Q1 2023 OneWater Marine Inc Earnings Call
[music].
Good day and thank you for standing by welcome to the one water Marine Inc. Fiscal first quarter 2023 earnings conference call.
At this time all participants are in a lesson only mode. After the speaker's 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 you will then hear an automated message advising you. Your hand is raised to withdraw your question. Please press star one again please.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Jack is L chief.
Executive Officer. Please go ahead.
Good morning, and welcome to the one water Marine fiscal first quarter 2023 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 results and events to differ materially from those described in the forward looking statements factors that might affect future results are discussed in the company's earnings release, which can be found in the investor Relations section of the company's website and in its.
Our SEC filings.
<unk> 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 awesome.
Thanks, Jack and thank you everyone for joining today's call before we get into the quarter.
I want to thank our team for their continued efforts in response to Hurricane Ian.
We continue to help our communities impacted by the storm to rebuild but the process is far from over.
As of today all of our stores are open but several of our operating at limited capacity, we expect sales activity.
Areas heavily impacted by the storm to remain lean until homes docs and storage facilities can be repaired.
Lost volume has yet to be recovered as many customers still do not have anywhere to put their boats.
The timing of this recovery demand is difficult to project, but we will continue to support our team and the community.
Turning to our quarterly results. The first quarter played out largely in line with our expectations. We once again delivered record revenue in the quarter and gross margins of 30%.
Importantly, we saw an 86% growth in our service parts and other businesses.
Which is demonstrating our evolving business model that is diversifying us away from the more cyclical boat buying cycles.
As we discussed last quarter, our customers are returning to normal pre COVID-19 buying patterns.
With the supply chain, improving and lead times decreasing many customers no longer feel the urgent need to preorder their boats months in advance of the season.
That said overall demand remains healthy as evidenced by our backlog.
It's up over the prior year strong store traffic and robust activity at the boat shows so far this season.
I want to spend a few minutes discussing quarterly results and.
Got a return to historical seasonality means for one water sales.
Sales for the first quarter grew 9% on top of a 57% increase in the prior period.
Same store sales were down 14% in the quarter. Following same store sales growth of 28 and 38% in the first quarter of 2022 in 2021, respectively.
In a typical seasonal environment, we have realized lower sales and higher levels of inventory in the first quarter, which is typical of the smallest quarter of the year looking.
Looking back to the 2017 between 19 period December 31 quarter represented about 15% of our annual sales and 10% of our annual EBITDA.
Our parts and service business continues to grow organically and <unk>.
<unk> also benefited from a number of strategic acquisitions over the last 18 months.
The diversification of our businesses supported gross margins in the quarter and will enable us to maintain our track record of profitable growth regardless of industry or economic cycles.
During the quarter. We also completed the acquisition of Taylor Marine centers and Harborview Marina.
Taylor Marine is an award winning a dealer with strong reputation and complements our presence in the mid Atlantic U S. Wow Harborview Fortifies, our presence in the Florida Gulf Coast market.
The acquisition pipeline remains robust and going forward, we will remain opportunistic while we monitor the macroeconomic environment and imply a thorough analysis.
The potential transaction.
Based on where we stand today, all signs are pointing to an upbeat selling season in 2023.
It shows to date have been strong traffic is good and demand remains intact. Additionally, gross margins are holding up and customers are not resisting the current interest rate environment at.
At the same time, there is considerable macroeconomic uncertainty and although recent industry data is down it.
It is not clear if it is the impact of historical seasonality or consumer demand.
With so many unknowns, we think it is it is prudent to revise our outlook for the fiscal year.
However, we believe consumer sentiment holds interest rates level out and macro conditions improve we have an opportunity to outperform.
While we know there are a lot of questions out there around the health of the consumer and the current demand levels, we will be back here in a few months with a bit more clarity on the peak selling season.
Finally, we announced last month that Mitch Legler will retire as chairman of the board I would like to thank Mitch for his tremendous contribution and guidance to one water over the last several years through the IPO and a period of rapid growth.
