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ONEWATER MARINE INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
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 toOneWater 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 endedSeptember 30, 2021 , filed with theU.S. Securities and Exchange Commission (the "SEC") onDecember 17, 2021 , all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law. Overview We believe that we are one of the largest and fastest-growing marine retailers inthe United States with 96 retail locations, 10 distribution centers/warehouses and multiple online marketplaces as ofJune 30, 2022 . Our retail locations are located in highly attractive markets throughout the Southeast,Gulf Coast , Mid-Atlantic and Northeast, many of which are in top twenty states for marine retail expenditures. We believe that we are a market leader by volume in sales of premium boats in 13 out of the 18 markets in which we operate. In fiscal year 2021, we sold approximately 9,500 new and pre-owned boats, many of which were sold to customers who had a trade-in or with whom we had otherwise established relationships. The combination of our significant scale, diverse inventory and revenue streams, access to premium boat brands and meaningful brand equity enable us to provide a consistently professional experience as reflected in the number of our repeat customers and same-store sales growth. We were formed in 2014 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 retail locations. Since the combination in 2014, we have acquired a total of 75 additional retail locations, 10 distribution centers/warehouses and multiple online marketplaces through 29 acquisitions. Our current portfolio of companies, as ofJune 30, 2022 , consists of multiple brands which are recognized on a local, regional or national basis. Because of this, we believe we are one of the largest and fastest-growing premium recreational marine retailers inthe United States based on number of stores and total boats sold. While we have opportunistically opened new locations in select markets, we believe that it is generally more effective economically and operationally to acquire existing locations with experienced staff and established reputations. The marine retail industry is highly fragmented, as evidenced by the over 4,000 boat dealers nationwide. Most competing boat retailers offer new boat sales, pre-owned boat sales, finance & insurance products, repair and maintenance services, and parts and accessories and are operated by local business owners with three or fewer stores. Despite our size, we comprise less than 3% of total industry sales. Our scale and business model allow us to leverage our extensive inventory to provide consumers with the ability to find a boat that matches their preferences (e.g., make, model, color, configuration and other options) and to deliver the boat within days while providing a personalized sales experience. We are able to operate with a comparatively higher degree of profitability than other independent retailers because we allocate support resources across our store base, focus on high-margin products and services, utilize floor plan financing and provide core back-office functions on a scale that many independent retailers are unable to match. We seek to be the leading boat retailer by total market share within each boating market and within the product segments in which we participate. To the extent that we are not, we will evaluate acquiring other local retailers in order to increase our sales, to add additional brands or to provide us with additional high-quality personnel.
Impact of COVID-19
The COVID-19 pandemic and its related effects, including restraints onU.S. economic and leisure activities, has and may continue to have a significant impact on our operations and financial condition. National, state and local governments in affected regions have implemented and may continue to implement safety precautions, including shelter in place orders, travel restrictions, business closures, cancellations of public gatherings, including boat shows, and other measures. At times, these measures have affected our ability to sell and service boats, required us to temporarily close or partially close certain locations and may require additional closures in the future. The COVID-19 pandemic and its related effects have, to date, positively impacted our sales as more customers desire to engage in outdoor recreational activities that can be enjoyed close to first or second homes, in a socially distanced manner. However, the COVID-19 pandemic has also caused significant supply chain challenges as suppliers were, and continue to be, faced with business closures and shipping delays. This has led to an industry wide inventory shortage of boats, engines and certain marine parts. The COVID-19 pandemic and its related effects may continue to interfere with the ability of our employees, contractors, customers, suppliers, and other business partners to perform our and their respective responsibilities and obligations with respect to the operation of our business. While we continue to monitor the impact of the COVID-19 pandemic on our business and operations, our financial results for the three and nine months endedJune 30, 2022 suggest that spending in all our regions and across product lines has proven resilient despite the challenges posed by the pandemic as customers have continued to focus on socially distanced outdoor recreations. The ultimate impact of the COVID-19 pandemic on our business remains uncertain and dependent on various factors including consumer demand, a possible resurgence of COVID-19, including variants of the virus in certain geographic areas, our ability to safely operate stores and the existence and extent of a prolonged economic downturn. 22
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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 a total of 75 additional retail locations, 10 distribution centers/warehouses and multiple online marketplaces through 29 acquisitions. Our team remains focused on expanding our retail locations in regions with strong boating cultures, enhancing the customer experience, and generating value for our shareholders. Additionally, we continue to evaluate acquisitions of companies who focus primarily on parts and accessory sales, further strengthening that area of our business. We have an extensive acquisition track record within the marine retail industry and believe we have developed a reputation for treating sellers and their staff in an honest and fair manner. We typically retain the management team and name of the acquired group. We believe this practice preserves the acquired retailer's customer relationships and goodwill in the local marketplace. We believe our reputation and scale have positioned us as a buyer of choice for marine retailers who want to sell their businesses. Our strategy is to acquire stores at attractive EBITDA multiples and then grow same-store sales while benefitting from cost-reducing synergies. Historically, we have typically acquired dealer groups for less than 4.0x EBITDA on a trailing twelve-month basis and believe that we will be able to continue to make attractive acquisitions within this range.
General Economic Conditions
General economic conditions and consumer spending patterns can negatively impact our operating results. Unfavorable local, regional, national, or global economic developments or uncertainties, including the adverse economic effects of the COVID-19 pandemic, including supply chain constraints, or a prolonged economic downturn, could reduce consumer spending and adversely affect our business. Consumer spending on discretionary goods may also decline as a result of lower consumer confidence levels, higher interest rates or higher fuel costs, even if prevailing economic conditions are otherwise favorable. Economic conditions in areas in which we operate stores, particularly in the Southeast, can have a major impact on our overall results of operations. Local influences, such as corporate downsizing and inclement weather such as hurricanes and other storms, environmental conditions, global public health concerns and events could adversely affect our operations in certain markets and in certain periods. Any extended period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business. Our business was significantly impacted during the recessionary period that began in 2007. This period of weakness in consumer spending and depressed economic conditions had a substantial negative effect on our operating results. In response to these conditions we reduced our inventory purchases, closed certain stores and reduced headcount. Additionally, in an effort to counteract the downturn, we increased our focus on pre-owned sales, parts and repair services, and finance and insurance services. As a result, we surpassed our pre-recession sales levels in less than 24 months. While we believe the measures we took significantly reduced the impact of the downturn on the business, we cannot guarantee similar results in the event of a future downturn. Additionally, we cannot predict the timing or length of unfavorable economic or industry conditions, including a downturn as a result of the COVID-19 pandemic, or the extent to which they could adversely affect our operating results. Although past economic conditions have adversely affected our operating results, we believe we are capable of responding in a manner that allows us to substantially outperform the industry and gain market share. We believe our ability to capture such market share enables us to align our retail strategies with the desires of customers. We expect our core strengths, including retail and acquisition strategies, will allow us to capitalize on growth opportunities as they occur, despite market conditions.
Critical Accounting Policies and Significant Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of the financial statements, and revenues and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements. Set forth below are the policies and estimates that we have identified as critical to our business operations and understanding our results of operations, based on the high degree of judgment or complexity in their application.
