OneWater(ONEW) - 2024 Q3 - Quarterly Report

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Outlines forward-looking statements, identifying key factors and risks that may influence future financial performance - Forward-looking statements are identified by words such as "could," "believe," "anticipate," "intend," "estimate," "expect," and "project"[5] - Key factors that may impact forward-looking statements include general economic conditions, credit markets, acquisitions, competition, manufacturer relationships, industry seasonality, inflation, liquidity, and operating performance[6] - Risks and uncertainties include decline in demand, public health concerns, seasonality and volatility of the boat industry, regulatory conditions, environmental conditions, supply chain challenges, ability to retain key personnel, and compliance with credit facility covenants[7] PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, for the reported periods Condensed Consolidated Balance Sheets as of June 30, 2024 and September 30, 2023 Presents the company's financial position, including assets, liabilities, and equity, as of June 30, 2024, and September 30, 2023 Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | | :----- | :--------------------------- | :-------------------------------- | | Total Assets | $1,635,880 | $1,689,159 | | Total Liabilities | $1,235,531 | $1,275,081 | | Total Stockholders' Equity | $400,349 | $414,078 | | Cash | $41,034 | $84,648 | | Inventories | $598,567 | $609,616 | | Notes payable – floor plan | $486,547 | $489,024 | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2024 and June 30, 2023 Details the company's revenues, expenses, and net income for the three and nine months ended June 30, 2024, and June 30, 2023 Key Financials (3 Months Ended June 30) | Metric (in thousands) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | Change | % Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Total Revenues | $542,441 | $594,339 | $(51,898) | -8.7% | | Total Gross Profit | $132,605 | $159,434 | $(26,829) | -16.8% | | Income from Operations | $39,999 | $60,080 | $(20,081) | -33.4% | | Net Income | $16,714 | $33,290 | $(16,576) | -49.8% | | Net Earnings Per Share (Diluted) | $0.99 | $1.95 | $(0.96) | -49.2% | Key Financials (9 Months Ended June 30) | Metric (in thousands) | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | Change | % Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Total Revenues | $1,394,775 | $1,485,329 | $(90,554) | -6.1% | | Total Gross Profit | $344,410 | $416,119 | $(71,709) | -17.2% | | Income from Operations | $60,325 | $135,506 | $(75,181) | -55.5% | | Net Income | $4,235 | $71,755 | $(67,520) | -94.1% | | Net Earnings Per Share (Diluted) | $0.24 | $4.12 | $(3.88) | -94.2% | Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2024 and June 30, 2023 Reports net income and other comprehensive income components for the three and nine months ended June 30, 2024, and June 30, 2023 Comprehensive Income (in thousands) | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Income | $16,714 | $33,290 | $4,235 | $71,755 | | Comprehensive Income attributable to OneWater Marine Inc. | $14,688 | $28,566 | $3,545 | $60,287 | Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended June 30, 2024 and June 30, 2023 Outlines changes in stockholders' equity, including net income, share repurchases, and noncontrolling interests, for the periods presented Stockholders' Equity (in thousands) | Metric | Balance at September 30, 2023 | Balance at June 30, 2024 | | :------------------------- | :---------------------------- | :----------------------- | | Total Stockholders' Equity | $414,078 | $400,349 | | Retained Earnings | $165,432 | $168,973 | | Noncontrolling Interest | $55,469 | $31,708 | - During the nine months ended June 30, 2024, the company recorded a net loss of $7.17 million and $3.97 million for the periods ending December 31, 2023 and March 31, 2024 respectively, followed by a net income of $14.68 million for the period ending June 30, 2024[13] - The company purchased $19.56 million of non-controlling interest during the nine months ended June 30, 2024[13] Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2024 and June 30, 2023 Summarizes cash flows from operating, investing, and financing activities for the nine months ended June 30, 2024, and June 30, 2023 Cash Flow Summary (in thousands) | Metric | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | Change | | :------------------------------------------ | :--------------------------- | :--------------------------- | :----- | | Net cash provided by (used in) operating activities | $7,507 | $(134,197) | $141,704 | | Net cash provided by (used in) investing activities | $17,576 | $(46,753) | $64,329 | | Net cash (used in) provided by financing activities | $(66,464) | $173,150 | $(239,614) | | Net change in cash | $(41,380) | $(7,785) | $(33,595) | | Cash and restricted cash