Q4 2022 OneWater Marine Inc Earnings Call
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Sure.
Ladies and gentlemen, thank you for standing by and walk through the one water one water marine fiscal fourth quarter and.
Ladies and gentlemen, thank you for standing by and walk through the one water marine fiscal fourth quarter and full year 2022 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the especially the press star one on your telephone I would now like to turn the call over to Jack as our Chief Financial Officer, you may begin.
Good morning, and welcome to one water marine fiscal fourth quarter and full year 2020 earnings conference call I'm joined on the call today by Austin, Singleton, Chief Executive Officer, and Anthony Asquith, President and Chief operating Officer.
We began 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 would 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 of 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.
Yeah.
Thanks, Jack and thank you everyone for joining today's call.
We are proud to deliver another year of record results highlighting outstanding execution of our proven growth strategy I would like to thank our team for their relentless efforts throughout all the challenges facing our industry.
Clearly a challenging supply chain and the devastation caused by hurricane in late in the quarter.
The storm get very close to home for one water as we have 43 stores in Florida and 12 in southwest Florida.
Our stores impacted by three.
Three remains closed but are expected to reopen in the December quarter, our thoughts and prayers are with everyone impacted and we are working tirelessly to help these communities rebuild.
Full year 2022 revenue increased 42% to $1 7 billion on top of 20% growth in 2021.
Same store sales growth for the full year was 12% in line with our expectations, we made tremendous progress on.
On our diversification strategy.
The year service parts and other sales increased 164% compared to the prior year and finance and insurance revenues expanded by more than 30%.
These higher margin revenue streams will remain a key focus area as we see significant room for growth in the years ahead.
Our full year 2022, adjusted EBITDA of $248 million grew nearly 60% in line with our guidance.
Due largely to our strong execution and diverse business model.
Important by robust and steady demand throughout the year.
Propelling this growth is our acquisition engine.
Which was running at full steam highlighted by a consistent cadence of acquisitions during the year.
To that end, we completed four dealership acquisitions during full year 2022, and announced last month, we closed the acquisition of Taylor Marine.
Award winning dealer with a strong reputation that complements our presence in the mid Atlantic U S.
We also announced the definitive agreement to acquire Harborview Marina a family owned and operated business that brings aboard a suite of brands prominent locations and a loyal local Gulf coast. Following we expect this transaction to close in the December quarter.
In addition to these dealership acquisitions, we also completed for parts and service acquisitions during the year as we continue to build out this important component of our growth.
We significantly expanded our parts and service business with the additions of th Marine.
<unk> biochem, yet gear and Jeff Marine.
We are excited about compounding growth in this area and the higher margin profile with adds to our business.
As evidenced by our acquisition activity the opportunities have been plentiful going forward, we remain opportunistic yet very disciplined in our approach while we monitor the macroeconomic environment.
Apply thorough analysis to any potential transaction.
Finally, I'd like to discuss some important partnerships recently announced in August we entered a distribution agreement with <unk>. The X one, creating an opportunity for our customers to design order finance and take delivery of four is the X one boats purchased three one water.
We are proud to partner with an innovative team advancing the adoption of sustainable recreational boating.
Additionally in October we signed a strategic partnership with the sport fishing championship.
We join their mission and showcasing the sport of saltwater fishing is a corporate champions.
Riding one water with an opportunity to connect with fishing boating and yachting enthusiasm around the world.
In summary, we are incredibly proud of our performance and we are excited for the opportunities ahead.
We will continue navigating a challenging supply chain environment to meet the healthy demand from our customers, while executing on our strategic priorities.
We believe these efforts will continue to propel us forward and drive value for our shareholders.
With that I will turn it over to Anthony to discuss business operations.
Thanks Austin.
The strong demand that we've experienced over the past year continued in the fourth quarter.
Now the boat show season has officially kicked off with great results coming out of the first few shows at the recent Fort Lauderdale boat show, we experienced record setting results.
We saw continued demand for boats in all categories with a 40 foot plus range remains especially strong these larger items carry longer lead times that will deliver over the next year or more providing strength to our already sizable backlog.
Further we have started to see pockets of easing within the supply chain.
Which supported <unk>.
Proved inventory levels in some categories.
<unk> remain far from pre Covid levels.
Inventories for smaller boats are starting to normalize, but we expect restocking to continue into 2024 for larger boats that said, we do anticipate making further improvement in the winter months, where we have traditionally been able to build our inventory.
