ONEWATER MARINE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this report to the
"Company," "we," "us," 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, 2020 , filed with the U.S. Securities
and Exchange Commission (the "SEC") on December 3, 2020 , and any subsequently
filed Quarterly Reports on Form 10-Q, all of which are difficult to predict. In
light of these risks, uncertainties and assumptions, the forward-looking events
discussed may not occur. We do not undertake any obligation to publicly update
any forward-looking statements except as otherwise required by applicable law.
Overview
We believe that we are one of the largest and fastest-growing premium recreational boat retailers inthe United States with 69 stores comprising 24 dealer groups in 10 states. Our dealer groups are located in highly attractive markets throughout the Southeast,Gulf Coast , Mid-Atlantic and Northeast, includingTexas ,Florida ,Alabama ,North Carolina ,South Carolina ,Georgia andOhio , which collectively comprise seven of the top twenty states for marine retail expenditures. We believe that we are a market leader by volume in sales of premium boats in 12 out of the 15 markets in which we operate. In fiscal year 2020, we sold over 10,100 new and pre-owned boats, of which we believe approximately 40% were sold to customerswho had a trade-in or with whom we had otherwise established relationships. The combination of our significant scale, diverse inventory, access to premium boat brands and meaningful dealer group brand equity enable us to provide a consistently professional experience as reflected in the number of our repeat customers and same-store sales growth. We were formed in 2014 asOne Water Marine Holdings, LLC ("OneWater LLC ") through the combination ofSingleton Marine and Legendary Marine, which created a marine retail platform that collectively owned and operated 19 stores. Since the combination in 2014, we have acquired a total of 49 additional stores through 20 acquisitions. Our portfolio as ofJune 30, 2021 consisted of 24 different local and regional dealer groups. Because of this, we believe we are one of the largest and fastest-growing premium recreational boat retailers inthe United States based on number of stores and total boats sold. While we have opportunistically opened new stores in select markets, we believe that it is generally more effective economically and operationally to acquire existing stores with experienced staff and established reputations. The boat dealer market is highly fragmented and is comprised of over 4,000 stores nationwide. Most competing boat retailers are operated by local business ownerswho own three or fewer stores. Despite our size, we comprise less than 2% of total industry sales. Our scale and business model allow us to leverage our extensive inventory to provide consumers with the ability to find a boat that matches their preferences (e.g., make, model, color, configuration and other options) and to deliver the boat within days while providing a personalized sales experience. We are able to operate with a comparatively higher degree of profitability than other independent retailers because we allocate support resources across our store base, focus on high-margin products and services, utilize floor plan financing and provide core back-office functions on a scale that many independent retailers are unable to match. We seek to be the leading boat retailer by total market share within each boating market and within the product segments in which we participate. To the extent that we are not, we will evaluate acquiring other local retailers in order to increase our sales, to add additional brands or to provide us with additional high-quality personnel.
Impact of COVID-19
The COVID-19 pandemic and its related effects, including restraints onU.S. economic and leisure activities, have had and may continue to have a significant impact on our operations and financial condition. We place the utmost importance on the safety and well-being of our employees and in compliance with guidelines issued by theWorld Health Organization (WHO ), theCenters for Disease Control and Prevention (CDC ) and federal, state or local authorities, we closed or reduced staffing at certain locations during portions of the fiscal year endedSeptember 30, 2020 . We have implemented cleaning and social distancing techniques at each of our locations. In light of the current environment, our sales team members are fully engaged with customers and are providing them with virtual walkthroughs of inventory and/or private, at home or on water, showings, while our service departments are working hard to deliver boats and keep customers on the water. The COVID-19 pandemic and its related effects may continue to interfere with the ability of our employees, contractors, customers, suppliers, and other business partners to perform our and their respective responsibilities and obligations with respect to the operation of our business. Recently, we have seen shortages of inventory due to the COVID-19 pandemic, increased sales generally across the industry, and industry-wide supply chain constraints. 24 -------------------------------------------------------------------------------- Table of Contents While we continue to monitor the impact of the COVID-19 pandemic on our business and operations, our financial results for the three and nine months endedJune 30, 2021 suggest that spending in all our regions and across product lines has proven remarkably resilient despite the challenges posed by the pandemic as families have increasingly focused on socially-distanced, outdoor recreation, driving a material increase in gross profit. Though the COVID-19 pandemic did not adversely affect our profitability for the three and nine months endedJune 30, 2021 relative to the three and nine months endedJune 30, 2020 , certain supply chain constraints and lack of inventory did cause a modest decline in overall sales for the three months endedJune 30, 2021 and may continue to adversely affect sales for future periods. It is possible that further shortages could occur as a result of the COVID-19 pandemic and its effects on, among other things, supply chains, operations and consumer demand. The ultimate impact of the COVID-19 pandemic on our business remains uncertain and dependent on various factors, including the existence and extent of a prolonged economic downturn, the resurgence of COVID-19 in certain geographic areas, emergence of new strain variants thereof, supply chain constraints, inventory availability, consumer demand and the ability to safely and legally operate our stores.
Trends and Other Factors Impacting Our Performance
Acquisitions
We are a highly acquisitive company. Since the combination ofSingleton Marine and Legendary Marine in 2014, we have acquired 49 additional stores through 20 dealer group acquisitions. Our team remains focused on expanding our dealership in regions with strong boating cultures, enhancing the customer experience, and generating value for our shareholders. We have an extensive acquisition track record within the boating industry and believe we have developed a reputation for treating sellers and their staff in an honest and fair manner. We typically retain the management team and name of the acquired dealerships. We believe this practice preserves the acquired dealer's customer relationships and goodwill in the local marketplace. We believe our reputation and scale have positioned us as a buyer of choice for boat dealerswho want to sell their businesses. To date, 100% of our acquisitions have been sourced from inbound inquiries, and the number of annual inquiries we receive has consistently increased over time. Our strategy is to acquire stores at attractive EBITDA multiples and then grow same-store sales while benefitting from cost-reducing synergies. Historically, we have typically acquired dealer groups for less than 4.0x EBITDA on a trailing twelve-month basis and believe that we will be able to continue to make attractive acquisitions within this range.
In the nine months ended
• On
• On
• On
Total purchase price of the acquisitions during the nine months endedJune 30, 2021 was$91.0 million and was paid with$83.5 million in cash, and the remaining$7.5 million was financed with$5.5 million estimated acquisition contingent consideration and a$2.1 million seller notes payable. The acquisitions contributed$42.7 million to our consolidated revenue and$6.8 million to our income before income tax expense for the three months endedJune 30, 2021 . Included in our results for the nine months endedJune 30, 2021 , the acquisitions contributed$75.5 million to our consolidated revenue and$10.3 million to our income before income tax expense. Costs related to acquisitions are included in transaction costs and primarily relate to legal, accounting, and valuation fees, which are charged directly to operations in the consolidated statements of operations as incurred in the amount of$0.1 million and$0.6 million for the three and nine months endedJune 30, 2021 , respectively.
For a summary of our recently announced acquisitions, see Note 14 in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.
General Economic Conditions
General economic conditions and consumer spending patterns can negatively impact
our operating results. Unfavorable local, regional, national, or global economic
developments or uncertainties, including the adverse economic effects of the
COVID-19 pandemic, including supply chain constraints and inventory
availability, or a prolonged economic downturn, could reduce consumer spending
and adversely affect our business. Consumer spending on discretionary goods may
also decline as a result of lower consumer confidence levels, even if prevailing
economic conditions are otherwise favorable. Economic conditions in areas in
which we operate stores, particularly in the Southeast, can have a major impact
on our overall results of operations. Local influences, such as corporate
downsizing and inclement weather such as hurricanes and other storms,
environmental conditions, global public health concerns and events could
adversely affect our operations in certain markets and in certain periods. Any
extended period of adverse economic conditions or low consumer confidence is
likely to have a negative effect on our business.
