Q4 2023 OneWater Marine Inc Earnings Call
Okay.
Good morning, and welcome to warm water marine physical fourth quarter and full year 2023 earnings conference call I am joined on the call today by Austin Singleton Chief Executive Officer.
Anthony Asquith, President and Chief operating Officer.
Before we begin I'd like to remind you that certain statements made by management in this more.
Earnings Conference call regarding wall Waterbury, 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 to the grants could differ materially from those described in the.
Looking statements.
Factors that might affect future results are discussed in the company's earnings release, which can be found in the Investor Relations section on the company's website and in our SEC filings.
The company disclaims any obligation or undertaking to update forward looking statements to reflect circumstances or events that occur. After the date. The forward looking statements are made except as required by law and with that I'd like to turn the call over to Austin, Singleton, who will begin with a few opening remarks Austin.
Thanks, Jack and thank you everyone for joining today's call I would like to begin by thanking the one water team for their solid execution the challenging operating environment.
The return to historical buying patterns are normal lost pricing, we delivered record revenue in 2023, which increased 11% on top of a 42% growth in 2022.
Furthermore, the team delivered same store sales growth of 3% for the full year for the quarter same store sales, a 46% significantly outperforming the industry, which market data indicated was down high single digits.
Full year revenue from our higher margin service parts and other sales grew 26%, which helped us offset the expected decline in new boat margins as the industry returned to normalized pricing.
Margins in the fourth quarter were in line with the third quarter, which is encouraging overall, we believe that margins will continue to fluctuate with seasonality and bottlenecks, but it does seem to feel like boat margins for stabilized.
One waters' proven track record of managing through various economic cycles surface well during 2023 over the past year, our proactive and aggressive approach to inventory management resulted in inventory levels at 19 weeks on hand, compared to an industry average of 25 weeks.
We continue to aggressively work down non current inventory saving on interest expense and other carrying costs.
This positioned us with a good supply of model year, two each week workouts compared to 2023, which provides a more compelling sales opportunity.
With competitive positioning and our market sweated with non current inventory is driving results today and set us up for success in the quarters to come.
I am pleased to announce that earlier this week. Despite the difficult environment, we were able to increase our floor plan facility by 100 million.
To a total capacity of 650 million, which will support the business.
<unk> completed acquisitions.
It's important to note that while same store sales inventory has it private in terms of <unk> compared to 2019. It has increased more than 40% on a dollar basis. This additional capacity provides us greater flexibility, especially as we integrate the dealers we have acquired over the past few years.
We also completed the sale leaseback agreement for Raphael regarding center, which bolstered our cash flow and allows us to sharpen our focus on sunseeker yacht sales warranty and service operations. The proceeds the proceeds from the sale were used to pay down a portion of our long term debt into acquired the remaining 20% interest in quality boats.
Located on the West Coast of Florida.
As a reminder, we first acquired a major interest back in December at $3 21, and have been pleased with quality performance and one of the most attractive markets in the country.
On the M&A front the deal pipeline continues to be attractive.
And our strong balance sheet provides us dry powder for the right deal.
While we are seeing plenty of activity, we are being extremely selective to scrutinize every opportunity to find the right dealership to add to our portfolio.
In summary, I'm proud of our team's execution on navigating the industry challenges as we return to a more normalized operating environment. We continue to work tirelessly to provide our customers with a vote of their dreams. We remain nimble in our response to changing market dynamics, we continue to focus our efforts on stroke.
T J priority spent this issue one water for long term success.
With that I will turn it over to Anthony to discuss business operations.
Thanks, Austin, despite the normalizing sales environment, our team remains active in delivering solid close for the summer selling season customer sentiment is holding up in the fourth quarter same store sales growth was over 14% was supported by strength from new and pre owned boat sales our manufacturing partners.
To be very innovative unveiling exciting new models in there.
Premium segment.
Neat features.
Our customers want.
We saw this excitement firsthand at recent boat shows, including the Fort Lauderdale International boat show, which long strong activity.
While we are too early in the boat show season to draw any conclusion.
We are off to a good start.
Turning to our higher margin businesses, and finance and insurance income for the fourth quarter was also up slightly.
Fortunately two boat sales due to the current spread on the interest rates.
