UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2022
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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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 14,336,986 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 27, 2023.
Page
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3
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Item 1.
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5 |
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5 |
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6 |
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| Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2022 and December 31, 2021 | 7 |
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8 |
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9 |
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10 |
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Item 2.
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24 |
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Item 3.
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36 |
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Item 4.
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37 |
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| 37 | ||
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Item 1.
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37 | |
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Item 1A.
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37 | |
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Item 2.
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37 | |
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Item 3.
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37 | |
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Item 4.
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37 | |
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Item 5.
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37 | |
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Item 6.
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38 |
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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, 2022, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 15, 2022, 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:
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•
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general economic conditions, including changes in employment levels, rates of inflation, 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;
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•
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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 Dealership same-store growth;
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our ability to integrate acquisitions;
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competition;
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•
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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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demand for our products and our ability to maintain acceptable pricing for our products and services, including financing, insurance and extended service contracts;
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effects of an inflationary environment on the cost of the products we sell and personnel and other expenses that are incurred within our operations;
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our ability to finance working capital and capital expenditures;
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our operating cash flows, the availability of capital and our liquidity;
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our future revenue, Dealership same-store sales, income, financial condition, and operating performance;
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our ability to sustain and improve our utilization, revenue and margins;
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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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any potential tax savings we may realize as a result of our organizational structure;
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our future operating results and profitability;
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our ability to integrate the operations of Ocean Bio-Chem, Inc. (“Ocean Bio-Chem”) with our existing operations and fully realize the expected synergies of the Ocean Bio-Chem acquisition or on the expected timeline; and
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plans, objectives, expectations and intentions contained in this Form 10-Q that are not historical.
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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:
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decline in demand for our products and services;
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the effects of the novel coronavirus (“COVID-19”) pandemic on the Company’s business;
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other risks associated with the COVID-19 pandemic including, among others, the ability to safely operate our locations, access to inventory and customer demand;
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the seasonality and volatility of the boat industry;
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global public health concerns, including the COVID-19 pandemic;
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•
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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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environmental conditions and real or perceived human health or safety risks;
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our acquisition strategies and our ability to integrate additional marine retailers;
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effects of industry wide supply chain challenges and our ability to manage our inventory;
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our ability to retain key personnel and the effects of labor shortages;
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the inability to comply with the financial and other covenants and metrics in our credit facilities;
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cash flow and access to capital;
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the timing of development expenditures; and
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•
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the other risks described under “Risk Factors” and discussed elsewhere in our Annual Report on Form 10-K for the year ended September 30, 2022 and discussed elsewhere in this Quarterly Report on Form 10-Q.
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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)
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CONDENSED
CONSOLIDATED
BALANCE
SHEETS
($ in thousands, except par value and share data)
(Unaudited)
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December 31,
2022
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September 30,
2022 |
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Assets
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Current assets:
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Cash
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$
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$
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Restricted cash
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Accounts receivable, net
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Inventories, net
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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
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| Operating lease right-of-use assets |
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Other assets:
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Other assets
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Deferred tax assets, net
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Intangible assets, net
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Goodwill
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Total other assets
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Total assets
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$
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$
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Liabilities and Stockholders’ Equity
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Current liabilities:
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Accounts payable
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$
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$
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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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Current portion of operating lease liabilities
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Current portion of long-term debt, net
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Current portion of tax receivable agreement liability
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Total current liabilities
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Long-term Liabilities:
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Other long-term liabilities
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Tax receivable agreement liability
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| Noncurrent operating lease liabilities | ||||||||
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Long-term debt, net
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| Total liabilities |
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Stockholders’ Equity:
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Preferred stock, $
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Class A common stock, $
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Class B common stock, $
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Additional paid-in capital
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Retained earnings
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| Accumulated other comprehensive income (loss) |
( |
) | ||||||
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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
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$
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$
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share data)
(Unaudited)
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Three Months Ended
December 31,
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2022
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2021
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Revenues
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New boat
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$ | $ | ||||||
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Pre-owned boat
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Finance & insurance income
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Service, parts & other
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Total revenues
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||||||||
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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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( |
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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 (income) expense, net
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( |
) | ||||||
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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
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| 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
|
( |
) | ( |
) | ||||
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Net income attributable to OneWater Marine Inc.
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$ | $ | ||||||
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Earnings per share of Class A common stock – basic
|
$ | $ | ||||||
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Earnings per share of Class A common stock – diluted
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$ | $ | ||||||
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Basic weighted-average shares of Class A common stock outstanding
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Diluted weighted-average shares of Class A common stock outstanding
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($ in thousands)
(Unaudited)
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For the Three Months Ended
December 31,
|
||||||||
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2022
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2021
|
|||||||
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Net income
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$
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$
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|
||||
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Other comprehensive income:
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||||||||
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Foreign currency translation adjustment
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|
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||||||
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Comprehensive income
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||||||
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Less: Net income attributable to non-controlling interests
|
(
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)
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|||||
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Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC
|
(
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)
|
(
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)
|
||||
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Foreign currency translation adjustment attributable to non-controlling interest of One Water Marine Holdings, LLC
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(
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)
|
|
|||||
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Comprehensive income attributable to One Water Marine Holdings, Inc.
|
$
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$
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|
||||
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
($ in thousands)
(Unaudited)
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Class A Common Stock
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Class B Common Stock
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Shares
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Amount
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Shares
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Amount
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Additional Paid-in Capital
|
Retained Earnings
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Non-controlling Interest
|
Accumulated Other
Comprehensive Income (Loss) |
Total Stockholders’ Equity
|
||||||||||||||||||||||||||||
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Balance at September 30, 2022
|
|
$
|
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$
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$
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$
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$
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|
$ | ( |
) |
$
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|
|||||||||||||||||||
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Net income
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-
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|
-
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||||||||||||||||||||||||||||
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Distributions to members
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-
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-
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(
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)
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(
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)
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(
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)
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|||||||||||||||||||||||||
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Shares issued upon vesting of equity-based awards, net of tax withholding
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|
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(
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)
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(
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)
|
||||||||||||||||||||||||||
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Equity-based compensation
|
-
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-
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||||||||||||||||||||||||||||
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Currency translation adjustment
|
- | - | ||||||||||||||||||||||||||||||||||
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Balance at December 31, 2022
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
$
|
|
|||||||||||||||||||||
|
Class A Common Stock
|
Class B Common Stock
|
|||||||||||||||||||||||||||||||||||
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Shares
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Amount
|
Shares
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Amount
|
Additional Paid-in Capital
|
Retained Earnings
|
Non-controlling Interest
|
Accumulated Other
Comprehensive Income (Loss) |
Total Stockholders’ Equity
|
||||||||||||||||||||||||||||
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Balance at September 30, 2021
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
$
|
|
|||||||||||||||||||||
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Net income
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||||||
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Distributions to members
|
-
|
|
-
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|
|
(
|
)
|
(
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)
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(
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)
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|||||||||||||||||||||||||
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Non-controlling interest in subsidiary
|
-
|
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-
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|
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||||||||||||||||||||||||||||
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Exchange of B shares for A shares
|
|
|
(
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)
|
(
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)
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|
|
(
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)
|
|
|||||||||||||||||||||||||
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Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis
|
-
|
|
-
|
|
(
|
)
|
|
|
(
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)
|
||||||||||||||||||||||||||
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Shares issued upon vesting of equity-based awards, net of tax withholding
|
|
|
|
|
(
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)
|
|
|
(
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)
|
||||||||||||||||||||||||||
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Shares issued in connection with a business combination
|
||||||||||||||||||||||||||||||||||||
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Equity-based compensation
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Balance at December 31, 2021
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
$
|
|
|||||||||||||||||||||
|
For the Three Months Ended December 31
|
2022
|
2021 | ||||||
|
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
|
|
|
||||||
|
Loss (gain) on asset disposals
|
|
(
|
)
|
|||||
|
Non-cash interest expense
|
|
|
||||||
|
Deferred income tax provision
|
|
|
||||||
|
Change in fair value of contingent consideration
|
( |
) | ||||||
|
Loss on equity investment
|
||||||||
|
(Increase) decrease in assets:
|
||||||||
|
Accounts receivable
|
(
|
)
|
|
|||||
|
Inventories
|
(
|
)
|
(
|
)
|
||||
|
Prepaid expenses and other current assets
|
|
|
||||||
|
Other assets
|
(
|
)
|
(
|
)
|
||||
|
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 of cash acquired
|
(
|
)
|
(
|
)
|
||||
|
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 contingent consideration |
( |
) | ||||||
|
Payments of tax withholdings for equity-based awards
|
(
|
)
|
( |
) | ||||
|
Distributions to members
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by financing activities
|
|
|
||||||
| Effects of exchange rate changes on cash and restricted cash |
||||||||
|
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
|
|
|
||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | ||||||||
| Acquisition purchase price funded by affiliate financing |
||||||||
| Settlement of affiliate financing with proceeds from sale and leaseback |
||||||||
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 “IPO”) and related transactions in order to carry on the business of OneWater LLC and its subsidiaries (together with OneWater 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, 2022, the Company operated a total of 100 retail locations, 12
distribution centers/warehouses and multiple online marketplaces in 20 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 42.9 %
and 47.9 % of total sales for the three months ended December 31, 2022 and 2021, 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 13.0 % and 14.1 % of consolidated revenue for the three months ended December 31, 2022 and
2021, 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. Through OneWater LLC and its wholly-owned subsidiaries, as well as majority-owned subsidiaries over which the Company exercises control, OneWater Inc. 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 December 31, 2022, OneWater Inc. owned 90.9 %
of the economic interest of OneWater LLC.