As we have highlighted before our sophisticated inventory tools have enable our dealers to navigate the environment and pre sell inventory.
Efficiently and effectively.
We are able to keep our fingers on the pulse of the inventory and redirect or adjust orders in response to changing market dynamics.
Pre sold inventory and customer deposits remained elevated compared to the prior year and prior quarter.
We anticipate supply chain constraints easing throughout next year and look forward to an enhanced visibility and ensuring more timely deliveries to our customers.
As Austin mentioned, we're incredibly excited about our revenue from our higher margin service parts and other sales, which increased more than 200% in the fourth quarter.
164% compared to the prior year period.
Our efforts to build this revenue stream lays the foundation for our higher gross margins and in our future.
We are impressed with the performance of our recently acquired Ocean Biochem, which we believe is well positioned for continued growth.
<unk> service business is a staple of our diversification strategy.
As expected contributing significantly.
Both the top and bottom line in fiscal 2022.
Our fiscal year ended on a somber note as preparation for hurricane and closed most of our Florida locations.
Last week of September we were stopped receiving inventory retail insurance markets closed and customers were unable to take delivery of their new boats. We estimate this resulted in a $25 million of revenue that was delayed into future quarters until homes docks and storage facilities can be repaired and rebuilt and.
Can we expect additional volume in the coming months as voters seek to replace folks lost in the storm. We expect these sales to be recovered. However, some may be delayed 12 months to 18 months.
Most importantly, I would like to take a moment to thank our teams for their tremendous efforts in response to the hurricane.
Many of our employees in locations, where in the path of the storm.
But we are relieved to report that everyone is safe and we will continue to support our employees some.
Some of which lost their homes and belongings.
<unk> is well underway and I could not be more proud of how our team has responded.
And with that I'd like to turn the call over to Jack to go with the financials in more detail.
Thanks, Anthony fiscal fourth quarter revenue increased 42% to $398 million in 2022 from $280 million in the prior year quarter.
<unk> sales grew 22% to $236 million in the fiscal fourth quarter of 2002, while pre owned boat sales increased 33% to $67 million as Anthony mentioned, we experienced a softer than expected close to September due to the impact of Hurricanes.
We are unable to close deals in the last week of the month for most of our operations in the Gulf Coast region, we anticipate approximately $25 million sale to carryover to the coming quarters as communities rebuild.
With respect to our diversification strategy, our higher margin businesses contributed meaningfully to our results in the quarter.
Revenue from service parts and other sales increased 201% to $81 million compared to the prior year driven by contributions of our recently acquired businesses.
Finance and insurance revenue increased 32% to $13 million in the fourth quarter of 2022.
Gross profit increased 41% to $126 million in the fourth quarter compared to $89 million in the prior year driven by the increase in the higher margin service parts and other sales as well as the shift in the mix of the size of the boat sold.
Gross profit margin decreased by 20 basis points to 31, 7% compared to 31, 9% in the prior year.
Fourth quarter, 2020 to selling general and administrative expenses increased to $80 million from $55 million or 20% of sales in both periods.
Operating income grew 36% to $40 million compared to 29 million in the prior year.
And as a percentage of sales operating income margin was 10% in the quarter.
As a result, adjusted EBITDA increased to $45 million compared to $34 million in the prior year.
Net income for the fiscal fourth quarter totaled $22 million or $1 28 per diluted share.
Which is flat compared to $22 million or $1 35 per diluted share in the prior year.
Costs associated with nonrecurring items included hurricane and transaction cost with contingent consideration negatively impacted fourth quarter diluted earnings per share by approximately <unk> 17.
Now turning to the full year results.
Total revenue for the full year 2022 increased 42% to $1 7 billion compared to the prior year driven by an increase in the average selling price on new boats and higher volume of pre owned boat sold.
Same store sales increased 12% in fiscal 2022, marking our fifth consecutive year of double digit same store sales growth.
Additionally service parts and other revenue increased 164% to $255 million for fiscal 2022, as a result of our strategic focus and growth of these higher margin less cyclical aspects of our business.
Full year 2022 gross profit increased 55%.
$554 million driven by the shift in the mix of side of the boat sold as well as significant increase in higher margin service and parts.
Other sales.
Gross profit margin for fiscal 2022 was 32% an increase of 260 basis points compared to fiscal 2021.
Selling general and administrative expenses in fiscal 'twenty to increase to $302 million or 17% of revenue from 199 million or 16% of revenue in fiscal 2021.