at end of period | $51,930 | $53,162 | $(1,232) | - The $141.7 million increase in cash provided by operating activities was primarily attributable to a $211.6 million increase in the change in inventory, offset by a $67.5 million decrease in net income[206] - The $64.3 million increase in cash provided by investing activities was primarily attributable to a $45.1 million increase in proceeds from the disposal of Roscioli Yachting Center and a $22.9 million decrease in cash used in acquisitions[207] - The $239.6 million decrease in financing cash flow was primarily attributable to a $177.9 million decrease in net borrowings on the Inventory Financing Facility, a $51.4 million increase in payments on long-term debt, and an $18.8 million payment to purchase the non-controlling interest of Quality Assets & Operations, LLC[207][208] Notes to the Condensed Consolidated Financial Statements 1. Description of Company and Basis of Presentation Provides an overview of OneWater Marine Inc.'s operations, retail locations, and accounting presentation basis - OneWater Marine Inc. operates 98 retail locations, 10 distribution centers/warehouses, and multiple online marketplaces in 18 states as of June 30, 2024[19] - Sales of new boats from the top ten brands represented approximately 42.7% of total sales for the nine months ended June 30, 2024[21] - Operating results are generally subject to seasonal variations, with demand highest during the third and fourth fiscal quarters[20] - As of June 30, 2024, OneWater Inc. owned 91.1% of the economic interest of OneWater LLC[22] 2. Summary of Significant Accounting Policies Details key accounting principles applied, including inventory valuation, goodwill, revenue recognition, and segment reporting - Inventories are stated at the lower of cost or net realizable value, with new and pre-owned boat inventory cost determined using the specific identification method[29] - Goodwill is tested for impairment at least annually, and identifiable intangible assets (trade names, developed technologies, customer relationships) are amortized over estimated useful lives (ten years for developed technologies and customer relationships, indefinite for trade names)[30][31] - Revenue from product sales and commissions on new/pre-owned boats is recognized upon transfer of ownership, while service revenue is recognized over time as services are performed[33][34] Revenue Recognition Timing | Revenue Recognition Timing | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | | :------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Goods and services transferred at a point in time | 94.2% | 94.3% | 94.0% | 94.0% | | Goods and services transferred over time | 5.8% | 5.7% | 6.0% | 6.0% | - The company reports operations through two segments: Dealerships and Distribution, with the CEO identified as the chief operating decision maker[43] 3. New Accounting Pronouncements Highlights recently issued accounting standards and their expected adoption dates by the company - ASU 2023-07 (Segment Reporting) is effective for annual periods beginning after December 15, 2023, and interim periods within annual reporting periods beginning after December 15, 2024. The company plans to adopt it in fiscal year 2025[44] - ASU 2023-09 (Income Tax Disclosures) is effective for annual reporting periods beginning after December 15, 2024. The company plans to adopt it in fiscal year 2026[45] 4. Acquisitions Details recent acquisitions, including Garden State Yacht Sales and the remaining interest in Quality Assets and Operations, LLC - On May 1, 2024, the company acquired Garden State Yacht Sales, a full-service marine retailer located in New Jersey[47] Summary of Assets Acquired and Liabilities Assumed (Garden State Yacht Sales) | Summary of Assets Acquired and Liabilities Assumed ($ in thousands) | Total Acquisitions | | :-------------------------------------------------------------------------- | :------------------- | | Accounts receivable | $113 | | Inventories | 6,676 | | Property and equipment | 478 | | Operating lease right-of-use assets | 4,360 | | Accounts payable | (1,263) | | Customer deposits | (267) | | Operating lease liabilities | (4,360) | | Aggregate acquisition date fair value / Consideration transferred | $5,712 | - The Garden State Yacht Sales acquisition contributed $2.9 million to consolidated revenue and $0.3 million to income before income tax expense for the three and nine months ended June 30, 2024[47] - On October 31, 2023, the company acquired the remaining 20% economic interest in Quality Assets and Operations, LLC for $18.8 million, now owning 100%[49] Pro Forma Revenue and Net Income (in thousands) | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Pro forma revenue | $544,029 | $600,277 | $1,401,695 | $1,501,573 | | Pro forma net income | $16,773 | $33,786 | $3,876 | $72,611 | 5. Accounts Receivable Presents a breakdown of accounts receivable and explains