Q1 2024 OneWater Marine Inc Earnings Call

Good morning, and welcome to the one water marine fiscal first quarter 'twenty 'twenty four conference call all participants will be in listen only mode.

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I would now like you turned the comforts over to Jack.

Is is L. A P.

Chief Financial Officer. Please go ahead.

Good morning, and welcome to one water Marines fiscal first quarter 2024 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.

Securities Law and involve a number of risks and uncertainties as a result, the company cautions you that there are a number of factors many of which are beyond the company's control, which would cause actual results and events to differ materially from those described in the forward looking statements.

Factors that might affect future results are discussed in the company's earnings release, which can be found on the investor Relations section of the company's website and in its SEC filings.

The company disclaims any obligation or undertaking to update the forward looking statements to reflect circumstances or events that occur. After the date of the forward looking statements are made except as required by law.

With that I'd like to turn the call over to Austin, Singleton, who will begin with a few opening remarks Austin.

Thanks, Jack and thank you everyone for joining today's call.

We delivered a solid quarter, despite the industry wide returned to seasonal selling patterns and moderated pricing.

In an increasingly competitive environment. Our team remained active closing deals and driving same store sales growth of 2% we.

We continue to outperform the industry, which market data indicated was down about 4% for the quarter.

With the anticipated return to historical seasonal mix demand softened as expected.

Customer preferences turned towards our larger boat offerings.

Unit sales were flat in the first quarter, reflecting the effectiveness of our sales team and our strategic approach to inventory management.

As expected we continued to operate in a more competitive environment.

Margins across the industry continue to reset during the quarter and we expect this to continue through the first half of the year.

Additionally, quarterly margins will continue to fluctuate with seasonality and model mix similar to traditional pre COVID-19 year.

As a reminder, we typically benefit from stronger margins during the summer selling months with a mix shift to the lower asp's with higher margins and increased unit volumes compared to the slower winter months with the mix shifting to higher asp's with lower margins.

Before I turn this over to Anthony I would like to emphasize our strategy and our path to get to where we are today.

When we went public in February of 2020.

We had a solid growth strategy, consisting of steady organic growth coupled with a battle tested M&A.

Yeah.

Toby created a lot of disruptions, both good and bad the transition back to historical trends has been challenging but we believe we are approaching the new normal.

As we move forward one water is a fundamentally stronger company, having grown significantly with a more robust and diversified product offering.

Compared to where we were pre COVID-19 or baseline has been reset higher and we are off to a great start in 2024.

Adding to that we are encouraged by what we've seen at the boat shows so far given us confidence in the coming year.

Even as we navigate the challenging macro environment and inventory overhang in the industry. We are still very confident in our ability to deliver on our growth strategy. We are excited about the future as we continue to grow market share optimize costs enhanced profitability through our higher margin businesses.

And pursue M&A opportunities to amplify shareholder return for years to come with that I will turn it over to Anthony to discuss business operations.

Thanks, Austin, our team delivered first quarter same store sales growth of 2% supported by higher average unit prices as customers shifted their preferences.

Through our larger boat offerings. We are excited about the boat shows we have participated in so far this year and are seeing strong demand for our manufacturers newer models, which is a positive sign given our inventory strategy. We are pleased to report growth in customer orders at the boat shows there we're not impacted by inclement weather.

We are looking forward to the Miami International boat show in a few weeks.

Which is an important event for us and the industry.

Our aggressive inventory management approach has positioned us well.

In an industry flooded with non current models.

We opened the year with a healthy model mix and we will continue to work down non current inventory, where we can favor newer models.

Inventory levels are up sequentially.

As in standard in the winter winter build months in preparation for the selling season that said our 24 weeks on hand inventory continues to outperform the industry had approximately 38 weeks on hand.

While boat sales are up year over year total funding incident insurance revenue was down moderately as we face the challenges of higher rates.

Over finance penetration during the quarter track consistent with our target of 60% of new boat customers financing a portion of their purchases directly with us.

Credit availability and the use has remained strong and we feel good about where we stand today.

And with that I'll turn the call over to Jeff to go over the financials in more detail.

Thanks, Anthony fiscal first quarter revenue decreased 1% to $364 million in 'twenty 'twenty four from $367 million in the prior year quarter, New boat sales grew 4% to $241 million in the first fiscal quarter of 2024, while pre owned boat sales decrease.

4% to $53 million.

The increase in new boat sales was primarily driven by an increase in the average selling price as customers gravitating towards larger boats in the quarter.

The decrease in pre owned boat sales was due to a drop in brokerage of consignment sales, partially offset by an increase in pre owned sales from trade ins.

Revenue from service parts and other sales for the quarter decreased 10% to $62 million compared to the prior year. As a reminder, we sold Raphael Yachting Center and look out marine in our fiscal fourth quarter of 2023, which primarily drove the decline.

Additionally, we saw a reduction in parts and accessory sales to original equipment manufacturers. These Oems have reduced production of boats as a result of the elevated industry inventory levels.

Finance and insurance revenue fell 18% to $7 million for the first quarter, primarily due to a decline in income earned on loans given the current high interest rate environment.

Overall gross profit decreased 17% to 91 million in the first quarter compared to $110 million in the prior year driven by the normalization of gross margins on both sold.

Gross profit margin fell sequentially with expected seasonality and a preference towards larger boats, partially offset by increases in margins on our service parts and other sales.

We anticipate gross margins to continue to stabilize through the first half of the year as the cycle returns to normal, though we anticipate this new normal will level off higher than what we saw prior to the pandemic given the structural changes in our business and the industry.

First quarter, 'twenty, 'twenty, four selling general and administrative expenses increased to $80 million from $78 million.

SG&A as a percent of sales was 21, 9% up 70 basis points from the prior year period.

SG&A as a percentage of sales is typically higher in the first quarter, which is historically the slowest quarter as lower revenues reduce our fixed cost leverage.

We continue to monitor the sales environment and proactively manage cost to optimize the business.

Operating income decreased to 6 million from $27 million in the prior year period, and adjusted EBITDA was 7 million compared to 30 in the prior year period.

The decline in adjusted EBITDA was primarily due to lower gross profit and heightened floorplan borrowings and related interest costs.

Net loss for the fiscal first quarter totaled 8 million or <unk> 49 per diluted share compared to net income of 11 million or <unk> 61 per diluted share in the prior year.

And the physical first quarter adjusted loss per diluted share was 38 cents compared to adjusted.

Earnings per diluted share of 73 and 2023.

Turning now to the balance sheet on December 31, 2023.

Total liquidity was in excess of 65 million, including $45 million of cash and additional availability under our credit facilities total.

Total inventory on December 31, 2023 was 707 million compared to $610 million at September 32023.

