Good day and thank you for standing by. Welcome to the OneWater Marine Fiscal First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session.

[Operators instructions] I will now hand the conference over to your speaker today, Jack Ezzelle, Chief Financial Officer. Please go ahead..

Good morning and welcome to OneWater Marine’s fiscal first quarter 2022 earnings conference call. I am joined on the call today by Austin Singleton, Chief Executive Officer, and Anthony Aisquith, 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 OneWater Marine and its operations may be considered forward-looking statements under securities law and involve a number of risks and uncertainties.

As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements.

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

The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. And with that, I'd like to turn the call over to Austin Singleton, who will begin with a few opening remarks.

Austin?.

Thanks, Jack, and thank you, everyone, for joining today's call. Across the board, we delivered exceptional results for the first quarter of 2022, highlighting the strength of our team and our ability to outperform the market.

Revenue for the first quarter increased 57% to $336 million, and even in the face of an ongoing industry-wide supply chain constraints, we increased same-store sales by 28% on top of an incredible 38% comp in the prior year.

These same-store sales gains are significantly above reports on the industry growth, which suggests we are achieving market share gains. As a part of our incredible increase in same-store sales, we also saw a significant increase in our higher-margin service parts and other revenue.

And in the end, we delivered adjusted EBITDA of $41 million, an increase of a 146%. As we come up on tough same-store sales comps over the next quarter, we should see the strength of these stable revenue stream shine through.

While we expect lower inventories to persist over the next few quarters, we're extremely confident in the prospects for the business. We continue to see robust demand, and pre -sold inventory remains elevated through yet another quarter. We also saw our service parts and other sales up 111% in the quarter, significantly outpacing growth of boat sales.

This increase was driven by our recent acquisitions of PartsVU and T-H Marine that led to further diversification of our revenue. We expect service parts and other revenue growth to continue to outpace boat sales as we integrate these acquisitions. And these higher margin revenue streams will also support our overall gross profit margin in the future.

We were extremely active with M&A to start the year closing three new dealership transactions and adding a significant piece to our parts and service business. The dealer transactions are OneWater's bread-and-butter, expanding our geographical reach for new and pre -owned boat sales, finance, and insurance income, and service parts and other sales.

These transactions will leverage OneWater's expertise and platform to push newly integrated dealers to even greater heights. Earlier this week, we announced the closing of a tuck-in acquisition in the parts and service space.

JIF Marine provides complimentary products and establishes us as a market leader in stainless steel ladders and docking products. We're very excited about the synergies and opportunities to expand this less cyclical part of our business.

We also believe there is a significant opportunity for us to grow in the future through additional parts and service tuck-in acquisitions. Accordingly, as part of our corporate acquisition and diversification strategy, we're establishing a target to complete two to four parts and service acquisitions per year.

This is an addition to our target of completing four to six dealership acquisitions per year. Looking ahead, our acquisition pipeline for 2022 is robust and will continue to be a core component of our overall strategy.

While the opportunities are plentiful, we're committed to our disciplined approach, selecting targets that meaningfully drive growth, diversification and are in line with our goals. We believe our acquisition strategy significantly adds to the earning potential of the company.

In summary, our first quarter results drove expansion of both the top and bottom line. We look forward to continuing to capture the momentum of the unrelenting customer demand and feel confident about our position to manage through the supply chain constraints.

Our M&A activities will continue to fuel growth as we integrate market-leading dealers and expand higher-margin revenue streams, supporting expansion of the business and enhancing the overall quality of our earnings. We believe these efforts will further extend our market share and generate meaningful value to our shareholders.

With that, I will turn it over to Anthony to discuss business operations..

Thanks, Austin. The strong levels of demand from fiscal year 2021 carry into the first quarter, when demand typically slows during the winter months. Our customers are happy and they are out shopping, putting money down for their next boat with no signs of demand slowing.

Presold inventory remains elevated and customer deposits more than doubled in the quarter compared to prior year. Highlighting the continued strong customer demand. Seasonal sales were stronger than anticipated in the cooler climates as presold units delivered. And in the South, the sales of big boats were particularly strong in the first quarter.

