Q4 2021 OneWater Marine Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the one water Marine Inc. Fiscal fourth quarter and full year 2021 conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will be given at that time to ask a question you will need to press Star then one on your telephone as a reminder, this call is being recorded if anyone should require operator assistance. Please press Star then zero I would now like to turn the call over to your host Jack Gazelle Chief financial.
Officer. Please go ahead.
Good morning, and welcome to one water Marine fiscal fourth 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'd like to remind you that certain statements made by management in this morning's conference call regarding one 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 you 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 the future results are discussed in the company's earnings release, which can be found in the Investor Relations section of the company's website and in its filings with the SEC.
The company disclaims any obligations or undertaking to update the forward looking statements to reflect circumstances or events that occur. After the date. The forward looking statements are made.
Except as required by law.
With that I'd like to turn over the call to Austin, Singleton, who will begin with a few opening remarks Austin.
Thanks Jack.
Thank you everyone for joining today's call.
We delivered another year of record results highlighted by our proven growth strategy and strong execution I would like to thank our team for their relentless effort throughout all of the challenges presented by the pandemic and its after effects.
Full year 2021 revenue increased 20% 123 billion on top of 33% growth in 2020.
While same store sales increased 10% in line with our expectations.
At the same time, our higher margin service parts and other sales grew by an incredible 52% compared to the prior year.
These areas of the business will continue to be a major focus for us and we see plenty of runway for growth in the years ahead.
Taken a 10000 foot view of the business one water is surging.
Full year 2021 adjusted EBITDA of 166 million nearly doubled again this year due largely to our superior execution and strong business model.
Accordingly, our ability to find acquire and successfully integrate M&A targets continues to be strong recipe for success.
While not factoring into our same store sales calculations the sin.
Energy is a growth we have been able to realize from our recently acquired stores significantly contributed to the 2021 results.
To that end.
We announced that we have reached a definitive agreement to acquire North Park Marine a third generation family owned and operated business that will expand our presence in the.
The mid Atlantic U S. Norfolk provides a great lineup of Premier Boding brands has transformed itself into a full service dealer.
75 years of operation.
Couldnt think of a better cultural fit is Norfolk continues to expand and diversify its offerings their path forward falls in line with our own growth strategy.
Look forward to sharing our experience with Norfolk and supporting them on further success as we welcome our first Virginia dealer in.
In 2021, we completed five acquisitions, which was in line with our previous guidance of four to six deals per year for 2022, we have already completed the Naples boat moored acquisition and announced the pending deal with North Port Murray.
We continue to anticipate completing four to six traditional dealership acquisitions. This year with a few larger ones in size.
Additionally, we announced the acquisition of GH Marine.
A leading provider of branded marine products because.
As we have discussed this is a strategic transaction for us and it will double the size of our service parts and other sales business th.
Th Marine was built.
On our strengths as an OEM supplier and has evolved to create.
A premier Omnichannel platform that supports aftermarket parts and accessory sales, which now accounts for half of its revenue.
Th Marine transaction, we will provide an additional springboard for acquisition growth in the future and further enhance profitability.
It also reduces our exposure to boat sales and ultimately industry cyclicality.
As we integrate th Murray, we would anticipate completing complementary parts of accessory tuck in acquisitions in 2022.
We are excited for this opportunity and the many more doors it will open for us.
M&A remains a core component of our strategy and as you can see the opportunities have been plentiful.
Going forward, we will remain disciplined in our approach, but we are taking advantage of our robust M&A environment to advance our goals and drive growth.
We expect another strong deal year in 2022, and look forward to executing our proven approach to systematically capitalizing.
On improvements to the synergies, while advancing our leadership position in the market.
In summary, we're incredibly proud of our full year results and we are excited for the opportunities ahead.
The continuation of our M&A activity and the expansion of our higher margin revenue streams, coupled with the strong execution of our team will further support growth and enhance the quality of our earnings. We believe these efforts will continue to drive meaningful value to our shareholders long into the future.