changes between reporting periods Accounts Receivable (in thousands) | Accounts Receivable (in thousands) | June 30, 2024 | September 30, 2023 | | :------------------------------- | :------------ | :----------------- | | Contracts in transit | $44,841 | $25,425 | | Trade accounts receivable | $37,555 | $32,065 | | Income tax receivable | $8,940 | — | | Manufacturer receivable | $13,214 | $11,288 | | Receivable for proceeds on the disposition of a business | — | $45,100 | | Total accounts receivable, net | $103,854 | $113,175 | - The decrease in total accounts receivable, net, was largely due to the collection of a $45.1 million receivable from the fiscal year 2023 disposition of Roscioli Yachting Center[50][52] 6. Inventories Provides a detailed breakdown of inventory components, including new and pre-owned vessels, parts, and accessories Inventories (in thousands) | Inventories (in thousands) | June 30, 2024 | September 30, 2023 | | :----------------------- | :------------ | :----------------- | | New vessels | $449,004 | $471,147 | | Pre-owned vessels | $77,145 | $61,627 | | Work in process, parts and accessories | $72,418 | $76,842 | | Total inventories | $598,567 | $609,616 | 7. Goodwill and Intangible Assets Details the company's goodwill and intangible assets, including amortization expense and expected future amortization Goodwill and Intangible Assets (in thousands) | Metric | September 30, 2023 | June 30, 2024 | | :--------------------------- | :----------------- | :------------ | | Goodwill | $336,602 | $336,602 | | Total Intangible Assets, net | $212,324 | $207,341 | | Accumulated amortization for the nine months ended June 30, 2024 | — | $(5,743) | - Amortization expense for intangible assets was $5.7 million for the nine months ended June 30, 2024, and $2.1 million for the three months ended June 30, 2024[54] Expected Amortization Expense (in thousands) | Fiscal Year | Expected Amortization Expense | | :------------------------------------------ | :---------------------------- | | 2024 (excluding nine months ended June 30, 2024) | $2,093 | | 2025 | $8,370 | | 2026 | $8,370 | | 2027 | $8,128 | | 2028 | $6,638 | | Thereafter | $23,821 | | Total | $57,420 | 8. Notes Payable — Floor Plan Outlines the Inventory Financing Facility, including outstanding balances, borrowing capacity, and interest rates - The Inventory Financing Facility's maximum borrowing amount increased to $650.0 million and expires on March 1, 2026[56] Inventory Financing Facility (in thousands) | Metric | June 30, 2024 | September 30, 2023 | | :--------------------------- | :------------ | :----------------- | | Outstanding balance | $486,547 | $489,024 | | Available borrowing capacity | $163,500 | $61,000 | - Interest rates on the Inventory Financing Facility ranged from 8.09% to 10.34% for new inventory and 8.34% to 10.59% for pre-owned inventory as of June 30, 2024[57] - The company was in compliance with all covenants for the reporting period ended June 30, 2024, and an amendment was made on August 7, 2024, to modify certain definitions and financial covenants[58][109] 9. Long-term Debt and Line of Credit Details the A&R Credit Facility, including term loans, revolving credit, interest rates, and covenant compliance - The A&R Credit Facility provides for a $65.0 million revolving credit facility and a $445.0 million term loan, with the revolving facility maturing on August 9, 2027[60] Long-term Debt (in thousands) | Long-term Debt (in thousands) | June 30, 2024 | September 30, 2023 | | :---------------------------- | :------------ | :----------------- | | Term note payable to Truist Bank | $383,813 | $428,313 | | Revolving note payable to Truist Bank | $45,000 | $30,000 | | Total debt outstanding | $432,782 | $465,140 | | Long-term debt, net | $417,599 | $428,439 | - Interest on the A&R Credit Facility is based on Term SOFR plus an applicable margin ranging from 1.75% to 2.75%, depending on consolidated leverage ratio measures[60] - The company was in compliance with all covenants for the reporting period ended June 30, 2024, and an amendment was made on August 7, 2024, to modify certain definitions, terms, and financial covenants[61][110] 10. Stockholders' Equity Reports changes in stockholders' equity, including restricted stock units, net earnings per share, and share repurchase program status - During the nine months ended June 30, 2024, the Board approved the grant of 141,924 performance-based restricted stock units and 204,557 time-based restricted stock units[66] Restricted Stock Unit Awards (in thousands) | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :----------------------------- | :--------------- | :------------------------------------- | | Unvested at September 30, 2023 | 524,785 | $28.86 | | Awarded | 346,481 | $25.62 | | Vested | (227,790) | $25.07 | | Unvested at June 30, 2024 | 643,476 | $28.46 | - Total unrecognized compensation expense related to outstanding equity