We continue to see strength across the board in ski wakes, pontoons, saltwater fish, runabouts, and yachts with all categories and all geographies performing well. The team continues to do a great job of effectively using our superior inventory management tools to sell inventory from any location across our portfolio.

This asset-light model reduces our flooring costs and consequently supports a higher margin profile, marked by a 550 basis point improvement in gross margin this quarter compared to prior year period. Improving our inventory levels continues to be of focus as we prepare for the summer selling season.

We experienced an increase in inventory during the quarter, which is partially attributed to our numerous acquisitions coming online. The supply chain continues to pose challenges for OEMs. However, our exclusive technology and strong vendor relationships allows us to navigate the environment in an extraordinary manner.

We're leveraging these resources and our expertise to put us in the position to continue to outperform the industry, and we feel good about where we stand. At some point, the supply chain environment will normalize and the overall industry will begin to build back inventory to new level of normal. It is still unclear exactly when this will happen.

However, we have the team and the tools to make sure we can operate successfully in this environment. I am also proud of the success we have had in our service parts and other lines of businesses.

Our dedicated team takes great pride in meeting our customers parts and service needs, so they can get back on the water, enjoying their boat, and making memories that will keep them boating for years to come. We will continue to service their existing boat and stand ready to help them find their next boat of their dreams when the time comes.

Moving onto our marketing activities, we continued our balanced strategy between boat shows and local dealer-sponsored events. While some shows were canceled due to COVID-19, we participated in other shows throughout the quarter and saw the same level of activity that we're seeing at our local personalized events.

Customers are out, they're happy, they're excited about the product innovation, and they're buying boats. And with that, I will turn the call over to Jack to go over the financial in more detail..

Thanks, Anthony. Fiscal first quarter of 2022 revenue increased 57% to $336 million from $214.1 million in the prior-year quarter, which was fueled by a 28% same-store sales increase. New boat sales grew 56% to $236 million in the fiscal first quarter of 2022, and pre -owned boat sales increased 39% to $53.4 million.

We continue to realize the benefits of our diversification strategy in growing the higher margin parts of our business, which contributed meaningful to our results in the quarter.

Finance in insurance revenue increased 56% to $9.3 million in the first quarter of 2022 and service parts and other sales increased 111% to 37.3 million, driven by our same-store sales growth and businesses recently acquired.

Gross profit increased 93% to $101 million in the first quarter, compared to $52.4 million in the prior year, primarily driven by the increase in gross margins of new and pre -owned boat sales and an increase in the higher-margin, service parts, and other sales.

Gross profit margin increased 550 basis points to 30% compared to 24.5% in the prior year. First quarter of 2022 selling general and administrative expenses increased to $59.1 million from $34.9 million. SG&A as a percentage of sales increased to 18% from 16% in the prior year.

The increase in SG&A as a percentage of sales, was mainly due to higher variable personnel costs driven by the increased level of profitability compared to the prior year quarter. Operating income climbed 95% to $31.3 million compared to $16 million in the prior year, driven by the increase gross profit and partially offset by higher SG&A expenses.

And as a result, adjusted EBITDA increased to $41 million compared to $16.7 million in the prior year. Net income for the fiscal first quarter totaled $23.5 million or a $1.45 per diluted share, up 99% from $11.8 million or $0.71 per diluted share in the prior year.

For both periods, charges related to transaction costs and contingent consideration adversely impacted diluted earnings per share. These amounts tax effected at 25% were $0.41 per share in the first quarter of 2022, and $0.03 per share in the first quarter of 2021.

Looking ahead for the full-year fiscal 2022, we are raising our outlook for adjusted EBITDA to be in the range of $210 million to $220 million and earnings per diluted share to be in the range of $8 to $8.40 per share. We maintain our anticipation for same-store sales to be up high single-digits, despite the ongoing inventory challenges.

These projections include the acquisition completed during the first quarter and the recently announced JIF Marine transaction, but exclude any additional acquisitions that may be completed during the year.

With regard to our capital allocation, we remain focused on accelerating organic growth, executing on strategic M&A opportunities and leveraging synergies.

By executing these strategies on a longer-term basis, we believe we can increase our adjusted EBITDA run rate by 15% to 25% per year with our M&A strategy contributing 10% to 15%, an existing operations contributing 5% to 10% aligned with their long-term same-store sales expectations.