This inventory build is reflective of our preparation for peak selling season, and we expect inventory levels throughout the remainder of the year to mirror the seasonal patterns, we have historically experienced.

Total long term debt currently stands at 440 million, our net debt to adjusted EBITDA ratio is two six times, our liquidity and leverage position remain in a comfortable range and we are utilizing our cash to pay down our floor plan, which carries the highest interest rate.

Looking ahead, we are maintaining our fiscal 2020 for guidance and expect margins to stabilize with seasonal norms. We anticipate same store sales to be up low to mid single digits and we expect adjusted EBITDA to be in the range of $130 million to $155 million and adjusted <unk>.

Earnings per diluted share to be in the range of $3.25 to $3.75.

On capital allocation, our priorities remain unchanged and we are focused on delivering organic growth and increasing our footprint through strategic M&A of top performing dealers and the best boating markets in the country.

As always we are prudent in our approach and will allocate cash where we believe it will provide the most value for our shareholders.

For our M&A deals and we look to utilize free cash flow as our funding source, which has historically given us the best return on our invested capital as always we remain disciplined in our approach when evaluating acquisition targets and the pipeline remains active and we are poised to act when the right deal comes along.

This concludes our prepared remarks, operator would you. Please open the line for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speaker phone. Please pick up your handset before pressing the keys.

At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from drew Crum with Stifel. Please go ahead.

Okay. Thanks, Hey, guys. Good morning on same store sales can you address how the plus to perform versus your expectations and the level of promotional spend you deployed relative to plan.

In order to achieve that figure and I guess, you know will you need to be more aggressive here in order to hit your same store sales target for the year and then I have a follow up.

Jack you want to take that or you want me, Yeah, I would say, where we're fairly close to plan, where we expected it to come in during the quarter I would say from a.

Promotional activity.

I would say it continues to be elevated similar to that we saw in the fourth quarter. You know I I don't know that our trends have really changed a lot I think we continue to be very aggressive.

And the marketplace customers are still coming through doors [noise] initial boat show activity has been good and we continue pushing on.

Okay, perfect and then on the service parts and others business you mentioned the sales leaseback transaction contributing to the down 10%.

Did you see the year on year declines moderating going forward you know I think you know with lapping the retailer destocking the comps.

We'd get a little easier, but you also have the cuts in production by Oems, which you flag. So I'm curious as to how you see this business trending over the next few quarters. Thanks.

Yeah for sure I mean, it's it's going to be challenge for the year I would expect expect the the decline rate because of the December quarter is such a small quarter I would expect that percentage to decline to to moderate some like you suggest but I do expect it probably be.

Service parts and other for the year.

To be down I don't know if somewhere in that 5% to 7%.

Just you know, but it's going to be and impact right. Because we closed on the transaction right at September 30th. So you have a full year that you have to bake out.

Okay got it thanks guys.

Thank you Jerry.

The next question comes from Craig.

Kennison with Baird.

Please go ahead.

Hey, good morning. Thanks for taking my question I think you mentioned the acquisition environment I'm, just I'm curious I imagine there are some dealers on your target list that are ready to get out in the current environment.

Is it a more active environment today, and how aggressive could you be if if.

Those who want to sell are already yourself.

Well I mean, you know it might like Jack stated earlier, Craig we're going to use free cash flow so that that'll that'll put some limitations on it if the if the sticky just opened wide open, but we want to be strategic about what we're looking at doing and so when you kind of look at the environment right. Now you know one of the things is still trying to pinpoint what.

Got it true you know the multiples easy because we have that set but what we're paying a multiple on where we're expecting to see some margin decline you know I don't know.

How much more of a dealer can absorb right now with <unk>.

Inflated.

We're playing interest cost.

A lot of dealers out there I think.

It's something that we thought was going to happen last fall's, probably fixing to start happening more now because dealers have gone through the winter not only are they paying in a pretty you know double digit floorplan interest rate cost margins are continuing to drift down a little bit, but also cash flow was tight because of curtailments.

And so it is kind of like the perfect storm. So I just I wouldn't say that it's picked up any more than it was you know even you know the good and bad parts of Covid, we tended to add a deal or two.

The pipeline a month that was something that we would really consider I mean, we get we get incoming calls and emails and stuff probably you know a couple.

Half a dozen to a dozen a week and a lot of those just stuff, we're not looking looking at or even have any interest and so I'd say, it's pretty much. The same I don't I Wouldnt say its increased I think we might see some increase in there might be some some strategic deals that we could pick up on somebody that's just throwing in the towel.

I go into the early spring months.

Hey, I just don't want to do this again because I do think people are going to have to start reaching into their pockets I E leveraging up real estate or whatever to cash flow to get to the earning months of April may and June and then if we have a bad bad weather spring that could even push it where they really don't start to see that incoming cash flow to build back what they put out.

So may June and July so it's kind of like we're just you know we've got some things we're working on but where we're going to be very opportunistic as we move forward.

Yeah. Thanks, Austin, and then I'm trying to reconcile a weird dynamic in my mind, which as you know retail looks to be.

Somewhat in line with with your own expectations, but it feels like every OEM has agreed it's actually time to cut production and help you and other dealers.

Right with inventory.

It was it just like a realization on the Oem's part that it's things are different or the pain is so severe for some dealers on floor plan expense that they had to do it but what do you think changed in the minds of Oh yeah.

Frankly retailers about what you thought it would be.

Yeah. So that's a really good question you know when you look at you know retail linear.

Right now and how that that works.

Where we're able to probably be a little bit more often opportunity not opportunistic.

I'm optimistic versus the Oems because we have the inventory that's already on hand, so you know, they're having to replenish inventory, where we have too much. So we sell through that inventory, where they they need to build boats today.

So as that kind of shifts.

She has you know we have plenty of inventory I mean, I I think Anthony if I'm not wrong. If we just didn't order another boat from here on out we we'd have plenty of inventory to sell through probably a good chunk of the summer.

Correct.

So when you look at that that that's why we're a little off a key you know optimistic is because we have all the inventory on hands now or we got to do is perform itself, where an OEM. It's like okay, well I don't have anywhere to put my inventory and so.

That would that they can't build it if they don't have anywhere to put it. So I think that it's just been a timing and a lapse. This kind of happened that caused you know the Oems maybe not to have that you know oh crap moment as much as it's just it's a lag behind us and so you know we we feel we're in a good spot when you when you talk about individual dealers.

Operator: Good morning, and welcome to the One Water Marine fiscal first quarter 2024 conference call. All participants will be in listen-only mode.

The promotional activity I don't think that you know we've been in the position that we're in right now today in I mean, almost two decades, where you have floor plan interest cost in double digits for the majority of the dealers you know not only is that a big expense margins have contracted.

