UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended December 31, 2022
or
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ___________ to ___________
Commission file number: 001-39213
(Exact name of registrant as specified in its charter)
|
(State or other jurisdiction of incorporation or organization)
|
(IRS Employer Identification No.)
|
|
|
(Address of principal executive offices)
|
(Zip code)
|
(Registrant’s telephone number, including area code): (678 )
541-6300
Securities registered pursuant to Section 12(b) of the Exchange Act:
|
Title of Each Class
|
Trading Symbol(s)
|
Name of Each Exchange on Which Registered
|
||
|
|
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
|
☐
|
|
|
Non-accelerated filer
|
☐
|
Smaller reporting company
|
|
Emerging growth company
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The registrant had 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
|
|
|
|
|
3
|
||
| 5 |
||
|
Item 1.
|
5 |
|
|
|
5 |
|
|
|
6 |
|
| Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2022 and December 31, 2021 | 7 |
|
|
|
8 |
|
|
|
9 |
|
|
|
10 |
|
|
Item 2.
|
24 |
|
|
Item 3.
|
36 |
|
|
Item 4.
|
37 |
|
| 37 | ||
|
Item 1.
|
37 | |
|
Item 1A.
|
37 | |
|
Item 2.
|
37 | |
|
Item 3.
|
37 | |
|
Item 4.
|
37 | |
|
Item 5.
|
37 | |
|
Item 6.
|
38 |
|
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:
|
•
|
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;
|
|
•
|
economic conditions in certain geographic regions in which we primarily generate our revenue;
|
|
•
|
credit markets and the availability and cost of borrowed funds;
|
|
•
|
our business strategy, including acquisitions and Dealership same-store growth;
|
|
•
|
our ability to integrate acquisitions;
|
|
•
|
competition;
|
|
•
|
our ability to maintain our relationships with manufacturers, including meeting the requirements of our dealer agreements and receiving the benefits of certain manufacturer incentives;
|
|
•
|
demand for our products and our ability to maintain acceptable pricing for our products and services, including financing, insurance and extended service contracts;
|
|
•
|
effects of an inflationary environment on the cost of the products we sell and personnel and other expenses that are incurred within our operations;
|
|
•
|
our ability to finance working capital and capital expenditures;
|
|
•
|
our operating cash flows, the availability of capital and our liquidity;
|
|
•
|
our future revenue, Dealership same-store sales, income, financial condition, and operating performance;
|
|
•
|
our ability to sustain and improve our utilization, revenue and margins;
|
|
•
|
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;
|
|
•
|
any potential tax savings we may realize as a result of our organizational structure;
|
|
•
|
our future operating results and profitability;
|
|
•
|
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
|
|
•
|
plans, objectives, expectations and intentions contained in this Form 10-Q that are not historical.
|
We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Should one or more of the risks
or uncertainties occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. These risks include, but are not limited to:
|
•
|
decline in demand for our products and services;
|
|
•
|
the effects of the novel coronavirus (“COVID-19”) pandemic on the Company’s business;
|
|
•
|
other risks associated with the COVID-19 pandemic including, among others, the ability to safely operate our locations, access to inventory and customer demand;
|
|
•
|
the seasonality and volatility of the boat industry;
|
|
•
|
global public health concerns, including the COVID-19 pandemic;
|
|
•
|
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;
|
|
•
|
environmental conditions and real or perceived human health or safety risks;
|
|
•
|
our acquisition strategies and our ability to integrate additional marine retailers;
|
|
•
|
effects of industry wide supply chain challenges and our ability to manage our inventory;
|
|
•
|
our ability to retain key personnel and the effects of labor shortages;
|
|
•
|
the inability to comply with the financial and other covenants and metrics in our credit facilities;
|
|
•
|
cash flow and access to capital;
|
|
•
|
the timing of development expenditures; and
|
|
•
|
the other risks described under “Risk Factors” and discussed elsewhere in our Annual Report on Form 10-K for the year ended September 30, 2022 and discussed elsewhere in this Quarterly Report on Form 10-Q.
|
All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be
considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as otherwise required by applicable law, we disclaim any duty to update any
forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
| Item 1. |
Condensed Consolidated
Financial Statements (Unaudited)
|
CONDENSED
CONSOLIDATED
BALANCE
SHEETS
($ in thousands, except par value and share data)
(Unaudited)
|
December 31,
2022
|
September 30,
2022 |
|||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash
|
$
|
|
$
|
|
||||
|
Restricted cash
|
|
|
||||||
|
Accounts receivable, net
|
|
|
||||||
|
Inventories, net
|
|
|
||||||
|
Prepaid expenses and other current assets
|
|
|
||||||
|
Total current assets
|
|
|
||||||
|
Property and equipment, net
|
|
|
||||||
| Operating lease right-of-use assets |
||||||||
|
Other assets:
|
||||||||
|
Other assets
|
|
|
||||||
|
Deferred tax assets, net
|
|
|
||||||
|
Intangible assets, net
|
|
|
||||||
|
Goodwill
|
|
|
||||||
|
Total other assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$
|
|
$
|
|
||||
|
Other payables and accrued expenses
|
|
|
||||||
|
Customer deposits
|
|
|
||||||
|
Notes payable – floor plan
|
|
|
||||||
|
Current portion of operating lease liabilities
|
||||||||
|
Current portion of long-term debt, net
|
|
|
||||||
|
Current portion of tax receivable agreement liability
|
|
|
||||||
|
Total current liabilities
|
|
|
||||||
|
Long-term Liabilities:
|
||||||||
|
Other long-term liabilities
|
|
|
||||||
|
Tax receivable agreement liability
|
|
|
||||||
| Noncurrent operating lease liabilities | ||||||||
|
Long-term debt, net
|
|
|
||||||
| Total liabilities |
||||||||
|
Stockholders’ Equity:
|
||||||||
|
Preferred stock, $
|
|
|
||||||
|
Class A common stock, $
|
|
|
||||||
|
Class B common stock, $
|
|
|
||||||
|
Additional paid-in capital
|
|
|
||||||
|
Retained earnings
|
|
|
||||||
| Accumulated other comprehensive income (loss) |
( |
) | ||||||
|
Total stockholders’ equity attributable to OneWater Marine Inc.