For this year, we believe we will exceed these amounts with the low-end of our guidance range, yielding adjusted EBITDA growth in excess of 30% before any additional acquisitions, we may complete this year. Following through on the math, this basically gets you to a 50% increase in adjusted EBITDA by 2024 and our run rate in excess of 300 million.

Needless to say, we are working hard for shareholders to execute on completing additional acquisitions, implement our proven strategies across newly acquired dealerships, and enhancing our earnings by growing our higher-margin businesses. This concludes our prepared remarks. Operator, will you please open the line for questions..

[Operator Instructions] Our first question come from the line of Drew Crum from Stifel. Your line is open..

Okay. Thanks. Hey guys. Good morning. The 28% in store sales figures, I think was better than anyone expected. Understanding the fiscal 1Q is seasonally less important. Any thoughts around what the shape of the year should look like per same-store sales.

And then separately, Austin, you talked about targeting two to four parts and services businesses on an annual basis going forward. How do the economics and purchase price multiples of these deals compare to your dealership transactions? Thanks..

Jack, do you want to jump in on the same-store sales in that --.

Go ahead..

Go ahead. I was just going to say a little bit of that. This quarter is our lightest quarter.

I do think we had some deals that should have probably been captured in the last year that just got pushed into this quarter, and I've spoken about this on the last couple of calls that really the last seven to 10 days of each quarter are probably the most important for us because it can shift a quarter.

And that's why we've been kind of not really same-store sales on a quarterly basis, it's going to be very choppy for us. The year-end having that high-single-digit projection or guidance is very doable, and we're comfortable with that.

And this quarter just happened to probably have some deals push out and then the boats came in early because everybody took some Christmas time, so we didn't have as much dependence on the last seven to 10 days between Christmas and New Year was not as -- we weren't as dependent on that as we would be like the last 10 days of March.

That'll be extremely busy, so it can sway a little bit. So same-store sales, we had a great quarter, we knew we were getting the boats. Like what we've got coming into this quarter, we know when the boats are supposed to come in.

And so as long as there's no more disruptions or slowdowns, we're pretty confident in where we sit and know what it's going to look like for the next several quarters. But then again, the last 10 days are what matter.

Jack, do you want to add anything to that before I talk about the port stuff?.

Yes. I just think it's important to understand last year Q2, we had a 58% and 57% comp that will be a tough number to overcome. But then Q3 and Q4, we're up against a negative comp. So I think the comps certainly get a little bit easier, although those are our largest quarters.

Because I think it’s like -- it's going to be a little bit challenging to get the forecast perfect for the year. I will say that even though Q2 is a big comp we're going up against, we're not expecting a major reduction, right? We're not we're not expecting a 30% reduction in same-store sales.

I also wouldn't expect a 30% increase in same-store sales, right? So I think it's -- I think we'll be able to be in and around the number from last year and then just like Austin said, it's going to depend on how those flow at the end of the quarter..

And then Drew just to answer on the parts side of it, when we did the T-H Greenfield part of one of the things that was intriguing to is, when we we're looking at is that, was his pipeline and the opportunities that he had. So his pipeline is probably as good as or maybe even better than mine because it's not a slew and he already knows everybody.

So as we started to get ramped up and get them folded the end and once the guidance integrated, we set down with Jeff and David T-H and they're like, here are all the opportunities, and we were like, let's get going and let's start addressing those. So pipeline is pretty robust. Economics are a little bit different than ours.

He's probably closer to a four to seven times on a trailing 12. And the synergies -- the business is a little bit more I would say stable because it's a less cyclical, so stable is probably not the right word. It's just less cyclical, so there's not as much peaks and valleys as you look back over the years.

So the multiple is probably going to average into the, I would say between five and six on the acquisitions And they're a little bit smaller and then the synergies aren't quite as big, I mean, we're not buying anything on the parts side. This is going to double in 24 months. It's going to be a little bit more.

We're going to pick up some synergies on margin, some SG&A stuff and stuff like that. So the increase or the upside we're going to have to build into additional revenues.

