Q2 2021 OneWater Marine Inc Earnings Call
[music].
Good day, and thank you for standing by and welcome to the one water Marine Inc.
Quanta 2021 earnings conference call at this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session.
Good question. During this session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today.
<unk> is our Chief Financial Officer. Please go ahead.
Good morning, and welcome to one water Marine fiscal second quarter 2021 earnings Conference call I am joined on the call today by Austin, Singleton, Chief Executive Officer, and Anthony Asquith, President and Chief operating officer before we begin I would like to remind you that certain statements made by management.
This morning's conference call regarding one water marine and its operations, maybe considered forward looking statements under securities law and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors many of which are beyond the company's control, which could could cause actual results to differ materially.
Really from those described in the forward looking statements factors that might affect future results are discussed in the company's earnings release, which can be found on the investor Relations section on the Companys website and in its SEC filings.
Company disclaims any obligations or undertaking to update forward looking information to reflect circumstances or events that occur. After the date. The forward looking statements are made except as required by law and with that I'd like to turn the call over to Austin, Singleton, who will begin with a few opening remarks Austin.
Thanks, Jack and thank you everyone for joining today's call we delivered.
On incredible results for the second quarter of 2021 with growth across every part of our business revenues increased 74% to a record $330 million adjusted EBITDA increased 315% same store sales increased 57%.
Accordingly.
Higher margin finance and insurance revenue.
Also grew significantly by 46% and we doubled our service parts and other revenue. The continued expansion of these businesses emphasize the strength of our strategy to move beyond new and pre owned boat sales, adding stable revenue streams for our long term growth.
One water is firing on all cylinders and I'm extremely proud of our team's ability to remain agile in today's fast paced dynamic environment or.
Our investment in technologies continue to enable us to differentiate ourselves in the market and captured the seamlessly limitless customer desire to get out on the water.
These technologies bolster our ability to not only sales boats, but also sell the right boats to the right customers as quick as possible.
Fortunately, our digital solutions drive operational efficiencies across our business maximizing profit and extending our competitive advantage throughout the industry.
With no indications of slowing down we believe this level of demand will remain heightened as new and experienced boaters come to one water for our arsenal of premium boats and robust service capabilities.
During the last several months, we have had a number of exciting announcements and developments.
First we executed a soft launch of boats for sale Dot com.
Our all inclusive virtual platform to buy sell and compare boats that provides easy access to financing and insurance offerings.
Anthony will talk more about this in his remarks, but suffice to say, while a small part of our business today, we see this platform as having the potential to be a big opportunity for us.
Further we announced the creation and expansion of one water yacht group.
Which unifies one waters yachting presence and provides a launch pad for further growth at the same time, we amplified our service and repair offerings at the Raphael The Yachting Center.
Additionally, last week, we announced that one water was named the sole U S distributor for Sunseeker yacht, leading manufacturer of Premier yachts based on the U K with customers across the globe.
One water yacht group, that's been a key dealer for sunseeker across most of the eastern Seaboard and under the terms of the agreement we will now manage the sunseeker dealer network in other markets throughout the U S.
This first of its kind agreement is a statement to our proven execution and strong partnerships.
It is exciting to say the least as it will allow us to further enhance our portfolio of premium brands and expand our geographic reach on presence in the luxury yacht market.
Finally, the integration of our three acquisitions, Tom George You got group Walker Marine and Rusty you always are progressing well and in alignment with our proven playbook.
Our disciplined and prudent approach to identify top dealers in high performing markets on our flawless integration continues to advance our position as an industry leader with these integrating well we now expect to complete four to six typical acquisitions per year for the next several years.
As we execute our long term growth strategy, we are confident confident that through continued investment in our innovative digital platforms. The.
On the evolution of our higher margin business segments and the integration of our recent M&A activities, we will further extend our market share and generate meaningful value to our shareholders.
With that I will turn it over to Anthony to discuss business operations.
Thanks Austin.
Customer enthusiasm is an all time high the incredible customer demand for boats across all categories continues to drive sales with our.
Technology investments supporting tremendous lead generation.
Our sales team have remained agile by utilizing our state of the art operational dashboards supporting further outperformance within the industry.
We are focused on providing an exceptional selling experience to keep the battery and new foundational layer of voters enthusiastic about the boating lifestyle and the one water family of dealerships for years to come.
