OneWater Marine Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2021; comparisons are with the three months ended December 31, 2020. Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted.
Business context
OneWater is a recreational marine retailer selling new and pre-owned boats, finance and insurance products, service, parts and accessories, and marina and storage services. At quarter-end it operated 75 retail locations and 8 distribution centers or warehouses across 15 states. Results are seasonal, with demand generally stronger in the third and fourth fiscal quarters.
Financial performance
| Metric | Quarter ended Dec. 31, 2021 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $336.3 | $214.1 | +57.1% |
| Gross profit / margin | $101.0 / 30.0% | $52.4 / 24.5% | +92.5%; margin +5.5 percentage points |
| Operating income / margin | $31.3 / 9.3% | $16.0 / 7.5% | +95.4% |
| Net income | $23.5 | $11.8 | +99.5% |
| Net income attributable to OneWater Inc. | $20.0 | $7.8 | — |
| Diluted EPS | $1.45 | $0.71 | — |
| Adjusted EBITDA (non-GAAP) | $41.0 | $16.7 | — |
| Net cash used in operating activities | $(22.8) | $(28.6) | — |
Revenue gains reflected 27.9% same-store sales growth and $62.6 million from stores outside the same-store base. New boat revenue rose 55.6%, pre-owned boat revenue 38.5%, finance and insurance income 56.1%, and service, parts and other revenue 110.7%. New and pre-owned boat unit sales were flat year over year; higher average selling prices and product mix contributed to revenue growth. Non-boat sales increased to 13.9% of revenue and represented 26.3% of gross profit.
SG&A was $59.1 million, or 17.6% of revenue, versus $34.9 million, or 16.3%. Interest expense on other debt rose to $1.5 million from $0.9 million. The effective tax rate was 17.2%, compared with 17.6%.
Balance sheet, cash flow and financing
- At December 31, cash was $67.9 million and restricted cash was $6.9 million; inventory was $248.2 million, up from $143.9 million at September 30, 2021.
- Current assets were $394.9 million and current liabilities $347.5 million. Total liabilities were $856.9 million and total stockholders’ equity $305.2 million.
- Floor-plan borrowings were $195.6 million, versus $114.2 million at September 30. The inventory financing facility has a $500 million maximum; disclosed available borrowing capacity was $304.4 million.
- Gross long-term debt outstanding was $352.4 million, including a $301.9 million term loan and $40.0 million drawn on a $50 million revolving facility. The term loan and revolving facility mature July 22, 2025. Debt balances increased substantially following a $200 million incremental term loan.
- Operating cash use was $22.8 million, principally reflecting a $71.7 million inventory build. Investing cash use was $282.2 million, including $278.8 million of acquisition cash outlays. Financing provided $305.9 million, including $240.0 million of long-term debt proceeds and $81.4 million of net floor-plan borrowings.
Management reported compliance with covenants under both credit facilities at quarter-end and stated it believes cash flows, facility borrowings and potential future financing can fund operations, essential capital expenditures and acquisitions for the next 12 months and beyond.
Material changes, outlook and risks
- OneWater completed acquisitions of Naples Boat Mart, T-H Marine, Norfolk Marine and a majority interest in Quality Boats. Total consideration was approximately $302.1 million. The acquired businesses contributed $14.2 million of quarterly revenue and $1.1 million of pretax income. Purchase price allocations were preliminary. A subsequent acquisition of JIF Marine closed February 1, 2022.
- Gross margin expansion was driven in part by higher boat margins, product and brand mix, dynamic pricing, and supply-constrained inventory. Management said industry supply-chain constraints limited boat availability and unit sales.
- Quarterly expenses included $5.7 million for the change in fair value of contingent consideration and $3.0 million of acquisition transaction costs. These items are excluded from the company’s Adjusted EBITDA reconciliation; Adjusted EBITDA is non-GAAP and should not be viewed as a substitute for GAAP results.
- COVID-19-related demand had supported sales to date, but management described future effects as uncertain. Risks include supply constraints, changes in discretionary consumer demand, economic downturns, seasonal and weather-related volatility, acquisition execution, manufacturer relationships, and interest-rate exposure. The company does not hedge interest-rate risk; a 100-basis-point increase was estimated to add approximately $2.0 million of annualized interest expense on floor-plan debt and $1.1 million on the term loan balance described in the filing.
- No specific financial guidance was provided. Management’s liquidity outlook is subject to operating cash flow, borrowing availability, covenant compliance and access to capital. The filing reported no material changes to the risk factors in the prior Form 10-K and no litigation expected by management to have a material adverse effect.
Important facts for investors to verify
- How much of revenue and earnings growth came from same-store performance versus acquisitions, and whether elevated selling prices and margins are sustainable.
- Inventory availability, inventory aging and the cash required to support inventory and seasonal operations.
- Acquisition integration and returns, including final purchase-price allocations, contingent consideration assumptions and the results of newly acquired businesses.
- Debt levels, variable-rate exposure, borrowing availability and continued compliance with facility covenants.
- The impact of seasonality, supply-chain disruption, consumer demand, and any changes in COVID-19 conditions on future operating results.