And so when we start looking at these, what we're trying to do is take the ones that really fold in the complement and have the ability to use the PartsVU side of it to either expand revenues or either as we bring them in the T-H side, they expand margin. I think that's should have answered your questions..

Yes. Thanks, guys. Appreciate it..

Our next question will come from the line of Craig Kennison from Baird. Your line is open..

Good morning. Thanks for taking my questions. I think you mentioned that deposits were up. I'm wondering if you could just characterize how you're handling the demand that you can't currently satisfy because you lack inventory..

I'll let Anthony jump in on this. But let me just say, I don't think we're missing deals. The consumer has been conditioned over the last year-and-a-half to understand they're pretty much having to wait on everything. So what I think we are seeing and why those deposits are double where they were is I think people were preparing a lot more in advance.

The people that are -- we're planning on doing something for spring or summer, they jumped out this fall knowing that they were going to have to wait to get what they wanted. But I'll let Anthony probably, it will be better if he talked about that..

Craig, the customers are a little more specific on what they want and there's so many new models that are coming out that manufacturers are dealing with, so the consumer is willing to wait for what they want and they're paying for it and we're not having any issues with it. So I don't feel as though we're missing anything.

They're they're just getting exactly what they want..

It's really good environment really to be a dealer and you're able to price for the kind of features that consumers want. You're large dealer.

Are you having any conversations with your OEM partners to figure out how you might be able to preserve some of this, I guess, scarcity dynamic where the customer comes in and expect to pay full price and they just want to choose the features they want?.

Daily we have those conversations with our OEMs.

It's something that I think that my views are that the old model of having two turns a year like most dealers do, we were always much higher, but ordering the right boats and using the technology that we have to make sure that the boats that we have in stock are what everybody wants, instead of -- I've used this example in the past.

If a manufacturer builds 14 different models, you don't put all 14 different models in a market if it takes a year to sell two of those models.

So ordering better real-time inventory sharing inventory between and just using the data that we collect to make sure that we have the right boats is the right places at the right time and that's where we are getting better and better. So I don't really ever see us going back to having an overabundance of boats on our yard if we order correctly..

Craig, on top of that, I think the manufacturers that have also seen this.

When we had 2008, 2009, there wasn't an opportunity for the manufacturers to understand how a flatten production schedule where there's not peaks and valleys in their production schedule makes them much more efficient, makes the dealers healthier, it creates turns, it creates margin.

And so I think most of the manufacturers, especially in the short-term, it's going to still take us a couple of years to catch up in inventory. And then probably a couple of years after that, there will be a discipline where manufacture is not going to say they're not going to -- they're going to create scarcity by not producing boats.

I just don't think they're going to ramp up to overproduce and start flooding the inventory field. Because one, I don't think the dealers want it, I don't think the floor plan company wants it. And now I don't think the manufacturers want it. I don't think they want these old peaks and valleys of inefficiency and production.

I think they've realized that. So I think that because of where we are from an inventory perspective, some of the things that everybody's able to see now that we weren't able to see in, '08, '09, and '10, because we were clean out the inventory channel. Has brought light to everybody and I think everybody's getting on the same page.

And I think that's just going to give us more years ahead of us, where not only are we going to have to work through the supply chain and get inventories back to a new normal, but I think there will be a discipline for a period of time after that. Now eventually greed sets there and people start stuff in the channel.

But I honestly think that that's five to six years out. And so we do have conversations along with them about how some of the tools that we have, we don't need to haul them as OneWater tools. Some of the -- this inventory tool will make the whole entire industry healthier and it will help our manufactures even out that production line.

And so there's some opportunities there that we're looking at on how we can take the tools that we have and push those out to other people for their use to help them manage filled inventory..

And then just to follow up. What's the customer experience like? How do you have to, I guess manage the information flow so as a customer, if I put money down and I have some uncertain future about when I might get my vote.

Are you doing things to keep customers apprised of progress along the way so that customer feels engaged and pleased with the experience, even though it's hard to know what delivered?.

Craig, the CRM, we're in constant communication with the consumer and it's the way we train our employees to continue to have those touches even though about maybe a year away or nine months away. We're continually touching the customer..

