OneWater Marine Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended December 31, 2020. Fiscal Q1 FY2021; financial statements are unaudited. The company operates a marine-retail business, with 69 stores in 10 states at quarter-end.
Financial performance and position
| Metric | Q1 FY2021 | Prior comparable period |
|---|---|---|
| Revenue | $214.1 million | $153.7 million |
| Gross profit / gross margin | $52.4 million / 24.5% | $32.2 million / 20.9% |
| Operating income / operating margin | $16.0 million / 7.5% | $2.7 million / 1.7% |
| Net income (loss), consolidated | $11.8 million | $(1.1) million |
| Net income attributable to OneWater Inc. | $7.8 million; diluted EPS $0.71 | Not presented on a comparable basis |
| Adjusted EBITDA | $16.7 million | $1.2 million |
| Operating cash flow | $(28.6) million | $(28.7) million |
| Investing cash flow | $(80.0) million | $(1.8) million |
| Financing cash flow | $70.4 million | $29.7 million |
Revenue rose 39.3%; same-store sales increased 37.9%. New boat sales were $151.8 million, pre-owned boat sales $38.6 million, finance and insurance income $6.0 million, and service, parts and other sales $17.7 million. New boat unit sales grew 31.0%, with average prices up 12.7%; pre-owned unit sales fell 8.1%, while average prices rose 27.9%.
Gross margin expanded 360 basis points. New-boat gross margin increased to 19.3% from 16.4%, pre-owned to 21.1% from 15.7%, and service, parts and other to 51.1% from 42.8%. SG&A rose 23.2% to $34.9 million but declined as a share of revenue to 16.3% from 18.4%.
At December 31, cash was $26.0 million and restricted cash $4.0 million. Current assets were $253.9 million and current liabilities $232.6 million. Inventory was $196.1 million, up from $150.1 million at September 30. Floor-plan borrowings were $170.3 million, versus $124.0 million at September 30, with $222.2 million of stated additional borrowing capacity. Long-term debt, net of current portion and issuance costs, was $111.5 million; total debt outstanding before those deductions was $124.2 million. The company reported compliance with its debt covenants.
Material changes and notable items
- Growth reflected stronger same-store demand and operational improvements, as well as three Florida acquisitions: Tom George Yacht Group, Walker Marine Group, and Roscioli Yachting Center. Their total purchase price was $88.2 million; $77.6 million was paid in cash. Only Tom George contributed to quarterly results, adding $2.1 million of revenue and $0.2 million of pretax income.
- Acquisition spending contributed to negative investing cash flow. Inventory growth and a $5.5 million payment of prior-acquisition contingent consideration were significant operating cash uses.
- The quarter included a $0.4 million expense related to adjustment of contingent consideration. Income tax expense was $2.5 million; the company attributed the new tax provision primarily to OneWater Inc.’s corporate tax status following its offering and reorganization.
- On February 2, 2021, after quarter-end, the company arranged a $30.0 million incremental term loan and used the proceeds to repay the $30.0 million revolver balance. The incremental loan was added to the existing $80.0 million term loan.
Outlook, risks, and management commentary
Management said demand across regions and product lines remained resilient, with consumers’ focus on socially distanced outdoor recreation supporting sales. It stated that cash flow from operations, credit facilities, and potential future debt or equity proceeds should be adequate for operations and essential capital expenditures over the next 12 months. The filing provides no numerical revenue, earnings, or margin guidance.
Management cautioned that the pandemic’s future effects remain uncertain, including possible impacts on customer demand, safe store operations, inventory access, and supply chains. Other highlighted risks include the highly seasonal and weather-sensitive boating market, inventory availability and aging, discretionary consumer spending, interest-rate exposure, acquisition execution and integration, manufacturer relationships, and compliance with credit-facility covenants. A 100-basis-point rate increase was estimated to raise annual interest expense by approximately $1.7 million on floor-plan borrowings and $0.3 million on the $80.0 million term loan balance, based on quarter-end balances. The company does not hedge this exposure.
The company reported no material change in risk factors from its FY2020 Form 10-K. Management did not expect pending litigation to have a material adverse effect, while noting outcomes cannot be predicted with certainty. Disclosure controls were concluded to be effective, and no material changes in internal control over financial reporting were reported.
Investor verification points
- Check whether elevated same-store demand, pricing, and gross margins persisted after the pandemic-driven surge and constrained boat supply.
- Assess inventory availability, aging, floor-plan borrowing capacity, and the effect of seasonal cash requirements.
- Review acquisition integration, purchase-price allocations, earnout estimates, and the returns from the three Florida acquisitions.
- Verify the impact of refinancing the revolver into additional term debt, subsequent amortization, interest costs, and covenant headroom.
- Consider the distinction between consolidated net income and income attributable to OneWater Inc.; OneWater Inc. held 72.6% of OneWater LLC’s economic interest at quarter-end.
- Monitor pandemic, economic, weather, supplier concentration, and interest-rate risks, along with the company’s tax receivable agreement liability of $17.6 million.