Operator: If you need assistance, please signal a conference specialist by pressing star and zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.

Operator: To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Jack, who is being held as Chief Financial Officer. Please go ahead.

Floor plan Curtailments, you know pre the great you know Oh wait Oh, nine werent really enforced so that wasn't an outflow of cash flow and so as we've gone through this winter every month dealers are out there having to cut checks for curtailments now that's marking the inventory to market, which is a good thing it's a disciplined thing the industry needs that.

Jack: Good morning, and welcome to One Water Marine's fiscal first quarter 2024 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 would cause actual results and events to differ materially from those described in the forward-looking

But they are not used to that they've never seen that and they're not really sure how to how to how to navigate that and so when you look at that and say, okay, where do they sit today is probably a pretty scary point you know for for a large majority of the industry, they're looking at something that they're not used to having to deal with and they've got they've got a shift what.

They're doing to navigate yes.

And so you know that.

That's kind of it's just a tough spot for some dealers I imagine out there you know that are coming through going okay. Where's all my money.

And you know that that's going to go back to what we kind of been waiting on I think a little bit as for the dealers that good navigated Oh wait Oh not sure. They can navigate this I'm not I'm not being you know, saying that they're doing it's gonna be hard and now is the right time, maybe it is the right time to throw in the towel and or work to look for that exit strategy.

Austin Singleton: Factors that might affect future results are discussed in the company's earnings release, which can be found under the investor relations section of the company's website and in its SEC files. The company disclaims any obligation or undertaking to update the forward-looking statements to reflect circumstances or events that occur after the date that 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?

Great Hey, thank you.

Yeah.

The next question comes from Joe Ultra Bello with Raymond James. Please go ahead.

Austin Singleton: Thanks, Jack, and thank you, everyone, for joining today's call. We delivered a solid quarter despite the industry-wide return to seasonal selling patterns and moderated prices. In an increasingly competitive environment, our team remained active, closing deals and driving same-source sales growth of 2%. We continued outperforming the industry, which market data indicated was down about 4% for the quarter. With the anticipated return to historical seasonal mix, demand softened as expected, and customer preferences turned towards our larger boat. Unit sales were flat in the first quarter, reflecting the effectiveness of our sales team and our strategic approach to inventory management.

Hey, guys. Good morning, just to follow up on that comment you made Austin about non current inventory in the industry.

Long do you think it'll take for your competitors they kind of work through that non current.

Well I mean, it really just depends on how how strong. This spring early selling season as you know I I think we're doing where we're seeing good things at the boat shows things are going really good at the boat shows for us and I imagine you've got several other dealers out there that are performing very well at the boat shows you know people are coming through the door.

They're buying boats and so as that inventory kind of pushes through.

A good a good early spring selling season will accelerate that if you have weather or pockets that aren't as good you know that that could change things.

Austin Singleton: As expected, we continue to operate in a more competitive environment. Boat margins across the industry continue to reset during the quarter, and we expect this to continue through the first half of the year. Additionally, quarterly margins will continue to fluctuate with seasonality and model mix, similar to traditional pre-COVID years. As a reminder, we typically benefit from stronger margins during the summer selling launch with a mixed shift to lower ASPs with higher margins and increased unit volume, compared to slower winter months with the mix shifting to higher ASPs with lower mortgages. Before I turn this over to Anthony, I would like to emphasize our strategy and our path to get to where we are today. When we went public in February of 2020, we had a solid growth strategy consisting of steady, organic growth coupled with battle-tested M&A. COVID has caused a lot of disruptions, both good and bad.

So you know I I.

That's a crystal ball I just don't have you know if if you just wanted to add.

And he probably has a better good at that and to me I would take a swag at it and say you know that once we get to model year change going into 2025 that lagged pointed June and July I think we should be in pretty good shape, unless there's something out there that we're not seeing from a macro standpoint, Anthony you got any feeling on that.

No I think that where we're heading that way and.

We have a plan in place to ensure their inventories right.

Yeah, I think the only thing I would throw in there Joe is we had gotten some some indication that dealer inventories around 38 weeks and so if manufacturers cut you know.

2030%, let's say, 25% right if I had to say, okay, well then that ridiculous.

And retails flat you know does that reduce it back down, 25% and I guess I'm closer to that.

Austin Singleton: The transition back to historical trends has been challenging, but we believe we are approaching the new normal. As we move forward, One Water is a fundamentally stronger company, having grown significantly with a more robust and diversified product offering. Compared to where we were pre-COVID, our baseline has been reset higher, and we are off to a great start in 2024. Added to that, we are encouraged by what we've seen at the boat shows so far, giving us confidence for the coming year. Even as we navigate the challenging macro environment and inventory overhang in the industry, we are still very confident in our ability to deliver on our growth strategy. We are excited about the future as we continue to grow market share, optimize costs, enhance profitability through our higher-margin businesses, and pursue M&A opportunities to amplify shareholder return for years to come. With that, I will turn it over to Anthony to discuss business operations. Thanks, Austin.

26 weeks on hand.

That that two turns a that historically the industry has seen.

Okay. That's very helpful and maybe just to follow up on that you talked about normal seasonality you know several times. This morning, maybe help us understand what you mean by normal seasonality because your business has changed a little bit. It's COVID-19. So as we think about the next three quarters. For example, how do we think about the cadence for the year from a maybe a sales and EBITDA perspective.

Yes.

Okay. Let me, let me jump in let me jump in and then you you can backstop and a little bit I think you know.

Joe one of the things that you know the exercises that we kind of went through as is we wanted to go back and look at 17, 18, 19 as individual years and seasonality by month and quarters. And then also took an average of those three and kind of apply that to where we are today for the first quarter and it's you know it was it was.

A really good exercise and it gave us a lot of confidence on where we sit today, there's a lot of things out there in front of us that we can't control when the macro that could change some things, but when you look at just what it how it used to be and then what we're seeing as far as like the transition to bigger boats in the winter months, because those are a longer build.

Anthony Asquith: Our team delivered first quarter same-store sales growth of 2% supported by higher average unit prices as customers shifted their preferences to our larger boat offerings. We are excited about the boat shows we have participated in so far this year and are seeing strong demand for our manufacturer's newer models, which is a positive sign given our inventory strategy. We are pleased to report growth in customer orders at the boat shows that were not impacted by inclement weather. We are looking forward to the Miami International Boat Show in a few weeks, which is an important event for us and the industry.

Time, you know just the way the customers buying patterns and you know not the urgency in the September October November to order smaller smaller boats are waiting to the boat shows you know it's just it feels just like it was 17 18 and 19 and we had great years at those times now I do agree that we've shifted the.

