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 June 30, 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
 
OneWater Marine Inc.
 (Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of incorporation or organization)
 
83-4330138
(IRS Employer Identification No.)
     
6275 Lanier Islands Parkway
Buford, Georgia
(Address of principal executive offices)
 
30518
(Zip code)

(Registrant’s telephone number, including area code): (678) 541-6300
 


Securities registered pursuant to Section 12(b) of the Exchange Act:
 
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Class A common stock, par value $0.01 per share
 
ONEW
 
The Nasdaq Global Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☒ Yes ☐ 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.
 
Large accelerated filer
Accelerated filer ☐
Non-accelerated filer
Smaller reporting company
   
Emerging growth company
 
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 11,661,575 shares of Class A common stock, par value $0.01 per share, and 3,377,449 shares of Class B common stock, par value $0.01 per share, outstanding as of July 26, 2021.



ONEWATER MARINE INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2021
 
TABLE OF CONTENTS
 
 
Page
   
3
   
5
   
Item 1.
5
     
  5
     
  6
     
  7-8
     
  9
     
  10
     
Item 2.
24
     
Item 3.
39
     
Item 4.
39
     
40
   
Item 1.
40
     
Item 1A.
40
     
Item 2.
41
     
Item 3.
41
     
Item 4.
41
     
Item 5.
41
     
Item 6.
42
 
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, 2020, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 3, 2020, and our subsequent Quarterly Reports on Form 10-Q, 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 COVID-19 on our business and results of operations;
 

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;
 

credit markets and the availability and cost of borrowed funds;
 

our business strategy, including acquisitions and same-store growth;
 

our ability to integrate acquired dealer groups;
 

our ability to maintain our relationships with manufacturers, including meeting the requirements of our dealer agreements and receiving the benefits of certain manufacturer incentives;
 

our ability to finance working capital and capital expenditures;
 

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;
 

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;
 

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;
 
 
effects of industry-wide supply chain challenges and our ability to manage our inventory;
 
 
our ability to retain key personnel;
 

environmental conditions and real or perceived human health or safety risks;


any potential tax savings we may realize as a result of our organizational structure;
 

uncertainty regarding our future operating results and profitability;
 

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 Quarterly Report on 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, 2020 and in subsequent Quarterly Reports 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.
 
PART I – FINANCIAL INFORMATION
 
Item 1.
Condensed Consolidated Financial Statements (Unaudited)

ONEWATER MARINE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except par value and share data)
(Unaudited)

   
June 30,
2021
   
September 30,
2020
 
Assets
     
Current assets:
           
Cash
 
$
113,249
   
$
66,087
 
Restricted cash
   
7,437
     
2,066
 
Accounts receivable, net
   
37,748
     
18,479
 
Inventories
   
116,873
     
150,124
 
Prepaid expenses and other current assets
   
32,251
     
15,302
 
Total current assets
   
307,558
     
252,058
 
                 
Property and equipment, net
   
66,206
     
18,442
 
                 
Other assets:
               
Deposits
   
504
     
350
 
Deferred tax asset
   
18,967
     
12,854
 
Identifiable intangible assets
   
74,004
     
61,304
 
Goodwill
   
151,564
     
113,059
 
Total other assets
   
245,039
     
187,567
 
Total assets
 
$
618,803
   
$
458,067
 
                 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
 
$
24,908
   
$
12,781
 
Other payables and accrued expenses
   
56,098
     
24,221
 
Customer deposits
   
43,114
     
17,280
 
Notes payable – floor plan
   
108,160
     
124,035
 
Current portion of long-term debt
   
11,858
     
7,419
 
Current portion of tax receivable agreement liability
   
482
     
-
 
Total current liabilities
   
244,620
     
185,736
 
                 
Long-term Liabilities:
               
Other long-term liabilities
   
8,300
     
1,482
 
Tax receivable agreement liability, net of current portion
   
25,594
     
15,585
 
Long-term debt, net of current portion and unamortized debt issuance costs
   
103,885
     
81,977
 
Total liabilities
    382,399       284,780  
                 
Stockholders’ Equity:
               
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding as of June 30, 2021 and September 30, 2020
   
-
     
-
 
Class A common stock, $0.01 par value, 40,000,000 shares authorized, 11,661,575 shares issued and outstanding as of June 30, 2021 and 10,391,661 issued and outstanding as of September 30, 2020
   
117
     
104
 
Class B common stock, $0.01 par value, 10,000,000 shares authorized, 3,377,449 shares issued and outstanding as of June 30, 2021 and 4,583,637 issued and outstanding as of September 30, 2020
   
34
     
46
 
Additional paid-in capital
   
123,643
     
105,947
 
Retained earnings
   
58,956
     
16,757
 
Total stockholders’ equity attributable to OneWater Marine Inc.
   
