MARINEMAX INC 10-Q

ITEM 1. Financial Statements MARINEMAX, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Amounts in thousands, except share and per share data) (Unaudited) Three Months Ended Six Months Ended March 31, March 31, 2020 2021 2020 2021 Revenue $ 308,475 $ 523,095 $ 612,647 $ 934,618 Cost of sales 229,699 366,289 453,853 654,411 Gross profit 78,776 156,806 158,794 280,207 Selling, general, and administrative expenses 69,060 103,936 133,446 195,354 Income from operations 9,716 52,870 25,348 84,853 Interest expense 3,013 1,092 6,357 2,360 Income before income tax provision 6,703 51,778 18,991 82,493 Income tax provision 1,638 12,843 4,867 19,958 Net income $ 5,065 $ 38,935 $ 14,124 $ 62,535 Basic net income per common share $ 0.24 $ 1.76 $ 0.66 $ 2.83 Diluted net income per common share $ 0.23 $ 1.69 $ 0.64 $ 2.73 Weighted average number of common shares used in computing net income per common share: Basic 21,520,215 22,143,043 21,486,995 22,083,827 Diluted 21,960,285 22,986,061 21,925,105 22,864,950 See accompanying notes to condensed consolidated financial statements. 3 MARINEMAX, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Amounts in thousands) (Unaudited) Three Months Ended Six Months Ended March 31, March 31, 2020 2021 2020 2021 Net income $ 5,065 $ 38,935 $ 14,124 $ 62,535 Other comprehensive (loss) gain, net of tax: Foreign currency translation adjustments ( 450 ) ( 1,032 ) 156 83 Interest rate swap contract — 388 — 193 Total other comprehensive income, net of tax ( 450 ) ( 644 ) 156 276 Comprehensive income $ 4,615 $ 38,291 $ 14,280 $ 62,811 See accompanying notes to condensed consolidated financial statements. 4 MARINEMAX, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Amounts in thousands, except share data) (Unaudited) September 30, March 31, 2020 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 155,493 $ 142,888 Accounts receivable, net 40,195 54,489 Inventories, net 298,002 302,979 Prepaid expenses and other current assets 9,637 14,698 Total current assets 503,327 515,054 Property and equipment, net of accumulated depreciation of $ 86,270 and $ 92,352 141,934 151,254 Operating lease right-of-use assets, net 37,991 106,348 Goodwill and other intangible assets, net 84,293 142,152 Other long-term assets 7,774 10,318 Total assets $ 775,319 $ 925,126 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 37,343 $ 23,280 Contract liabilities (customer deposits) 31,821 83,357 Accrued expenses 52,123 84,536 Short-term borrowings 144,393 35,762 Current maturities on long-term debt — 2,802 Current operating lease liabilities 6,854 10,439 Total current liabilities 272,534 240,176 Long-term debt, net of current maturities 7,343 49,440 Noncurrent operating lease liabilities 33,473 98,276 Deferred tax liabilities, net 4,509 6,501 Other long-term liabilities 2,063 7,429 Total liabilities 319,922 401,822 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Preferred stock, $ .001 par value, 1,000,000 shares authorized, none issued or outstanding as of September 30, 2020 and March 31, 2021 — — Common stock, $ .001 par value, 40,000,000 shares authorized, 28,130,312 and 28,420,539 shares issued and 21,863,291 and 22,153,518 shares outstanding as of September 30, 2020 and March 31, 2021, respectively 28 28 Additional paid-in capital 280,436 285,532 Accumulated other comprehensive income 829 1,105 Retained earnings 277,699 340,234 Treasury stock, at cost, 6,267,021 and 6,267,021 shares held as of September 30, 2020 and March 31, 2021, respectively ( 103,595 ) ( 103,595 ) Total shareholders’ equity 455,397 523,304 Total liabilities and shareholders’ equity $ 775,319 $ 925,126 See accompanying notes to condensed consolidated financial statements. 5 MARINEMAX, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Shareholders’ Equity (Amounts in thousands, except share data) (Unaudited) Additional Accumulated Other Total Common Stock Paid-in Comprehensive Retained Treasury Shareholders’ Shares Amount Capital Earnings Earnings Stock Equity BALANCE, September 30, 2020 28,130,312 $ 28 $ 280,436 $ 829 $ 277,699 $ ( 103,595 ) $ 455,397 Net income — — — — 23,600 — 23,600 Shares issued pursuant to employee stock purchase plan 83,572 — 740 — — — 740 Shares issued upon vesting of equity awards, net of minimum tax withholding 121,303 — ( 871 ) — — — ( 871 ) Shares issued upon exercise of stock options 56,746 — 783 — — — 783 Stock-based compensation 1,777 — 2,013 — — — 2,013 Other comprehensive income — — — 920 — — 920 BALANCE, December 31, 2020 28,393,710 28 283,101 1,749 301,299 ( 103,595 ) 482,582 Net income — — — — 38,935 — 38,935 Shares issued upon vesting of equity awards, net of minimum tax withholding 9,899 — ( 154 ) — — — ( 154 ) Shares issued upon exercise of stock options 15,333 — 186 — — — 186 Stock-based compensation 1,597 — 2,399 — — — 2,399 Other comprehensive income — — — ( 644 ) — — ( 644 ) BALANCE, March 31, 2021 28,420,539 $ 28 $ 285,532 $ 1,105 $ 340,234 $ ( 103,595 ) $ 523,304 Additional Accumulated Other Total Common Stock Paid-in Comprehensive Retained Treasury Shareholders’ Shares Amount Capital Earnings Earnings Stock Equity BALANCE, September 30, 2019 27,508,473 $ 28 $ 269,969 $ ( 669 ) $ 202,455 $ ( 102,964 ) $ 368,819 Net income — — — — 9,059 — 9,059 Shares issued pursuant to employee stock purchase plan 38,352 — 505 — — — 505 Shares issued upon vesting of equity awards, net of minimum tax withholding 123,993 — ( 476 ) — — — ( 476 ) Shares issued upon exercise of stock options 13,000 — 111 — — — 111 Stock-based compensation 2,946 — 1,513 — — — 1,513 Other comprehensive income 606 606 Cumulative effect of change in accounting principle - leases, net after tax — — — — 610 — 610 BALANCE, December 31, 2019 27,686,764 28 271,622 ( 63 ) 212,124 ( 102,964 ) 380,747 Net income — — — — 5,065 — 5,065 Purchase of treasury stock — — — — — ( 472 ) ( 472 ) Shares issued pursuant to employee stock purchase plan — — — — — — - Shares issued upon exercise of stock options 28,167 — 414 — — — 414 Stock-based compensation 2,732 — 1,773 — — — 1,773 Foreign currency translation adjustments, net of tax — — — ( 450 ) — — ( 450 ) BALANCE, March 31, 2020 27,717,663 $ 28 $ 273,809 $ ( 513 ) $ 217,189 $ ( 103,436 ) $ 387,077 See accompanying notes to condensed consolidated financial statements. 