Our business was significantly impacted during the recessionary period that
began in 2007. This period of weakness in consumer spending and depressed
economic conditions had a substantial negative effect on our operating results.
In response to these conditions we reduced our inventory purchases, closed
certain stores and reduced headcount. Additionally, in an effort to counteract
the downturn, we increased our focus on pre-owned sales, parts and repair
services, and finance and insurance services. As a result, we surpassed our
pre-recession sales levels in less than 24 months. While we believe the measures
we took significantly reduced the impact of the downturn on the business, we
cannot guarantee similar results in the event of a future downturn.
Additionally, we cannot predict the timing or length of unfavorable economic or
industry conditions, including the impact as a result of the COVID-19 pandemic,
or the extent to which they could adversely affect our operating results.
Although past economic conditions have adversely affected our operating results,
we believe we are capable of responding in a manner that allows us to
substantially outperform the industry and gain market share. We believe our
ability to capture such market share enables us to align our retail strategies
with the desires of customers. We expect our core strengths, including retail
and acquisition strategies, will allow us to capitalize on growth opportunities
as they occur, despite market conditions.
25
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Table of Contents
How We Evaluate Our Operations
Revenue
We have a diversified revenue profile that is comprised of new boat sales, pre-owned boat sales, F&I products, repair and maintenance services, and parts and accessories. Although non-boat sales contributed approximately 11.1% and 8.7% to revenue in the three months endedJune 30, 2021 and 2020, respectively, and 10.8% and 9.6% in the nine months endedJune 30, 2021 and 2020, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 24.7% and 27.5% to gross profit in the three months endedJune 30, 2021 and 2020, respectively, and 25.8% and 28.8% to gross profit in the nine months endedJune 30, 2021 and 2020, respectively. During different phases of the economic cycle, consumer behavior may shift away from new boats; however, we are well-positioned to benefit from revenue from pre-owned boats, repair and maintenance services, and parts and accessories, which have all historically increased during periods of economic uncertainty. We generate pre-owned sales from boats traded-in for new and pre-owned boats, boats purchased from consumers, brokerage transactions, consignment sales and wholesale sales. We have also diversified our business across geographies and dealership types (e.g., fresh water and salt water) in order to reduce the effects of seasonality. In addition to seasonality, revenue and operating results may also be significantly affected by quarter-to-quarter changes in economic conditions, manufacturer incentive programs, adverse weather conditions and other developments outside of our control.
Gross Profit
We calculate gross profit as revenue less cost of sales. Cost of sales consists of actual amounts paid for products, costs of services (primarily labor), transportation costs from manufacturers to our retail stores and vendor consideration. Gross profit excludes depreciation and amortization, which is presented separately in our consolidated statements of operations.
Gross Profit Margin
Our overall gross profit margin varies with our revenue mix. Sales of new and pre-owned boats, which have comparable margins, generally result in a lower gross profit margin than our non-boat sales. As a result, when revenue from non-boat sales increases as a percentage of total revenue, we expect our overall gross profit margin to increase.
Selling, General and Administrative Expenses
Selling, general, and administrative (''SG&A'') expenses consist primarily of
salaries and incentive-based compensation, advertising, rent, insurance,
utilities, and other customary operating expenses. A portion of our cost
structure is variable (such as sales commissions and incentive compensation), or
controllable (such as advertising), which we believe allows us to adapt to
changes in the retail environment over the long term. We typically evaluate our
variable expenses, selling expenses and all other SG&A expenses in the aggregate
as a percentage of total revenue.
Same-Store Sales
We assess the organic growth of our revenue on a same-store basis. We believe that our assessment on a same-store basis represents an important indicator of comparative financial results and provides relevant information to assess our performance. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store's thirteenth month of operations under our ownership and revenues are only included for identical months in the same-store base periods. Stores relocated within an existing market remain in the comparable store base for all periods. Additionally, amounts related to closed stores are excluded from each comparative base period. Because same-store sales may be defined differently by other companies in our industry, our definition of this measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
Adjusted EBITDA
We define Adjusted EBITDA as net income before interest expense - other, income tax expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in fair value of warrant liability, loss on contingent consideration, loss on extinguishment of debt and transaction costs. See ''-Comparison of Non-GAAP Financial Measure'' for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
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.
26
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Table of Contents
Fiscal Year 2021 Acquisitions
• Effective
full-service marine retailer based inFlorida with two stores.
• Effective
full-service marine retailer based in
• Effective
full-service marina and yachting facility located in
related real estate and in-water slips.
We refer to the fiscal year 2021 acquisitions described above collectively as the ''2021 Acquisitions.'' The 2021 acquisitions are reflected in our unaudited Condensed Consolidated Statements of Operations for the three and nine months endedJune 30, 2021 from the date of acquisition forward.
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.
•
corporation. Our accounting predecessor,
partnership for
not subject to
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
locality.
an estimated blended statutory rate of 24.1% for the nine months ended
2021.
estimated blended statutory rate of 24.6% from
30, 2020, the period following our initial public offering (the "Offering").
• As we further implement controls, processes and infrastructure applicable to
companies with publicly traded equity securities, it is likely that we will
incur additional SG&A expenses relative to historical periods. See ''-Post-Offering Taxation and Public Company Costs.''
Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy.
Results of Operations
Three Months EndedJune 30, 2021 , Compared to Three Months EndedJune 30, 2020 For the Three Months For the Three Months Ended Ended June 30, 2021 June 30, 2020 Amount % of Revenue Amount % of Revenue $ Change % Change ($ in thousands) Revenues New boat$ 288,222 71.3 %$ 294,678 72.2 %$ (6,456 ) (2.2 )% Pre-owned boat 71,116 17.6 % 78,213 19.2 % (7,097 ) (9.1 )% Finance & insurance income 15,238 3.8 % 16,639 4.1 % (1,401 ) (8.4 )% Service, parts and other 29,631 7.3 % 18,743 4.6 % 10,888 58.1 % Total revenues 404,207 100.0 % 408,273 100.0 % (4,066 ) (1.0 )% Gross Profit New boat 77,081 19.1 % 54,029 13.2 % 23,052 42.7 % Pre-owned boat 18,550 4.6 % 14,619 3.6 % 3,931 26.9 % Finance & insurance income 15,238 3.8 % 16,639 4.1 % (1,401 ) (8.4 )% Service, parts & other 16,083 4.0 % 9,398 2.3 % 6,685 71.1 % Total gross profit 126,952 31.4 % 94,685 23.2 % 32,267 34.1 % Selling, general and administrative expenses 60,476 15.0 % 43,134 10.6 % 17,342 40.2 % Depreciation and amortization 1,475 0.4 % 824 0.2 % 651 79.0 % Transaction costs 65 0.0 % 31 0.0 % 34 109.7 % Income from operations 64,936
16.1 % 50,696 12.4 % 14,240 28.1 %
Interest expense - floor plan 956 0.2 % 2,298 0.6 % (1,342 ) (58.4 )% Interest expense - other 1,083 0.3 % 3,082 0.8 % (1,999 ) (64.9 )% Other (income), net (158 ) 0.0 % (43 ) 0.0 % (115 ) 267.4 % Income before income tax expense 63,055 15.6 % 45,359 11.1 % 17,696 39.0 % Income tax expense 11,498 2.8 % 4,737 1.2 % 6,761 142.7 % Net income 51,557 12.8 % 40,622 9.9 % 10,935 26.9 % Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC 17,054 26,255 (9,201 ) (35.0 )% Net income attributable to One Water Marine Inc.$ 34,503 $ 14,367 $ 20,136 140.2 % 27
-------------------------------------------------------------------------------- Table of Contents Revenue Overall, revenue was relatively flat, decreasing by$4.1 million , or 1.0%, to$404.2 million for the three months endedJune 30, 2021 from$408.2 million for the three months endedJune 30, 2020 . Revenue generated from same-store sales declined 10.9% for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 , driven lower by industry-wide supply constraints. Additionally, revenues for the three months endedJune 30, 2020 were aided by pending new and pre-owned boat sales fromMarch 2020 being delayed until April and May of 2020 due to the initial shutdowns related to the COVID-19 pandemic. However, we saw a strong increase in the average unit selling price of new and pre-owned boats in the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . The overall integration of our 2021 Acquisitions has gone well with those locations, which are not eligible for inclusion in the same-store sales base, generating$42.7 million in revenue for the three months endedJune 30, 2021 . New and acquired stores become eligible for inclusion in the comparable store base at the end of the store's thirteenth month of operations under our ownership, and revenues are only included for identical months in the same-store base periods. As ofJune 30, 2021 , we had acquired eight stores in fiscal year 2021. We did not make any acquisitions in fiscal year 2020. New Boat New boat revenue decreased by$6.5 million , or 2.2%, to$288.2 million for the three months endedJune 30, 2021 from$294.7 for the three months endedJune 30, 2020 . We believe this decrease was primarily attributable to a drop in unit sales due to a slowdown of manufacturer replenishments of new inventory caused by the COVID-19 pandemic. However, we experienced an increase in average sales price due in part to the mix of boat brands and models sold, product improvements in the functionality and technology of boats, which continues to be a driver of consumer demand, as well as a lower supply of new boat inventory as manufacturer replenishments have been slowed by the COVID-19 pandemic.
