements’’ (Topic 820)
establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable
inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are those that reflect the Company’s expectation of the
assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as
follows:
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Assets utilizing Level 1 inputs
include marketable securities that are actively traded.
Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Asset and liability measurements utilizing Level 3 inputs
include those used in estimating fair value of non-financial assets and non-financial liabilities in purchase acquisitions, those used in assessing impairment of property, plant and equipment and other intangibles, those used in the
reporting unit valuation in the annual goodwill impairment evaluation and those used in the valuation of contingent consideration.
The availability of observable inputs can vary and is affected by a wide variety of factors. To the extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment required in determining fair value is greatest for assets and liabilities categorized in Level 3. In certain cases,
the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is
determined based on the lowest level input that is significant to the fair value measurement. Fair value measurements can be volatile based on various factors that may or may not be within the Company’s control.
The following tables summarize the Company’s financial liabilities measured at fair value in the accompanying unaudited condensed consolidated balance sheets as of December 31,
2021 and September 30, 2021
|
December 31, 2021
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
($ in thousands)
|
||||||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Contingent Consideration
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
September 30, 2021
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
($ in thousands)
|
||||||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Contingent Consideration
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
There were no
We estimate the fair value of contingent consideration using a probability-weighted discounted cash flow model based on forecasted future earnings or forecasted probabilities of
producing acquisition leads. The acquisition contingent consideration liability has been accounted for based on inputs that are unobservable and significant to the overall fair value measurement (Level 3). The contingent consideration
balance is recorded in other payables and accrued expenses and other long-term liabilities in the unaudited condensed consolidated balance sheets. Changes in fair value and net present value of contingent consideration are included in
change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations. The fair value of contingent consideration is reassessed on a quarterly basis.
The following table sets forth the changes in fair value of our contingent consideration for the three months ended December 31, 2021:
|
($ in thousands)
|
Contingent Consideration
|
|||
|
Balance as of September 30, 2021
|
$
|
|
||
|
Additions from acquisitions
|
|
|||
|
Settlement of contingent consideration
|
|
|||
|
Change in fair value, including accretion
|
|
|||
|
Balance as of December 31, 2021
|
$
|
|
||
| 11. |
Income Taxes
|
The Company is a corporation and, as a result is subject to U.S. federal, state and local
income taxes. OneWater LLC is treated as a pass-through entity for U.S. federal tax purposes and in most state and local jurisdictions. As such, OneWater LLC’s members, including the Company, are liable for federal and state income taxes
on their respective shares of OneWater LLC’s taxable income.
Our effective tax rates of 17.2 % and 17.6 % for the three months ending December
31, 2021 and 2020, respectively, differ from
statutory rates primarily due to earnings allocated to non-controlling interests.
The Company recognizes deferred tax assets to the extent it believes
these assets are more-likely-than-not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future
taxable income, tax planning strategies and recent results of operations. Based on our cumulative earnings history and forecasted future sources of taxable income, we believe that we will fully realize our deferred tax asset in the
future. The Company has not recorded a valuation allowance.
As of December 31, 2021 and September 30, 2021, the Company has not recognized any uncertain tax positions, penalties, or interest as management has concluded that no such positions exist. The
Company is subject to examination in the US Federal and certain state tax jurisdictions for the tax years beginning with the year ended September 30, 2020. The Company is not currently under an income tax audit in any U.S. or state
jurisdiction for any tax year.
Tax Receivable Agreement
In connection with the IPO, the Company entered into a tax receivable agreement (the “Tax Receivable Agreement”) with certain of the owners of OneWater
LLC. As of December 31, 2021 and September 30, 2021, our liability under the Tax Receivable Agreement was $46.2
million and $40.1 million, respectively, representing 85 % of the calculated net cash savings in U.S. federal, state and local income tax and franchise tax that OneWater Inc. anticipates realizing in future years
from the result of certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of OneWater Inc.’s acquisition of OneWater LLC Units pursuant to an exercise of the Redemption Right or the Call
Right (each as defined in the amended and restated limited liability company agreement of OneWater LLC (the “OneWater LLC Agreement”)).
The projection of future taxable income involves significant judgment. Actual taxable income may differ from our estimates, which could significantly
impact our ability to make payments under the Tax Receivable Agreement. We have determined it is more-likely-than-not that we will be able to utilize all of our deferred tax assets subject to the Tax Receivable Agreement; therefore, we
have recorded a liability under the Tax Receivable Agreement related to the tax savings we may realize from certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of OneWater Inc.’s
acquisition of OneWater LLC Units pursuant to an exercise of the Redemption Right or Call Right (each as defined in the OneWater LLC Agreement). If we determine the utilization of these deferred tax assets is not more-likely-than-not in
the future, our estimate of amounts to be paid under the Tax Receivable Agreement would be reduced. In this scenario, the reduction of the liability under the Tax Receivable Agreement would result in a benefit to our consolidated
statements of operations.
| 12. |
Contingencies and
Commitments
|
Employment Agreements
The Company is party to employment agreements with certain executives, which provide for compensation, other benefits and severance payments
under certain circumstances. The Company also has consulting and noncompete agreements in place with previous owners of acquired companies.
Claims and Litigation
The Company is involved in various legal proceedings as either the defendant or plaintiff. Due to their nature, such legal proceedings involve inherent uncertainties including, but not
limited to, court rulings, negotiations between the affected parties and other actions. Management assesses the probability of losses or gains for such contingencies and accrues a liability and/or discloses the relevant
circumstances as appropriate. In the opinion of management, it is not reasonably probable that the pending litigation, disputes or claims against the Company, if decided adversely, will have a material adverse effect on its
financial condition, results of operations or cash flows. Additionally, based on the Company’s review of the various types of claims currently known, there is no indication of a material reasonably possible loss in excess of amounts
accrued. The Company currently does not anticipate that any known claim will materially adversely affect our financial condition, liquidity, or results of operations. However, the outcome of any matter cannot be predicted with
certainty, and an unfavorable resolution of one or more matters presently known or arising in the future could have a material adverse effect on the Company’s financial condition, liquidity or results of operations.
Risk Management
The Company is exposed to various
risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions and natural disasters for which the Company carries commercial insurance. There have been no significant reductions in coverage from the
prior year and settlements have not exceeded coverage in the past years.
| 13. |
Leases
|
The Company leases
real estate and equipment under operating lease agreements. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. For
leases with terms in excess of 12 months, we record a right-of-use (“ROU”) asset and lease liability based on the present value of lease payments over the lease term. We do not have any significant leases that have not yet commenced that create
significant rights and obligations for us. The Company has elected the practical expedient not to separate lease and non-lease components for all leases that qualify.
Our real estate and
equipment leases often require payment of maintenance, real estate taxes and insurance. These costs are generally variable and based on actual costs incurred by the lessor. These amounts are not included in the consideration of the contract when
determining the ROU asset and lease liability but are reflected as variable lease payments.
Most leases include
one or more options to renew, with renewal terms that can extend the lease from to or more years. The exercise of the lease renewal option is typically at our sole discretion. If it is reasonably certain that we will exercise the option to renew, the
period covered by the options are included in the lease term and are recognized as part of our ROU assets and lease liabilities. Certain leases include the option to purchase the leased property. The depreciable life of assets and leasehold
improvements are limited by the expected lease term, which includes renewal options reasonably certain to be exercised.