182,750
     
122,854
 
Equity attributable to non-controlling interests
   
53,654
     
50,433
 
Total stockholders’ equity
   
236,404
     
173,287
 
Total liabilities and stockholders’ equity
 
$
618,803
   
$
458,067
 

ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share data)
(Unaudited)

   
Three Months Ended
June 30,
   
Nine Months Ended
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Revenues
                 
New boat
 
$
288,222
   
$
294,678
   
$
679,704
   
$
530,249
 
Pre-owned boat
   
71,116
     
78,213
     
165,778
     
149,470
 
Finance & insurance income
   
15,238
     
16,639
     
32,990
     
29,047
 
Service, parts & other
   
29,631
     
18,743
     
69,429
     
43,168
 
Total revenues
   
404,207
     
408,273
     
947,901
     
751,934
 
                                 
Cost of sales (exclusive of depreciation and amortization shown separately below)
                               
New boat
   
211,141
     
240,649
     
520,820
     
434,858
 
Pre-owned boat
   
52,566
     
63,594
     
125,566
     
122,803
 
Service, parts & other
   
13,548
     
9,345
     
33,341
     
22,815
 
Total cost of sales
   
277,255
     
313,588
     
679,727
     
580,476
 
                                 
Selling, general and administrative expenses
   
60,476
     
43,134
     
143,685
     
103,822
 
Depreciation and amortization
   
1,475
     
824
     
3,816
     
2,375
 
Transaction costs
   
65
     
31
     
633
     
3,393
 
Loss on contingent consideration
   
-
     
-
     
377
     
-
 
Income from operations
   
64,936
     
50,696
     
119,663
     
61,868
 
                                 
Other expense (income)
                               
Interest expense – floor plan
   
956
     
2,298
     
2,206
     
7,482
 
Interest expense – other
   
1,083
     
3,082
     
3,222
     
7,392
 
Change in fair value of warrant liability
   
-
     
-
     
-
     
(771
)
Other (income) expense, net
   
(158)
     
(43)
     
(247
)
   
22
 
Total other expense, net
   
1,881
     
5,337
     
5,181
     
14,125
 
Income before income tax expense
   
63,055
     
45,359
     
114,482
     
47,743
 
Income tax expense
   
11,498
     
4,737
     
20,559
     
5,209
 
Net income
   
51,557
     
40,622
     
93,923
     
42,534
 
Less: Net income attributable to non-controlling interests
    -      
-
      -      
350
 
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC
   
17,054
     
26,255
     
31,158
     
26,732
 
Net income attributable to OneWater Marine Inc
 
$
34,503
   
$
14,367
   
$
62,765
   
$
15,452
 
                                 
Earnings per share of Class A common stock – basic
 
$
3.14
   
$
2.36
   
$
5.77
   
$
2.54
 
Earnings per share of Class A common stock – diluted
 
$
3.04
   
$
2.36
   
$
5.63
   
$
2.54
 
                                 
Basic weighted-average shares of Class A common stock outstanding
   
10,976
     
6,088
     
10,884
     
6,088
 
Diluted weighted-average shares of Class A common stock outstanding
   
11,341
     
6,097
     
11,143
     
6,093
 

ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’ EQUITY
($ in thousands)
(Unaudited)

Nine Months Ended June 30, 2021     Stockholders’ and Members’ Equity  
               
Class A Common Stock
   
Class B Common Stock
                         
   
Redeemable Preferred Interest in Subsidiary
   
Members’ Equity
   
Shares
   
Amount
   
Shares
   
Amount
   
Additional Paid-in Capital
   
Retained Earnings
   
Non-
controlling Interest
   
Total
Stockholders’
and Members’
Equity
 
Balance at September 30, 2020
 
$
-
   
$
-
     
10,392
   
$
104
     
4,583
   
$
46
   
$
105,947
   
$
16,757
   
$
50,433
   
$
173,287
 
Net income
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
7,788
     
3,987
     
11,775
 
Distributions to members
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,319
)
   