In line with our succession plan John Schroeder currently serves as Vice Chairman of the board and we expect John to be elected as chairman at our upcoming annual meeting I look forward to working with John in his new capacity and ensuring the continuity of leadership and governance.
That I will turn it over to Anthony.
Thanks Austin.
During the quarter, we experienced a change in customer buying cadence.
Rising interest rates and a decline in the macroeconomic environment and the impacts from hurricane need yes, we still capitalize on the solid demand to drive growth we.
We were able to key in on consumer trends at several boat shows during the quarter, where we logged strong activity.
Manufacturer rebates and discounts.
Made a return to boat shows resulted in a more normalized pre COVID-19 pricing environment. Additionally, customers did not seem to.
To be deterred by higher interest rates in fact, the vast majority of the sales made at the Atlanta show refinanced as often mentioned with the normalization of certain parts of the supply chain. Many customers no longer feel the sense of urgency to lock in a deal months in advance.
Especially true for the smaller standard units, where inventory has normalized.
However, there are still extended wait times for larger more sophisticated boats in excess of 30 feet.
Fortunately, we have the right portfolio of innovative products, a strong sales team and the right tools to get customers across the finish line into the boat of their dreams.
Total inventory at the end of the first fiscal quarter increased to 112% to $527 million compared to a year ago, driven by the return of seasonal inventory build and acquired businesses.
We remain optimistic about the future. We're also closely monitoring our inventory levels in relation to retail sales.
Should trend shift beyond expected seasonality, our proprietary tools will allow us to adjust their orders.
Inventory stocking levels.
Furthermore, our flexible operating model enables us to swiftly align our cost structure with the new levels of demand. We have said it several times, we have not seen a material shift beyond returned to seasonal seasonality.
Retail and boat show demand remains robust, but we continue to keep our fingers on the pulse of the consumer.
Activity to identify.
Any necessary changes.
Our service and parts and other business contributed significantly to the sales and gross margins in the quarter.
Spike macro economic pressures and seasonality our service parts and other businesses.
Also challenged by the Destocking that occurred with big box retailers that had a buildup inventory in response to the supply chain delays.
This area of the business continues to be an important growth driver for warm water and now accounts for 16% of the total revenues and 22% of the gross profit on a trailing 12 month basis.
Constantly growing over the last few years.
This contribution remarks, a significant a significant shift in our diversification.
Offering a stable high margin revenue profile through one water as we returned to a more cyclical.
Environment for both barrels we will rely on the stability of this business.
Our overall gross margins.
In summary demand remains healthy as the industry returns to traditional sales cycle and the supply chain continues to recover our flexible business model allows us to adapt to the dynamic operating environment to continue providing excellent service to our customers, while driving value to our shareholders.
I will now turn the call over to Jack to review the financials.
Thanks, Anthony fiscal first quarter revenue increased 9% to $367 million in 2023 from $336 million in the prior year quarter. Despite a 14% decrease in same store sales and new boat sales fell 2% to $232 million in the fiscal first quarter of 2023 and pre owned boat sales in.
Increased 4% to $56 million, we continue to benefit from our emphasis on growing our higher margin parts of our business, which contributed substantially to our results in the quarter service parts and other sales climbed 86% to $70 million driven by contributions from our recently acquired businesses finance and insurance revenue.
Continues to pace with new and pre owned boat sales gross profit increased 9% to $110 million in the first quarter compared to the prior year, primarily driven by margin installation offered by our service parts and other revenues, partially offset by a shift in the mix of the size of the boats sold.
Gross profit margin remained flat at 30% compared to the prior year.
First quarter 2023, selling general and administrative expenses increased to 78 million from $59 million.
SG&A as a percentage of sales was 21% an increase from the fiscal first quarter of 2022, and our normal seasonal environment. SG&A is typically higher in the December quarter related to the level of sales and marketing activity associated with both share participation in.
In addition, this year the average cost per show increase when compared to both shares we attended in prior years.
We expect these levels of promotional activity to return as we revert to a more traditional sales cycle. Additionally, we expect our SG&A to be higher than historical levels as we integrate acquired parts and service businesses.