The average customer seems to be getting used to higher interest rates and credit continues to remain widely available and widely widely used.
We believe the majority of the customers you some degree of financing to pay for a portion of their purchase.
At this point approximately 70% of new customers kind of September quarter financing portion.
Of their purchases directly with us which is on the high side of historical averages.
Where we sit today our investments are generally adjusting the higher cost of financing.
Those tend to be somewhat insulated from interest rates and economic headwinds overall, we believe our retail strategies position us to continue to outperform the industry with that I will turn the call over to Jack to go over the financials in more detail.
Thanks, Anthony fiscal fourth quarter revenue increased 13% to $451 million in 2023 from $398 million in the prior year quarter.
<unk> sales grew 12% for $264 million in the fiscal fourth quarter, while pre owned boat sales increased 36% to $92 million were.
We are pleased with the pace of both sale that have outperformed industry reports, despite the challenging macroeconomic environment.
Revenue from service parts and other sales for the quarter increased 1% to $82 million compared to the prior year and finance and insurance revenue grew 2% to $13 million in the fourth quarter.
These sales gains generated over 14% same store sales growth for the quarter, which significantly outpaced the end of the year.
Gross profit decreased 6% to $119 million in the fourth quarter compared to 126 million in the prior year driven by the normalization of gross margins on product sold gross profit margin appears to be stabilizing when compared to the June quarter decline from the fourth quarter of last year.
We now expect margins to fluctuate with historical seasonal patterns the bottleneck.
And the pre Covid era, we typically benefited from stronger margins during the summer selling months with a mix shift to higher unit volume and lower Asps.
As opposed to the slower winter months, where the mix shifts to higher asp's with lower margins.
Fourth quarter, 2023, selling general and administrative expenses increased to 85 million from $80 million.
SG&A as a percentage of sales was 18, 8% down 120 basis points from the prior year driven by the variable cost structure of the debt cost optimization and integration efforts of the acquired parts and services.
In the fourth quarter the company recorded a noncash impairment charge of 147 months.
The charge is primarily related to the write down of goodwill and identifiable tangible assets that were recorded in our distribution segment and was largely driven by the recent decline in the segment results with stock price and the overall valuation.
We believe there's tremendous value in our distribution segment, which will be realized as part of our long term growth strategy. As a result, we posted an operating loss of $117 million compared to income of $40 million in the prior year.
Net loss for the fiscal fourth quarter totaled $111 million or $6 89 per share compared to net income of $22 million or $1 28 per diluted share in the prior year, excluding the impairment charge and other adjustments, we reported adjusted EBITDA of $28 million compared to 45 million in the prior year.
We have also introduced a new metric adjusted earnings per share to assist with the comparability of results.
Accordingly for fiscal fourth quarter of 2020 for our adjusted earnings per diluted share was 42% compared to $1 68 and 2022.
Turning to our full year results total revenues for the year 2023 increased 11% to $1 9 billion compared to the prior year driven by an increase in the average unit price of both new and preowned coach and.
An increase in unit sales of pre owned by others and sales growth from higher margin businesses.
Same store sales increased 3% in fiscal 'twenty.
Additionally service parts and other revenue increased 26% to $322 million for the fiscal 2023.
Driven by contributions from our recently acquired businesses and your operations.
Full year 2023, gross profit decreased 3% to $535 million compared to the prior year as a result of industry wide normalization of boat pricing, partially offset by meaningful contributions of acquired parts and service businesses.
Gross profit margin.
For fiscal 2023 was 27, 6%.
A decline of 410 basis points compared to fiscal 2022.
Selling general and administrative expenses in fiscal 2023 increased to 346 million or.
Or 17, 8% of revenue from $302 million or 17, 3% of revenue in fiscal 'twenty two.
The increase in SG&A as a percentage of revenue was driven by the return of more traditional promotional environment and higher costs associated with our fire service parts out of it.
We will continue to moderate cost with our variable expense structure and frame the higher expense structures are required basically inline with relates to the.
Full year 2023, operating income fell 18 billion compared to the prior year's operating income of $218 million, primarily driven by the $147 million impairment charge recorded in fiscal year 2023.
Net loss for fiscal year, 2023 was $39 million or $2 69 per share compared to net income of 153 million or $9 13 per share in the prior year.