6 MARINEMAX, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Amounts in thousands, Unaudited) Six Months Ended March 31, 2020 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 14,124 $ 62,535 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 6,150 7,481 Deferred income tax provision 1,469 1,992 (Loss) gain on sale of property and equipment ( 824 ) 64 Proceeds from insurance settlements 703 941 Stock-based compensation expense 3,286 4,412 (Increase) decrease in, net of effects of acquisitions — Accounts receivable, net 5,898 ( 10,079 ) Inventories, net ( 29,419 ) 37,312 Prepaid expenses and other assets ( 41 ) ( 1,848 ) (Decrease) Increase in, net of effects of acquisitions — Accounts payable ( 18,427 ) ( 15,563 ) Contract liabilities (customer deposits) 2,489 44,003 Accrued expenses and other liabilities ( 4,016 ) 15,390 Net cash (used in) provided by operating activities ( 18,608 ) 146,640 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 6,135 ) ( 12,127 ) Cash used in acquisition of businesses, net of cash acquired ( 1,400 ) ( 50,261 ) Purchases of investments — ( 2,250 ) Proceeds from insurance settlements — 213 Proceeds from sale of property and equipment 2,410 165 Net cash used in investing activities ( 5,125 ) ( 64,260 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net (payment) borrowings on short-term borrowings 50,833 ( 139,125 ) Proceeds from long-term debt — 46,375 Payments for long-term debt — ( 965 ) Payments for debt issuance costs — ( 910 ) Contingent acquisition consideration payments ( 148 ) — Purchase of treasury stock ( 472 ) — Net proceeds from issuance of common stock under incentive compensation and employee purchase plans 1,030 1,709 Payments on tax withholdings for equity awards ( 1,674 ) ( 2,178 ) Net cash provided by (used in) financing activities 49,569 ( 95,094 ) Effect of exchange rate changes on cash 59 109 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,895 ( 12,605 ) CASH AND CASH EQUIVALENTS, beginning of period 38,511 155,493 CASH AND CASH EQUIVALENTS, end of period $ 64,406 $ 142,888 Supplemental Disclosures of Cash Flow Information: Cash paid for: Interest $ 8,173 $ 2,083 Income taxes 3,815 17,328 Non-cash items: Initial operating lease right-of-use assets for adoption of ASU 2016-02 42,070 — Initial current and noncurrent operating lease liabilities for adoption of ASU 2016-02 43,953 — Contingent consideration liabilities from acquisitions — 8,200 See accompanying notes to condensed consolidated financial statements. 7 MARINEMAX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. COMPANY BACKGROUND: We are the largest recreational boat and yacht retailer in the United States. We engage primarily in the retail sale, brokerage, and service of new and used boats, motors, trailers, marine parts and accessories and offer slip and storage accommodations in certain locations. In addition, we arrange related boat financing, insurance, and extended service contracts. We also offer the charter of power yachts in the British Virgin Islands. As of March 31, 2021, we operated through 77 retail locations in 21 states, consisting of Alabama, California, Connecticut, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina, Texas, Washington, and Wisconsin. Our MarineMax Vacation operation maintains a facility in Tortola, British Virgin Islands. We also own Fraser Yachts Group and Northrop & Johnson, leading superyacht brokerage and luxury yacht services companies with operations in multiple countries. We are the nation’s largest retailer of Sea Ray and Boston Whaler recreational boats which are manufactured by Brunswick Corporation (“Brunswick”). Sales of new Brunswick boats accounted for approximately 33 % of our revenue in fiscal 2020. Sales of new Sea Ray and Boston Whaler boats, both divisions of Brunswick, accounted for approximately 15 % and 16 %, respectively, of our revenue in fiscal 2020. Brunswick is a world leading manufacturer of marine products and marine engines. We have dealership agreements with Sea Ray, Boston Whaler, Harris, and Mercury Marine, all subsidiaries or divisions of Brunswick. We also have dealer agreements with Italy-based Azimut-Benetti Group’s product line for Azimut and Benetti yachts and mega yachts. These agreements allow us to purchase, stock, sell, and service these manufacturers’ boats and products. These agreements also allow us to use these manufacturers’ names, trade symbols, and intellectual properties in our operations. The agreements for Sea Ray and Boston Whaler products, respectively, appoint us as the exclusive dealer of Sea Ray and Boston Whaler boats, respectively, in our geographic markets. In addition, we are the exclusive dealer for Azimut Yachts for the entire United States. Sales of new Azimut yachts accounted for approximately 9 % of our revenue in fiscal 2020. We believe non-Brunswick brands offer a migration for our existing customer base or fill a void in our product offerings, and accordingly, do not compete with the business generated from our other prominent brands. In October 2020, we purchased all of the outstanding equity of Skipper Marine Corp., Skipper Marine of Madison, Inc., Skipper Marine of Fox Valley, Inc., Skipper Bud’s of Illinois, Inc., Skipper Marine of Chicago-Land, Inc., Skipper Marine of Michigan, Inc., and Skipper Marine of Ohio, LLC, (collectively, “SkipperBud’s”). This acquisition significantly increased our presence in the Great Lakes region and the West Coast of the United States. SkipperBud’s is one of the largest boat sales, brokerage, service and marina/storage groups in the United States . As is typical in the industry, we deal with most of our manufacturers, other than Sea Ray, Boston Whaler, and Azimut Yachts, under renewable annual dealer agreements, each of which gives us the right to sell various makes and models of boats within a given geographic region. Any change or termination of these agreements, or the agreements discussed above, for any reason, or changes in competitive, regulatory or marketing practices, including rebate or incentive programs, could adversely affect our results of operations. Although there are a limited number of manufacturers of the type of boats and products that we sell, we believe that adequate alternative sources would be available to replace any manufacturer other than Sea Ray and Azimut as a product source. These alternative sources may not be available at the time of any interruption, and alternative products may not be available at comparable terms, which could affect operating results adversely. From March 2020 through June 2020, we temporarily closed certain departments