Q2 2022 OneWater Marine Inc Earnings Call
Good day and welcome to the one water Marine fiscal second quarter 2022 earnings Conference call.
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I would now like to turn the conference over to Jackie Bell Chief Financial Officer. Please go ahead.
Good morning, and welcome to one water Marine fiscal second quarter 2022 earnings Conference call I'm 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.
Salt 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 company's website 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, who will begin with a few opening remarks Austin.
Thanks, Jack and thank you everyone for joining today's call across the board we delivered exceptional results for the second quarter of 2022 and outperformed the industry.
Same store sales increased 8% on top of an incredible 57% comp in the prior year.
Zsolt reaffirm the strength of our proprietary technology.
Scale and access to our global inventory pool.
Proven acquisition model that allows us to outperform.
But most importantly, the enthusiasm and persistence of our team to leave no stone unturned led to this record quarter.
Revenue for the quarter increased 34% to 442 million despite the industry wide.
Supply chain bottleneck impacting OEM production.
Importantly, we saw this flow through to the bottom line with adjusted EBITDA growing 65% to $66 million for the quarter.
Contributing to those amazing achievements I want to highlight the significant increase in our higher margin service parts and other revenue, which was up a whopping 178% versus the prior year period.
Our emphasis on building out the higher margin stable revenue streams is really coming to life with the addition of th Murray.
As this portion of our business grows we become less exposed to typical cyclicality of the new boat market.
While we are not seeing any signs of the demand debating. We believe one water is in a strong position regardless of where we are in any given cycle.
As aggressive as we've been with our acquisitions, we hold less than 4% of the total market share and.
It's such a fragmented market, we have a long runway to capitalize on our winning strategy and post acquisition synergies.
This proven strategy and synergies gives us a very healthy run rate EBITDA of 240 million that could easily grow in excess of 275 million of synergies take form over the next 24 months.
Looking at the larger recreational sector, the marine industry stands to benefit from the migration of populations moving on or near the water.
When someone sells their waterfront home and consequently, their pre owned boat someone else sweeps in and buys the home and of course, a new boat.
And we see this churn as a net positive as more voters in or the lifestyle.
In the more immediate term we are preparing for the summer selling season as demand continues to accelerate alongside the warmer weather.
April was another great month with positive same store sales and we are encouraged by a strong start.
Turning to some of our more recent acquisitions, we closed two tuck in parts and accessories deals this quarter and closed a large dealership transaction in early April they.
Hey, listen Yachting ranked number one in Super yacht sales for three consecutive years is an outstanding addition to our list of strategic acquisitions.
The Denison, we significantly extend our customer reach in the Super yacht category as well as improve our service offerings, such as denizens yacht charter and management services, which have experienced record growth since 2019. These.
These services coupled with the brokerage sales will continue to support our higher gross margin profile in the future.
That's a new boat margins find a new normal, which we expect to happen in the next couple of years Denison has an exciting opportunity for us and we look forward to bolstering our combined leadership position in the space.
As a part of our corporate acquisition of diversification strategy. We have established a target to complete two to four parts and service acquisitions per year, primarily through our acquisition engine th Marine and.
In addition, we are also targeting to complete four to six dealership acquisitions per year.
These transactions continue to add significant shareholder value and are a key ingredient to one waters competitive strikes.
The quality of our acquisition platform robust pipeline and the ability to add troops synergistic value is truly unmatched.
These transactions will continue to leverage one water's expertise and platform to efficiently scale, yielding a true remarkable shareholder return for years to come.
In addition to acquisitions, we recognized an opportunity to return cash to shareholders and make strategic investments in what we view as a very undervalued asset one water.
This quarter, we announced our first ever stock repurchase program with an authorization of up to $50 million.
Considering our current market valuation against our growth outlook on a cash return perspective stock repurchasing can be as accretive as a dealership acquisition with no integration or operational risk with the program in place. We can now weigh the opportunity against deals given us another tool in our tool belt to do.
