Q3 2021 OneWater Marine Inc Earnings Call
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Hello, Thank you for standing by and welcome to the 1 water Marine Inc. Fiscal third quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session basket question. During the session you will need to press star 1 on your telephone please be advised that today's conference maybe recorded.
Barring further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Jackie Zone, Chief Financial Officer.
Please go ahead.
Good morning, and welcome to 1 water Marine fiscal third quarter 2021 earnings Conference call I am joined on the call today by Austin, Singleton, Chief Executive Officer and Anthony.
With President and Chief operating Officer.
Before we begin I would like to remind you that certain statements made by management in this morning's conference call regarding 1 water marine and its operations may be considered forward looking statements under securities law and involve a number of risks and uncertainties as a result, the company cautions.
Asking that there are a number of factors many of which are beyond the company's control, which could cause actual results and events to differ materially 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 in the investor Relations section on the Companys.
<unk> site and in its filings with the SEC.
The company disclaims any obligation or undertaking to update forward looking statements 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.
Let's begin with a few opening remarks Austin.
Thanks, Jack and thank you everyone for joining today's call.
Overall, we delivered solid results for the third quarter of 2021 despite.
Industry wide inventory challenges, which pressured the top line, we grew our operating margin.
And who are index teen percentage and we delivered record adjusted EBITDA of $66 million, an increase of 33% compared to the prior year.
Sales for the third quarter of 2021 were up against an extremely difficult 44% same store sales comp in the prior period.
As a reminder.
A reminder, the prior period benefited significantly.
For the business that shifted from March 2020.
April and May 2020, because of the Covid shutdown.
This year same store sales for the third quarter were down 11% all driven by significantly.
Just inventory shortages across the industry, but partially offset by improvements in service parts and other sales.
We believe we would have posted positive same store sales if we had the inventory.
It's noteworthy that same store sales excludes new and acquired store sales until the end of the stores 13th.
Each month of operation under our ownership or Tom George You got group and Walker Marine acquisitions for 2 of our largest and leveraged our global inventory to meet the Red Hot West Coast of Florida retail environment.
We ended up sharing the same store inventory and inventory planning tools.
With these acquisitions, which ultimately pressure same store sales, but it's exactly where we see the power of our network of dealers and show the Interconnectivity of our organization.
For comparative purposes same store sales for the third quarter and year to date 2021 when competitors.
To the same periods in 2019 were 14% and 26% respectively.
Importantly, we grew our higher margin less cyclical service parts and other revenue of 58% compared to the prior year, which mostly offset the shortfall from.
Compare young boat sales.
Sales activity remains robust door swings and lead generation continued to be strong and as a result, our pre sold inventory is up nearly 400%.
I'm very proud of the team's focus on the controllable levers that continue to drive the business forward.
Gross margin expanded by a whopping 822 basis points, driven primarily by the mix of boat models sold and was further bolstered by the sharp increase in service parts and other revenue.
We continue to focus on executing our multifaceted growth strategy.
<unk> through strategic acquisitions, and growing our higher margin business segments to help us expand our market share and drive long term shareholder value.
As a reminder, we typically pay less than 4 times EBITDA for target and we expect to cut that purchase multiple in half within 24 months.
Our strong.
Cash generated from operations fund, our acquisitions and we generally enter into long term leases on the dealerships real estate.
Now, let's take a minute to talk about 2 of our recent announced deals. The first is Naples boat margin third generation family owned and operated business that expands our presence.
On the West Coast of Florida, and complements our recent acquisition of Walker Marine Group.
Those boat Marte represents premium boat brands, including Grady White Hurricane in key west while all 3 factory trained technicians to deliver quality service for its customers, including a full rigging shop.
And mobile service units, we expect the strength action to close in the fourth quarter of 'twenty 'twenty 1.
The second announcement, we made.
Wasn't agreement to acquire a parts for you an online marketplace for OEM marine parts electronics and accessories.
