OneWater Marine Inc. - Annual Report: 2021 (Form 10-K)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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(Mark One)

For the fiscal year ended September 30, 2021

OR

For the transition period from ___________ to __________

Commission File Number 001-39213

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OneWater Marine Inc.

(Exact Name of Registrant as Specified in its Charter)

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Registrant’s telephone number, including area code: (678) 541-6300

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Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the shares of common shares on The Nasdaq Stock Market on March 31, 2021, was $391,124,604.

 

The registrant had 13,463,124 shares of Class A common stock, par value $0.01 per share, and 1,819,112 shares of Class B common stock, par value $0.01 per share, outstanding as of December 3, 2021.

 

DOCUMENTS INCORPORATED BY REFERENCE

PART I			3
	Item 1.	Business.	3
	Item 1A.	Risk Factors.	17
	Item 1B.	Unresolved Staff Comments.	47
	Item 2.	Properties.	47
	Item 3.	Legal Proceedings.	48
	Item 4.	Mine Safety Disclosures.	48
PART II			49
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	49
	Item 6.	Selected Financial Data.	50
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	50
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	74
	Item 8.	Financial Statements and Supplementary Data.	75
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	108
	Item 9A.	Controls and Procedures.	108
	Item 9B.	Other Information.	109
PART III			110
	Item 10.	Directors, Executive Officers and Corporate Governance.	110
	Item 11.	Executive Compensation.	110
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	110
	Item 13.	Certain Relationships and Related Transactions, and Director Independence.	110
	Item 14.	Principal Accounting Fees and Services.	110
PART IV			111
	Item 15.	Exhibits, Financial Statement Schedules.	111
	Item 16.	Form 10-K Summary	115

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the impact of the novel coronavirus (“COVID-19”) on our business and results of operations;

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general economic conditions, including changes in employment levels, consumer demand, preferences and confidence levels, fuel prices, levels of discretionary income, consumer spending patterns and uncertainty regarding the timing, pace and extent of an economic recovery in the United States;

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economic conditions in certain geographic regions in which we primarily generate our revenue;

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credit markets and the availability and cost of borrowed funds;

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our business strategy, including acquisitions and same-store growth;

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our ability to integrate acquired dealer groups;

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our ability to maintain our relationships with manufacturers, including meeting the requirements of our dealer agreements and receiving the benefits of certain manufacturer incentives;

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our ability to finance working capital and capital expenditures;

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general domestic and international political and regulatory conditions, including changes in tax or fiscal policy and the effects of current restrictions on various commercial and economic activities in response to the COVID-19 pandemic;

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global public health concerns, including the COVID-19 pandemic;

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demand for our products and our ability to maintain acceptable pricing for our products and services, including financing, insurance and extended service contracts;

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our operating cash flows, the availability of capital and our liquidity;

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our future revenue, same-store sales, income, financial condition, and operating performance;

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our ability to sustain and improve our utilization, revenue and margins;

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competition;

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seasonality and inclement weather such as hurricanes, severe storms, fire and floods, generally and in certain geographic regions in which we primarily generate our revenue;

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effects of industry-wide supply chain challenged and our ability to manage our inventory;

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our ability to retain key personnel;

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environmental conditions and real or perceived human health or safety risks;

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any potential tax savings we may realize as a result of our organizational structure;

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uncertainty regarding our future operating results and profitability;

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other risks associated with the COVID-19 pandemic including, among others, the ability to safely operate our stores, access to inventory and customer demand; and

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plans, objectives, expectations and intentions contained in this Form 10-K that are not historical.

Item 1.

Business.