Pre-owned Boat
Pre-owned boat revenue decreased by$7.1 million , or 9.1%, to$71.1 million for the three months endedJune 30, 2021 from$78.2 million for the three months endedJune 30, 2020 . We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. Pre-owned boat sales for the three months endedJune 30, 2021 experienced a decrease in the number of units sold due to industry-wide supply constraints as customers continue to use their boats, and remain reluctant to trade-in inventory or end up sell in person-to-person transactions. Additionally, the decrease in sales was driven by a change in our sales mix as brokerage sales increased 150.5%, for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Brokerage sales are recorded net of cost of sales while all other sales arrangements are recorded on a gross basis. We benefited from an increase in average unit price largely due to the mix of pre-owned products, the composition of the brands and models sold during the period as well as the industry-wide supply restrictions driving prices higher.
Finance & Insurance Income
We generate revenue from arranging finance & insurance products, including financing, insurance and extended warranty contracts, to customers through various third-party financial institutions and insurance companies. Finance & insurance income decreased by$1.4 million , or 8.4%, to$15.2 million for the three months endedJune 30, 2021 from$16.6 million for the three months endedJune 30, 2020 . The decrease was primarily due to the reduction in new and pre-owned boat revenues. We remain very focused on improving sales of finance & insurance products throughout our dealer network and implementing best practices at acquired dealer groups and existing stores. Finance & insurance products decreased as a percentage of total revenue to 3.8% in the three months endedJune 30, 2021 from 4.1% for the three months endedJune 30, 2020 , primarily due to the decline in boat sales and an increase in service, parts and other revenue as a portion of our total revenue. Since finance & insurance income is fee-based, we do not incur any related cost of sale. Finance & insurance income is recorded net of related fees, including fees charged back due to any early cancellation of loan or insurance contracts by a customer.
Service, Parts & Other
Service, parts & other revenue increased by$10.9 million , or 58.1%, to$29.6 million for the three months endedJune 30, 2021 from$18.7 million for the three months endedJune 30, 2020 . This increase in service, parts & other revenue is primarily due to ancillary sales generated from our increase in new and pre-owned boat sales since the beginning of the COVID-19 pandemic and the impact of the 2021 Acquisitions.
Gross Profit
Overall, gross profit increased by$32.3 million , or 34.1%, to$127.0 million for the three months endedJune 30, 2021 from$94.7 million for the three months endedJune 30, 2020 . This increase was primarily due to a shift in the mix and size of boat models sold, the Company's focus on dynamic pricing, an increase in service, parts & other sales and the emphasis on meeting customer demand. Overall gross margins increased 822 basis points to 31.4% for the three months endedJune 30, 2021 from 23.2% for the three months endedJune 30, 2020 due to the factors noted below.
New Boat
New boat gross profit increased by$23.1 million , or 42.7%, to$77.1 million for the three months endedJune 30, 2021 from$54.0 million for the three months endedJune 30, 2020 . New boat gross profit as a percentage of new boat revenue was 26.7% for the three months endedJune 30, 2021 as compared to 18.3% in the three months endedJune 30, 2020 . The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations and the expansion of new boat gross profit margins created by a lower supply of new boat inventory in the three months endedJune 30, 2021 . 28 -------------------------------------------------------------------------------- Table of Contents Pre-owned Boat Pre-owned boat gross profit increased by$3.9 million , or 26.9%, to$18.6 million for the three months endedJune 30, 2021 from$14.6 million for the three months endedJune 30, 2020 . Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 26.1% and 18.7% for the three months endedJune 30, 2021 and 2020, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal fluctuations in pre-owned boat gross profit as a percentage of revenue. In the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 , we experienced an increase in our gross profit on pre-owned sales for each of the different sales arrangements. Margins were also driven higher by a lower supply of pre-owned inventory in the market for the three months endedJune 30, 2021 . Finance & Insurance
Finance & insurance gross profit decreased by
Service, Parts & Other
Service, parts & other gross profit increased by$6.7 million , or 71.1%, to$16.1 million for the three months endedJune 30, 2021 from$9.4 million for the three months endedJune 30, 2020 . The increase in service, parts & other gross profit was primarily driven by our new and pre-owned boat sales growth since the onset of the COVID-19 pandemic as well as the impact of the 2021 Acquisitions. Service, parts & other gross profit as a percentage of service, parts & other revenue was 54.3% and 50.1% for the three months endedJune 30, 2021 and 2020, respectively. This increase was the result of the mix of products sold and services provided as the gross profit shifted more towards service work, which has a higher margin. Additionally, due to the increased demand, we experienced an increase in the productivity of our service technicians, which drove margins higher.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by$17.3 million , or 40.2%, to$60.5 million for the three months endedJune 30, 2021 from$43.1 million for the three months endedJune 30, 2020 . Selling, general & administrative expenses experienced a$12.9 million increase in personnel expenses, a$0.9 million increase in selling and administrative expenses and a$1.4 million increase in fixed expenses. Selling, general & administrative expenses as a percentage of revenue increased to 15.0% from 10.6% for the three months endedJune 30, 2021 and 2020, respectively. The increase in selling, general & administrative expenses as a percentage of revenue was primarily due to higher variable-based compensation expense as a result of the Company's increased net profit margin.
Depreciation and Amortization
Depreciation and amortization expense increased$0.7 million , or 79.0%, to$1.5 million for the three months endedJune 30, 2021 compared to$0.8 million for the three months endedJune 30, 2020 . The increase in depreciation and amortization expense for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 was primarily attributable to an increase in property and equipment from our 2021 Acquisitions.
Transaction Costs
Transaction costs increased to
Income from Operations
Income from operations increased$14.2 million , or 28.1%, to$64.9 million for the three months endedJune 30, 2021 compared to$50.7 million for the three months endedJune 30, 2020 . The increase was primarily attributable to the$32.3 million increase in gross profit for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 , partially offset by a$17.3 million increase in selling, general & administrative expenses during the same periods.
Interest Expense - Floor Plan
Interest expense - floor plan decreased$1.3 million , or 58.4%, to$1.0 million for the three months endedJune 30, 2021 compared to$2.3 million for the three months endedJune 30, 2020 . This decrease was primarily attributable to a$67.9 million decrease in the outstanding borrowings on our Sixth Amended and Restated Inventory Financing Agreement (the "Inventory Financing Facility"), falling interest rates, and interest assistance received from our manufacturers and banks.