That I will turn it over to Anthony to discuss business operations.
Thanks Austin.
Fierce levels of demand that we have seen over the past year continue in the fourth quarter with no signs of waning.
On the product side, we are seeing strength across the board.
<unk> pontoons saltwater fish runabout and the yacht categories are all performing well.
Certain brands have select new hot models already sold out for 2022.
And other brands continue to buy.
Quality products that the customers are excited about as voters can't wait to get out on the water.
On the customer side, we continued to see strong demand from our existing customer base.
We will continue to operate under the recurring purchase cycle three to five years.
We're also seeing continued influx of former voters returning to the boating lifestyle. Many of these customers are amazed at how the product has advanced over the years.
<unk> of the categories.
In your factories continue to broad product enhancements the customers say wow.
Many of these customers our experienced voters, who are very particular about what they want and they are willing to wait for it and they're willing to pay for it. Many of these customers will stay in the boating lifestyle for years to come which presents a very sticky business opportunity as it returned to one water to upgrade their boat.
Further maintenance and repair services.
Throughout our operations, we continue to focus on improving all aspects of.
Of the business revenue from our higher margin service parts and other sales increased 52% for fiscal 2021.
Team worked very hard to provide customers with quality maintenance and repair services and also the parts and accessories they need it.
Reoccurring sales and services, we provide customers is set up for growth on the heels of another strong year of book sales.
I'm also excited about th marine in parts of your acquisitions, which further bolster our service and parts and other sales these products and support our overall margin expansion and allow us to stay ready to meet our customer needs.
Austin touched on we remain committed to expanding our parts and service business and exploring additional opportunities to improve penetration rates and the diversity of the product offerings available to our customers.
We've been on the inventory we are pleased to see that increased during the quarter, but they remained at historically low levels amidst the challenging supply chain environment that'd.
That being said, we have been able to leverage our advanced inventory management tools to capitalize on the incredible demand we are seeing.
Our dealerships, including newly acquired locations have access to pool from our broader inventory pool, no matter, where the boat is located whether it is on order or a production ever.
Every one of our dealerships can engage with the customer and pre sell the inventory, but as inbound to any location as a result, our pre sold inventory remained well above prior year and well above pre pandemic norms. This.
<unk> also create enormous savings on floorplan interest inventory maintenance and general carrying costs.
In fact, the future sales and highly efficient sales process has allowed us to deliver enhanced margins in the quarter.
Mark by 39% increase in gross profit and 830 basis point improvement as a percentage of sales.
The boat show season is underway and has returned to in person events. We recently attended the Fort Lauderdale boat show.
There was a record attendance.
We were not only encouraged by the number of our OE customers that attended the show, but many of our brands saw increased sales over last year and from what we saw customer demand remains strong.
Continue to attend select boat show events, and we are maintaining our shift to a more personalized.
In store events moving forward.
Our ability to market directly to customers has been both cost efficient and allowed us to engage with our customers at a more relationship based personal level and with that I'll turn the call over to Jack to go over the financials in more detail.
Thanks, Anthony fourth quarter revenue increased three 4% to $280 3 million in 2021 from $271 million in the prior year quarter.
Ongoing supply chain challenges dampened our ability to deliver boats to customers New boat sales grew three 3% to $193 million in the fiscal fourth quarter of 2021, while pre owned boat sales decreased nine 9% to $50 6 million.
As part of our diversification strategy will continue to focus on growing high margin parts of our business, which contributed meaningful to the results for the quarter Finance and insurance revenue increased 25% to $9 7 million in the fourth quarter of 2021 and revenue from service parts and other sales increased 33%.
<unk> to $27 million compared to the prior year.
Gross profit increased 39, 4% to $89 3 million in the fourth quarter compared to $64 1 million in the prior year driven by the increase in the average unit price of new and pre owned sales and an increase in the high margin service parts and other sales gross.
