Q3 2022 OneWater Marine Inc Earnings Call
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The conference will begin shortly.
Raise your hand during Q&A, you can dial star one one.
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Okay.
Thank you for standing by and welcome to one water Marine fiscal third quarter 2022 earnings Conference call.
This time, all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
I'd now like to hand, the call over to Chief Financial Officer Jackie.
Jack It's L. Please go ahead.
Good morning, and welcome to warm water Marine fiscal third quarter 2022 earnings Conference call I'm joined on the call today by Austin, Singleton, Chief Executive Officer, Anthony Asquith, President and Chief operating Officer before.
Before we begin I would 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 future results are discussed in the company's earnings release, which can be found on 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.
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.
Our exceptional third quarter results reflect broad based strength across the business the diversity of our business model and the power of our acquisition engine.
We delivered another record quarter with revenue, increasing 41% to $569 million and adjusted EBITDA rising 45% to $95 million compared to the prior year.
Same store sales increased 12%, reflecting our continued outperformance of the industry.
Ported Lee as the quarter progressed, we shifted to both unit growth.
As well as price increases continued to drive sales growth.
This momentum continued into July as we saw a double digit increase in same store sales and continued unit growth during the month.
All at a time when one water and the industry are at a record low field inventory.
Our same store inventory compared to 2019 is down 10 plus percent in terms of dollars and in excess of that in terms of units we.
We do not see inventory returning to a new normal for 24 months with the current demand.
Growth during a time when one water in the industry are at record low levels of inventory as a testament to the dedication of our team and the resilience of our business model.
Our results through the first nine months of the physical year have already outpaced all of last year.
We expect a strong finish to the year as demand remains robust.
This coupled with the strength of our OEM partners and are leveraging our inventory footprint gives us confidence, we will be able to get our customers to boats they want.
Reported in our increased full year outlook.
Our record results in the quarter clearly highlight the power of our aggressive acquisition strategy.
Which accelerated organic growth.
In the quarter for example, our recent acquisition of Dennis any Audi contributed significantly to a 38% increase in pre owned sales and a 390 basis point improvement in pre owned margins.
The addition of our parts and service acquisition engine Th Murray propelled a more than 150% increase in service parts and other sales.
We continue to use our acquisition platform to fuel the expansion of our higher margin revenue streams, including our recently announced agreement to acquire Ocean Biochem.
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He is a leading supplier and distributor of cleaning and maintenance products for the marine industry as well as the automotive power sports recreational vehicles and outdoor power equipment markets. We.
We see tremendous synergies and expect to significantly advance growth in our parts and accessories businesses.
Our integration playbook continues to drive best in class results and support significant top line growth, while enhancing our margin profile.
Our ability to significantly improve EBITDA of our acquired companies has been a meaningful contributor to growth over the past two years and will continue to be our secret sauce in the coming years.
For the fiscal year, we have already completed our acquisition guidance of four to six dealerships in two to four parts and service acquisitions per year.
With that said the pipeline remains robust and we will maintain our track record of disciplined strategic acquisitions as we evaluate our next opportunity.
Since becoming a public company just over two years ago, we have continuously delivered for our shareholders and we believe that we have the strategy scale the expertise to position us for continued outperformance.
And with that I will turn the call over to Anthony to discuss business operations.
Thanks, Austin as Austin mentioned, we continue to outperform the industry during the quarter same store sales increased 12% reflected a solid organic growth as Austin mentioned, we are starting to see growth in both units and average prices. This compares to the industry, which is reportedly down 10% to 20%.
Demand continues to be strong.
Pre sold inventory remains elevated customer deposits in the quarter increased nearly 50% compared to the prior year and are also up compared to the prior quarter.
While our backlog is at record levels, reflecting continued customer demand.
While the industry continues to face a challenging supply chain, we are benefiting from the scale and quality of our dealerships as they leverage the available inventory across the network.
At the end of the third quarter of 2022 inventory totaled $269 million, which includes our recently acquired dealerships compared to the fiscal second quarter of 2022 inventory was down $24 million as the summer selling season ramps on a same store basis inventory was down approximately 10% in <unk>.
Terms of dollars.
Excess of 20% in units compared to 2019, utilizing the flexibility and the sophistication of our inventory tools. Our team has done an excellent job of not only pre selling the boats that our customers want but also using the tools to make sure. The boats are delivered efficiently as possible.