Certain of our lease
agreements include rental payments based on percentage of retail sales over contractual levels and others include rental payments adjusted periodically based on index rates. Our lease agreements do not contain any material residual value
guarantees or material restrictive covenants.
| 14. |
Related Party Transactions
|
In accordance with agreements approved by the Board, we purchased
inventory, in conjunction with our retail sale of the products, from certain entities affiliated with common members of the Company. Total purchases incurred under these arrangements were $33.3 million and $15.1 million for the three months ended
December 31, 2021 and 2020, respectively.
In accordance with agreements approved by the Board, certain entities
affiliated with common members of the Company receive fees for rent of commercial property. Total expenses incurred under these arrangements were $0.7
million and $0.6 million for the three months ended December 31, 2021 and 2020, respectively.
In accordance with agreements approved by the Board, the Company received
fees from certain entities and individuals affiliated with common members of the Company for goods and services. Total fees recorded under these arrangements were $0.1
In accordance with agreements approved by the Board, the Company made
payments to certain entities and individuals affiliated with common members of the Company for goods and services. Total payments recorded under these arrangements were $0.1 million for the three months ended December 31, 2021. No
amounts were recorded under these arrangements for the three months ended December 31, 2020.
In connection with transactions noted above, the Company owed $7.2 million and $1.0 million as
recorded within accounts payable as of December 31, 2021 and September 30, 2021, respectively. Additionally, the Company was due $0.1 million and $32,368 as recorded within accounts receivable as of
December 31, 2021 and September 30, 2021, respectively.
| 15. |
Subsequent Events
|
On February 1, 2022, the
Company completed the acquisition of JIF Marine pursuant to the terms of the purchase agreement. The aggregate consideration is subject to customary post-closing adjustments and is not individually significant.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AND RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this report to the "Company," "we," "us," and "our" refer to OneWater Marine Inc. and its consolidated subsidiaries. The following
discussion and analysis should be read in conjunction with the accompanying financial statements and related notes. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected
performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those factors discussed above in “Cautionary Statement Regarding Forward-Looking Statements” and described under the heading “Risk Factors” included in our Annual Report on
Form 10-K for the year ended September 30, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 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 marine retailers in the United States with 75 retail locations, 8
distribution centers/warehouses and multiple online marketplaces as of December 31, 2021. Our retail locations are located in highly attractive markets throughout the Southeast, Gulf Coast, Mid-Atlantic and Northeast, many of which are in top
twenty states for marine retail expenditures. We believe that we are a market leader by volume in sales of premium boats in 13 out of the 18 markets in which we operate. In fiscal year 2021, we sold approximately 9,500 new and pre-owned boats,
many of which 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 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 retail locations. Since the combination in 2014, we have acquired a total of 55 additional retail locations, 8 distribution centers/warehouses and multiple online marketplaces through 26 acquisitions. Our current
portfolio of companies as of December 31, 2021 consists of multiple brands which are recognized on a local, regional or national basis. Because of this, we believe we are one of the largest and fastest-growing premium recreational marine retailers
in the United States based on number of stores and total boats sold. While we have opportunistically opened new locations in select markets, we believe that it is generally more effective economically and operationally to acquire existing locations
with experienced staff and established reputations.
The marine retail industry is highly fragmented, as evidenced by the over 4,000 boat dealers nationwide. Most competing boat retailers offer new boat sales, pre-owned boat sales, finance and
insurance products, repair and maintenance services and parts and accessories and are operated by local business owners with three or fewer stores. Despite our size, we comprise less than 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, has and may continue to have a significant impact on our operations and financial
condition. National, state and local governments in affected regions have implemented and may continue to implement safety precautions, including shelter in place orders, travel restrictions, business closures, cancellations of public gatherings,
including boat shows, and other measures. At times, 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. 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.
While we continue to monitor the impact of the COVID-19 pandemic on our business and operations, our financial results for the three months ended December 31, 2021 suggest that spending in all
our regions and across product lines has proven resilient despite the challenges posed by the pandemic as customers have continued to focus on socially distanced outdoor 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.
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 a total of 55 additional retail locations, 8 distribution
centers/warehouses and multiple online marketplaces through 26 acquisitions. Our team remains focused on expanding our retail 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 marine 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 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 marine 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.
General Economic Conditions
General economic conditions and consumer spending patterns can negatively impact our operating results. Unfavorable local, regional, national, or global economic developments or uncertainties,
including the adverse economic effects of the COVID-19 pandemic or a prolonged economic downturn, could reduce consumer spending and adversely affect our business. Consumer spending on discretionary goods may also decline as a result of lower
consumer confidence levels, even if prevailing economic conditions are otherwise favorable. Economic conditions in areas in which we operate stores, particularly in the Southeast, can have a major impact on our overall results of operations. Local
influences, such as corporate downsizing and inclement weather such as hurricanes and other storms, environmental conditions, global public health concerns and events could adversely affect our operations in certain markets and in certain periods.
Any extended period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business.
Our business was significantly impacted during the recessionary period that began in 2007. This period of weakness in consumer spending and depressed economic conditions had a substantial
negative effect on our operating results. In response to these conditions we reduced our inventory purchases, closed certain stores and reduced headcount. Additionally, in an effort to counteract the downturn, we increased our focus on pre-owned
sales, parts and repair services, and finance and insurance services. As a result, we surpassed our pre-recession sales levels in less than 24 months. While we believe the measures we took significantly reduced the impact of the downturn on the
business, we cannot guarantee similar results in the event of a future downturn. Additionally, we cannot predict the timing or length of unfavorable economic or industry conditions, including a downturn as a result of the COVID-19 pandemic, or the
extent to which they could adversely affect our operating results.
Although past economic conditions have adversely affected our operating results, we believe we are capable of responding in a manner that allows us to substantially outperform the industry and
gain market share. We believe our ability to capture such market share enables us to align our retail strategies with the desires of customers. We expect our core strengths, including retail and acquisition strategies, will allow us to capitalize
on growth opportunities as they occur, despite market conditions.
Critical Accounting Policies and Significant Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent
assets and liabilities, each as of the date of the financial statements, and revenues and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are
reflected in the financial statements in the period in which they are determined to be necessary. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements.
Set forth below are the policies and estimates that we have identified as critical to our business operations and understanding our results of operations, based on the high degree of judgment or complexity in their application.
Revenue Recognition
Revenue is recognized from the sale of products and commissions earned on new and pre-owned boats (including used, brokerage, consignment and wholesale) when ownership is transferred to the
customer, which is generally upon acceptance by or delivery to the customer. At the time of acceptance or delivery, the customer is able to direct the use of the product and obtain substantially all of the benefits at such time. We are the
principal with respect to revenue from new, pre-owned and consignment sales and such revenue is recorded at the gross sales price. With respect to brokerage transactions, we are acting as an agent in the transaction, therefore the fee or commission
is recorded on a net basis.
Revenue from parts and service operations (boat maintenance and repairs) is recorded over time as services are performed. Satisfaction of this performance obligation creates an asset with no
alternative use for which an enforceable right to payment for performance to date exists within our contractual agreements. Each boat maintenance and repair service is a single performance obligation that includes both the parts and labor
associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a period of one year or less from contract inception. The Company recorded contract
assets in prepaid expenses and other current assets of $3.0 million and $2.3 million as of December 31, 2021 and September 30, 2021, respectively. Revenue from parts and accessories sold directly to a customer (not on a repair order) are recognized
when control of the items is transferred to the customer, which is typically upon shipment.