Revenue Recognition
Revenue is recognized from the sale of products and commissions earned on new
and pre-owned boats (including used, brokerage, consignment and wholesale) when
ownership is transferred to the customer, which is generally upon acceptance by
or delivery to the customer. At the time of acceptance or delivery, the customer
is able to direct the use of the product and obtain substantially all of the
benefits at such time. We are the principal with respect to revenue from new,
pre-owned and consignment sales and such revenue is recorded at the gross sales
price. With respect to brokerage transactions, we are acting as an agent in the
transaction, therefore the fee or commission is recorded on a net basis.
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Revenue from parts and accessories sold directly to a customer (not on a repair order) are recognized when control of the items is transferred to the customer, which is typically upon shipment. Revenue from parts and service operations (boat maintenance and repairs) is recorded over time as services are performed. Satisfaction of this performance obligation creates an asset with no alternative use for which an enforceable right to payment for performance to date exists within our contractual agreements. Each boat maintenance and repair service is a single performance obligation that includes both the parts and labor associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a period of one year or less from contract inception. The Company recorded contract assets in prepaid expenses and other current assets of$3.8 million and$2.3 million as ofJune 30, 2022 andSeptember 30, 2021 , respectively. Deferred revenue from storage and marina operations is recognized on a straight-line basis over the term of the contract as services are completed. Revenue from arranging financing, insurance and extended warranty contracts to customers through various third-party financial institutions and insurance companies is recognized when the related boats are sold. We do not directly finance our customers' boat, motor or trailer purchases. We are acting as an agent in the transaction, therefore the commissions are recorded on a net basis. Subject to our agreements and in the event of early cancellation, prepayment or default of such loans or insurance contracts by the customer, we may be assessed a chargeback for a portion of the commission paid by the third-party financial institutions and insurance companies. We reserve for these chargebacks based on our historical experience with repayments or defaults. Chargebacks were not material to the unaudited condensed consolidated financial statements for the three and nine months endedJune 30, 2022 .
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of new and pre-owned boat inventory is determined using the specific identification method. New and pre-owned boat sales history indicates that the overwhelming majority of such boats are sold for, or in excess of, the cost to purchase those boats. In assessing the lower of cost or net realizable value, we consider the aging of the boats, historical sales of a particular product and current market conditions. There are inherent uncertainties in assessing net realizable value as management must make assumptions and apply judgment to changes in the market, brands and other factors that drive consumer preferences and spending. We typically do not maintain a boat inventory reserve. The cost of manufactured and assembled parts and accessories is determined using standard costing. The cost of acquired parts and accessories is determined using the weighted average cost method. Inventory is reported net of write downs for obsolete and slow moving items of approximately$1.5 million and$0.8 million atJune 30, 2022 andSeptember 30, 2021 , respectively.
In accordance with ASC 350, we review goodwill for impairment annually in the fourth fiscal quarter, or more often if events or circumstances indicate that impairment may have occurred. When evaluating goodwill for impairment, if the fair value of a reporting unit is less than its carrying value, the difference would represent the amount of required goodwill impairment in accordance with ASC 350. To the extent the reporting unit's earnings decline significantly or there are changes in one or more of these inputs that would result in a lower valuation, it could cause the carrying value of the reporting unit to exceed its fair value and thus require the Company to record goodwill impairment. Identifiable intangible assets consist of trade names, design libraries and customer relationships related to the acquisitions we have completed. We have determined that trade names have an indefinite life, as there are no economic, contractual or other factors that limit their useful lives and they are expected to generate value as long as the trade name is utilized by the marine retailer, and therefore, are not subject to amortization. Design libraries 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. Impairment testing requires the assessment of both qualitative and quantitative factors, including, but not limited to whether there has been a significant or adverse change in the business climate that could affect the value of an asset and/or significant or adverse changes in cash flow projections or earnings forecasts. These assessments require management to make judgements, assumptions and estimates. We did not perform impairment testing related to goodwill and identifiable intangible assets for the nine months endedJune 30, 2022 as no triggering events have occurred.
Business Combinations
We account for business combinations using the acquisition method of accounting,
which requires recognition of assets acquired and liabilities assumed at fair
value as of the date of the acquisition. Determination of the estimated fair
value assigned to each asset acquired or liability assumed can materially impact
the net income in subsequent periods through depreciation and amortization and
potential impairment charges.
The most critical areas of judgment in applying the acquisition method include
selecting the appropriate valuation techniques and assumptions that are used to
measure the acquired assets and assumed liabilities at fair value, particularly
for inventory, acquisition contingent consideration, trade names, design
libraries and customer relationships. The fair value of acquired inventory is
based on manufacturer invoice cost, curtailments, and market data. The
significant estimates used to value acquisition contingent consideration are
future earnings and discount rates. Management estimated the fair value of the
trade names and design libraries using the relief from royalty method and
customer relationships using the multi-period excess earnings method. The fair
value determination of the trade names and design libraries required management
to make significant estimates and assumptions related to future revenues and the
selection of the royalty rate and discount rate. The fair value determination of
the customer relationships required management to make significant estimates and
assumptions related to future revenues attributable to existing customers,
future EBITDA margins and the selection of the customer attrition rate and
discount rate.
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In selecting the techniques and assumptions noted above, we generally engage third-party, independent valuation professionals to assist us in developing the assumptions and applying the valuation techniques to a particular business combination transaction. In particular, the discount rates selected are compared to and evaluated with (i) the industry weighted-average cost of capital, (ii) the inherent risks associated with each type of asset and (iii) the level and timing of future cash flows appropriately reflecting market participant assumptions.
How We Evaluate Our Operations
Revenue
We have a diversified revenue profile that is comprised of new boat sales, pre-owned boat sales, F&I products, repair and maintenance services, and parts and accessories. During different phases of the economic cycle, consumer behavior may shift away from new boats; however, we are well-positioned to benefit from revenue from pre-owned boats, repair and maintenance services, and parts and accessories, which have all historically increased during periods of economic uncertainty. We generate pre-owned sales from boats traded-in for new and pre-owned boats, boats purchased from consumers, brokerage transactions, consignment sales and wholesale sales. We continue to focus on all aspects of our business including non-boat sales of finance & insurance products, repair and maintenance services, and parts and accessories. Although non-boat sales contributed 16.5% and 11.1% to revenue in the three months endedJune 30, 2022 and 2021, respectively, and 16.1% and 10.8% to revenue in the nine months endedJune 30, 2022 and 2021, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 28.4% and 24.7% to gross profit in the three months endedJune 30, 2022 and 2021, respectively, and 28.1% and 25.8% to gross profit in the nine months endedJune 30, 2022 and 2021, respectively. We have also diversified our business across geographies and dealership types (e.g., fresh water and salt water) in order to reduce the effects of seasonality. In addition to seasonality, revenue and operating results may also be significantly affected by quarter-to-quarter changes in economic conditions, manufacturer incentive programs, adverse weather conditions and other developments outside of our control.
Gross Profit
We calculate gross profit as revenue less cost of sales. Cost of sales consists of actual amounts paid for products, costs of services (primarily labor), transportation costs from manufacturers to our retail stores and vendor consideration. Gross profit excludes depreciation and amortization, which is presented separately in our consolidated statements of operations.