(1,319
)
Effect of September offering, including underwriter exercise of option to purchase shares
   
-
     
-
     
387
     
4
     
(387
)
   
(4
)
   
4,146
     
-
     
(4,256
)
   
(110
)
Exchange of B shares for A shares
   
-
     
-
     
88
     
1
     
(88
)
   
(1
)
   
916
     
-
     
(916
)
   
-
 
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis
   
-
     
-
     
-
     
-
     
-
     
-
     
(228
)
   
-
     
-
     
(228
)
Equity-based compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
1,078
     
-
     
-
     
1,078
 
Balance at December 31, 2020
   
-
     
-
     
10,867
   

109
     
4,108
   

41
   

111,859
   

24,545
   

47,929
   

184,483
 
Net income
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
20,475
     
10,117
     
30,592
 
Distributions to members
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(61
)
   
(140
)
   
(201
)
Exchange of B shares for A shares
   
-
     
-
     
37
     
-
     
(37
)
   
-
     
558
     
-
     
(558
)
   
-
 
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis
   
-
     
-
     
-
     
-
     
-
     
-
     
(6
)
   
-
     
-
     
(6
)
Equity-based compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
1,127
     
-
     
-
     
1,127
 
Shares issued upon vesting of equity-based awards, net of tax withholding
   
-
     
-
     
64
     
1
     
-
     
-
     
(450
)
   
-
     
-
     
(449
)
Balance at March 31, 2021
 

-
   

-
     
10,968
   

110
     
4,071
   

41
   

113,088
   

44,959
   

57,348
   

215,546
 
 Net income     -       -       -       -       -       -       -       34,503       17,054    
51,557  
 Distributions to members     -       -       -       -       -       -       -       (45)       (2,206)       (2,251)  
 Dividends and distributions declared ($1.80 per share and per unit, respectively)                                                             (20,461)       (7,328)       (27,789)  
 Exchange of B shares for A shares     -       -       694       7       (694)       (7)       11,214       -       (11,214)       -  
 Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis     -       -       -       -       -       -       (1,805)       -       -       (1,805)  
 Equity-based compensation     -       -       -       -       -       -       1,146       -       -       1,146  
 Balance at June 30, 2021   $ -      $ -    
11,662      $ 117    
3,377     $ 34     $ 123,643     $ 58,956     $ 53,654     $ 236,404  

ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’ EQUITY
($ in thousands)
(Unaudited)
 
Nine Months Ended June 30, 2020     Stockholders’ and Members’ Equity  
               
Class A Common Stock
   
Class B Common Stock
                         
   
Redeemable Preferred Interest in Subsidiary
   
Members’ Equity
   
Shares
   
Amount
   
Shares
   
Amount
   
Additional Paid-in Capital
   
Retained Earnings
   
Non-
controlling Interest
   
Total
Stockholders’
and Members’
Equity
 
Balance at September 30, 2019
 
$
86,018
   
$
31,770
     
-
   
$
-
     
-
   
$
-
   
$
-
   
$
-
   
$
6,199
   
$
37,969
 
Net (loss) income
   
-
     
(1,314
)
   
-
     
-
     
-
     
-
     
-
     
-
     
247
     
(1,067
)
Distributions to members
   
(1,310
)
   
(189
)
   
-
     
-
     
-
     
-
     
-
     
-
     
(732
)
   
(921
)
Accumulated unpaid preferred returns
   
2,183
     
(2,183
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(2,183
)
Accretion of redeemable preferred and issuance costs
   
162
     
(162
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(162
)
Equity based compensation
   
-
     
39
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
39
 
Balance at December 31, 2019
   
87,053
     
27,961
     
-
     
-
     
-
     
-
     
-
     
-
     
5,714
     
33,675
 
Net (loss) income prior to organizational transactions
   
-
     
(81
)
   
-
     
-
     
-
     
-
     
-
     
-
     
103
     
22
 
Distributions to members prior to organizational transactions
   
-
     
(120
)
   