awards was $5.7 million as of June 30, 2024, expected to be recognized over a weighted-average period of 1.3 years[69] Net Earnings Per Share (Diluted) (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income attributable to OneWater Inc. | $14,683 | $28,570 | $3,544 | $60,274 | | Diluted weighted-average shares | 14,891 | 14,675 | 14,835 | 14,639 | | Net earnings per share (diluted) | $0.99 | $1.95 | $0.24 | $4.12 | - As of June 30, 2024, approximately $48.1 million remained available for future purchases under the $50 million share repurchase program approved on March 30, 2022. No shares were repurchased during the nine months ended June 30, 2024[73] 11. Fair Value Measurements Presents fair value measurements for financial instruments, including equity securities and contingent consideration Fair Value Measurements (in thousands) | Metric | Level 1 | Level 2 | Level 3 | Total | | :---------------------------- | :------ | :------ | :------ | :---- | | June 30, 2024 | | | | | | Investment in Equity Securities | $153 | — | — | $153 | | Contingent Consideration | — | — | $15,287 | $15,287 | | September 30, 2023 | | | | | | Investment in Equity Securities | $326 | — | — | $326 | | Contingent Consideration | — | — | $21,181 | $21,181 | - Contingent consideration is estimated using a probability-weighted discounted cash flow model based on unobservable inputs (Level 3)[88] - Changes in fair value of contingent consideration for the nine months ended June 30, 2024, included a $3.9 million loss related to updated forecasts and accretion[89] 12. Restructuring and Impairment Details charges incurred from the 2024 restructuring plan, including headcount reductions and location closures - In March 2024, the company initiated a restructuring plan (the "2024 Restructuring") which resulted in $11.8 million of charges during the nine months ended June 30, 2024[90] - Restructuring charges included amounts related to the reduction of headcount, closure of select satellite locations, termination of certain manufacturer relationships, and abandonment of certain in-process IT related projects[179] 13. Income Taxes Provides effective tax rates, information on the Tax Receivable Agreement, and recent IRS audit conclusions Effective Tax Rates | Period | Effective Tax Rate | | :--------------------------- | :----------------- | | 3 Months Ended June 30, 2024 | 27.5% | | 3 Months Ended June 30, 2023 | 23.0% | | 9 Months Ended June 30, 2024 | 34.4% | | 9 Months Ended June 30, 2023 | 22.9% | - The liability under the Tax Receivable Agreement was $43.1 million as of June 30, 2024, representing 85% of anticipated net cash savings from tax basis increases and imputed interest[94][222] - The IRS completed an audit of OneWater LLC's 2020 federal income tax return, concluding with no proposed adjustments, partnership-level penalties, or additional taxes due[93] 14. Contingencies and Commitments Discusses legal proceedings, claims, and insurance coverage, assessing potential financial impacts - Management assesses the probability of losses or gains for legal proceedings and accrues liabilities or discloses relevant circumstances as appropriate[97] - The company carries commercial insurance for various risks, with no significant reductions in coverage or settlements exceeding coverage in past years[99] 15. Leases Explains the company's accounting for leases, including right-of-use assets and lease liabilities - For leases with terms exceeding 12 months, the company records a right-of-use (ROU) asset and lease liability based on the present value of lease payments[100] - Most lease agreements include one or more options to renew, and if reasonably certain to be exercised, these periods are included in the lease term[101] 16. Related Party Transactions Summarizes transactions with related parties, including inventory purchases, rent expenses, and fees Related Party Transactions (in thousands) | Transaction Type | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | | :------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Inventory purchases | $32,300 | $20,700 | $103,800 | $68,100 | | Rent expenses | $600 | $600 | $1,800 | $1,600 | | Fees received for goods/services | $100 | <$100 | $1,400 | $1,000 | | Payments made for goods/services | $100 | — | $100 | $100 | - As of June 30, 2024, the company owed $0.4 million in accounts payable and had $3.4 million in accounts receivable related to these transactions[105] 17. Segment Information Provides financial data for the Dealerships and Distribution segments, including revenue and income from operations - The Dealership segment comprises 98 dealerships in 16 states and represents approximately 92% of revenues for the three and nine months ended June 30, 2024[115] - The Distribution segment includes 10 distribution centers/warehouses and represents approximately 8% of revenues for the three and nine months ended June 30, 2024[116] Segment Revenue and Income