|
|
|
||||||
|
Equity attributable to non-controlling interests
|
|
|
||||||
|
Total stockholders’ equity
|
|
|
||||||
|
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share data)
(Unaudited)
|
Three Months Ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Revenues
|
||||||||
|
New boat
|
$ | $ | ||||||
|
Pre-owned boat
|
||||||||
|
Finance & insurance income
|
||||||||
|
Service, parts & other
|
||||||||
|
Total revenues
|
||||||||
|
Cost of sales (exclusive of depreciation and amortization shown separately below)
|
||||||||
|
New boat
|
||||||||
|
Pre-owned boat
|
||||||||
|
Service, parts & other
|
||||||||
|
Total cost of sales
|
||||||||
|
Selling, general and administrative expenses
|
||||||||
|
Depreciation and amortization
|
||||||||
|
Transaction costs
|
||||||||
|
Change in fair value of contingent consideration
|
( |
) | ||||||
|
Income from operations
|
||||||||
|
Other expense (income)
|
||||||||
|
Interest expense – floor plan
|
||||||||
|
Interest expense – other
|
||||||||
|
Other (income) expense, net
|
( |
) | ||||||
|
Total other expense, net
|
||||||||
|
Income before income tax expense
|
||||||||
|
Income tax expense
|
||||||||
|
Net income
|
||||||||
| Less: Net income attributable to non-controlling interests |
( |
) | ||||||
|
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC
|
( |
) | ( |
) | ||||
|
Net income attributable to OneWater Marine Inc.
|
$ | $ | ||||||
|
Earnings per share of Class A common stock – basic
|
$ | $ | ||||||
|
Earnings per share of Class A common stock – diluted
|
$ | $ | ||||||
|
Basic weighted-average shares of Class A common stock outstanding
|
||||||||
|
Diluted weighted-average shares of Class A common stock outstanding
|
||||||||
($ in thousands)
(Unaudited)
|
For the Three Months Ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Net income
|
$
|
|
$
|
|
||||
|
Other comprehensive income:
|
||||||||
|
Foreign currency translation adjustment
|
|
|
||||||
|
Comprehensive income
|
|
|
||||||
|
Less: Net income attributable to non-controlling interests
|
(
|
)
|
|
|||||
|
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC
|
(
|
)
|
(
|
)
|
||||
|
Foreign currency translation adjustment attributable to non-controlling interest of One Water Marine Holdings, LLC
|
(
|
)
|
|
|||||
|
Comprehensive income attributable to One Water Marine Holdings, Inc.
|
$
|
|
$
|
|
||||
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
($ in thousands)
(Unaudited)
|
Class A Common Stock
|
Class B Common Stock
|
|||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional Paid-in Capital
|
Retained Earnings
|
Non-controlling Interest
|
Accumulated Other
Comprehensive Income (Loss) |
Total Stockholders’ Equity
|
||||||||||||||||||||||||||||
|
Balance at September 30, 2022
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ | ( |
) |
$
|
|
|||||||||||||||||||
|
Net income
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Distributions to members
|
-
|
|
-
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||||||
|
Shares issued upon vesting of equity-based awards, net of tax withholding
|
|
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||||||||
|
Equity-based compensation
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Currency translation adjustment
|
- | - | ||||||||||||||||||||||||||||||||||
|
Balance at December 31, 2022
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
$
|
|
|||||||||||||||||||||
|
Class A Common Stock
|
Class B Common Stock
|
|||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional Paid-in Capital
|
Retained Earnings
|
Non-controlling Interest
|
Accumulated Other
Comprehensive Income (Loss) |
Total Stockholders’ Equity
|
||||||||||||||||||||||||||||
|
Balance at September 30, 2021
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
$
|
|
|||||||||||||||||||||
|
Net income
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Distributions to members
|
-
|
|
-
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||||||
|
Non-controlling interest in subsidiary
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Exchange of B shares for A shares
|
|
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
|
|||||||||||||||||||||||||
|
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis
|
-
|
|
-
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||||||||
|
Shares issued upon vesting of equity-based awards, net of tax withholding
|
|
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||||||||
|
Shares issued in connection with a business combination
|
||||||||||||||||||||||||||||||||||||
|
Equity-based compensation
|
-
|
|
-
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Balance at December 31, 2021
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
$
|
|
|||||||||||||||||||||
|
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) o