Business context and reporting period
OneWater Marine Inc. is a recreational boat retailer and marine-products distributor. This Form 10-Q covers its fiscal first quarter ended December 31, 2022; comparisons are with the three months ended December 31, 2021 unless otherwise noted. At quarter-end, the company operated 100 retail locations and 12 distribution centers/warehouses. Following the Ocean Bio-Chem acquisition, it reports Dealerships and Distribution segments.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial statement amounts are rounded to millions.
| Metric | Quarter ended Dec. 31, 2022 | Prior-year quarter |
|---|---|---|
| Revenue | $366.7 million, up 9.0% | $336.3 million |
| Gross profit / margin | $110.0 million / 30.0% | $101.0 million / 30.0% |
| Operating income / margin | $26.5 million / 7.2% | $31.3 million / 9.3% |
| Net income | $11.4 million | $23.5 million |
| Net income attributable to OneWater Inc. | $8.9 million | $20.0 million |
| Diluted earnings per share | $0.61 | $1.45 |
| Adjusted EBITDA (non-GAAP) | $27.9 million | $41.0 million |
Revenue growth reflected acquisitions and an 86.3% increase in service, parts and other sales to $69.5 million. New-boat revenue declined 1.6%; pre-owned boat revenue rose 4.4%; finance and insurance income declined 4.0%. Dealership same-store sales fell 14%. Non-boat sales rose to 21.4% of revenue and contributed 34.0% of gross profit.
Gross margin held at 30.0%, but operating margin declined as SG&A rose 31.7% to $77.8 million, or 21.2% of revenue versus 17.6%. Management cited acquisition-related personnel costs and increased boat-show marketing. New-boat gross margin declined to 24.6% from 25.5%; service, parts and other margin fell to 40.9% from 46.3%, partly due to product mix.
Operating cash flow was negative $138.1 million, compared with negative $22.8 million, principally reflecting a $147.8 million inventory cash outflow. Investing cash outflow was $35.0 million, including $28.6 million for acquisitions and $6.4 million for capital expenditures. Financing cash inflow was $170.3 million, including $156.0 million of net floor-plan borrowings and $20.0 million of long-term debt proceeds. Cash and restricted cash totaled $58.2 million at quarter-end.
At December 31, 2022, cash was $43.5 million and restricted cash was $14.7 million. Current assets were $710.4 million and current liabilities were $601.2 million, yielding working capital of approximately $109.2 million. Inventory was $527.0 million, up from $373.0 million at September 30, 2022.
Floor-plan borrowings were $425.4 million, with $74.6 million of stated availability under the $500 million facility, which expires December 1, 2023. Long-term debt outstanding was $472.8 million before debt issuance costs, including a $445 million term loan and $20 million drawn on the $65 million revolving facility. Thus, reported floor-plan and long-term debt totaled approximately $898.1 million before debt issuance costs. The company reported compliance with facility covenants. Its stated floor-plan interest rates had risen to 6.93%–9.18% for new inventory and 7.18%–9.43% for pre-owned inventory.
Material changes, outlook and risks
- Operating income fell 15.3% and net income fell 51.3%; higher SG&A and interest costs outweighed revenue and gross-profit growth. Floor-plan interest expense rose to $4.8 million from $0.9 million, and other interest expense rose to $7.6 million from $1.5 million.
- Fiscal first-quarter acquisitions of Taylor Marine Centers and Harbor View Marine had aggregate consideration of approximately $41.8 million. They contributed $8.7 million of revenue and $0.5 million of pretax income during the quarter. The Distribution segment generated $39.9 million of revenue and an operating loss of $3.3 million; the filing provides no prior-year segment comparison under the revised reporting structure.
- Unusual items included a $1.4 million gain from a change in fair value of contingent consideration, versus a $5.7 million expense in the prior-year quarter, and insurance proceeds related to Hurricane Ian included in other income. Management attributed some of the reduced net income to higher expenses and interest costs.
- Management said it expects adequate cash flow and borrowing capacity to support operations, acquisitions and essential capital expenditures for the next 12 months and beyond. The filing gives no specific earnings or revenue guidance. Management also said the company intends to continue evaluating acquisitions.
- Key risks include seasonal and cyclical demand for discretionary boating products; declining same-store sales; rising interest rates and substantial floating-rate debt; inventory levels and floor-plan availability; supply-chain constraints; weather events; acquisition integration and execution; manufacturer relationships; and covenant compliance. Management noted that industry supply constraints showed signs of easing, but the timing of full resolution remained uncertain. The company does not hedge its stated interest-rate exposure.
- The company received notice in November 2022 that the IRS intends to audit OneWater LLC’s 2020 partnership tax return; the outcome and timing are uncertain. Management said pending litigation was not expected to have a material adverse effect, while acknowledging that outcomes cannot be predicted with certainty.
Most important facts for investors to verify
- Whether the 14% decline in Dealership same-store sales stabilizes, and how demand, boat pricing and unit volumes develop.
- Whether the elevated inventory and negative operating cash flow unwind as seasonal sales progress, and whether floor-plan availability remains sufficient.
- How higher interest rates affect interest expense, earnings and covenant headroom; the filing estimates that a 100-basis-point increase would add approximately $4.3 million of annualized interest on the floor-plan balance and $4.5 million on the term-loan balance, based on quarter-end balances.
- Whether recent acquisitions, especially Distribution operations, deliver expected integration benefits and improve segment profitability.
- The renewal or replacement of the inventory financing facility before its December 2023 expiration, and developments from the IRS audit and contingent consideration obligations.
- Management’s liquidity assessment depends on operating cash flows and continued access to credit facilities; verify actual availability and covenant compliance as conditions change.