OneWater Marine Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023; filed August 4, 2023. Unless noted, amounts are in millions of dollars. Comparisons are with the corresponding 2022 periods.
Business context
OneWater is a recreational marine retailer and distributor operating 100 retail locations and 11 distribution centers/warehouses. Its reportable segments are Dealerships and Distribution; Distribution includes marine-product businesses acquired in 2022. Results include acquisitions, limiting comparability with prior periods. The business is seasonal, with demand generally strongest in the third and fourth fiscal quarters.
Key financial results
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $594.3; up 4.5% | $1,485.3; up 10.2% |
| Gross profit / margin | $159.4 / 26.8%, versus $183.9 / 32.3% | $416.1 / 28.0%, versus $427.4 / 31.7% |
| Operating income | $60.1, versus $87.5 | $135.5, versus $178.3 |
| Net income | $33.3, versus $64.5 | $71.8, versus $130.3 |
| Net income attributable to OneWater Inc. | $28.6; diluted EPS $1.95 | $60.3; diluted EPS $4.12 |
| Adjusted EBITDA | $59.8, versus $95.1 | $139.4, versus $202.2 |
Revenue mix shifted toward service, parts and other: that category rose 23.2% in the quarter and 38.4% year to date, partly reflecting acquisitions. New-boat revenue fell 1.4% in the quarter but rose 6.2% year to date. Finance and insurance income was nearly unchanged. Management attributed lower boat margins to post-pandemic pricing normalization; quarterly new-boat gross margin was 20.5%, versus 27.2%, and pre-owned margin was 22.5%, versus 30.0%.
Cash flow, debt and liquidity
- Operating cash flow was negative $134.2 for the nine months, versus positive $62.1 a year earlier. Inventory growth used $193.7 of cash; net income was also lower.
- Investing cash outflow was $46.8, including $28.6 for acquisitions and $17.0 for property and equipment. Financing provided $173.2, including $175.4 of net floor-plan borrowings.
- June 30 cash was $45.4, with $7.8 of restricted cash. Inventory was $572.9; current assets were $808.5 and current liabilities $642.7.
- Floor-plan debt was $444.8, with $105.2 of borrowing capacity under the $550 facility, which expires December 1, 2023. Rates on new inventory ranged from 7.93% to 10.18%.
- Total debt outstanding, including floor-plan financing, was approximately $910.4: $465.7 of other debt and $444.8 of floor-plan debt. The $65.0 revolving facility had $30.0 drawn. The term loan balance was $428.3 and bore interest at 7.14%.
- The company reported compliance with debt covenants and said it expects adequate funding for operations, share repurchases, essential capital expenditures and acquisitions for the next twelve months and beyond. It does not hedge interest-rate exposure; a 100-basis-point rate increase was estimated to add about $4.4 of annual floor-plan interest and $4.3 on the term-loan balance, based on period-end amounts.
Changes, outlook and risks
Despite revenue growth, profitability weakened materially: nine-month net income fell 44.9% and Adjusted EBITDA fell 31.1%. Margin normalization, higher SG&A and sharply higher interest costs were principal pressures. Higher inventory and borrowing rates contributed to floor-plan interest expense rising to $17.7 year to date from $3.1; other interest expense rose to $25.3 from $7.9. Acquisitions completed in fiscal 2023 contributed $47.2 of nine-month revenue and $5.7 of pretax income.
The filing provides no formal numerical guidance. Management cited improved supply-chain conditions and a return toward traditional seasonal patterns, while emphasizing sensitivity to consumer demand, discretionary spending, inflation, interest and fuel costs, inventory levels, weather and manufacturer relationships. Other risks include acquisition integration, covenant compliance and access to capital. The company reported no material change in its previously disclosed risk factors, and management did not expect known litigation to have a material adverse effect. The filing also notes ongoing Hurricane Ian-related expenses.
Important facts for investors to verify
- Whether boat pricing and gross margins stabilize, and whether lower margins are offset by growth in service, parts and distribution.
- Inventory levels, aging and sales conversion, given the substantial inventory build, negative operating cash flow and dependence on floor-plan financing.
- Renewal or replacement of the floor-plan facility before its December 1, 2023 expiration, available borrowing capacity and covenant headroom.
- How higher rates affect interest expense, earnings and liquidity, as the company reports no current interest-rate hedging.
- Acquisition integration, expected benefits and comparability of results; the filing does not provide a comparable 2022 segment breakdown under the current reporting structure.