Interest Expense - Other
The decrease in interest expense - other of$2.0 million , or 64.9%, to$1.1 million for the three months endedJune 30, 2021 compared to$3.1 million for the three months endedJune 30, 2020 was primarily attributable to theJuly 22, 2020 payoff of our Term and Revolver Credit Facility (as defined below) and entry into the Refinanced Credit Facility (as defined below), which offers a more favorable interest rate. 29 -------------------------------------------------------------------------------- Table of Contents Other Expense (Income), Net Other income increased to$0.2 million during the three months endedJune 30, 2021 as compared to other income of$43,227 for the three months endedJune 30, 2020 . Income Tax Expense The$6.8 million increase in income tax expense for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 was primarily the result of the$17.7 million increase in income before income tax expense. Additionally, as Class B common stock was exchanged for Class A common stock (in accordance with the terms of the fourth amended and restated limited liability company agreement ofOneWater LLC (the "OneWater LLC Agreement")), the proportion of consolidated income before income tax expense allocated toOneWater Inc. increased, yielding higher income tax expense.
Net Income
Net income increased by$10.9 million to$51.6 million for the three months endedJune 30, 2021 compared to$40.6 million for the three months endedJune 30, 2020 . The increase was primarily attributable to the$32.3 million increase in gross profit for the three months endedJune 30, 2021 compared toJune 30, 2020 . The increase was partially offset by the$17.3 million increase in selling, general & administrative expenses and the$6.8 million increase in income tax expense for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . Nine Months EndedJune 30, 2021 , Compared to Nine Months EndedJune 30, 2020 For the Nine Months For the Nine Months Ended Ended June 30, 2021 June 30, 2020 Amount % of Revenue Amount % of Revenue $
Change % Change
($ in thousands)
Revenues
New boat $ 679,704 71.7 % $ 530,249 70.5 % $ 149,455 28.2 %
Pre-owned boat 165,778 17.5 % 149,470 19.9 % 16,308 10.9 %
Finance & insurance income 32,990 3.5 % 29,047 3.9 % 3,943 13.6 %
Service, parts and other 69,429 7.3 % 43,168 5.7 % 26,261 60.8 %
Total revenues 947,901 100.0 % 751,934 100.0 % 195,967 26.1 %
Gross Profit
New boat 158,884 16.8 % 95,391 12.7 % 63,493 66.6 %
Pre-owned boat 40,212 4.2 % 26,667 3.5 % 13,545 50.8 %
Finance & insurance income 32,990 3.5 % 29,047 3.9 % 3,943 13.6 %
Service, parts & other 36,088 3.8 % 20,353 2.7 % 15,735 77.3 %
Total gross profit 268,174 28.3 % 171,458 22.8 % 96,716 56.4 %
Selling, general and administrative expenses 143,685 15.2 % 103,822 13.8 % 39,863 38.4 %
Depreciation and amortization 3,816 0.4 % 2,375 0.3 % 1,441 60.7 %
Transaction costs 633 0.1 % 3,393 0.5 % (2,760 ) (81.3 )%
Loss on contingent consideration 377 0.0 % - 0.0 % 377
Income from operations 119,663 12.6 % 61,868 8.2 % 57,795 93.4 %
Interest expense - floor plan 2,206 0.2 % 7,482 1.0 % (5,276 ) (70.5 )%
Interest expense - other 3,222 0.3 % 7,392 1.0 % (4,170 ) (56.4 )%
Change in fair value of warrant liability - 0.0 % (771 ) (0.1 )% 771 (100.0 )%
Other (income) expense, net (247 ) 0.0 % 22 0.0 % (269 ) (1222.7 )%
Income before income tax expense 114,482 12.1 % 47,743 6.3 % 66,739 139.8 %
Income tax expense 20,559 2.2 % 5,209 0.7 % 15,350 294.7 %
Net income 93,923 9.9 % 42,534 5.7 % 51,389 120.8 %
Less: Net income attributable to non-controlling interest - 350 (350 ) (100.0 )%
Less: Net income attributable to non-controlling
interests of One Water Marine Holdings, LLC 31,158 26,732 4,426 16.6 %
Net income attributable to One Water Marine Inc. $ 62,765 $ 15,452 $ 47,313 306.2 %
Revenue
Overall, revenue increased by $196.0 million , or 26.1%, to $947.9 million for
the nine months ended June 30, 2021 from $751.9 million for the nine months
ended June 30, 2020 . Revenue generated from same-store sales increased 16.3% for
the nine months ended June 30, 2021 as compared to the nine months ended June
30, 2020 , primarily due to an increase in the average selling price of new and
pre-owned boats and the model mix of boats sold. Overall revenue increased by
$121.9 million as a result of our increase in same-store sales and $74.1 million
from stores not eligible for inclusion in the same-store sales base. New and
acquired stores become eligible for inclusion in the comparable store base at
the end of the store's thirteenth month of operations under our ownership, and
revenues are only included for identical months in the same-store base periods.
As of June 30, 2021 , we had acquired eight stores in fiscal year 2021. We did
not make any acquisitions in fiscal year 2020.
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New Boat
New boat revenue increased by $149.5 million , or 28.2%, to $679.7 million for
the nine months ended June 30, 2021 from $530.2 million for the nine months
ended June 30, 2020 . The increase was the result of our same-store sales growth
during the period and the increased sales attributable to the 2021 Acquisitions.
We believe the increase in sales was primarily due to the shift towards outdoor
leisure activity during the COVID-19 pandemic, as well as, the continued
execution of operational improvements on previously acquired dealers.
Additionally, we saw an increase in average sales price due in part to the mix
of boat brands and models sold and product improvements in the functionality and
technology of boats, which continues to be a driver of consumer demand, as well
as a lower supply of new boat inventory as manufacturer replenishments have been
slowed by the COVID-19 pandemic.
Pre-owned Boat
Pre-owned boat revenue increased by$16.3 million , or 10.9%, to$165.8 million for the nine months endedJune 30, 2021 from$149.5 million for the nine months endedJune 30, 2020 . We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. Pre-owned boat sales for the nine months endedJune 30, 2021 experienced a decrease in the number of units sold due to industry-wide supply constraints. The average sales price per pre-owned unit in the nine months endedJune 30, 2021 increased largely due to the mix of pre-owned products and the composition of the brands and models sold during the period as well as the industry-wide supply restrictions driving prices higher.
Finance & Insurance Income
We generate revenue from arranging finance & insurance products, including financing, insurance and extended warranty contracts, to customers through various third-party financial institutions and insurance companies. Finance & insurance income increased by$3.9 million , or 13.6%, to$33.0 million for the nine months endedJune 30, 2021 from$29.0 million for the nine months endedJune 30, 2020 . The increase was primarily a result of the increase in same-store sales and additional revenue attributable to the 2021 Acquisitions. We remain very focused on improving sales of finance & insurance products throughout our dealer network and implementing best practices at acquired dealer groups and existing stores. Finance & insurance products slightly decreased as a percentage of total revenue to 3.5% in the nine months endedJune 30, 2021 from 3.9% for the nine months endedJune 30, 2020 . Since finance & insurance income is fee-based, we do not incur any related cost of sale. Finance & insurance income is recorded net of related fees, including fees charged back due to any early cancellation of loan or insurance contracts by a customer.
Service, Parts & Other
Service, parts & other revenue increased by$26.3 million , or 60.8%, to$69.4 million for the nine months endedJune 30, 2021 from$43.2 million for the nine months endedJune 30, 2020 . This increase in service, parts & other revenue is primarily due to ancillary sales generated from our increase in new and pre-owned boat sales and the impact of our 2021 Acquisitions.
Gross Profit
Overall, gross profit increased by$96.7 million , or 56.4%, to$268.2 million for the nine months endedJune 30, 2021 from$171.5 million for the nine months endedJune 30, 2020 . This increase was primarily due to our overall increase in same-store sales, primarily driven by an increase in new and pre-owned boat sales, service, parts and other sales, the Company's focus on dynamic pricing and the increase in finance & insurance income. The increase in gross profit was also a result of an increase in the number of stores due to the 2021 Acquisitions. Overall gross margins increased 550 basis points to 28.3% for the nine months endedJune 30, 2021 from 22.8% for the nine months endedJune 30, 2020 due to the factors noted below.