Just real quick. We don't have customers coming in. Like if you came in today, and it doesn't matter what boat you ordered, you said I want this boat. We're not saying, okay, well that boat is going to be 300 grand -- give us a $30,000 deposit and we'll let you know. I mean, we're able to -- through our tools, and working with the manufacturers.

If you come in and just pick any boat. You could take an R5 Cobalt, a Barletta, a Sunseeker, it doesn't matter. We’re going to give you an estimated delivery date and it's going to be within 10 days before or after that date, boats going to be delivered. It's not a big unknown like we don't have a clue.

I mean, we have a really good idea over the next because of the production subplots slots that we have when that boat should deliver. Now, there's all kinds of things that shift that delivery date. Like I said, 10 days earlier, 10 days later, but it's not this, well, we'll get it to you when we can.

So we're able to set the expectation and then like Anthony said, the CRM tool is very powerful for our sales associates to really do things through email text. They do phone calls. I mean, it's to keep those touches going just to stay in front of them.

That's why wanted the things everybody talked about was old people aren't going to wait, they're going to want their deposits back. We feel that our staff is extremely sticky because this is an emotional purchase.

And once they make the purchase and they put the money down, I mean, the fallout that we have on deposited boats is not somebody changing their mind. It's a life changing circumstance. They get relocated.

There's a bit or something like that's about the half a dozen or dozen yearly back outs that we have is off something like that once we get a deposit..

Great. Okay. Thank you..

Our next question will come from the line of Joe Altobello from Raymond James. You may begin..

Thanks, guys. Good morning. I guess, first question maybe for Jack clarification on the guidance. So you raised the EBITDA guide by $40 million to $45 million. By our math, the acquisition is better net included, which is I guess T-H, known for quality, and JF. I think those represent about $30 million to $35 million of that EBITDA.

So was my math right, and the base business went up by about $10 million or so for this year?.

I think you got to look at the acquisitions, be careful when you're looking at the acquisitions, right? Because on a full-year basis, they're going to contribute probably closer to $40 million. So you got to make sure you're adjusting it down for the partial period.

One thing that wasn't mentioned earlier, we're talking about JIF is that's a smaller business. It's about $5 million in annual revenues and about a little under $1 million of EBITDA.

So it wasn't a real big deal, but you got to scale it in that way, and you're thinking about it right, as long as you're backing down a portion of the costs -- a portion of the projected EBITDA for those acquisitions on a pro rata basis for the year..

Okay. That's helpful. And then secondly, in terms of the brands million dollar-plus run rate that you guys talked about this morning for fiscal 24. I guess first, what's the similar run rate? I guess I can figure it out, right? If you're adding $40 million to the 10 to 20 that you've run rate for this year.

But what are the assumptions around future acquisitions? Are you assuming call it a couple of parts and service acquisitions and maybe four or five dealer acquisitions?.

Yeah. Real quick. One thing I want to point out Joe, that run rate is based off historical numbers. That's historical numbers, that's no synergies. I think another thing that's important to do is as we were ultraconservative when we were planning out that run rate. Jack, you can talk to them about what we put in as base case for acquisitions.

And then we have a historical record of doubling acquisitions on the dealership side inside 24 months. And we by no means put any of that in..

Yes. Again, if you look at a modest growth on the base business, if you think about it right now, we're looking at a total cadence of about eight acquisitions a year as kind of the -- three on the parts side, five on the dealerships pride, right, just kind of taking that midpoint. That's probably going to generate $25 million worth of EBITDA.

And it's very powerful -- it's very powerful how it adds to the growth of the company. And then, like Austin said, we do have a good history of improving those dealership acquisitions by implementing our tools. And I think there's probably even upside -- decent amount of upside from that $300 million..

Okay. That's helpful. And then maybe if I could squeeze in one more. In terms of the price environment, obviously, the comp plus 28 very strong, mostly pricing driven. It's just going to -- let me talk a bit of -- a bit of a silly question.

But is there any chance we start to see discounting at all in 2022 or given where inventories are that's really not [Indiscernible]..

Yes. I don't see discounting on especially not till the end of the season now, do you get to the end of the season and have some pockets in the country that have had some weather issues -- I mean, we've seen this in the past where you have a really wet Midwest start to the season.

In some cases have seen it where a lot of people couldn't boat till the end of June in the Midwest just because they are lakes were flooded.