Gross Profit Margin
Our overall gross profit margin varies with our revenue mix. Sales of new and pre-owned boats, which have comparable margins, generally result in a lower gross profit margin than our non-boat sales. As a result, when revenue from non-boat sales increases as a percentage of total revenue, we expect our overall gross profit margin to increase.
Selling, General and Administrative Expenses
Selling, general, and administrative (''SG&A'') expenses consist primarily of
salaries and incentive-based compensation, advertising, rent, insurance,
utilities, and other customary operating expenses. A portion of our cost
structure is variable (such as sales commissions and incentive compensation), or
controllable (such as advertising), which we believe allows us to adapt to
changes in the retail environment over the long term. We typically evaluate our
variable expenses, selling expenses and all other SG&A expenses in the aggregate
as a percentage of total revenue.
Same-Store Sales
We assess the organic growth of our revenue on a same-store basis. We believe that our assessment on a same-store basis represents an important indicator of comparative financial results and provides relevant information to assess our performance. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store's thirteenth month of operations under our ownership and revenues are only included for identical months in the same-store base periods. Stores relocated within an existing market remain in the comparable store base for all periods. Additionally, amounts related to closed stores are excluded from each comparative base period. Because same-store sales may be defined differently by other companies in our industry, our definition of this measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
Adjusted EBITDA
We define Adjusted EBITDA as net income before interest expense - other, income tax expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in fair value of warrant liability, change in fair value of contingent consideration, loss on extinguishment of debt and transaction costs. See ''-Comparison of Non-GAAP Financial Measure'' for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). 25
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Summary of Acquisitions
The comparability of our results of operations between the periods discussed below is naturally affected by the acquisitions we have completed during such periods. We are also continuously evaluating and pursuing acquisitions on an ongoing basis, and such acquisitions, if completed, will continue to impact the comparability of our financial results. While we expect continued growth and strategic acquisitions in the future, our acquisitions may have materially different characteristics than our historical results, and such differences in economics may impact the comparability of our future results of operations to our historical results.
Fiscal 2022 Year-to-date Acquisitions
• Effective
retailer with one location in
• Effective
branded marine parts and accessories, with locations in
• Effective
marine retailer with one location in
• Effective
a full-service marine retailer with three locations in
• Effective
stainless steel ladders, dock products and other accessories which is based in
Tennessee .
• Effective
equipment, paddle sport accessories and boat mounting accessories which is
based inTexas .
• Effective
sales as well as ancillary yacht services, with 20 retail locations.
We refer to the acquisitions described above collectively as the ''2022 Acquisitions.''Naples Boat Mart is fully reflected in our unaudited Condensed Consolidated Statements of Operations for the three and nine months endedJune 30, 2022 . All other transactions completed in fiscal year 2022 are fully reflected in our unaudited Condensed Consolidated Statements of Operations for the three months endedJune 30, 2022 and partially reflected for the nine months endedJune 30, 2022 . OnJune 21, 2022 the Company announced that it signed a definitive agreement to acquire Ocean Bio-Chem, Inc. ("OBCI") (NASDAQ: OBCI) (the "Ocean Bio-Chem Acquisition"), a leading supplier and distributor of appearance, cleaning, and maintenance products for the marine industry and the automotive, powersports, recreational vehicles, and outdoor power equipment markets. As part of the transaction, the Company will also acquireStar Brite Europe, Inc. (the "SB Europe Acquisition"), and certain real property assets fromPEJE, Inc. , controlled byPeter G. Dornau , the Chairman of OBCI (the "Real Estate Acquisition" and, together with the Ocean Bio-Chem Acquisition and SB Europe Acquisition, the "OBCI Acquisitions"). The transaction is expected to close in the Company's fiscal fourth quarter.
Fiscal 2021 Acquisitions
• Effective
full-service marine retailer based in
• Effective
full-service marine retailer based in
• Effective
full-service marina and yachting facility located in
related real estate and in-water slips.
• Effective
one store.
• Effective
PartsVu, an online marketplace for OEM marine parts, electronics and accessories. We refer to the acquisitions described above collectively as the ''2021 Acquisitions.''The Tom George Yacht Sales, Inc ,Walker Marine Group, Inc. andRoscioli Yachting Center Inc. acquisitions are fully reflected in our unaudited Condensed Consolidated Statements of Operations for the three months endedJune 30, 2021 and partially reflected for the nine months endedJune 30, 2021 .Stone Harbor Marine, Inc. and PartsVu are not reflected in the unaudited Condensed Consolidated Statements of Operations for the three and nine months endedJune 30, 2021 . 26
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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 24.4% of pre-tax earnings for the nine
months ended
• As we further implement controls, processes and infrastructure applicable to
companies with publicly traded equity securities, it is likely that we will
incur additional SG&A expenses relative to historical periods. Our future
results will depend on our ability to efficiently manage our combined operations and execute our business strategy.
Results of Operations
Three Months EndedJune 30, 2022 , Compared to Three Months EndedJune 30, 2021 For the Three Months Ended For the Three Months Ended June 30, 2022 June 30, 2021 Amount % of Revenue Amount % of Revenue $ Change % Change ($ in thousands) Revenues New boat$ 376,886 66.2 %$ 288,222 71.3 %$ 88,664 30.8 % Pre-owned boat 98,181 17.3 % 71,116 17.6 % 27,065 38.1 % Finance & insurance income 18,979 3.3 % 15,238 3.8 % 3,741 24.6 % Service, parts and other 74,854 13.2 % 29,631 7.3 % 45,223 152.6 % Total revenues 568,900 100.0 % 404,207 100.0 % 164,693 40.7 % Gross Profit New boat 102,342 18.0 % 77,081 19.1 % 25,261 32.8 % Pre-owned boat 29,432 5.2 % 18,550 4.6 % 10,882 58.7 % Finance & insurance 18,979 3.3 % 15,238 3.8 % 3,741 24.6 % Service, parts & other 33,186 5.8 % 16,083 4.0 % 17,103 106.3 % Total gross profit 183,939 32.3 % 126,952 31.4 % 56,987 44.9 % Selling, general and administrative expenses 87,867 15.4 % 60,476 15.0 % 27,391 45.3 % Depreciation and amortization 4,073 0.7 % 1,475 0.4 % 2,598 176.1 % Transaction costs 1,337 0.2 % 65 0.0 % 1,272 * Change in fair value of contingent consideration 3,118 0.5 % - 0.0 % 3,118 100.0 % Income from operations 87,544 15.4 % 64,936 16.1 % 22,608 34.8 % Interest expense - floor plan 1,131 0.2 % 956 0.2 % 175 18.3 % Interest expense - other 3,311 0.6 % 1,083 0.3 % 2,228 205.7 % Other income, net (166 ) 0.0 % (158 ) 0.0 % (8 ) 5.1 % Income before income tax expense 83,268 14.6 % 63,055 15.6 % 20,213 32.1 % Income tax expense 18,785 3.3 % 11,498 2.8 % 7,287 63.4 % Net income 64,483 11.3 % 51,557 12.8 % 12,926 25.1 % Less: Net income attributable to non-controlling interest (959 ) - (959 ) 100.0 % Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC (7,547 ) (17,054 ) 9,507 -55.7 % Net income attributable to One Water Marine Inc.$ 55,977 $ 34,503 $ 21,474 62.2 % Revenue Overall, revenue increased by$164.7 million , or 40.7%, to$568.9 million for the three months endedJune 30, 2022 from$404.2 million for the three months endedJune 30, 2021 . Revenue generated from same-store sales increased 12.0% for the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 , primarily due to an increase in the average selling price of new boats, the number of pre-owned boats sold, the model mix of boats sold, an increase in finance & insurance sales and an increase in service, parts and other sales. Overall revenue increased by$164.7 million as a result of a$48.7 million increase in same-store sales and a$116.0 million increase from stores not eligible for inclusion in the same-store sales base. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store's thirteenth month of operations under our ownership and revenues are only included for identical months in the same-store base periods.