or locations based on guidance from local government or health officials as a result of the COVID-19 global pandemic . We are following guidelines to ensure we are safely operating as recommended. As the COVID-19 pandemic is complex and evolving rapidly with many unknowns, the Company will continue to monitor ongoing developments and respond accordingly. Management expects its business, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 pandemic on the Company’s business and the duration for which it may have an impact cannot be determined at this time. General economic conditions and consumer spending patterns can negatively impact our operating results. Unfavorable local, regional, national, or global economic developments or uncertainties regarding future economic prospects could reduce consumer spending in the markets we serve and adversely affect our business. Economic conditions in areas in which we operate dealerships, particularly Florida, in which we generated approximately 51 %, 54 % and 54 % of our revenue during fiscal 2018, 2019, and 2020, respectively, can have a major impact on our operations. Local influences, such as corporate downsizing, military base closings, inclement weather such as Hurricane Sandy in 2012 or Hurricanes Harvey and Irma in 2017, environmental conditions, and specific events, such as the BP oil spill in the Gulf of Mexico in 2010, also could adversely affect, and in certain instances have adversely affected, our operations in certain markets. 8 In an economic downturn, consumer discretionary spending levels generally decline, at times resulting in disproportionately large reductions in the sale of luxury goods. Consumer spending on luxury goods also may decline as a result of lower consumer confidence levels, even if prevailing economic conditions are favorable. As a result, an economic downturn would likely impact us more than certain of our competitors due to our strategic focus on a higher end of our market. Although we have expanded our operations during periods of stagnant or modestly declining industry trends, the cyclical nature of the recreational boating industry or the lack of industry growth may adversely affect our business, financial condition, and results of operations. Any period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business. Historically, in periods of lower consumer spending and depressed economic conditions, we have, among other things, substantially reduced our acquisition program, delayed new store openings, reduced our inventory purchases, engaged in inventory reduction efforts, closed a number of our retail locations, reduced our headcount, and amended and replaced our credit facility. Acquisitions remain an important strategy for us, and, subject to a number of conditions, including macro-economic conditions and finding attractive acquisition targets, we plan to continue to explore opportunities through this strategy. 2. BASIS OF PRESENTATION: These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, the instructions to Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments, consisting of only normal recurring adjustments considered necessary for fair presentation, have been reflected in these unaudited condensed consolidated financial statements. As of March 31, 2021, our financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, customer deposits, short-term borrowings, long-term debt, and an interest rate swap contract. The carrying amounts of our financial instruments reported on the balance sheet as of March 31, 2021, approximated fair value due either to length to maturity or existence of variable interest rates, which approximate prevailing market rates. The interest rate swap contract is reported at fair value and is designated as a cash flow hedge with changes in fair value reported in other comprehensive income. The operating results for the six months ended March 31, 2021, are not necessarily indicative of the results that may be expected in future periods. The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates made by us in the accompanying unaudited condensed consolidated financial statements include valuation allowances, valuation of goodwill and intangible assets, valuation of long-lived assets, and valuation of accruals. Actual results could differ from those estimates. All references to the “Company,” “our company,” “we,” “us,” and “our” mean, as a combined company, MarineMax, Inc. and the 30 recreational boat dealers, four boat brokerage operations, and two full-service yacht repair operations acquired as of March 31, 2021 (the “acquired dealers,” and together with the brokerage and repair operations, “operating subsidiaries” or the “acquired companies”). The unaudited condensed consolidated financial statements include our accounts and the accounts of our subsidiaries, all of which are wholly owned. All significant intercompany transactions and accounts have been eliminated. 9 3. NEW ACCOUNTING PRONOUNCEMENTS: In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The guidance amends Accounting Standards Codification (ASC) 350 to include in its scope implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350 to determine which implementation costs should be capitalized in such a cloud computing arrangement. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We adopted ASU 2018-05 effective October 1, 2020 the first day of fiscal 2021. The adoption of this standard had no impact on our consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as the credit quality. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We adopted ASU 2016-13 effective October 1, 2020 the first day of fiscal 2021. The adoption of this standard had no impact on our consolidated financial statements. 