OneWater Marine Inc. Q2 2023 Earnings Call
Good day, and thank you for standing by welcomed to one water Marines physical second quarter 20 twenty-three 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 session you'll need to press star one one on your <unk>.
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Please be advised that today's conference is being recorded that.
I like to have a conference over the speakers for some prepared remarks.
Good morning, and welcome to one water Marines physical second quarter 2000, twenty-three earnings conference call I'm, joining 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 my management and this morning's conference call regarding the one water marine in its operations, maybe considered forward looking statements under Securitas law and of all the 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 to differ materially from those described in the forward looking statements.
Factors that might affect future results are disgusted the company's earnings release, which can be found in the Investor Relations section on the company's website and then at the SEC filings the.
The company displays any obligation are undertaking 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 awesome <unk>, who will begin with a few opening remarks Austin.
Thanks, Jack and thank you everyone for joining today's call. We delivered strong second quarter results, reflecting revenue growth 90 per cent on top of a 34 per cent increase in the prior year period.
Sales growth in the corner was driven by a 23 per cent increase in new boat sales and a 28% increase.
Service parts and other sales.
[noise] store sales screw with leather percent well ahead of industry reports. Additionally, our parts and service business continues to grow at a good pace. Despite the stocking that has been occurring at the big box retailers over the past several months.
The demand environment remains healthy.
[noise] attendance at store traffic have been as good as both new voters and returning customers are attracted by our invaded offerings.
From our perspective, we are seeing it continued change in customer buying cases, as we return to typical seasonality.
Lea Thompson inventories continue to normalize and the customers are shopping around to find their next to do that.
We continue to see market share gains as evidenced by our unit growth.
Significantly outpacing the industry. We are pleased to see a return of balanced growth in both units sold in unit prices.
With the backdrop of a questionable macro environment, we are being aggressive as we prepare for the summer selling season we.
We are focused on having the appropriate boat inventory levels as we exit the selling season enroll into 2024 model year. We believe this approach will position us for continued market outperformance.
With normalization of inventory and pricing, we saw a modest declines marches as expected gross margin for new boat sales decreased to 23% down from the peak of 28% a year ago, but well ahead of the 17% range of 2019.
Overall, we don't believe marches will return to 2019 levels given the significant progress we have made to strengthen the business over the past few years.
Since 2019, we have grown tremendously both organically and through strategic emanate.
We have diversified our offerings.
Building out in the parts of the service business, which has grown fivefold.
The strategic investment we have made to grow and diversify the business will enable one water to continue to outperform the industry and maintain our track record a profitable growth.
Finally, the acquisition pipeline remains robust deals are starting to look more attractive sell us become more in tune with the return to seasonality and normalized marches.
As always we will remain opportunistic yet disciplined as we evaluate any potential transactions.
Overall, we feel well positioned to continue driving profitable growth and created value for our shareholders with that I will turn it over to Anthony.
Thanks to Austin.
I also would like to thank our team members for their efforts this quarter, despite macro uncertainty and the industry noise. Our sales team to remain active and drove same store growth to 11%.
That is Austin mentioned from where we said we are seeing a change in customer buying cadence as the industry returns to normal seasonal cycle.
With these cycles, we build inventory and winter months in preparation for this summer selling season.
It is also important to note that our inventory has increased due to the acquisition has completed over the past 12 months.
I'm pleased to report that is expected inventory peaked in February and then it started its decline to the seasonal low which normally occurs in September we believe that carrying higher inventory levels. At this point of the year will strategically position us for the summer selling season.
Our inventory weeks on hand today is lower than boat industry averages and our 2019 matrix.
We are taking full competitive advantage of our strong inventory management tools, which we believe will lead us to outpace the industry and further gained market share.
Turning to some other trends, we're seeing with customers. We continue to see strong interest in larger more sophisticated boats over smaller value options.
The average customer in the smaller boat market is typically more interest rate and price sensitive as they are more likely to be rely on financing options to purchase their votes.
With this said, we're seeing customer credit readily available, even though at higher rates and banks continued to be diligent and underwriting loans as they have been.
For over the last 10 years.
Our service and parts and other business continues to navigate challenging environment, while deliveries strong growth as noted last quarter or distributions segment continued to experienced pressure from the industry wide destocking occurring at big box retailers.
Who built up inventory response to supply chain delays.
We expect inventory across the channel to normalize over the course of the summer selling season and.
And we are well positioned to capitalize on the return of.
Normalized demand this area of the business continues to be an invaluable growth driver for one water and it's a key piece of art diversification strategy.
Overall customers are excited about upcoming boat.