As I said.
Our long term growth strategy is expanding our parts and service offerings, which commands a significant margin.
And helps insulate the company from the cyclicality of boat sales parts for you generated approximately $25 million in sales over the past 12 months and has a history of organically doubling sales volume.
<unk> annually since its launch in 2016, we expect this acquisition to close in Q4 of 2021.
Our significant margin expansion and earnings growth further underscores our superior execution and efficient operating model.
Our strong partnership with our Oems as proven.
And valuable and our proprietary digital inventory and management tools allow our team to continue meeting the needs of our customers and presale in inventory at the same time, we continue advancing the other parts of our business to support further margin expansion and strengthen our relationship with customers.
We feel very confident.
As we finish our year that we will be positioned well to drive long term shareholder value with that I will turn it over to Anthony to discuss our business operations.
Thanks Austin.
Customer demand remains at historically high levels with no sign of slowing down.
Our sales team has been.
Standing job driving sales in this dynamic environment aided.
Aided by our sophisticated.
State of the art inventory management tools that provide the sales team with powerful intelligence and access to our global inventory.
Every 1 of our dealerships, including the 2 largest acquisitions have full access to our broader.
Inventory pool.
Whether the inventory is in the store or on its way to the store. Our sales teams are able to sell it as a result, our pre sold inventory is up over 400% compared to the prior year cash.
Customers are coming to us to day to order boats for next season, they are no longer waiting for boat shows.
Does.
An outstanding to ensure they get their vote in time, we don't see inventory normalizing in the near term and we have adapted quickly and continue to drive sales.
In addition, we are focused on levers within our control, including building out the higher margin areas of our businesses.
Service.
And other revenue surge.
58% for $30 million with approximately 50% dropping to the bottom line, we see tremendous growth opportunities with these non boat related business loans and will continue to expand in these areas.
As Austin mentioned, our efficient operating model allows us to do more with less.
They are reflected in our industry, leading operating margin of 16%.
We remain focused on stellar execution and further expansion of our business.
I will now turn the call over to Jack who will talk about the financials in more detail.
Thanks, Anthony third quarter revenue decreased.
<unk>, 1% to $404.2 million in 2021 from $408.3 million in 2020 fueled by a decline in same store sales of 11%. This decrease was primarily driven by the industry wide supply chain shortages, and primarily and partially offset by improvements in service parts and other sales.
<unk> sales decreased 2% to $288.2 million in the first fiscal third quarter of 2021.
And pre owned boat sales decreased 9% to $71.1 million finance insurance revenue decreased 8% to $15.2 million in the third quarter of 2021 and revenue.
<unk> from service parts and other sales increased 58% to $29.6 million compared to the prior period, mostly offsetting the shortfall in boat sales.
Gross profit totaled $127 million in the third quarter compared to $94.7 million in the prior year driven by an increase in the margin on new and.
<unk> sales and a shift in the model mix and size of the boat sold Additionally, higher margin service parts and other sales contributed significantly to the increase in gross profit.
As a percentage of our gross profit margin increased 822 basis points to 31, 4% compared to.
And 3.2% in the prior year.
For the fiscal fourth quarter of 2021, we expect continued elevated margins due to the lack of inventory.
At higher than historical averages, but it's dependent on inventory and model mix.
Selling general and administrative expenses.
20, <unk> to $60.5 million from $43.1 million SG&A as a percentage of sales increased to 15% from 10, 6% in the prior year the increase in SG&A as a percentage of sale was primarily driven by the higher variable personnel costs driven by the.
The increased level of profitability compared to the prior year.
Operating income rose to $64.9 million from $50.7 million in the prior year driven by expanded gross profit, partially offset by higher SG&A and as a result, adjusted EBITDA rose to $65.5 million compared to 49.
$5.3 million in the prior year.
Net income totaled $51.6 million or $3.04 per diluted share.