Inventories remain at a historically low levels as supply chain continues to be pressured.
Our inventory planning tools, our strong OEM relations has given us confidence that we will have sufficient inventory to meet demand throughout the prime selling season, although we recognize it will be a challenge.
We are in constant communication with our manufacturers and barring any further supply chain disruption.
Expecting a strong finish to the year.
As Austin mentioned during the second quarter, we launched boats for sale Dot com.
On the acquisition of the domain in August of 2020, we aggressively developing new consumer seller focused marketplace that serves as an extension of our store footprint, including new pre owned boats.
In finance and insurance services.
Nearly 1 million boats are sold per year person to person and we believe this platform will completely change the way people sell their boats.
Utilizing the site sellers across the country can list their boats for sale and immediately increase the reach of potential buyers.
In turn buyers can search the listed boats, adding and removing parameters for the book day desire and even receive what we call a notification or a notification when a boat is listed that meets their exact parameters.
Importantly, the site also enables us to build our pre owned boat inventory by bidding on any of the Sip boat and operating the seller a cash offer.
Well, it's early days since the launch we are very encouraged by the growth opportunities that can be created through this innovative marketplace.
<unk>, our ability to broaden our customer and geographic reach.
As Austin mentioned the platform is a small piece of the business today.
We believe it will create an additional avenue for growth for one water near term. Our goal is to have over 15000 boats on the platform by the end of this fiscal year.
Therefore.
Would you expect to see a modest incremental revenue generating starting in fiscal 2022.
I will now turn the call over to Jack who will talk more about the financials in detail.
Thanks Anthony.
Second quarter total revenue increased 74% to $329 6 million in 2021 from $190 million in 2020 fueled by the increase in same store sales a 57% this.
This increase was primarily driven by new unit sales and an increase in the average selling price of new boats sold and to a lesser extent and increasing the average price of pre owned boat sold.
<unk> sales grew at 81% to $239 7 million in the fiscal second quarter of 2021, and pre owned boat sales increased 47% to $56 1 million.
Finance and insurance revenue increased 46% to $11 8 million in the second quarter of 2021 and revenue from service parts and other sales increased 101% to $22 1 million compared to the prior year.
Gross profit nearly doubled to $88 8 million in the second quarter compared to $44 6 million in the prior year driven by the increase in margin on new and pre owned sales a shift in the model mix and size of the boat models sold as well as an increase in the average unit price.
Additionally, higher finance and insurance service.
And other sales contribute significantly to the increase in gross profit.
Gross profit as a percentage of sales increased 340 basis points to 26, 9% compared to $23 five in the prior year.
While selling general and administrative expenses increased to $48 3 million from $32 four SG&A as a percentage of sales decreased to 14, 7% from 17% in the prior year.
The decline in SG&A as a percentage of sales was primarily driven by the increase in sales across the businesses.
And the reduction of expenses, including the cancellation of certain boat shows.
Operating income rose sharply to $38 7 million from $8 five in the prior year.
Driven by the higher sales and expanded gross profit, partially offset by higher SG&A.
As a result, adjusted EBITDA rose to $40 1 million compared to $9 7 million in the prior year.
Net income totaled $30 6 million or $1.83 per diluted share in the fiscal second quarter of 2021 up from $3 million or <unk> <unk> per.
Per diluted share in the prior year.
Turning to the balance sheet as of March 31, total liquidity was in excess of $100 million, including cash on the balance sheet availability under our revolving line of credit and availability under our floor plan facility.
Total inventory at March 31.
2021 was $186 million compared to 333 million at March 31, 2020.
The substantial decrease was was due to the sales increase experienced in recent quarters combined with industry wide supply chain constraints.
From a capital allocation perspective, we are focusing on reinvesting in the business to accelerate organic growth and the strategic M&A opportunities as we have discussed.
In addition, we will continue to evaluate other capital allocation strategies that increase shareholder return.
Looking ahead for the full fiscal year 2021, we are increasing our guidance for same store sales to be up approximately mid to upper teens, given the broad based outperformance in the first half of the fiscal year 2021. Additionally, we have raised our outlook for adjusted EBITDA to be in a range of.
$130 million to 135 million and diluted earnings per share to be in the range of $5 80 to $6 per diluted share.