Gross profit margin increased 830 basis points to 31, 9% compared to 23, 6% in the prior year.
Fourth quarter 2021, selling general and administrative expenses increased to $55 4 million from $39 8 million SG&A as a percentage of sales increased to $19 eight from $14 seven in the prior year the increase in SG&A as a percentage of sale.
Was due mainly to higher variable personnel costs, driven by the increased level of profitability compared to the prior year quarter and increased costs associated with the current labor and supply chain environment.
Operating income climbed 77, 9% to $29 2 million compared to $16 4 million in the prior year driven by increased gross profit, partially offset by higher SG&A expenses as a result, adjusted EBITDA increased to $33 6 million compared to.
To $22 9 million in the prior year.
Net income for the fiscal fourth quarter totaled $22 5 million or $1 35 per diluted share up 276, 5% from $6 million or <unk> 30 per diluted share.
Building upon last year's historic results.
Total revenue for full year 2021 climbed to 123 billion, an increase of 21% compared to the prior year driven by an increase in the average unit price of new and pre owned boats sold.
Same store sales increased 10%, despite a very challenging inventory and supply chain environment.
We also source.
52% increase in service parts and other revenue.
Growth in these higher margin less cyclical aspects of our business has been and will continue to be a strategic focus of one water.
Full year 2021 gross profit increased 51, 8% to 357 5 million driven by the increase in margin on new and pre owned boat sales and a significant increase in higher margin finance and insurance income and service parts and other gross profit.
Gross profit margin for fiscal 2021 was 29, 1% an increase of 610 basis points compared to fiscal 2020.
Selling general and administrative expenses in fiscal 2021 increased to $199 million or 16, 2% of revenue.
From $143 6 million or 14% of revenue in fiscal 2020.
The increase in SG&A as a percentage of sales was due mainly to the increase in variable personnel costs associated with the higher level of profitability and increased cost with.
With the current labor and supply chain environment full year 2021, operating income surged to $148 9 million nearly double the prior year operating income of $78 3 million.
As a result, adjusted EBIT declined 87, 6% to $155 9 million.
Net income for fiscal year, 2021 increased 140% to $116 4 million or $6 96 per diluted share.
Compared to net income of $48 5 million or $2 77 per diluted share.
Now turning to the balance sheet on September 32021, we had $62 6 million of cash and $30 million of availability under our revolving line of credit.
Total inventory on September 32021 was $143 9 million compared to $116 9 million at June 32021, and $150 1 million at September 32020.
Total long term debt currently stands at $114 4 million, our net debt to adjusted EBITDA ratio is very low at three three times.
On our last call we gave a range for the expected net debt to adjusted EBITDA ratio post.
Transaction of Th Marine.
While this ratio will change based on the final amounts at closing we expect the net debt to adjusted EBITDA ratio to be approximately one five times.
Looking ahead to 2022, we expect a strong demand environment to continue we anticipate same store sales to be up high single digits. Despite the ongoing inventory challenges we expect.
Adjusted EBITDA to be in the range of $170 million to $175 million and earnings per diluted share to be in the range of $7 22.
To $7 50.
These projections exclude the previously announced Norfolk, Marine and Th Marine acquisitions.
And other acquisitions that may be completed during the year.
With regard to our capital allocation, we remain focused on accelerating organic growth and continuing on strategic M&A opportunities.
As often mentioned our M&A pipeline is very robust and we plan on continuing our cadence of dealership transactions at the same time Th Marines complimentary business model growth strategy and proven history of accretive acquisition provides another platform for us to grow our service parts and other revenue further diversify.
Our business, we look forward to scaling our proven strategies across nearly acquired dealerships and enhancing our profitability with additional offerings.
This concludes our prepared remarks, operator would you. Please open the line for questions.
Thank you can I ask a question you will need to press Star then one of your telephone Keyless Joel Your question. Please press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Joe After Bello with Raymond James Your line is now open.