And getting out on the water with with friends and family re remain focused on customer experienced strong execution from our team.
Inventory management and flexible business model to guide us through the turbulent waters that may be ahead, I will now turn the call over to Jack to review the financials.
Thanks to Anthony physical second quarter revenue increased 19% to $524 million in 2023 from $442 million in the prior year quarter there.
This was driven by an 11% increase in same store sales and revenue from acquisitions not yet included in the same store base.
Devotes sales rose, 23% to $355 million in fiscal second quarter of 2023 and pre owned both sales remained flat at $75 million.
We are pleased to see new and used both sales be comprised of a balance between unit in price growth.
The higher market parts of our business have been a constant contributor to our results service parts of other sales climbed 28% to $78 million driven by our contributions from a recently acquired businesses and solid organic growth.
Finance and insurance increased slightly up by 3%.
Overall gross profit increased 3% to $147 million in the second quarter compared to the prior year.
Primarily due to the growth of our higher margin service parks and other revenue, partially offset by the normalization of gross margins on both salt.
As previously discussed as boat margins normalize we fully integrate acquisitions and the distributions segment stabilizes, we expect our overall gross margins to normalize in the high twenties, depending on seasonal sales trends in the mix of product salt.
Second quarter 2023, selling general administrative expense increased to $90 million from $75 million SG&A as a percentage of sales was 17%, which was flat compared to the second quarter of fiscal 2022.
Increased participation in both shows led to an additional costs during the quarter compared to the prior year's as we return to a normal life season of events promotions and shows.
Additionally, higher.
Then historical SG&A costs are anticipated as we continue to grow our parks and service businesses, which has a higher expense structure.
These higher costs were partially offset by a reduction in variable expenses like sales commissions that decline due to reduced margins.
Operating income decreased 18% to $49 million compared to $59 million in the prior year and adjusted EBITDA decreased to $52 million compared to $66 million in the prior year.
Net income for the fiscal second quarter totaled $27 million or one dollar and 56 cents per diluted share.
$42 million or $2.54 per diluted share in the prior year.
Contributing to this decline was a 10 million dollar increase in total interest expense, which was $14 million in the quarter up from 4 million in the prior year.
This increase as a result of rising interest rates and an increase in the average borrowing on our debt facilities.
Turning to the balance sheet as of March 31, 2023, total liquidity was in excess of $100 million, including cash on the balance sheet availability under a revolving line of credit and for plan credit facility total inventory as of March 31, 2023 was $593 million with the return of seasonality are.
Inventory build occurs during the winter months.
And peeked in February as a summer selling season begins.
Total long term data as of March 31, 2023 with $463 million.
Net debt or long term debt net of cash was one eight times trailing 12 months of EBITDA.
Our liquidity and leverage position remains in a comfortable range and we are watching the macro environment closely.
Move into our outlook, we're maintaining our guidance range in anticipation of a continued trend towards seasonality. We are 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 seven.
Hundred 50 to $8 per diluted share these.
These projections exclude any acquisition of that may be completed during the year.
We continue to maintain our current capital allocation strategy operating with limited Windows, We did repurchased approximately 63000 shares during the quarter and may make opportunistic purchases in the future as.
As we navigate the market's moving forward, we will maintain the appropriate balance between internal investments strategic M&A share repurchases and that paid out as always we are actively assessing strategic targets and will be opportunistic for the right acquisition.
We intend to stay disciplined in our approach and drive value for our shareholders.
This concludes our prepared remarks, operator would you. Please open the line for questions.
Thank you at this time will conduct a question and answer session.
As a reminder to ask a question you'll need to press star one one on your telephone and wait for the name to be amounts to withdraw your question Press Star One one again, please stand by when we compile the Q&A roster.
Our first question comes from drew Crum from Stifle. Please go ahead.
Okay. Thanks, Hey, guys. Good morning, So the same store sales performance, you posted feels better relative to the industry data and commentary from some of the other marine names. We heard from last week, where do you think you where do you think the business outperformed in any color you can share on how physical three.
Q as started and then I have a follow up.
Yeah, I'd say you know the the team did a great job of execution. You know, we we remain very focused on reset it a couple of times focus on making sure our inventories in the right places we exit the season and so I see here is we're starting off the season you know we.
We we kicked it off with a bang yeah. The team was focus we we weren't missing deals were aggressive in the marketplace and I think that's a little reflective of our our our gross margins, but you know customers are out there you just have to you know work hard to to earn their trust in their in their business.
Okay.
Any thoughts on April how it's gone.
Yeah, sorry about that you know April as as you know like I don't think that.