This all excludes any additional acquisitions that may be completed during the back half of the year.
Our guidance assumes one water manufacturers can maintain production at the current pace and meet the elevated demand in the face of industry wide supply chain challenges.
This concludes our prepared remarks, operator would you. Please open the line for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from Brett <unk> with Keybanc capital markets. Your line is open.
Hey, good morning, guys.
I wanted to ask about the Sunseeker agreement just any more details.
You can share around exactly how the.
The management part of that works I mean, there is a plan to eventually be the only <unk>.
On secret dealer in the U S. And then separately I mean, how do the economics of that agreement flow also.
Yeah. So.
We were where the U S distributor so all the boats coming into the United States will run through one water.
I don't I don't see us in the near or mid term future being the only sunseeker dealer Theres a couple of other guys out there that do a really good job, we're kind of still putting it all together.
One of the things that we're excited about is being able to consolidate.
And show them at Ross Yo lease because we have we have the space to do that and kind of have enough.
Base for U S operations, so a customer that's really interested can come down and see them all but we don't really have any stores in the Midwest.
That might be interested in this of course, there's a great deal or out on the west coast. So.
So we will be looking for some sub dealers.
But it just gives us a little bit more control on what comes in I don't really want to get into how it was set up prior to us doing this but it was a little bit of a wild wild West I mean boats were coming from all over the place. So it just gives a little bit more per.
Recessional setup.
In the United States for how the boats come through and flow and then of course will be responsible for the U S marketing.
And oversee boat show displays print marketing, if we choose to do that customer events and all that stuff. So that comes with an expense. So because of that there is there is a percentage that comes to one water also on every boat.
But it's a good deal just because it it really gives the ability to have a complete plan put together.
Our country.
And.
We can find some really good dealers that we think will will be additive to where we already are where we have no intention to go on anytime soon so it's it's a good overall deal and we're excited.
Got it Okay makes sense and then Austin just more of a high level industry question, but as you look at the broader industry and the dealers that you compete with in your markets.
How does it ever inventories situation look right now compared to yours, I mean I have to imagine.
But there will be some pain out there among the smaller dealers the selling season and I just wonder if that was one of the drivers behind taking that M&A target up to four to six a year.
No I don't think that was the change in the M&A strategy I think spoke to it on the last earnings call.
One of our Achilles' heels on the acquisition front is been integration and it has not been integration on our side, it's getting CDK lined up for the training and moving everything over if you go and do a deal and they are on the same software, it's a pretty easy move over but if they are on dock master or <unk>.
Troll for one of the other software is getting all of that information input it and mapped correctly and then getting to the the.
<unk> their employees up to speed on CDK is just been a little bit of a slow heal because we have to plan. So far out. So we would have these these deal slots will we kind of said this is great, but it's not working exactly the way we want it. So the last couple of deals we've kind of done all of that on our own.
We still use them still have them, helping us with integration, but we've gotten to the point, where we've taken that issue.
Basically eliminated it.
Because we're doing it in house now so that gives us confidence from the ability to probably increase this.
On our cadence on this one or two deals a year plus pumps on the other thing was we always said we wanted to do it with free cash flow.
And the free cash flow is a lot better than it was.
With three years ago or two years ago. So there was just a combination I think from an inventory perspective, I think the next couple of quarters for all of us are going to be challenging and I think debt.
We really can can shine on that is just the amount of information in the forecasting and understanding what's coming when its coming when.
You deal with a single off mom and pop I mean, they're working themselves the bone I mean, they're out there taking care of customers fixing problems. They don't have the time to sit in their office would be call on every manufacturer. They represent every other day to go okay. Where's this but where is that boat, it's kind of more of a.
No.
On the customer screaming and yelling Ottoman Where's my boat, that's when they kind of follow up so I think our digital tools.
And being able to forecast, what we need know where it's going it's probably the one thing that is going to help us on the inventory deal, but that really doesn't have anything to do with the acquisition cadence increasing.
Got it okay.
Thanks, a lot guys.
Thanks, Thanks, Brian.
Thank you. Our next question comes from drew Crum with T cell Youre line is open.
Hey, guys good morning.
So a lot of moving pieces in the gross margin improvement during the quarter can you rank order the importance of the various drivers and those that you see as sustainable going forward.