New Boat Sales
New boat sales increased by$88.7 million , or 30.8%, to$376.9 million for the three months endedJune 30, 2022 from$288.2 million for the three months endedJune 30, 2021 . The increase was primarily attributable to our same-store sales growth, our acquisitions and an increase in our average unit price. We believe the increase in sales was primarily due to continued execution of operational improvements on previously acquired dealers, the mix of boat brands and models sold, and product improvements in the functionality of technology of boats which drove average unit prices higher.
Pre-owned Boat Sales
Pre-owned boat sales increased by$27.1 million , or 38.1%, to$98.2 million for the three months endedJune 30, 2022 from$71.1 million for the three months endedJune 30, 2021 . We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. The increase was primarily attributable to our same-store sales growth, our acquisitions and an increase in the number of units sold. 27
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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$3.7 million , or 24.6%, to$19.0 million for the three months endedJune 30, 2022 from$15.2 million for the three months endedJune 30, 2021 . The increase was primarily due to the additional 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 slightly as a percentage of total revenue to 3.3% in the three months endedJune 30, 2022 from 3.8% in the three months endedJune 30, 2021 . Finance & insurance income is recorded net of related fees, including fees charged back due to any early cancellation of loan or insurance contracts by a customer. Since finance & insurance income is fee-based, we do not incur any related cost of sale. Service, Parts & Other Sales Service, parts & other sales increased by$45.2 million , or 152.6%, to$74.9 million for the three months endedJune 30, 2022 from$29.6 million for the three months endedJune 30, 2021 . The increase in service, parts & other sales is primarily due to the contributions from our recently acquired businesses as well as increases across the board in labor, parts, fuel and storage sales, driven by ancillary sales generated from our increase in new and pre-owned boat sales. Gross Profit Overall, gross profit increased by$57.0 million , or 44.9%, to$183.9 million for the three months endedJune 30, 2022 from$127.0 million for the three months endedJune 30, 2021 . This increase was primarily due to our overall increase in same-store sales which was driven by increases in all revenue streams, the impact of the 2022 Acquisitions and the Company's focus on dynamic pricing. Overall gross margins increased 90 basis points to 32.3% for the three months endedJune 30, 2022 from 31.4% for the three months endedJune 30, 2021 due to the factors noted below.
New Boat Gross Profit
New boat gross profit increased by$25.3 million , or 32.8%, to$102.3 million for the three months endedJune 30, 2022 from$77.1 million for the three months endedJune 30, 2021 . This increase was primarily due to our overall increase in same-store sales as well as the impact of the 2022 Acquisitions. New boat gross profit as a percentage of new boat revenue was 27.2% for the three months endedJune 30, 2022 as compared to 26.7% in the three months endedJune 30, 2021 . 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 our emphasis on expanding new boat gross profit margins amid the industry wide inventory and supply chain constraints.
Pre-owned Boat Gross Profit
Pre-owned boat gross profit increased by$10.9 million , or 58.7%, to$29.4 million for the three months endedJune 30, 2022 from$18.6 million for the three months endedJune 30, 2021 . The increase in pre-owned gross profit was driven by the increase in pre-owned revenue as a result of our same-store sales growth and the impact of the 2022 Acquisitions. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 30.0% and 26.1% for the three months endedJune 30, 2022 and 2021, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal fluctuations in pre-owned boat gross profit as a percentage of revenue. The increase in our gross profit margin was primarily attributable to the acquisition of Denison Yachting which led to an increase in brokerage sales and gross profit.
Finance & Insurance Gross Profit
Finance & insurance gross profit increased by
million
three months ended
revenue for which we do not recognize incremental cost of sale.
Service, Parts & Other Gross Profit
Service, parts & other gross profit increased by$17.1 million , or 106.3%, to$33.2 million for the three months endedJune 30, 2022 from$16.1 million for the three months endedJune 30, 2021 . Service, parts & other gross profit as a percentage of service, parts & other revenue was 44.3% and 54.3% for the three months endedJune 30, 2022 and 2021, respectively. The increase in gross profit was primarily the result of our same-store sales growth as well as contributions from the 2022 Acquisitions. The decrease in gross profit margin percentage was primarily due to a shift in the mix of products sold towards parts & accessories which has a lower margin percentage than service and other sales.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by$27.4 million , or 45.3%, to$87.9 million for the three months endedJune 30, 2022 from$60.5 million for the three months endedJune 30, 2021 . This increase was primarily due to expenses incurred to support the overall increase in revenues and gross profit. The selling, general & administrative increase primarily consisted of a$17.0 million increase in personnel expenses. Selling, general & administrative expenses as a percentage of revenue increased to 15.4% from 15.0% for the three months endedJune 30, 2022 and 2021, respectively. The increase in selling, general and administrative expenses as a percentage of revenue was primarily due to higher marketing expenses, as well as higher administrative costs. 28
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Depreciation and Amortization
Depreciation and amortization expense increased$2.6 million , or 176.1%, to$4.1 million for the three months endedJune 30, 2022 compared to$1.5 million for the three months endedJune 30, 2021 . The increase in depreciation and amortization expense was primarily attributable to a$2.1 million increase in amortization of design libraries and customer relationships from the 2022 Acquisitions.
Transaction Costs
The increase in transaction costs of$1.3 million to$1.3 million for the three months endedJune 30, 2022 compared to$0.1 million for the three months endedJune 30, 2021 was primarily attributable to expenses related to the 2022 Acquisitions and the OBCI Acquisitions.
Change in Fair Value of Contingent Consideration
During the three months ended
million
liabilities for acquisitions completed in fiscal year 2021 and 2022.
Income from Operations
Income from operations increased$22.6 million , or 34.8%, to$87.5 million for the three months endedJune 30, 2022 compared to$64.9 million for the three months endedJune 30, 2021 . The increase was primarily attributable to the$57.0 million increase in gross profit, partially offset by a$27.4 million increase in selling, general & administrative expenses during the same periods.