The business generated adjusted EBITDA of 167 million for fiscal year, 2023, and adjusted earnings per diluted share of $5 from Samsung.
Compared to $10 55 per diluted share and 2022.
Turning now to the balance sheet at September 30 of 2023 with total liquidity continues to be in excess of 100 billion, including $85 million of cash and availability under our credit facilities and I've also mentioned earlier, we entered into a sale leaseback transaction, which closed on September 30th but did not fund.
October 2nd.
It's up to $45 million proceeds reflected as a receivable on our books at the close of the year.
While the sale has a slightly negative impact on adjusted EBITDA overall, it increases cash flow on an annual basis.
Subsequent to year end, we used $25 million of proceeds to pay down long term debt and the balance of the purchase of Noncontrolling interest along with others.
Total inventory at September 30 was $610 million compared to 373 million at September 32002.
As a result.
Group lead times and casino motivation our board boat inventory has returned to pre COVID-19 levels in both units are up less than 1% compared to fiscal 2019 on a same store basis.
Long term debt currently stands at 458.
Net debt to adjusted EBITDA ratio is two two times, we are comfortable with our liquidity and leverage ratios and we'll continue to monitor the macro environment as we manage our balance sheet.
Looking ahead to 2024, we expect demand and margins will continue moderating to more traditional seasonal cycle.
We're not assuming a major economic downturn for a recovery as part of our outlook.
We anticipate same store sales to be up low to mid single digits. We expect adjusted EBITDA to be in the range of $130 million to a $155 million.
And earnings per diluted share to be in the range of $3 25 to $3 75 staff.
We would like to note that beginning in fiscal year 2024, our adjusted EBIT calculation.
Stock based compensation and will remain part of our definition for both guidance and results on a go forward basis.
This methodology is more in line with industry standards and provides better insight into the company's performance.
Our fiscal fourth quarter and full year 2023 results provided under the historical definition.
I'd like to direct investors to the reconciliation tables in this mornings press release for further explanation of the package.
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Finally, our capital allocation priorities remain unchanged, we will continue to monitor the macroeconomic environment as we can certainly evaluate opportunities to deploy cash. We will also continue to explore opportunities license sale leaseback transaction, which improved the balance sheet and annual cash flows.
Remain disciplined in our approach and unwavering in our commitment to drive long term value for shareholders.
This concludes our prepared remarks, operator would you. Please open the line for questions.
Thank you.
As a reminder to ask a question press star one on your telephone.
Your question. Please press Star one again, please wait for your name to be announced please standby, while we compile the Q&A roster one moment for your first question.
Okay.
Our first question comes from the line of Michael Swartz with <unk> Securities. Your line is now open.
Hey, guys good morning.
There was a lot of static on the line during the prerecorded comments I apologize I missed a few things, but in terms of the I guess the transaction the sale leaseback.
Combined with the purchase of the Noncontrolling interest in quality did you quantify or could you quantify what that actually means to the P&L or to guidance for 2024.
Yeah. When you are when you look at it right. So when you look at our two divestitures. We had in late September that was about a.
$3 million hit to EBITDA.
There is no the purchase of the remaining portion of quality doesn't impact EBITDA.
It certainly will and impacts cash flow right, because we were having to pay out earnings of that business through distribution. So it nets out the whole those two transactions end up netting out a positive.
About $3 million to $5 million cash flow when you look at the reduce interest cost and to reduce distributions, even though we have those lost earnings.
Okay. Okay. That's awesome. Thanks Jack.
And then just maybe as it pertains to your broader commentary.
On fiscal 'twenty for guidance I mean, I think you said you expect a normalization of.
Yes, I guess seasonality in margins should we be thinking about it on a new boat side should we be thinking about new boat margins kind of getting back to that high teens, whether that's 18, 19% level going.
Going forward.
Yeah, I think if you look at the last two quarters, that's kind of where we've been we've been right around 20, sorry.
So I think in that.
That high teens is kind of where it seemed it feels like it's normalizing.
Certainly as we go forward that what that means is.
The June and September quarters, we had that reset on new boat margins. So now as we look into Q1 and Q2 of next year right we're up against.
Much higher comps in.
In terms of that new boat margin.
And so I think that will.