Operating income decreased 15% to $27 million compared to $31 million in the prior year, driven by higher SG&A and expenses associated with our acquisitions.
Adjusted EBITDA decreased to $28 million compared to $41 million in the prior year.
Net income for the first fiscal quarter totaled $11 million or <unk> 61 per diluted share down 51% from $23 million or $1 45 per diluted share in the prior year.
Shifting to this decline was also a $10 million increase in interest expense, which was $12 million in the quarter.
From $2 million in the prior year this.
This increase is a result of the rising interest rate and an increase in the average borrowing on our debt facilities.
Turning to the balance sheet as of December 31, 2022, total liquidity was in excess of $100 million, including cash on the balance sheet availability under our revolving line of credit and Floorplan credit facilities.
Total inventory was $527 million as industry wide supply chain constraints continue to ease in the first quarter.
I would like to remind you that we are currently approaching the peak of the seasonal inventory build that typically occurs in February or March.
Long term debt as of December 31, 2022 was $464 million adjusted net debt or long term debt net of cash was one eight times trailing 12 months EBITDA.
We are comfortable with our liquidity and leverage position.
Monitor the macro environment as we manage our capital allocation.
Looking ahead, we believe is prudent to reduce our annual guidance to reflect the uncertainty around the macroeconomic environment and the potential impacts on the marine demand.
As a result, we are now guiding same store sales to be flat to up mid single digits compared to the prior year and expect adjusted EBITDA to be in the range of $200 million to $225 million with earnings per diluted share to be in the range of $7 50.
The $8 per share.
These projections exclude any additional acquisitions that may be completed during the year.
Our strategy from a capital allocation perspective has not changed we are focused on reinvesting in the business to accelerate organic growth pursuing strategic M&A opportunities paying down debt and repurchasing shares while maintaining appropriate levels of leverage as always we are methodical in our approach and we'll put our cash to.
Or what will drive long term shareholder value.
This concludes our prepared remarks, operator would you. Please open the line for questions.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Your question. Please press star one again.
Please standby, while we compile our Q&A roster.
And our first question comes from the line of Joe have Debello with Raymond James Your line is open. Please go ahead.
Thanks, Hey, guys good morning.
First question, maybe a housekeeping item for Jack comp number can you break that out between units and price in the quarter.
Yes, I would say that during the quarter we saw.
Some some increase in price and then a decline in units it was.
I would say units would be down in the.
Mid single digits.
Okay. That's helpful.
And then I guess in terms of the guidance in the quarter you mentioned the quarter was in line with your expectations.
<unk> talked about it a strong selling season positive kill activity and healthy demand youre cutting your guidance fairly dramatically and I know you talked about the macro and the cloudier outlook, but is it that much cloudier versus three months ago or are you concerned that there may be more than just seasonality going on here.
Well I think it's too early to know that Joe and I think thats, a little bit of our issue.
Thank you for you to come out today and raised our guidance or less like it was our lowered it I still think theres a lot of doubts out there on what we're saying so if we'd have taken it to 12 blocks people. Just said we were crazy if we left it alone the naysayers would still said that we're wrong and so we went back to the model and really line items.
Spent a lot of time on going through we know theres going to be more new boat compression margin compression and so we kind of factored that in and it just went and said Hey look lets take a conservative approach based on what we know and let's get this Friday and get it in line. So that we don't have to come back yet.
Quarter end or in the last quarter and adjust adjust down again, and so I think we're just taken a little bit more conservative approach. We just don't know today, we feel like it's seasonality because of the demand as far as Internet leads door swings things backed up at the manufacturers just where every.
<unk> sits it feels like seasonality, but we just can't answer that just yet.
We will have a lot clearer picture in three weeks.
Okay, so the guidance more than seasonality it sounds like.
It could yes.
Okay.
<unk> for the last year and a half that we're in a recession. So I think we kind of looked at it and said, let's get this right. So we don't have to keep coming back to it and making adjustments and so we really spent a lot of time on the model going to say well, what if margins compress to this we kind of looked at it and it took a pretty conservative approach to it just because we don't want to have to come back again.