Deferred revenue from storage and marina operations is recognized on a straight-line basis over the term of the contract as services are completed. Revenue from arranging financing, insurance
and extended warranty contracts to customers through various third-party financial institutions and insurance companies is recognized when the related boats are sold. We do not directly finance our customers’ boat, motor or trailer purchases. We
are acting as an agent in the transaction, therefore the commissions are recorded on a net basis. Subject to our agreements and in the event of early cancellation, prepayment or default of such loans or insurance contracts by the customer, we may
be assessed a chargeback for a portion of the commission paid by the third-party financial institutions and insurance companies. We reserve for these chargebacks based on our historical experience with repayments or defaults. Chargebacks were not
material to the unaudited condensed consolidated financial statements for the three months ended December 31, 2021.
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of new and pre-owned boat inventory is determined using the specific identification method. New and pre-owned boat sales histories indicated
that the overwhelming majority of such boats are sold for, or in excess of, the cost to purchase those boats. In assessing the lower of cost or net realizable value, we consider the aging of the boats, historical sales of a particular product and
current market conditions. There are inherent uncertainties in assessing net realizable value as management must make assumptions and apply judgment to changes in the market, brands and other factors that drive consumer preferences and spending. We
typically do not maintain a boat inventory reserve. The cost of parts and accessories is determined using the weighted average cost method. Inventory is reported net of write downs for obsolete and slow moving items of approximately $0.8 million at
December 31, 2021 and September 30, 2021.
Goodwill and Other Intangible Assets
In accordance with ASC 350, we review goodwill for impairment annually in the fourth fiscal quarter, or more often if events or circumstances indicate that impairment may have occurred. When evaluating goodwill for
impairment, if the fair value of a reporting unit is less than its carrying value, the difference would represent the amount of required goodwill impairment in accordance with ASC 350. To the extent the reporting unit’s earnings decline
significantly or there are changes in one or more of these inputs that would result in a lower valuation, it could cause the carrying value of the reporting unit to exceed its fair value and thus require the Company to record goodwill impairment.
The quantitative goodwill impairment test requires a determination of whether the fair value of a reporting unit is less than its carrying value. We estimate the fair value of our reporting unit using an “income”
valuation approach, which discounts projected free cash flows of the reporting unit at a computed weighted average cost of capital as the discount rate. The income valuation approach requires the use of significant estimates and assumptions, which
include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions. In connection with this process, we also reconcile the estimated
aggregate fair value of our reporting unit to our market capitalization, including consideration of a control premium that represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest. We believe
that this reconciliation process is consistent with a market participant perspective. We base our cash flow forecasts on our knowledge of the industry, our recent performance, our expectations of our future performance, and other assumptions we
believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
Identifiable intangible assets consist of trade names related to the acquisitions we have completed. We have determined that trade names have an indefinite life, as there are no economic, contractual or other factors
that limit their useful lives and they are expected to generate value as long as the trade name is utilized by the dealer group, and therefore, are not subject to amortization.
The quantitative impairment test for trade names requires the comparison of the trade names’ estimated fair value to carrying value on an individual basis. Fair values of trade names are estimated using Level 3 inputs
by discounting expected future cash flows of the trade name. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions, which include revenue growth rates and future operating margins used to
calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions, and other marketplace data we believe to be reasonable. Financial statement risk exists to the extent identifiable intangibles
become impaired due to the decrease in the fair value of the identifiable assets.
Business Combinations
We account for business combinations using the acquisition method of accounting, which requires recognition of assets acquired and liabilities assumed at fair value as of the date of the acquisition. Determination of
the estimated fair value assigned to each asset acquired or liability assumed can materially impact the net income in subsequent periods through depreciation and amortization and potential impairment charges.
The most critical areas of judgment in applying the acquisition method include selecting the appropriate valuation techniques and assumptions that are used to measure the acquired assets and assumed liabilities at fair
value, particularly for inventory, acquisition contingent consideration, trade names and goodwill. The fair value of acquired inventory is based on manufacturer invoice cost, curtailments, and market data. The significant estimates used to value
acquisition contingent consideration are future earnings and discount rates. We apply an income approach for the fair value of trade names, which discounts the estimate of future net cash flow using an appropriate discount rate that reflects the
risks associated with such projected future cash flow.
In selecting the techniques and assumptions noted above, we generally engage third-party, independent valuation professionals to assist us in developing the assumptions and applying the valuation techniques to a
particular business combination transaction. In particular, the discount rates selected are compared to and evaluated with (i) the industry weighted-average cost of capital, (ii) the inherent risks associated with each type of asset and (iii) the
level and timing of future cash flows appropriately reflecting market participant assumptions.
How We Evaluate Our Operations
Revenue
We have a diversified revenue profile that is comprised of new boat sales, pre-owned boat sales, F&I products, repair and maintenance services, and parts and accessories. During different
phases of the economic cycle, consumer behavior may shift away from new boats; however, we are well-positioned to benefit from revenue from pre-owned boats, repair and maintenance services, and parts and accessories, which have all historically
increased during periods of economic uncertainty. We generate pre-owned sales from boats traded-in for new and pre-owned boats, boats purchased from consumers, brokerage transactions, consignment sales and wholesale sales. We continue to focus on
all aspects of our business including non-boat sales of finance & insurance products, repair and maintenance services, and parts and accessories. Although non-boat sales contributed 13.9% and 11.1% to revenue in the three months ended December
31, 2021 and 2020, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 26.3% and 28.6% to gross profit in the three months ended December 31, 2021 and 2020, respectively. We have also
diversified our business across geographies and dealership types (e.g., fresh water and salt water) in order to reduce the effects of seasonality. In addition to seasonality, revenue and operating results may also be significantly affected by
quarter-to-quarter changes in economic conditions, manufacturer incentive programs, adverse weather conditions and other developments outside of our control.
Gross Profit
We calculate gross profit as revenue less cost of sales. Cost of sales consists of actual amounts paid for products, costs of services (primarily labor), transportation costs from manufacturers
to our retail stores and vendor consideration. Gross profit excludes depreciation and amortization, which is presented separately in our consolidated statements of operations.
Gross Profit Margin
Our overall gross profit margin varies with our revenue mix. Sales of new and pre-owned boats, which have comparable margins, generally result in a lower gross profit margin than our non-boat
sales. As a result, when revenue from non-boat sales increases as a percentage of total revenue, we expect our overall gross profit margin to increase.
Selling, General and Administrative Expenses
Selling, general, and administrative (‘‘SG&A’’) expenses consist primarily of salaries and incentive-based compensation, advertising, rent, insurance, utilities, and other customary
operating expenses. A portion of our cost structure is variable (such as sales commissions and incentive compensation), or controllable (such as advertising), which we believe allows us to adapt to changes in the retail environment over the long
term. We typically evaluate our variable expenses, selling expenses and all other SG&A expenses in the aggregate as a percentage of total revenue.
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, change in fair value of contingent consideration, loss on extinguishment of debt and transaction costs. See ‘‘—Comparison of Non-GAAP Financial Measure’’ for more information and a
reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Summary of Acquisitions
The comparability of our results of operations between the periods discussed below is naturally affected by the acquisitions we have completed during such periods. We are also continuously
evaluating and pursuing acquisitions on an ongoing basis, and such acquisitions, if completed, will continue to impact the comparability of our financial results. While we expect continued growth and strategic acquisitions in the future, our
acquisitions may have materially different characteristics than our historical results, and such differences in economics may impact the comparability of our future results of operations to our historical results.