In the fiscal third quarter of 2021 up from $40.6 million or $2.36 per diluted share in the prior year.
As of June 32020.
Our cash and cash equivalents balance was $113.2 million, an increase of $25.3 million compared to 88 million in the prior year.
Total inventory as of June 32021 was $116.9 million compared to $171.3 million in the prior year.
Due to the industry wide supply chain shortages inventory hasn't been this low since 2017.
As Anthony mentioned, our pre sold boats are up 400% and while customer deposits are not a perfect indicator of pre sales and can be lumpy at times as of June 32021, they're.
Up to $43.1 million more than 3 times the prior year amount.
Total long term debt currently stands at $115.7 million and when you subtract the cash and cash equivalents adjusting for the pending dividend payment yields a very low net debt to adjusted EBITDA ratio.
0.2 times.
From a capital allocation perspective, we are focused on reinvesting in the business to accelerate organic growth and strategic M&A opportunities as we have discussed.
Looking ahead for the full fiscal year 2021, we are raising our outlook for adjust.
<unk> EBITDA to be in the range of $150 million to $155 million and diluted earnings per share to be in the range of $6.60 to $6.80.
Excluding any additional acquisitions that may be completed during the year.
However, based upon the continued broad based inventory.
Our challenges in the industry.
Near term, we now expect same store sales to increase approximately 10% for the full fiscal year 2021.
This outlook assumes 1 waters manufacturers came maintained production at the current pace, allowing us to deliver pre sold units and build inventory in the face of the industry.
Supply chain constraints.
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 1 on your telephone to withdraw your question press the pound key please standby.
The composite Q&A roster.
Our first question comes from drew Crum with Stifel. You May proceed with your question.
Okay. Thanks, Hey, guys. Good morning, I know youre, not providing guidance for fiscal 'twenty, 2 yet, but you mentioned that you don't expect inventory levels to normalize anytime soon so you know given that dynamic.
Why is that.
Tough comps at least over the next couple of quarters, how should we be thinking about.
<unk> store sales performance.
And then separately maybe for Jack the gross margin performance you cited boat mix in service.
<unk> growth.
Blake Youre anticipating something similar in fiscal for Q.
Dynamic should we anticipate a similar gross margin lift beyond fiscal 'twenty 1.
Jack do you want to take that.
Yeah.
Jack.
Yep.
On the.
Same store sales note.
Where we're doing a lot of work in and around 2022 and projections right now so not really prepared to speak to that I think debt.
We're.
We're looking for our manufacturers to provide adequate inventory I know, they're faced with a lot of supply chain constraints and.
I think as we get more and more information out of them it will be easier for us to get a better projection on on same store sales.
We do feel like.
When you look at the quarters and there is some.
Back to the March quarter, we were 57% same store sales.
I mean that that's going to be an interest in comp to go up against.
So there may be some variable variability through the year.
I think though that there is demand from what we're seeing today that there is demand that will continue to drive positive same store sales. So we got to work through this inventory challenge and I think move.
That forward as far as gross margins I mean, I do think so long that inventory continues to be constrained.
We're going to do what we have to do and.
We think thats going to present, a more favorable margin environment.
I wouldn't I wouldn't go about modeling.
822 basis points, but I, certainly expect them to be.
Elevated as we go forward.
But 1 other thing I would like to add to that too though is that we're going to be continue to be aggressive on our acquisition platform and as we noticed in this quarter.
[laughter] thing when you take a dealership that we've acquired and you allow it to pull from the global inventory that could have an impact on same store sales if that particular market is hotter than they're able to get additional inventory, but in the past day.
So with the Tom George and walkers those acquisitions.
They had their inventory that they had ordered for the year, but now they had this global inventory that they can pick and choose for them as needed and they were able to generate some sales. So as we continue to move forward and lay in.
Don't Harbor, and Naples boat margin some other acquisitions, keeping that cadence that we spoke.
