Business context and reporting period
OneWater Marine Inc. filed this Form 10-Q for the quarter ended December 31, 2019, its fiscal first quarter. The operating results and consolidated balance sheet are for One Water Marine Holdings, LLC and subsidiaries, the operating business before the February 2020 IPO reorganization; the parent company’s standalone balance sheet showed only $10 of cash and $10 of equity. OneWater operated 63 stores in 11 states and reported one marine-retail segment. The business is seasonal, with generally lower sales and higher inventory and floor-plan borrowing in winter outside Florida.
Financial performance
Amounts below are in millions of dollars unless stated otherwise. Comparisons are with the three months ended December 31, 2018.
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Revenue | $153.7 | $103.3 |
| Gross profit / margin | $32.2 / 20.9% | $23.3 / 22.6% |
| SG&A / share of revenue | $28.4 / 18.5% | $21.6 / 20.9% |
| Operating income / margin | $3.0 / 1.9% | $1.1 / 1.0% |
| Net income (loss) | ($1.1) | $2.5 |
| Adjusted EBITDA, non-GAAP | $1.1 | ($0.1) |
| Cash used in operating activities | ($28.7) | ($61.7) |
| Cash used in investing activities | ($1.8) | ($3.5) |
Revenue increased 48.8%; same-store sales rose 17.4%. Growth reflected higher new- and pre-owned boat sales, finance and insurance income, and the full-quarter contribution of stores acquired in fiscal 2019. New boat revenue rose 45.2%, pre-owned boat revenue 89.9%, and finance and insurance income 99.9%; service, parts and other revenue was nearly flat.
Gross margin declined 1.7 percentage points, principally because of new-boat model and location mix and lower pre-owned margins. SG&A rose 31.5% in dollars but declined as a share of revenue, supporting higher operating income. Net results swung to a loss despite operating improvement, chiefly because the noncash gain from revaluing warrant liabilities was $0.8 million versus $4.7 million a year earlier, while interest expense also increased.
Liquidity, debt and cash flow
At December 31, 2019, consolidated cash was $10.5 million, restricted cash $0.3 million, current assets $346.1 million and current liabilities $298.8 million (working capital of approximately $47.2 million). Inventory was $313.8 million, up from $277.3 million at September 30, 2019. Operating cash outflow was primarily associated with seasonal inventory investment; it was partly funded by $39.1 million of net floor-plan borrowings. Quarter-end cash, including restricted cash, was $10.7 million.
Floor-plan debt was $264.5 million, with $128.0 million of stated borrowing capacity under a $392.5 million facility. Long-term debt, including its current portion, was $73.8 million; total debt across these categories was approximately $338.3 million. The balance sheet also included $87.1 million of redeemable preferred interest in a subsidiary and a $50.1 million warrant liability. The company reported compliance with its credit-facility covenants at quarter-end.
After quarter-end, the February 11, 2020 IPO raised approximately $63.7 million gross. The filing reports approximately $59.2 million net of underwriting discounts and commissions in one discussion, and approximately $58.6 million after estimated offering expenses in another. Proceeds, cash on hand and new borrowing were used to redeem the subsidiary’s preferred units and complete related transactions. The amended term and revolving facility increased term-loan capacity to $100 million, the revolver to $10 million, and extended maturity to February 2025; the company borrowed an additional $35.3 million under the term loan at closing. The preferred units were fully redeemed.
Outlook, commentary and risks
- Management stated it believed cash flow and available borrowing capacity would be adequate for operations, capital expenditures and acquisitions over the next 12 months. This is a liquidity assessment, not formal earnings guidance.
- Management planned to continue pursuing acquisitions and cited a pipeline of four to eight dealer groups over the following 24 months. No acquisition was completed in the quarter.
- The filing identifies seasonality, discretionary consumer demand, weather, inventory management, manufacturer relationships, acquisition integration and access to financing as material business risks. The top ten boat brands represented 41.8% of quarterly sales; Malibu brands represented 14.4% of revenue.
- A 100-basis-point change in the inventory facility’s underlying rate was estimated to change annual interest expense by approximately $2.6 million, based on the quarter-end balance. The company did not hedge this exposure.
- COVID-19 had not affected the reported quarter, but management said its impact was uncertain and could affect consumer demand, boat shows, supply chains, staffing and market conditions.
- The IPO structure created additional corporate tax and public-company costs. Under the tax receivable agreement, OneWater Inc. generally owes certain continuing LLC unitholders 85% of qualifying realized or deemed tax savings.
- Management reported no material adverse impact expected from pending litigation and no material change to previously disclosed risk factors other than the added pandemic risk. The company also expected lease accounting adoption in fiscal 2022 to materially increase reported assets and liabilities.
Most important facts for investors to verify
- Reconcile IPO net proceeds: approximately $59.2 million after underwriting discounts versus approximately $58.6 million after estimated offering expenses, and confirm how proceeds and new debt were applied.
- Assess whether sales growth and improved SG&A leverage can offset lower gross margins, higher interest costs and post-IPO expenses.
- Track inventory growth, seasonal operating cash use, floor-plan availability and compliance with facility covenants.
- Review the amended debt terms, actual borrowing and interest costs, and the post-IPO effect of redeeming preferred units and exercising warrants.
- Monitor the uncertain COVID-19 effects, supplier concentration, consumer demand, seasonality and acquisition execution.
- Consider the potential cash obligations under the 85% tax receivable agreement and the expected balance-sheet effect of lease accounting adoption.