Fiscal First Quarter 2022 Acquisitions
| • |
Effective October 1, 2021, we acquired Naples Boat Mart, a full-service marine retailer with one location in Florida.
|
| • |
Effective November 30, 2021, we acquired T-H Marine, a leading provider of branded marine parts and accessories, with locations in Alabama, Florida, Illinois, Indiana, Oklahoma and Texas.
|
| • |
Effective December 1, 2021, we acquired Norfolk Marine Company, a full-service marine retailer with one location in Virginia.
|
| • |
Effective December 31, 2021, we acquired a majority interest in Quality Boats, a full-service marine retailer with three locations in Florida.
|
We refer to the fiscal first quarter 2022 acquisitions described above collectively as the ‘‘2022 Acquisitions.’’ The acquisitions of Naples Boat Mart, T-H Marine and Norfolk Marine Company are
partially reflected in our unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2021. The majority interest in Quality Boats was not included in the unaudited Condensed Consolidated Statements of
Operations for the three months ended December 31, 2021 as the acquisition was completed on the last day of the period.
Fiscal First Quarter 2021 Acquisitions
| • |
Effective December 1, 2020, we acquired Tom George Yacht Sales, Inc, a full-service marine retailer based in Florida with two stores.
|
| • |
Effective December 31, 2020, we acquired Walker Marine Group, Inc., a full-service marine retailer based in Florida with five stores.
|
| • |
Effective December 31, 2020, we acquired Roscioli Yachting Center, Inc., a full-service marina and yachting facility located in Florida, including the related real estate and in-water slips.
|
We refer to the fiscal first quarter 2021 acquisitions described above collectively as the ‘‘2021 Acquisitions.’’ The Tom George Yacht Sales, Inc. acquisition is partially reflected in our
unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2020 and fully reflected for the three months ended December 31, 2021. The Walker Marine Group, Inc. and Roscioli Yachting Center, Inc. acquisitions
were not included in the unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2020 as they were completed on the last day of the period but are fully reflected in the three months ended December 31,
2021.
Other Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations
Our historical financial results discussed below may not be comparable to our future financial results for the reasons described below.
| • |
OneWater Inc. is subject to U.S. federal, state and local income taxes as a corporation. Our accounting predecessor, OneWater LLC, was and is treated as a partnership for U.S. federal income tax purposes,
and as such, was generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to its taxable income is passed through to its members. Accordingly, the financial data attributable to our
predecessor contains no provision for U.S. federal income taxes or income taxes in any state or locality. OneWater Inc. was subject to U.S. federal, state and local taxes at an estimated blended statutory rate of 24.0% of pre-tax earnings
for the three months ended December 31, 2021.
|
| • |
As we further implement controls, processes and infrastructure applicable to companies with publicly traded equity securities, it is likely that we will incur additional SG&A expenses relative to
historical periods. Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy.
|
Results of Operations
Three Months Ended December 31, 2021, Compared to Three Months Ended December 31, 2020
|
|
For the three months
ended December 31, 2021
|
For the three months
ended December 31, 2020
|
||||||||||||||||||||||
|
|
Amount
|
% of Revenue
|
Amount
|
% of Revenue
|
$ Change
|
% Change
|
||||||||||||||||||
|
|
($ in thousands)
|
|||||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||||||
|
New boat
|
$
|
236,198
|
70.2
|
%
|
$
|
151,828
|
70.9
|
%
|
$
|
84,370
|
55.6
|
%
|
||||||||||||
|
Pre-owned boat
|
53,449
|
15.9
|
%
|
38,580
|
18.0
|
%
|
14,869
|
38.5
|
%
|
|||||||||||||||
|
Finance & insurance income
|
9,307
|
2.8
|
%
|
5,963
|
2.8
|
%
|
3,344
|
56.1
|
%
|
|||||||||||||||
|
Service, parts and other
|
37,318
|
11.1
|
%
|
17,712
|
8.3
|
%
|
19,606
|
110.7
|
%
|
|||||||||||||||
|
Total revenues
|
336,272
|
100.0
|
%
|
214,083
|
100.0
|
%
|
122,189
|
57.1
|
%
|
|||||||||||||||
|
|
||||||||||||||||||||||||
|
Gross Profit
|
||||||||||||||||||||||||
|
New boat
|
60,302
|
17.9
|
%
|
29,296
|
13.7
|
%
|
31,006
|
105.8
|
%
|
|||||||||||||||
|
Pre-owned boat
|
14,079
|
4.2
|
%
|
8,128
|
3.8
|
%
|
5,951
|
73.2
|
%
|
|||||||||||||||
|
Finance & insurance
|
9,307
|
2.8
|
%
|
5,963
|
2.8
|
%
|
3,344
|
56.1
|
%
|
|||||||||||||||
|
Service, parts & other
|
17,277
|
5.1
|
%
|
9,049
|
4.2
|
%
|
8,228
|
90.9
|
%
|
|||||||||||||||
|
Total gross profit
|
100,965
|
30.0
|
%
|
52,436
|
24.5
|
%
|
48,529
|
92.5
|
%
|
|||||||||||||||
|
|
||||||||||||||||||||||||
|
Selling, general and administrative expenses
|
59,096
|
17.6
|
%
|
34,860
|
16.3
|
%
|
24,236
|
69.5
|
%
|
|||||||||||||||
|
Depreciation and amortization
|
1,749
|
0.5
|
%
|
963
|
0.4
|
%
|
786
|
81.6
|
%
|
|||||||||||||||
|
Transaction costs
|
3,045
|
0.9
|
%
|
200
|
0.1
|
%
|
2,845
|
1422.5
|
%
|
|||||||||||||||
|
Loss on contingent consideration
|
5,746
|
1.7
|
%
|
377
|
0.2
|
%
|
5,369
|
100.0
|
%
|
|||||||||||||||
|
|
||||||||||||||||||||||||
|
Income from operations
|
31,329
|
9.3
|
%
|
16,036
|
7.5
|
%
|
15,293
|
95.4
|
%
|
|||||||||||||||
|
|
||||||||||||||||||||||||
|
Interest expense - floor plan
|
877
|
0.3
|
%
|
920
|
0.4
|
%
|
(43
|
)
|
-4.7
|
%
|
||||||||||||||
|
Interest expense - other
|
1,529
|
0.5
|
%
|
924
|
0.4
|
%
|
605
|
65.5
|
%
|
|||||||||||||||
|
Other expense (income), net
|
548
|
0.2
|
%
|
(94
|
)
|
0.0
|
%
|
642
|
-683.0
|
%
|
||||||||||||||
|
Income before income tax expense
|
28,375
|
8.4
|
%
|
14,286
|
6.7
|
%
|
14,089
|
98.6
|
%
|
|||||||||||||||
|
Income tax expense
|
4,889
|
1.5
|
%
|
2,511
|
1.2
|
%
|
2,378
|
100.0
|
%
|
|||||||||||||||
|
Net income
|
23,486
|
7.0
|
%
|
11,775
|
5.5
|
%
|
11,711
|
99.5
|
%
|
|||||||||||||||
|
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC
|
(3,467
|
)
|
(3,987
|
)
|
||||||||||||||||||||
|
Net income attributable to One Water Marine Inc.
|
$
|
20,019
|
$
|
7,788
|
||||||||||||||||||||
Revenue
Overall, revenue increased by $122.2 million, or 57.1%, to $336.3 million for the three months ended December 31, 2021 from $214.1 million for the three months ended December 31, 2020. Revenue
generated from same-store sales increased 27.9% for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020, primarily due to an increase in the average selling price of new and pre-owned boats, the model
mix of boats sold, an increase in finance & insurance sales and an increase in service, parts and other sales. Overall revenue increased by $122.2 million as a result of a $59.6 million increase in same-store sales and a $62.6 million increase
from stores not eligible for inclusion in the same-store sales base. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership and revenues are
only included for identical months in the same-store base periods.