-
     
-
     
-
     
-
     
-
     
-
     
(1
)
   
(121
)
Accumulated unpaid preferred returns
   
1,004
     
(1,004
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,004
)
Accretion of redeemable preferred and issuance costs
   
74
     
(74
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(74
)
Equity-based compensation prior to organizational transactions
   
-
     
616
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
616
 
Effect of organizational transactions
   
(88,131
)
   
(27,298
)
   
6,088
     
61
     
8,462
     
85
     
56,567
     
-
     
73,018
     
102,433
 
Equity-based compensation subsequent to organizational transactions
   
-
     
-
     
-
     
-
     
-
     
-
     
163
     
-
     
-
     
163
 
Net income subsequent to  organizational transactions
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,085
     
1,872
     
2,957
 
Balance at March 31, 2020
 

-
   

-
     
6,088
   

61
     
8,462
   

85
   

56,730
   

1,085
   

80,706
   

138,667
 
 Net income     -       -       -       -       -       -       -       14,367       26,255       40,622  
 Distributions to members     -       -       -       -       -       -       -       -       (7,412)       (7,412)  
 Effect of organizational transactions     -       -       -       -       -       -       (827)       -       -       (827)  
 Equity-based compensation     -       -       -       -       -       -       780       -       -       780  
 Balance at June 30, 2020    $ -      $ -       6,088      $ 61       8,462      $ 85      $ 56,683      $ 15,452     $ 99,549     $ 171,830  

ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)

For the Nine Months Ended June 30
 
2021
   
2020
 
       
Cash flows from operating activities
     
Net income
 
$
93,923
   
$
42,534
 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Depreciation and amortization
   
3,816
     
2,375
 
Equity-based awards
   
3,351
     
1,598
 
(Gain) loss on asset disposals
   
(196
)
   
60
 
Change in fair value of long-term warrant liability
   
-
     
(771
)
Non-cash interest expense
   
503
     
6,178
 
Deferred income tax provision
   
2,338
     
-
 
Payment of acquisition contingent consideration
   
(5,520
)
   
-
 
(Increase) decrease in assets:
               
Accounts receivable
   
(19,031
)
   
(42,145
)
Inventories
   
47,146
     
106,038
 
Prepaid expenses and other current assets
   
(16,892
)
   
(3,557
)
Deposits
   
(152
)
   
(11
)
Increase (decrease) in liabilities:
               
Accounts payable
   
11,124
     
19,608
 
Other payables and accrued expenses
   
11,307
     
12,718
 
Customer deposits
   
21,478
     
7,971
 
Net cash provided by operating activities
   
153,195
     
152,596
 
                 
Cash flows from investing activities
               
Purchases of property and equipment and construction in progress
   
(7,802
)
   
(3,923
)
Proceeds from disposal of property and equipment
   
168
     
1,616
 
Cash used in acquisitions
   
(83,486
)
   
-
 
Net cash used in investing activities
   
(91,120
)
   
(2,307
)
Cash flows from financing activities
               
Net borrowings from floor plan
   
(27,455
)
   
(49,316
)
Proceeds from long-term debt
   
30,000
     
49,307
 
Payments on long-term debt
   
(7,237
)
   
(19,380
)
Payments of debt issuance costs
   
(701
)
   
(1,762
)
Payments of initial public offering costs
   
-
     
(5,217
)
Payments of September offering costs
   
(540
)
   
-
 
Payment of acquisition contingent consideration
   
-
     
(1,457
)
Distributions to redeemable preferred interest members
   
-
     
(90,503
)
Proceeds from issuance of Class A common stock sold in initial public offering, net of underwriting discounts and commissions
   
-
     
59,234
 
Payments of tax withholdings for equity-based awards
   
(449
)
    -  
Distributions to members
   
(3,160
)
   
(11,618
)
Net cash used in financing activities
   
(9,542
)
   