Commencing December 31, 2021, 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, 2022. 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.
COVID-19 Pandemic
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 increase in demand for marine retail products has led to industry-wide supply chain constraints and although there are indications that the supply chain constraints are
easing, it is unclear when the issue will be fully resolved. The Company is monitoring and assessing the situation and preparing for implications to the business, including the ability to safely operate its locations, access to inventory
and customer demand.
| 2. |
Summary of Significant Accounting Policies
|
Cash
At times the amount of cash on deposit may exceed the federally insured limit of the bank. Deposit accounts at each of the institutions are insured up to $250,000
Restricted Cash
Restricted cash relates to
amounts collected for pre-owned sales, in certain states, which are held in escrow on behalf of the respective buyers and sellers for future purchases of boats. Total customer deposits are shown as a liability on the consolidated
balance sheets. These liabilities may be more than the applicable restricted cash balances and fluctuate due to timing differences and because in certain states the deposits are not restricted from use.
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 acquired, manufactured and assembled parts and accessories is determined using methods which vary by subsidiary and include both the average cost method and first-in, first-out (“FIFO”).
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.
Identifiable intangible assets consist of trade names, developed technologies, including design libraries, and customer relationships 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 Company, and therefore, are not subject to amortization. Developed technologies and customer relationships are amortized over their estimated useful lives of ten years and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. 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 accessories sold directly to a customer (not on
a repair order) is recognized when control of the item is transferred to the customer, which is typically upon shipment. 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 $3.7
Certain parts and service transactions require the Company to perform shipping and handling activities after the transfer of control to the
customer (e.g., when control transfers prior to delivery). They are considered fulfillment activities and are included in selling, general and administrative expenses.
Revenue from storage and marina operations is recognized on a straight-line basis over the term of the contract as services are completed.
Revenue from arranging financing, insurance and extended warranty contracts to customers through various third-party financial institutions and insurance companies is recognized when the related boats are sold. We do not directly
finance our customers’ boat, motor or trailer purchases. We are acting as an agent in the transaction, therefore the commission is recorded on a net basis. Subject to our agreements and in the event of early cancellation, prepayment or
default of such loans or insurance contracts by the customer, we may be assessed a chargeback for a portion of the commission paid by the third-party financial institutions and insurance companies. We reserve for these chargebacks based
on our historical experience with repayments or defaults. Chargebacks were not material to the unaudited condensed consolidated financial statements for the three months ended December 31, 2022 and December 31, 2021.
Contract liabilities consist of deferred revenues from marina and storage operations and customer deposits and are classified in customer
deposits in the Company’s unaudited condensed consolidated balance sheets. Deposits received from customers are recorded as a liability until the related sales orders have been fulfilled by us and control of the vessel or part/accessory
is transferred to the customer. The activity in customer deposits for the three months ended December 31, 2022 is as follows:
|
($ in thousands)
|
Three Months Ended
December 31, 2022
|
|||
|
Beginning contract liability
|
$
|
|
||
|
Revenue recognized from contract
liabilities included in the beginning balance
|
(
|
)
|
||
|
Increases due to business combinations
and 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, 2022 and 2021.
|
Three Months Ended
December 31, 2022
|
Three Months Ended
December 31, 2021
|
|||||||
|
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 and valuation of contingent consideration.
Segment Information
Effective August 9, 2022, we completed the
acquisition of Ocean Bio-Chem, Inc., and Star Brite Europe, Inc (collectively “Ocean Bio-Chem”), which changed management’s reporting structure and operating activities. We now report our operations through two reportable segments: Dealerships and Distribution. The Dealership segment engages in the sale of new and pre-owned boats, arranges
financing and insurance products, performs repairs and maintenance services, offers marine related parts and accessories and offers slip and storage accommodations in certain locations. The Distribution segment engages in the
manufacturing, assembly and distribution primarily of marine related products to distributors, big box retailers and online retailers through a network of warehouse and distribution centers. Each reporting segment has discrete financial
information and is regularly reviewed by the Company’s chief operating decision maker (“CODM”) to assess performance and allocate resources. The Company has identified its Chief Executive Officer as its CODM. The change in reportable
segments had no impact on the Company’s previously reported historical consolidated financial statements.
| 3. |
New Accounting Pronouncements
|
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.
Other
than as noted above, there are no new accounting pronouncements that are expected to have a material effect on our consolidated financial statements.
| 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 2023 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.
For the three months ended December 31, 2022, the Company completed the following transactions:
|
•
|
On October 1, 2022, Taylor Marine Centers with locations in Maryland and Delaware
|
|
•
|
On December 1, 2022, Harbor View Marine with locations in Alabama and Florida
|
Consideration paid for
the acquisitions was $41.8 million with $28.6 million paid at closing, $10.6 million in non-cash
financing and the remaining $2.6 million in estimated payments of contingent consideration. The estimated payments of
contingent consideration are part of earnouts related to the achievement of certain post-acquisition increases in adjusted EBITDA of the acquired companies. The acquisition contingent consideration was developed using weighted
average projections based on the Company’s historical experience and current forecasts for the industry. There are no
The table below summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date, including the goodwill recorded as a result of the transaction:
|
Summary of Assets Acquired and Liabilities Assumed
($ in thousands)
|
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
|
(
|
)
|
||
| Notes payable - floor plan | ( |
) | ||
|
Operating lease liabilities
|
(
|
)
|
||
|
Aggregate acquisition date fair value
|
$
|
|
||
|
Consideration transferred
|
$
|
|
||
In connection with the acquisition of Harbor View Marine, an entity affiliated with the Company agreed to acquire the real estate for the two acquired locations, in effect providing non-cash financing. The Company has accounted for this transaction as a sale and leaseback of the properties in our unaudited
condensed consolidated financial statements. There was no gain or loss recorded as part of the transaction. The
leases for the two properties include an initial term of 15 years and two , five-year renewal options. The leases
are accounted for as an operating leases and are included in the operating lease right-of-use assets and operating lease liabilities on the unaudited condensed consolidated balance sheet.
We expect substantially all of the goodwill related to acquisitions completed during the
three months ended December 31, 2022 to be deductible for federal income tax purposes. The fair value of trade name intangible assets as of the acquisition date were determined using the relief from royalty model.
Included in our results for the three months ended December 31, 2022, the acquisitions contributed $8.7 million to
our consolidated revenue and $0.5 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 $0.8 for the three months ended December 31, 2022. Comparatively, we recorded $3.0 million in acquisition related transaction costs for the three months ended December 31, 2021.
The following unaudited pro forma summary presents consolidated
information as if all acquisitions in the three-month period ended December 31, 2022 and 2021 had occurred on October 1, 2021:
|
Three Months Ended
December 31, 2022
|
Three Months Ended
December 31, 2021
|
|||||||
| ($ in thousands) | ||||||||
|
(Unaudited)
|
||||||||
|
Pro forma revenue
|
$ |
$
|
|
|||||
|
Pro forma net income
|
$ |
$
|
|
|||||
The amounts have been calculated by applying our accounting policies and estimates. Pro forma net income has
been tax affected based on the Company’s effective tax rate in the historical periods presented.
|
5.
|
Accounts Receivable
|
Accounts receivable primarily consists of trade accounts receivable, contracts in transit and manufacturer receivables. Trade
receivables include amounts due from customers on the sale of boats, parts, service, and storage. Contracts in transit represent anticipated funding from the loan agreement customers execute at the dealership when they purchase their new or
pre-owned boat. These finance contracts are typically funded within 30 days. Amounts due from manufacturers represent receivables for
various manufacturer incentive programs and parts and service work performed pursuant to the manufacturers’ warranties.
The allowance for credit losses is estimated based on past collection experience, current conditions and reasonable and
supportable forecasts. The activity for charges and subsequent recoveries is immaterial.