Uhm, we anticipate this quarter to have a double digit same store sales number again, we're looking at flat mid.
Mid single digits, you know so I think we're off to we're off to a good start but you know where.
You know just a month into it so I don't really I don't have the same store sales number yet for the month.
April it there have been many I went back and looked at several months in the past April sometimes is a little bit slower than the month. Prior in March but you know we had I'll say, we had a decent April .
Okay. Good and then just a quick follow up the the service parks and other was just under 17% of sales for the first half of.
Fiscal twenty-three is that a reasonable threshold for the fiscal year or would you expect to be above or below that in light of the destocking headwind you noted in your preamble yeah.
Yeah.
I would I would like for it to be higher than that and I think.
This was was firing on all cylinders it would be higher than that.
So we continue to make adjustments to the marketplace and working through that but.
You know it's a it's a strong business is just kind of has a little bit of this.
Uhm.
Supply chain Covid kind of hangover, if you will that we have to work our way through.
Got it okay. Thanks, guys.
Thank you one moment for the next question.
Our next question comes from Joel Ultra below a Raymond James Your line is open.
Good morning, <unk> quick question, you mentioned that thanks to our sales of 11% that is fairly palace, but could use a little bit what color was the unit growth higher or lower than that makeup.
Yeah unit growth was you know it was it was about mix I don't have the number in front of me, but it's about half driven by.
Units have driven by price and so that's.
In normal times, if you will that that's what we like to see in the same store number is is that balance between units in price.
We're certainly and encouraged by the fact that this is this is one of the first with first quarters in awhile that you know, we've we've seen a decent unit growth and so that's encouraging but.
You know, we will work to try to keep a balance.
Thank you and you mentioned that part of the reason, you're so meaningfully outperforming the industry, so you're not missing deals and you're being aggressive in the marketplace. That's reflected on the gross margins should we see that the gross margin decline is because of promotion activity or what else can we read into that.
You know I I think the as you look at the margins I think that there's a number of factors that go into it right. You also have mix. You know this is time of year, when you're <unk>, maybe selling some larger boats and not as many of the smaller boats.
Which was Carrie larger boats tend to have a lower margin as a percent you know <unk>. The team is focused on outpacing the industry and everything that we do and so to the extent that that we're ahead of industry I don't know that that's a typical I think that's that's something that we certainly.
Drive towards everyday Jack Jack I think one thing that we ought to mention too though is that we took the proactive approach as we started to see industry inventories build I mean Brunswick came out and I said, they either said 37 34, we're hearing from wells, it's closer to 36 weeks on hand as an industry.
Jack what is our same store sales weeks on hand, like 18th Yeah. Yeah, Yeah, Yeah, I I think we took the approach or a couple of different things here. We took they approached it we want to be really clean of inventory come model year change in July . So we wanted to be a little bit more aggressive on the new boat sales margin to me.
Make sure that we are extremely clean of inventory way outpacing the industry when we get into model year change and we feel that's important as we rolled into 2024. So we don't have any excuse selling or deep discounting to unload you know old units and so that that was one thing that we did you know the other thing that I look at.
As we were pretty confident in being able to hold a high you know those heart 20, We said you know close to 30% gross margin and you know with the lower new boat margins. It pulled it down to 28, which were comfortable with because it's like Jack just talked about a minute ago are PNA is not hitting on all cylinders is hitting on a lot.
But when it starts hitting on all levels, it'll creep that up and I think that it's important to us to try to maintain that double digit EBITDA margin and it's encouraging to me to see that we can bring the new boat sales mortgage down some and maybe even pull it down a little bit more if we need to get aggressive to keep inventory clean because inventory cost at 75%.
There are a lot different than they are two and a half and we just wanted to be super clean as we get into the 2024 model year.
Got it. Thank you you've been very helpful and congratulations on a great color.
Thanks.
Thank you one moment for the next question.
Our next question comes from a <unk> a wolf your line is open.
Hey, guys I just wanted to follow up on that last line of questioning I mean, if you look at call. It made the high thirties weeks supply across the industry unusual seasonality.
Do you think that the industry is.
Being as diligent about inventory ahead that the model year changeover later this summer early fall or is that something that you guys are worried.
Worried about it.
I don't think we're worried about it I mean, I I say that you know coming out of the boat shows that the that you had some some people that were trying to maintain those those COVID-19 margins and I think now, they're probably saying Oh, maybe maybe we should've been a little bit more flexible it and collected some deals that we just don't know.
No, but you know if you go back and look at 2019, I think the industry is still below where where inventory levels word 2019.