Yeah.
Okay got it thank you.
Thanks, Joe.
Two on the models and just kind of looking out there are consensus.
Sure.
Looking at consensus.
People have queued.
Q2, higher than Q4, and again thats not our typical seasonal cycle right are seeing typical seasonal cycle is Q1 and Q2 of the smallest quarters of the year Q3 is the largest and then Q4 is a little.
<unk> bigger than Q2, so theres some of that cadence out there and.
But I just wanted to point that out.
Got it thank you.
Thank you and one moment for our next question.
And our next question comes from the line of drew Crum with Stifel. Your line is open. Please go ahead.
Okay. Thanks, Hey, guys. Good morning, so on the same store sales, obviously several factors that contributed to it being down 14% in fiscal <unk>.
The updated guidance would suggest that you think that metric improves over the course of fiscal 'twenty three I, just want to confirm that and understand what's driving confidence behind that assumption.
Got it.
Yes, yes, definitely the backlog gives you some confidence too, but it's the seasonal change right I mean, we had a 28% 38% December comp.
Last two years and so in order to return to our normal seasonal cycle that that dynamic has to change and.
So we would we would im not surprised that it was was where it was at.
Think next quarter as we were up against some pretty heavy comps in the in the second quarter.
Last year, we were 8% were 57% the year prior to that.
So there are some tougher comps there, but I think if you look at trends were softer comps in the back half of year and those larger quarters.
I also think that in prior years as we as we worked our way through the season.
Inventory availability became a lot leaner and I think what you see today as you see the traditional seasonal build.
We'll have boats now for the start of the selling season, and then as manufacturers send us more product in our replenish we'll have product to carry us through the end of the season versus inventory supplies falling short as we get to the.
The September quarter.
Jack also I mean January is a positive comp.
Yes January was positive.
Again, we're cautiously optimistic with the data out there I think if you look at some of the.
Ssi data in December quarter.
Average being down around 28%, 30%.
So that's being down 13 is considerably better than them.
But theres just a lot of unknowns out there and a lot of.
Cloudiness in the forecast.
Got it Okay. That's helpful and then Austin in your preamble, you talked about M&A, a little bit I think.
Just wanted to get a better understanding of what the current thinking our stance is on that a few months ago, you decided to hit the pause button number going to rely on some of the January boat shows to gauge the health of the industry.
Are you at a point now where you can share more definitively what the company's plans are for the balance of fiscal 'twenty three and if so.
What is the strategy.
Yes.
We're probably going to end up holding tight so there's more clarity in the macro.
Like we've always said through that through the our opening remarks answering the questions.
It shows we're good we're hearing that not only the boat shows that we're in but we're hearing that from other people in the industry. They're doing shows that we're not in Milwaukee some of the other bigger shows have been pretty good in <unk>.
Sentiment remains strong, but we're still dealing with.
Big inflated in our opinion, new boat margin out there so that needs to normalize somewhat and I think right now just with the overall macro for us.
Coal hold steady for the next 90, 120, maybe 180 days and kind of watch and see how this unfolds and we're watching it on a daily basis, I mean things can change pretty quick but I don't think we're in any hurry to go out there and do a deal.
Just to do a deal I think it's prudent for us to continue to build cash on the balance sheet, but.
But we are going to be opportunistic if something thats just too good at the right price comes along but.
Getting back into our normal cadence is not something that we're ready to do just yet.
Got it okay. Thanks, guys.
Yes.
Thank you and one moment for our next question.
Yes.
And our next question comes from the line of Michael Swartz with <unk>. Your line is open. Please go ahead.
Hey, guys. Good morning, just maybe a few follow up questions on the guidance.
It doesn't look like you took down your comparable store outlook.
Too much.
Any update here, maybe give us a sense of how youre thinking about the bottom up build with that comparable store outlook. Just in terms of your industry outlook today, maybe versus where it was when you first gave guidance pricing mix share gains anything of that nature that you can kind of help us with.
Yes, I would say if I think about the December numbers that December quarter.
Hi data.