Accounts receivable consisted of the following:
|
($ in thousands)
|
December 31, 2022
|
September 30, 2022
|
||||||
|
Trade accounts receivable
|
$
|
|
$
|
|
||||
|
Contracts in transit
|
|
|
||||||
|
Manufacturer receivable
|
|
|
||||||
|
Total accounts receivable
|
|
|
||||||
|
Less – allowance for credit losses
|
(
|
)
|
(
|
)
|
||||
|
Total accounts receivable, net
|
$
|
|
$
|
|
||||
| 6. |
Inventories
|
Inventories consisted of the following at:
|
($ in thousands)
|
December 31, 2022
|
September 30, 2022
|
||||||
|
New vessels
|
$
|
|
$
|
|
||||
|
Pre-owned vessels
|
|
|
||||||
|
Work in process, parts and accessories
|
|
|
||||||
|
$
|
|
$
|
|
|||||
| 7. |
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. Intangible assets consist of
internally developed software, domain names and other identifiable intangible assets such as trade names, developed technologies, including design libraries, and customer relationships related to the acquisitions the Company has
completed. The changes in goodwill and identifiable intangible assets are as follows:
|
($ in thousands)
|
Goodwill
Unamortized
|
Trade Names
Unamortized
|
Developed technologies Amortized |
Customer Relationships
Amortized
|
Domain Names Amortized |
Internally Developed
Software Amortized |
Total
Intangible
Assets, net
|
|||||||||||||||||||||
|
Net balance as of September 30, 2022
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Acquisitions during the three months ended December 31, 2022
|
|
|
|
|
||||||||||||||||||||||||
|
Accumulated amortization for the three months ended December 31, 2022
|
-
|
-
|
( |
) |
(
|
)
|
( |
) | ( |
) |
(
|
)
|
||||||||||||||||
|
Net balance as of December 31, 2022
|
$
|
|
$
|
|
$ |
$
|
|
$ |
$ |
$
|
|
|||||||||||||||||
Amortization expense was $3.3 million for the three months ended December 31, 2022, and is recorded in depreciation and amortization expense in the unaudited condensed consolidated statements of
operations. No amortization expense was recorded for the three months ended December 31, 2021.
The following table summarizes the expected amortization expense for fiscal years 2023 through 2027 and
thereafter ($ in thousands):
|
2023 (excluding the three months ended December 31, 2022)
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
Thereafter
|
|
|||
|
$
|
|
As of December
31, 2022, the carrying value of goodwill totaled $397.5 million, of which $298.9 million was related to our Dealerships reporting segment and $98.6 million was related to our Distribution reporting segment. As of September 30, 2022, the carrying value of goodwill totaled approximately $378.6 million, of which $280.0 million was
related to our Dealerships reporting segment and $98.6 million was related to our Distribution reporting segment.
| 8. |
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 and certain of its subsidiaries entered into the Seventh
Amended and Restated Inventory Financing Agreement (as amended, the “Inventory Financing Facility”) with Wells Fargo and the other financial institutions party thereto 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 $425.4 million and $267.1
million, as of December 31, 2022 and September 30, 2022, respectively.
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 in 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, 2022 the interest
rate on the Inventory Financing Facility ranged from 6.93 % to 9.18 % for new inventory and 7.18 % to 9.43 % for pre-owned inventory. As of September 30, 2022 the interest rate on the Inventory Financing Facility ranged from 5.33 % to 7.58 % for new
inventory and 5.58 % to 7.83 %
for pre-owned inventory. Borrowing capacity available at December 31, 2022 and September 30, 2022 was $74.6 million and $232.9 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). 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, 2022.
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.
| 9. |
Long-term Debt and Line of Credit
|
On August 9, 2022, the Company and certain of its subsidiaries entered into the Amended and Restated Credit Agreement (the “A&R Credit
Facility”) with Truist Bank. The A&R Credit Facility provides for a $65.0 million revolving credit facility (the “A&R
Revolving 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) and a $445.0
million term loan (the “A&R Term Loan”). Subject to certain conditions, the available amount under the revolving credit facility and term loans may be increased by $125.0 million in the aggregate. The A&R Credit Facility bears interest at a rate that is equal to Term SOFR plus an applicable margin ranging from 1.75 % to 2.75 % based on
certain consolidated leverage ratio measures. The A&R Revolving Facility matures on August 9, 2027 . The A&R Term Loan
is repayable in installments beginning December 31, 2022, with the remainder due on August 9, 2027 .
The A&R Credit Facility is collateralized by certain real and personal property (including certain capital stock) of the Company and its
subsidiaries. The collateral does not include inventory and certain other assets of the Company’s subsidiaries financed under the Inventory Financing Facility. The A&R Credit Facility is subject to certain financial covenants related
to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio. The A&R Credit Facility also contains non-financial covenants and restrictive provisions that, among other things, limit the
ability of the Company to incur additional debt, transfer or dispose of all of its assets, make certain investments, loans or payments and engage in certain transactions with affiliates. The Company was in compliance with all covenants at
December 31, 2022.
Long-term debt consisted of the following at:
|
($ in thousands)
|
December 31,
2022
|
September 30,
2022
|
||||||
|
Term note payable to Truist Bank, secured
and bearing interest at
|
$
|
|
$
|
|
||||
|
Revolving note payable for an amount up
to $
|
|
|
||||||
|
Notes payable to commercial vehicle
lenders secured by the value of the vehicles bearing interest at rates ranging from
|
|
|
||||||
|
Note payable to Tom George Yacht Group,
unsecured and bearing interest at
|
|
|
||||||
|
Note payable to Norfolk Marine Company,
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 and
unamortized debt issuance costs
|
$
|
|
$
|
|
||||
| 10. |
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 1,572,755 .
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, 2022, the Board approved the grant of 83,036 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 goals. A performance-based restricted stock unit equals one share of common stock of the Company. Of this amount, 13,288 performance-based restricted stock units fully vest on October 1, 2023 and the remaining 69,748 restricted stock units vest in three equal
annual installments commencing on October 1, 2023. As of December 31, 2022, the Company estimated achievement of the performance targets at 100 %.
During the three months ended
December 31, 2022, the Board approved the grant of 131,113 time-based restricted stock units. Of this amount, 19,928 restricted stock units fully vest on October 1, 2023 and the remaining 111,185 restricted stock units vest in three equal annual
installments commencing on October 1, 2023.
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-based restricted stock 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 applicable vesting period. The Company recognized $2.3 million and $2.1 million of compensation
expense for the three months ended December 31, 2022 and 2021, respectively, which includes $1.1 million and $1.0 million of compensation expense for the three months ended December 31, 2022 and 2021, respectively, for performance-based
restricted stock units.
The following table further summarizes activity related to restricted
stock units for the three months ended December 31, 2022:
|
Restricted Stock Unit Awards
|
||||||||
|
Number of
Shares
|
Weighted Average
Grant Date Fair Value
($)
|
|||||||
|
Unvested at September 30, 2022
|
|
$
|
|
|||||
|
Awarded
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Forfeited
|
(
|
)
|
|
|||||
|
Unvested at December 31, 2022
|
|
$
|
|
|||||
As of December 31, 2022, the total unrecognized compensation expense related to outstanding equity awards was $10.3 million, which the Company expects to recognize over a weighted-average period of 1.3 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, 2022 and 2021 (in thousands, except per share data):
|
Earnings per share:
|
Three Months Ended
December 31, 2022
|
Three Months Ended
December 31, 2021
|
||||||
|
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
|
|
|
||||||
| Employee Stock Purchase Plan | ||||||||
|
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
|
$
|
|
$
|
|
||||
On March 30, 2022, the Board approved an up to $50 million share repurchase program. As of December 31, 2022 the Company has repurchased and retired 10,134 shares of Class A common stock under the repurchase program for a purchase price of approximately $0.4 million. As of December 31, 2022, approximately $49.6 million
remained available for future purchase under the repurchase program. The repurchase program does not have a predetermined expiration date.
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, 2022
|
Three Months Ended
December 31, 2021
|
|||||||
|
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 449,257 shares of the Company’s Class A common stock may be issued under the ESPP as of December 31, 2022,
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.
The first offering period began on July 1, 2022 and the Company recorded equity-based
compensation of $0.2 million during the three months ended December 31, 2022. As of December 31, 2022, we had current
liabilities of $1.1 million for future purchases of shares under the ESPP. No purchases have been made under the ESPP as of December 31, 2022.
We used a Black-Scholes model to estimate the fair value of the options granted to purchase
shares issued pursuant to the ESPP. Volatility is based on the historical volatility in our common stock. The risk-free rate for periods within the contractual term of the options is based on the U.S. Treasury yield curve in effect at
the time of grant.