State		Number of Stores				Percent of 2020 Revenue
Florida			30				49.4	%
Texas			8				14.3
Alabama			8				8.8
Georgia			8				8.6
Ohio			3				5.5
Massachusetts			2				5.4
South Carolina			4				3.9
Maryland			2				2.4
Kentucky			2				0.9
North Carolina			1				0.5
New Jersey			2				0.3
Total			70				100.0	%

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the Clean Air Act (“CAA”), which restricts the emission of air pollutants from many sources, including outboard marine engines, and imposes various pre-construction, operational, monitoring, and reporting requirements, and that the EPA has relied upon as authority for adopting climate change regulatory initiatives relating to greenhouse gas (“GHG”) emissions;

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the Federal Water Pollution Control Act (the “Clean Water Act”), which regulates discharges of pollutants from facilities to state and federal waters and establishes the extent to which waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States;

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the Oil Pollution Act (“OPA”), which subjects owners and operators of vessels, onshore facilities, and pipelines, as well as lessees or permittees of areas in which offshore facilities are located, to liability for removal costs and damages arising from an oil spill in waters of the United States;

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the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), which imposes liability on generators, transporters, disposers and arrangers of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur;

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the Resource Conservation and Recovery Act (“RCRA”), which governs the generation, treatment, storage, transport, and disposal of solid wastes, including hazardous wastes;

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the Emergency Planning and Community Right-to-Know Act, which requires facilities to implement a safety hazard communication program and disseminate information to employees, local emergency planning committees, and fire departments on toxic chemical uses and inventories; and

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the Occupational Safety and Health Act, which establishes workplace standards for the protection of the health and safety of employees, including the implementation of hazard communications programs designed to inform employees about hazardous substances in the workplace, potential harmful effects of these substances, and appropriate control measures.

Name	Position
P. Austin Singleton	Founder, Chief Executive Officer and Director
Anthony Aisquith	President, Chief Operating Officer and Director
Jack Ezzell	Chief Financial Officer and Secretary
Mitchell W. Legler	Director and Chairman of the Board of Directors
Bari A. Harlam	Director
Christopher W. Bodine	Director
Jeffery B. Lamkin	Director
John F. Schraudenbach	Director
John G. Troiano	Director
Keith R. Style	Director

Item 1A.

Risk Factors.

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General economic conditions and consumer spending patterns can have a material adverse effect on our business, financial condition and results of operations.

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The ongoing COVID-19 pandemic may adversely affect our revenues, results of operations and financial condition.

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The availability and costs of borrowed funds can adversely affect our ability to obtain adequate boat inventory, the ability and willingness of our customers to finance boat purchases and our ability to fund future acquisitions.

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Failure to implement strategies to enhance our performance could have a material adverse effect on our business and financial condition.

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Our success depends, in part, on our ability to continue to make successful acquisitions at attractive or fair prices and to integrate the operations of acquired dealer groups and each dealer group we acquire in the future.

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We are required to obtain the consent of our manufacturers prior to the acquisition of other dealer groups.

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Our failure to successfully order and manage our inventory to reflect consumer demand and to anticipate changing consumer preferences and buying trends could have a material adverse effect on our business, financial condition and results of operations.

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OneWater Inc. is a holding company. OneWater Inc.’s only material asset is its equity interest in OneWater LLC, and OneWater Inc. will accordingly be dependent upon distributions from OneWater LLC to pay taxes, make payments under the Tax Receivable Agreement (as defined below) and cover OneWater Inc.’s corporate and other overhead expenses.

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If we experience any material weaknesses in the future or otherwise fail to develop or maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our Class A common stock.

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The Legacy Owners own a significant amount of our voting stock, and their interests may conflict with those of our other stockholders.

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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.

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the termination or nonrenewal of the dealer agreement;

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the imposition of additional conditions in subsequent dealer agreements;

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limitations on boat inventory allocations;

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reductions in reimbursement rates for warranty work performed by the dealer;

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loss of certain manufacturer-to-dealer incentives;

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denial of approval of future acquisitions; or

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the loss of exclusive rights to sell in the geographic territory.

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the availability of suitable acquisition candidates at attractive purchase prices;

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the ability to compete effectively for available acquisition opportunities;

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the availability of cash on hand, borrowed funds, common stock with a sufficient market price or other sources of financing to complete the acquisitions;

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the ability to obtain any requisite manufacturer, governmental or other required approvals;

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the ability to obtain approval of our lenders under our current credit agreements; and

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the absence of one or more manufacturers attempting to impose unsatisfactory restrictions on us in connection with their approval of acquisitions.