from Operations (in thousands) | Metric | Segment | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | | :---------------------------- | :---------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | Dealerships | $497,793 | $543,312 | $1,279,609 | $1,348,433 | | | Distribution | $44,768 | $51,180 | $115,415 | $137,049 | | Income (loss) from operations | Dealerships | $38,804 | $59,699 | $60,691 | $137,938 | | | Distribution | $1,206 | $388 | $(343) | $(2,425) | 18. Subsequent Events Details significant events occurring after the reporting period, including amendments to credit facilities - On August 7, 2024, the company entered into the First Amendment to the Inventory Financing Facility, modifying certain definitions, adjusting the minimum fixed charge coverage ratio, and adjusting the timing of scheduled step-downs of the maximum funded debt to EBITDA ratio[109] - On August 7, 2024, the company entered into Amendment No. 4 to the A&R Credit Facility, modifying certain definitions, terms, and conditions, adjusting the minimum consolidated leverage ratio and its step-downs, and adjusting the applicable margin range to 1.75% to 3.25%[110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial performance, business overview, key trends, accounting estimates, and liquidity Overview Provides a high-level description of OneWater Marine's business, operational footprint, and acquisition strategy - OneWater Marine operates 98 dealerships, 10 distribution centers/warehouses, and multiple online marketplaces as of June 30, 2024[113] - The Dealerships segment accounts for approximately 92% of revenues, focusing on boat sales, financing, insurance, and services. The Distribution segment accounts for approximately 8% of revenues, focusing on manufacturing and distribution of marine-related parts and accessories[115][116] - The company has acquired a total of 81 additional dealerships, 12 distribution centers/warehouses, and multiple online marketplaces through 34 acquisitions since 2014[117] Trends and Other Factors Impacting Our Performance Discusses factors influencing performance, including acquisitions, economic conditions, and supply chain normalization - The company has acquired 81 additional dealerships through 29 dealer group acquisitions and 12 distribution centers/warehouses through 5 parts and accessories company acquisitions since 2014[119] - Dealership acquisitions are typically made for less than 4.0x EBITDA, while Distribution segment acquisitions are targeted between 5.0x – 10.0x EBITDA[120] - General economic conditions, consumer confidence, interest rates, and fuel costs can negatively impact operating results[121] - As of June 30, 2024, supply chain improvements have led to normalization of inventory levels and gross profit margins, aligning with pre-COVID seasonal metrics[125] Critical Accounting Estimates Confirms no material changes to critical accounting policies and estimates from the prior annual report - There have been no material changes in the company's critical accounting policies and estimates from the information provided in the Annual Report for the fiscal year ended September 30, 2023[126] How We Evaluate Our Operations Explains key performance indicators, including non-boat sales contribution, gross profit margin, and non-GAAP measures - Non-boat sales (finance & insurance, repair/maintenance, parts/accessories) contributed 18.9% to revenue but 40.4% to gross profit for the three months ended June 30, 2024, and 18.2% to revenue but 38.6% to gross profit for the nine months ended June 30, 2024[127] - Gross profit margin varies with revenue mix; non-boat sales generally result in a higher gross profit margin than new and pre-owned boat sales[129] - Dealership same-store sales are used to assess organic growth, with new and acquired dealerships becoming eligible for inclusion in the comparable base after 13 months of operations under company ownership[131] - Adjusted EBITDA and Adjusted Net Income Attributable to OneWater Marine Inc. are non-GAAP measures used to assess financial performance by excluding certain non-core items[132][134] Summary of Acquisitions and Dispositions Summarizes recent acquisition and disposition activities in fiscal years 2023 and 2024 - Fiscal 2024 acquisitions include the remaining 20% economic interest in Quality Assets and Operations, LLC (effective October 31, 2023) and Garden State Yacht Sales (effective May 1, 2024)[136] - Fiscal 2023 acquisitions included Taylor Marine Centers (effective October 1, 2022), Harbor View Marine (effective December 1, 2022), and Harbor Pointe Marina (effective September 1, 2023)[137] - Fiscal 2023 dispositions included Roscioli Yachting Center and Lookout Marine, both effective September 30, 2023[138] Results of Operations Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023 Compares financial results for the three-month periods, highlighting changes in revenue, gross profit, and