Onewater Marine Inc. quarterly report, Q2 FY2020

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Onewater Marine Inc. — Form 10-Q Summary

Reporting period: Fiscal second quarter and six months ended March 31, 2020. Financial statements are unaudited; amounts below are in millions of dollars unless stated otherwise. OneWater operates marine retail dealerships, with 63 stores in 11 states. Its business is seasonal, and results before and after its February 11, 2020 IPO reflect a change in corporate structure.

Financial performance and liquidity

  • Quarter revenue: $190.0, up 5.1% from $180.8. Same-store sales declined 2.7%; revenue growth included $13.9 from stores outside the comparable-store base, partly offset by a $4.7 same-store decline.
  • Quarter earnings and margins: Gross profit was $44.6, with a 23.5% gross margin versus 22.0%. Operating income was $8.7 versus $12.8. Consolidated net income was $3.0 versus a $3.0 loss; net income attributable to OneWater Inc. was $1.1, or $0.18 per Class A share. Per-share results cover only the post-IPO period beginning February 11.
  • Six-month results: Revenue was $343.7, up 21.0%; same-store sales rose 4.7%. Gross profit was $76.8, with a 22.3% margin versus 22.2%. Operating income was $11.3 versus $13.6. Consolidated net income was $1.9 versus a $0.4 loss; net income attributable to OneWater Inc. was $1.1.
  • Adjusted EBITDA: $9.9 for the quarter, approximately flat year over year; $11.0 for six months versus $9.9. This is a non-GAAP measure and included adjustments for transaction costs and warrant fair-value changes.
  • Cash flow: Six-month operating cash use was $47.1, versus $78.5 used a year earlier, primarily reflecting working-capital movements. Investing cash use was $1.8. Financing provided $58.4, including $59.2 of net IPO proceeds and additional borrowing. Cash and restricted cash ended at $21.0.
  • Balance sheet and debt: Cash was $20.4; current assets $386.0 and current liabilities $331.1. Inventory was $333.4. Floor-plan borrowings were $294.3, with $98.2 of stated remaining capacity. Long-term debt, including current maturities, was $117.6 before unamortized issuance costs. The $10.0 revolving facility was undrawn. The company reported compliance with credit-facility covenants at quarter-end.

Material changes and unusual items

  • New-boat sales for the quarter rose 0.8%; unit sales fell 4.9%, while average unit prices increased 7.0%. Pre-owned sales rose 19.4%, and finance and insurance income rose 27.2%. Service, parts and other sales declined 4.3% amid partial closures late in March.
  • For six months, growth included $46.4 from stores outside the same-store base, substantially reflecting 2019 acquisitions; the company made no acquisitions in the six months ended March 31, 2020.
  • Quarter operating income declined despite higher gross profit, reflecting higher SG&A and $2.9 of transaction costs, including $2.3 related to the IPO, and the absence of a $1.7 prior-year gain on contingent consideration. Comparisons of net income were also affected by the prior-year $12.3 warrant-liability expense; the warrants were exercised in connection with the IPO.
  • The IPO raised approximately $59.2 net. Proceeds and other funding were used in part to redeem approximately $89.2 of preferred interests. OneWater Inc owned approximately 41.8% of OneWater LLC at March 31; remaining LLC ownership is reported as non-controlling interest.

Outlook, risks and contingencies

  • Management said COVID-19 slowed same-store sales late in March after approximately 10% year-over-year growth through mid-March. Certain locations or departments were temporarily closed or operated with reduced staffing. The duration and financial effect remained uncertain.
  • In response, the company reduced costs, including executive salaries and discretionary spending, furloughed or reduced some workforce, limited non-essential capital spending, and planned a temporary pause in acquisitions. Management stated it expected adequate cash flow and borrowing capacity for operations and essential capital expenditures over the next 12 months, based on then-current facts and circumstances.
  • After quarter-end, subsidiaries received approximately $14.1 of CARES Act SBA loans in April, then returned the funds on May 6 after management said sales trends through April 30 appeared less adversely affected than initially expected. Future pandemic effects remained uncertain.
  • Debt and liquidity risks include substantial inventory financing, variable interest rates, covenant compliance, and dependence on inventory collateral. The company elected to defer cash interest for 12 months under its term facility, increasing the applicable rate by 2.0% for that period. A 100-basis-point rate increase on quarter-end floor-plan borrowings was estimated to add approximately $2.9 of annual interest expense, before potential offsets.
  • Other risks include pronounced seasonality, consumer demand and economic conditions, weather, supplier and manufacturer relationships, and potential inventory or intangible-asset impairment. Quantitative interim tests found no goodwill or trade-name impairment as of March 31; prolonged adverse conditions could change that assessment. Management said known litigation was not expected to have a material effect, while noting outcomes cannot be predicted with certainty.
  • The Tax Receivable Agreement generally entitles certain former owners to 85% of specified realized or deemed tax savings. No liability was recorded at March 31 because no LLC units had been exchanged.

Key facts for investors to verify

  • Whether post-quarter sales and same-store trends persisted, and how COVID-related closures, demand, staffing and supply availability affected later periods.
  • Whether inventory levels, floor-plan debt, borrowing capacity and operating cash flow remained manageable through the seasonal cycle.
  • Whether the interest-deferral election, leverage and facility covenants affect future interest expense or liquidity.
  • How much reported growth came from acquired stores versus comparable-store performance, and whether gross-margin and SG&A trends continued.
  • The post-IPO earnings allocation and share structure: Class A shares have economic rights, while Class B shares carry votes but no economic rights; reported EPS covers only the period after February 11, 2020.
  • Any later impairment indicators, tax-receivable obligations, or material developments in litigation and other contingencies.