New Boat
New boat gross profit increased by$63.5 million , or 66.6%, to$158.9 million for the nine months endedJune 30, 2021 from$95.4 million for the nine months endedJune 30, 2020 . New boat gross profit as a percentage of new boat revenue was 23.4% for the nine months endedJune 30, 2021 as compared to 18.0% in the nine months endedJune 30, 2020 . The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations and the expansion of new boat gross profit margins created by a lower supply of new boat inventory in the nine months endedJune 30, 2021 .
Pre-owned Boat
Pre-owned boat gross profit increased by$13.5 million , or 50.8%, to$40.2 million for the nine months endedJune 30, 2021 from$26.7 million for the nine months endedJune 30, 2020 . The increase in pre-owned gross profit was driven by the increase in pre-owned revenue primarily as a result of our same-store sales growth and our 2021 Acquisitions. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 24.3% and 17.8% for the nine months endedJune 30, 2021 and 2020, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal fluctuations in pre-owned boat gross profit as a percentage of revenue. In the nine months endedJune 30, 2021 as compared to the nine months endedJune 30, 2020 , we experienced an increase in our gross profit on pre-owned sales for each of the different sales arrangements. Margins were also driven higher by a lower supply of pre-owned inventory in the market for the nine months endedJune 30, 2021 . 31 -------------------------------------------------------------------------------- Table of Contents Finance & Insurance Finance & insurance gross profit increased by$3.9 million , or 13.6%, to$33.0 million for the nine months endedJune 30, 2021 from$29.0 million for the nine months endedJune 30, 2020 . Finance & insurance income is fee-based revenue for which we do not recognize incremental cost of sale.
Service, Parts & Other
Service, parts & other gross profit increased by$15.7 million , or 77.3%, to$36.1 million for the nine months endedJune 30, 2021 from$20.4 million for the nine months endedJune 30, 2020 . The increase in service, parts & other gross profit was primarily driven by our same-store sales growth as well as the impact of the 2021 Acquisitions. Service, parts & other gross profit as a percentage of service, parts & other revenue was 52.0% and 47.1% for the nine months endedJune 30, 2021 and 2020, respectively. This increase was the result of the mix of products sold and services provided as the gross profit shifted more towards service work, which has a higher margin. Additionally, due to the increased demand, we experienced an increase in the productivity of our service technicians, which drove margins higher.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by$39.9 million , or 38.4%, to$143.7 million for the nine months endedJune 30, 2021 from$103.8 million for the nine months endedJune 30, 2020 . This increase was primarily due to the impact of expenses incurred to support the overall increase in same-store sales. Selling, general & administrative expenses consisted of a$34.8 million increase in personnel expenses, a$1.0 million decrease in selling and administrative expenses, and$2.9 million increase in fixed expenses. Selling, general & administrative expenses as a percentage of revenue increased to 15.2% from 13.8% for the nine months endedJune 30, 2021 and 2020, respectively. The increase in selling, general & administrative expenses as a percentage of revenue was primarily due to higher variable-based compensation expense as a result of the Company's increased net profit margin.
Depreciation and Amortization
Depreciation and amortization expense increased$1.4 million , or 60.7%, to$3.8 million for the nine months endedJune 30, 2021 compared to$2.4 million for the nine months endedJune 30, 2020 . The increase in depreciation and amortization expense for the nine months endedJune 30, 2021 compared to the nine months endedJune 30, 2020 was primarily attributable to an increase in property and equipment from our 2021 Acquisitions.
Transaction Costs
The decrease in transaction costs of$2.8 million , or 81.3%, to$0.6 million for the nine months endedJune 30, 2021 compared to$3.4 million for the nine months endedJune 30, 2020 was primarily attributable to$2.3 million of expenses recognized for the nine months endedJune 30, 2020 in conjunction with the Offering that were not able to be capitalized.
Loss on Contingent Consideration
During the nine months endedJune 30, 2021 , we incurred an expense of$0.4 million on the settlement of a contingent payment related to a fiscal year 2019 acquisition. There were no adjustments to contingent consideration for the nine months endedJune 30, 2020 . Income from Operations Income from operations increased$57.8 million , or 93.4%, to$119.7 million for the nine months endedJune 30, 2021 compared to$61.9 million for the nine months endedJune 30, 2020 . The increase was primarily attributable to the$96.7 million increase in gross profit for the nine months endedJune 30, 2021 as compared to the nine months endedJune 30, 2020 , partially offset by a$39.9 million increase in selling, general & administrative expenses during the same periods.
Interest Expense - Floor Plan
Interest expense - floor plan decreased$5.3 million , or 70.5%, to$2.2 million for the nine months endedJune 30, 2021 compared to$7.5 million for the nine months endedJune 30, 2020 . This decrease was primarily attributable to a$67.9 million decrease in the outstanding borrowings on the Inventory Financing Facility, falling interest rates, and interest assistance received from our manufacturers and banks.
Interest Expense - Other
The decrease in interest expense - other of$4.2 million , or 56.4%, to$3.2 million for the nine months endedJune 30, 2021 compared to$7.4 million for the nine months endedJune 30, 2020 was primarily attributable to the payoff of our Term and Revolver Credit Facility (as defined below) and entry into the Refinanced Credit Facility (as defined below), which offers a more favorable interest rate.
Change in Fair Value of Warrant Liability
The change in fair value of warrant liability of
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Other Expense (Income), Net
Other expense (income), net was income of approximately $247,000 for the nine
months ended June 30, 2021 and expense of approximately $22,000 for the nine
months ended June 30, 2020 .
Income Tax Expense
The $15.4 million increase in income tax expense for the nine months ended June
30, 2021 as compared to the nine months ended June 30, 2020 was primarily the
result of the $66.7 million increase in income before income tax expense and the
Offering and the taxability of OneWater Inc. as a corporation for the full nine
months ended June 30, 2021 versus only the period subsequent to the Offering for
the nine months ended June 30, 2020 . Additionally, as Class B common stock was
exchanged for Class A common stock (in accordance with the terms of the OneWater
LLC Agreement), the proportion of consolidated income before income tax expense
allocated to OneWater Inc. increased, yielding higher income tax expense.
Net Income
Net income increased by$51.4 million to$93.9 million for the nine months endedJune 30, 2021 compared to$42.5 million for the nine months endedJune 30, 2020 . The increase was primarily attributable to the$96.7 million increase in gross profit for the nine months endedJune 30, 2021 compared toJune 30, 2020 . The increase was partially offset by the$39.9 million increase in selling, general & administrative expenses and the$15.4 million increase in income tax expense for the nine months endedJune 30, 2021 compared to the nine months endedJune 30, 2020 .
Comparison of Non-GAAP Financial Measure
We view Adjusted EBITDA as an important indicator of performance. We define Adjusted EBITDA as net income (loss) before interest expense - other, income tax expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in the fair value of warrant liability, gain (loss) on contingent consideration, loss on extinguishment of debt and transaction costs. Our board of directors (the "Board"), management team and lenders use Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense and debt extinguishment charges), asset base (such as depreciation and amortization) and other items (such as the fair value adjustment of the warrants, gain (loss) on contingent consideration 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 net income (loss) to Adjusted EBITDA, which is the most directly comparable GAAP measure for the periods presented.