Thanks, Hey, guys good morning.
So couple of questions on fiscal 'twenty, two I guess first for Jack.
High single digit comp growth outlook.
How does that trend throughout the year I assume youre expecting that to be mostly second half weighted I'm curious, how you're thinking about first half versus second half comps.
Yeah for sure I mean, I think we said a couple times.
Over the last year that with.
The way demand is kind of been through COVID-19 or the seasonality of the business is kind of shifting around a little bit and you are seeing some changes.
With the December quarter, being our smallest quarter.
In terms of dollars it makes us probably the easiest comp but.
Your point is that in Q2, we were up against a 58% comp.
But then in the back half we're up against negative comps, so I definitely would see the back half certainly.
A lot easier to comp than the than the first half or in particular second quarter.
Okay, and then secondly on margins if I look at your boat margins Youre in the mid 20.
Fiscal 'twenty one you were in the high teens not that long ago. So how should we think about gross margins trending in fiscal 'twenty two given the inventory environment given the promotional environment that we're in today.
Yeah, I mean, I think they will start leveling off.
Now.
I think really.
Cycling over the prior years, where we had elevated boat margin. So I think youll see them start to level off.
As we move through the year.
Throughout the year they'll remain elevated right there certainly be impacted potentially.
Impacted by.
Manufacturers costs, if they push those incremental cost to us and.
To the extent that we can recapture this cost from the customer.
On the margins.
Hold.
Okay Super Thank you guys.
Our next question comes from the line of Mike Swartz with Truth Securities. Your line is now open.
Hey, guys maybe another.
Question, if I may on fiscal year, 'twenty, two guidance, Jack I guess with the high single digit comp.
Comparable store outlook for the year can you maybe give us a sense of how youre thinking about that between unit volume and.
The ASP mix.
Yes, certainly.
Think about 'twenty, one 'twenty, one has really been driven by.
By price or.
I think as we move into 'twenty, two we'll start to see an uptick of unit volume to start to get back to maybe more normal pace of driving both units and price.
Yeah.
Okay great.
And just help us with the I think your guidance on EBITDA was $170 million to $175 million.
Give us a sense of maybe what that looks like if we include Norfolk in th in in that number.
Yes. It is.
Gonna be.
Subject to Windows acquisitions close exactly.
You have the remainder of the year for their performance but.
We'll certainly give some updated guidance as we get down the road, but I would expect them to contribute something in the range of.
Probably about $15 million.
For the year.
That's their partial year, so its not their full year, but somewhere around $15 million to $16 million for the year.
Okay. That's helpful and Jack you also mentioned just the price increases being passed through by the Oems and we've all heard of the price increases that were enacted in the calendar fourth quarter by almost every OEM.
Maybe give us a sense of the conversations you're having with customers who have boats on order and to the extent the back logs arent price protected.
I guess how.
How sticky is that demand looked over the past month or so.
Your backlog your backlogs are price locked.
Anthony Correct me, if I'm wrong I'm pretty sure. That's the way it is with almost every manufacturer I'm not saying, there's one or two out there, but nothing meaningful but we don't have a price lock in really not seeing much of an issue with just because even with the price increases you look historically for the last 30 years, we pushed onto the consumer and with more and more people looking at finance.
And thats converting more and more people to financing youre talking about.
Four to $15 a month change in payments.
It's not that difficult to pass that on.
And just don't see a whole lot of a lot of issue would that night. If you have manufacturers coming out mid year with double digit price increases.
That can make them noncompetitive or might take it out of the market, but what I just don't see that come in on top of the price increases we've already already absorbed.
That's correct.
Okay. Thank you guys.
Yeah.
Our next question comes from the line of Craig Kennison with Baird. Your line is now open.
Hey, good morning, Thanks for taking my question I guess I wanted to understand.
The pandemic buyer, a little bit better I'm wondering if you've.