And then separately you mentioned, the asps being up for both new and pre owned boat.
With inflation and the creation expansion on the yacht group, how do you see asps for your boats trending going forward.
Likely to accelerate or should we see it rise more on line with the industry.
Yep.
So on the first question I would tell you that new boat sales because it's such a large portion of revenue there.
The increase in margin probably had the greatest impact on overall margin.
But we're equally as excited as to see improvements in sales of our non boat business, because we obviously feel like that that's a lot more sustainable.
For the long term and.
The increase in parts and service.
With revenue being up 100%.
Part of that is driven by Rossiya. All of these are in addition to the to the results, but that gives us good sustainable recurring revenue streams.
As far as mix shift mix shift will always.
But.
Margin in projecting margins a little bit of a challenge.
With Tom George and work on Marine the two acquisitions, we did and in December we saw a little bit of a mix shift to some larger boats.
Which larger boats typically have a lower gross margin percentage.
We feel like there's a lot that we're doing within the one water yacht group that can help us improve overall yacht margins.
But as that mix shifts and as you have large boats come through it will put some pressure on the margin percentage.
To hope that that helps answer the question yes.
Yes.
Yeah, and then just a follow up just to follow up on the question on ASP.
Your expectations going forward.
A S R. As we projected model right we look for.
You know what we put out our same store sales number we love to get you know probably half of it from unit growth half of it from.
ASP growth and so I think that's how we're we're looking at things on modeling things internally.
Okay, Alright, thanks, guys.
Thank you.
Thank you. Our next question comes from Joe <unk> with Raymond James Your line is open.
Hey, guys. Good morning couple of questions I guess first on on inventory and I know, it's hard to quibble with a 57% comp here. What do you guys feel like you lost any sales because of a lack of inventory on the quarter.
No Sir not.
Not at all.
Okay, I mean, obviously from they were up.
Pretty heavily.
So we were in contact and utilizing all of the tools that we have to ensure that we.
Boats available.
And I think it's important jet also remember as Austin kind of alluded to earlier when you when you're up against a mom and pop dealer. They they may be have let's say 20 orders with the manufacturer. We maybe have 200 orders with that same manufacturer and so with our digital tools, having the insight on that.
200 orders and our ability to shift it from one location to the other to get it to where the customer wants it is tremendous.
That's helpful.
I guess in terms of seasonality you know Q2 is typically a quarter, where you built inventory Q3 is typically a quarter, where you draw down inventories. So it sounds like we're probably going to see that that inventory number go even lower in the queue.
On a quarter. So I'm curious what do you expect to start growing inventory again, and maybe why do you think it normalizes.
Well.
I would jump in and Joe.
I'll, let Anthony speak right. After I say this I would tell you if demand keeps at the pace. It is it's going to be a long time before we can really start building on inventory.
Door swings.
Lead volume all of that stuff continues to you know to be very very strong and the manufacturers. They just don't like flip a switch and purdue than the month of June they go on produce 10% or 15% more boats. It's it's a slow ramp up for them to get to where they're doing one or 2% more and it kind of starts to compound over time.
So.
It is a great dynamic in my opinion and I you know Anthony you'll have a better gauge on this from my opinion, it's a great dynamic to be forced to sell on the boats out on that are coming in two weeks from now four weeks from now six weeks from now and we're not carrying inventory because inventory cost is way down.
Any.
Yes, I would.
Say that we probably.
<unk>.
Yeah.
Pre pandemic, probably hit we're carrying too much inventory so to get back to those levels.
We are the more we utilize our tools that we have.
We want to continue to increase our turns when the inventories going to get back to normal.
What is normal it would be a question so.
I would say, we're a year or so away from having lots full of inventory.
Our goal is always to continue to order the right boats.
Timely things done with lower interest for carrying costs and everything else like that so it's going to be.
Over a year I think before we will have.
Yes.
Normalized whatever the new normal as of inventories.
Got it Okay. Just one last one from me in terms of product quality with Oems are struggling to get those out the door.
Are you seeing product quality slip at all are you seeing kind of a coming back and asking for but we work for.
We work et cetera.
I wouldn't say that we're seeing poor quality.
We've always been.
On the last.
These are the build if you will with our original put.
So finished assembly on the boats and all that kind of stuff. So.