4. REVENUE RECOGNITION: The majority of our revenue is from contracts with customers for the sale of boats, motors, and trailers. We recognize revenue from boat, motor, and trailer sales upon transfer of control of the boat, motor, or trailer to the customer, which is generally upon acceptance or delivery to the customer. The transaction price is determined with the customer at the time of sale. Customers may trade in boats to apply toward the purchase of a new or used boat. The trade-in is a type of noncash consideration measured at fair value, based on external and internal market data and applied as payment to the contract price for the purchased boat. At the time of acceptance or delivery, the customer is able to direct the use of, and obtain substantially all of the benefits of, the boat, motor, or trailer at such time. We recognize commissions earned from a brokerage sale when the related brokerage transaction closes upon transfer of control of the boat, motor, or trailer to the customer, which is generally upon acceptance or delivery to the customer. We do not directly finance our customers’ boat, motor, or trailer purchases. In many cases, we assist with third-party financing for boat, motor, and trailer sales. We recognize commissions earned by us for placing notes with financial institutions in connection with customer boat financing when we recognize the related boat sales. Pursuant to negotiated agreements with financial institutions, we are charged back for a portion of these fees should the customer terminate or default on the related finance contract before it is outstanding for a stipulated minimum period of time. We base the chargeback allowance, which was not material to the unaudited condensed consolidated financial statements taken as a whole as of March 31, 2021, on our experience with repayments or defaults on the related finance contracts. We recognize variable consideration from commissions earned on extended warranty service contracts sold on behalf of third-party insurance companies at generally the later of customer acceptance of the service contract terms as evidenced by contract execution or recognition of the related boat sale. We also recognize variable consideration from marketing fees earned on insurance products sold by third-party insurance companies at the later of customer acceptance of the insurance product as evidenced by contract execution or when the related boat sale is recognized. We recognize revenue from parts and service operations (boat maintenance and repairs) over time as services are performed. 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 short period of time from contract inception. We satisfy our performance obligations, transfer control, and recognize revenue over time for parts and service operations because we are creating a contract asset with no alternative use and we have an enforceable right to payment for performance completed to date. Contract assets primarily relate to our right to consideration for work in process not yet billed at the reporting date associated with maintenance and repair services. We use an input method to recognize revenue and measure progress based on labor hours expended to satisfy the performance obligation at average labor rates. We have determined labor hours expended to be the relevant measure of work performed to complete the maintenance and repair service for the customer. As a practical expedient, because repair and maintenance service contracts have an original duration of one year or less, we do not consider the time value of money, and we do not disclose estimated revenue expected to be recognized in the future for performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period or when we expect to recognize such revenue. 10 Contract liabilities primarily consist of customer deposits. We recognize contract liabilities (customer deposits) as revenue at the time of delivery or acceptance by the customers. Contract assets, recorded in prepaid expenses and other current assets, totaled approximately $ 3.6 million and $ 5.9 million as of March 31, 2020 and March 31, 2021, respectively. We recognize deferred revenue from service operations and slip and storage services over time on a straight-line basis over the term of the contract as our performance obligations are met. We recognize income from the rentals of chartering power yachts over time on a straight-line basis over the term of the contract as our performance obligations are met. The following table sets forth percentages on the timing of revenue recognition for the three and six months ended March 31, Three Months Ended Six Months Ended March 31, March 31, 2020 2021 2020 2021 Goods and services transferred at a point in time 92.1 % 93.1 % 91.5 % 92.0 % Goods and services transferred over time 7.9 % 6.9 % 8.5 % 8.0 % Total Revenue 100.0 % 100.0 % 100.0 % 100.0 % 5 . LEASES: The majority of leases that we enter into are real estate leases. We lease numerous facilities relating to our operations, including showrooms, display lots, marinas, service facilities, slips, offices, equipment and our corporate headquarters. Leases for real property have terms, including renewal options, ranging from one to in excess of twenty-five years . In addition, we lease certain charter boats for our yacht charter business. As of March 31, 2021, the weighted-average remaining lease term for our leases was approximately 13 years . All of our leases are classified as operating leases, which are included as ROU assets and operating lease liabilities in our unaudited condensed consolidated balance sheet. For the three months ended March 31, 2020 and March 31, 2021, operating lease expenses recorded in selling, general, and administrative expenses were approximately $ 3.5 million and $ 6.4 million, respectively. For the six months ended March 31, 2020 and March 31, 2021, operating lease expenses recorded in selling, general, and administrative expenses were approximately $ 6.7 million and $ 12.3 million, respectively. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We do not have any significant leases that have not yet commenced but that create significant rights and obligations for us. We have elected the practical expedient under ASC 842 to not separate lease and nonlease components. Our real estate and equipment leases often require that we pay maintenance in addition to rent. Additionally, our real estate leases generally require payment of real estate taxes and insurance. Maintenance, real estate taxes, and insurance payments are generally variable and based on actual costs incurred by the lessor. Therefore, these amounts are not included in the consideration of the contract when determining the ROU asset and lease liability, but are reflected as variable lease expenses. A majority of our lease agreements include fixed rental payments. Certain of our lease agreements include fixed rental payments that are adjusted periodically by a fixed rate or changes in an index. The fixed payments, including the effects of changes in the fixed rate or amount, and renewal options reasonably certain to be exercised, are included in the measurement of the related lease liability. Most of our real estate leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at our sole discretion. If it is reasonably certain that we will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of our right of use assets and lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term, which includes renewal options reasonably certain to be exercised . For our incremental borrowing rate, we generally use a portfolio approach to determine the discount rate for leases with similar characteristics . We determine discount rates based upon our hypothetical credit rating, taking into consideration our short-term borrowing rates, and then adjusting as necessary for the appropriate lease term. As of March 31, 2021, the weighted-average discount rate used was approximately 5.7 %. 