That may and everything Thats come out kind of related to that probably has been a little bit more negative than that it was as of September .
I think that.
All the feedback that we're seeing like Austin mentioned with respect to floor traffic and leads generation et cetera has been positive. So we're trying to be.
Cautiously optimistic and so I think thats.
And just to outperforming the industry.
I think what's going to be I think youll start to see unit volume.
Unit volumes level off and.
I think price will still.
And that will be a factor.
But much much less degree than the recent years.
Okay. That's helpful. And then I think you had made often you've made the point that you.
You expect new boat margins to.
Which is I think what most people have expected.
Give us a sense of as it pertains to your guidance, maybe what youre, how youre thinking about that now.
Maybe relative to pre COVID-19 or prior to our versus maybe some of the elevated margins. We've seen in the mid <unk>. The past two years are still like how should we be actually think about boat margins. This year as it pertains to the guidance yes.
Yes.
Let jacques speak to that I mean, we threw around a bunch of numbers I don't know what he ended up putting in the model to kind of get us to the number what we what we ended up settling on what he ended up settling on in the model, but may Anthony and Jack Once we got done with the Atlanta boat show spent a lot of time talking about Lauderdale, what we've seen since Lauderdale.
Through these first boat shows in January and one thing that was pretty evident as there was a lot of promotional pricing for manufacturers.
Lot more than we expected right off the bat, we expected them to kind of ease into that.
He is good because it allowed us to maintain our margins and use those promotions as the discount, but thats like phase one and so it just continues to go from there as I've said many times.
Third of the dealer network out there has zero to offer the consumer about price.
And they usually sell they can easily get a sale on price. The first time and then they never sell that customer another phone because they don't have anything else to offline. So youll continue to see that erode promotional pricing from the manufacturer used usually leads the way with that doesn't work anymore than these.
I'll just say these these lower side dealers will start discounting on their own. So they will start working on their margins and we have to kind of follow suit. So when you start thinking about let's say 30 feet down 35 feet and down that'll move a lot quicker than what Anthony was speaking about earlier in his opening remarks about the bigger stuff that's still got the <unk>.
Longer build times, they still got a backlog so we'll start to see that erode, but Jack I don't know what you ended up putting into the model.
What you ended up.
Right.
Yes, I think as you look at.
How we ended up this quarter, obviously as you work through the quarters throughout the year, we'll see margins fluctuate.
Quarter to quarter as you sell different types of boats different parts of the year.
But I think that.
We're definitely in discounting and bringing margins down a bit.
Again, not not not drastically, but certainly taken a haircut on them in.
Again, that's what we've seen to date.
That's where we're modeling it.
Okay.
The other thing I'll point out is just to reemphasize the point, we've made a handful of times.
Despite this haircut on the new boat margins, we're seeing in used boat margins hold up well, we're also seeing that.
Our expansion and our parts and service does expansion is that higher margin business really supporting our overall margin and keeping it at that 30%.
I think the likelihood of us staying at that 30% plus.
In and around there.
29% and 31.
As a likely range, yes, and one other thing real too we said this a lot in the past boat shows are our largest our lowest margin business. That's why we've never really liked it I mean, you got to be competitive you got to go into your make it worth the money and effort on that so you ended up coming out of the boat show with some of your lowest margin. So.
We've got some meaty deals still in the pipeline.
They are coming in that are sold we're still working as hard as we can to get every dollar out in consumer and Thats one of the things that I would say that the takeaway was I mean, we've got to get back into the true discipline of sell in and not just order, taking and we're really working hard with the team and the team has really stepped up I think the whole entire sales staff saw coming out of it.
Boat shows that hey, it's not like it used to be we have to get back to be the elite sales team that we were.
Step up our game, because nobody is going to beat us.
This this quarter coming out of those boat shows that's always been our lowest margin business.
Okay.
And then just.
One last question from me maybe for Jack I think you said inventory was.
Does that $500 million in the quarter is there any way to look at just in terms of the new boat inventory, maybe what that looks like on an apples to apples or same store basis relative to pre COVID-19 just to give us a sense for sure.