At our recent dealer meetings, we've got a sneak peek into some of the incredible new products coming to the market.
New factors are introducing innovative new products that are selling out well into 2020 for our customer engagement remains high and the team continues to provide excellent service for all of their boating needs.
We have discussed before our exclusive technology and powerful inventory tools combined with our strong vendor relationships enable us to navigate the environment efficiently and effectively.
With our proprietary tools and technology at our disposal, we feel confident in our ability to continue to outperform the industry.
Regardless of the persistent macro and challenges in summary.
Our processes and procedures across all aspects of the business are continuing to drive market leading results. Our team continues to deliver strong growth quarter after quarter further positioning one water as the leader in the industry.
I will now turn the call over to Jack to review the financials.
Thanks, Anthony fiscal third quarter revenue increased 41% to $559 million in 2022 from $404 million in the prior year quarter.
This is a result of a 12% increase in same store sales and revenue from recently acquired businesses.
New boat sales grew 31% to $377 million in the fiscal third quarter of 2022, and pre owned boat sales increased 38% to $98 million.
We continue to benefit from our diversification strategy and growing the higher margin parts of our business, which contribute substantially to our results in the quarter.
Service parts and other sales climbed 153% to $75 million driven by contributions of our recently acquired businesses finance and insurance revenue increased 25% to $19 million in the third quarter of 2022 gross.
Gross profit increased 45% to $184 million in the third quarter compared to $127 million in the prior year quarter.
This was primarily driven by our strategic acquisition of higher margin less cyclical service parts and other revenues as well as the shift in our mix and size of those sold and our dynamic pricing.
Gross profit margin increased 90 basis points to 32, 3% compared to 31, 4% in the prior year.
Third quarter 2020 to selling general and administrative expenses increased to 88 million from $61 million SG&A as a percent of sales was 15% and in line with the prior year.
Operating income increased 35% to $88 million compared to $65 million in the prior year driven by the increase in gross profit.
As a percentage of sales operating income margin was 15, 4% in the quarter.
And as a result, adjusted EBITDA increased to $95 million compared to $66 million in the prior year.
Net income for the fiscal third quarter totaled $65 million or $3 86.
Per diluted share up 25% from $52 million or $3 <unk> per diluted share in the prior year.
For the fiscal third quarter of 2022 charges related to transaction costs and contingent consideration adversely impacted diluted earnings per share. These amounts tax effected at 25% were 20 cents per diluted share in the third quarter of fiscal 2022.
Turning to the balance sheet as of June 32022, total liquidity was in excess of $125 million, including cash on the balance sheet availability under our revolving line of credit and Floorplan facilities.
Total inventory as of June 32022 was $269 million and remains constrained as evidenced by our same store inventory being down approximately 10% in dollars compared to June 2019.
This despite the price increase that occurred over the past three years.
Total long term debt as of June 32022 was $336 million adjusted net debt or long term debt net of cash was one times trailing 12 months EBITDA.
While we are comfortable with our liquidity and leverage position, we continue to monitor the macroeconomic environment and are being prudent in our capital allocation.
Our strategy for capital allocation perspective has not changed we are focused on reinvesting in the business to accelerate organic growth.
<unk> M&A opportunities and as we have discussed a potential share repurchase.
To that end last quarter, we announced that the board authorized a share repurchase program of up to $50 million.
As indicated in our release, we were blacked out for making purchases until the March quarterly earnings were released.
During that blackout or conversation of obese accelerated and our governance guidelines prevented the blackout from lifting as such we were unable to make any repurchases during the quarter. We remain committed to opportunistically repurchasing shares and believe this to be another strategic avenue to return value to shareholders and make strategic.
Investments in what we view as a very undervalued asset.
Looking ahead for the full fiscal year 2022, we are raising our outlook for adjusted EBITDA to be in the range of $240 million to $250 million and earnings per diluted share to be in the range of $9 20.
Two $9 60 per diluted share.
We now anticipate same store sales to be up low double digits for the year. Despite the ongoing inventory challenges. These projections include acquisitions that have been completed during the third quarter, but excludes any additional acquisitions that may be completed during the year.
To conclude.
We continue to rapidly expand the business and position one water for sustainable growth, we remain committed to successfully executing on our strategic growth strategy and returning value to our shareholders.
This concludes our prepared remarks, operator would you. Please open the line for questions.
As a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of drew Crum of Stifel.