11 As of March 31, 2021, maturities of lease liabilities are summarized as follows: (Amounts in thousands) 2021 $ 16,214 2022 14,511 2023 13,174 2024 10,750 2025 9,693 Thereafter 92,384 Total lease payments 156,726 Less: interest ( 48,011 ) Present value of lease liabilities $ 108,715 Supplemental cash flow information related to leases was as follows (amounts in thousands): Six Months Ended March 31, 2020 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 5,152 $ 8,670 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 817 $ 70,714 6 . INVENTORIES: Inventory costs consist of the amount paid to acquire inventory, net of vendor consideration and purchase discounts, the cost of equipment added, reconditioning costs, and transportation costs relating to acquiring inventory for sale. We state new and used boat, motor, and trailer inventories at the lower of cost, determined on a specific-identification basis, or net realizable value. We state parts and accessories at the lower of cost, determined on an average cost basis, or net realizable value. We utilize our historical experience, the aging of the inventories, and our consideration of current market trends as the basis for determining a lower of cost or net realizable value. We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our valuation allowance which would result in a material effect on our operating results. As of September 30, 2020 and March 31, 2021, our valuation allowance for new and used boat, motor, and trailer inventories was $ 2.4 million and $ 1.3 million, respectively. If events occur and market conditions change, causing the fair value to fall below carrying value, the valuation allowance could increase. 7 . IMPAIRMENT OF LONG-LIVED ASSETS: FASB Accounting Standards Codification 360-10-40, “Property, Plant, and Equipment - Impairment or Disposal of Long-Lived Assets” (“ASC 360-10-40”), requires that long-lived assets, such as property and equipment and purchased intangibles subject to amortization, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset (or asset group) is measured by comparison of its carrying amount to undiscounted future net cash flows the asset (or asset group) is expected to generate over the remaining life of the asset (or asset group). If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset (or asset group) exceeds its fair market value. Estimates of expected future cash flows represent our best estimate based on currently available information and reasonable and supportable assumptions. Our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply judgment in order to estimate expected future cash flows. Any impairment recognized in accordance with ASC 360-10-40 is permanent and may not be restored. Based upon our most recent analysis, we believe no impairment of long-lived assets existed as of March 31, 2021. 8 . GOODWILL: We account for acquisitions in accordance with FASB Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “Intangibles — Goodwill and Other” (“ASC 350”). For business combinations, the excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill. In October 2020, we purchased all of the outstanding equity of SkipperBud’s for an aggregate purchase price of $ 55,000,000 , subject to certain customary closing and post-closing adjustments, and net working capital adjustments including certain holdbacks. In addition, the former equity owners of SkipperBud’s (“Skippers Sellers”), have the opportunity to earn additional consideration as part of an earnout subject to the achievement of certain pre-tax earnings levels . The maximum amount of consideration that can be paid under the earnout is approximately $ 9.3 million. The fair value of $ 8.2 million of the contingent consideration arrangement was estimated by a third party valuation expert by applying an income valuation approach. The earnout was estimated based on forecasted pre-tax earnings as a base scenario (among other assumptions) subject to a Monte Carlo simulation. The Skippers Sellers are subject to certain customary post-closing covenants and indemnities. The acquisition of SkipperBud’s enhances our sales, brokerage, service and marina/storage presence in the Great Lakes region and West Coast of the Unites States. 12 The following table summarizes the consideration paid for SkipperBud’s and the preliminary allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date. (Amounts in thousands) Consideration: Cash purchase price and net working capital adjustments, net of cash acquired of $ 30,615 $ 50,261 Contingent consideration arrangement 8,200 Fair value of total consideration transferred $ 58,461 Recognized amounts of identifiable assets acquired and liabilities assumed: Current assets, net of cash acquired of $ 30,615 $ 50,688 Property and equipment 4,859 Intangible assets 1,978 Current liabilities ( 55,427 ) Total identifiable net assets acquired: 2,098 Goodwill $ 56,363 Total $ 58,461 The fair value of current assets acquired includes accounts receivable and inventory of approximately $ 5.4 million and $ 42.3 million, respectively. The fair value of current liabilities assumed includes short-term borrowings of approximately $ 30.5 million, accrued expenses of approximately $ 14.6 million, and customer deposits of approximately $ 7.5 million. We recorded approximately $ 56.4 million in goodwill and approximately $ 2.0 million of other identifiable intangibles (trade name and customer relationships) in connection with the SkipperBud’s acquisition. The goodwill represents our enhanced geographic reach and brand infrastructure in the Great Lakes region and West Coast of the Unites States. The