Certainly as you think about modeling and as you lay out the quarters.
You got to remember those we still need us first half of the year kind of a reset on the margin standpoint, and so that means Q1, if we go back many years.
And have you been around a while Mike. It you we can remember times when the Q1 was a was a breakeven type quarter.
And I think will be positive from a saved from an EBIT perspective, but.
Certainly as you look at net income earnings per share were going to probably get getting back to that type of environment, but that's just kind of the normal seasonality of the business, where you know in the.
December quarter things slow and then they pick up with the with the winter boat shows and into the spring and summer.
Okay, Great and then just.
Final one for me is I guess just with the.
Yes.
New store, a new kind of our comp store sales sorry.
Outlook for the year ahead, maybe give us a sense of what the what the pieces are there in terms of your industry volume outlook versus.
Price versus maybe market share.
For sure I mean look I think we're always looking to exceed the industry and gain market share.
As we think about the industry and I don't think anybody is expecting.
Unit volume be up dramatically.
I think we're looking at probably more around a flat unit volume.
A little bit of price increase.
It's Scott.
I think thats, probably the best way to characterize it.
Okay. Thank you.
Thanks, Mike.
Thank you one moment our next question please.
Our next question comes from the line of Craig.
Kennison with R. W. Baird. Your line is now open.
Hey, good morning, Thanks for taking my questions as well.
It seems like the Big story in the last few months has been the rise in interest rates until recently and I'm. Just wondering if you see in your consumer profile.
Profiled at somewhat immune to those interest rate increases and then our consumer profile that really is reacting to that impact on the monthly payment I'm. Just wondering if you see in your data.
Where that line of demarcation might be.
Yes.
Craig.
I don't think we really deal.
The products that we carry.
So I think are a little bit more debt buyers a little more insulated to the point Anthony has a good number he's kind of been playing around with this I will let him jump in.
I think we're a little bit more insulated and it's not affecting our buyer as much now one thing I do want to point out is I mean, we spend a lot of time and effort in training and making sure. The process that we've had in place for years is the best in the industry that gives us and keeps us in that.
Mid 60% penetration rate on financing, where I think the industry is much much lower than that and if we didn't work and have a process that we.
Enforced with the Iron Fist, I don't think we would be that high.
And even as high as we are we still feel the majority of the customers are financing, they're just getting their money from somewhere else. So <unk> you want to jump in on that.
I thought your commentary around with.
Yes, I mean, if you look at it.
At $100000 Mark is.
Basically when you take all the noise of the big loads out.
From three years ago to today, it's about $183 a month difference in payment.
Really we're not seeing people back away from $183 more a month.
Two or three years ago. So that's really what the math comes down to when you take three percentage points over 240 months.
$183 more a month with the consumers having to pay so we're not seeing anybody filter back away from that at all.
And I think I heard during your prepared remarks.
Anthony something with respect to the F&I penetration rate I guess I am curious.
How does the F&I penetration rate change overtime I know, it's a very.
Good number for you I think you've said over 60%, but I am curious if.
Consumers, who have the option to take it or not just based on their own personal situation rather than the need to finance the boat.
If you see your penetration kind of slipped a little bit.
No not actually in the quarter.
Our new boat penetration was at 70%.
We honestly believe that about 90% of our customers.
Just maybe not all through us their borrower to get thrown money theyre borrowed against their HELOC on their home or what have you they're.
They're not actually fully paying cash for the boat. So we just try to.
Over the years, we've our target has always been 65% in <unk>.
New boat.
Finance penetration rate for the fourth quarter was actually 70%, it's just a process.
It is in place and are.
Where we sell.
I think real quick Greg one thing Mike.
When we talk about this process, it's pretty easy for you train and you got not only the business manager, but the sales guys. They talk they talk and start studying this up in the beginning it's not hard to tell somebody Hey, This is a simple interest loan no prepayment penalty if you're buying a 200000 dollar boat sure you got $200000 sitting over here somewhere else. So you can always.
Pay that you've always pay it off tomorrow, but don't you think that that 200000 to be used somewhere else.
Better better use and so just crafting the way that we script and we talked to people and stuff like that it's kind of like yes, I can pay my boat off anytime it's more of a luxury well why don't I take the money and put it in the market or why don't I do this with it or why not keep it just for.