I don't see the quality of the boats.
Going backwards looking like right now.
Okay. Okay, I think it's more of a challenge to them getting it.
Complete then quality issue.
It's not like they are building a.
Worse boat today than they were 18 months ago 36 months ago, its debt and they got a boat that is completely finished and it's missing one seat cushion or it's missing.
This one thing on it and it's just going to sit up there for a month. So that one thing comes it doesn't hinder the boat I mean like like toward of parties. I mean, you know our customer if you really go Hey look we can get your vote next week, but it's not going to have the board a party in it and like I don't care on a boat.
So I agree with Anthony I think it's more of a they're struggling more with getting the boats complete versus a quality issue.
Got it okay. Thank you guys.
Thank you. Our next question comes from Mike Swartz with Securities. Your line is open.
Okay.
Hey, guys good morning.
Sorry, if I missed this in your prepared comments, but.
Maybe jack or.
And any any color on on the trends you're seeing thus far in your fiscal third quarter. So April maybe.
On your comparable store sales or backlog or any any any metrics you can provide.
Yes.
Yes.
Go ahead.
I was just to say, Mike that would get me in trouble. So I'll, let Jack talk about that one.
Yes, I mean, obviously, obviously, we're up against a really big comp for the quarter and in the back half of the year I think if you look at our same store guidance.
<unk>.
Low single digit comps in the back half.
And we continue to have.
As Austin mentioned.
Good retail demand customer interest is elevated.
You know leads coming in door swings are on.
All very positive so we feel we feel comfortable with that same store sales increase from the back half of the year end.
And just with the continued levels of of.
Demand just from what we've seen so far.
Okay, great and maybe just to add on to that with.
With guidance I think you called out the $1 30 to 135 on EBITDA, which would basically <unk>.
<unk> debt EBITDA dollars are flat in the back half of the year, but youre talking about comparable store growth and you've got some acquisitions here that seasonally speaking should be pretty strong in the back half of your fiscal year. So what I guess what are the offsets to get to that flat number yes I think.
I'd have to double check my numbers, but I think the.
From consensus numbers on the back half is up.
<unk> digits.
The increase.
At that 30 day at those numbers correct.
Yeah.
Okay, maybe that's true.
Yes.
That's fair, it's probably just versus my numbers then okay.
And then Mike just just.
So go ahead.
I was just going to say I might be the stock comp that I think you have in your numbers that we don't put in ours.
Right right.
That makes sense.
Just final question from me just you are talking about the new yacht group that you're building out.
With raw Scioli and Sunseeker, you got a much bigger presence there are there any overhead.
Costs or any investment.
Costs to think about going into that business in the near term.
Yeah.
No.
Anything not anything really out of the normal that's really going to make a big impact on our capex because that was the whole thing Rusty always was a turnkey.
No.
So Anthony correct me, if I'm wrong, but most of the additional costs that we're gonna have getting into this would be put on the boat anyway.
Correct, yes.
Yes.
Yes, I think I think it goes back to what we originally said on Sunseeker is.
We expect to.
Expand the profitability of the brand over time.
Having some incremental.
SG&A type costs from a marketing perspective, but expect those two to level off in.
And absorb those costs with the increased sales.
Yes.
The other thing real quick I mean, one of the beautiful things about sunseeker I mean, they build an incredible boat and its a global globally sold so it's not like they're taking the Cintas 32 of these things I mean, theyre going to trickle in.
We don't expect to see a huge impact from this.
It'll incrementally.
Increase over time as more boats are available when we presell those slots need do come in today and one on anything I mean, what's how long does it out on the 90.
Two years out it was six months or 18 months 18 months 18 months. So I mean, it's not like all of a sudden we're going to have all of these boats tomorrow and Thats one of the things that intrigues us about it is you know.
We need a place for our customers to continue to move up.
In size and debt.
This gets us one with the way we look at it with really a low inventory risk.
We're not going to have.
150 million on these things $150 million worth of stuff sitting on the ground on our floor plan line.
It'll be pre sold slots.
Have some inventory come in but I mean, we're going to share that out through hopefully it.
On the incredible dealer network that we're looking to build out across the whole United States.
Okay, Great. That's it from me Thank you guys.
Thanks.
Thank you and there are no other questions in the queue. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
[music].
[music].
[music].