To that that'll put a little pressure on same store sales, while the inventory constrained this is where it is today.
But ultimately that Ralph that's just good business and it is going to drive additional EBITDA growth for the company.
Got it okay. Thanks, guys.
Thank.
Next question comes from Mike Swartz with true of Securities. You May proceed with your question.
Okay.
Hey, guys good morning.
I don't think you know inventory constraints for all that surprising to anyone who covers this industry, but I think when we go back to late April Your last conference call I don't remember the commentary.
Being maybe.
As dire for inventory situations, maybe it is today, so maybe give us a sense of what happened over the past few months, whether that was retail demand related or whether that was maybe OEM production related.
Well, let me I don't think it was it was.
Retail demand and retail demand is.
Pretty consistent and.
Strong I think the bigger issue is the Oems and it's kind of a bike.
No.
If you have a load of boats coming into gets pushed 2 weeks.
That could hinder a quarter, but that load getting pushed 2 weeks pushes the next load 2 weeks or 3 weeks, which pushes the next load for weeks.
As for mainly like a domino effect that keeps pushing it out and I think that we were confident after talking with our manufacturers back in April that day.
Kind of started to feel they were over the hump, but it's I think they didn't realize that it was other things that we're going to sneak up and vital.
Do you want to add more to that.
Yes.
Just because it's just been a constant.
Between Yoko foam and everything else that.
Zone.
It's been a shortage jokes.
It started back in.
In February and that storm in Texas that really because we all didn't realize how many things are built out.
Joe Joe Coke.
Good day.
And another thing too, though is I mean, the consumers themselves have been pretty understanding of patient in.
So when you get to the end of a month or the end of a quarter that last 7 days to really really make an impact because if you don't get what you're suspecting to get it pushes into the next month for the next quarter.
And so we're not losing the sales, it's just getting delayed and like we spoke of in the opening comments are pre <unk>.
We really dug into that and that that pre sold.
Inventory that we've got coming in is I mean, it's it's north of 400% of where it was this time last year.
Thanks for the color there and then maybe just for Jack maybe give us a sense on the new boats, particularly what what units versus pricing looked like during the quarter.
Yeah, I would say, it's largely driven by price.
Units were in the.
We are for.
We're down slightly.
But it's it's.
<unk>.
We're able to.
In this environment command from the pricing perspective that we're pushing.
Okay, great. Thank you.
Thank you.
As a reminder to ask a question you will need to press star 1 on your telephone. Our next question comes from Joel Gabon with Raymond James You May proceed with your question.
Hey, guys good morning for.
Question, just a housekeeping item the guidance that you gave us this morning for EBITDA and EPS.
That include any contribution at all from the recent acquisitions.
Or no.
Yeah, those will roll in when those acquisitions close.
You know what does being so close to the year and you know if we were able to close 1 or 2 here before we get to a year and I don't I don't think it will move the needle much.
Okay got it.
For the model year 'twenty 2.
Pretty big numbers in terms of price increases.
What are you guys seeing a in terms of pricing for the model for the new model year is there any concern about passing that on the consumer and could that put you know potentially downward pressure on margins on boat margins next year.
I don't think so Joe I mean every year.
Pre COVID-19, we always said, 3% to 5% price increases.
Other than I do with content.
With the manufacturer you're doing so I think the.
Consumers are pretty.
He used to it and the demand for boating news continues on so I don't think that's going to be an issue.
Well 1 thing Joe.
Total this once the 1 thing I'd like to point out it seems to consumer, especially in the Bodhi spaces has really moved more towards a cost of ownership versus the cost of the purchase for the purchase price. So we have started really working with our sales associates to really work on kind of pushing the.
The consumer team. This is what it's going to cost you to have this boat for 2.3 or 4 years and when the pre owned market is is just nonexistent today, it's really driven up the price of pre owned boats. So when you start looking at our customers are talking to a customer that's looking at the quarter for $1 billion ski boat and they kind of figure out.
