OneWater Marine Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023. This is an annual report, not a filing limited to 2023 Q4.
Business context
OneWater is a U.S. marine retailer and parts-and-accessories distributor. At year-end it operated 98 dealerships in 15 states and 11 distribution centers or warehouses. Dealerships generated about 91% of FY2023 revenue; Distribution generated about 9%. The company completed three acquisitions and sold two businesses during the year. Its business is seasonal and exposed to discretionary consumer demand, interest rates, weather and inventory financing costs.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $1,936.3 million | $1,744.8 million |
| Gross profit / margin | $535.1 million / 27.6% | $553.7 million / 31.7% |
| Operating income / margin | $18.1 million / 0.9% | $217.8 million / 12.5% |
| Net income (loss) | $(39.1) million | $152.6 million |
| Net income (loss) attributable to OneWater Inc. | $(38.6) million; diluted EPS $(2.69) | $130.9 million; diluted EPS $9.13 |
| Adjusted EBITDA (non-GAAP) | $167.4 million | $247.6 million |
| Operating cash flow | $(129.8) million | $7.4 million |
Revenue increased 11.0%; Dealership same-store sales rose 3.0%. New-boat revenue grew 7.4%, pre-owned boat revenue 13.4%, and service, parts and other revenue 26.4%. Service, parts and other growth included contributions from acquired distribution businesses. Despite higher sales, total gross profit declined 3.3% as boat margins normalized after pandemic-era pricing: new-boat gross margin fell to 21.9% from 26.8%, and pre-owned margin to 22.7% from 27.7%.
FY2023 included a $147.4 million non-cash impairment charge, primarily in Distribution ($140.9 million; Dealerships $6.5 million), reflecting weaker Distribution results and a lower company market capitalization. Higher SG&A and interest costs also weighed on results. Interest expense was $25.1 million on floor-plan financing and $34.6 million on other debt. Cash used in operations reflected the net loss and a $232.3 million increase in inventory; inventory was $609.6 million at year-end, up from $373.0 million.
Debt, liquidity and capital
At September 30, 2023, floor-plan borrowings were $489.0 million and long-term debt, including the revolving facility, was $465.1 million before debt issuance costs. Cash was $84.6 million, with restricted cash of $8.7 million. The company reported approximately $96 million of additional borrowing availability across its credit facilities and compliance with covenants at year-end. Floor-plan borrowing availability alone was $61.0 million. On November 14, 2023, it amended and restated the inventory financing facility, increasing its maximum from $550 million to $650 million and extending it to March 1, 2026. Management stated it expected adequate resources to fund operations and planned needs for the next 12 months and beyond.
The company repurchased 63,353 shares for approximately $1.6 million in FY2023; $48.1 million remained under its $50 million authorization. It does not anticipate cash dividends in the foreseeable future.
Outlook, risks and notable items
The filing provides no quantified revenue, earnings or other FY2024 guidance. Management described continued acquisition evaluation and a strategy to grow higher-margin service, parts, accessories and finance-and-insurance businesses. It also noted that supply-chain conditions improved in FY2023 and that operations were returning to more traditional seasonal patterns. These statements are not a specific forecast.
- Demand and financing: Higher interest rates, inflation, tighter consumer credit or weaker discretionary spending could reduce boat sales and increase company borrowing costs.
- Inventory and liquidity: Inventory rose sharply, operating cash flow turned negative, and floor-plan debt increased. Floating-rate debt exposes the company to further rate increases; it does not currently hedge interest-rate exposure.
- Margins and impairment: Boat pricing normalized, and Distribution recorded a substantial impairment. Further deterioration in performance or valuation assumptions could cause additional charges.
- Seasonality and weather: Sales and inventory financing vary by quarter; hurricanes, storms, drought or other adverse conditions may disrupt demand, facilities or supply chains.
- Concentration and execution: Manufacturer relationships, acquisition integration and retention of key staff are important. The top ten boat brands represented 39.4% of total sales volume; Malibu Boats brands represented 13.9% of consolidated revenue.
- Tax Receivable Agreement: The liability was $43.1 million at year-end. The filing estimates an approximately $25.4 million early termination payment under stated assumptions; a change of control may accelerate payment.
- Other exposures: Risks include environmental and product-liability matters, cybersecurity, regulatory compliance and related-party transactions. Management said pending litigation was not expected to have a material adverse effect.
Subsequent to year-end, OneWater acquired the remaining 20% of Quality Boats on October 31, 2023. Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor concluded controls were effective as of September 30, 2023.
Important facts for investors to verify
- Whether inventory levels and negative operating cash flow improve, and how much cash is required to support seasonal inventory.
- Current borrowing availability, covenant headroom, interest rates and the cost of floor-plan and term debt after the November 2023 facility amendment.
- Distribution segment operating performance and the key assumptions behind the $147.4 million impairment and any future impairment testing.
- Whether normalized boat margins, same-store sales and acquisition integration support earnings and cash generation.
- The timing and cash demands of Tax Receivable Agreement payments, including any acceleration provisions, and the impact of the Quality Boats buyout.