Interest Expense - Floor Plan
Interest expense - floor plan increased$0.2 million to$1.1 million for the three months endedJune 30, 2022 compared to$1.0 million for the three months endedJune 30, 2021 . The increase in floor plan interest expense was primarily attributable to the increase in average inventory for the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 , as well as rising interest rates. Interest Expense - Other Interest expense - other increased by$2.2 million , or 205.7%, to$3.3 million for the three months endedJune 30, 2022 compared to$1.1 million for the three months endedJune 30, 2021 . The increase in interest expense - other was related to the increase in our long-term debt which was used to fund certain of the 2022 Acquisitions. Other Expense (Income), Net
Other income was flat at
30, 2022
Income Tax Expense Income tax expense increased$7.3 million , or 63.4%, to$18.8 million for the three months endedJune 30, 2022 compared to$11.5 million for the three months endedJune 30, 2021 . The increase was primarily attributable to the 32.1% increase in income before income tax expense for the three months endedJune 30, 2022 as compared toJune 30, 2021 as well as the increased proportion of consolidated income before income tax expense that is allocated toOneWater Marine Inc. and therefore taxable due to exchanges of shares of Class B common stock for shares of Class A common stock.
Net Income
Net income increased by$12.9 million to$64.5 million for the three months endedJune 30, 2022 compared to$51.6 million for the three months endedJune 30, 2021 . The increase was primarily attributable to the$57.0 million increase in gross profit, partially offset by the$27.4 million increase in selling, general & administrative expenses and$7.3 million increase in income tax expense compared to the three months endedJune 30, 2021 . 29
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Nine Months EndedJune 30, 2022 , Compared to Nine Months EndedJune 30, 2021 For the Nine Months Ended For the Nine Months Ended June 30, 2022 June 30, 2021 Amount % of Revenue Amount % of Revenue $
Change % Change
($ in thousands)
Revenues
New boat $ 903,104 67.0 % $ 679,704 71.7 % $ 223,400 32.9 %
Pre-owned boat 227,484 16.9 % 165,778 17.5 % 61,706 37.2 %
Finance & insurance income 43,234 3.2 % 32,990 3.5 % 10,244 31.1 %
Service, parts and other 173,477 12.9 % 69,429 7.3 % 104,048 149.9 %
Total revenues 1,347,299 100.0 % 947,901 100.0 % 399,398 42.1 %
Gross Profit
New boat 244,058 18.1 % 158,884 16.8 % 85,174 53.6 %
Pre-owned boat 63,406 4.7 % 40,212 4.2 % 23,194 57.7 %
Finance & insurance 43,234 3.2 % 32,990 3.5 % 10,244 31.1 %
Service, parts & other 76,748 5.7 % 36,088 3.8 % 40,660 112.7 %
Total gross profit 427,446 31.7 % 268,174 28.3 % 159,272 59.4 %
Selling, general and administrative expenses 222,455 16.5 % 143,685 15.2 % 78,770 54.8 %
Depreciation and amortization 10,549 0.8 % 3,816 0.4 % 6,733 176.4 %
Transaction costs 5,158 0.4 % 633 0.1 % 4,525 714.8 %
Change in fair value of contingent consideration 11,022 0.8 % 377 0.0 % 10,645 *
Income from operations 178,262 13.2 % 119,663 12.6 % 58,599 49.0 %
Interest expense - floor plan 3,056 0.2 % 2,206 0.2 % 850 38.5 %
Interest expense - other 7,937 0.6 % 3,222 0.3 % 4,715 146.3 %
Other expense (income), net 491 0.0 % (247 ) 0.0 % 738 *
Income before income tax expense 166,778 12.4 % 114,482 12.1 % 52,296 45.7 %
Income tax expense 36,455 2.7 % 20,559 2.2 % 15,896 77.3 %
Net income 130,323 9.7 % 93,923 9.9 % 36,400 38.8 %
Less: Net income attributable to non-controlling interest (1,970 ) - (1,970 ) 100.0 %
Less: Net income attributable to non-controlling
interests of One Water Marine Holdings, LLC (16,060 ) (31,158 ) 15,098 -48.5 %
Net income attributable to One Water Marine Inc. $ 112,293 $ 62,765 $ 49,528 78.9 %
Revenue
Overall, revenue increased by $399.4 million , or 42.1%, to $1,347.3 million for
the nine months ended June 30, 2022 from $947.9 million for the nine months
ended June 30, 2021 . Revenue generated from same-store sales increased 14.2% for
the nine months ended June 30, 2022 as compared to the nine months ended June
30, 2021 , primarily due to an increase in the average selling price of new
boats, an increase in pre-owned unit sales, the model mix of boats sold, an
increase in finance & insurance sales and an increase in service, parts and
other sales. Overall revenue increased by $399.4 million as a result of a $134.7
million increase in same-store sales and a $264.7 million increase from stores
not eligible for inclusion in the same-store sales base. New and acquired stores
become eligible for inclusion in the comparable store base at the end of the
store's thirteenth month of operations under our ownership and revenues are only
included for identical months in the same-store base periods.
New Boat Sales
New boat sales increased by$223.4 million , or 32.9%, to$903.1 million for the nine months endedJune 30, 2022 from$679.7 million for the nine months endedJune 30, 2021 . The increase was primarily attributable to our same-store sales growth, our acquisitions and an increase in our average unit price. We believe the increase in sales was primarily due to continued execution of operational improvements on previously acquired dealers, the mix of boat brands and models sold, and product improvements in the functionality of technology of boats which drove average unit prices higher.
Pre-owned Boat Sales
Pre-owned boat sales increased by$61.7 million , or 37.2%, to$227.5 million for the nine months endedJune 30, 2022 from$165.8 million for the nine months endedJune 30, 2021 . We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. Pre-owned revenue increased primarily due to growth in unit sales. 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$10.2 million , or 31.1%, to$43.2 million for the nine months endedJune 30, 2022 from$33.0 million for the nine months endedJune 30, 2021 . The increase was primarily due to the additional 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 slightly as a percentage of total revenue to 3.2% in the nine months endedJune 30, 2022 from 3.5% in the nine months endedJune 30, 2021 . Finance & insurance income is recorded net of related fees, including fees charged back due to any early cancellation of loan or insurance contracts by a customer. Since finance & insurance income is fee-based, we do not incur any related cost of sale. 30
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Service, Parts & Other Sales
Service, parts & other sales increased by$104.0 million , or 149.9%, to$173.5 million for the nine months endedJune 30, 2022 from$69.4 million for the nine months endedJune 30, 2021 . The increase in service, parts & other sales is primarily due to contributions from our recently acquired businesses as well as increases across the board in labor, parts, fuel and storage sales, driven by ancillary sales generated from our increase in new and pre-owned boat sales.
Gross Profit
Overall, gross profit increased by$159.3 million , or 59.4%, to$427.5 million for the nine months endedJune 30, 2022 from$268.2 million for the nine months endedJune 30, 2021 . This increase was primarily due to our overall increase in same-store sales which was driven by increases in all revenue streams, the impact of the 2021 Acquisitions and 2022 Acquisitions and the Company's focus on dynamic pricing. Overall gross margins increased 340 basis points to 31.7% for the nine months endedJune 30, 2022 from 28.3% for the nine months endedJune 30, 2021 due to the factors noted below.