(70,712
)
Net change in cash
   
52,533
     
79,577
 
Cash and restricted cash at beginning of period
   
68,153
     
11,492
 
Cash and restricted cash at end of period
 
$
120,686
   
$
91,069
 
                 
Supplemental cash flow disclosures
               
Cash paid for interest
 
$
4,925
   
$
8,696
 
Cash paid for income taxes
   
13,993
     
-
 
                 
Noncash items
               
Acquisition purchase price funded by seller notes payable
 
$
2,056
   
$
-
 
Acquisition purchase price funded by contingent consideration
   
5,482
     
-
 
Purchase of property and equipment funded by long-term debt
   
1,693
     
1,046
 
 Dividends and distributions payable     27,789
      -
 
 Distributions to members payable     610       -  

OneWater Marine Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(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 “Offering”) 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 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 June 30, 2021, the Company operated a total of 69 stores in ten states, consisting of Alabama, Florida, Georgia, Kentucky, Maryland, Massachusetts, North Carolina, Ohio, South Carolina, and Texas.
 

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 42.9% and 44.1% of total sales for the three months ended June 30, 2021 and 2020, respectively, and 41.1% and 41.7% of total sales for the nine months ended June 30, 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 19.0% and 19.2% of consolidated revenue for the three months ended June 30, 2021 and 2020, respectively, and 17.1% and 17.8% of consolidated revenue for the nine months ended June 30, 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 subsidiaries One Water Assets and Operations, South Shore Assets and Operations, Bosun’s Assets and Operations, Singleton Assets and Operations, Legendary Assets and Operations, South Florida Assets and Operations and Midwest Assets and Operations (collectively, the “Subsidiaries”), 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 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 June 30, 2021, OneWater Inc. owned 77.5% of the economic interest of OneWater LLC.
 
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, 2020. 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. In addition, certain reclassifications of amounts previously reported have been made to the accompanying unaudited condensed consolidated financial statements in order to conform to current presentation. 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.
 

As discussed above, the Company is the sole managing member for OneWater LLC and consolidates OneWater LLC and its subsidiaries. The financial statements for periods prior to the Offering have been adjusted to combine the previously separate entities for presentation purposes. Thus, for periods prior to the completion of the Offering, the accompanying unaudited interim condensed consolidated financial statements include the historical financial position and results of operations of OneWater LLC and its subsidiaries. For periods after the completion of the Offering, the financial position and results of operations include those of the Company and the Subsidiaries and report non-controlling interest related to the portion of OneWater LLC Units not owned by OneWater Inc.
 
COVID-19 Pandemic
 

In the last two weeks of March 2020, the Company began seeing the impact of the COVID-19 global pandemic on its business. Based on the guidance of local governments and health officials, we temporarily closed or reduced staffing at certain departments and locations during portions of the fiscal year ended September 30, 2020. 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 certain customers with 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, may negatively impact the Company’s future results of operations. 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, accounts receivable, accounts payable, other payables and accrued expenses and debt. The carrying values of cash, accounts receivable, accounts payable and other payables and accrued expenses approximate their fair values due to their short-term nature. The carrying value of debt approximates its fair value due to the debt agreements bearing interest at rates that approximate current market rates for debt agreements with similar maturities and credit quality.
 
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.
 

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 is no economic, contractual or other factors that limit their useful lives and they are expected to generate value as long as the trade name is utilized by the dealer group, and therefore, are not subject to amortization.

 
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, used, consignment and wholesale 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 $3.2 and $1.5 million as of June 30, 2021 and September 30, 2020, respectively. Contract assets related to the repair and maintenance services are transferred to receivables when a repair order is completed and invoiced to the customer.

 

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 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 transaction price 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 as of June 30, 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 is transferred to the customer. The activity in customer deposits for the three and nine months ended June 30, 2021 is as follows:

 
($ in thousands)
 
Three Months Ended
June 30, 2021
    Nine Months Ended
June 30, 2021
 
Beginning contract liability
 
$
39,395
   
$
17,280
 
Revenue recognized from contract liabilities included in the beginning balance
   
(26,266
)
   
(16,821
)
Increases due to cash received, net of amounts recognized in revenue during the period
   
29,985
     
42,655
 
Ending contract liability
 
$
43,114
   
$
43,114
 
 

The following tables set forth percentages on the timing of revenue recognition for the three and nine months ended June 30, 2021 and the three and nine months ended June 30 2020.


   
Three Months Ended
June 30, 2021
   
Three Months Ended
June 30, 2020
 
Goods and services transferred at a point in time
   
94.4
%

   
97.0
%

Goods and services transferred over time
   
5.6
%