New Boat Sales
New boat sales increased by $84.4 million, or 55.6%, to $236.2 million for the three months ended December 31, 2021 from $151.8 for the three months ended December 31, 2020. The increase was
primarily attributable to our same-store sales growth, our acquisitions and an increase in our average unit price. We believe the increase in sales was primarily due to continued execution of operational improvements on previously acquired dealers,
the mix of boat brands and models sold, and product improvements in the functionality of technology of boats which drove average unit prices higher. New boat unit sales for the three months ended December 31, 2021 as compared to December 31, 2020
were flat due to industry-wide inventory and supply chain constraints.
Pre-owned Boat Sales
Pre-owned boat sales increased by $14.9 million, or 38.5%, to $53.4 million for the three months ended December 31, 2021 from $38.6 million for the three months ended December 31, 2020. We sell
a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. Pre-owned boat unit
sales for the three months ended December 31, 2021 as compared to December 31, 2020 were flat due to industry-wide supply constraints. The average sales price per pre-owned unit for the three months ended December 31, 2021 increased largely due to
the mix of pre-owned products, the composition of the brands and models sold during the period as well as the industry-wide supply restrictions.
Finance & Insurance Income
We generate revenue from arranging finance & insurance products, including financing, insurance and extended warranty contracts, to customers through various third-party financial
institutions and insurance companies. Finance & insurance income increased by $3.3 million, or 56.1%, to $9.3 million for the three months ended December 31, 2021 from $6.0 million for the three months ended December 31, 2020. The increase was
primarily a result of the increase in same-store sales. We remain very focused on improving sales of finance & insurance products throughout our dealer network and implementing best practices at acquired dealer groups and existing stores.
Finance & insurance products held steady as a percentage of total revenue at 2.8% in the three months ended December 31, 2021 and 2020. Finance & insurance income is recorded net of related fees, including fees charged back due to any early
cancellation of loan or insurance contracts by a customer. Since finance & insurance income is fee-based, we do not incur any related cost of sale.
Service, Parts & Other Sales
Service, parts & other sales increased by $19.6 million, or 110.7%, to $37.3 million for the three months ended December 31, 2021 from $17.7 million for the three months ended December 31,
2020. The increase in service, parts & other sales is primarily due to increases across the board in labor, parts, fuel and storage sales, driven by ancillary sales generated from our increase in new and pre-owned boat sales and the impact of
our 2021 and 2022 Acquisitions.
Gross Profit
Overall, gross profit increased by $48.5 million, or 92.5%, to $101.0 million for the three months ended December 31, 2021 from $52.4 million for the three months ended December 31, 2020. 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
550 basis points to 30.0% for the three months ended December 31, 2021 from 24.5% for the three months ended December 31, 2020 due to the factors noted below.
New Boat Gross Profit
New boat gross profit increased by $31.0 million, or 105.8%, to $60.3 million for the three months ended December 31, 2021 from $29.3 million for the three months ended December 31, 2020. This
increase was primarily due to our overall increase in same-store sales. New boat gross profit as a percentage of new boat revenue was 25.5% for the three months ended December 31, 2021 as compared to 19.3% in the three months ended December 31,
2020. The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations, 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 $6.0 million, or 73.2%, to $14.1 million for the three months ended December 31, 2021 from $8.1 million for the three months ended December 31, 2020. The
increase in pre-owned gross profit was driven by the increase in pre-owned revenue primarily as a result of our same-store sales growth. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 26.3% and 21.1% for the three months
ended December 31, 2021 and 2020, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal
fluctuations in pre-owned boat gross profit as a percentage of revenue. In the three months ended December 31, 2021 as compared to the three months ended December 31, 2020, we experienced an increase in our gross profit on pre-owned sales for each
of the different sales arrangements.
Finance & Insurance Gross Profit
Finance & insurance gross profit increased by $3.3 million, or 56.1%, to $9.3 million for the three months ended December 31, 2021 from $6.0 million for the three months ended December 31,
2020. 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 $8.2 million, or 90.9%, to $17.3 million for the three months ended December 31, 2021 from $9.0 million for the three
months ended December 31, 2020. Service, parts & other gross profit as a percentage of service, parts & other revenue was 46.3% and 51.1% for the three months ended December 31, 2021 and 2020, respectively. The increase in gross profit was
primarily the result of our same-store sales growth as well as the 2021 and 2022 acquisitions. The decrease in gross profit margin percentage was due to a shift in the mix of products sold towards parts & accessories which has a lower margin
percentage than service and other sales.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by $24.2 million, or 69.5%, to $59.1 million for the three months ended December 31, 2021 from $34.9 million for the three months ended
December 31, 2020. This increase was primarily due to expenses incurred to support the overall increase in revenues and gross profit. The increase primarily consisted of a $17.0 million increase in personnel expenses. Selling, general &
administrative expenses as a percentage of revenue increased to 17.6% from 16.3% for the three months ended December 31, 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 net profit margin.
Depreciation and Amortization
Depreciation and amortization expense increased $0.8 million, or 81.6%, to $1.7 million for the three months ended December 31, 2021 compared to $1.0 million for the three months ended December
31, 2020. The increase in depreciation and amortization expense for the three months ended December 31, 2021 compared to the three months ended December 31, 2020 was primarily attributable to an increase in property and equipment from our 2021
Acquisitions.
Transaction Costs
The increase in transaction costs of $2.8 million, or 1,422.5%, to $3.0 million for the three months ended December 31, 2021 compared to $0.2 million for the three months ended December 31, 2020
was primarily attributable to expenses related to the 2022 Acquisitions.
Change in Fair Value of Contingent Consideration
During the three months ended December 31, 2021, we incurred an expense of $5.7 million related to updated forecasts and accretion of two contingent consideration liabilities for acquisitions
completed in fiscal year 2021. During the three months ended December 31, 2020, we incurred expense of $0.4 million related to the settlement of contingent consideration from a fiscal year 2019 acquisition.
Income from Operations
Income from operations increased $15.3 million, or 95.4%, to $31.3 million for the three months ended December 31, 2021 compared to $16.0 million for the three months ended December 31, 2020.
The increase was primarily attributable to the $48.5 million increase in gross profit for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020, partially offset by a $24.2 million increase in selling,
general & administrative expenses and a $5.4 million increase in change in fair value of contingent consideration during the same periods.
Interest Expense – Floor Plan
Interest expense – floor plan was flat at $0.9 million for each of the three months ended December 31, 2021 and December 31, 2020. Floor plan related interest expense remained flat despite our
acquisitional growth due to reduced levels of inventory and elevated inventory turns.