majority of the goodwill is expected to be deductible for tax purposes. The intangible assets have a weighted average useful life of approximately 3.3 years. For the six months ended March 31, 2021, SkipperBud’s revenue was approximately $ 108.4 million and estimated income before taxes was approximately $ 7.9 million. SkipperBud’s financial information for the six months ended March 31, 2020 was not practical to obtain for comparative purposes and as such is not presented because SkipperBud’s historical monthly internal accounting and reporting processes and practices would not provide complete information sufficient for the purposes of this pro forma disclosure. In July 2020, we purchased Northrop & Johnson, a leading superyacht brokerage and services company. In March 2020, we purchased Boatyard, a digital platform with an expansive range of on-demand services to streamline the boating experience by qualified service providers from a smartphone. In total, current and previous acquisitions have resulted in the recording of $ 84.3 million and $ 142.2 million in goodwill and other intangible assets as of September 30, 2020 and March 31, 2021, respectively. In accordance with ASC 350, we test goodwill for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our annual impairment test is performed during the third fiscal quarter. If the carrying amount of a reporting unit’s goodwill exceeds its fair value we recognize an impairment loss in accordance with ASC 350. As of March 31, 2021 , and based upon our most recent analysis, we determined through our qualitative assessment that it is not “more likely than not” that the fair values of our reporting units are less than their carrying values. As a result, we were not required to perform a quantitative goodwill impairment. 9 . INCOME TAXES: We account for income taxes in accordance with FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). Under ASC 740, we recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect those temporary differences to be recovered or settled. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized by considering all available positive and negative evidence. 13 During the three months ended March 31, 2020 and 2021, we recognized an income tax provision of $ 1.6 million and $ 12.8 million, respectively. During the six months ended March 31, 2020 and 2021, we recognized an income tax provision of $ 4.9 million and $ 20.0 million, respectively. The effective income tax rate for the three months ended March 31, 2020 and 2021 was 24.4 % and 24.8 %, respectively . The effective income tax rate for the six months ended March 31, 2020 and 2021 was 25.6 % and 24.2 %, respectively 10. SHORT-TERM BORROWINGS AND LONG-TERM DEBT: Short-term Borrowings In May 2020, we entered into a Loan and Security Agreement (the “Credit Facility”), with Wells Fargo Commercial Distribution Finance LLC, M&T Bank, Bank of the West, and Truist Bank. The Credit Facility provides the Company a line of credit with asset based borrowing availability of up to $ 440 million for working capital and inventory financing, with the amount permissible pursuant to a borrowing base formula. The Credit Facility has a three-year term and expires in May 2023 , subject to extension for two one-year periods, with lender approval . The Credit Facility has certain financial covenants as specified in the agreement. The covenants include provisions that our leverage ratio must not exceed 2.75 to 1.0 and that our current ratio must be greater than 1.2 to 1.0. The interest rate for amounts outstanding under the Credit Facility is 345 basis points plus the greater of 75 basis points or the one-month LIBOR. There is an unused line fee of ten basis points on the unused portion of the Credit Facility. As of March 31, 2021, we were in compliance with all covenants under the Credit Facility. New inventory borrowing eligibility will generally mature 1,080 days from the original invoice date. Used inventory borrowing eligibility will generally mature 361 days from the date we acquire the used inventory. The collateral for the Credit Facility is all of our personal property with certain limited exceptions. None of our real estate has been pledged for collateral for the Credit Facility. As of March 31, 2021, our indebtedness associated with financing our inventory and working capital needs totaled approximately $ 35.8 million. As of March 31, 2020 and 2021, the interest rate on the outstanding short-term borrowings was approximately 5.0 % and 4.2 %, respectively. As of March 31, 2021, our additional available borrowings under our Credit Facility were approximately $ 181 million based upon the outstanding borrowing base availability. As is common in our industry, we receive interest assistance directly from boat manufacturers, including Brunswick. The interest assistance programs vary by manufacturer, but generally include periods of free financing or reduced interest rate programs. The interest assistance may be paid directly to us or our lender depending on the arrangements the manufacturer has established. We classify interest assistance received from manufacturers as a reduction of inventory cost and related cost of sales as opposed to netting the assistance against our interest expense incurred with our lenders. The availability and costs of borrowed funds can adversely affect our ability to obtain adequate boat inventory and the holding costs of that inventory as well as the ability and willingness of our customers to finance boat purchases. However, we rely on our Credit Facility to purchase our inventory of boats. The aging of our inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate as our inventory ages. Our access to funds under our Credit Facility also depends upon the ability of our lenders to meet their funding commitments, particularly if they experience shortages of capital or experience excessive volumes of borrowing requests from others during a short period of time. Unfavorable economic conditions, weak consumer spending, turmoil in the credit markets, and lender difficulties, among other potential reasons, could interfere with our ability to utilize our Credit Facility to fund our operations. Any inability to utilize our Credit Facility could require us to seek other sources of funding to repay amounts outstanding under the credit agreements or replace or supplement our credit agreements, which may not be possible at all or under commercially reasonable terms. Similarly, decreases in the availability of credit and increases in the cost of credit adversely affect the ability of our customers to purchase boats from us and thereby adversely affect our ability to sell our products and impact the profitability of our finance and insurance activities. 