Three Months EndedJune 30, 2021 , Compared to Three Months EndedJune 30, 2020 Three Months Ended June 30 Description 2021 2020 ($ in thousands) Net income$ 51,557 $ 40,622 Interest expense - other 1,083 3,082 Income tax expense 11,498 4,737 Depreciation and amortization 1,475 824 Transaction costs 65 31 Other income, net (158 ) (43 ) Adjusted EBITDA$ 65,520 $ 49,253 33
-------------------------------------------------------------------------------- Table of Contents Adjusted EBITDA increased$16.3 million or 33.0% to$65.5 million for the three months endedJune 30, 2021 compared to$49.3 million for the three months endedJune 30, 2020 . The increase in Adjusted EBITDA resulted primarily from an increase in gross profit, partially offset by an increase in selling, general & administrative expense. Nine Months EndedJune 30, 2021 , Compared to Nine Months EndedJune 30, 2020 Nine Months Ended June 30 Description 2021 2020 ($ in thousands) Net income$ 93,923 $ 42,534 Interest expense - other 3,222 7,392 Income tax expense 20,559 5,209 Depreciation and amortization 3,816 2,375 Loss on contingent consideration 377 - Transaction costs 633 3,393 Change in fair value of warrant liability - (771 ) Other (income) expense, net (247 ) 22 Adjusted EBITDA$ 122,283 $ 60,154 Adjusted EBITDA increased$62.1 million or 103.3% to$122.3 million for the nine months endedJune 30, 2021 compared to$60.2 million for the nine months endedJune 30, 2020 . The increase in Adjusted EBITDA resulted primarily from an increase in gross profit due to our same-store sales growth and 2021 Acquisitions, partially offset by an increase in selling, general & administrative expense.
Seasonality
Our business, along with the entire recreational boating industry, is highly seasonal, and such seasonality varies by geographic market. With the exception ofFlorida , we generally realize significantly lower sales and higher levels of inventories, and related floor plan borrowings, in the quarterly periods endingDecember 31 andMarch 31 . Revenue generated from our stores inFlorida 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 ofthe 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 whenFlorida 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.
Liquidity and Capital Resources
Overview
Our cash needs are primarily for growth through acquisitions and working capital to support our retail operations, including new and pre-owned boat and related parts inventories and off-season liquidity. We routinely monitor our cash flow to determine the amount of cash available to complete acquisitions of dealer groups and stores. We monitor our inventories, inventory aging and current market trends to determine our current and future inventory and related floorplan financing needs. Based on current facts and circumstances, we believe we will have adequate cash flow from operations, borrowings under our Credit Facilities and proceeds from any future issuances of debt or equity, to fund our current operations and essential capital expenditures for the next twelve months. Cash needs for acquisitions have historically been financed with our Credit Facilities and cash generated from operations. Our ability to utilize the Refinanced Credit Facility (as defined below) to fund operations depends upon Adjusted EBITDA and compliance with covenants of the Refinanced Credit Facility. Cash needs for inventory have historically been financed with our Inventory Financing Facility. Our ability to fund inventory purchases and operations depends on the collateral levels and our compliance with the covenants of the Inventory Financing Facility. As ofJune 30, 2021 , we were in compliance with all covenants under the Refinanced Credit Facility and the Inventory Financing Facility. 34 -------------------------------------------------------------------------------- Table of Contents Cash Flows
Analysis of Cash Flow Changes Between the Nine Months Ended
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended June 30,
Description 2021 2020 Change
($ in thousands)
Net cash provided by operating activities
599
Net cash used in investing activities (91,120 ) (2,307 ) (88,813 ) Net cash used in financing activities (9,542 ) (70,712 ) 61,170 Net change in cash$ 52,533 $ 79,577 $ (27,044 ) Operating Activities. Net cash provided by operating activities was$153.2 million for the nine months endedJune 30, 2021 compared to net cash provided by operating activities of$152.6 million for the nine months endedJune 30, 2020 . The$0.6 million increase in cash provided by operating activities was primarily attributable to a$51.4 million increase in net income, a$23.1 million decrease in the change in accounts receivable and a$13.5 million increase in the change in customer deposits for the nine months endedJune 30, 2021 as compared to the nine months endedJune 30, 2020 . These amounts were partially offset by a$58.9 million increase in the change in inventory and a$13.3 million increase in the change in prepaid expenses and other current assets for the nine months endedJune 30, 2021 as compared to the nine months endedJune 30, 2020 . Investing Activities. Net cash used in investing activities was$91.1 million for the nine months endedJune 30, 2021 compared to$2.3 million for the nine months endedJune 30, 2020 . The$88.8 million increase in cash used for investing activities was primarily attributable to$83.5 million of cash used in acquisitions for the nine months endedJune 30, 2021 as compared to none for the nine months endedJune 30, 2020 . Financing Activities. Net cash used in financing activities was$9.5 million for the nine months endedJune 30, 2021 compared to$70.7 million for the nine months endedJune 30, 2020 . The$61.2 million decrease in cash used in financing activities was primarily attributable to a$90.5 million decrease in the distributions to redeemable preferred interest members, partially offset by a$59.2 million decrease in proceeds from the issuance of Class A common stock sold in the Offering, net of offering costs, and a$21.9 million decrease in net borrowings from floor plan for the nine months endedJune 30, 2021 as compared to the nine months endedJune 30, 2020 .
Dividends
OnJune 17, 2021 ,OneWater LLC approved a distribution of$1.80 per unit inOneWater LLC to its unitholders ("OneWater Unit Holders"), includingOneWater Inc. OnJune 17, 2021 , the Board declared a special cash dividend of$1.80 per share (the "Special Dividend") to holders of its Class A common stock, to be made from the proceeds of theOneWater LLC distribution. The cash dividend of approximately$27.1 million was paid onJuly 19, 2021 to OneWater Unit Holders and, ultimately, to the holders of Class A common stock. Additionally, a$0.7 million cash dividend for restricted stock unit holders will be paid to holders upon vesting of the awards. Holders of our Class B common stock are not entitled to participate in any dividends declared by the Board.
Debt Agreements
Term and Revolver Credit Facility
OnOctober 28, 2016 ,OneWater LLC and certain of our subsidiaries entered into a Credit and Guaranty Agreement withOWM BIP Investor, LLC , as a lender,Goldman Sachs Specialty Lending Group, L.P. , as a lender, administrative agent and collateral agent, and various lender parties thereto (as amended, the "GS/BIP Credit Facility"). The as amended terms of the GS/BIP Credit Facility immediately preceding the Offering consisted of an up to$60.0 million multi-draw term loan facility (the "Multi-Draw Term Loan") and a$5.0 million revolving line of credit (the "Revolving Facility"). OnFebruary 11, 2020 , in connection with the Offering,OneWater Inc. entered into an Amended and Restated Credit and Guaranty Agreement (the "Term and Revolver Credit Facility"), which, among other things, modified the terms of the GS/BIP Credit Facility to (i) increase the Revolving Facility from$5.0 million to$10.0 million , (ii) increase the maximum available under the Multi-Draw Term Loan from$60.0 million to$100.0 million , (iii) provide an uncommitted and discretionary multi-draw term loan accordion feature of up to$20.0 million , (iv) amend the repayment schedule of the Multi-Draw Term Loan to commence onMarch 31, 2022 , (v) amend the scheduled maturity date of the Revolving Facility and Multi-Draw Term Loan to beFebruary 11, 2025 and (vi) removeOWM BIP Investor, LLC as a lender. The Term and Revolver Credit Facility bore interest at a rate that was equal to, atOneWater Inc.'s option, (a) theLondon Inter-Bank Offered Rate ("LIBOR") for such interest period (subject to a 1.50% floor) plus an applicable margin of up to 7.00%, subject to step-downs to be determined based on certain financial leverage ratio measures, or (b) a base rate (subject to a 4.50% floor) plus an applicable margin of up to 6.00%, subject to step-downs to be determined based on certain financial leverage ratio measures. Interest was payable quarterly for base rate borrowings and up to quarterly for LIBOR borrowings. The Term and Revolver Credit Facility included the option for the Company to defer cash payments of interest for twelve months and add the accrued interest to the outstanding principal of the note payable. The election of this feature was made during the nine months endedJune 30, 2020 , and as a result, the interest rate increased by 2.0% for the corresponding twelve months. The Company borrowed an additional$35.3 million on the Multi-Draw Term Loan immediately upon closing of the agreement to bring our total indebtedness to$100 million . 35 -------------------------------------------------------------------------------- Table of Contents OnJuly 22, 2020 , the Company repaid in full all indebtedness outstanding under the then-existing credit facility evidenced by the Term and Revolver Credit Facility, and in connection with such repayment, all commitments thereunder were terminated and all guarantees and security interests granted in connection therewith were released. See "-Refinanced Credit Facility" for additional information.