Five value to our shareholders.
With that I will turn it over to Anthony to discuss business operations.
Thanks, Austin strong demand from the beginning of the year carried into the second quarter. Despite typical winter seasonality.
<unk> data showed a decline for the industry our customers are out in our stores shopping for their next book with no signs of slowing down.
Folks are flying an awful lot in many cases before they even arrive our team is doing an excellent job leveraging our technology to pull boats.
In every which way to satisfy customer demand in fact pre sold inventory remains elevated at almost double the level in the prior year period.
At the same time, we are continuing to add amazing dealers to our portfolio that are utilizing our global inventory to help fuel their outperformance for example, Walker Marine which we acquired in December of 2020 has more than doubled its pre acquisition EBITDA in the last 12 months, while recently acquire.
Dealers are doing an extraordinary job in pulling from our global inventory. This does put some pressure on the same store sales calculation, which could cause some choppiness over the next two quarters. However.
We have an incredible business model with proven performance.
In a great position within our sector.
And we're very confident in our yearly same store sales guide.
Our inventory tools allows us to work efficiently around the low inventories, we can hold that asset in the store, reducing our floor cost and supporting a higher margin profile, while still providing for our customers.
The business model drove a 530 basis point increase in gross margins for the quarter compared to the prior year.
Over the last few quarters, we have focused on building inventories in preparation for the summer selling season.
At the end of the second quarter of 2022, we held $293 million of inventory, an increase of $107 million compared to the prior year period.
The increase in our global inventory was partially driven by many of our acquisitions coming online tempered by some of our highest performing dealers, which are able to pull from a global inventory to help meet the strong demand in the quarter.
This seasonal increase was expected, but it does not take inventory back to the level needed for the upcoming selling season of course, the industry continues to face challenges in supply chain.
But as we have demonstrated over the last several quarters, our exclusive technology and strong vendor relations will allow us to navigate the environment and in an efficient manner.
While we still expect macro and challenges to persist it is unclear when the supply chain environment will normalize.
In either environment, we feel confident about our position to continue our outperformance with these tools at our disposal. We also stand to benefit from our emphasis on growing the high margin less cyclical parts and service businesses, which should continue to provide stable and enhanced profitability.
Moving forward.
Moving onto our marketing activities, we continue our balanced strategy between boat shows and local dealer sponsored events. This quarter represented the second year when most regional and local winter shows were canceled based on our results year to date. It appears our customer engagement marketing and local events are more than compensating for the cans.
Solutions moving forward, we will continue to be innovative with our marketing in the midst of elevated demand customers are out there shopping and.
And we're getting them, both as fast as weekend and with that I'll turn the call over to Jack to go over the financials in more detail.
Thanks, Anthony second quarter revenue increased 34% to $442 million from $329 6 million in the prior year quarter fueled by a significant increase in parts service and other revenue and an 8% increase in same store sales.
New boat sales grew 21% to $290 million in the fiscal second quarter of 2022, and pre owned boat sales increased 35% to $75 9 million.
We continue to benefit from our diversification strategy and growing the higher margin parts of our business, which contributed substantially to our results in the quarter.
Finance and insurance revenue increased 27% to $14 9 million in the second quarter of 2022 service parts and other sales climbed 178% to $61 3 million driven by the contributions from our recently acquired businesses.
Gross profit increased 61% to $142 5 million in the second quarter compared to $88 8 million in the prior year.
Primarily driven by the increase in gross margin of new and pre owned sales and the fundamental mix shift towards the higher margin service parts and other sales.
Gross profit margin increased 530 basis points to 32, 2% compared to $26 nine in the prior year.
Second quarter 2020 to selling general and administrative expenses increased to $75 5 million from $48 3 million.
SG&A as a percentage of sales bumped up to 17% from 15% in the prior year.
This increase in SG&A as a percentage of sales was due mainly to higher variable personnel costs driven by the increased level of profitability compared to the prior year quarter.