Anthony Asquith: Our aggressive inventory management approach has positioned us well in an industry flooded with non-fair models. We open the year with a healthy model mix, and we'll continue to work down non-current inventory where we can favor newer models. Industry levels are up sequentially, as is standard in the winter build months in preparation for the selling season. That said, our 24 weeks on hand inventory continues to outperform the industry at approximately 38 weeks on hand. While both sales are up year over year, total financed insurance revenue was down moderately as we faced the challenges of higher rates. However, finance penetration during the quarter was consistent with our target of 60% of UVO customers financing a portion of their purchases directly with us. Credit availability for the youth has remained strong, and we feel good about where we stand today.

The EBITDA contribution to some of these higher margin businesses, so that changes a little bit, but if you just kind of really look at the seasonality of new boat sales, which is still the predominant driver of our EBITDA and you go back and you look at it pre COVID-19 take all the cobalt noise out of that it's it's a pretty compelling story, where we sit.

A day and I and I think that's that's something that's got us.

Optimistic you know feeling pretty good boat shows have helped a little bit. But then you know we got to really be careful.

Careful and watch really tight inventory in all of this stuff as we move forward because there are some things out there that could stop us that we can't control so going back to what we can say all the time, we're controlling the things we can control and we're watching it really tough and if the shifts we're gonna make big adjustments, but right now if you look at what the seasonality was.

Pre pre COVID-19 and take all that Covid noise out of it it kind of feels like we're back to this new normal.

Jeff: And with that, I'll turn the call over to Jeff to go over the financials in more detail. Thanks, Anthony. Fiscal first quarter revenue decreased 1% to $364 million in 2024 from $367 million in the prior year quarter. New vote sales grew 4% to $241 million in the first fiscal quarter of 2024, while pre-owned vote sales decreased 4% to $53 million. The increase in new boat sales was primarily driven by an increase in the average selling price as customers gravitated towards larger boats in the quarter. The decrease in pre-owned boat sales was due to a drop in brokerage consignment sales partially offset by an increase in pre-owned sales from trading. Revenue from service parts and other sales for the quarter decreased 10% to $62 million compared to the prior year.

Something very similar to what we saw pre Covid Jack.

Rambled too much but you can know you pretty much pretty much stole all my Thunder I think I think the only thing I would add when you when you work through the math of it I think as I look out at consensus.

Guidance right I think.

I think we got the front half of the year, just a little too heavy in the back half of the year, a little light and when you think about that right and you guys had over the last several years with with Covid right and scarcity of inventory the first half of the year, we accelerated so much we shifted so many sales into that be getting part of the year.

Here and we were selling you know pontoon boats and ski boats in the December quarter, when when does that customer wasn't even really using the boat you know normally that was a spring and early summer boat buyer and so now I think we're seeing those sales.

Jeff: As a reminder, we sold Raffaelli Yachting Center and Lookout Marine in our fiscal fourth quarter of 2023, which primarily drove the decline. Additionally, we saw a reduction in parts and accessories sales to original equipment manufacturers. These OEMs have reduced production of both as a result of the elevated industry inventory levels. Finance and insurance revenue fell 18% to $7 million for the first quarter, primarily due to declining income earned on loans given the current high interest rate environment.

<unk> back.

That's our expectation, but you know Austin like Austin said, you know, we're we're cautiously optimistic that if those sales don't come in the in the back half.

We're going through the boat show season lining up orders you know, we'll we'll adjust but as of as of right now we're we're cautiously optimistic.

Okay, great. Thank you guys.

Okay.

The next question comes from Michael Swartz with Truest Securities. Please go ahead.

Jeff: Overall, gross profit decreased 17% to $91 million in the first quarter compared to $110 million in the prior year, driven by the normalization of gross margins on those sold. Gross profit margin fell sequentially with expected seasonality and a preference for larger boats partially offset by increases in margins on our service parts and other sales. We anticipate growth margins to continue to stabilize through the first half of the year as the cycle returns to normal, though we anticipate this new normal will level off higher than what we saw prior to the pandemic, given structural changes in our business and the industry. First quarter 2024 selling general administrative expenses increased to $80 million from $78 million.

Okay.

Yeah.

All right.

Go ahead, Mr. Schwartz Your line is open hey.

Sorry about that forget Theres, a mute button.

Just.

Just trying to understand what it is.

Adding to the guidance.

I'd assume there is some sensitivity to the path of interest rates.

Both on consumer demand you know your flooring expense yeah F&I revenue. So maybe just help us understand what exactly are you embedding in your guidance as it pertains to the path of interest rates over the next six to 12 months.

Jack I don't think we embedded a whole lot of them.

We see that interest rates I wouldn't say, we embedded any material changes I would say in our models right. We get we get some yield curves from a couple of different banks.

Jeff: SG&A as a percentage of sales was 21.9%, up 70 basis points from the prior year period. SG&A as a percentage of sales is typically higher in the first quarter, which is historically the slowest quarter as lower revenues reduce our fixed cost leverage. We continue to monitor the sales environment and proactively manage costs to optimize the business. Operating income decreased to $6 million from $27 million in the prior year period, and adjusted EBITDA was $7 million compared to $30 million in the prior year period. The decline in adjusted EBITDA was primarily due to lower gross profit and heightened score plan borrowings and related interest costs. Net loss for the fiscal first quarter totaled $8,000,000 or $0.49 per diluted share compared to net income of $11,000,000 or $0.61 per diluted share in the prior year.

Including tourists and we kind of synthesize those together and we drop them in the model. So we're not we're not banking and some you know.

Some some additional shift or curve are you now.

Reduction if that's what you're getting at I think as far as I think as far as retail goes you know we are.

Banking and that.

The pressure we've seen on the F&I line, where we're just not able to make the spreads we've made in the past.

So that's probably the biggest.

I'll say, it's more of a it's a negative impact versus a positive she had should rates eased a little bit maybe that gets better but you know again, it's a.

You know as you know, it's a highly profitable business and it has certainly can't impact the model, but it's you know it's.

Jeff: In the physical first quarter, adjusted loss per diluted share was $0.38 compared to adjusted earnings per diluted share of 73 cents in 2023. Turning now to the ballot sheet on December 31st, 2023. Total liquidity was in excess of $65 million, including $45 million of cash and additional availability under our credit facility. Total inventory on December 31st, 2023 was 707 million compared to 610 million at September 30th, 2023. This inventory build is reflective of our preparation for peak selling season, and we expect inventory levels throughout the remainder of the year to mirror the seasonal patterns we have historically experienced. Total long-term debt currently stands at $440 million.

Just a small piece.

Got you that's helpful. And then maybe just expanding I think Anthony you had you had some commentary around the boat shows and I think you know.