14 Long-term Debt The below table summarizes the Company's long-term debt. ( amounts in thousands) March 31, 2021 Mortgage facility payable to Flagship Bank bearing interest at 2.25 % ( prime minus 100 basis points with a floor of 2.00 % ). Requires monthly principal and interest payments with a balloon payment of approximately $ 4.0 million due August 2027 . $ 7,148 Mortgage facility payable to Seacoast National Bank bearing interest at 3.0 % ( greater of 3% or prime minus 62.5 basis points ). Requires monthly interest payments for the first year and then monthly principal and interest payments with a balloon payment of approximately $ 6.0 million due September 2031 . 17,675 Mortgage facility payable to Hancock Whitney Bank bearing interest at 2.6 % ( prime minus 62.5 basis points with a floor of 2.25 % ). Requires monthly principal and interest payments with a balloon payment of approximately $ 15.5 million due November 2027 . 50 % of the outstanding borrowings are hedged with an interest rate swap contract with a fixed rate of 3.2 %. 28,062 Revolving mortgage facility with FineMark National Bank & Trust bearing interest at 3.0 % ( base minus 25 basis points with a floor of 3 % ). Facility matures in September 2027 . Current available borrowings under the facility were approximately $ 26.4 million at December 31, 2020. — 52,885 Less current portion ( 2,802 ) Less unamortized portion of debt issuance costs ( 643 ) $ 49,440 11 . STOCK-BASED COMPENSATION: We account for our stock-based compensation plans following the provisions of FASB Accounting Standards Codification 718, “Compensation — Stock Compensation” (“ASC 718”). In accordance with ASC 718, we use the Black-Scholes valuation model for valuing all options granted (Note 12) and shares purchased under our Amended 2008 Employee Stock Purchase Plan (“Stock Purchase Plan”) (Note 13). We measure compensation for restricted stock awards and restricted stock units (Note 14) at fair value on the grant date based on the number of shares expected to vest and the quoted market price of our common stock. We recognize compensation cost for all awards in operations on a straight-line basis over the requisite service period for each separately vesting portion of the award. During the three months ended March 31, 2020 and 2021, we recognized stock-based compensation expense of approximately $ 1.8 million and $ 2.4 million, respectively, and for the six months ended March 31, 2020 and 2021, we recognized stock-based compensation expense of approximately $ 3.3 million and $ 4.4 million, respectively, in selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations. Cash received from option exercises under all share-based compensation arrangements for the three months ended March 31, 2020 and 2021, was approximately $ 0.4 million and $ 0.1 million, respectively and for the six months ended March 31, 2020 and 2021 was approximately $ 1.0 million and $ 1.7 million, respectively. We currently expect to satisfy share-based awards with registered shares available to be issued from the Stock Purchase Plan. 12 . THE INCENTIVE STOCK PLANS: During February 2020, our shareholders approved a proposal to amend the 2011 Stock-Based Compensation Plan (“2011 Plan”) to increase the 3,200,456 share threshold by 1,000,000 shares to 4,200,456 shares. During January 2011, our shareholders approved a proposal to authorize our 2011 Plan, which replaced our 2007 Incentive Compensation Plan (“2007 Plan”). Our 2011 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units, bonus stock, dividend equivalents, other stock related awards, and performance awards (collectively “awards”), that may be settled in cash, stock, or other property. Our 2011 Plan is designed to attract, motivate, retain, and reward our executives, employees, officers, directors, and independent contractors by providing such persons with annual and long-term performance incentives to expend their maximum efforts in the creation of shareholder value. Subsequent to the February 2020 amendment described above, the total number of shares of our common stock that may be subject to awards under the 2011 Plan is equal to 4,000,000 shares, plus: (i) any shares available for issuance and not subject to an award under the 2007 Plan, which was 200,456 shares at the time of approval of the 2011 Plan; (ii) the number of shares with respect to which awards granted under the 2011 Plan and the 2007 Plan terminate without the issuance of the shares or where the shares are forfeited or repurchased; (iii) with respect to awards granted under the 2011 Plan and the 2007 Plan, the number of shares 15 that are not issued as a result of the award being settled for cash or otherwise not issued in connection with the exercise or payment of the award; and (iv) the number of shares that are surrendered or withheld in payment of the exercise price of any award or any tax withholding requirements in connection with any award granted under the 2011 Plan or the 2007 Plan. The 2011 Plan terminates in February 2030 , and awards may be granted at any time du ring the life of the 2011 Plan. The dates on which awards vest are determined by the Board of Directors or the Plan Administrator. The Board of Directors has appointed the Compensation Committee as the Plan Administrator. The exercise prices of options are determined by the Board of Directors or the Plan Administrator and are at least equal to the fair market value of shares of common stock on the date of grant. The term of options under the 2011 Plan may not exceed ten years . The options granted have varying vesting periods. To date, we have not settled or been under any obligation to settle any awards in cash. The following table summarizes activity from our incentive stock plans from September 30, 2020 through March 31, 2021: Shares Available for Grant Options Outstanding Aggregate Intrinsic Value (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Life Balance as of September 30, 2020 1,275,415 196,329 $ 2,636 $ 12.12 2.5 Options granted - - - - Options cancelled/forfeited/expired 10,000 ( 10,000 ) - - Options exercised - ( 71,079 ) - - Restricted stock awards issued ( 336,591 ) - - - Restricted stock awards forfeited 5,975 - - - Additional shares of stock issued ( 3,374 ) - - - Balance as of March 31, 2021 951,425 115,250 $ 4,531 $ 11.66 2.2 Exercisable as of March 31, 2021 115,250 $ 4,531 $ 11.66 2.2 No options were granted for the six months ended March 31, 2020 and 2021. The total intrinsic value of options exercised during the six months ended March 31, 2020 and 2021, was $ 0.2 million and $ 1.6 million, respectively. We used the Black-Scholes model to estimate the fair value of options granted. The expected term of options granted is estimated based on historical experience. Volatility is based on the historical volatility of our common stock. The risk-free rate for periods within the contractual term of the options is based on the U.S. Treasury yield curve in effect at the time of grant. 