Drew Crum your line is open guys good morning.
The comments around dealer inventory not normalizing for another 24 months, how much of a factor supply chain, where others have suggested to me I think more recently or is this more related to the consumer demand youre seeing or anticipating and then I have a follow up.
Well I mean, I think it's a combination of the two drew I mean, we're still the manufacturers seem to be getting a better footing and getting a little bit more consistent than they were back in April and the first part of May.
We're getting a little bit more visibility on when boats are coming in but as we talked about earlier in the script.
Demand has not waned at all I mean, we saw unit increases in June and July .
And that's something we hadn't seen for a while it's mainly been price. So I think it's just a combination of the two and I don't know how to weigh one over the other right now.
Okay Fair enough and then Austin you highlighted your acquisition strategy I think Jack you mentioned in your prepared remarks, some prudence around capital allocation.
Is the 4% to six dealer acquisitions per year in two to four on the service and part side still a reasonable cadence or would you look to slow the pace in this environment and alternatively do buybacks. Thanks.
Yes, I mean, I think we're going to look at what is the best return on capital.
When you look at where the stock price was yesterday versus where it was.
Three months ago.
It's quite a bit different I think we just have to.
Look and manage kind of both I mean, I don't know why we can't find a fair balance between the two.
Since we've already kind of completed the cadence for the year.
All of the macro that's out there I think I think we're just going to be a little bit slower on the pedal for the next 30 60 days 90 days kind of wait and see how things shake out, but I think that we're not going to lower our cadence on the acquisitions. They are just two accretive.
But we're also going to be mindful of what the return is on our stock repurchase dependent on when the time is right to do that.
Got it thanks guys.
Thank you. Our next question comes from the line of Joseph Debello, Raymond James Joseph <unk>. Your line is open good morning.
First question I wanted to delve into the 12% comp increase you saw in the quarter. I think you mentioned that you saw unit growth.
July .
How much of that 12%.
In the quarter.
Yes, I'd say units in the quarter were essentially flat. So it really was more in the back and started to see that trend.
The tide turn there.
Okay. Thanks, Jack and then maybe more of a broader question.
Why do you guys think your customer.
Being less impacted by macro headwinds that we're seeing.
A company's warrant.
Why this earning season on slowing demand.
Yes, I mean I think that.
We're selling a high end premium.
Premium product.
We mentioned this in a couple of other calls.
Actually last quarter.
Theres been a pretty good push to on or near water as a secondary or primary home over the last.
Two years and I think that's leading a lot of it but it also goes back to what Anthony talked about earlier that the manufacturers are continuing to come out with really good innovative.
Stylish new product that keeps the consumer excited.
And when you look at just the churn the growth that we had in the industry because of Covid and now that growth is churning.
New products.
Pre owned holding are really good.
Dollar I mean, you can sell pre owned real goods. So the charge just bigger because of the excitement that is.
The best thing I can put out there I think there's just been a great white to water or on water near water and then just the innovation and the technology. That's out there is just keeping the consumer excited.
Helpful. And then maybe one last one from me in terms of price increases that youre seeing our model year 'twenty three what does that look like and what does it look like versus model year 'twenty. One 'twenty two for example.
I will have to default that one to Anthony I haven't really looked at.
Across the board.
They're continuing to go up.
Used in the past.
Price increases.
At the beginning of the year.
Fortunately with some.
<unk>, it's two to three of them.
But again like we said it's.
It's not the same or a different color.
There's things that are put on the boats that are making people.
Got to have kind of things.
Pricing stabilizing though Anthony at all.
Yes, it's starting to.
Okay, Alright, thanks, guys.
Thank you. Our next question comes from the line of.
Fred Wightman of Wolfe research.
Your line is open.
Good morning can we just touch on the new boat margins in the quarter. It was up year over year, but down a little bit sequentially. I think you guys had signaled that you were expecting that to find a new normal last quarter, but how do you sort of see that trending going forward.
Yes, I would say what you see there is a little bit of seasonality that different season different types of boats. We we do see some variation.
I think the margin environment remains robust there was not.
Significant discounting at all in the quarter. So I don't want to I don't want that number to suggest that that was but we continue to.
Go to market with dynamic pricing approach, where we're looking at what what are the market dynamics.
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In each individual market and adjusting price accordingly so.
I think thats more a function of.
Mix then.
And then really any other sort of indication.