Refinanced Credit Facility
EffectiveJuly 22, 2020 , we and certain of our subsidiaries terminated and repaid all indebtedness outstanding under the Term and Revolver Credit Facility and entered into the Credit Agreement (the "Refinanced Credit Facility") withTruist Bank as administrative agent, collateral agent, swingline lender and issuing bank,SunTrust Robinson Humphrey, Inc. andSynovus Bank as joint lead arrangers and joint bookrunners,Synovus Bank as documentation agent, and the lenders from time to time party thereto (collectively, the "Refinancing"). The Refinanced Credit Facility provides for a$30.0 million revolving credit facility that may be used for revolving credit loans (including up to$5.0 million in swingline loans) and up to$5.0 million in letters of credit from time to time, and a$80.0 million term loan, which was advanced in full onJuly 22, 2020 . Subject to certain conditions, the available amount under the revolving credit facility and the term loans may be increased by$50.0 million in the aggregate. The revolving credit facility matures onJuly 22, 2025 . The term loan is repayable in installments beginning onMarch 31, 2021 , with the remainder due onJuly 22, 2025 . OnFebruary 2, 2021 , we entered into the Incremental Amendment No. 1 (the "First Incremental Amendment") to the Refinanced Credit Facility to provide for, among other things, an incremental term loan (the "Incremental Term Loan") to OWAO in an aggregate principal amount equal to$30.0 million , which was added to, and constitutes a part of, the existing$80.0 million term loan. As provided for by the First Incremental Amendment, the proceeds of the Incremental Term Loan were used to pay off the balance of the revolving credit facility, under which an aggregate of$30.0 million was outstanding as ofFebruary 1, 2021 . Borrowings under the Refinanced Credit Facility bear interest, at the Company's option, at either (a) a base rate (the "Base Rate") equal to the highest of (i) the prime rate (as announced byTruist Bank from time to time), (ii) the Federal Funds Rate, as in effect from time to time, plus 0.50%, (iii) the Adjusted LIBO Rate (defined below) determined on a daily basis for an interest period of one month, plus 1.00%, or (iv) 1.75%, plus an applicable margin of up to 2.00%, or (b) the rate per annum obtained by dividing (i) the LIBOR for such interest period by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage (the "Adjusted LIBO Rate") plus an applicable margin of up to 3.00%. Interest on swingline loans shall be the Base Rate plus an applicable margin of up to 2.00%. All applicable interest margins are subject to stepdowns based on certain consolidated leverage ratio measures.
The Refinanced Credit Facility is subject to certain financial covenants related to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio.
Inventory Financing Facility
OnJune 14, 2018 ,OneWater LLC and certain of our subsidiaries entered into the Fourth Amended and Restated Inventory Financing Agreement withWells Fargo Commercial Distribution Finance, LLC and various lender parties thereto ("WellsFargo ") (as subsequently amended and restated, the ''Inventory Financing Facility'' and, together with the Refinanced Credit Facility, the ''Credit Facilities''). OnSeptember 21, 2018 ,OneWater LLC and certain of our subsidiaries entered into the First Amendment to the Fourth Amended and Restated Inventory Financing Agreement which, among other things, increased the maximum amount of borrowing available under the Inventory Financing Facility from$200.0 million to$275.0 million . OnApril 5, 2019 ,OneWater LLC and certain of its subsidiaries further amended the Inventory Financing Facility to, among other things, increase the maximum amount of borrowing available under the Inventory Financing Facility from$275.0 million to$292.5 million . OnNovember 26, 2019 ,OneWater LLC and certain of its subsidiaries entered into the Fifth Amended and Restated Inventory Financing Agreement with Wells Fargo to, among other things, increase the maximum amount of borrowing available under the Inventory Financing Facility from$292.5 million to$392.5 million . EffectiveFebruary 11, 2020 , in connection with the Offering, the Company and certain of its subsidiaries entered into the Sixth Amended and Restated Inventory Financing Agreement with Wells Fargo, which amended and restated the Fifth Amended and Restated Inventory Financing Agreement, dated as ofNovember 26, 2019 , to, among other things, permit certain payments and transactions contemplated by or in connection with the Offering, including payments under the Tax Receivable Agreement. The maximum amount of borrowing available, interest rates and the termination date of the Inventory Financing Facility remained unchanged. OnJuly 22, 2020 , the Company and certain of its subsidiaries entered into the First Amendment (the "First Amendment") to the Inventory Financing Facility. The First Amendment amended the Inventory Financing Facility, to, among other things, address the Refinancing, permit the amount of indebtedness allowed under the Refinanced Credit Facility to be$160.0 million (which includes the potential for a$50.0 million increase under the Refinanced Credit Facility), permit the payment of fees and expenses in connection with the termination of the Term and Revolver Credit Facility and the payment of present and future transaction costs incurred in connection with the negotiation, closing and ongoing administration of the Refinanced Credit Facility. OnDecember 10, 2020 , the Company and certain of its subsidiaries entered into the Second Amendment to the Sixth Amended and Restated Inventory Financing Agreement to change certain compliance reporting from weekly to monthly. The maximum borrowing amount available, interest rates and the termination date of the agreement remained unchanged. 36 -------------------------------------------------------------------------------- Table of Contents The interest rate for amounts outstanding under the Inventory Financing Facility is calculated using the one month LIBOR plus an applicable margin of 2.75% to 5.00% for new boats and at the new boat rate plus 0.25% for pre-owned boats. If LIBOR is less than 2.96%, 25 basis points are added when calculating the interest rate. Loans will be extended from time to time to enable us to purchase inventory from certain manufacturers and to lease certain boats and related parts to customers. The applicable financial terms, curtailment schedule and maturity for each loan will be set forth in separate program terms letters entered into from time to time. 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 Refinanced Credit Facility. We are required to comply with certain financial and non-financial covenants under the Inventory Financing Facility, including provisions that the Funded Debt to EBITDA Ratio (as defined in the Inventory Financing Facility) ofOneWater LLC must not exceed 2.00 to 1.00, and that our Fixed Charge Coverage Ratio (as defined in the Inventory Financing Facility) on a consolidated basis must be at least 1.50 to 1.00. We are also subject to additional restrictive covenants, including restrictions on our ability to (i) use, sell, rent or otherwise dispose of any collateral underlying the Inventory Financing Facility except for the sale of inventory in the ordinary course of business, (ii) incur certain liens, (iii) engage in any material transaction not in the ordinary course of business, (iv) change our business in any material manner or our organizational structure, other than as otherwise provided for in the Inventory Financing Facility, (v) engage in certain mergers or consolidations, (vi) acquire certain assets or ownership interest of any other person or entities, except for certain permitted acquisitions, (vii) guarantee or indemnify or otherwise become in any way liable with respect to certain obligations of any other person or entity, except as provided by the Inventory Financing Facility, (viii) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of the equity of our acquired dealer groups, (ix) make any change in any of our dealer groups' capital structure or in any of its business objectives or operations which might in any way adversely affect the ability of such dealer group to repay its obligations under the Inventory Financing Facility, (x) incur, create, assume, guarantee or otherwise become or remain liable with respect to certain indebtedness, and (xi) make certain payments of subordinated debt.OneWater LLC and its subsidiaries are generally restricted from, among other things, making cash dividends or distributions without the prior written consent ofWells Fargo Commercial Distribution Finance, LLC (the "Agent"). Under the Inventory Financing Facility, among other exceptions,OneWater LLC may make distributions to its members for certain permitted tax payments subject to certain financial ratios, may make scheduled payments on certain subordinated debt and is permitted to make pro rata distributions to the OneWater Unit Holders, includingOneWater Inc. , in an amount sufficient to allowOneWater 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 toOneWater LLC . Our Chief Executive Officer,Philip Austin Singleton , Jr., and our Chief Operating Officer,Anthony Aisquith , provide certain personal guarantees of the Inventory Financing Facility.