13 . EMPLOYEE STOCK PURCHASE PLAN: During February 2019, our shareholders approved a proposal to amend our Stock Purchase Plan to increase the number of shares available under that plan by 500,000 shares. The Stock Purchase Plan as amended provides for up to 1,500,000 shares of common stock to be available for purchase by our regular employees who have completed at least one year of continuous service. In addition, there were 52,837 shares of common stock available under our 1998 Employee Stock Purchase Plan, which have been made available for issuance under our Stock Purchase Plan. The Stock Purchase Plan provides for implementation of annual offerings beginning on the first day of October in each of the years 2008 through 2027, with each offering terminating on September 30 of the following year. Each annual offering may be divided into two six-month offerings. For each offering, the purchase price per share will be the lower of: (i) 85% of the closing price of the common stock on the first day of the offering or (ii) 85 % of the closing price of the common stock on the last day of the offering. The purchase price is paid through periodic payroll deductions not to exceed 10 % of the participant’s earnings during each offering period. However, no participant may purchase more than $ 25,000 worth of common stock annually. We used the Black-Scholes model to estimate the fair value of options granted to purchase shares issued pursuant to the Stock Purchase Plan. Volatility is based on the historical volatility of our common stock. The risk-free rate for periods within the contractual term of the options is based on the U.S. Treasury yield curve in effect at the time of grant. 16 The following are the weighted average assumptions used for each respective period: Three Months Ended Six Months Ended March 31, March 31, 2020 2021 2020 2021 Dividend yield 0.0 % 0.0 % 0.0 % 0.0 % Risk-free interest rate 1.8 % 0.1 % 1.8 % 0.1 % Volatility 52.4 % 70.2 % 52.4 % 70.2 % Expected life Six Months Six Months Six Months Six Months As of March 31, 2021, we had issued 1,101,135 shares of common stock under our Stock Purchase Plan. 14 . RESTRICTED STOCK AWARDS: We have granted non-vested (restricted) stock awards (“restricted stock”) and restricted stock units (“RSUs”) to employees, Directors, and Officers pursuant to the 2011 Plan and the 2007 Plan. The restricted stock awards and RSUs have varying vesting periods, but generally become fully vested between two and four years after the grant date, depending on the specific award, performance targets met for performance based awards granted to officers, and vesting period for time based awards. Officer performance based awards are granted at the target amount of shares that may be earned and the actual amount of the award earned generally could range from 0 % to 175 % of the target number of shares based on the actual specified performance target met. We accounted for the restricted stock awards granted using the measurement and recognition provisions of ASC 718. Accordingly, the fair value of the restricted stock awards, including performance based awards, is measured on the grant date and recognized in earnings over the requisite service period for each separately vesting portion of the award. The following table summarizes restricted stock award activity from September 30, 2020 through March 31, 2021: Shares/ Units Weighted Average Grant Date Fair Value Non-vested balance as of September 30, 2020 902,631 $ 18.08 Changes during the period Awards granted 336,591 $ 30.07 Awards vested ( 165,825 ) $ 17.26 Awards forfeited ( 5,975 ) $ 19.79 Non-vested balance as of March 31, 2021 1,067,422 As of March 31, 2021, we had approximately $ 14.1 million of total unrecognized compensation cost, assuming applicable performance conditions are met, related to non-vested restricted stock awards. We expect to recognize that cost over a weighted average period of 2.4 years. 15 . NET INCOME PER SHARE: The following table presents shares used in the calculation of basic and diluted net income per share: Three Months Ended Six Months Ended March 31, March 31, 2020 2021 2020 2021 Weighted average common shares outstanding used in calculating basic income per share 21,520,215 22,143,043 21,486,995 22,083,827 Effect of dilutive options and non-vested restricted stock awards 440,070 843,018 438,110 781,123 Weighted average common and common equivalent shares used in calculating diluted income per share 21,960,285 22,986,061 21,925,105 22,864,950 For the three months ended March 31, 2020 and 2021, there were 21,333 and no weighted average shares of options outstanding, respectively, that were not included in the computation of diluted income per share because the options’ exercise prices were greater than the average market price of our common stock, and therefore, their effect would be anti-dilutive. For the six months ended March 31, 2020 and 2021, there were 21,333 and 104 weighted average shares of options outstanding, respectively, that were not included in the computation of diluted income per share because the options’ exercise prices 17 were greater than the average market price of our common stock, and therefore, their effect would be anti-dilutive. 16 . COMMITMENTS AND CONTINGENCIES: We are party to various legal actions arising in the ordinary course of business. While it is not feasible to determine the actual outcome of these actions as of March 31, 2021, we believe that these matters should not have a material adverse effect on our unaudited condensed consolidated financial condition, results of operations, or cash flows. 18