And you know the more comforting thing is it's all current and not and not a lot of data inventory out. There. So you know I I think with a with a decent spree or a good spree rolling into the first month of summer.
The industry gets it to a a good spot I mean like Jack said earlier, you know, we all kind of it wasn't just us we're pretty sure that everybody will peak from an inventory build in that February early March so everybody's kind of Peach now everything's gonna start working its way down we just wanted to be a lot better than everybody else.
That makes sense and if you just look at some of the public comments from Oh, Yeah mm sudden retailers and you guys as well there just seems to be this real divergence in terms of market outlook. Both in terms of what happened as he progressed to route one Q or you've got a second quarter and even into April as well does that level of.
It may be disagreement.
Is that surprising to you or do you think that it can kind of be explained by differences in mix and geographic exposure.
No I mean, I I I think when you look at it like I I, followed some of that stuff I didn't see a whole lot of you know I think everybody's somewhat on the same pace that we are I mean Brunswick was very positive. It's Malibu seemed very positive say when <unk> when you're kind of maybe refer back to Marinemax you know.
They might have a different outlook.
We do going forward and that might be a little bit of the model mix I mean that that could we don't know that but it could be that you know where our focus is let's just say 40 feet. It down in their focus tends to be above that so that that forecast might not be as good as what we're seeing currently right now you know in the industry.
<unk>, our big boat segments doing really really good right now, but it's you know it's it's Jack what is it less than 10% of our our sales revenue, but yeah those revenue.
<unk>, but yeah.
<unk> smaller compared to the wall you.
You know so.
We we we feel that it's not as interest rate affected maybe you're bound to 150000 dollar bonuses, if you're buying a 700000 dollar boat lost it I think that's the key I was just gonna say right as I think we tend to to be in the premium space with with the brands that we we we sell and represent and and you know that ticket and our customers a little more resilient a little <unk>.
Yes price of interest rate sensitive.
That's fair I guess just to summarize it right as you guys moved throughout the physical second quarter is it safe to say that you are more optimistic on <unk>.
Calendar twenty-three retail or is it kind of in line with how you thought the ear would check out.
I think it's in line with what we what we said at the end of last quarter. I mean, we think we're moving into a seasonality that we can't control or we don't really know what the macro is gonna hold I mean every time you you look at something that says you know we're we're in a recession that we've we've heard that for the last three years or 10 years 12 years, and and you know we do see it slowing down at some point, but right now I believe that.
As you move into boating season, it's really hard to kill the momentum <unk>.
Especially when everybody has a short boating season, you know is that boating season Memorial day to Labor day is it from when the kids get out of school to the kids start back it's condensed boating season, and we're right on the front of that and it will take a lot to kill momentum going into that now what happens in the back half of the year is kind of you know.
That's what <unk> I would say, we're a little bit more concerned or watch it is what what happens once you get through mid June or July 4th and it becomes you know you're not in pushing into the seats and you're kind of on the back part of the season are going into the Offseason. What is demand do based off the macro that we can't control.
And that's exactly why we are.
Doing what we're doing with our inventory stomach insurance claim.
It makes sense, thanks, a lot guys.
One moment for our next question.
This question comes from <unk> of <unk> capital markets. Your line is open.
Hey, Good morning, this is Alex on for Noah.
Just wanted to live back to gross margins real quick maybe more specifically on the prey onside can you help us understand the sequential stepped down versus the first quarter does that all a function of the consignment softness there or is there something else.
<unk>, Yeah, Yeah, I would say within within pre Oh, there is definitely wisdom mix shift that was driving margins down like you mentioned reduction in.
I met while as some reductions in in brokerage and instead is this kind of affected you know that overall premium Martin you know a little bit when we we look at pre owned right. We we tend to look at target similar margin an entree as we do.
New boats and you know keeping it within you know I'll say a couple of points and you know to some degree we did that with our trades, but then that that mix shift kind of you know cause that that total premium March can be a little bit you know a little bit further off if you will.
I think it'll it'll it'll flush out over here over the next you know 60 60 90 days that Destocking is gonna come in when people start really using their boat. So when you get to whatever the season is in particular Geography's is memorial day to Labor day is it when the kids get out of school when the Kids go back you know people.
We're starting to prepare now if they're not already bodie, they're into boating mindset to be getting ready so that when the weather breaks me. We've had you know <unk>.
Greenlee cold and wet Snowy Midwest you know.
Cold rainy and windy in the southeast so about the only boating market right now that is probably kicking on all cylinders from Ah whether perspective is Florida, so that really should starting to shake out over I would say the next 60 90 days. So you know the the hope is that that kicks in.