We kind of look at the boat shows and compare them to you know a year ago and end and maybe if we if we can go back to pre Covid, maybe back to the 2019 level not so much concerned about you know what you're seeing demand wise, there, but just the level of promotional intensity.

You know maybe versus back then and I'm sure that the the answers are little different pertaining to model year 'twenty three are model year 'twenty four but is there any way you can just frame what discounting looks like this year versus as you know maybe a normal year.

I think it's back to the way the boat business was in 2018 to 2019 everybody's being.

Pretty competitive and the manufacturers are being great partners in helping us move move boats.

Jeff: Our net debt to adjusted EBITDA ratio is 2.6 times. Our liquidity and leveraged position remain in a comfortable range, and we are utilizing our cash to pay down our floor plan, which carries the highest interest rate. Looking ahead, we are maintaining our fiscal 2024 guidance and expect margins to stabilize with seasonal norms. We anticipate same store sales to be up low to mid single digits, and we expect adjusted EBITDA to be in the range of $130 to $155 million and adjusted earnings per diluted share to be in the range of $3.25 to $3.75.

As far as the volumes are concerned I missed.

Pretty impressive, but you know we've had some shows that we've had some unfortunately pretty bad weather in the northern markets that were affected.

But you know the boats.

It shows that we had in the southern markets.

We're up over the prior year and continued to do very well.

And it is with the help of great manufacturing partners, though.

Which we had that helped in 2018 in 2019, you know joined cobalt, we didn't have any of them we didn't need any help.

But you know as things get more competitive as the inventory rises they are staying with us if you will oh put us making ensuring that we have great shows and they have been.

Austin Singleton: On capital allocation, our priorities remain unchanged, and we are focused on delivering organic growth and increasing our footprint through strategic M&A of top performing dealers in the best voting markets in the country. As always, we are prudent in our approach and will allocate cash where we believe it will provide the most value for our shareholders. For our M&A deals, we look to utilize Free Cash Flow as our funding source, which has historically given us the best return on our invested capital.

Great. Thank you.

The next question comes from Fred Wightman with Wolfe Research. Please go ahead.

Hey, guys. Good morning, you've talked for a few quarters now about working down your inventory to position one water for what you were seeing on the horizon in terms of slowing retail and some dealers getting a little bit heavy do you just feel.

Like your mix of current versus non current compared to what you're seeing in the industry today really positions you to do that and can you maybe just talk about your ability.

Operator: As always, we remain disciplined in our approach when evaluating acquisition targets, and the pipeline remains active, and we are poised to act when the right deal comes along. This concludes our prepared remarks. Operator, will you please open the line for questions? We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad.

To capture you know maybe it's.

Where that would show up is it more on the comp side is it more on the margin side like where do you think that proactive approach that you've taken is gonna be most visible.

Well I mean, I I think it'll show up everywhere.

Operator: If you're using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press stars and 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Drew Crum with Stiefel.

I think one of the things that we are.

What's happening now comparing US you know the weeks on hand, when you look that we don't really know the makeup of that 38 weeks on hand from an industry perspective.

That's information we get out of the weeks on hand out of Wells Fargo, but its not dyestuff between 'twenty to 'twenty three 'twenty four as we we don't get we can't get that kind of detail out of them, but when you look at <unk> 38, compared to where we are that that's a pretty good competitive advantage that we have I think the one thing that probably.

Andrew Edward Crum: Please go ahead. Thanks to you guys. Good morning.

Austin Singleton: Thanks for the sales. Can you address how the Plus 2 performed versus your expectations and the level of promotional spend you deployed relative to plan in order to achieve that figure? And I guess, you know, will you need to be more aggressive here in order to hit your same-source sales target for the..., and then I have a follow-up with Jack Ewing. Yeah, I would say we're fairly close to plan. You know, where we expected it to come in during the quarter, I would say from a promotional activity. I would say it continues to be elevated, similar to that we saw in the fourth quarter. You know, I don't know if trends have really changed a lot.

Would would give us a little bit of concern. The further we get into the year. The more that twenty-three inventory that we have left is the harder inventory to sell so like if you have theres certain 20 threes that are like popcorn you can sell just as many of them as you can get but then you get into some other ones that arent really.

The REIT boats and I think that's a little bit of any concern that we've had in the last several several weeks as you know as.

As we keep moving forward, it's going to get harder and harder to sell that 'twenty. Three the hope is that you know that means we're going to be selling that many more 20 fours to offset whatever kind of margin. We're gonna have to take margin decline almost 23, so but I think it's going to show up in same store sales I think it shows up in gross margin.

Austin Singleton: I think we continue to be very aggressive in the marketplace. Customers are still, you know, coming through the door. Initial boat show activity has been good, and we will continue pushing on. Okay, perfect.

You know it all depends on how quick we can work that down and then get into being able to sell 24 as against 20. Threes. Then you don't have to be as competitive, especially on the new models.

Jeff: And then on the service parts and other business, you mentioned the sales leaseback transaction contributing to the down 10%. Do you see the year on year declines moderating going forward? You know, I think, with lapping the retailer's destocking, the comps would get a little easier, but you also have the cuts in production by OEMs, which are flagged. So I'm curious as to how you see this business trending over the next few quarters. Yeah, for sure.

That makes sense and is there any way that you can just give some context to the pricing or margin benefit for those 20 fours versus the non current stuff just to sort of help us think about what that blended margin opportunity could look like.

Well I mean, I would think Anthony it's it's probably double isn't it.

Jeff: I mean, it's going to be, you know, a challenge for the year. I would expect the decline, right because the December quarter is such a small quarter. I would expect that percentage decline to moderate some, like you suggest. But I do expect it probably to be, you know, service parts and other for the year, you know, to be down, I don't know, somewhere in that 5 to 7%. But it's going to have an impact, right? Because we closed on the transaction right on September 30th, so you have a full year that you have to bake out. Okay, I got it. Thanks, guys. Thank you, Drew. The next question comes from Craig. Kennison with the Bears.

If you take our 20 fours, putting it against the competitors 23, where we could probably get twice the margin, they're getting if they're getting a six we're getting a 12, they're getting a 10, we're getting a 20, if theyre getting to 12 to 24, you know I would say it's close yeah go.

Go ahead.

And it's very mixed by model I mean, whether it's brand or are you know whether the specific models.

A a recent.

Renewal or I'd say, a model that's a little bit more scale. So there is it's really hard to break down that number Fred.

Okay. Thanks, a lot guys.

Okay.

The next question comes from Noah <unk> with Keybanc capital markets.

Craig R. Kennison: Please go ahead. Hey, good morning. Thanks for taking my question. I think you mentioned the acquisition environment. I'm just, I'm curious.

Please go ahead.

Hi, guys. Thanks for taking my question you kind of touched on this a little bit but in terms of.