New Boat Gross Profit
New boat gross profit increased by$85.2 million , or 53.6%, to$244.1 million for the nine months endedJune 30, 2022 from$158.9 million for the nine months endedJune 30, 2021 . This increase was primarily due to our overall increase in same-store sales as well as the impact of the 2021 Acquisitions and 2022 Acquisitions. New boat gross profit as a percentage of new boat revenue was 27.0% for the nine months endedJune 30, 2022 as compared to 23.4% in the nine months endedJune 30, 2021 . The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations, our emphasis on expanding new boat gross profit margins amid the industry wide inventory and supply chain constraints. Pre-owned Boat Gross Profit Pre-owned boat gross profit increased by$23.2 million , or 57.7%, to$63.4 million for the nine months endedJune 30, 2022 from$40.2 million for the nine months endedJune 30, 2021 . The increase in pre-owned gross profit was driven by the increase in pre-owned revenue as a result of our same-store sales growth and the impact of the 2021 Acquisitions and 2022 Acquisitions. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 27.9% and 24.3% for the nine months endedJune 30, 2022 and 2021, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal fluctuations in pre-owned boat gross profit as a percentage of revenue. In the nine months endedJune 30, 2022 as compared to the nine months endedJune 30, 2021 , we experienced an increase in our gross profit on pre-owned sales for each of the different sales arrangements with the exception of wholesale.
Finance & Insurance Gross Profit
Finance & insurance gross profit increased by$10.2 million , or 31.1%, to$43.2 million for the nine months endedJune 30, 2022 from$33.0 million for the nine months endedJune 30, 2021 . Finance & insurance income is fee-based revenue for which we do not recognize incremental cost of sale.
Service, Parts & Other Gross Profit
Service, parts & other gross profit increased by$40.7 million , or 112.7%, to$76.7 million for the nine months endedJune 30, 2022 from$36.1 million for the nine months endedJune 30, 2021 . Service, parts & other gross profit as a percentage of service, parts & other revenue was 44.2% and 52.0% for the nine months endedJune 30, 2022 and 2021, respectively. The increase in gross profit was primarily the result of our same-store sales growth as well as contributions from the 2021 Acquisitions and 2022 Acquisitions. The decrease in gross profit margin percentage was due to a shift in the mix of products sold towards parts & accessories which has a lower margin percentage than service and other sales.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased by$78.8 million , or 54.8%, to$222.5 million for the nine months endedJune 30, 2022 from$143.7 million for the nine months endedJune 30, 2021 . This increase was primarily due to expenses incurred to support the overall increase in revenues and gross profit which included a$52.5 million increase in personnel expenses. Selling, general & administrative expenses as a percentage of revenue increased to 16.5% from 15.2% for the nine months endedJune 30, 2022 and 2021, respectively. The increase in selling, general and administrative expenses as a percentage of revenue was primarily due to higher variable-based compensation expense as a result of the Company's increased gross profit margin.
Depreciation and Amortization
Depreciation and amortization expense increased$6.7 million , or 176.4%, to$10.5 million for the nine months endedJune 30, 2022 compared to$3.8 million for the nine months endedJune 30, 2021 . The increase in depreciation and amortization expense was primarily attributable to a$4.7 million increase in amortization of design libraries and customer relationships from the 2022 Acquisitions as well as an increase in property, plant and equipment.
Transaction Costs
The increase in transaction costs of$4.5 million , or 714.8%, to$5.2 million for the nine months endedJune 30, 2022 compared to$0.6 million for the nine months endedJune 30, 2021 was primarily attributable to expenses related to the 2022 Acquisitions and the OBCI Acquisitions. 31
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Change in Fair Value of Contingent Consideration
During the nine months endedJune 30, 2022 , we incurred expenses of$11.0 million related to updated forecasts and accretion of contingent consideration liabilities for acquisitions completed in fiscal year 2021 and 2022. During the nine months endedJune 30, 2021 , we incurred an expense of$0.4 million related to the settlement of contingent consideration from a fiscal year 2019 acquisition.
Income from Operations
Income from operations increased$58.6 million , or 49.0%, to$178.3 million for the nine months endedJune 30, 2022 compared to$119.7 million for the nine months endedJune 30, 2021 . The increase was primarily attributable to the$159.3 million increase in gross profit, partially offset by a$78.8 million increase in selling, general & administrative expenses, a$6.7 million increase in depreciation and amortization and a$10.6 million increase in the change in fair value of contingent consideration during the same periods.
Interest Expense - Floor Plan
Interest expense - floor plan increased$0.9 million to$3.1 million for the nine months endedJune 30, 2022 compared to$2.2 million for the nine months endedJune 30, 2021 . The increase in floor plan interest expense was primarily attributable to the increase in average inventory for the nine months endedJune 30, 2022 as compared to the nine months endedJune 30, 2021 as well as an increase in interest rates.
Interest Expense - Other
Interest expense - other increased by$4.7 million , or 146.3%, to$7.9 million for the nine months endedJune 30, 2022 compared to$3.2 million for the nine months endedJune 30, 2021 . The increase in interest expense - other was related to the increase in our long-term debt which was used to fund certain 2022 Acquisitions.
Other Expense (Income), Net
Other expense (income), net increased by$0.7 million to expense of$0.5 million for the nine months endedJune 30, 2022 compared to income of$0.2 million for the nine months endedJune 30, 2021 . The increase in expense was primarily due to the impact of tax rate changes on our tax receivable agreement liability.
Income Tax Expense
Income tax expense increased$15.9 million , or 77.3%, to$36.4 million for the nine months endedJune 30, 2022 compared to$20.6 million for the nine months endedJune 30, 2021 . The increase was primarily attributable to the 45.7% increase in income before income tax expense as well as the increased proportion of consolidated income before income tax expense that is allocated toOneWater Marine Inc. and therefore taxable due to exchanges of shares of Class B common stock for shares of Class A common stock.
Net Income
Net income increased by$36.4 million to$130.3 million for the nine months endedJune 30, 2022 compared to$93.9 million for the nine months endedJune 30, 2021 . The increase was primarily attributable to the increase in gross profit, partially offset by the increases in selling, general & administrative expenses, income tax expense, depreciation and amortization and the increase in the change in fair value of contingent consideration during the same periods. 32
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Comparison of Non-GAAP Financial Measure
We view Adjusted EBITDA as an important indicator of performance. We define Adjusted EBITDA as net income (loss) before interest expense - other, income tax expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in fair value of warrant liability, change in fair value of contingent consideration, loss on extinguishment of debt and transaction costs. Our board of directors, management team and lenders use Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and other items (such as the fair value adjustment of the warrants, change in fair value of contingent consideration, gain (loss) on extinguishment of debt and transaction costs) that impact the comparability of financial results from period to period. We present Adjusted EBITDA because we believe it provides useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. We believe that the presentation of this non-GAAP financial measure will provide useful information to investors and analysts in assessing our financial performance and results of operations across reporting periods by excluding items we do not believe are indicative of our core operating performance. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. Our non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. You are encouraged to evaluate each of these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in the future, and any such modification may be material. Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
The following tables present a reconciliation of Adjusted EBITDA to our net
income, which is the most directly comparable GAAP measure for the periods
presented.