The following are the weighted-average assumptions used for the period ended December 31, 2022:
|
2022
|
||||
|
Dividend yield
|
|
%
|
||
|
Risk-free interest rate
|
|
%
|
||
|
Volatility
|
|
%
|
||
|
Expected life
|
|
|||
Distributions
During the three months ended December 31, 2022, the Company made
distributions to OneWater Unit Holders for certain permitted tax payments.
| 11. |
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 assets and liabilities measured at fair value in the accompanying unaudited condensed consolidated balance sheets as of
December 31, 2022 and September 30, 2022
|
December 31, 2022
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
($ in thousands)
|
||||||||||||||||
| Assets: | ||||||||||||||||
|
Investment in Equity Securities
|
$ | $ | $ | $ | ||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Contingent Consideration
|
|
|
|
|
||||||||||||
|
September 30, 2022
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
($ in thousands)
|
||||||||||||||||
| Assets: | ||||||||||||||||
|
Investment in Equity Securities
|
$ | $ | $ | $ | ||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Contingent Consideration
|
|
|
|
|
|
|
|
|
||||||||
There were no transfers between the valuation hierarchy Levels 1, 2, and 3 for the three months ended December 31, 2022.
We measure all
equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with the change in fair value included in other expense (income), net, in the unaudited condensed consolidated
statements of operations. The fair value of equity investments is measured using quoted prices in its active markets. The investment in equity securities balance is recorded in other assets in the unaudited condensed consolidated balance
sheets and consists of a $0.5 million investment in Forza X1, Inc.
The portion of unrealized losses recognized related to equity securities still held as of December 31 consists of
the following:
|
($ in thousands)
|
Three Months Ended
December 31, 2022
|
|||
|
Net losses recognized during the period on equity securities
|
$
|
|
||
|
Less net losses recognized during the period on equity securities sold during the period
|
|
|||
|
Unrealized losses recognized during the reporting period on equity securities still held at the reporting date
|
$
|
|
||
There were no unrealized gains or losses recognized for the three months ended December 31, 2021 related to equity securities.
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, 2022:
|
($ in thousands)
|
Contingent Consideration
|
|||
|
Balance as of September 30, 2022
|
$
|
|
||
|
Additions from acquisitions
|
|
|||
|
Settlement of contingent consideration
|
(
|
)
|
||
|
Change in fair value, including accretion
|
(
|
)
|
||
|
Balance as of December 31, 2022
|
$
|
|
||
| 12. |
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 22.8 % and 17.2 % for the three months ending December
31, 2022 and 2021, 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, 2022 and September 30, 2022, 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. In November 2022, the Company received notification that the IRS intends to commence an audit of the federal income tax return
of OneWater LLC’s partnership for the tax year ended December 31, 2020. Audit outcomes and the timing of settlements of asserted income tax liabilities, if any, are subject to significant uncertainty.
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, 2022 and September 30, 2022, our liability under the Tax Receivable Agreement was $46.4 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.
| 13. |
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.
| 14. |
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.
| 15. |
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 the Company. Total purchases
incurred under these arrangements were $21.3 million and $33.3 million for the three months ended December 31, 2022 and 2021, respectively.
In accordance with agreements approved by the Board, certain entities affiliated with the Company receive fees for rent of commercial property. Total expenses incurred under these arrangements were $
In accordance with agreements approved by the
Board, the Company received fees from certain entities and individuals affiliated with the Company for goods and services. Total fees recorded under these arrangements were $1.2 million and $0.1 million for the three months ended December
31, 2022 and 2021, respectively.
In accordance with agreements approved by the Board, the Company made payments to certain entities and individuals affiliated with the Company for goods and services. Total payments recorded under these arrangements were $
In connection with transactions noted above, the Company owed less than $0.1
million and $2.0 million as recorded within accounts payable as of December 31, 2022 and September 30, 2022, respectively. Additionally, the Company was due $3.2 million and $0.2 million as recorded within accounts receivable as of December 31, 2022
and September 30, 2022, respectively.
|
16.
|
Segment Information
|
As of December 31, 2022, we had two reportable segments: (1) Dealerships and (2) Distribution. See Note 2 for more information about our segments.
Reportable segment financial information as of and for the three months ended December
31, 2022 are as follows:
|
As of and for the Three Months Ended December 31, 2022
|
||||||||||||
|
($ in thousands)
|
Dealerships
|
Distribution
|
Total
|
|||||||||
|
Revenue
|
$
|
|
$
|
|
$
|
|
||||||
|
Income (loss) from operations
|
|
(
|
)
|
|
||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Transaction costs
|
|
|
|
|||||||||
|
Change in fair value of contingent consideration
|
(
|
)
|
|
(
|
)
|
|||||||
|
Total assets
|
|
|
|
|||||||||
The Company identified the change in reportable segments as of August 9, 2022 and as
such no financial information is presented as of and for the three months ended December 31, 2021.
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 2022, filed with the SEC on December 15, 2022, 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 100 retail locations, 12 distribution
centers/warehouses and multiple online marketplaces as of December 31, 2022. 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 of the markets in which we operate. Additionally, the recent acquisitions of T-H Marine Supplies, LLC (“T-H Marine”) and Ocean Bio-Chem will significantly expand our sales of marine-related parts and accessories. The combination of our significant scale, diverse inventory,
access to premium boat brands, access to a broad array of parts and accessories, and meaningful group brand equity enables us to provide a consistently professional experience as reflected in the number of our repeat customers and Dealership
same-store sales growth.
Effective August 9, 2022, our reportable segments changed as a result of the Company’s acquisition of Ocean Bio-Chem, which changed management’s reporting structure and operating activities.
We now report our operations through two reportable segments: Dealerships and Distribution.
As of December 31, 2022, the Dealerships segment includes operations of 100 dealerships in 16 states including Florida,
Texas, Alabama and Georgia, among others, and represents approximately 89% of revenues for the three months ended December 31, 2022. The Dealership segment engages in the sale of new and pre-owned boats, arranges financing and insurance
products, performs repairs and maintenance services, offers marine-related parts and accessories and offers slip and storage accommodations in certain locations. In fiscal year 2022, we sold
over 10,500 new and pre-owned boats, many of which were sold to customers who had a trade-in or with whom we otherwise had established relationships. The combination of our significant scale,
diverse inventory and revenue streams, access to premium boat brands and meaningful brand equity enables us to provide a consistently professional experience as reflected by the number of our repeat customers and Dealership same-store sales
growth.
As of December 31, 2022, the Distribution segment includes the activity of three of our fully-owned businesses, PartsVu,
Ocean Bio-Chem and T-H Marine and its subsidiaries, which together operate 12 distribution centers/warehouses in Alabama, Florida, Texas, Oklahoma, Indiana, Tennessee and Illinois and represents approximately 11% of revenues for the three
months ended December 31, 2022. The Distribution segment engages in the manufacturing, assembly and distribution of primarily marine-related products for sale to distributors, big box
retailers, online retailers and direct to consumers. We offer a wide array of branded parts and accessories including jack plates, rigging parts, plumbing components, LED lighting, storage systems, and appearance, cleaning, and maintenance
products for the marine and ancillary industries. All revenue for the Distribution segment is reported in service, parts & other in our consolidated statements of operations.
We were formed in 2014 as OneWater LLC through the combination of Singleton Marine and Legendary Marine, which created a marine retail platform that collectively owned and operated 19
dealerships. Since the combination in 2014, we have acquired a total of 79 additional dealerships, 12 distribution centers/warehouses and multiple online marketplaces through 32 acquisitions. Our current portfolio as of December 31, 2022 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 marine retailers in the United States based on number of dealerships and total boats sold.
While we have opportunistically opened new dealerships in select markets, or launched additional parts and accessory products, we believe that it is generally more effective economically and operationally to acquire existing businesses with
experienced staff and established reputations.
The boat dealership market is highly fragmented, as evidenced by the over 4,000 boat dealers nationwide. Most competing
boat retailers are operated by local business owners who own three or fewer stores; however, we do have other large competitors including MarineMax and Bass Pro Shops. We believe we are one of the largest and fastest-growing marine retailers in
the United States. 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. In addition to boat sales, we also generate sales from related products including finance &
insurance and service, parts and other sales. The recent acquisitions of T-H Marine and Ocean Bio-Chem have significantly expanded our sales of marine parts and accessories. Our strategic growth in this area is also expected to materially
expand our addressable market in the parts and accessories business. We are able to operate with a comparatively higher degree of profitability than other independent retailers because we allocate support resources across our broader base,
focus on high margin service, parts and accessories, 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 marine 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 previously implemented and in the future may reimplement 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.