Austin Singleton: I imagine there are some dealers on your target list that are ready to get out in the current environment. Is it a more active environment today, and how aggressive could you be if... Those who want to sell are ready to sell? Well, I mean, like Jack stated earlier, we're going to use free cash flow. So that'll put some limitations on it if the spigot is just open, wide open.

Kind of the levers that you have available to you.

Should retail potentially soften I guess first like internally how are you thinking about those levers and then secondly is there an expectation that that OEM incentives could step up.

Where units not to be moving Hum come spring and summer. Thanks.

Jack.

Uh huh.

So the levers we've covered this a lot in several of the quarters. When we have a lot of levers to kind of pull themselves.

Austin Singleton: But we want to be strategic about what we're looking at doing. And so when you kind of look at the environment right now, one of the things is still trying to pinpoint what is true, not the multiples, because we have that set, but what we're paying the multiple on. We're expecting to see some margin decline. You know, I don't know how much more a dealer can absorb right now with, you know, inflated floor plan interest costs. You know, there are a lot of dealers.

When you go back and you look it can be you know what we had pre OE auto non as far as you know are our biggest expense on the on the P&L as employees. Most everything is tied to bottom line or the performance of that department. So you know if things slow up a little bit that kind of right that ship you know theres a lot of other levers that we have from.

You know just different cost cutting methods that we can do you know just just stuff that we we kind of have in our playbook that it's been hard for us to really deploy some of those right now because you know the revenues if cap up and so it's like.

Austin Singleton: I think something that we thought was going to happen last fall is probably fixing to start happening more now because dealers have gone through the winter. You know, not only are they paying, you know, a pretty double-digit floor plan interest rate cost, but margins are continuing to drift down a little bit. But also, you know, cash flow is tight because of curtailment. And so it's kind of like the perfect storm.

So you go out and you make a bunch of cuts and then nothing slows off you know or does it slow up dramatically. Then you start performing bad from a service perspective to the customer and that just doesn't work. So we're watching that really good and we feel we have a lot of levers, but there are several levers that just automatically pull themselves based off the performance of the business. So.

Austin Singleton: So I just, I wouldn't say that it's picked up any more than it was, you know, even the good and bad parts of COVID. We tended to add a deal or two to the pipeline a month. That was something that we would really consider. I mean, we get incoming calls and emails and stuff, probably, you know, a couple, you know, half a dozen to a dozen a week. And a lot of those are just stuff we're not looking at or even have any interest in, so I'd say it's pretty much the same. I wouldn't say it's increased.

We're confident in our ability if things were to dramatically shift from a macro standpoint or something that's completely outside of our control.

We have a pretty good game plan in place and ready to deploy that if were needed as far.

Far as manufacturer's incentives.

Yeah.

I can't answer that for the manufacturers.

Austin Singleton: I think we might see some increase, and there might be some, some strategic deals that we could pick up on somebody that's just throwing in the towel, um, as they go into the early spring months and, you know, say, Hey, I just don't want to do this again. Because I do think people are going to have to start reaching into their pockets by leveraging up real estate or whatever to cashflow to get to the earning months of April, May, And then if we have a bad, bad weather screen, that can even push it to where they really don't start to see that incoming cashflow to build back what they put out till May, June, and July. So it's, it's kind of like we're just, you know, we've got some things we're working on, but we're, we're going to be very opportunistic as we move forward. Thanks, Austin.

But if things slow theyre going to have to I mean, because again youre looking at a dealer network that's up.

Out there and I'm really talking about the single off one off dealerships that have you know interest on their floor plan that they've never seen before it's a big number and if they've got a lot of carried over inventory those curtailments eat a lot of cash flow.

I you know I'd heard you know what somebody reached out to me about our curtailment holiday and they were like what does that mean to you and I'm like Wow that I've never heard that but Ah curtailment holiday is probably something that could be needed. If it softens up because that sucks cash out of the out of the dealers you know cash flow per operation. So.

Craig R. Kennison: And I'm trying to reconcile a weird dynamic in my mind, which is, you know, retail looks to be, you know, somewhat in line with your own expectations. But it feels like every OEM has agreed that it's actually time to cut production and help you and other dealers get right with inventory. It was just like a realization on the OEMs' part that things are different, or the pain is so severe for some dealers on floor plan expenses that they had to do it. What do you think changed in the minds of OEMs? And frankly, retail is about what you think it is. Yeah, so that's a really good question.

When you when you look at a slowing up I mean, I I sit today and I look the dealers probably cannot afford to take any more promotional activity on their P&L.

And you know that.

If they have to you know are we going to lose some I think so.

When you look at the increased floor plan you know all the other just incremental increases, but then you look at the cash flow that curtailments are sucking out of there also and they're not making any margin if they have too many 20 threes and they're not getting a blended 23% 24 is that could be very devastating two to a one off dealership.

When did that one of the lessons that we have and one of the things that had been a fundamental.

Austin Singleton: You know, when you look at retail and where we sit right now and how that works, you know, we're able to probably be a little bit more not opportunistic and optimistic versus being overwhelmed because we have the inventory that's already on hand. So, you know, they're having to replenish inventory where we have too much. So, we sell through that inventory where they need to build boats today. And so, as that kind of, you know, shifts, we have plenty of inventory.

The competitive advantage that we think we did that we have is that we can move inventory between a lot of different stores. So you can have one market. That's hot one that's not we're moving we're moving product to the hot market.

And so that that'll help us as we go through but.

I would suspect.

But I can't speak for them, but if they slow up dramatically. The manufacturers are going to have to step up or they're going to lose a lot of their dealers.

Very helpful. Thank you.

Austin Singleton: I mean, Anthony, if I'm not wrong, if we just didn't order another boat from here on out, we'd have plenty of inventory to sell through probably a good chunk of the summer. So when you look at that, that's why we're a little optimistic because we have all the inventory on hand. Now all we've got to do is perform and sell, where an OEM is like, okay, well, I don't have anywhere to put my inventory. And so with that, they can't build it if they don't have anywhere to put it.

This concludes our question and answer session.

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Okay.

[music].

Austin Singleton: So I think that it's just been timing and a lapse that kind of happened that caused OEMs maybe not to have that, you know, oh crap moment as much as it's a lag behind us. And so, you know, we feel we're in a good spot. When you talk about individual dealers and promotional activity, I don't think that, you know, we've been in the position that we are in right now today for almost two decades, where you have floor plan interest costs in double digits for the majority of the dealers. Not only is that a big expense, but margins have contracted. You know, the floor plan fulfillments, you know, pre the great recession, 08, 09 weren't really enforced. So that wasn't an outflow of cash.

Yeah.

[music].