The increase in selling general and administrative expenses as a percentage of revenue was due mainly to the higher vulnerable costs driven by the increased level of profitability and a subsequent year and an increase in costs given the current personnel and supply chain environment.
Full year 2022, operating income surged to $218 million, a 46% increase from prior year operating income of $149 million as a result, adjusted EBITDA climbed 59% to $248 million.
Net income for fiscal year, 2022 increased 31% to $153 million or $9 13 per diluted share compared to net income of $116 million or $6 96 per diluted share in the prior year.
Costs associated with non recurring items, including Hurricane Dorian costs transaction costs and contingent consideration negatively impacted diluted earnings per share by approximately <unk> 90 <unk>.
Now turning to the balance sheet on September 32022, total liquidity was in excess of $100 million.
Including 42 million of cash and availability under our credit facilities.
Total inventory on September 32.
<unk> was $373 million compared to 269 million at June 32022.
And $144 million at September 32021.
As Anthony mentioned industry wide supply chain constraints began to ease during the fourth quarter.
Total long term debt currently stands at 443 million, our net debt to adjusted EBITDA ratio is one six times, while we are comfortable with our liquidity and leverage position. We continue to monitor the macro environment and are being prudent on our capital allocation.
Looking ahead to 2023.
We expect a robust demand environment to moderate.
More traditional seasonal cycles, we anticipate same store sales to be up low to mid single digits. Despite the ongoing inventory challenges we.
We expect adjusted EBITDA to be in the range of $250 million to $260 million and earnings per diluted share to be in the range of $9 25 to.
To $9 75 per diluted share.
These projections exclude previously announced Harborview Marine acquisition and other acquisitions that may be completed during the year.
With regard to our capital allocation, we remain focused amplifying organic growth, while patiently monitoring strategic M&A opportunities.
We always consider market dynamics, and we'll evaluate strategic targets.
Now is no different.
As always we will be prudent in our approach and put our cash store when it would drive the most long term value for our shareholders.
This concludes our prepared remarks, operator would you. Please open the line for questions.
Hello, Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone, we will pause for a moment, while we compile the Q&A roster.
Okay.
Yes.
Our first question comes from Joe <unk> with Raymond James Your line is open.
Thanks, Hey, guys. Good morning first question is on product mix, you mentioned you called it out.
It's a headwind on gross margin was that size or content or vote.
Hey, Joe.
Entry level, what we would consider a premium entry level for us.
Anthony spoke of 40 feet and larger <unk> and extreme demand still and so as you start coming down in foot. It starts to ease up a little bit. So when you start talking about 30% to 40 foot, there's a higher demand because there is a larger backlog on that than there is on the 20 to 30 foot. So as you creep up.
And seed.
To see a little bit of an ease and inventory build just because that that cycle in the build cycle is much shorter.
And then.
And then the larger boats and the backlog is not is sold out as far.
Got it okay, and just a follow up on that in terms of inventories.
Please be up significantly year over year, where do you guys stand on a same store basis versus 2019.
Yes.
No.
Go ahead, Jack go ahead, and then I wanted to jump in after you guys.
We're still behind.
When you when you look at the numbers, obviously, they're a bit difficult to compare with all the acquisitions that we've done but going back to.
Our 2019.
The amount of weeks on hand analysis and back then we were averaging around.
'twenty that 'twenty two weeks on hand, and we're currently around.
11 to 12, so we still have some room to grow on.
From that perspective.
Acquisitions contributed about 40% 30, 40% to the growth of our inventory year over year. So it's.
Meaningful number and there is still room to guide.
As Austin was highlighting.
Some of the smaller boats are starting to normalize.
<unk> got away from the larger boat.
And then going back just going back to what Jack just said about days on hand were playing around with some back of the matching numbers and talking with our floor plan providers also what's funny is.
What I thought was really need is if you look at September of 2019. The industry was about 22 weeks days on hand.
As an industry as a whole we were around just north of 20, so a little bit better than the industry, but not significantly better.
Day September of this year.
The inventory for the industry is at 16 weeks.
As a whole.
Like Jack just sat around between that 11% and 12 week. So inventory is still still pretty depleted and the bigger the boat as both the longer it's going to take for that to normalize.
Okay.
Helpful and maybe one more if I could squeeze it in in terms of acquisitions. How are you guys thinking about the M&A market for 'twenty. Three are you still thinking about 4% to six youll or acquisitions in 2% to four parts and service.