net income Key Financials (3 Months Ended June 30) | Metric | 2024 | 2023 | $ Change | % Change | | :------------------------------------------ | :--- | :--- | :------- | :------- | | Total Revenues | $542,441 | $594,339 | $(51,898) | -8.7% | | New boat sales | $333,162 | $371,645 | $(38,483) | -10.4% | | Pre-owned boat sales | $106,889 | $111,469 | $(4,580) | -4.1% | | Finance & insurance income | $17,932 | $19,028 | $(1,096) | -5.8% | | Service, parts & other | $84,458 | $92,197 | $(7,739) | -8.4% | | Total Gross Profit | $132,605 | $159,434 | $(26,829) | -16.8% | | Income from Operations | $39,999 | $60,080 | $(20,081) | -33.4% | | Net income attributable to OneWater Marine Inc. | $14,683 | $28,570 | $(13,887) | -48.6% | - The decrease in revenue was due to the sale of Roscioli Yachting Center and Lookout Marine, continued normalization of consumer demand, and decreased sales to OEMs in the Distribution segment[141] - New boat gross profit margin decreased to 17.0% from 20.5%, and pre-owned boat gross profit margin decreased to 20.8% from 22.5%, reflecting industry normalization of pricing[147][148] - Selling, general and administrative expenses decreased by $5.8 million (6.2%) due to variable cost structure and 2024 restructuring activities, but increased as a percentage of revenue to 16.0% from 15.6%[152] - Interest expense – floor plan increased by $1.9 million (24.9%) due to an increase in average inventory and interest rates[157] - Other (income) expense, net, changed by $1.7 million to an income, primarily due to insurance proceeds received for an EF3 tornado event[159] Nine Months Ended June 30, 2024, Compared to Nine Months Ended June 30, 2023 Compares financial results for the nine-month periods, detailing changes in revenue, gross profit, and net income Key Financials (9 Months Ended June 30) | Metric | 2024 | 2023 | $ Change | % Change | | :------------------------------------------ | :--- | :--- | :------- | :------- | | Total Revenues | $1,394,775 | $1,485,329 | $(90,554) | -6.1% | | New boat sales | $901,552 | $959,334 | $(57,782) | -6.0% | | Pre-owned boat sales | $238,820 | $242,641 | $(3,821) | -1.6% | | Finance & insurance income | $40,022 | $43,286 | $(3,264) | -7.5% | | Service, parts & other | $214,381 | $240,068 | $(25,687) | -10.7% | | Total Gross Profit | $344,410 | $416,119 | $(71,709) | -17.2% | | Income from Operations | $60,325 | $135,506 | $(75,181) | -55.5% | | Restructuring and impairment | $11,847 | — | $11,847 | 100.0% | | Net income attributable to OneWater Marine Inc. | $3,544 | $60,274 | $(56,730) | -94.1% | - The revenue decline was primarily due to the sale of Roscioli Yachting Center and Lookout Marine, continued normalization of seasonality and consumer demand, and decreased sales to OEMs in the Distribution segment[164] - New boat gross profit margin decreased to 17.9% from 22.3%, and pre-owned boat gross profit margin decreased to 21.0% from 23.8%, reflecting continued normalization of pricing[170][171] - Service, parts & other gross profit margin increased to 43.3% from 42.3% due to a shift in mix towards higher-margin aftermarket customers and labor[174] - Restructuring and impairment charges of $11.8 million were recognized due to headcount reduction, closure of select satellite locations, termination of manufacturer relationships, and abandonment of IT projects[179] - Interest expense – floor plan increased by $7.9 million (44.9%) and interest expense – other increased by $2.1 million (8.3%) due to higher average inventory and interest rates[181][183] - Other (income) expense, net, changed by $1.4 million to an expense, primarily related to two EF3 tornado events in Russell's Point, Ohio, and Panama City Beach, Florida[184] Comparison of Non-GAAP Financial Measure Adjusted EBITDA Presents Adjusted EBITDA and explains the factors contributing to its changes for the reported periods Adjusted EBITDA (in thousands) | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $16,714 | $33,290 | $4,235 | $71,755 | | Adjusted EBITDA | $39,206 | $61,883 | $74,609 | $146,561 | - The decrease in Adjusted EBITDA for both periods resulted primarily from the decrease in gross profit and the increase in interest expense - floor plan, partially offset by the decrease in selling, general and administrative expenses[190][191] Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share Provides adjusted net income and diluted EPS, explaining the drivers of their changes for the reported periods Adjusted Net Income Attributable to OneWater Marine Inc. (in thousands) | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income attributable to OneWater Marine Inc. | $14,683 | $28,570 | $3,544 | $60,274 | | Adjusted net income attributable to OneWater Marine Inc. | $15,513 | $31,558 | $19,914 | $68,623 | Adjusted Diluted Earnings Per Share | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net earnings per share of Class A common stock - diluted | $0.99 | $1.95 | $0.24 | $4.12 | | Adjusted earnings per share of Class A common stock - diluted | $1.05 | $2.15 | $1.35 | $4.69 | - The decrease in Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share resulted from the decrease in gross profit and the increase in interest expense - floor plan, partially offset by decreases in selling, general and administrative expenses and income tax expense[197][200] Seasonality Discusses the seasonal nature of the business, including sales patterns and inventory levels across fiscal quarters - The company's business is highly seasonal, with significantly lower sales and higher inventory levels typically in the quarterly periods ending December 31 and March 31, except for Florida[201] - The onset of public boat and recreation shows in January stimulates boat sales and typically allows for a reduction in inventory levels and related floor plan borrowings throughout the remainder of the fiscal year[201] - Geographic diversity is likely to reduce the overall impact of adverse weather conditions in any one market area[201] Liquidity and Capital Resources Overview (Liquidity and Capital Resources) Outlines the company's liquidity sources, cash needs, and ability to fund operations and growth initiatives - OneWater Inc.'s ability to meet its obligations depends on the cash flows and distributions from its operating subsidiaries, which are subject to restrictions under Credit Facilities[203] - Cash needs are primarily for growth through acquisitions and working capital to support operations, including new and pre-owned boat and related parts inventories and off-season liquidity[204] - The company believes it has adequate cash flow from operations, borrowings under its Credit Facilities, and proceeds from any future public or private issuances of debt or equity to fund its current operations, share repurchases, essential capital expenditures, and acquisitions for the next twelve months and beyond[204] - The company was in compliance with all covenants under the A&R Credit Facility and the Inventory Financing Facility for the reporting period ended June 30, 2024[205] Cash Flows (Liquidity and Capital Resources) Analyzes changes in cash flows from operating, investing, and financing activities for the nine-month periods Cash Flow Summary (in thousands) | Metric | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | Change | | :------------------------------------------ | :--------------------------- | :--------------------------- | :----- | | Net cash provided by (used in) operating activities | $7,507 | $(134,197) | $141,704 | | Net cash provided by (used in) investing activities | $17,576 | $(46,753) | $64,329 | | Net cash (used in) provided by financing activities | $(66,464) | $173,150 | $(239,614) | - The $141.7 million increase in cash provided by operating activities was primarily attributable to a $211.6 million increase in the change in inventory, offset by a $67.5 million decrease in net income[206] - The $64.3 million increase in cash provided by investing activities was primarily attributable to a $45.1 million increase in proceeds from the disposal of Roscioli Yachting Center and a $22.9 million decrease in cash used in acquisitions[207] - The $239.6 million decrease in financing cash flow was primarily attributable to a $177.9 million decrease in net borrowings on the Inventory Financing Facility, a $51.4 million increase in payments on long-term debt, and an $18.8 million payment to purchase the non-controlling interest of Quality Assets & Operations, LLC[207][208] Share Repurchase Program Details the status of the company's share repurchase program, including remaining authorization and recent activity - The Board authorized a share repurchase program of up to $50 million of outstanding shares of Class A common stock on March 30, 2022[210] - As of June 30, 2024, $48.1 million remained available for future purchases under the share repurchase program, and no shares were repurchased during the nine months ended June 30, 2024[210] Debt Agreements Describes the terms and conditions of the A&R Credit Facility and Inventory Financing Facility, including recent amendments - The A&R Credit Facility provides for a $65.0 million revolving credit facility and a $445.0 million term loan facility, with the revolving facility maturing on August 9, 2027[211] - The Inventory Financing Facility's maximum borrowing amount was increased to $650.0 million on November 14, 2023, and it expires on March 1, 2026[214] - Both the Inventory Financing Facility and A&R Credit Facility were amended on August 7, 2024, to modify definitions, financial covenants (e.g., fixed charge coverage ratio, consolidated leverage ratio), and applicable interest margin ranges[109][110] - As of June 30, 2024, indebtedness associated with the Inventory Financing Facility totaled $486.5 million, with $163.5 million in additional available borrowings[219] - The company also has