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, 2022 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 locations 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 79 additional dealerships through 27 dealer group acquisitions. Our team remains focused on expanding our dealership growth in regions with strong boating cultures, enhancing the customer experience and generating value for our
shareholders. In addition to dealership acquisitions, the Company has strategically acquired parts and accessories companies as part of our growth and diversification strategy. We have acquired 12 distribution centers and warehouses through the
acquisition of 5 parts and accessories companies. We plan to continue to strategically evaluate and complete acquisitions moving forward.
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. Our strategy is to acquire dealerships at attractive EBITDA multiples and then grow same-store
sales while benefitting from cost-reducing synergies. Historically, we have typically acquired dealerships 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. With the expansion of our Distribution segment, we look to acquire parts and accessories manufacturing and distribution companies within a range of 5.0x – 10.0x EBITDA on a trailing twelve-month basis, depending on the size of the business.
General Economic Conditions
General economic conditions and consumer spending patterns can negatively impact our operating results. Unfavorable local, regional, national, or global economic developments or uncertainties,
including the adverse economic effects of the COVID-19 pandemic, including supply chain constraints, or a prolonged economic downturn, could reduce consumer spending and adversely affect our business. Consumer spending on discretionary goods may
also decline as a result of lower consumer confidence levels, higher interest rates or higher fuel costs, even if prevailing economic conditions are otherwise favorable. Economic conditions in areas in which we operate dealerships, 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 dealerships 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 & 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 pandemics,
rising interest rates, inflation, 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 Estimates
There have been no material changes in our critical
accounting policies and estimates from the information provided in the Company’s Annual Report for the year ended September 30, 2022.
How We Evaluate Our Operations
Revenue
We have a diversified revenue profile that is comprised of new boat sales, pre-owned boat sales, finance & insurance
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 21.4% and 13.9% to revenue in the three months ended December 31, 2022 and 2021, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 34.0%
and 26.3% to gross profit in the three months ended December 31, 2022 and 2021, respectively. We have also diversified our business across geographies, dealership types (e.g., fresh water and
salt water), and product offerings (e.g., focus on parts and accessories business through PartsVu, T-H Marine and Ocean Bio-Chem) in order to reduce the effects of seasonality and cyclicality of our business. 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 dealerships and vendor consideration. Gross profit excludes the majority of 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 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 selling, general, and administrative expenses in the aggregate as a percentage of total revenue.
Dealership Same-Store Sales
We assess the organic growth of our Dealership segment 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 dealerships become eligible for inclusion in the comparable dealership base at the end of the dealership’s thirteenth month of operations under our
ownership and revenues are only included for identical months in the same-store base periods. Dealerships relocated within an existing market remain in the comparable dealership base for all periods. Additionally, amounts related to closed
dealerships are excluded from each comparative base period. Because Dealership 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 (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 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 (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.
Summary of Acquisitions
The comparability of our results of operations between the periods discussed below is naturally affected by the acquisitions we have completed during such periods. We are also continuously
evaluating and pursuing acquisitions on an ongoing basis, and such acquisitions, if completed, will continue to impact the comparability of our financial results. While we expect continued growth and strategic acquisitions in the future, our
acquisitions may have materially different characteristics than our historical results, and such differences in economics may impact the comparability of our future results of operations to our historical results.
Fiscal 2023 Year-to-date Acquisitions
|
•
|
Effective October 1, 2022, we acquired Taylor Marine Centers, a full-service marine retailer with locations in Maryland and Delaware.
|
|
•
|
Effective December 1, 2022, we acquired Harbor View Marine, a full-service marine retailer with locations in Florida and Alabama.
|
We refer to the fiscal year 2023 acquisitions described above collectively as the ‘‘2023 Acquisitions.’’ The acquisition of
Taylor Marine Centers is fully reflected in our unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2022. The acquisition of Harbor View Marine is partially reflected in our unaudited Condensed
Consolidated Statements of Operations for the three months ended December 31, 2022.
Fiscal Year 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 for OEMs and the aftermarket, with locations in Alabama, Florida, Illinois, Indiana, Oklahoma and Texas.
|
|
•
|
Effective December 1, 2021, we acquired Norfolk Marine Company, a full-service marine retailer with one location in Virginia.
|
|
•
|
Effective December 31, 2021, we acquired a majority interest in Quality Boats, a full-service marine retailer with three locations in Florida.
|
|
•
|
Effective February 1, 2022 we acquired JIF Marine, a leading supplier of stainless steel ladders, dock products and other accessories which is based in Tennessee.
|
|
•
|
Effective March 1, 2022, we acquired YakGear, a leading supplier of kayak equipment, paddle sport accessories and boat mounting accessories which is based in Texas.
|
|
•
|
Effective April 1, 2022, we acquired Denison Yachting, a leader in yacht and superyacht sales as well as ancillary yacht services, with 20 retail locations.
|
|
•
|
Effective August 9, 2022, we acquired Ocean Bio-Chem, including Star Brite Europe, Inc., a leading supplier and distributor of appearance, cleaning and maintenance products for the marine industry and the automotive, powersports,
recreational vehicles, and outdoor power equipment markets with locations in Alabama and Florida.
|
We refer to the fiscal year 2022 acquisitions described above collectively as the “2022 Acquisitions.” The acquisition of Naples Boat Mart is fully reflected in our unaudited Condensed
Consolidated Statements of Operations for the three months ended December 31, 2021. The acquisitions of 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 remaining 2022 Acquisitions are not reflected in our unaudited Condensed Consolidated Statements of Operations for 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.’s effective tax rates were 22.8% and 17.2% for the three months ended December 31, 2022 and
2021, respectively.
|
|
•
|
As we further implement controls, processes and infrastructure applicable to companies with publicly traded equity securities, it is likely that we will incur additional selling, general, and
administrative 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, 2022, Compared to Three Months Ended December 31, 2021
|
|
For the three months
ended December 31, 2022
|
For the three months
ended December 31, 2021
|
||||||||||||||||||||||
|
|
Amount
|
% of Revenue
|
Amount
|
% of Revenue
|
$ Change
|
% Change
|
||||||||||||||||||
|
($ in thousands)
|
||||||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||||||
|
New boat
|
$
|
232,405
|
63.4
|
%
|
$
|
236,198
|
70.2
|
%
|
$
|
(3,793
|
)
|
-1.6
|
%
|
|||||||||||
|
Pre-owned boat
|
55,778
|
15.2
|
%
|
53,449
|
15.9
|
%
|
2,329
|
4.4
|
%
|
|||||||||||||||
|
Finance & insurance income
|
8,934
|
2.4
|
%
|
9,307
|
2.8
|
%
|
(373
|
)
|
-4.0
|
%
|
||||||||||||||
|
Service, parts and other
|
69,542
|
19.0
|
%
|
37,318
|
11.1
|
%
|
32,224
|
86.3
|
%
|
|||||||||||||||
|
Total revenues
|
366,659
|
100.0
|
%
|
336,272
|
100.0
|
%
|
30,387
|
9.0
|
%
|
|||||||||||||||
|
Gross Profit
|
||||||||||||||||||||||||
|
New boat
|
57,147
|
15.6
|
%
|
60,302
|
17.9
|
%
|
(3,155
|
)
|
-5.2
|
%
|
||||||||||||||
|
Pre-owned boat
|
15,474
|
4.2
|
%
|
14,079
|
4.2
|
%
|
1,395
|
9.9
|
%
|
|||||||||||||||
|
Finance & insurance
|
8,934
|
2.4
|
%
|
9,307
|
2.8
|
%
|
(373
|
)
|
-4.0
|
%
|
||||||||||||||
|
Service, parts & other
|
28,433
|
7.8
|
%
|
17,277
|
5.1
|
%
|
11,156
|
64.6
|
%
|
|||||||||||||||
|
Total gross profit
|
109,988
|
30.0
|
%
|
100,965
|
30.0
|
%
|
9,023
|
8.9
|
%
|
|||||||||||||||
|
Selling, general and administrative expenses
|
77,838
|
21.2
|
%
|
59,096
|
17.6
|
%
|
18,742
|
31.7
|
%
|
|||||||||||||||
|
Depreciation and amortization
|
5,693
|
1.6
|
%
|
1,749
|
0.5
|
%
|
3,944
|
225.5
|
%
|
|||||||||||||||
|
Transaction costs
|
1,330
|
0.4
|
%
|
3,045
|
0.9
|
%
|
(1,715
|
)
|
-56.3
|
%
|
||||||||||||||
|
Change in fair value of contingent consideration
|
(1,409
|
)
|
-0.4
|
%
|
5,746
|
1.7
|
%
|
(7,155
|
)
|
-124.5
|
%
|
|||||||||||||
|
Income from operations
|
26,536
|
7.2
|
%
|
31,329
|
9.3
|
%
|
(4,793
|
)
|
-15.3
|
%
|
||||||||||||||
|
Interest expense - floor plan
|
4,779
|
1.3
|
%
|
877
|
0.3
|
%
|
3,902
|
444.9
|
%
|
|||||||||||||||
|
Interest expense - other
|
7,584
|
2.1
|
%
|
1,529
|
0.5
|
%
|
6,055
|
396.0
|
%
|
|||||||||||||||
|
Other (income) expense, net
|
(639
|
)
|
-0.2
|
%
|
548
|
0.2
|
%
|
(1,187
|
)
|
-216.6
|
%
|
|||||||||||||
|
Income before income tax expense
|
14,812
|
4.0
|
%
|
28,375
|
8.4
|
%
|
(13,563
|
)
|
-47.8
|
%
|
||||||||||||||
|
Income tax expense
|
3,384
|
0.9
|
%
|
4,889
|
1.5
|
%
|
(1,505
|
)
|
-30.8
|
%
|
||||||||||||||
|
Net income
|
11,428
|
3.1
|
%
|
23,486
|
7.0
|
%
|
(12,058
|
)
|
-51.3
|
%
|
||||||||||||||
|
Less: Net income attributable to non-controlling interests
|
(1,365
|
)
|
-
|
|||||||||||||||||||||
|
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC
|
(1,163
|
)
|
(3,467
|
)
|
||||||||||||||||||||
|
Net income attributable to One Water Marine Inc.
