OneWater Marine Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. The filing also reports fourth-quarter results for the three months ended September 30, 2020; this is an annual filing, not a standalone quarterly report. OneWater is a premium recreational boat retailer operating 61 stores across 10 states. It completed its IPO in February 2020 and had no acquisitions during FY2020.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $1,023.0 million | $767.6 million |
| Gross profit / margin | $235.5 million / 23.0% | $172.1 million / 22.4% |
| Operating income / margin | $78.5 million / 7.7% | $53.3 million / 6.9% |
| Net income, consolidated | $48.5 million | $37.3 million |
| Adjusted EBITDA (non-GAAP) | $83.3 million | $46.2 million |
| Cash from operating activities | $212.5 million | $(5.7) million |
Revenue grew 33.3%; same-store sales rose 24.4%. New-boat sales increased 36.1%, pre-owned sales 34.4%, and finance and insurance income 40.7%. SG&A was $143.4 million, or 14.0% of revenue, down from 15.2%. Net margin was 4.7%, versus 4.9%. The reported $48.5 million consolidated net income includes non-controlling interests; net income attributable to OneWater Marine Inc. was $17.4 million. Class A basic and diluted EPS were $2.79 and $2.77, respectively, for the post-IPO period only.
Fourth quarter: Revenue was $271.0 million versus $208.8 million in the prior-year quarter; gross profit was $64.1 million versus $46.4 million; operating income was $16.5 million versus $12.8 million; and net income was $6.0 million versus $5.0 million.
Cash, liquidity and debt
- Cash was $66.1 million at year-end, versus $11.1 million a year earlier; current assets were $252.1 million and current liabilities $185.7 million.
- Operating cash flow improved sharply, but included a $127.2 million cash inflow from lower inventory. Capital expenditures were $6.3 million. Treat the cash-flow surge cautiously when assessing recurring cash generation.
- Year-end borrowings included $124.0 million of inventory floor-plan financing and $80.0 million under the term loan. Other notes payable totaled $11.5 million; reported total debt excluding floor-plan financing was $91.5 million.
- The company reported approximately $298.5 million of additional aggregate borrowing availability across its credit facilities and compliance with their covenants at September 30, 2020. The $30.0 million revolving facility had no balance outstanding at year-end; inventory borrowing capacity depends on eligible collateral and inventory aging.
Changes, outlook and risks
- Management attributed unusually strong demand partly to COVID-19-related interest in socially distanced outdoor recreation. It also cited higher boat unit sales and average selling prices, favorable product mix, and the contribution of FY2019 acquisitions. Service, parts and other revenue grew only 2.8%; pandemic-related closures and labor reductions weighed on labor sales.
- FY2020 included a $6.6 million loss on extinguishment of debt, mainly an early termination fee and write-off of old debt issuance costs, and a $6.8 million contingent-consideration loss. The company refinanced in July 2020 with an $80.0 million term loan and a $30.0 million revolver, maturing in 2025.
- Management said it expected adequate cash flow and borrowing capacity for operations, essential capital spending and acquisitions over the next 12 months. It provided no specific earnings or revenue guidance. It planned to pursue four to eight acquisitions over 24 months, potentially adding an estimated $100 million to $200 million in sales. A November 2020 agreement to acquire Tom George Yacht Group would add two Florida locations and was expected to close by year-end.
- Key risks include uncertain future COVID-19 effects, discretionary consumer demand, pronounced seasonality and weather exposure, and geographic concentration: approximately 75% of revenue came from the Southeast and Gulf Coast. The top ten brands represented 41.1% of sales; Malibu Boats brands represented 16.2% of consolidated revenue.
- Other considerations include variable-rate debt and LIBOR transition, manufacturer supply and dealer-agreement dependence, acquisition execution, and the Tax Receivable Agreement. The company recorded a $15.6 million TRA liability; a hypothetical immediate termination payment was estimated at $34.9 million under stated assumptions. Management said pending litigation was not expected to have a material effect. The independent auditor issued an unqualified opinion on the financial statements; no auditor attestation of internal controls was provided under the company’s emerging-growth-company transition relief.
Important facts for investors to verify
- Whether the exceptional same-store growth and demand gains persist after pandemic-driven shifts in recreation and spending.
- How much operating cash flow is repeatable after the substantial inventory reduction and how inventory levels, floor-plan borrowing and availability evolve.
- Debt-covenant headroom, interest-rate exposure, refinancing terms and repayment needs, including the $124.0 million floor-plan balance.
- Whether targeted acquisitions close at attractive prices and integrate successfully, and whether manufacturer approvals and supply support expansion.
- The actual timing and amount of TRA payments, ownership and non-controlling-interest effects, and the distinction between consolidated net income and earnings attributable to Class A shareholders.