Business context and reporting period
OneWater Marine Inc. filed this unaudited Form 10-Q for its fiscal second quarter ended March 31, 2023, with comparisons to the quarter and six months ended March 31, 2022. The company operates marine dealerships and a marine-products distribution business; at quarter-end it had 100 retail locations and 12 distribution centers or warehouses. Results are seasonal, with dealership sales generally lower in the December and March quarters outside Florida.
Following the Ocean Bio-Chem acquisition, the company reports Dealerships and Distribution segments. For the six-month period, Dealerships generated $805.1 million of revenue and $78.2 million of operating income; Distribution generated $85.9 million of revenue and an operating loss of $2.8 million. Segment operating results for the prior-year comparable period are not presented because the reporting structure changed.
Key financial results
| Metric | Three months ended March 31, 2023 | Six months ended March 31, 2023 |
|---|---|---|
| Revenue | $524.3 million, up 18.6% | $891.0 million, up 14.5% |
| Gross profit / margin | $146.7 million / 28.0% | $256.7 million / 28.8% |
| Operating income | $48.9 million | $75.4 million |
| Net income | $27.0 million | $38.5 million |
| Net income attributable to OneWater Marine Inc. | $22.8 million | $31.7 million |
| Diluted earnings per Class A share | $1.56 | $2.17 |
| Adjusted EBITDA (non-GAAP) | $51.8 million | $79.6 million |
For the six months, operating cash flow was negative $169.3 million, investing cash flow was negative $40.4 million, and financing cash flow was positive $220.4 million. Cash and restricted cash totaled $71.7 million at March 31, 2023, including $61.0 million of cash and $10.7 million of restricted cash.
At March 31, 2023, floor-plan borrowings were $485.4 million, with $64.6 million of stated borrowing capacity remaining under the $550 million inventory financing facility. Long-term debt outstanding before unamortized issuance costs was $471.5 million, including $30.0 million drawn on the $65 million revolving facility. The company reported compliance with its debt covenants. The inventory facility expires December 1, 2023; the term loan and revolving facility mature August 9, 2027.
Material changes versus comparable periods
- Quarterly revenue rose $82.2 million, led by new-boat sales, up 22.5%, and service, parts and other revenue, up 27.8%. Dealership same-store sales grew 11% in the quarter; acquisitions also contributed.
- Despite higher revenue, quarterly gross margin declined from 32.2% to 28.0%, and operating income fell 17.7%. Net income declined 36.2%; diluted EPS declined from $2.54 to $1.56. Higher SG&A and substantially higher interest expense outweighed gross-profit growth.
- For the six months, revenue increased $112.6 million, but gross margin declined from 31.3% to 28.8%, operating income fell 16.9%, net income fell 41.6%, and Adjusted EBITDA declined from $107.1 million to $79.6 million.
- Six-month floor-plan interest expense increased to $10.3 million from $1.9 million, and other interest expense increased to $16.2 million from $4.6 million. Management attributed the increases to higher inventory and debt balances and rising interest rates.
- Inventory rose to $593.3 million from $373.0 million at September 30, 2022. Operating cash use increased to $169.3 million, primarily reflecting the inventory build and lower net income. Financing included $216.1 million of net floor-plan borrowings.
Outlook, risks and unusual items
The filing provides no quantified revenue, earnings or margin guidance. Management stated that it expects available operating cash flow, credit-facility borrowings and potential debt or equity proceeds to fund operations, share repurchases, essential capital expenditures and acquisitions for the next twelve months and beyond. This is subject to operating results, facility availability and covenant compliance.
Management said supply-chain conditions had improved and the business was returning to more traditional seasonal patterns. It also noted that new-boat margins remained above pre-pandemic levels, while describing margin normalization as a result of returning industry seasonality. Risks include discretionary consumer demand, higher interest rates and fuel costs, inventory aging and availability, seasonality and weather, acquisition integration, supplier relationships, and access to financing. The company does not hedge its disclosed interest-rate exposure: a 100-basis-point rate increase was estimated to increase annualized interest expense by approximately $4.9 million on floor-plan debt and $4.3 million on the term loan, based on quarter-end balances.
The quarter included $1.7 million of expense from changes in fair value and accretion of contingent consideration. The six-month results included $0.8 million of other income, partly reflecting insurance proceeds related to Hurricane Ian. Two dealership acquisitions completed during the six months had consideration of approximately $41.8 million and contributed $26.7 million of revenue and $2.7 million of pretax income during that period. The company also reported an IRS notice of an intended audit of OneWater LLC’s 2020 partnership return; management said pending litigation and known claims were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether inventory levels, aging and floor-plan borrowing capacity remain manageable, particularly as the inventory facility approaches its December 2023 expiration.
- Whether boat gross margins stabilize as seasonal conditions normalize, and whether growth in service, parts and distribution supports consolidated profitability.
- Whether operating cash flow improves after the substantial inventory-related cash use and whether liquidity remains adequate under higher interest costs.
- Whether acquisitions are integrated as planned, including the performance of the Distribution segment and any contingent consideration obligations.
- Whether covenant headroom, interest-rate exposure and the company’s stated liquidity outlook remain consistent with operating performance.