|
$
|
8,900
|
$
|
20,019
|
||||||||||||||||||||
Revenue
Overall, revenue increased by $30.4 million, or 9.0%, to $366.7 million for the three months ended December 31, 2022 from
$336.3 million for the three months ended December 31, 2021. Overall revenue increased due to acquisition growth, primarily driven by a $32.2 million increase in service, parts & other sales for the three months ended December 31, 2022
compared to the three months ended December 31, 2021, fueled by the expansion of our Distribution segment. Revenue generated from Dealership same-store sales decreased 14% for the three months ended December 31, 2022 as compared to the three
months ended December 31, 2021, following a 28% and 38% increase in fiscal first quarter 2022 and 2021, respectively, as we saw more traditional effects of seasonality on our business where we realize lower sales and higher inventory in the
fiscal first quarter.
New Boat Sales
New boat sales decreased by $3.8 million, or 1.6%, to $232.4 million for the three months ended December 31, 2022 from $236.2 million for the three months ended December 31, 2021. The
decrease was primarily attributable to a decrease in unit sales, partially offset by an increase in the average sales price.
Pre-owned Boat Sales
Pre-owned boat sales increased by $2.3 million, or 4.4%, to $55.8 million for the three months ended December 31, 2022 from $53.4 million for the three months ended December 31, 2021. We
sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. The increase
in pre-owned boat sales was primarily attributable to an increase in the number of units sold.
Finance & Insurance Income
We generate revenue from arranging finance & insurance products, including financing, insurance and extended warranty contracts, to customers through various third-party financial
institutions and insurance companies. Finance & insurance income decreased by $0.4 million, or 4%, to $8.9 million for the three months ended December 31, 2022 from $9.3 million for the three months ended December 31, 2021. The decrease was
primarily a result of the decrease in Dealership 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 dealerships. 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 $32.2 million, or 86.3%, to $69.5 million for the three months ended December 31, 2022 from $37.3 million for the three months ended December
31, 2021. The increase in service, parts & other sales is primarily due to the contributions from our recently acquired parts and accessories businesses, including T-H Marine and Ocean Bio Chem, as well as increases across the board in
labor, parts, fuel and storage sales, driven by ancillary sales generated from our increase in new and pre-owned boat sales at our dealerships. Total revenue for the Distribution segment was $39.9 million for the three months ended December 31,
2022.
Gross Profit
Overall, gross profit increased by $9.0 million, or 8.9%, to $110.0 million for the three months ended December 31, 2022 from $101.0 million for the three months ended December 31, 2021.
This increase was primarily due to the impact of the 2023 Acquisitions and 2022 Acquisitions and the Company’s focus on dynamic pricing, offset by the overall decrease in Dealership same-store sales. Overall gross margins remained flat at 30.0%
for the three months ended December 31, 2022 and December 31, 2021 due to the factors noted below.
New Boat Gross Profit
New boat gross profit decreased by $3.2 million, or 5.2%, to $57.1 million for the three months ended December 31, 2022 from $60.3 million for the three months ended December 31, 2021. This
decrease was primarily due to our overall decrease in new boat sales. New boat gross profit as a percentage of new boat revenue was 24.6% for the three months ended December 31, 2022 as compared to 25.5% in the three months ended December 31,
2021. The decrease in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold and the margin profile of recently acquired locations.
Pre-owned Boat Gross Profit
Pre-owned boat gross profit increased by $1.4 million, or 9.9%, to $15.5 million for the three months ended December 31, 2022 from $14.1 million for the three months ended December 31, 2021.
The increase in pre-owned boat gross profit was primarily driven by an increase in our brokerage business. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 27.7% and 26.3% for the three months ended December 31, 2022
and 2021, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal fluctuations in
pre-owned boat gross profit as a percentage of revenue.
Finance & Insurance Gross Profit
Finance & insurance gross profit decreased by $0.4 million, or 4.0%, to $8.9 million for the three months ended December 31, 2022 from $9.3 million for the three months ended December
31, 2021. Finance & insurance income is fee-based revenue for which we do not recognize incremental cost of sales.
Service, Parts & Other Gross Profit
Service, parts & other gross profit increased by $11.2 million, or 64.6%, to $28.4 million for the three months ended December 31, 2022 from $17.3 million for the
three months ended December 31, 2021. Service, parts & other gross profit as a percentage of service, parts & other revenue was 40.9% and 46.3% for the three months ended December 31, 2022 and 2021, respectively. The increase in gross
profit was primarily the result of the acquisitions in our Distribution segment. 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 $18.7 million, or 31.7%, to $77.8 million for the three
months ended December 31, 2022 from $59.1 million for the three months ended December 31, 2021. This increase was primarily due to expenses incurred to support the overall increase in revenues and gross profit. Selling, general &
administrative expenses as a percentage of revenue increased to 21.2% from 17.6% for the three months ended December 31, 2022 and 2021, respectively. The increase in selling, general and administrative expenses as a percentage of revenue was
primarily due to higher personnel expenses related to acquisitions as well as higher marketing expenses related to increased boat show activity during the current quarter.
Depreciation and Amortization
Depreciation and amortization expense increased $3.9 million, or 225.5%, to $5.7 million for the three months ended December 31, 2022 compared to $1.7 million for the three months ended
December 31, 2021. The increase in depreciation and amortization expense for the three months ended December 31, 2022 compared to the three months ended December 31, 2021 was primarily attributable to a $3.3 million increase in amortization of
identifiable intangible assets, primarily attributable to the 2022 Acquisitions.
Transaction Costs
The decrease in transaction costs of $1.7 million, or 56.3%, to $1.3 million for the three months ended December 31, 2022 compared to $3.0 million for the three months ended December 31,
2021 was primarily attributable to fewer acquisitions completed during the first quarter of the current year compared to the previous year.
Change in Fair Value of Contingent Consideration
During the three months ended December 31, 2022, we recognized a gain of $1.4 million related to updated forecasts and accretion of contingent consideration liabilities related to
acquisitions completed in fiscal years 2021, 2022 and 2023.
Income from Operations
Income from operations decreased $4.8 million, or 15.3%, to $26.5 million for the three months ended December 31, 2022 compared to $31.3 million for the three months ended December 31, 2021.
The decrease was primarily attributable to the $18.7 million increase in selling, general and administrative expenses for the three months ended December 31, 2022 as compared to the three months ended December 31, 2021, partially offset by a
$9.0 million increase in gross profit and a $7.2 million decrease in the change in fair value of contingent consideration during the same periods.
Interest Expense – Floor Plan
Interest expense – floor plan increased $3.9 million, or 444.9%, to $4.8 million for the three months ended December 31, 2022 compared to $0.9 million for the three months ended December 31,
2021. Floor plan related interest expense increased primarily due to an increase in the average inventory for the three months ended December 31, 2022 compared to the three months ended December 31, 2021 as well as an increase in interest
rates.
Interest Expense – Other
Interest expense – other increased by $6.1 million, or 396.0%, to $7.6 million for the three months ended December 31, 2022 compared to $1.5 million for the three months ended December 31,
2021. The increase in interest expense – other was related to the increase in our long-term debt which was used to fund certain 2022 acquisitions as well as rising interest rates.