Operating income increased 53% to $59 4 million compared to $38 7 million in the prior year.
Driven by an increase in gross profit primarily offset by SG&A expenses.
As a result, adjusted EBITDA increased to $66 1 million compared to $40 1 million in the prior year.
Net income for the fiscal second quarter totaled $42 4 million or $2 54.
Per diluted share up 38% from $30 6 million or $1 83 per diluted share in the prior year.
For our fiscal second quarter 2022 charges related to transaction costs.
Consideration adversely impacted diluted earnings per share these amounts tax effected at 25% were 13th.
Per diluted share in the second fiscal quarter of 2022.
Looking ahead for the full fiscal year 2022, we are raising our outlook for.
For adjusted EBITDA to be in the range of $230 million to $240 million and earnings per diluted share to be in the range of $8 60 to $9 per share we.
We maintain our anticipation for same store sales to be up high single digits, despite ongoing inventory challenges.
These projections include acquisitions completed during the second quarter and the recently completed Denison yachting transaction, but exclude any additional acquisitions that may be completed during the year.
With regard to our capital allocation, we remain focused on driving shareholder value by accelerating organic growth executing on strategic M&A opportunities and returning value to shareholders through our share repurchase program.
As Austin mentioned, we view the new program as another opportunity to drive returns for our shareholders and we will repurchase stock opportunistically.
To conclude we are progressing well towards our long term goals integrating market, leading dealers and growing our higher margin revenue streams with our proven strategies, we look forward to generating even more profitable growth and unlocking value for our shareholders.
This concludes our prepared remarks, operator would you. Please open the line for questions.
Thank you.
We'll now begin the question and answer session to ask a question you May Press Star then one on your touch tempt them.
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At this time, we will pause momentarily to assemble our doctor.
Our first question comes from Craig Kennison with Baird. Please go ahead.
Hey, good morning, Thanks for taking my questions. So we're in a rising rate environment without a fed move yesterday I'm curious what the average rate your consumer pays.
And whether you're seeing any change in behavior as rates.
Rise, whether they put more money down cancel deals or.
Change their behavior in any way because of rising rates.
Yeah, Craig Thanks for that I'll, let anything kind of maybe jump in on this but I'll just start off by saying you know we have continuously.
To fight for ethanol.
It's not something the majority of our customers come in planning on writing the check image conversion that we really had to work on so no I.
I don't think there's been a shift at that at all the rates haven't moved significantly.
One of the things I'll point out that as rates continue.
<unk> to go down.
Bolt financing rates did not.
They've kind of hung out in that.
<unk> low fives mid mid fours to low fives, and so they haven't seen the increase as fast as or as quick as like mortgage rates, but our A&P much better than that on the day to day, especially over the last couple of weeks.
Yeah, I mean the rates.
We've always operated at a bit higher rate, if you will and we continue to echo exactly what Austin said, we continue to.
No.
Slight to get people to finance.
So it has zero effect on us at this point.
Okay, Great and then Jack just to follow up on your share repurchase program can you give us a feel for what.
Your diluted share count.
Could be for the full year just based on your guidance.
Yeah, I think at this time, we're not projecting.
Projecting in our in our guidance a material change in the number of shares.
I'll remind you that we did indicate that we are going to wait until after the earnings release got out there before were in the market buying shares.
And so we will be opportunistic in.
Certainly update yes, as the program goes along.
Great Hey, thank you.
Thanks, Craig.
Our next question comes from Joe <unk>.
With Raymond James Please go ahead.
Guys. Good morning, a couple of questions for me I guess first of all.
No doubt more macro uncertainty today than there was call it six months ago, given the longer lead times.
Delivery throughout the industry and I think you guys are seeing that as well is it customer less likely to commit to a purchase today for delivery three to six months out or even longer if they don't know what the macro is going to look like I mean, it sounds like you guys are not seeing that but we heard from camping World. For example, yesterday mentioned some softness starting in February and I'm curious.
If you guys are seeing that at all in your business.