Okay that makes sense and you guys have also talked about some potential same store sales headwinds from inventory sharing just with some of these dealerships that have been acquired but haven't come into the comp base. I mean is there any did you see any of that in the quarter or is there any way to sort of size what that.
Impact.
The impact was just on.
It looks like a pretty strong comp number I guess could this have been better if we sort of reflected some of those units on those acquired.
Yes.
You have pockets that are hotter than others that west coast of Florida is really high.
The quality deal was a large deal they use.
We run a lot of volume through there.
I don't think I don't think it was super meaningful Fred it's not like the 12 would have been in 2018 or 16 12 could have been maybe 12 five or 13.
So we've done a really good job in most of the stuff.
It came in this past quarter was stuff that was.
One order or that it was already in stock at that dealership and it wasn't a quick turns so I don't think its a meaningful move at all.
Perfect. Thank you.
Okay.
Thank you. Our next question comes from the line Michael Schwartz of suicide.
Michael Your line is open.
Guys good morning.
Questions from me first one just point of clarification on the guidance Jack.
I just wanted to confirm that your new guidance does not include the Ocean Biochem acquisition correct that is correct.
As you think about that we indicated before that we expect that to close here in our fiscal fourth quarter.
And.
It will not have a meaningful impact to the quarter.
Gross.
<unk>.
Maybe a $1 million a month of EBITDA out there, but with this type of transaction, we're going to have some pretty substantial.
Transaction costs associated with it so it won't we won't even talk to that but then we'll update the guidance post close.
That's helpful. Thank you for that.
And then I knew.
Austin your comments suggest youre not seeing any change in the consumer backdrop consumer dynamic are you seeing any trend or any changes in trends or disparity in trends.
Predominantly.
The southeast, but any any changes in trends amongst geographies any changes in demand across different coating segments.
Not yet.
That might raise its head once you get further into the.
What we would call the slower time of the year, but right now we're in the middle of the season and Anthony is really better equipped to answer that but.
We're not seeing it so I'm sure he is not seeing it.
You don't have anywhere that's hotter once the weather gets cooler up north it will slow down, but thats expected in seasonal like we're used to dealing with it and so do you want to add anything to that.
I think you hit it directly on us I think.
Each one of those segments.
We play in have some pretty incredible stuff.
None of it seems to be slower in getting some of the stuff is.
Still sold out until 2024.
Okay great.
Last question for me and I think you kind of touched on it earlier, but I didn't fully understand it.
Pre pre owned margins in the quarter jumped pretty significantly both year over year and more importantly sequentially. So I'm, just wondering and I think you called out Dennis and as part of that maybe just help us understand what that quarter over quarter jump stemmed from and then is that a sustainable level going forward.
So yes, so what that has to do with is the mix within within pre owned premium is made up of three components. One is going to be used boats that are traded and second is going to be.
Consignment boats that we deal and third is going to be brokerage and then Dennis It has a very significant brokerage operation.
Brokerage is one of those types of transactions that you recorded on a net basis.
So that it has the ability to move margin on lower revenue dollars. So it certainly helped.
Generate that significant increase in revenue, but then also.
In fact of the margins.
There'll be some variability amongst a mix, but I do think going forward, we will have an elevated margin on that premium line.
Okay.
Very helpful. Thanks, Jack.
Thank you again to ask a question. Please press star one one on your telephone at this time again Thats Star one one on your telephone to ask a question.
Our next question comes from the line of Kevin comes on.
Baird.
Kevin Your line is open I think a lot of my questions have been addressed but I did want to ask.
About the unit and ASP commentary, you gave and disaggregated that same store sales growth.
When you say unit growth was positive in June and July is that total units or does that also apply to new.
Are you seeing like better strength in used relative to them.
Yes that was Cabo was more on a same store basis right. So I mean, we've been having significant unit growth just because of the acquisitions, but when you Peel it back and look at on a same store basis.
It would be a combination of both new and pre owned.
Okay are they fairly similar in terms of same store unit growth there as well.
<unk> category.
I don't have that number broken down so, but I would suspect they're trailing fairly similar.
Maybe <unk>, maybe lagging a little bit just because.
Throughout.
While new boat inventory, it's been tough pre owned has been even more difficult to get your hands on so.
We've had now.
Out this year.
<unk> is on a pre online just because of the limited inventory and so I would suspect that maybe fell a little bit behind.
Got it thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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