Other (Income) Expense, Net
Other (income) expense, net changed by $1.2 million, or 216.6%, to $0.6 million of income for the three months ended
December 31, 2022 compared to $0.5 million of expense for the three months ended December 31, 2021. The change was primarily related to proceeds from insurance as a result of Hurricane Ian
as well as a $0.6 million reduction in expenses related to tax rate changes on our tax receivable agreement liability during the three months ended December 31, 2022 compared to the three months ended December 31, 2021.
Income Tax Expense
Income tax expense decreased $1.5 million, or 30.8%, to $3.4 million for the three months ended December 31, 2022
compared to $4.9 million for the three months ended December 31, 2021. The decrease was primarily attributable to the 47.8% decrease in income before income tax expense for the three months ended December 31, 2022 as compared to December 31,
2021, partially offset by an increase in our effective tax rate.
Net Income (Loss)
Net income decreased by $12.1 million to $11.4 million for the three months ended December 31, 2022 compared to $23.5 million for the three months ended December 31, 2021. The decrease was
primarily attributable to the $18.7 million increase in selling, general & administrative expenses, the $6.1 million increase in interest expense – other and the $3.9 million increase in interest expense – floor plan for the three months
ended December 31, 2022 compared to the three months ended December 31, 2021. The decrease was partially offset by a $9.0 million increase in gross profit and a $7.2 million decrease in the change in fair value of contingent consideration for
the three months ended December 31, 2022 compared to December 31, 2021.
Comparison of Non-GAAP Financial Measure
We view Adjusted EBITDA as an important indicator of performance. We define Adjusted EBITDA as net income (loss) before
interest expense – other, income tax expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in the fair value of contingent consideration, gain (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 change in the 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, 2022, Compared to Three Months Ended December 31, 2021
|
Three months ended December 31,
|
||||||||
|
Description
|
2022
|
2021
|
||||||
|
($ in thousands)
|
||||||||
|
Net income
|
$
|
11,428
|
$
|
23,486
|
||||
|
Interest expense – other
|
7,584
|
1,529
|
||||||
|
Income tax expense
|
3,384
|
4,889
|
||||||
|
Depreciation and amortization
|
6,182
|
1,749
|
||||||
|
Change in fair value of contingent consideration
|
(1,409
|
)
|
5,746
|
|||||
|
Transaction costs
|
1,330
|
3,045
|
||||||
|
Other (income) expense, net
|
(639
|
)
|
548
|
|||||
|
Adjusted EBITDA
|
$
|
27,860
|
$
|
40,992
|
||||
Adjusted EBITDA was $27.9 million for the three months ended December 31, 2022 compared to $41.0 million for the three months ended December 31, 2021. The decrease in Adjusted EBITDA
resulted primarily from the increase in selling, general and administrative expenses, partially offset by the increase in gross profit for the three months ended December 31, 2022 compared to the three months ended December 31, 2021.
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 dealerships 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 a global pandemic, our seasonal trends may also
change as a result of, among other things, location 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 A&R Credit Facility (as defined below), 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 A&R Credit Facility and Inventory Financing Facility (described below) (together, the “Credit Facilities”) 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—A&R 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 A&R 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 public or private issuances of debt or equity
to fund our current operations, to make share repurchases and to fund essential capital expenditures and acquisitions for the next twelve months and beyond.
Cash needs for acquisitions have historically been financed with our Credit Facilities and cash generated from operations. Our ability to utilize the A&R Credit Facility to fund
acquisitions depends upon Adjusted EBITDA and compliance with covenants of the A&R 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, 2022, we were in compliance with all covenants under the A&R 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, 2022 and 2021
The following table summarizes our cash flows for the periods indicated:
| Three Months ended December 31, | ||||||||||||
|
Description
|
2022
|
2021
|
Change
|
|||||||||
|
($ in thousands)
|
||||||||||||
|
Net cash used in operating activities
|
$
|
(138,050
|
)
|
$
|
(22,825
|
)
|
$
|
(115,225
|
)
|
|||
|
Net cash used in investing activities
|
(34,980
|
)
|
(282,220
|
)
|
247,240
|
|||||||
|
Net cash provided by financing activities
|
170,280
|
305,865
|
(135,585
|
)
|
||||||||
|
Effect of exchange rate changes on cash and restricted cash
|
11
|
-
|
11
|
|||||||||
|
Net change in cash
|
$
|
(2,739
|
)
|
$
|
820
|
$
|
(3,559
|
)
|
||||
Operating Activities. Net cash used in operating activities was $138.1 million for
the three months ended December 31, 2022 compared to net cash used in operating activities of $22.8 million for the three months ended December 31, 2021. The $115.2 million increase in cash used in operating activities was primarily
attributable to a $76.2 million increase in the change in inventory, a $10.1 million decrease in the change in customer deposits and a $12.1 million decrease in net income for the three months ended December 31, 2022 as compared to the three
months ended December 31, 2021.
Investing Activities. Net cash used in investing activities was $35.0 million for the
three months ended December 31, 2022 compared to net cash used in investing activities of $282.2 million for the three months ended December 31, 2021. The $247.2 million decrease in cash used in investing activities was primarily attributable
to a $250.2 million decrease in cash used in acquisitions for the three months ended December 31, 2022 as compared to the three months ended December 31, 2021.
Financing Activities. Net cash provided by financing activities was $170.3 million
for the three months ended December 31, 2022 compared to net cash provided by financing activities of $305.9 million for the three months ended December 31, 2021. The $135.6 million decrease in financing cash flow was primarily attributable
to a $220.0 million decrease in borrowings on long-term debt, partially offset by a $74.6 million increase in net borrowings on our Inventory Financing Facility for the three months ended December 31, 2022 as compared to the three months
ended December 31, 2021.
Share Repurchase Program
On March 30, 2022 the Board authorized a share repurchase program of up to $50 million of outstanding shares of Class A common stock.
Repurchases under the share repurchase program may be made at any time or from time to time, without prior notice, in the open market or in privately negotiated transactions at prevailing market prices, or such other means as will comply with
applicable state and federal securities laws and regulations, including the provisions of the Securities Exchange Act of 1934, including Rule 10b5-1 and, to the extent practicable or advisable, Rule 10b-18 thereunder, and consistent with the
Company’s contractual limitations and other requirements. As of December 31, 2022 the Company has repurchased and retired 10,134 shares at an average price of $34.89 per share. The Company has $49.6
million remaining under the share repurchase program.
The Inflation Reduction Act, which was signed into law on August 2022, imposes a 1%, non-deductible excise tax on certain repurchases of common stock that occur after December 31, 2022. We
expect the excise tax to apply to our share repurchase program, but do not expect the tax to have a material effect on our business.
Debt Agreements
Credit Facility
Effective July 22, 2020, we and certain of our subsidiaries entered into the Credit Agreement (as amended by the First Incremental Amendment and the Second Incremental Amendment and as
further amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit Facility”) with Truist Bank and the other lenders party thereto. The Credit Facility provided for (i) a $50.0 million revolving
credit facility that was 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 (ii) a term loan facility (which includes incremental term loans as
provided in the First Incremental Amendment (as defined below) and Second Incremental Amendment (as defined below)). Subject to certain conditions, the available amount under the revolving credit facility and the term loans may be increased.
The revolving credit facility was scheduled to mature on July 22, 2025. The term loan was repayable in installments beginning on March 31, 2021, with the remainder due on 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.
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
to OWAO in an aggregate principal amount equal to $30.0 million, which was added to, and constituted a part of, the existing $80.0 million term loan.
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
to OWAO in an aggregate principal amount equal to $200.0 million, which was added to, and constituted a part of, the existing $110.0 million term loan. The Second Incremental Amendment further provided for a $20.0 million increase in the
existing revolving commitment, which was added to, and constituted a part of, the existing $30.0 million revolving commitment.
A&R Credit Facility
On August 9, 2022 we entered into the Amended and Restated Credit Agreement (the “A&R Credit Facility”), with certain of our subsidiaries, Truist Bank and the other lenders party
thereto. The A&R Credit Facility amends and restates and replaces in its entirety the Credit Facility. The A&R Credit Facility provides for, among other things, (i) a $65.0 million revolving credit facility (including up to $5.0 million
in swingline loans and up to $5.0 million in letters of credit from time to time) and (ii) a $445.0 million term loan facility. Subject to certain conditions, the available amount under the Term Facility and the Revolving Facility may be
increased by $125.0 million plus additional amounts subject to additional conditions (including satisfaction of a consolidated leverage ratio requirement) in the aggregate (with up to $50.0 million allocable to the Revolving Facility). The
Revolving Facility matures on August 9, 2027. The Term Facility is repayable in installments beginning on December 31, 2022, with the remainder due on the earlier of (i) August 9, 2027 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 A&R Credit Facility.