I think we're going to monitor the macro over the next several months and kind of look at that this this is really the wrong time of the year for us to be doing acquisitions.
If you look at the way they layer in the Harbor view Windows is a great win for us because it gives us some.
The lease security in the Pan handle that we didn't have in our Pensacola location. So thats a really a re.
Really good small deal for us, but the bigger deals we're going to look at probably a little bit harder than we have in the past because we don't think margins are sustainable.
<unk> margins, we've been saying this for the last couple of quarters, we feel with somewhat peaked or.
43, theyre not going to get any better.
Probably going to start to erode as we move into next year now how much of that erosion, we have to take on as a dealer versus the manufacturing starting to do rebase is yet to be seen but we're going to be we're going to be extremely prudent.
We've got a lot of deals in the pipeline and a lot of deals that look really good but it's not something that we see a gigantic upside in like if we can look at it within 30 seconds and say Okay. This deal is an easy double in size 24 months, because it's not taking care of all the components that becomes enticing.
But for the short term right now, we're probably just going to sit back and watch a little bit, but we will be doing some M&A I just don't know if we'll get for in this year.
I think we're just going to be really prudent to make sure whatever we do has tremendous upside because we're going to have to let these new boat margins normalized for a little bit.
Got it thank you guys.
One moment for our next question.
Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone.
Our next question comes from Michael Swartz with Travis Your line is open.
Hey, guys. Good morning. This is Lucas on for Mike.
Just had a question on going back to Ian Real quick you gave out the revenue impact was wondering if you could also talk about any costs associated with it.
Yes, we have a couple of million dollars in the air.
As expense in the P&L right now.
Our kind of estimate in some of the <unk>.
Cost, we incurred with respect to clean up and some things like that our preparation.
It kind of remains to be seen what's going to happen with insurance claims and recoveries and things like that.
But.
Not not a ton of charges at this point, we do have three locations Fort Myers Beach Fort Myers.
Englewood that were a little more impacted.
So there is some recovery efforts and rebuilding we are having the base is low.
<unk> to be back online here in the.
The coming days and ready for business.
Okay perfect. That's all I had thank you.
Thank you.
One moment for our next question.
Our next question comes from Brandon Rolle with D. A Davidson your line is open.
Good morning, I, just had a question on promotional activity and what Youre seeing out there right now.
Your expectations for how that evolves over the next three to six months.
Yes, I mean, theres not a whole lot of it out there right now what youre seeing is youre seeing some some dealers that are discounting what we would call last year's model. So now that we've had model change and we're rolling into winter anybody just got 22 model years doing a little bit of discounting just to make sure that thing gets across the curve.
Our inventory is in really good shape, we're just not seeing that so what.
What we don't know is how long it's going to take for the manufacturers to feel like they need to come in with rebates and what typically happens is there's a set number of manufacturers out there that have a dealer network that really have nothing to offer price.
And as we've gone through these great years with high demand and some supply chain issues. Those dynamics have allowed them not to have to really do any of that but at some point in time, that's the only way. They can compete so they'll slot and start doing some discounting some manufacturing rebates it won't affect the dealers than the other manufacturers are.
Starting to follow suit and then what it does is it just eventually snowballs into where everybody is doing it are still extremely comfortable I would say north of 30 feet, we're going to be able to hold really good margins is that sub 30% sub 30 feet that over the next year I do believe we will start seeing some margin erosion.
Because the dealers will discount on top of what the manufacturing rebate is good.
Good thing for US is we've put a lot of effort into that higher margin business.
As we sit down and Jack and Anthony outlook at this we're starting to get a little bit more comfort to be able to hold that that gross the gross margin in that.
High twenties, 30% range, which which will impact our leave us with a double digit EBITDA margin as we go forward. So we made the moves and I think we're every day, we're getting closer and closer to be able to adapt and to offset any margin erosion on the new boat sales, which we know is coming.
Great and just one follow up if possible.
Any comments on the used boat market, what youre seeing in terms of pricing or inventory availability. Thanks.
Yes, Anthony you want to jump in on that I mean this tie.
Right.
There is nothing out of the year so.
Go ahead.
There continues to be very tight we continue to try to.
We employ several buyers all over the country just trying to.
And use those to our mix.
So it's still very robust.
Great. Thanks.
Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone.
And I'm not showing any further questions at this time I'd like to turn the call back over to management for any closing remarks.
Thank you everybody for joining the call and at this point, we will disconnect have a great day.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Okay.
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
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