Three Months EndedJune 30, 2022 , Compared to Three Months EndedJune 30, 2021 Three months ended June 30, Description 2022 2021 ($ in thousands) Net income$ 64,483 $ 51,557 Interest expense - other 3,311 1,083 Income tax expense 18,785 11,498 Depreciation and amortization 4,274 1,475 Change in fair value of contingent consideration 3,118 - Transaction costs 1,337 65 Other income, net (166 ) (158 ) Adjusted EBITDA$ 95,142 $ 65,520 Adjusted EBITDA was$95.1 million for the three months endedJune 30, 2022 compared to$65.5 million for the three months endedJune 30, 2021 . The increase in Adjusted EBITDA resulted primarily from our 12.0% increase in same-store sales growth for the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 , the impact of the 2022 Acquisitions and our ability to increase gross profit margins and control selling, general and administrative expenses. Nine Months EndedJune 30, 2022 , Compared to Nine Months EndedJune 30, 2021 Nine months ended June 30, Description 2022 2021 ($ in thousands) Net income$ 130,323 $ 93,923 Interest expense - other 7,937 3,222 Income tax expense 36,455 20,559 Depreciation and amortization 10,814 3,816 Change in fair value of contingent consideration 11,022 377 Transaction costs 5,158 633 Other expense (income), net 491 (247 ) Adjusted EBITDA$ 202,200 $ 122,283 Adjusted EBITDA was$202.2 million for the nine months endedJune 30, 2022 compared to$122.3 million for the nine months endedJune 30, 2021 . The increase in Adjusted EBITDA resulted primarily from our 14.2% increase in same-store sales growth for the nine months endedJune 30, 2022 as compared to the nine months endedJune 30, 2021 , the impact of the 2021 Acquisitions and 2022 Acquisitions and our ability to increase gross profit margins and control selling, general and administrative expenses.
Seasonality
Our business, along with the entire recreational boating industry, is highly seasonal, and such seasonality varies by geographic market. With the exception ofFlorida , we generally realize 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. Additionally, due to the COVID-19 pandemic, our seasonal trends may also change as a result of, among other things, store closures, disruptions to the supply chain and inventory availability, manufacturer delays, and cancellation of boat shows. 33
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Liquidity and Capital Resources
Overview
OneWater Inc. is a holding company with no operations and is the sole managing member ofOneWater LLC .OneWater Inc's principal asset consists of common units ofOneWater LLC . Our earnings and cash flows and ability to meet our obligations under the Credit Facility, and any other debt obligations will depend on the cash flows resulting from the operations of our operating subsidiaries, and the payment of distributions by such subsidiaries. Our Credit Facility and Inventory Financing Facility (described below) contain certain restrictions on distributions or transfers from our operating subsidiaries to their members or unitholders, as applicable, as described in the summaries below under "-Debt Agreements-Credit Facility" and "-Inventory Financing Facility." Accordingly, the operating results of our subsidiaries may not be sufficient for them to make distributions to us. As a result, our ability to make payments under the Credit Facility and any other debt obligations or to declare dividends could be limited. Our cash needs are primarily for growth through acquisitions and working capital to support our operations, including new and pre-owned boat and related parts inventories and off-season liquidity. We routinely monitor our cash flow to determine the amount of cash available to complete acquisitions. We monitor our inventories, inventory aging and current market trends to determine our current and future inventory and related floorplan financing needs. Based on current facts and circumstances, we believe we will have adequate cash flow from operations, borrowings under our credit facilities and proceeds from any future public or private issuances of debt or equity to fund our current operations, to make share repurchases and to fund essential capital expenditures and acquisitions for the next twelve months and beyond. Cash needs for acquisitions have historically been financed with our credit facilities and cash generated from operations. Our ability to utilize the Credit Facility to fund operations depends upon Adjusted EBITDA and compliance with covenants of the Credit Facility. Cash needs for inventory have historically been financed with our Inventory Financing Facility. Our ability to fund inventory purchases and operations depends on the collateral levels and our compliance with the covenants of the Inventory Financing Facility. As ofJune 30, 2022 , we had liquidity in excess of$120 million and we were in compliance with all covenants under the Credit Facility and the Inventory Financing Facility.
We have no material off balance sheet arrangements, except for purchase
commitments under supply agreements entered into in the normal course of
business.
Cash Flows
Analysis of Cash Flow Changes Between the Nine Months Ended
2021
The following table summarizes our cash flows for the periods indicated:
Nine Months ended June 30,
Description 2022 2021 Change
($ in thousands)
Net cash provided by operating activities $ 62,123 $ 153,195 $ (91,072 )
Net cash used in investing activities (337,616 ) (91,120 ) (246,496 )
Net cash provided by (used in) financing activities 313,443 (9,542 ) 322,985
Net change in cash $ 37,950 $ 52,533 $ (14,583 )
Operating Activities. Net cash provided by operating activities was $62.1
million for the nine months ended June 30, 2022 compared to net cash provided by
operating activities of $153.2 million for the nine months ended June 30, 2021 .
The $91.1 million decrease in cash provided by operating activities was
primarily attributable to a $135.3 million increase in the change in inventory,
partially offset by a $36.4 million increase in net income, an $11.0 million
increase in the loss on change in fair value of contingent consideration and a
$22.5 million increase in the change in accounts payable for nine months ended
June 30, 2022 as compared to the nine months ended June 30, 2021 .
Investing Activities. Net cash used in investing activities was $337.6 million
for the nine months ended June 30, 2022 compared to net cash used in investing
activities of $91.1 million for the nine months ended June 30, 2021 . The $246.5
million increase in cash used in investing activities was primarily attributable
to a $242.6 million increase in cash used in acquisitions for the nine months
ended June 30, 2022 as compared to the nine months ended June 30, 2021 .
Financing Activities. Net cash provided by financing activities was $313.4
million for the nine months ended June 30, 2022 compared to net cash used in
financing activities of $9.5 million for the nine months ended June 30, 2021 .
The $323.0 million increase in financing cash flow was primarily attributable to
a $210.0 million increase in borrowings on long-term debt and an $130.6 million
increase in net borrowings on our Inventory Financing Facility for the nine
months ended June 30, 2022 as compared to the nine months ended June 30, 2021 .
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Share Repurchase Program
OnMarch 30, 2022 , our Board authorized a share repurchase program of up to$50 million of outstanding shares of Class A common stock. As ofJune 30, 2022 , no shares had been repurchased under the program. The repurchase program does not have a predetermined expiration date.