Interest Expense – Other
Interest expense – other increased by $0.6 million, or 65.5%, to $1.5 million for the three months ended December 31, 2021 compared to $0.9 million for the three months ended December 31, 2020.
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 decreased by $0.6 million to expense of $0.5 million for the three months ended December 31, 2021 compared to other income of $0.1 million for the three months ended
December 31, 2020. The decrease was primarily due to the impact of tax rate changes on our tax receivable agreement liability.
Income Tax Expense
Income tax expense increased $2.4 million, or 94.7%, to $4.9 million for the three months ended December 31, 2021 compared to $2.5 million for the three months ended December 31, 2020. The
increase was primarily attributable to the 98.6% increase in income before income tax expense for the three months ended December 31, 2021 as compared to December 31, 2020.
Net Income
Net income increased by $11.7 million to $23.5 million for the three months ended December 31, 2021 compared to $11.8 million for the three months ended December 31, 2020. The increase was
primarily attributable to the $48.5 million increase in gross profit for the three months ended December 31, 2021 compared to December 31, 2020. The increase was partially offset by the $24.2 million increase in selling, general &
administrative expenses and the $5.4 million increase in change in fair value of contingent consideration for the three months ended December 31, 2021 compared to the three months ended December 31, 2020.
Comparison of Non-GAAP Financial Measure
We view Adjusted EBITDA as an important indicator of performance. We define Adjusted EBITDA as net income (loss) before interest expense – other, income tax expense, depreciation and
amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in fair value of warrant liability, change in fair value of contingent consideration, loss on extinguishment of debt and transaction
costs.
Our board of directors, management team and lenders use Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis
across periods by removing the effects of our capital structure (such as varying levels of interest expense), 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 extinguishment 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, which is the most directly comparable GAAP measure for the periods presented.
Three Months Ended December 31, 2021, Compared to Three Months Ended December 31, 2020
|
Three months ended December 31,
|
||||||||
|
Description
|
2021
|
2020
|
||||||
|
($ in thousands)
|
||||||||
|
Net income
|
$
|
23,486
|
$
|
11,775
|
||||
|
Interest expense – other
|
1,529
|
924
|
||||||
|
Income tax expense
|
4,889
|
2,511
|
||||||
|
Depreciation and amortization
|
1,749
|
963
|
||||||
|
Change in fair value of contingent consideration
|
5,746
|
377
|
||||||
|
Transaction costs
|
3,045
|
200
|
||||||
|
Other expense (income), net
|
548
|
(94
|
)
|
|||||
|
Adjusted EBITDA
|
$
|
40,992
|
$
|
16,656
|
||||
Adjusted EBITDA was $41.0 million for the three months ended December 31, 2021 compared to $16.7 million for the three months ended December 31, 2020. The increase in Adjusted EBITDA resulted
primarily from our 27.9% increase in same-store sales growth for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020, combined with the results of our ability to increase gross profit margins and control
selling, general and administrative 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 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. We monitor our inventories, inventory aging and current market trends to determine our current and future inventory and related
floorplan financing needs. Based on current facts and circumstances, we believe we will have adequate cash flow from operations, borrowings under our Credit Facilities and proceeds from any future issuances of debt or equity to fund our current
operations, and essential capital expenditures and acquisitions for the next twelve months and beyond.
Cash needs for acquisitions have historically been financed with our credit facilities, including the Credit Facility and cash generated from operations. Our ability to utilize the Credit
Facility to fund operations depends upon Adjusted EBITDA and compliance with covenants of the 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 December 31, 2021, we were in compliance with all covenants under the Credit Facility and the Inventory Financing
Facility.
We 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 Three Months Ended December 31, 2021 and 2020
The following table summarizes our cash flows for the periods indicated:
|
Three Months ended December 31,
|
||||||||||||
|
Description
|
2021
|
2020
|
Change
|
|||||||||
|
($ in thousands)
|
||||||||||||
|
Net cash used in operating activities
|
$
|
(22,825
|
)
|
$
|
(28,615
|
)
|
$
|
5,790 |
|
|||
|
Net cash used in investing activities
|
(282,220
|
)
|
(79,963
|
)
|
(202,257
|
)
|
||||||
|
Net cash provided by financing activities
|
305,865
|
70,361
|
235,504
|
|||||||||
|
Net change in cash
|
$
|
820
|
$
|
(38,217
|
)
|
$
|
39,037
|
|||||
Operating Activities.
Net cash used in operating activities was $22.8 million for the three months ended December 31, 2021 compared to net cash used in operating activities of $28.6 million for the three months ended December 31, 2020. The $5.8 million decrease in
cash used in operating activities was primarily attributable to a $16.7 million increase in the change in accounts payable, an $11.7 million increase in net income and a $5.8 million increase in loss on change in fair value of contingent
consideration for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020. This amount was partially offset by an $31.7 million increase in the change in inventory for the three months ended December 31,
2021 as compared to the three months ended December 31, 2020.
Investing Activities. Net cash used in investing activities was $282.2 million for the three months ended December 31, 2021 compared to net cash used in
investing activities of $80.0 million for the three months ended December 31, 2020. The $202.3 million increase in cash used in investing activities was primarily attributable to a $201.2 million increase in cash used in acquisitions for the three
months ended December 31, 2021 as compared to the three months ended December 31, 2020.
Financing Activities.
Net cash provided by financing activities was $305.9 million for the three months ended December 31, 2021 compared to net cash provided by financing activities of $70.4 million for the three months ended December 31, 2020. The $235.5 million
increase in financing cash flow was primarily attributable to a $210.0 million increase in borrowings on long-term debt and a $39.1 million increase in net borrowings on our Inventory Financing Facility for the three months ended December 31, 2021
as compared to the three months ended December 31, 2020.
Debt Agreements
Credit Facility
Effective July 22, 2020, we and certain of our subsidiaries entered into the Credit Facility. The Credit Facility provides for a $30.0 million revolving credit facility that may be used for
revolving credit loans (including up to $5.0 million in swingline loans) and up to $5.0 million in letters of credit from time to time, and a $80.0 million term loan, which was advanced in full on July 22, 2020. Subject to certain conditions, the
available amount under the revolving credit facility and the term loans may be increased by $50.0 million in the aggregate. The revolving credit facility matures on July 22, 2025. The term loan is repayable in installments beginning on March 31,
2021, with the remainder due on July 22, 2025.
On February 2, 2021, we entered into the Incremental Amendment No. 1 (the “First Incremental Amendment”) to the Credit Facility to provide for, among other things, an incremental term loan (the
“Incremental Term Loan”) to OWAO in an aggregate principal amount equal to $30.0 million, which was added to, and constitutes a part of, the existing $80.0 million term loan. As provided for by the First Incremental Amendment, the proceeds of the
Incremental Term Loan were used to pay off the balance of the revolving credit facility, under which an aggregate of $30.0 million was outstanding as of February 1, 2021.