Fresh liquidity suit you kind of build that story through the whole process and that's kind of one of the things that we've done over the last seven years, it's really allowed us to increase that rate and I think that's why our penetration is higher is just again it goes back to the process starting from the minute you meet the customer and it's just a little things that you add in on.
As youre going through the sales process to get to closing that boat.
Great. Thank you.
Thank you.
One moment for our next question please.
Okay.
Our next question comes from the line of Joe <unk> with Raymond James Your line is now open.
Good morning. This is Martin on for Joe I was wondering if we can get a little more color around the EBITDA guidance for next year and I believe you are now including stock based comps. So just wondering if we can get a number or some kind of direction around that as well.
Yes, no problem.
Just on the other stock based comp it's about <unk>.
$9 million number for next year.
When you look at the guide right and you look at where we were we printed this year.
Through the first half of the year and normalizing margins. So I think if you go through a processes in a calculating kind of what's that margin differential.
Then you back out that $3 million that I mentioned before for <unk> in the lookout divestiture.
Get you right back to a it gets you to about that $1 55 number.
So while we're cautiously optimistic about next year I think there are a fair amount of.
Headwinds, we recently got some.
Some good.
Inflationary type news or some moderation of inflation news here in the last day or two but it seems like that information is.
People are really excited about it one day and then something else comes out two days later and we're back in a different camp. So.
We're going to control what we can control, we're going to sell as many boats as we can and stay hyperfocus on that say hyper focused on making sure. We have the right inventory at the right locations that is ready and available for sale.
Got it that's very helpful.
Another question guidance does that assume the current trends when it comes to retail throughout the fiscal year or do you think they'll start improving into summer.
Yes.
I think theres a lot of unknowns at this point with the year as we look towards recent boat shows.
Most recently with Fort Lauderdale, where we're certainly encouraged.
But I think it's just a little too early in the year to tell I think as we get through the winter boat shows often.
That boat show season from November.
Lauderdale to Miami type timeframe typically gives you a good sentiment for what the rest of the year is going to look like and what the season is going to look like.
And so we're cautiously optimistic.
Low to mid single digit guide is I guess.
Earlier, I was assuming basically flat unit.
Type environment, So we're being cautious but.
Like I said, there's just a lot of unknowns with the macro that could be headwinds against us.
Got it thank you very much.
Thank you one moment for our next question. Please.
Our next question comes from the line of question Brian.
Brian with D. A Davidson your line is now open.
Yes. Thanks. This is griffin on for Brandon can.
Can you talk about any recent category trends, we've seen over the last 45 to 60 days.
Anything to call out there as we head into the show season.
Well I mean, I don't think anything over the last 45 to 60 days has changed there's been any significant change I mean honestly we've had.
Good coming out of the good Fort Lauderdale boat show that that's a bigger boat mix. So that's good.
It's not a fair valuation of last 45 to 60 days I think that it's it's really been the consumer if there is any trend that we're seeing just the consumer.
As shopping a little bit harder and it's pretty broad across across all brands makes models segments.
I think when you look at the Ssi data it kind of speaks probably to the best generalization of the industry, where you have certain segments that are due in June better than others, but when you look at us.
If I'm wrong, let me know, but it just seems like everything is kind of toeing. The line. It's just.
It's a hard fought battle out there, but I don't I don't have we don't have any shining stars or anything that were like Oh, My gosh, we got to get rid of these things.
No no not at all I mean, theres nothing, but we still have several of our manufacturers that continue to be very innovative.
And want to buy the boat. So there is new boats to continue to come out.
That are doing very well.
Yeah.
Okay, Great and then can you just give any color on OEM promotion.
Blake, how those promotions may compare versus previous years.
Yes.
We didn't have branches.
And yes, there are plentiful now the manufacturers are.
Standing behind the dealers.
Making sure we're moving through inventory.
I think the manufacturers.
Going into that the month of June they were we're not going to have to do this we're not going to do this.
It was just that last couple of weeks of June was a record for us all and I think they understand that dealers are nervous about inventories building theyre not ordering as many 2020 fours.
And so they came out and got pretty aggressive.
Into that into the summer and I think they are continuing that knowing that we've got to get the inventory in the field right.