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our ability to identify new markets in which we can obtain distribution rights to sell our existing or additional product lines;

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our ability to lease or construct suitable facilities at a reasonable cost in existing or new markets;

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our ability to hire, train and retain qualified personnel;

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the timely and effective integration of new stores into existing operations;

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our ability to achieve adequate market penetration at favorable operating margins without the acquisition of existing dealer groups; and

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our financial resources.

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adversely affect the interest rates paid, and the expenses associated with, our obligations, loans and other financial instruments tied to LIBOR rates, due to the significant differences between LIBOR and SOFR;

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result in disputes, litigation, or other actions with counterparties regarding the interpretation and enforceability of certain fallback language contained in the Inventory Financing Facility; and/or

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require the transition to or development of appropriate systems to effectively transition from LIBOR-based loans to those based on SOFR or another applicable alternative pricing benchmark.

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compliance with U.S. and local laws and regulatory requirements as well as changes in those laws and requirements;

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transportation delays or interruptions and other effects of less developed infrastructures;

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limitations on imports and exports;

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foreign exchange rate fluctuations;

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imposition of restrictions on currency conversion or the transfer of funds;

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maintenance of quality standards;

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unexpected changes in regulatory requirements;

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differing labor regulations;

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potentially adverse tax consequences;

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possible employee turnover or labor unrest;

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the burdens and costs of compliance with a variety of foreign laws; and

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political or economic instability.

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changes or anticipated changes to regulations related to some of the products we sell;

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consumer preferences, buying trends and overall economic trends;

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our ability to identify and respond effectively to local and regional trends and customer preferences;

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our ability to provide quality customer service that will increase our conversion of shoppers into paying customers;

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competition in the regional market of a store;

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atypical weather patterns;

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changes in our product availability and mix;

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changes in sales of services; and

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changes in pricing and average unit sales.

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maintain a comprehensive compliance function;

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comply with rules promulgated by Nasdaq;

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prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws;

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accurately implement and interpret U.S. generally accepted accounting principles (“GAAP”);

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comply with certain internal policies, such as those relating to insider trading; and

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involve and retain to a greater degree outside counsel and accountants in the above activities.

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quarterly variations in our financial and operating results;

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the public reaction to our press releases, our other public announcements and our filings with the SEC;

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strategic actions by our competitors or suppliers;

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changes in revenue, same-store sales or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;

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the failure of our operating results to meet the expectations of equity research analysts and investors;

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speculation in the press or investment community;

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the failure of research analysts to continue to cover our Class A common stock;

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sales of our Class A common stock by us or other stockholders, or the perception that such sales may occur;

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changes in accounting principles, policies, guidance, interpretations or standards;

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additions or departures of key management personnel;

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actions by our stockholders;

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general market conditions, including fluctuations in commodity prices;

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the publication of boating industry sales data or new boat registration data;

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domestic and international economic, legal and regulatory factors unrelated to our performance; and

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the realization of any risks described under this “Risk Factors” section.

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dividing our board of directors into three classes of directors, with each class serving staggered three-year terms;

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providing that all vacancies, including newly created directorships, may, except as otherwise required by law or, if applicable, the rights of holders of a series of preferred stock, only be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

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permitting any action by stockholders to be taken only at an annual meeting or special meeting rather than by a written consent of the stockholders, subject to the rights of any series of preferred stock with respect to such rights;

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permitting special meetings of our stockholders to be called only by our Chief Executive Officer, the chairman of our board of directors and our board of directors pursuant to a resolution adopted by the affirmative vote of a majority of the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships;

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subject to the rights of the holders of shares of any series of our preferred stock, requiring the affirmative vote of the holders of at least 66 2⁄3% in voting power of all then outstanding common stock entitled to vote generally in the election of directors, voting together as a single class, to remove any or all of the directors from office at any time, and directors will be removable only for “cause”

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prohibiting cumulative voting in the election of directors;

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establishing advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of stockholders; and

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providing that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws.

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changes in the valuation of its deferred tax assets and liabilities;

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expected timing and amount of the release of any tax valuation allowances;

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tax effects of stock-based compensation; or

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changes in tax laws, regulations or interpretations thereof.