OneWater Marine Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results for the three and six months ended March 31, 2021 (fiscal Q2 and first half of FY2021), compared with the same periods in 2020. OneWater operates a recreational marine retail business; at quarter-end it had 69 stores in 10 states and one reportable segment. The business is seasonal, with demand generally highest in fiscal Q3 and Q4.
Key financial metrics
| Metric | Three months ended March 31, 2021 | Six months ended March 31, 2021 |
|---|---|---|
| Revenue | $329.6 million | $543.7 million |
| Gross profit / margin | $88.8 million / 26.9% | $141.2 million / 26.0% |
| Operating income / margin | $38.7 million / 11.7% | $54.7 million / 10.1% |
| Net income | $30.6 million consolidated; $20.5 million attributable to OneWater Inc. | $42.4 million consolidated; $28.3 million attributable to OneWater Inc. |
| Diluted Class A EPS | $1.83 | $2.55 |
| Adjusted EBITDA (non-GAAP) | $40.1 million | $56.8 million |
| Operating cash flow | Not presented for the quarter | $30.6 million |
For the six months, cash used in investing was $90.5 million, including $85.5 million for acquisitions; financing provided $79.3 million. Cash and restricted cash totaled $87.5 million at March 31, 2021, including $76.7 million of unrestricted cash. Inventory was $186.1 million.
At March 31, total debt was $121.5 million, excluding $183.8 million of floor-plan borrowings; combined, these were approximately $305.3 million. The company reported $208.7 million of remaining borrowing capacity under its inventory financing facility and no balance on its $30 million revolving facility. It was in compliance with debt covenants. Current and long-term liabilities included a $17.9 million tax receivable agreement liability.
Material changes versus prior comparable periods
- Quarterly revenue rose 73.5% and first-half revenue rose 58.2%. Same-store sales increased 57.4% and 48.7%, respectively. Growth reflected higher boat unit sales and average selling prices, stronger service and related revenues, and acquired stores.
- Gross margin increased 3.4 percentage points to 26.9% for the quarter and 3.7 points to 26.0% for the first half. Management cited favorable product mix, dynamic pricing, and limited industry inventory.
- Quarterly net income was $30.6 million versus $3.0 million; first-half net income was $42.4 million versus $1.9 million. Comparisons are affected by the 2020 IPO and changes in corporate taxation and non-controlling interests.
- First-half operating cash flow improved from a use of $47.1 million in 2020 to generation of $30.6 million in 2021. Inventory and customer deposits contributed to cash flow; accounts receivable growth partly offset it.
- Three Florida acquisitions—Tom George Yacht Group, Walker Marine Group and Roscioli Yachting Center—were completed in December 2020 for a total purchase price of approximately $93.0 million. They contributed $32.8 million of first-half revenue and $3.4 million of pretax income.
Outlook, commentary, risks and unusual items
- No quantified revenue, earnings or other forward guidance was provided. Management said it expects adequate cash flow, facility borrowings and potential future financing to support operations and essential capital expenditures for the next 12 months, based on current conditions.
- Management described demand as resilient and sales as benefiting from consumers’ interest in outdoor recreation. Industry-wide supply constraints have supported prices and margins, but could limit product availability; pre-owned boat unit sales declined in the periods discussed while average prices increased.
- Key risks include COVID-19 and any renewed disruption to demand or operations; supply-chain constraints and inventory availability; economic weakness in discretionary spending; seasonality and severe weather; manufacturer relationships and concentration; acquisition execution; and access to liquidity and compliance with debt covenants.
- Both inventory financing and term debt have floating-rate exposure, and the company does not hedge interest rates. Management estimated that a 100-basis-point increase would raise interest expense by approximately $1.8 million on floor-plan debt and $0.4 million on the term facility for the fiscal period described.
- Acquisition-related contingent consideration and estimates are subject to uncertainty. The company recorded $5.5 million of estimated contingent consideration for the Walker acquisition and a $0.4 million expense related to settlement of an earlier acquisition earnout. Management said pending litigation was not expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
- Management’s non-GAAP Adjusted EBITDA excludes certain expenses and should not be viewed as a substitute for GAAP results. The filing also states adoption of lease accounting standards is expected to materially increase reported assets and liabilities when implemented.
Important facts for investors to verify
- Whether elevated boat demand, selling prices and gross margins persist as supply constraints ease or consumer conditions change.
- How much future growth is organic versus attributable to acquisitions, and whether recent acquisitions meet return and integration expectations.
- Inventory levels, aging, floor-plan borrowing capacity and covenant headroom, particularly through seasonal periods.
- Cash conversion and working-capital needs, including the sustainability of customer deposits and the impact of receivables and inventory investment.
- Debt maturities, floating-rate sensitivity, earnout obligations and potential payments under the tax receivable agreement.
- The comparability of reported earnings and EPS with 2020, given the IPO, taxes and changing non-controlling ownership.