Out to own that vote for 2 to 3 years using it at the normal hours is going to cost less than going and buying a chevrolet suburban on a monthly basis, it's not hard to get them to pull the trigger.
And so I am very confident because its been a worry of mine pretty much for my whole entire life in the in this industry.
Oh price.
It just go up a ton every year, but it's never been hard to pass that onto the consumer and I just don't see it see that being an issue going forward.
Okay got it just 1 last 1 if I could every acquisition that you just announced it looks like the combined revenue is about $19 million or so over the past 12 months how should.
Price is about the revenue and EBITDA contribution from those acquisitions next year.
Yeah, and I think you hit the revenue number.
Right there.
<unk> acquisition net of size will bring.
A couple of.
A couple of million dollars worth of EBITDA to the company.
We think other parts view is a little bit different.
That entity is in.
Significant growth mode. So theres, a lot of reinvestment and additional spending to to grow that so that that 1 will have.
Good good gross margin, but its EBITDA margin.
B.
Less than optimized we continue to push its rapid rapid growth.
Okay, great. Thank you guidance.
Thank you. Our next question comes from Brett Andress with Keybanc Capital You May proceed with your question.
Hey, good morning, guys.
Question I think Jack you mentioned pre sales were.
Up 300% year over year is there any way to kind of frame that up in terms of I don't know if thats at 1 to 3 months of sales and then I guess, how have the pace of those.
Pre sales been here in July and any change in cadence or trajectory.
<unk>.
Yeah, no it is continuing to.
The pace is continuing to grow.
Tough to really.
There's a lot of details behind that as to when they will fall in.
We typically need to get the boat from the manufacturers as soon as they are delivered we're trust me we are.
Customers.
Are chomping at the bit and we're pushing to get them turned around absolutely as quickly as we can.
But it is a.
We are starting to hear customers, saying things like even even this late in the season.
Maybe a customer who would normally maybe come to a boat show and put an order in for.
For the for next season, they're coming in at the end of this season, saying Hey, we want to go ahead, and let's get a boat on order. So it's we know for sure it's going to be here next season. So that's helping that backlog to continue to grow and we're working with manufacturers to get those both slotted built and.
Prepared.
Commercial.
Got it Okay and then just on parts view I think that was an interesting act.
Acquisition, there, but I mean does that does that fill a need or give you an advantage in your <unk> business.
Is it just is there a scarcity of parts out there.
Now all of a sudden have them just kind of curious how that fits the broader.
For the color.
No I don't think there is a scarcity of ports at all I think what it does is it gives us the platform that we've been looking for.
<unk>.
Really.
<unk>.
Set up set us up differently I mean, <unk> already has been growing great on its own the platform is solid.
Philip and his team are really passionate about it and so we can kind of leave it in his.
His wheelhouse to grow it I think we bring some buying power.
I think that there is some things just bringing it into the fold that we can help accelerate not only the top line, but the bottom line, but it does give us that platform that I've been.
Picture Hickey and in order to really bolster up our PNA to get to where we can get into a meaningful loyalty program subscription model.
Keeping the customers in a hold and so it's a very important piece of the puzzle and were Super excited about it and I think what excites me more than anything is that.
The guidance is going to run with it super passionate about it and he has been.
<unk> to really help us.
Make that think explode.
And then just the last 1.
Parts of you is that I mean.
It's a smaller business, but it's growing rapidly just what does the margin profile of that versus.
Is your current <unk> business.
Yes, I would say at the gross margin level it similar to.
As a part for margins.
Low thirty's.
But it's right now at as far as from an EBITDA margin.
It is lagging a little bit.
It's profitable, but it's not.
Not what you would expect because of that reinvestment in its growth.
Got it alright, thank you guys.
Thank you and I'm not showing any further.
Other questions at this time. This concludes today's conference call. Thank you for participating you may now disconnect.
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