Austin Singleton: And so as we've gone through this winter, every month, dealers are out there having to cut checks for curtailments. Now, that's marking the inventory to market, which is a good thing; it's a disciplined thing. The industry needs that, but they're not used to that, they've never seen that, and they're not really sure how to navigate that. And so when you look at that and say, okay, where do they sit today? It's probably a pretty scary point, you know, for a large majority of the industry. They're looking at something that they're not used to having to deal with, and they've got to shift what they're doing to navigate.

Austin Singleton: And so, you know, that's kind of, you know, it's just a tough spot for some dealers, I imagine, out there, that are coming through going, okay, where's all my money? And, you know, that's going to go back to what we've kind of been waiting on, I think, a little bit: for the dealers that navigated 08, 09, to make sure they can navigate this. I'm not, you know, saying that they're doomed. It's going to be hard, and now is the right time, maybe it is the right time to throw in the towel, or to look for that exit strategy.

Joseph Nicholas Altobello: Great. Hey, thank you. The next question comes from Joe Altobello with Raymond James. Please go ahead.

Austin Singleton: Thank you, guys, good morning. Just to follow up on that comment you made Austin about non-current inventory. How long do you think it'll take for your competitors to kind of work through that? Well, I mean, it really just depends on how strong this spring early selling season is. You know, I think we're doing good. We're seeing good things at the boat shows. Things are going really well at the boat shows for us.

Austin Singleton: I imagine you've got several other dealers out here that are performing very well at the boat shows. You know, people are coming through the door, and they're buying boats. And so as that inventory kind of pushes through, a good early spring selling season will accelerate that. You know, you have weather or pockets that aren't as good, but that could change. And so, you know, that's a crystal ball I just don't have. You know, if you just wanted to, Anthony probably has a better chance at that than me.

Austin Singleton: I take a slag at it and say, you know, that once we get to the model year change going into 2025, you know, that lag point of June, July, I think we should be in pretty good shape unless there's something out there that we're not seeing from a macro standpoint. Anthony, do you have any feelings on that? You know, I think that we're heading that way, and, um... We have a plan in place to ensure their inventory is right. Yeah, I think the only thing I would throw in there, Joe, is that we have gotten some indication that dealer inventory is around 38 weeks. And so if manufacturers cut, you know, 20, 30%, let's say 25%, right? If I just say, okay, well then that reduces, and retail is flat, does that reduce it back, you know, down 25%, and that gets them closer to that, you know, 26 weeks on hand, you know, that two turns that historically the industry has seen, that sounds like some, you know, some math you can get around that that would make sense.

Austin Singleton: Assuming this season is a flat year, helpful. Maybe just to follow up on that, you talked about normal seasonality by normal seasonality because your business has changed a little bit. COVID. So as we think about the next three quarters, for example, how do we think about the cadence for the year from maybe sales and EBIT to operations? Let me jump in, and then you can backstop it a little bit.

Austin Singleton: I think, you know, Joe, one of the things that we wanted to go back and look at 17, 18, 19 as individual years and seasonality by month and quarter and then also took an average of those three and kind of applied that to where we are today for the first quarter. And it's, you know, it was a really good exercise and it gave us a lot of confidence about where we sit today. You know, there's a lot of things out there in front of us that we can't control on the macro level that could change some things, but when you look at just what it used to be and then what we're seeing as far as the transition to bigger boats in the winter months because those have a longer build time, you know, just the way customers find patterns and, you know, not the urgency in September, October, November to order smaller boats; And I mean, we had great years at those times.

Austin Singleton: Now, I do agree that we shifted the, you know, EBITDA contribution to some of these higher margin businesses. So, that changes it a little bit, but if you just kind of really look at the seasonality of new boat sales, which is still the predominant driver of our EBITDA, and you go back and you look at it pre-COVID, take all the COVID noise out of that, it's a pretty compelling story where we sit today and I think that's something that's got us, you know, optimistic, you know, feeling pretty good, boat shows have helped a little bit, but then, you know, we got to really be careful and watch really tight, you know, inventory and all this stuff as we move forward because there's some things out there that could stump us that we can't control.

Austin Singleton: So, going back to what we kind of say all the time, we're controlling the things we can control, and we're watching it really closely, and if this shifts, we're going to make big adjustments. But, you know, right now, if you look at what the seasonality was pre-COVID and take all that COVID noise out of it, it kind of feels like we're back to this new normal of something very similar to what we saw pre-COVID. Jack, I probably rambled too much. You pretty much stole all my thunder.

Jeff: I think the only thing I would add when you work through the math of it is, I think as I look out at the consensus guidance, right, I think we got the front half of the year just a little too heavy and the back half of the year a little light. And when you think about that, right, and you go kind of over the last several years with COVID, right, and the scarcity of inventory, the first half of the year, we accelerated so many; we shifted so many sales into that beginning part of the year. And, you know, we were selling pontoon boats and ski boats in the December quarter when that customer wasn't even really using the boat.

Jeff: You know, normally that was a spring and, you know, early summer boat buyer. And so now I think we're seeing those sales transition back, you know, and that's our expectation. But, you know, like Austin said, we're cautiously optimistic that if those sales don't come in the back half, you know, as we're going through the boat show season, lining up orders, you know, we'll adjust. But as of right now, we're cautiously optimistic. Great, thank you guys. The next question comes from Michael Swartz with Truist Securities; please go ahead. Help us grow the universe! Go ahead, Mr. Swartz; your line is open. Hey, sorry about that. I forgot there was a mute button.

Michael Arlington Swartz: Thank you. Just trying to understand, you know, with regard to the guidance. I would assume there's some, you know, sensitivity to the passive interest rate on consumer demand, your flooring expense, and S&I revenue. Can you help us understand what exactly are you embedding in your guidance that pertains to the path of interest rates over the next 12, 6 to 12 months? And Jack, I don't think we invented a whole lot of energy crates.

Jeff: I wouldn't say we embedded any material changes; I would say in our models, we get some yield curves from a couple different banks, including Truist, and we kind of synthesize those together, and we drop them in the model. We're not baking in some additional shift or curve or a significant reduction, but that's what you're getting at. I think as far as retail goes, we are baking in the pressure we've seen on the F&I line where we're just not able to make the spreads we've made in the past. So that's probably the biggest, I'll say it's more of a negative impact versus a positive. Should rates ease a little bit, maybe that gets better, but again, as you know, it's a highly profitable business, and it certainly can impact the model, but it's just a small piece. That's helpful.

Anthony Asquith: And maybe just expanding, Anthony, you had some commentary on the boat shows, and I think, you know, we kind of look at the boat shows and compare them to, you know, a year ago. And maybe if we can go back to, you know, pre-COVID, maybe back to the 2019 level, not so much concerned about, you know, what you're seeing demand-wise there, but just the level of promotional intensity, you know, maybe versus back then. And I'm sure the answer is a little different pertaining to, you know, model year 23 or model year 24.

