OneWater Marine Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022 (not a standalone fourth-quarter report). Amounts below are in U.S. dollars; financial figures are rounded to millions unless noted.
Business context and reporting period
OneWater operates recreational marine dealerships and marine-products distribution businesses. At year-end it had 96 dealerships in 15 states, 12 distribution centers or warehouses, and online marketplaces. Dealerships generated about 92% of FY2022 revenue and Distribution about 8%. The company changed to these two reportable segments following its August 2022 acquisition of Ocean Bio-Chem.
Financial performance and position
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $1,744.8 million | $1,228.2 million | +42.1% |
| Gross profit / margin | $553.7 million / 31.7% | $357.5 million / 29.1% | +54.9%; margin +2.6 points |
| Operating income / margin | $217.8 million / 12.5% | $148.9 million / 12.1% | +46.3% |
| Net income | $152.6 million | $116.4 million | +31.1% |
| Net income attributable to OneWater Inc. | $130.9 million | $79.1 million | +65.6% |
| Diluted EPS | $9.13 | $6.96 | +31.2% |
| Adjusted EBITDA (non-GAAP) | $247.6 million | $155.8 million | +58.9% |
Revenue growth reflected 11.9% Dealership same-store sales growth, acquisitions, higher average boat selling prices, and growth in service, parts and accessories. New-boat revenue was $1,139.3 million (+30.6%); pre-owned boat revenue was $294.8 million (+36.2%); finance and insurance income was $56.0 million (+31.2%); and service, parts and other revenue was $254.7 million (+164.1%). Acquisitions and increased boat sales contributed to the service, parts and other growth. Non-boat sales rose to 17.8% of revenue and contributed 30.1% of gross profit.
Gross margin expansion reflected higher new- and pre-owned-boat margins, dynamic pricing, sales mix and inventory constraints. SG&A increased 51.8% to $302.1 million and rose to 17.3% of revenue from 16.2%, partly due to higher variable compensation and personnel costs. Interest expense—other rose to $13.2 million from $4.3 million, primarily following acquisition-related borrowing. FY2022 also included $7.7 million of transaction costs, $10.4 million of contingent-consideration expense, and $3.8 million of other expense, including a $1.2 million unrealized loss on an equity investment and Hurricane Ian costs.
Cash flow: Operating cash flow was $7.4 million, down from $159.4 million, principally because inventory increased substantially; the cash-flow statement reports a $167.2 million inventory cash use. Investing cash outflow was $476.8 million, including $459.5 million used for acquisitions. Financing cash inflow was $456.4 million, driven by debt and floor-plan borrowings. Cash was $42.1 million and restricted cash $18.9 million at year-end, versus $62.6 million and $11.3 million, respectively, a year earlier.
Debt and liquidity: Year-end floor-plan borrowings were $267.1 million, up from $114.2 million. Long-term debt outstanding was $452.4 million, including a $445.0 million term loan; the revolving facility had no borrowings. The company reported $232.9 million of remaining availability under its $500 million inventory financing facility and approximately $297.9 million of aggregate additional borrowing availability under its credit facilities. It was in compliance with facility covenants at September 30, 2022. Current assets were $566.9 million and current liabilities $452.1 million; inventory was $373.0 million. The company reported no material off-balance-sheet arrangements other than operating leases and ordinary-course purchase commitments.
Material changes versus the prior comparable period
- Revenue and gross profit increased materially, supported by same-store growth and acquisitions. Acquisitions contributed $275.3 million of revenue and $41.1 million of pretax income during the period.
- Eight acquisitions were completed in FY2022, including T-H Marine, Denison Yachting and Ocean Bio-Chem, expanding the higher-diversification Distribution business. Acquisition accounting included substantial goodwill and intangible assets; certain valuations remained preliminary at filing.
- Inventory rose to $373.0 million from $143.9 million; floor-plan debt increased by $152.9 million. This working-capital investment was a major reason operating cash flow fell sharply despite higher earnings.
- The company refinanced its credit arrangements in August 2022, establishing a $445 million term facility and $65 million revolving facility, with maturities in 2027. Its inventory facility, with a $500 million maximum, matures December 2023.
- Overall gross margin rose to 31.7% from 29.1%, while SG&A as a share of revenue increased to 17.3% from 16.2%. The acquired and expanded parts-and-accessories mix lowered service, parts and other gross margin to 43.5% from 51.6%, though it remained above the company-wide margin.
Outlook, commentary, risks and unusual items
No numerical revenue, earnings or margin guidance is provided. Management said it expects cash flow from operations, credit facilities and potential future financing to be adequate for operations, share repurchases, essential capital expenditures and acquisitions for the next 12 months and beyond. It intends to pursue dealership and distribution acquisitions and grow higher-margin service, parts and accessories, finance and insurance, and online sales.
Management described customer demand as resilient, while noting inflation, rising interest rates, fuel costs, supply-chain constraints and inventory availability could pressure demand and operations. The business is seasonal and weather-sensitive, with approximately 79% of FY2022 revenue generated in the Southeast and Gulf Coast. Other key risks include discretionary-spending cyclicality, manufacturer relationships and supply, inventory valuation and aging, acquisition integration, floating-rate debt, and covenant compliance. A 100-basis-point increase in rates was estimated to increase annual interest expense by about $7.2 million across the term and inventory facilities; the company does not hedge this exposure.
Other items to note: the board authorized a $50 million share-repurchase program; $0.4 million was used for repurchases in FY2022, leaving $49.6 million. The company does not expect to pay regular cash dividends in the foreseeable future. Its Tax Receivable Agreement liability was $46.4 million; a change of control or early termination can accelerate payments, with an illustrative estimated termination payment of $31.9 million based on stated assumptions. The IRS notified the company in November 2022 that it intended to audit OneWater LLC’s 2020 partnership return. Management said pending litigation was not expected to have a material adverse effect.
Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor excluded T-H Marine, Denison Yachting and Ocean Bio-Chem from the internal-control assessment because of acquisition timing; T-H Marine and Ocean Bio-Chem represented approximately 28% of total assets and 7% of revenue, respectively, as of and for FY2022. The audit identified acquisition-related intangible-asset valuation as a critical audit matter. No goodwill or identifiable-intangible impairment was recorded.
Important facts for investors to verify
- Whether inventory growth, boat availability and floor-plan borrowing levels normalize, and whether the sharp decline in operating cash flow reverses.
- Whether acquisition integration delivers expected earnings and cash generation, especially in Distribution, and whether preliminary purchase-price valuations or contingent consideration change.
- Current borrowing availability, interest costs, covenant headroom and the December 2023 inventory-facility maturity/refinancing plan.
- Demand, pricing and margins amid higher rates and inflation, including whether FY2022 boat margins are sustainable as supply conditions change.
- Progress integrating acquired companies into internal controls, and outcomes of the IRS audit and any material environmental, legal or product-liability matters.
- The assumptions and potential cash impact of the $46.4 million Tax Receivable Agreement liability, including possible acceleration in a change of control.