And we're actually.
Today I'm much more positive about the industry than I was at the end of last quarter.
Having a lot of conversations with wells Fargo and how their book of business on the floor plan looks at.
It's looking a lot better and if we can continue that momentum and that trend through the end of the year.
Lauderdale was a good sign everybody was feeling really good coming out of there if that continues through the end of the year. We could go into next selling season with a very healthy industry.
Compared to what we thought 90 days ago.
So.
That could be a little shining star a bright light.
We just got to got to wait and see what happens over through the end of the year through January.
Okay.
Great. That's all for me thanks.
Thank you. Thank you.
As a reminder to ask a question you will need to press star one one and please wait for your name to be announced.
Our next question comes from the line of Noah SaaS skin with Keybanc capital markets. Your line is now open.
Hi, Thanks for taking my questions maybe.
Maybe just one on the same store sales strength during the quarter.
How much of that would you attribute to your customer relative to the broader industry consumer versus inventory versus operating differently differently.
The broader industry dealer base, just any thoughts around the strength.
Relative to the industry would be helpful. Thanks.
Thanks.
Of course, we want to jump in there and talk about how our CRM system, we feel gives us a leg up over our competition our processes and the things that we do are why we're able to continue to take market share and grow but I think a little bit of it is the consumer is still active.
Still going to beat on the drums.
Peers that a lot of people are still moving on or near water.
And when people move on or near water. They want to vote and then so that's still happening and then you've got the churn of the of the what I would call the professional boater.
Several boats the condo was out of the market during COVID-19 because they didn't want to wait that long they didn't want they knew the pricing wasn't going to be there forever. So I mean, it's just it's an overall good market and just say that our processes and our procedures to help us along with that and then.
Were out there for the first time wouldn't like three years with Roche in or rebates coming from the manufacturers as incentives. So that helps a lot too so I think that.
Those those two things are helping one water kind of bucked the industry and gain market share.
Really helpful and maybe kind of relatedly.
I know you touched on this but just any thoughts.
In terms of your thoughts around M&A.
Giving relative outperformance taking share like.
Is the pipeline more full than it was three months ago or how do you think about the opportunity in the next year.
No I think the pipeline.
It's kind of held steady just like you didnt jump up it didn't decrease its just kind of been steady I think that when you look at the pipeline. The main driver behind the pipeline, which is what we've said since day one.
It's an age.
And aged industry with no exit strategy.
And so as everyday that goes by I think has changed for us as we look at the pipeline.
We are a little bit more probably cautious right now again, we should be because we feel like theres still some room for some other for the dealers that we're looking at to normalize. These next two quarters like Jack spoke about earlier, we need to adjust those margins to what they are today because they were higher in the first two quarters lag.
Year of what we would the way we look at it and some some dealers are just still convinced in their head they'll hold.
They're going to come back or whatever so there's all these little things that kind of really need to normalize and so we do have a couple of guys that we're talking to that have kind of come to the realization that hey, yes, I'm not going to have as much EBITDA. So are our approaches our multiple really hasnt changed its were trying to get to a normalization and make sure that everybody.
Comfortable with.
How we look at what we're paying a multiple long and thats normalized.
Higher interest rates on Floorplan and across the board.
Making sure the margins and stuff or in line with what theyre going to be on a yearly basis. So that brings the number down even further than they are and then the biggest issue that we wanted to make sure is we don't want to go buy somebody and have to clean up.
27 weeks on hand of outdated inventory, so that inventory things got to kind of flush through and I think that's what's given us a little bit more of a pause right now or continuing to pause that we've been on is we know that.
Three months from now six months from now things Youre going to look a lot different and that money, but it's going to come back.
EBITDA is going to continue to kind of normalize on a year to year trailing 12.
So we're looking at some stuff and we're just.
Not rushing out there to just jump in and do anything right now.
Very helpful. Thank you.
Thank you as a reminder to ask a question. Please press star one one please wait for your name to be announced.
I'm not showing any further questions at this time I would like to hand, the conference back over to Mr. Austin Singleton for closing remarks.
Well don't really have any closing remarks, we just appreciate everybody on the call and thank you all.
Ladies and gentlemen, thank you for your participation in today's conference you May now disconnect everyone have a wonderful day.
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