So if you get some sort of dynamic like that, and then you come out towards the end of this year, you might see some discounting from some of the smaller dealers that just don't want to have any carryover inventory. But from an inventory perspective, if you look at the country as a whole, it's going to take us a while to get back to this new normal.

So I don't expect to see any massive discounting and where you do see discounting, or really be on the low-end, super value side, not on the high-end premium side we mainly -- where we operate. I don't see that coming anytime soon, like no time soon..

It could be isolated. If we do see it later this year..

And then one other thing I'd like to point out and Jack, tell me if I'm wrong. But Joe, you said the 28% comp. A lot of that was driven not just by new boat sales or pricing the new boats. A lot of that was driven on those ancillary businesses. Our parts and service was a huge contributor to that..

That's a good point. Thank you guys..

Thanks Joe..

Our next question from the line of Fred Wightman from Wolfe Research. You may begin..

Hey guys, good morning.

Do you have the organic inventory number? Just sort of try to parse out what is the impact of the acquisitions on that inventory number on the balance sheet?.

I don't have it in front of me, but it's flat to up slightly. It's not a -- majority of it is driven by acquisitions..

Okay.

And when you say flat to up, that's on a year-over-year basis, right?.

Year-over-year basis, yes. Sequentially, it's up a lot more just because of the seasonality of the business in the year. It tends to build inventory through the winter. But yeah, on a year-over-year basis..

Sure. Okay. That makes sense. And could you just give a little bit more detail on the margin performance across the new and the used segments that you saw in the quarter.

It's still up big on a year-over-year basis, but that growth rate looks like it might have ticked down a bit versus last quarter, so are we at a steady-state margins here for those two categories going forward? Do you think it could fluctuate a bit given seasonality? How should we think about that?.

I think what you also have going on here is -- for most brands you tend to have bigger boats sold in the winter months that we're in now. And so that, typically, the December quarter tends to be a lower margin quarter. And so I think that's a little bit at what's play here. We certainly see our larger boat business performed very well in this quarter..

Makes sense.

And then just within that high single-digit comp number that you guys are still guiding to, has the unit assumption changed? Are you planning for -- I mean, said differently, do you think that the deliveries from OEMs is going to be better or worse versus when you put that out there last quarter?.

Yes. I think it's still a little early to tell. I mean, we're optimistic about the supply chain, but we are expecting some unique growth. But it is a balance there between pricing and growth..

Perfect. Thanks, guys..

Once again, [Operator Instructions] Our next question comes from the line of Mike Swartz from Truist Securities. You may begin..

Hey, good morning, guys. Maybe a question for Jack just around the cadence of acquisitions on the part side, unveiling that target number for acquisitions annually.

I guess how should we think about that relative to return on invested capital or just working capital in intensive businesses, much more working capital intensive than dealerships?.

Yes, they are. I mean, typically, the various businesses have funded working capital through either cash or some sort of revolver. As of right now, they don't have the floor plan facility like the boat dealerships do. There certainly will be a little more additional working capital, right? But a lot of them as well, aren't massive businesses.

Quite so often we can integrate them into our existing operations, and absorb some of that working capital need, reduce some of their fixed costs to improve and cover that cost..

Just similar lines in the service parts and other SEC reporting segment.

Now that you've made a couple acquisitions there, I guess how should we think about the margin shaking out in a steady-state environment, understanding parts tend to be diluted relative to service, so is there a way to think about that?.

Yeah. I mean, you saw at this quarter where we saw our margin for service parts and other, so it comes down a little bit. I think on a more steady-state, depending on the cadence of the acquisitions, that margin will price fall closer to a -- closer to a 40% number.

But which will still contribute positively to our overall margins as and that is higher than boat sales, but you're a 100% correct. Parts tend to be in and around 30, 32, 33%, your service labor tends to be closer to 60 so we'll will kind of -- will blend down kind of in the middle there in that 40 range..

Okay. Great. That's helpful. That's all for me. Thank you..

Thanks, Mike..

Thank you. And that will conclude our Q&A for today. I have no further questions in the queue. And this will conclude today's conference, as well. Thank you for your participation. You may now disconnect. Everyone, have a great day..