Anthony Asquith: But is there any way you can just frame, you know, what discounting looks like this year versus, you know, maybe a normal year? I think it's back to the way the boat business was in 2018 and 2019, everybody being pretty competitive, and the manufacturers are being great partners in helping us move boats. As far as volumes are concerned, it's pretty impressive.

Anthony Asquith: We've had some shows that we've had some, unfortunately, pretty bad weather in the northern markets that were affected, but the boat shares that we had in the southern markets were up over the prior year and continue to do very well, you know, and it is with the help of great manufacturing partners, which we had that help in, you know, 2018, 2019, during COVID, we didn't have any help; we didn't need any help. But, you know, as things get more competitive and as the inventory rises, they are staying with us, if you will, helping us, ensuring that we have great shows, and they have this. Great, thank you. The next question comes from Fred Wightman with Wolf Research. Please go ahead. Hey guys, good morning.

Fred Wightman: You've talked for a few quarters now about working down your inventory to position One Water for what you were seeing on the horizon in terms of slowing retail and some dealers getting a little bit heavy. Do you just feel like your mix of current versus non-current compared to what you're seeing in the industry today really positions you to do that? And can you maybe just talk about your ability?

Austin Singleton: to capture, you know, maybe it's where that would show up. Is it more on the comp side? Is it more on the margin side? Like, where do you think that proactive approach that you've taken is going to be most visible?

Austin Singleton: Well, I mean, I think it'll show up everywhere. I mean, you know, I think one of the things that we're, What's happening now, comparing us to the weeks on hand, when you look at that, we don't really know the makeup of that 38 weeks on hand from an industry perspective. You know, that's information we get out of the weeks on hand out of Wells Fargo, but it's not diced up between 22s, 23s, 24s; we don't get, we can't get that kind of detail out of them. But when you look at 38 compared to where we are, that's a pretty good competitive advantage that we have. I think the one thing that probably would give us a little bit of concern, the further we get into the year, the more of that $23 inventory that we have left, the harder it is to sell.

Austin Singleton: So, like, if you have, you know, there are certain 23s that are like popcorn; you can sell just as many of them as you can get, but then you get into some other ones that aren't really the right votes. And I think that's a little bit of, you know, any concern that we've had in the last, you know, several weeks is that, as we keep moving forward, it's going to get harder and harder to sell that 23. You know, the hope is that, you know, that means we're going to be selling that many more 24s to offset whatever kind of margin we're going to have to take, you know, margin decline on those 23s. So, but I think it's going to show up in same-source sales; I think it shows up in gross margin, you know. It all depends on how quick we can work that down and then get into being able to sell 24s against 23s; then you don't have to be as competitive, especially on the new model. That makes sense. And is there any way that you can just give some context to the pricing or margin benefit for those 24s versus the non-current sub just to sort of help us think about what that blended margin opportunity could look like? Well, I mean, I would think Anthony is it's probably double, isn't it?

Anthony Asquith: You know, if you take our 24s and put them against the competitor's 23, we could probably get twice the margin they're getting. If they're getting a 6, we're getting a 12. If they're getting a 10, we're getting a 20. If they're getting a 12, we're getting a 24. You know, I would think it's close.

Anthony Asquith: And it's very mixed by model, I mean, whether it's a brand or, you know, whether the specific model is, you know, a recent renewal or it's a model that's a little bit more stale. So there's a, it's really hard to break down that number, right? Okay, thanks a lot guys. The next question comes from Noah Zeskin with KeyBank Capital Markets. Please go ahead.

Noah Zeskin: Hi guys, thanks for taking my question. You kind of touched on this a little bit, but in terms of.., you know, kind of the levers that you have available to you should retail potentially soften, I guess, first, like, internally, how are you thinking about those levers? And then, second, like, is there an expectation that OEM incentives could step up, or units not be moving, come spring and summer? Thanks.

Austin Singleton: Jack, on the levers, we've covered this a lot in several quarters. We have a lot of levers to kind of pull themselves on. You know, when you go back and you look at what we had pre-0809 as far as, you know, our biggest expense on the P&L is employees, most everything's tied to the bottom line or the performance of that department.

Austin Singleton: So, you know, if things slow down a little bit, that kind of writes its shift. You know, there's a lot of other levers that we have from, you know, just different cost-cutting methods that we can do, you know, just stuff that we kind of have in our playbook that it's been hard for us to really deploy some of those right now because, you know, revenues have kept up. And so, it's like, you know, you go out and you make a bunch of cuts, and then nothing slows down, or doesn't slow down dramatically, then you start performing badly from a service perspective to the customer, and that just doesn't work.

Austin Singleton: So, we're watching that really well, and we feel we have a lot of levers. But there are several levers that just automatically pull themselves based on the performance of the business. So, you know, we're confident in our ability. If things were to dramatically shift from a macro standpoint or something that's completely outside of our control, we have a pretty good game plan in place and are ready to deploy it if we're needed.

Austin Singleton: As far as, you know, manufacturer's incentives, I can't answer that for the manufacturers. I think that if things slow down, they're going to have to... I mean, because, again, you're looking at a dealer network that's out there. And I'm really talking about the single-off, one-off dealers that have interest on their floor plan that they've never seen before. It's a big number.

Austin Singleton: And if they got a lot of carried over inventory, those fulfillments eat up a lot of cash. I've heard, you know, once somebody reached out to me about a curtailment holiday, and they were like, what does that mean to you?, and I was like, well, I've never heard that, but a curtailment holiday is probably something that could be needed if it softens up, because that sucks cash out of the dealer's cash flow for operations, so when you look at it slowing down, I And, you know, if they have to, are we going to lose some? I think so.

Austin Singleton: You know, when you look at the increased floor plan, you know, all the other just incremental increases, but then you look at the cash flow that curtailments are sucking out of there also, and they're not making any margin if they have too many 23s and they're not getting a blend of 23s and 24s, that could be very devastating to a one-off dealership. You know, one of the blessings that we have and one of the things that have been a fundamental, you know, competitive advantage that we have is that we can move inventory between a lot of different stores. So, you could have one market that's hot and one that's not, and we're moving product to the hot market. And so, you know, that'll help us as we go through this, but I would suspect, you know, but I can't speak for them, but if they slow down dramatically, the manufacturers are going to have to step up, or they're going to lose a lot of their dealers.

Austin Singleton: Very helpful, thank you. This concludes our question and answer session. Thank you for attending today's presentation. You may now disconnect, and more. Directed by, BF-WATCH TV 2021, Music