OneWater Marine Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2023, compared with the three months ended December 31, 2022. The filing was signed February 2, 2024. OneWater operates 98 retail locations and 10 distribution centers/warehouses across 18 states.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $364.0 million | $366.7 million |
| Gross profit / margin | $91.4 million / 25.1% | $110.0 million / 30.0% |
| Operating income | $6.5 million | $26.5 million |
| Net income (loss) | $(8.0) million | $11.4 million |
| Net income (loss) attributable to OneWater Inc. | $(7.2) million | $8.9 million |
| Diluted earnings (loss) per Class A share | $(0.49) | $0.61 |
| Adjusted EBITDA (non-GAAP) | $7.1 million | $30.4 million |
| Cash used in operating activities | $110.0 million | $138.1 million |
At December 31, cash was $44.6 million and restricted cash was $9.6 million. Inventory was $706.8 million, up from $609.6 million at September 30. Floor-plan borrowings were $562.8 million, with $87.2 million of stated borrowing capacity available. Long-term debt, net, was $433.7 million; total debt outstanding before debt issuance costs and current classification was $446.8 million. The company reported total liabilities of $1.309 billion.
Material changes and drivers
- Revenue declined 0.7%. New-boat revenue rose 3.7% to $241.1 million, while pre-owned boat revenue fell 4.5% to $53.3 million. Finance and insurance income fell 17.6% to $7.4 million, and service, parts and other revenue declined 10.4% to $62.3 million.
- Gross profit fell 16.9%, and gross margin contracted 490 basis points. Management attributed the decline chiefly to post-pandemic pricing and margin normalization and a seasonal mix shift toward larger boats and yachts, which generally carry lower margins. New-boat margin fell to 18.5% from 24.6%; pre-owned margin fell to 22.4% from 27.7%.
- Operating income decreased 75.6%. SG&A increased 2.3% to $79.6 million, including higher boat-show expenses, while floor-plan interest expense rose 63.5% to $7.8 million and other interest expense rose 20.7% to $9.2 million.
- Adjusted EBITDA, a non-GAAP measure, fell to $7.1 million from $30.4 million. The company’s adjusted net loss attributable to OneWater Inc. was $5.4 million, or $0.38 per diluted share, versus adjusted net income of $10.7 million, or $0.73 per diluted share.
- Operating cash use improved year over year but remained substantial, primarily reflecting the seasonal inventory build. Investing cash flow included $45.1 million of proceeds from the September 2023 sale of Roscioli Yachting Center. Financing included a $18.8 million payment to acquire the remaining 20% interest in Quality Assets and Operations, LLC; OneWater now owns 100%.
Outlook, risks and unusual items
- No numerical revenue or earnings guidance was provided. Management said it expects adequate liquidity from operating cash flows, credit facilities and potential future financing to fund operations, essential capital expenditures, acquisitions and share repurchases for the next 12 months and beyond. This expectation is subject to facility availability, covenants and operating performance.
- The business is seasonal: the December and March quarters generally have lower sales and higher inventory and floor-plan borrowings outside Florida. Management noted a return toward traditional seasonal patterns as supply-chain conditions improved.
- Key risks include discretionary consumer demand, higher interest rates and fuel costs, inventory aging and pricing, weather and seasonality, manufacturer relationships and incentives, acquisition integration, and access to capital. The company does not currently hedge interest-rate exposure. A 100-basis-point rate change was estimated to alter annualized interest expense by about $5.6 million on floor-plan debt and $4.0 million on the term loan, based on period-end balances.
- The inventory financing facility was amended in November 2023 to increase its maximum borrowing amount to $650 million and extend its term to March 1, 2026. The company reported compliance with the financial covenants of both credit facilities at December 31. A January 29, 2024 amendment to the Truist credit facility maintained the maximum consolidated leverage ratio at 3.25 through March 2025, then steps it down to 3.00 and subsequently 2.75 on the specified quarterly schedule.
- Management said pending litigation was not reasonably expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty. The IRS audit of OneWater LLC’s 2020 partnership return remains ongoing; outcome and timing are uncertain.
- Other notable items: the Roscioli and Lookout Marine dispositions in September 2023 affected period comparability; a $0.6 million loss was recorded for the change in fair value of contingent consideration. No share repurchases occurred during the quarter; $48.1 million remained under the authorized program.
Important facts for investors to verify
- Whether boat pricing and gross margins stabilize, particularly for new and pre-owned boats, and how the seasonal mix affects subsequent quarters.
- Inventory levels, aging, borrowing capacity and floor-plan interest costs as the company enters its stronger selling season.
- Liquidity and compliance with leverage and fixed-charge covenants, including the amended leverage-ratio schedule and available revolver capacity.
- Performance trends in finance and insurance, service and parts, and the Distribution segment, including the effects of prior dispositions and normalization in manufacturer demand.
- The assumptions and reconciliation behind Adjusted EBITDA and other non-GAAP measures; these are supplemental and are not substitutes for GAAP results.
- Developments in the IRS audit and any material change in litigation, tax receivable agreement obligations or other contingencies.