Borrowings under the A&R Credit Facility bear interest, at our 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) Term SOFR (as defined in the A&R Credit Facility) for a one-month Interest Period (calculated on a daily basis after taking into account a
floor equal to 0.00%) plus 1.00%, and (iv) 1.00%, in each case, plus an applicable margin ranging from 0.75% to 1.75%, or (b) Term SOFR, plus an applicable margin ranging from 0.75% to 1.75%. Interest on swingline loans shall bear interest at
the Base Rate plus an applicable margin ranging from 1.75% to 2.75%. All applicable interest margins are based on certain consolidated leverage ratio measures.
The A&R Credit Facility is subject to certain financial covenants including the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio. The
A&R Credit Facility also contains non-financial covenants and restrictive provisions that, among other things, limit the ability of the Loan Parties (as defined in the A&R Credit Facility) to incur additional debt, transfer or dispose
of all of their respective assets, make certain investments, loans or restricted payments and engage in certain transactions with affiliates. The A&R Credit Facility also includes events of default, borrowing conditions, representations and
warranties and provisions regarding indemnification and expense reimbursement. The Company was in compliance with all covenants as of December 31, 2022.
Inventory Financing Facility
On December 29, 2021, the Company and certain of its subsidiaries entered into the Seventh Amended and Restated Inventory Financing Agreement (as amended, restated, supplemented or otherwise
modified, the “Inventory Financing Facility”) to, among other things, increase the maximum borrowing amount available to $500.0 million. Loans under the Inventory Financing Facility may be extended from time to time to enable the Company to
purchase inventory from certain manufacturers. The Inventory Financing Facility Expires on December 1, 2023.
On February 24, 2022, April 1, 2022 and August 9, 2022, the Company entered into the First, Second and Third Amendments to the Inventory Financing Facility, respectively, to join various
subsidiaries of the Company to the Inventory Financing Facility in connection with certain acquisitions made by the Company, in each case, as permitted by and under the Inventory Financing Facility. Additionally, the Third Amendment to the
Inventory Financing Facility increased the Funded Debt to EBIDTA Ratio (as defined in the Inventory Financing Facility). No other terms of the Inventory Financing Facility were changed with the amendments.
Interest on new boats and for rental units is calculated using the Adjusted 30-Day Average 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%. Loans are 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 are set forth in separate program terms letters that were entered into from time to time. The collateral for the Inventory Financing Facility consisted primarily of our inventory
that was financed through the Inventory Financing Facility and related assets, including accounts receivable, bank accounts, and proceeds of the foregoing, and excludes the collateral that secures the A&R Credit Facility.
We are required to comply with certain financial and non-financial covenants under the Inventory Financing Facility, including certain provisions related to the Funded Debt to EBITDA Ratio,
and the Fixed Charge Coverage Ratio (as defined in the Inventory Financing Facility). We are also subject to additional restrictive covenants, including restrictions on our ability to (i) use, sell, rent or otherwise dispose of any collateral
securing 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 interests 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 marine retailers (ix) make any change in any of our marine retailers’ capital structure or in any of their business
objectives or operations which might in any way adversely affect the ability of such marine retailer to repay its obligations under the Inventory Financing Facility, (x) incur, create, assume, guarantee or otherwise become or remain liable with
respect to certain indebtedness, and (xi) make certain payments of subordinated debt. OneWater LLC and certain of its subsidiaries are restricted from, among other things, making cash dividends or distributions without the prior written consent
of Wells Fargo. Under the Inventory Financing Facility, among other exceptions, OneWater LLC may make distributions to its members for certain permitted tax payments subject to certain financial ratios, may make scheduled payments on certain
subordinated debt and is permitted to make pro rata distributions to the OneWater Unit Holders, including OneWater Inc., in an amount sufficient to allow OneWater Inc. to pay its taxes and to make payments under the Tax Receivable Agreement.
OneWater LLC’s subsidiaries are generally restricted from making loans or advances to OneWater LLC. Our Chief Executive Officer, Philip Austin Singleton, Jr., and our Chief Operating Officer, Anthony Aisquith, provide certain personal
guarantees of the Inventory Financing Facility.
As of December 31, 2022 and September 30, 2022, our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled $425.4 million and $267.1 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. For the three months ended December 31, 2022 and the year ended September 30, 2022, the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 5.0% and 2.2%, respectively. As of
December 31, 2022 and September 30, 2022, our additional available borrowings under our Inventory Financing Facility were $74.6 million and $232.9 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, 2022, 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, 2022, our indebtedness associated with our 2 acquisition notes payable totaled an
aggregate of $3.2 million with a weighted average interest rate of 5.0% per annum. As of December 31, 2022, the principal amount outstanding under these acquisition notes payable ranged from $1.1 million to $2.1 million, and the maturity
dates ranged from December 1, 2023 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 8.4% per annum, require monthly payments of approximately
$143,000, and mature on dates between February 2023 to July 2028. As of December 31, 2022, we had $4.6 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.
| Item 3. |
Quantitative and Qualitative Disclosure about Market Risk
|
Interest Rate Risk
Our Inventory Financing Facility exposes us to risks caused by fluctuations in interest rates. The interest rate on our
Inventory Financing Facility for major unit inventory is calculated using SOFR plus an applicable margin. Based on an outstanding balance of $425.4 million as of December 31, 2022, a change of 100 basis points in the underlying interest rate
would have caused a change in interest expense of approximately $4.3 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 A&R Credit Facility exposes us to risks caused by fluctuations in interest rates. The interest rate on our A&R Credit Facility is
calculated using Term SOFR (with a 0.00% floor) plus an applicable margin. Based on an outstanding balance of $445.0 million and Term SOFR as of December 31, 2022, an increase of 100 basis points in the underlying interest rate would have
caused a change in interest expense of approximately $4.5 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 and some of these transactions are denominated in a currency other than the U.S. dollar. 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. From time to time we may enter into foreign currency forward contracts to hedge certain
foreign currency exposures to lessen, but not completely eliminate, the effects of foreign currency fluctuations on our financial results. To the extent that we cannot recapture this volatility in prices charged to customers or if this
volatility negatively impacts consumer demand for our products, this volatility could adversely affect our future operating results.
| Item 4. |
Controls and Procedures
|
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. No system of controls, no matter how well designed and operated, can provide absolute
assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. Our disclosure controls and procedures are designed
to provide reasonable assurance that the objectives of disclosure controls and procedures are met and to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) during the three months ended December 31, 2022 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
| Item 1. |
Legal Proceedings
|
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.
| Item 1A. |
Risk Factors
|
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, 2022, filed with the SEC on December 15, 2022, 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, 2022, filed with the SEC on December 15, 2022.
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
On March 30, 2022, the Board authorized a share repurchase program of up to $50 million of outstanding shares of Class A common stock.
Repurchases under the share repurchase program may be made at any time or from time to time, without prior notice, in the open market or in privately negotiated transactions at prevailing market prices, or such other means as will comply with
applicable state and federal securities laws and regulations, including the provisions of the Securities Exchange Act of 1934, including Rule 10b5-1 and, to the extent practicable or advisable, Rule 10b-18 thereunder, and consistent with the
Company’s contractual limitations and other requirements. The Company made no repurchases in the three months ended December 31, 2022. The Company has $49.6 million remaining under the share repurchase program.
| Item 3. |
Defaults Upon Senior Securities
|
None.
| Item 4. |
Mine Safety Disclosures
|
Not Applicable.
None.
| Item 6. |
Exhibits
|
|
Exhibit No.
|
Description
|
|
Second Amended and Restated Certificate of Incorporation of OneWater Marine Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with
the Commission on February 24, 2022).
|
|
|
Second Amended and Restated Bylaws of OneWater Marine Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on
February 24, 2022).
|
|
|
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
|
Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
|
Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
|
|
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.
|
||
|
(Registrant)
|
||
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By:
|
/s/ Philip Austin Singleton, Jr.
|
|
|
Philip Austin Singleton, Jr.
|
||
|
Chief Executive Officer
|
||
|
By:
|
/s/ Jack Ezzell
|
|
|
Jack Ezzell
|
||
|
Chief Financial Officer
|
||
|
February 3, 2023
|
||
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, 2022;
|
| 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 3, 2023
|
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, 2022;
|
| 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 3, 2023
|
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, 2022, 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 3, 2023
|
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, 2022, 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 3, 2023
|
By:
|
/s/ Jack Ezzell
|
|
Jack Ezzell
|
||
|
Chief Financial Officer
|
||
|
(Principal Financial Officer)
|