Followed up with any of those I guess first time buyers or pandemic buyers to get a feel for what their experience has been like and whether you think they will convert to lifelong boaters or some of them may say look this is not for me, but it gives you an opportunity to sell more used boats and just you know it's still early but I'm wondering if you've captured.
Any of that data.
Yes.
Go ahead Anthony.
The majority of them that are coming in where voters in the past.
They got out of boating cause.
You know in the past.
<unk> 15, 20 years ago, the only thing that changes on the boats was the color of the boat so.
They've been driven back into our showrooms in.
Totally blown away with the boats that are available out there.
And every one of our manufacturers just keep on coming out with some Oh my God stuff every year.
In the past it was every five or six years something dramatically would change.
<unk>.
Yes.
We're making you don't have to be a great driver if you will.
To enjoy boating.
LNG that comes out what piece is really going to keep continue to keep people in the boating that were in the past.
We're not done.
So go ahead.
First buyers Kevin sure.
But.
Yeah.
But there's not nearly as many as the people that were voters in the past.
Awesome.
Yeah, just wanted to add you know Craig one thing that.
You know we've heard rumblings in the RV space and stuff like that but we're not seeing a marine it.
Typically when you come out of season, so we're going into the slower season, just because of weather school, whether drops really the boating season, so to speak.
Are you starting to cool off lease start falling off trees schools in full swing everything from except maybe you take Florida, Texas.
Bodie starts to really slow down now and so if there's ever a time for this first time boat buyers, who essentially had been boating now for almost two full boating seasons, 2021 'twenty 'twenty and 2021.
You would think that if they were getting out they would be in loading now because now when the carrying cost kick in and you have no enjoyment and if you just look at our pre owned sales from the last quarter, they're down we still can't find enough you spoke so that's the kind of <unk>.
Speaks to the stickiness of those first time boat buyers that were buying when the pandemic was at its height, they're not coming in and selling their boat.
We did see a lot of them make lateral moves this year, where they came in the first time and bought a ski boat and then they said well that's really not in the boat we need for our family and they move to upon too where they went from a pontoon to a reverse drops or they want from us.
A center console to a little bit bigger center console, we saw some lateral movement stickiness. So for the new consumer from 'twenty to 'twenty and into this year, it's been pretty extremely sticky because they're all new used boats theyre not there they don't exist.
Okay.
That's very helpful. Thank you and then as it relates to your M&A pipeline.
Are there geographies that you would like to penetrate or will you or will the deal flow really depend on just the attractiveness of the dealership itself.
Yes, we are opportunistic we look at you know like I said many times in the past I mean, the most important thing to US is the people we got to make sure that the dealership onto the principal has really really good people and once we find that everything else is trying to just check in boxes.
Of course, we have said this in the past we would love to keep concentrating areas that we're in but we're not afraid of new areas. We're not afraid of the west coast were not afraid of the extreme northeast, we're opportunistic where we find the best opportunity from a people and upside and you know like brands, but we do want to stay close.
Home and concentrate certain areas and we just think that's a really good move but it's strictly based off what the opportunity is.
Great. Thank you guys.
Our next question comes from the line of Fred Wightman with Wolfe Research. Your line is now open.
Hey, guys. Good morning, I was hoping you could unpack the sequential pickup in inventories that you guys saw it doesn't sound like used availability improved a lot was that all on new anything you could sort of give us <unk>.
To size that would be helpful.
I wouldn't jump to jump in first year, Jack when you fill it fill in the blank.
I think it's just all about timing of when certain things were coming in.
I don't expect to see a huge buildup from here it will build up some but the pre sales going forward are so strong a lot of the stuff that will be coming in as we move into <unk>.
Into the first half of 2022 is going to be pre sold and so the inventory is not coming in as much as it did.
I think it was just a timing aspect that allows us to build on the new side, Jack if I am wrong.
Yes no.
