OneWater Marine Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2020; comparisons are to the periods ended June 30, 2019. The company operates 63 marine retail stores in 11 states. Results are unaudited and seasonal.
Financial performance
| Metric | Three months ended June 30, 2020 | Change year over year | Nine months ended June 30, 2020 | Change year over year |
|---|---|---|---|---|
| Revenue | $408.3 million | +48.6% | $751.9 million | +34.5% |
| Gross profit / margin | $94.7 million / 23.2% | +50.9%; margin +0.4 percentage points | $171.5 million / 22.8% | +36.3%; margin +0.3 percentage points |
| Operating income / margin | $50.7 million / 12.4% | +88.2%; margin up from 9.8% | $62.0 million / 8.2% | +52.9%; margin up from 7.2% |
| Net income | $40.6 million | +24.3% | $42.5 million | +31.9% |
| Net income attributable to OneWater Marine Inc. | $14.4 million | Prior-period comparable not presented for the public-company structure | $15.5 million | Prior-period comparable not presented for the public-company structure |
| Adjusted EBITDA (non-GAAP) | $49.2 million | Up from $25.3 million | $60.2 million | Up from $35.2 million |
Quarterly sales gains included new boats ($287.0 million, +58.8%), pre-owned boats ($85.9 million, +29.9%) and finance and insurance income ($16.6 million, +66.3%). Same-store sales increased 43.9% in the quarter and 24.1% for the nine-month period. The company attributed growth to higher unit sales and average selling prices, prior-year acquisitions, and demand for outdoor recreation during the pandemic. Quarterly service, parts and other revenue rose 3.9%, but that category’s gross profit declined 2.6%.
Quarterly net income growth was slower than operating-income growth, in part because 2019 included a $10.4 million noncash warrant-liability gain that did not recur, while 2020 included $4.7 million of income tax expense following the IPO. The company’s Class A diluted EPS was $2.36 for the quarter and $2.54 for the post-IPO portion of the nine-month period; these EPS figures cover periods beginning February 11, 2020, not the full comparable periods. The company owned 41.8% of OneWater LLC at June 30, so non-controlling interests materially reduce income attributable to OneWater Inc.
Cash flow, liquidity and debt
- Operating cash flow was $152.6 million for the nine months, versus cash used of $23.0 million in 2019. Inventory reduction contributed $106.0 million of cash; accounts receivable increased and used $42.1 million.
- Investing activities used $2.3 million, primarily for property and equipment. Financing activities used $70.7 million, including redemption of preferred interests and reduced floor-plan borrowings.
- Cash was $88.0 million and restricted cash $3.1 million at June 30, 2020. Current assets were $330.7 million and current liabilities $242.9 million.
- Floor-plan debt was $176.1 million, down from $225.4 million at September 30, 2019; borrowing availability under that facility was $216.4 million. Long-term debt was $119.7 million gross, including an $8.4 million current portion; the revolving facility was undrawn at June 30.
- The company elected to defer cash interest payments on its then-existing term loan for 12 months, increasing the applicable rate by 2.0%. It reported compliance with its credit-facility covenants at June 30.
- On July 22, 2020, after quarter-end, it refinanced the Goldman Sachs facility with an $80 million term loan and a $30 million revolver, with a further $50 million increase option subject to conditions. It used $29 million of cash and $80 million of new-loan proceeds to repay $109 million of old debt. The new facility matures in 2025 and includes leverage and fixed-charge-coverage covenants.
Material changes, outlook and risks
- The February 2020 IPO generated $59.2 million of net proceeds. Proceeds, cash and borrowings funded the $89.2 million redemption of preferred interests. The reorganization created a public-company tax expense and substantial non-controlling interests.
- No acquisitions were completed in the nine months ended June 30, 2020. Management said it was recommencing its acquisition strategy and evaluating opportunities following strong quarterly results; no numerical earnings or revenue guidance was provided.
- Management said pandemic-related demand had been resilient and may have benefited from cancelled travel and consumers’ interest in socially distanced recreation. It cautioned that future effects remain uncertain, including renewed restrictions, economic weakness, demand changes, supply-chain or labor disruption, and safe store operations.
- Other key risks include seasonal and weather-driven sales, inventory aging and financing availability, interest-rate exposure, manufacturer relationships and brand concentration, and covenant compliance. A 100-basis-point rate increase on the June 30 floor-plan balance was estimated to increase annual interest expense by $1.8 million; the company did not hedge this exposure.
- The company returned $14.1 million of SBA loans on May 6, 2020 after determining that business performance through April was not affected as severely as initially expected. Litigation was described as routine, with no material adverse outcome considered reasonably probable by management.
- The Tax Receivable Agreement generally requires payment to certain legacy owners of 85% of qualifying realized tax savings. No liability was recorded at June 30 because no LLC-unit exchanges had occurred; accelerated payments may exceed actual tax savings in some circumstances.
Investor verification points
- Check whether elevated same-store demand persisted after pandemic-related shifts in leisure spending, and whether new- and pre-owned-boat pricing and unit growth are sustainable.
- Assess cash generation quality: operating cash flow benefited substantially from inventory reductions and other working-capital movements.
- Review the post-quarter refinancing’s final terms, covenant headroom, interest expense and liquidity alongside floor-plan capacity and inventory levels.
- Distinguish consolidated net income from earnings attributable to OneWater Inc. and account for the 58.2% non-controlling economic interest in OneWater LLC at quarter-end.
- Monitor seasonality, supplier concentration, pandemic-related supply and demand risks, and the potential cost of the Tax Receivable Agreement and resumed acquisitions.