On November 30, 2021, we entered into the Incremental Amendment No. 2 (the “Second Incremental Amendment”) to the Credit 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 is on the same terms
(including interest rates, but excluding upfront fees, original issue discount and other similar amounts) applicable to the existing term loan under the Credit Facility and the other loan documents. As provided for by the Second Incremental
Amendment, the proceeds of the Second Incremental Term Loan were used to finance the Company’s acquisition of T-H Marine. The maturity date for the Second Incremental Term Loan is the earlier of (i) July 22, 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. The Second Incremental Amendment further provides for a $20.0 million increase in the
existing revolving commitment (the “Incremental Revolving Increase”), which was added to, and constitutes a part of, the existing $30.0 million revolving commitment. The Incremental Revolving Increase constitutes a single class of revolving
commitments with the existing revolving commitment. The Incremental Revolving Increase is secured by identical collateral and guaranties on identical terms as the existing revolving commitment. The maturity date for the Incremental Revolving
Increase is the earlier of (i) July 22, 2025 and (ii) the date on which the Revolving Commitments (as defined in the Credit Facility) are terminated pursuant to the terms of the Credit Facility. As of December 31, 2021, we had $301.9 million
outstanding under the term loan and $40.0 million outstanding under the revolving credit facility.
Borrowings under the Credit Facility bear interest, at OWAO’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 the London Interbank Offered Rate for such interest period by a percentage equal to 1.00% minus the Eurodollar Reserve Percentage (the “Adjusted LIBO Rate”) plus an applicable
margin of up to 3.00%. Interest on swingline loans shall be the Base Rate plus an applicable margin of up to 2.00%. All applicable interest margins are subject to step-downs based on certain consolidated leverage ratio measures.
The Credit Facility is subject to certain financial covenants related to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio.
The proceeds of the term loan portion of the Credit Facility, together with cash on OWAO’s balance sheet, have been used (i) to pay for the Refinancing, (ii) to pay the fees and expenses
incurred in connection with the Refinancing and (iii) for working capital and general corporate purposes.
Inventory Financing Facility
On June 14, 2018, OneWater LLC and certain of its subsidiaries entered into the Inventory Financing Facility. On September 21, 2018, OneWater LLC and certain of our subsidiaries entered into the
First Amendment to the Fourth Amended and Restated Inventory Financing Agreement, which, among other things, increased the maximum amount of borrowing available under the Inventory Financing Facility from $200.0 million to $275.0 million. On April
5, 2019, OneWater LLC and certain of its subsidiaries further amended the Inventory Financing Facility to, among other things, increase the maximum amount of borrowing available under the Inventory Financing Facility from $275.0 million to $292.5
million. On November 26, 2019, OneWater LLC and certain of its subsidiaries entered into the Fifth Amended and Restated Inventory Financing Agreement with Wells Fargo to, among other things, increase the maximum amount of borrowing available under
the Inventory Financing Facility from $292.5 million to $392.5 million.
Effective February 11, 2020, in connection with the IPO, OneWater Inc. and certain of its subsidiaries entered into the Sixth Amended and Restated Inventory Financing Agreement with Wells Fargo
(as amended, the “ Sixth Inventory Financing Facility”), 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 IPO, 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, OneWater LLC, Opco and certain of Opco’s subsidiaries entered into the First Amendment (the “First Amendment”) to the Sixth Inventory Financing Facility. The First
Amendment amended the Sixth Inventory Financing Facility, to, among other things, address the Refinancing, permit the amount of indebtedness allowed under the Credit Facility to be $160.0 million (which includes the potential for a $50.0 million
increase under the 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 Credit Facility.
On December 10, 2020, the Company and certain of its subsidiaries entered into the Second Amendment to the Sixth Inventory Financing Facility 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.
On September 23, 2021, the Company entered into the Third Amendment to the Sixth Inventory Financing Facility, (the “Third Amendment”), to, among other things, address the future discontinuance
of LIBOR by clarifying the mechanics related to the transition to a replacement benchmark rate and to extend the term of the Sixth Inventory Financing Facility to November 1, 2021. The maximum borrowing amount available remained unchanged. The
Sixth Inventory Financing Facility is used to purchase new and pre-owned inventory (boats, engines, and trailers).
On October 29, 2021, the Company entered into the Fourth Amendment to the Sixth Inventory Financing Facility to (a) increase the amount of Permitted Indebtedness (as defined in the Sixth
Inventory Financing Facility) to $360.0 million and (b) extend the term of the Sixth Inventory Financing Facility to December 1, 2021.
On December 1, 2021, the Company entered into the Fifth Amendment the Sixth Inventory Financing Facility to (a) increase the amount of Permitted Indebtedness (as defined in the Sixth Inventory
Financing Facility) to $380.0 million and (b) extend the term of the Sixth Inventory Financing Facility to January 1, 2022.
On December 29, 2021, the Company entered into the Seventh Amended and Restated Inventory Financing Agreement (the “Inventory Financing Facility”) to increase the maximum borrowing amount
available to $500.0 million. The Inventory Financing Facility Expires on December 1, 2023.
Prior to October 1, 2021, the interest rate for amounts outstanding under the Sixth Inventory Financing Facility was calculated using the one month LIBOR plus an applicable margin of 2.75% to
5.00% for new boats and at the new boat rate plus 0.25% for pre-owned boats. Loans were 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 was set forth in separate program terms letters entered into from time to time. The collateral for the Sixth Inventory Financing Facility consisted primarily of our
inventory that was 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 underlies the Credit Facility.
Effective October 1, 2021, interest on new boats and for rental units is calculated using the Adjusted 30-Day Average SOFR (as defined in the Inventory Financing Facility) (“SOFR”) plus an
applicable margin of 2.75% to 5.00% depending on the age of the inventory. Interest on pre-owned boats is calculated at the new boat rate plus 0.25%.
We are required to comply with certain financial and non-financial covenants under the Inventory Financing Facility, including provisions that the Funded Debt to EBITDA Ratio (as defined in the
Inventory Financing Facility) of OneWater LLC must not exceed 2.00 to 1.00, and that our Fixed Charge Coverage Ratio (as defined in the Inventory Financing Facility) on a consolidated basis must be at least 1.50 to 1.00. We are also subject to
additional restrictive covenants, including restrictions on our ability to (i) use, sell, rent or otherwise dispose of any collateral underlying the Inventory Financing Facility except for the sale of inventory in the ordinary course of business,
(ii) incur certain liens, (iii) engage in any material transaction not in the ordinary course of business, (iv) change our business in any material manner or our organizational structure, other than as otherwise provided for in the Inventory
Financing Facility, (v) engage in certain mergers or consolidations, (vi) acquire certain assets or ownership interest of any other person or entities, except for certain permitted acquisitions, (vii) guarantee or indemnify or otherwise become in
any way liable with respect to certain obligations of any other person or entity, except as provided by the Inventory Financing Facility, (viii) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of the equity of our
acquired dealer groups, (ix) make any change in any of our dealer groups’ capital structure or in any of its business objectives or operations which might in any way adversely affect the ability of such dealer group to repay its obligations under
the Inventory Financing Facility, (x) incur, create, assume, guarantee or otherwise become or remain liable with respect to certain indebtedness, and (xi) make certain payments of subordinated debt. OneWater LLC and its subsidiaries are restricted
from, among other things, making cash dividends or distributions without the prior written consent of Wells Fargo Commercial Distribution Finance, LLC (the “Agent”). Under the Inventory Financing Facility, among other exceptions, OneWater LLC may
make distributions to its members for certain permitted tax payments subject to certain financial ratios, may make scheduled payments on certain subordinated debt and is permitted to make pro rata distributions to the OneWater Unit Holders,
including OneWater Inc., in an amount sufficient to allow OneWater Inc. to pay its taxes and to make payments under the Tax Receivable Agreement. OneWater LLC’s subsidiaries are generally restricted from making loans or advances to OneWater LLC.