Excluding the acquisition everything.
Yes, we've dug into we've tried I don't have.
Same store inventory number per se.
And again, we've been looking at weeks on hand.
We're currently at 16 17 weeks on hand, which is influenced a little bit by by acquisitions, but.
If I go back to each of the 19, which at all below influenced by acquisitions, we were at 24.
24 weeks so it's.
Again, we're at that seasonal peak right.
Into February March a lot of times it depends on whether as to exactly when that that spring season kicks off in the volumes, we get out but.
I think we're close to the peak.
And then we expect to see things.
Go out, but I think on a on a comparable basis I think the other piece I think that youre getting that T rate is is there's a good chunk of our inventory.
Related to parts and service business and.
I don't have that number in front of me, but I will work to get that get that out to you maybe get into.
Some of the future releases.
Okay wonderful thank you.
Thank you and one moment for our next question.
And our next question comes from the line of Craig.
Kennison with Baird. Your line is open. Please go ahead.
Hey, good morning, guys. Thanks for taking my question just wanted to follow up on Hurricane Ian I'm wondering if there's a way for you to look at markets affected by the hurricane versus markets that look.
We are unaffected by that catastrophe.
Maybe parse the same store sales environment in that context.
Yes, I mean, we looked at it a little bit I looked at it more on.
I'll say the EBIT aside in those stores were down about $2 million of EBITDA.
You had a lot of we're still carrying a lot of expenses paying our people.
Rebuilding.
So I think it's certainly contributed to it but again.
I didn't want to go through a lot of effort to try to say out of hurricane costs. This much revenue because it just isn't something that is easy to track and then as we move forward right. It gets even more complicated.
As to when the customers come back in the market.
And that replenishment cycle head so.
It certainly is impacting the numbers.
Like we said many times, if if we miss a truckload of deliveries the last day of the month that that could also.
Boehner Timken.
Also impact.
Same store a couple of points.
Yes.
Good stuff, Okay. That's great. Thanks, a lot.
Yes.
Thank you sorry Anthony.
No.
We're seeing a lot of consumers in those markets.
So without docks and things like that so there's still a lot of business to be had there.
Very good thank you guys.
Thank you and again if you have a question at this time. Please press Star then one on your telephone.
Okay.
And our next question comes from the line of Griffin, Brian with D. A Davidson. Your line is open. Please go ahead.
Yes. Thank you.
Just wondering if you can talk about the availability of used boats and what the current demand looks like for them.
Yes, I'd say availability has gotten a little bit better I think you see that a little bit in our results were pre.
Pre owned pre owned was up.
And I think the market continues to be to be strong for pre owned.
Anthony if you have a different sense.
Yes, I mean, it's something that we're continuing to go after.
No.
Great market and we continue to grow.
The business in that direction, where we have we're employing.
Buyers and that's all they do is trying to source boats and things like that so.
There's a tremendous amount of upside, but we continue to go after and focus on.
And there hasn't been any slowing of it whatsoever.
Okay, Great and then can you just talk about demand trends youre seeing in the value segment compared to the premium segment right now.
Well I think that.
As we've been talking about the seasonality portion of it where the value segment.
Over the last two years it didn't matter what most people were buying and I think we're going back to more of a seasonal type things Thats why were seeing the build in our most type boats.
The recent.
Thanks, Joe.
Two weeks ago.
The value boats, we're selling as good as it did in the past.
Alright.
Our business is just turn it more back to seasonality.
Yes that value customer tends to be the person who comes in on a Wednesday and they want to be in their new boat by the weekend.
Hooking role almost and so those are the people who it.
It was pretty abnormal for those people to be customers.
In the December and March quarters versus coming in April one.
Looking to get out of the water of the first Sunny day.
Okay.
Okay, great. Thanks, guys.
Thank you and I'm showing no further questions. So this is going to conclude today's question and answer session. Ladies and gentlemen. This is also going to conclude today's conference call. Thank you for participating you may now disconnect everyone have a great day.
The conference will begin shortly two reasons lower Johan during Q&A, you can dial star one one.