OneWater Marine Inc. — Form 10-Q Summary
Business context and reporting period. The filing covers the fiscal third quarter and nine months ended June 30, 2022; the comparable periods ended June 30, 2021. OneWater operates a marine retail business, with 96 retail locations and 10 distribution centers or warehouses in 19 states at June 30, 2022. Figures below are in millions of dollars except per-share data.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue, 2022 | $568.9 | $1,347.3 |
| Revenue, 2021 | $404.2 | $947.9 |
| Revenue growth | 40.7% | 42.1% |
| Gross profit, 2022 | $183.9 | $427.4 |
| Gross margin, 2022 / 2021 | 32.3% / 31.4% | 31.7% / 28.3% |
| Operating income, 2022 | $87.5 | $178.3 |
| Operating margin, 2022 / 2021 | 15.4% / 16.1% | 13.2% / 12.6% |
| Net income, 2022 | $64.5 | $130.3 |
| Net income attributable to OneWater Inc., 2022 | $56.0 | $112.3 |
| Diluted EPS, 2022 / 2021 | $3.86 / $3.04 | $7.90 / $5.63 |
| Adjusted EBITDA, 2022 / 2021 | $95.1 / $65.5 | $202.2 / $122.3 |
Adjusted EBITDA is a non-GAAP measure; the company cautions it should not be viewed in isolation or as a substitute for GAAP results.
- Revenue mix and growth: New boat revenue was $376.9 million for the quarter and $903.1 million year to date. Pre-owned boat revenue was $98.2 million and $227.5 million, respectively. Service, parts and other revenue rose 152.6% for the quarter and 149.9% year to date, with acquisitions contributing substantially.
- Organic growth: Same-store sales increased 12.0% for the quarter and 14.2% year to date. The filing attributes growth to higher new-boat average selling prices, pre-owned unit sales, product mix, finance and insurance sales, and service and parts activity.
- Cash flow: Nine-month operating cash flow was $62.1 million, versus $153.2 million in 2021. Investing cash outflow was $337.6 million, mainly for acquisitions; financing provided $313.4 million. Cash and restricted cash ended at $111.9 million, including $95.7 million of cash and $16.2 million of restricted cash.
- Liquidity and debt: Management reported liquidity above $120 million and compliance with debt covenants at June 30. Debt included $294.0 million under the Truist term loan, $40.0 million drawn on its revolver, and $217.3 million of floor-plan borrowings. The floor-plan facility had $282.7 million of stated available borrowing capacity. Total debt outstanding, including floor-plan borrowings, was approximately $558.3 million before other balance-sheet liabilities.
- Balance sheet: Inventory was $269.4 million, up from $143.9 million at September 30, 2021. Total assets were $1,347.6 million and total liabilities were $923.9 million at June 30, 2022.
Material changes versus prior comparable periods
- Quarterly revenue rose 40.7% and gross profit rose 44.9%; gross margin improved 0.9 percentage points. Operating income grew 34.8%, while operating margin declined 0.7 percentage points as SG&A rose to 15.4% of revenue from 15.0%.
- Year-to-date revenue rose 42.1%, gross profit 59.4%, and net income attributable to OneWater Inc. 78.9%. Gross margin increased 3.4 percentage points.
- Acquisitions completed during the nine-month period included Naples Boat Mart, T-H Marine, Norfolk Marine, Quality Boats, JIF Marine, YakGear and Denison Yachting. The company reported $357.2 million of consideration for these acquisitions; acquired businesses contributed $178.5 million of revenue during the nine months.
- Operating cash flow declined as inventory growth used cash; the company cited a $135.3 million year-over-year increase in the inventory-related cash flow change. Acquisition spending and borrowings also increased significantly.
- Long-term debt and floor-plan borrowings increased, and interest expense rose amid higher debt balances and interest rates. Nine-month interest expense on other debt was $7.9 million versus $3.2 million.
Outlook, risks and unusual items
- No numerical earnings or revenue guidance is provided. Management said it expects adequate cash flow, borrowing capacity and potential financing sources to fund operations, share repurchases, capital expenditures and acquisitions over the next 12 months and beyond; this outlook is subject to operating results, borrowing availability and covenant compliance.
- On June 21, 2022, OneWater agreed to acquire Ocean Bio-Chem, Star Brite Europe and certain real estate assets, with closing expected in fiscal Q4 2022. The transaction remained subject to closing conditions. Truist committed to provide $125 million of debt financing, conditional on documentation and transaction completion. The filing warns the deals may be delayed or fail to close, and integration may not deliver expected benefits.
- Management cited supply-chain constraints and inventory shortages, inflation, higher interest rates and fuel costs, changes in discretionary consumer demand, labor availability, seasonality, and severe weather as risks. COVID-19 had supported demand for outdoor recreation but continued to pose uncertain risks to operations, supply and demand.
- Interest-rate exposure is unhedged. The filing estimates a 100-basis-point rate increase would add about $2.2 million of annualized interest expense on floor-plan borrowings and about $2.9 million on the Truist credit facility, based on period-end balances.
- Unusual items included $11.0 million of year-to-date expense from changes in fair value and accretion of contingent consideration, $5.2 million of transaction costs, and higher depreciation and amortization associated with acquisitions. Contingent consideration was $38.3 million at June 30.
- The board authorized a $50 million share-repurchase program; no shares had been repurchased by June 30. Management said known litigation was not expected to have a material adverse effect, while noting outcomes are uncertain. Disclosure controls were assessed as effective, with no material changes to internal control reported.
Important facts for investors to verify
- How much of reported revenue, earnings and Adjusted EBITDA growth reflects same-store performance versus acquired businesses, and whether acquired operations meet expected returns.
- Whether elevated inventory levels convert into sales and operating cash flow, and the effects of inventory aging, supply constraints and consumer demand.
- Debt, floor-plan borrowing, interest-rate exposure and covenant headroom, particularly as acquisition financing and borrowing costs rise.
- Whether the OBCI-related acquisitions close on expected terms and timing, and whether integration and anticipated synergies are achieved.
- The sensitivity of margins and earnings to boat pricing, product mix, service and parts growth, variable compensation and contingent-consideration revaluations.