By the time, we get into our queue for the year.
Perfect. Thank you that's all for me.
Thank you one moment to the next question.
[noise]. This question comes from Craig <unk> a bird. Please go ahead your line is open.
Yeah. Thank you good morning.
Often I think you mentioned this earlier I just want to ask you to reiterate what is the right or the cost to finance inventory today versus what it was maybe last year.
Yeah, Craig This is Jack I'll I'll jump on that I mean, I'd say, where we're at right now I'm at about 7% a year ago, we were.
We were probably around three I mean, it's it's more than more than doubled.
Year over year.
That that combined with you know obviously inventory normalizing in large outstanding balance.
Maybe the same question and consumer rights, what's the typical rate a consumer might be today versus last year.
<unk> it depends on dollar credit.
Yeah, but most of us are at 8% now.
I guess, we're hearing about tighter credit conditions across the economy in the wake of these bad bank headlines, but why don't you think you're seeing tighter credit in your market. If that's the right interpretation of what you said.
We we've we've.
It's really for major banks that we deal with on the finances, we have like I think I'm almost 14 different lenders, but for major banks take the majority of that they keep it on the books, it's some of their highest spreads.
It's good business. We we've looked at this you know because we we've been hearing a lot of Atomy. We've been worried about you know boat financing credit going away. It's.
It's not any tougher than it was a year ago on the underwriting.
On you know $800 million worth of financing.
Delinquency rate runs like 100 of 1%.
So it's it's strong good paper and they don't send it they don't package this up and sell it they keep it on the bank balance sheet and I. Just think it's really good you know they underwrite it to a certain certain level and they light in the business and I think it's the marches spread from what I've been told the margin spread from the banks on Marine Finance.
Much of a spread as we used to.
We're having we're having to work that a little bit more I think the other piece Austin is the customer right. This is yeah.
Affluent customer who has a you know FICO score of 790, 800 and and so it's it's.
Those are the people who they wanted your credit too.
That's great Hey, thanks, guys.
As a reminder to ask a question press star one on one and your telephone and wait for them to be announced.
Our next question comes from Michael Schwartz of Truth Securities. Your line is open.
<unk>. Good morning, just wanted is still down some of the comments I think you were making around those new and preowned boat margins in the in the fiscal second quarter. It sounds like there was some things.
<unk> boat.
Oh, Joe incentives and and and and just the <unk> the the nuances to the.
The pre owned mixed in the in the quarter at M. I hearing that maybe sequentially. We should expect some improvement into the third quarter or is that is that my reading too much into that.
You've probably read too much into that any you know typically does this Q1 calendar R. Q2 second boat show season is usually our lowest margins of the year. When you get into those boat shows I I think that you know we looked at it and decided and we will continue to push this it's more important for us.
To have really good inventory levels, the correct inventory levels. The correct inventories we roll into 2024 and you know so if we can maintain the new boat margins are even slightly go down in new boat Larges and maintain that high twenties gross margin S. The PNA continues.
Maybe that Destocking comes back and we can get a little bit more aggressive. It's it's important for us to get to that double digit EBITDA margin. You know it was close to 30% gross margin as possible and will work new boat margins in order to you know try to maintain that keep that would be in as aggressive as we can because we.
Don't want carryover inventory inventory expenses is much higher than it's been in the past as we've just talked about and now it starts to eat I mean, we're we're rolling off a free for plan as we roll into the month of May and so it's gonna get to where each so we wanted to be clean so I wouldn't <unk> I wouldn't read into margins going up I mean, maybe.
Stabilize them, where they are you know give or take half a point up or down.
Okay, Perfect and then just on the on the M&A front I mean, we've heard that you know on the aren't maybe on the <unk>.
Given given the conditions in that market, which I mean, the marine market, obviously appears to be healthier than that or are you seeing any signs of the sellers coming to the table over the last several months, maybe in a bigger way than they have previously.
No. It's it's it's all driven by the same thing that you know when we did the <unk>, we're talking about an incredible industry, where the best the best having to exit strategy and are are starting to to get into those years, where they're starting to look for what's possible. You know I would I would say the marine industry overall seems to be a lot stronger.
And R V. I mean, I think our visa already reverted to you know pre 19 marches, where we're still see an elevated margins and think we will continue to see elevated marches over 19. So it hasn't picked up any more or less our pipeline is is decades deep. So you know add to it really something.
We want to do it's.
One of the biggest issues Mike I have is how do you tell somebody that's 68 years old we love. This idea can we talk to you in about 10 years I mean, that's not very comforting.
That concludes our Q&A segment. Thank.
Mmm.
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Okay.
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