Debt Agreements
Credit Facility
EffectiveJuly 22, 2020 , we and certain of our subsidiaries entered into the Credit Agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the "Credit Facility") withTruist Bank and the other lenders party thereto. The Credit Facility provides for (i) a$50.0 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 (ii) a term loan facility (which includes incremental term loans as provided in the First Incremental Amendment and Second Incremental Amendment). Subject to certain conditions, the available amount under the revolving credit facility and the term loans may be increased. The revolving credit facility matures onJuly 22, 2025 . The term loan is repayable in installments beginning onMarch 31, 2021 , with the remainder due on the earlier of (i)July 22, 2025 or (ii) the date on which the principal amount of all outstanding term loans have been declared or automatically have become due and payable pursuant to the terms of the Credit Facility. OnFebruary 2, 2021 , we entered into the Incremental Amendment No. 1 (the "First Incremental Amendment") to the Credit Facility to provide for, among other things, an incremental term loan (the "Incremental Term Loan") to OWAO in an aggregate principal amount equal to$30.0 million , which was added to, and constitutes a part of, the existing$80.0 million term loan. OnNovember 30, 2021 , we entered into the Incremental Amendment No. 2 (the "Second Incremental Amendment") to the Credit Facility to provide for, among other things, an incremental term loan (the "Second Incremental Term Loan") to OWAO in an aggregate principal amount equal to$200.0 million , which will be added to, and constitute a part of, the existing$110.0 million term loan. The Second Incremental Amendment further provides for a$20.0 million increase in the existing revolving commitment (the "Incremental Revolving Increase"), which was added to, and constitutes a part of, the existing$30.0 million revolving commitment. As ofJune 30, 2022 , we had$294.0 million outstanding under the term loan and$40.0 million outstanding under the revolving credit facility. Borrowings under the Credit Facility bear interest, at OWAO's option, at either (a) a base rate (the "Base Rate") equal to the highest of (i) the prime rate (as announced 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 the London Interbank Offered Rate for such interest period by a percentage equal to 1.00% minus the Eurodollar Reserve Percentage (the "Adjusted LIBO Rate") plus an applicable margin of up to 3.00%. Interest on swingline loans shall be the Base Rate plus an applicable margin of up to 2.00%. All applicable interest margins are subject to step-downs based on certain consolidated leverage ratio measures. The Credit Facility is subject to certain financial covenants related to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio. The 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 as ofJune 30, 2022 .
OBCI Acquisitions Financing Facility
The Company intends to finance the OBCI Acquisitions through debt financing and cash on hand. In connection with the OBCI Acquisitions, the Company entered into a debt financing commitment letter dated as ofJune 21, 2022 withTruist Bank , pursuant to whichTruist Bank has committed to provide the Company with debt financing in an aggregate principal amount of$125.0 million , subject to a number of conditions, including the receipt of executed loan documentation, satisfaction of the conditions to, and consummation of, the OBCI Acquisitions and other customary closing conditions for financings of this type.
Inventory Financing Facility
OnDecember 29, 2021 , the Company and certain of its subsidiaries entered into the Inventory Financing Facility to, among other things, increase the maximum borrowing amount available to$500.0 million . Loans under the Inventory Financing Facility may be extended from time to time to enable the Company to purchase inventory from certain manufacturers. The Inventory Financing Facility Expires onDecember 1, 2023 . Interest on new boats and for rental units is calculated using the Adjusted 30-Day Average SOFR (as defined in the Inventory Financing Facility) ("SOFR") plus an applicable margin of 2.75% to 5.00% depending on the age of the inventory. Interest on pre-owned boats is calculated at the new boat rate plus 0.25%. Loans are extended from time to time to enable us to purchase inventory from certain manufacturers and to lease certain boats and related parts to customers. The applicable financial terms, curtailment schedule and maturity for each loan are set forth in separate program terms letters that were entered into from time to time. The collateral for the Inventory Financing Facility consisted primarily of our inventory that was financed through the Sixth Inventory Financing Facility and related assets, including accounts receivable, bank accounts, and proceeds of the foregoing, and excludes the collateral that secures the Credit Facility. 35
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We are required to comply with certain financial and non-financial covenants under the Inventory Financing Facility, including certain provisions related to the Funded Debt to EBITDA Ratio (as defined in the Inventory Financing Facility) and the Fixed Charge Coverage Ratio (as defined in the Inventory Financing Facility). We are also subject to additional restrictive covenants, including restrictions on our ability to (i) use, sell, rent or otherwise dispose of any collateral securing the Inventory Financing Facility except for the sale of inventory in the ordinary course of business, (ii) incur certain liens, (iii) engage in any material transaction not in the ordinary course of business, (iv) change our business in any material manner or our organizational structure, other than as otherwise provided for in the Inventory Financing Facility, (v) engage in certain mergers or consolidations, (vi) acquire certain assets or ownership interests of any other person or entities, except for certain permitted acquisitions, (vii) guarantee or indemnify or otherwise become in any way liable with respect to certain obligations of any other person or entity, except as provided by the Inventory Financing Facility, (viii) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of the equity of our acquired marine retailers (ix) make any change in any of our marine retailers' capital structure or in any of their business objectives or operations which might in any way adversely affect the ability of such marine retailer to repay its obligations under the Inventory Financing Facility, (x) incur, create, assume, guarantee or otherwise become or remain liable with respect to certain indebtedness, and (xi) make certain payments of subordinated debt.OneWater LLC and certain of its subsidiaries are restricted from, among other things, making cash dividends or distributions without the prior written consent of Wells Fargo. Under the Inventory Financing Facility, among other exceptions,OneWater LLC may make distributions to its members for certain permitted tax payments subject to certain financial ratios, may make scheduled payments on certain subordinated debt and is permitted to make pro rata distributions to the OneWater Unit Holders, 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. As ofJune 30, 2022 andSeptember 30, 2021 , our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled$217.3 million and$114.2 million , respectively. Certain of our manufacturers enter into independent agreements with the lenders to the Inventory Financing Facility, which results in a lower effective interest rate charged to us for borrowings related to the products by such manufacturer. As ofJune 30, 2022 andSeptember 30, 2021 , the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 1.9% and 2.0%, respectively. As ofJune 30, 2022 andSeptember 30, 2021 , our additional available borrowings under our Inventory Financing Facility were$282.7 million and$278.3 million , respectively, based upon the outstanding borrowings and the maximum facility amount. The aging of our inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate. As ofJune 30, 2022 , we were in compliance with all covenants under the Inventory Financing Facility. Notes Payable Acquisition Notes Payable. In connection with certain of our acquisitions of dealer groups, we have entered into notes payable agreements with the acquired entities to finance these acquisitions. As ofJune 30, 2022 , our indebtedness associated with our 2 acquisition notes payable totaled an aggregate of$3.2 million with a weighted average interest rate of 5.0% per annum. As ofJune 30, 2022 , the principal amount outstanding under these acquisition notes payable ranged from$1.1 million to$2.1 million , and the maturity dates ranged fromDecember 1, 2023 toDecember 1, 2024 . Commercial Vehicles Notes Payable. Since 2015, we have entered into multiple notes payable with various commercial lenders in connection with our acquisition of certain vehicles utilized in our retail operations. Such notes bear interest ranging from 0.0% to 8.9% per annum, require monthly payments of approximately$132,000 , and mature on dates betweenAugust 2022 toJuly 2028 . As ofJune 30, 2022 , we had$3.9 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 IPO as a result of certain tax basis increases and certain tax benefits attributable to imputed interest.OneWater Inc. will retain the benefit of the remaining 15% of these net cash savings. To the 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. 36
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Recent Accounting Pronouncements
See Note 3 of the Notes to the Condensed Consolidated Financial Statements.
REGIONAL MANAGEMENT CORP. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Credit Risk Transfer Update: As of June 30, 2022
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