Zero.
Zero.
Joe the other thing is.
Spoke about before us.
No our manufacturers so in like 20 years ago. The manufacturers continue to come out with innovative products that everybody wants and they're willing to wait for it.
This 20 years ago, they change the color of the boat from year to year.
Every one of our manufacturers as well.
Minimum to up to seven different models that are coming out with that are just oh my gosh. So people are willing to wait for it because they are that spectacular.
Okay. That's very helpful. And then maybe a second question on capital allocation you talked about doing two to four.
Parts and service acquisition four to six your acquisitions and then the $50 million buyback could you do all of that together or what was it 50 million of buybacks potentially.
Cause you to do fewer M&A deals.
Well I think it would be based off the size of the M&A deals. This year. If you look at the sheer size of Danish and if you look at quality I mean, those two deals are those two deals alone or bigger than.
If you go back several years ago six deals we did one year just education. It really it really depends on the size of the deal. We do have some bigger deals in the pipeline right now.
That we're just going to look at it you know.
As where are we with.
What's the place and Destocking at the time that we're ready to allocate capital and where does the timing of the deals but yeah. We can do them all what they want on the smaller side. If they were on the bigger side no. We can't do you can't be two to four and four to six just on the acquisition side if at all.
And so the guide for the.
The number of deals.
Just kind of where we know what our pipeline is but it's a bigger deal comes along we might only do one deal.
It gets big when we might only do three dealership.
Dealership deals if they're big because their goodness.
The same is doing six so it's really going to be just what's out in front of us from a timing perspective, when we can get deals closed yes, we could do it all at one time it from one tape.
In the right jobs and with that said I mean, we've already we've already completed for dealership acquisitions this year and <unk> acquisitions this year Tim.
Typically the June quarter is because its season is typically a quarter that.
No we don't close a lot of acquisitions traditionally, but it also is a quarter, where we generate significant cash flow.
And so we've done a number of acquisitions in periods of slow cash flow and our ending cash.
Cash generation season.
Okay, great. Thanks, guys.
Our next question comes from Michael.
Suntrust Robinson Humphrey.
Please go ahead.
Hey, guys. How are you good morning.
I guess starting off maybe for Jack just trying to I guess better understand the moving pieces to the comparable sales the plus eight in the quarter I guess I'm just trying to back into.
Unit volume versus price mix, and then maybe how that compares to how the industry performed on a unit basis in the first quarter.
Yes from from what I recall, we performed an X ahead of what the industry did from a units perspective.
There's a lot of the the increase was due to price and mix.
Okay. Thank you for that.
And then just on guidance.
Guidance I'm, just trying to make sure im thinking about this correctly you've raised the range on EBITDA.
By about $20 million and I think the kind of partial year benefit from Denison and yeah, maybe somewhere in the call. It 10 $10 million range I guess am I thinking about that right and if so then it seems like you took up guidance by another $10 million on the base business is that is that just because.
As you perform better in the second quarter than you had previously anticipated or am I thinking about that wrong.
Yes.
As we perform better in the quarter than we anticipated.
Okay, great. Thank you.
Our next question comes from Brian Lee.
Please go ahead.
Hey, guys. Good morning, maybe just a follow up on that quarterly comment for the comps I think you had talked about sort of being close to flattish. This quarter, but you came in ahead of that was that just better price recognition did you actually see better deliveries then you would plan to where it was sort of the disconnect.
And I think we've been pretty consistent over the last year Fred that you know.
When you go into the end of the quarter that last 14 days in the quarter really can can can change it or make it better or worse or whatever and I think that the manufacturers for whatever reason first quarter. This year, they did really well as far as getting deliveries out and getting the boats to us although that April has been a pretty good struggle for.
Most of our manufacturers from a production or supply chain issues and challenges that we're having but it just <unk>.
<unk> came together Anthony if I'm wrong, let me know, but it just really came together over the last couple of weeks March was a good month as we've seen in April to be a good month also.