Yes, I would say, we somewhat expected it to build a little bit and further expect it to build.
The December quarter, but you know you can look at where our inventories at.
We're turning inventory really fast.
Youre looking at I don't have the calculation put together, but just looking at some rough numbers Youre talking five six times where the.
That's more than double what the normal boat dealer would do and quite honestly, what we would do on the new side historically.
And so it's we're turning stuff quickly.
Things are coming in we're getting larger but yet inventories stay in.
Staying flat.
I think it just speaks to the model of.
Our ability and our tools to get inventory to the right locations to the customers and out the door.
Makes sense.
You guys touched a little bit on the Fort Lauderdale show, but I think he had been a little bit more skeptical about just the role that boat shows would have going forward has anything that you've seen so far changed how youre thinking about that going forward.
No.
I think we always have been consistent with the bigger boat shows.
You know, especially with some of the bigger boats, it's very important for us to do that shows I think it was the more regional shows that we're not really sure the values there Anthony and his team did an incredible job last year. When there were zero shows doing these.
<unk> events and pulling the customers into our store for that more intimate.
Atmosphere in order to you know to sell and we think that's a great model moving forward, but it does it take out these bigger shows the bigger shows were important to us.
We were doing those going forward, it's more regional shows there'll be.
Bill on the backburner for probably several more years.
Great. Thanks, guys.
Yes.
Thank you.
As a reminder to ask a question you will need to press Star then one on your telephone.
Our next question comes from the line.
Drew Crum with Stifel. Your line is now open.
Great. Thanks, everyone. This is David on for true I, just wanted to follow up on the inventory.
How does the pre owned boat inventory level of play into your fiscal 'twenty two outlook.
Separately how are you.
Thinking about the.
Inventory management going forward given all of the moves that you guys have had to make over the course of this pandemic.
Yes.
Yes, I would say as we look at the 22 outlook I think we anticipate.
Access to pre owned inventory remaining a challenge.
We have a lot of buyers that are out there.
Scouring.
Docks and Marina is looking for pre owned boats that we can just buy directly and then.
Slip this in.
Sell them at retail so I think it's certainly part of the model, we certainly expect to have.
A good amount of growth there again in that I'd say, along the lines of our same store sales number.
And I mean inventory management going forward is how it is.
I think it gets a little bit easier going forward as manufacturers out there.
<unk> chain stabilize more they get more consistent in their output, we can get more consistent in our expectations and it smoothes things out and make things a little bit easier, but we're in regular contact with manufacturers that what we're seeing at retail what models, we need more of less oven.
Working with them so they can.
Managed production to what's happening at retail.
I would add to that too.
But we kind of feel like going forward. This is going to take a good long time to really build up what the new normal inventory is if demand stays heightening like it is today.
And it continues to go on this could go on for a lot longer than we were thinking.
So as we kind of look at it I feel the manufacturers are getting to more of a level production schedule to where it's more of a flat line. Instead of these peaks and valleys, where we get loaded up in this month and then don't get anything this month. So as this new normal comes around I think it's going to make both of US a lot more efficient and one of the team.
So the tailwind, but I think we have not only at one water, but as an industry.
Because of the way the manufacturers will get to a more level production schedule, we kind of had a chance to hit the reset button.
Because of Covid I think it makes us all have more turns so it makes us carrying costs go down and this is from an industry perspective, I think every manufacturer gets a little bit more level, they get a little bit more precise on how they are building and how they're shifting and then if demand stays heightened like it is now we're going to continually have to battle. This for many years.
If it softens a little bit I think we all steel stay extremely efficient on our turns which lowers like Anthony said earlier lowers our carrying cost.
And also allows us to probably keep that margin higher for a longer period of time.
Yeah.
Great. Thanks.
Yes.
Thank you.
There are no further questions, ladies and gentlemen, this concludes today's conference call.
Thanks for your participation you may now disconnect everyone have a great day.
Okay.
Okay.
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