Our Chief Executive Officer, Philip Austin Singleton, Jr., and our Chief Operating Officer, Anthony Aisquith, provide certain personal guarantees of the Inventory Financing Facility.
On June 16, 2021, OneWater Inc. and OneWater LLC obtained a written consent from the Agent to permit the payment of the Special Dividend.
As of December 31, 2021 and September 30, 2021, our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled $195.6 million and $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 December 31, 2021 and September 30, 2021, the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 2.2% and 2.0%, respectively. As of December 31, 2021 and September 30,
2021, our additional available borrowings under our Inventory Financing Facility were $304.4 million and $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. As of December 31, 2021, we were in compliance with all covenants under the Inventory Financing Facility.
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 December 31, 2021, our indebtedness associated with our 4 acquisition notes payable totaled an aggregate of $7.3 million with a weighted average interest rate of 5.1% per
annum. As of December 31, 2021, the principal amount outstanding under these acquisition notes payable ranged from $1.1 million to $2.2 million, and the maturity dates ranged from February 1, 2022 to December 1, 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 $103,000, and mature on dates between February 2022 to June 2028. As of
December 31, 2021, we had $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 IPO 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.
Recent Accounting Pronouncements
See Note 3 of the Notes to the Condensed Consolidated Financial Statements.
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 SOFR plus
an applicable margin. Based on an outstanding balance of $195.6 million as of December 31, 2021, a change of 100 basis points in the underlying interest rate would have caused a change in interest expense of $2.0 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 Credit Facility exposes us to risks caused by fluctuations in interest rates. The interest rate on our Credit Facility is calculated using the one-month LIBOR (with a 0.75% floor) plus an
applicable margin. Based on an outstanding balance of $301.9 million and the one-month LIBOR as of December 31, 2021, an increase of 100 basis points in the underlying interest rate would have caused a change in interest expense of approximately
$1.1 million. A basis points reduction in the 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.
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 months ended December 31, 2021 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
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, 2021, filed with the SEC on December 17, 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 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, 2021, filed with the SEC on December 17, 2021.
None.
None.
Not Applicable.
None.
ONEW 10-Q Exhibit Table
|
Exhibit No.
|
Description
|
|
Equity Purchase Agreement, dated as of October 20, 2021, by and among One Water Assets & Operations, LLC, THMS Holdings,
LLC, THMS, Inc. and T-H Marine Supplies, LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on October 22, 2021).
|
|
|
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).
|
|
|
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).
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Incremental Amendment No. 2, dated as of November 30, 2021, by and among One Water Assets & Operations, LLC, One Water
Marine Holdings, LLC, OneWater Marine Inc., each of the other Guarantors from time to time party thereto, the Lenders party thereto and Truist Bank, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K, File No. 001-39213, filed with the Commission on December 2, 2021).
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|
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Fourth Amendment to Sixth Amended and Restated Inventory Financing Agreement, dated as of October 29, 2021, between Wells Fargo
Commercial Distribution Finance, LLC as Agent for the several financial institutions that may from time to time become party thereto and Dealers that may from time to time become party thereto (incorporated by reference to Exhibit 10.1
to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on November 2, 2021).
|
|
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Fifth Amendment to Sixth Amended and Restated Inventory Financing Agreement and Consent Agreement, dated as of December 1, 2021,
between Wells Fargo Commercial Distribution Finance, LLC as Agent for the several financial institutions that may from time to time become party thereto and Dealers that may from time to time become party thereto (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on December 7, 2021).
|
|
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Seventh Amended and Restated Inventory Financing Agreement, dated as of December 29, 2021, between Wells Fargo Commercial
Distribution Finance, LLC as Agent for the several financial institutions that may from time to time become party thereto and Dealers that may from time to time become party thereto (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on January 4, 2022).
|
|
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Fourth Amended and Restated Guaranty, dated December 29, 2021, entered into by Anthony Aisquith, for the benefit of Wells Fargo
Commercial Distribution Finance, LLC, as Agent to the A&R Inventory Financing Facility (incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K, File No. 001-39213, filed with the Commission on January 4, 2022).
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|
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Fourth Amended and Restated Guaranty, dated December 29, 2021, entered into by Philip Austin Singleton, Jr., for the benefit of
Wells Fargo Commercial Distribution Finance, LLC, as Agent to the A&R Inventory Financing Facility (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the
Commission on January 4, 2022).
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|
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*31.1
|
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
|
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*31.2
|
Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
**32.1
|
Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
|
|
**32.2
|
Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
|
|
101.INS(a)
|
Inline XBRL Instance Document.
|
|
101.SCH(a)
|
Inline XBRL Schema Document.
|
|
101.CAL(a)
|
Inline XBRL Calculation Linkbase Document.
|
|
101.DEF(a)
|
Inline XBRL Definition Linkbase Document.
|
|
101.LAB(a)
|
Inline XBRL Labels Linkbase Document.
|
|
101.PRE(a)
|
Inline XBRL Presentation Linkbase Document.
|
|
104
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
|
|
*
|
Filed herewith.
|
|
**
|
Furnished herewith.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
ONEWATER MARINE INC.
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||
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(Registrant)
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||
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By:
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/s/ Philip Austin Singleton, Jr.
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Philip Austin Singleton, Jr.
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||
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Chief Executive Officer
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||
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By:
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/s/ Jack Ezzell
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Jack Ezzell
|
||
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Chief Financial Officer
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||
February 8, 2022
36
Exhibit 31.1
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULE 13A-14(a) OR RULE 15D-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Philip Austin Singleton, Jr., certify that:
| 1. |
I have reviewed this Quarterly Report on Form 10-Q of OneWater Marine Inc. (the “registrant”) for the quarter ended December 31, 2021;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
|
| d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
|
| a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
|
| b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
Dated: February 8, 2022
|
By:
|
/s/ Philip Austin Singleton, Jr.
|
|
Philip Austin Singleton, Jr.
|
||
|
Chief Executive Officer
|
||
|
(Principal Executive Officer)
|
Exhibit 31.2
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULE 13A-14(a) OR RULE 15D-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jack Ezzell, certify that:
| 1. |
I have reviewed this Quarterly Report on Form 10-Q of OneWater Marine Inc. (the “registrant”) for the quarter ended December 31, 2021;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
|
| d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
|
| a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
|
| b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
Dated: February 8, 2022
|
By:
|
/s/ Jack Ezzell
|
|
Jack Ezzell
|
||
|
Chief Financial Officer
|
||
|
(Principal Financial Officer)
|
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of OneWater Marine Inc. (the “Company”) for the quarter ended December 31, 2021, as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, Philip Austin Singleton, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
| 1. |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
| 2. |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
Dated: February 8, 2022
|
By:
|
/s/ Philip Austin Singleton, Jr.
|
|
Philip Austin Singleton, Jr.
|
||
|
Chief Executive Officer
|
||
|
(Principal Executive Officer)
|
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of OneWater Marine Inc. (the “Company”) for the quarter ended December 31, 2021, as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jack Ezzell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
| 1. |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
| 2. |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
Dated: February 8, 2022
|
By:
|
/s/ Jack Ezzell
|
|
Jack Ezzell
|
||
|
Chief Financial Officer
|
||
|
(Principal Financial Officer)
|