Deliveries, it's just the season.
Makes sense and the other thing that you guys have sort of talked about is just the impact on reported comp sales as you integrate some of these dealers may have access to a wider.
Inventory suite right, so even though reported revenues benefit from that because the actual comp impact is a little bit detrimental could you sort of talk about how to think about that into the back half of the year is that impacting sort of this implied slowdown on a two year and three year basis for comps in the back half of the year or are you more skittish on the consumer more skittish on sort of deliveries like how does that all work out.
Into the guidance that you've outlined.
We're definitely not skittish on the consumer.
Sales same store sales.
Talk about this at year end and we've talked about this a pretty good it's going to be choppy.
It really goes in like I, just said the last 14 days in the quarter can swing it but also you know we're looking at quality.
It's been a huge dealership that's never had enough inventory.
They haven't had enough inventory for the last three to five years and with certain brands and now they can pull from the global inventory that we have so.
You can look at grady or pursue they can sell more bigger grady whites more bigger pursuits than they've been able to in the past because we have more allocation because of the total network and so like I say, we're supposed to get a big Grady wide up in Ohio, If we can sell it in Florida beforehand, they'll take that production spot and you can skew.
Same store sales I don't see it being significant it's not like.
We're guiding to a double you know a high single digit and it's gonna be negative or it's going to go.
I'll jump up to 20, but it can swing that.
Pull from the global inventory for stuff, that's not counted in same store sales they can they could sweep Jack.
4%.
Yes, it definitely can move it 1% or two.
Yeah, just the dollar volumes it doesn't take a lot of units and so we just have more time to keeping an eye on that I mean, I think we're we never really given out.
I've never really worried about quarterly same store sales comps versus the yearly guidance, we're very comfortable with like Anthony said.
Inside of the the lease debt.
The high single digits is what we we're pretty confident in that.
Just to say that there is no slowdown in the consumer right now we're not seeing that at all.
I think if anything there is.
Some conservatism built in about concerns with some of what we've heard a little bit from some of the manufacturers with supply chain hitting some bumps in the road here recently, hopefully they're able to work through those quickly, but that would probably be the area of concern.
Awesome Super helpful guys. Thank you.
Yeah.
Okay, and if you'd like to ask a question. Please press Star then one our next question comes from.
Crum with Stifel. Please go ahead.
Okay. Thanks, Hey, guys good morning.
So the past several quarters, new boat growth has outpaced pre owned but that was not the case. This quarter can you talk about what some of the dynamics were behind that and then I have a follow up.
No.
We've continued our strategy as we've talked about in the past are now running our five.
As these groups together and we've added multiple.
[noise] used boat buyers, if you will just going out of the market.
That's what their job is to do is to buy and grow our used boat business units.
There's a lot of growth ahead of us with our pre owned market no matter, what's going on in the environment. There is always there.
Just to go out there theres a million used boats a year that change hands in the majority of it's person to person and we are working feverishly trying to get in the middle of that.
Got it thanks for that Anthony and then and then Austin in your preamble you suggest the adjusted EBITDA of 275 million I think you said it was easily achievable over the next 24 months.
Last quarter, you guys talked about a $300 million plus number I just want to.
Make sure Im understanding those two correctly you could reconcile the two figures.
Yes, I would say those are a little bit of an apple and an orange.
What Austin was kind of referring to is just kind of where our run rate is that today and in our ability to synergize that that number.
The previous number we got at was was just talking about if you look at our.
Adjusted EBITDA and you layer in growth.
10% to 15% growth from acquisitions and five to 10 from the base business.
That gets you to a.
300 million number by by 2024 without any sort of synergies and so I think we're just trying to just provide some color around the different ways to weaken that how we look at the business and what we see ahead of us.
With with growth opportunity and how our EBITDA can increase over time.
As we continue to run the business.
Got it thanks guys.
Yeah.
Thank you that will conclude our Q&A session and the conference call today.
You for your participation you may now disconnect.
Okay.