acquisition notes payable of $1.1 million (4.0% interest, due December 1, 2024) and commercial vehicle notes payable of $2.8 million (0.0% to 10.8% interest, due through April 2029) as of June 30, 2024[220] Tax Receivable Agreement Explains the Tax Receivable Agreement, its liability, and related cash distribution requirements - The Tax Receivable Agreement provides for the payment by OneWater Inc. to each TRA Holder of 85% of the net cash savings in U.S. federal, state, and local income tax from certain tax basis increases and imputed interest[221] - The liability under the Tax Receivable Agreement was $43.1 million as of June 30, 2024[222] - OneWater LLC Agreement requires pro rata cash distributions to TRA Holders, including OneWater Inc., to fund tax payments and payments under the Tax Receivable Agreement[222] Recent Accounting Pronouncements (Liquidity and Capital Resources) Refers to Note 3 for details on new accounting pronouncements relevant to liquidity and capital resources - Refer to Note 3 of the Notes to the Condensed Consolidated Financial Statements for information on new accounting pronouncements[223] Item 3. Quantitative and Qualitative Disclosure about Market Risk The company faces interest rate risk from its Inventory Financing Facility and A&R Credit Facility, and foreign currency risk - A 100 basis point change in the underlying interest rate of the Inventory Financing Facility (outstanding balance $486.5 million as of June 30, 2024) would cause a change in interest expense of approximately $4.9 million[224] - A 100 basis point change in the underlying interest rate of the A&R Credit Facility (outstanding balance $428.8 million as of June 30, 2024) would cause a change in interest expense of approximately $4.3 million[225] - The company is subject to foreign exchange rate risk from purchasing new boat and parts inventories from foreign manufacturers, with some transactions denominated in non-U.S. dollar currencies[226] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2024, with no material changes in internal control - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[227] - There were no material changes in internal control over financial reporting during the three months ended June 30, 2024[228] PART II – OTHER INFORMATION Item 1. Legal Proceedings Management believes pending litigation and claims will not materially adversely affect the company's financial condition or operations - Management believes it is not reasonably probable that the pending litigation, disputes, or claims against the company as of June 30, 2024, will have a material adverse effect on its financial condition, results of operations, or cash flows[229] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the company's Annual Report on Form 10-K for fiscal year 2023 - There have been no material changes in the company's risk factors from those described in its Annual Report on Form 10-K for the fiscal year ended September 30, 2023[230] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a share repurchase program with remaining authorization, but no repurchases were made during the quarter - The Board authorized a share repurchase program of up to $50 million of outstanding shares of Class A common stock on March 30, 2022[233] - As of June 30, 2024, $48.1 million remained available under the share repurchase program, and no repurchases were made during the three months ended June 30, 2024[233] Item 3. Defaults Upon Senior Securities This item is marked as 'Not Applicable' in the report - This item is not applicable[238] Item 4. Mine Safety Disclosures This item is marked as 'None' in the report - This item is not applicable[238] Item 5. Other Information On August 7, 2024, the company amended its Inventory Financing Facility and A&R Credit Facility to modify definitions and covenants - On August 7, 2024, the company entered into the First Amendment to the Inventory Financing Facility, modifying certain definitions, adjusting the minimum fixed charge coverage ratio, and adjusting the timing of scheduled step-downs of the maximum funded debt to EBITDA ratio[234] - On August 7, 2024, the company entered into Amendment No. 4 to the A&R Credit Facility, modifying certain definitions, terms, and conditions, adjusting the minimum consolidated leverage ratio and its step-downs, and adjusting the applicable margin range to 1.75% to 3.25%[235] Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including credit facility amendments, certifications, and XBRL documents - Exhibits include the First Amendment to the Eighth Amended and Restated Inventory Financing Agreement and Amendment No. 4 to the Amended and Restated Credit Agreement, both dated August 7, 2024[236] - Certifications of the Chief Executive Officer and Chief Financial Officer (required by Rule 13a-14(a) or Rule 15d-14(a) and Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350) and Inline XBRL documents are also filed[237]