On
As ofJune 30, 2021 andSeptember 30, 2020 , our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled$108.2 million and$124.0 million , respectively. Certain of our manufacturers enter into independent agreements with the lenders to the Inventory Financing Facility, which results in a lower effective interest rate charged to us for borrowings related to the products by such manufacturer. As ofJune 30, 2021 andSeptember 30, 2020 , the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 1.4% and 4.0%, respectively. As ofJune 30, 2021 andSeptember 30, 2020 , our additional available borrowings under our Inventory Financing Facility were$284.3 million and$268.5 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 ofJune 30, 2021 , we were in compliance with all covenants under the Inventory Financing Facility.
OWAO Preferred Units
OnOctober 28, 2016 , certain affiliates ofGoldman Sachs & Co. LLC (collectively, "Goldman") and affiliates ofThe Beekman Group (collectively, "Beekman") entered into a Subscription Agreement with us and certain of our subsidiaries, pursuant to which Goldman and Beekman purchased preferred units in OWAO ("OWAO Preferred Units"). Goldman and Beekman purchased 45,000 and 23,000 OWAO Preferred Units, representing 66.2% and 33.8% of the total OWAO Preferred Units outstanding for purchase prices of$44.4 million and$22.7 million , respectively. The holders of the OWAO Preferred Units ("OWAO Preferred Holders") were entitled to (i) a ''preferred return'' at a rate of 10% per annum, compounded quarterly, on (a) the aggregate amount of capital contributions made, minus any prior distributions (the ''unreturned preferred amount''), plus (b) any unpaid preferred returns for prior periods, and (ii) a ''preferred target distribution'' at a rate of 10% per annum on the unreturned preferred amount multiplied by (a) 40% for the calendar quarters endingDecember 31, 2018 ,March 31, 2019 ,June 30, 2019 andSeptember 30, 2019 , (b) 60% for each calendar quarter endingDecember 31, 2019 ,March 31, 2020 ,June 30, 2020 andSeptember 30, 2020 , and (c) 80% for each calendar quarter thereafter. The preferred target distribution proportionally adjusts the amount of capital contribution of each OWAO Preferred Holder. OWAO and certain affiliates were required to meet certain financial covenants, including maintenance of certain leverage ratios. Failure by OWAO to pay the preferred return and preferred target distribution, failure to meet certain financial covenants, or repayment in full or acceleration of the obligations under the GS/BIP Credit Facility would permit a majority of the OWAO Preferred Holders to require us to purchase all OWAO Preferred Units equal to the unreturned preferred amount plus any unpaid preferred returns (the ''redemption amount''). As ofSeptember 30, 2019 , the redemption amount of the OWAO Preferred Units held by Goldman and Beekman in the aggregate was$87.3 million , exclusive of$1.3 million in issuance costs. OnFebruary 11, 2020 , in connection with the Offering, we used the net proceeds from the Offering, together with cash on hand and borrowings under the Term and Revolver Credit Facility, to redeem all of the shares of OWAO Preferred Units held by Goldman and Beekman for$89.2 million . 37 -------------------------------------------------------------------------------- Table of Contents 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 ofJune 30, 2021 , our indebtedness associated with our 4 acquisition notes payable totaled an aggregate of$7.4 million with a weighted average interest rate of 5.3% per annum. As ofJune 30, 2021 , the principal amount outstanding under these acquisition notes payable ranged from$1.3 million to$2.2 million , and the maturity dates ranged fromDecember 1, 2021 toDecember 1, 2023 . Commercial Vehicles Notes Payable. Since 2015, we have entered into multiple notes payable with various commercial lenders in connection with our acquisition of certain vehicles utilized in our retail operations. Such notes bear interest ranging from 0.0% to 8.9% per annum, require monthly payments of approximately$113,000 , and mature on dates ranging fromSeptember 2021 toJuly 2028 . As ofJune 30, 2021 , we had$3.4 million outstanding under the commercial vehicles notes payable. Tax Receivable Agreement The Tax Receivable Agreement generally provides for the payment byOneWater Inc. to certain of the OneWater Unit Holders of 85% of the net cash savings, if any, inU.S. federal, state and local income tax and franchise tax (computed using the estimated impact of state and local taxes) thatOneWater Inc. actually realizes (or is deemed to realize in certain circumstances) in periods after the Offering 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 extentOneWater LLC has available cash and subject to the terms of any current or future debt or other agreements, the OneWater LLC Agreement will requireOneWater LLC to make pro rata cash distributions to OneWater Unit Holders, includingOneWater Inc. , in an amount sufficient to allowOneWater Inc. to pay its taxes and to make payments under the Tax Receivable Agreement. We generally expectOneWater LLC to fund such distributions out of available cash. However, except in cases whereOneWater 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 orOneWater Inc. has available cash but fails to make payments when due, generallyOneWater Inc. may elect to defer payments due under the Tax Receivable Agreement if it does not have available cash to satisfy its payment obligations under the Tax Receivable Agreement or if its contractual obligations limit its ability to make these payments. Any such deferred payments under the Tax Receivable Agreement generally will accrue interest. In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any,OneWater Inc. realizes in respect of the tax attributes subject to the Tax Receivable Agreement. In the case of such an acceleration, where applicable, we generally expect the accelerated payments due under the Tax Receivable Agreement to be funded out of the proceeds of the change of control transaction giving rise to such acceleration.OneWater Inc. intends to account for any amounts payable under the Tax Receivable Agreement in accordance with ASC Topic 450, Contingencies.
Off Balance Sheet Arrangements
We have no material off balance sheet arrangements, except for operating leases and purchase commitments under supply agreements entered into in the normal course of business.
Recent Accounting Pronouncements
As an ''emerging growth company'' (''EGC''), the Jumpstart Our Business Startups
Act (''JOBS Act'') allows us to delay adoption of new or revised accounting
pronouncements applicable to public companies until such pronouncements are made
applicable to private companies. We have elected to use this extended transition
period under the JOBS Act. The adoption dates discussed below reflect this
election. We may take advantage of these provisions until September 30, 2025 , or
such earlier time that we are no longer an EGC. We would cease to be an EGC upon
the earliest of: (i) the last day of the first fiscal year in which our annual
gross revenues are $1.07 billion or more; (ii) the date on which we have, during
the previous three-year period, issued more than $1.0 billion in non-convertible
debt securities; or (iii) the date on which we are deemed to be a "large
accelerated filer." We continue to monitor these thresholds so that the Company
may prepare for any future loss of EGC status prior to September 30, 2025 .
Refer to Note 3 of the Notes to Unaudited Condensed Consolidated Financial
Statements in Item 1 of this Quarterly Report on Form 10-Q for recently adopted
and issued accounting pronouncements including the expected dates of adoption
and estimated effects, if any, on our consolidated financial statements.
Critical Accounting Policies and Significant Estimates
Our Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in theU.S. for interim financial information. The preparation of our financial statements requires the application of these accounting principles in addition to certain estimates and judgments based on current available information, actuarial estimates, historical results and other assumptions believed to be reasonable. Actual results could differ from these estimates. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Significant Estimates" included in our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2020 , filed with theSEC onDecember 3, 2020 , for further information regarding our critical accounting policies and significant estimates. As ofJune 30, 2021 , there were no changes in our critical accounting policies or the application of those policies from those reported in our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2020 . 38
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