OneWater Marine Inc. (ONEW) Q1 2021 Earnings Call Transcript

OneWater Marine Inc. (ONEW 0.04%)
Q1 2021 Earnings Call
Feb 04, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the OneWater Marine Inc. fiscal first-quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. [Operator instructions] I would now like to hand the conference over to your host today, Jack Ezzell, chief financial officer.

Please go ahead.

Jack Ezzell -- Chief Financial Officer

Good morning and welcome to the OneWater Marine fiscal first-quarter 2021 earnings conference call. I'm 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 would cause actual results 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 on 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?

Austin Singleton -- Chief Executive Officer

Thanks, Jack, and thank you, everyone, for joining today's call. We delivered tremendous results in the first quarter of 2021 including a 39% increase in revenue compared to the prior year. Expanding gross margins and significantly increased earnings. Same-store sales increased 38% in the quarter, on top of a 17% increase in the prior year, and a 25% increase last quarter.

Leveraging our efficient sales process, innovated -- innovative digital platform, and key relationships with our manufacturers really -- we realized growth across all set -- market segments. Year-over-year new boat sales increased 48% while preowned boat sales grew 18%. Our high margin finance and insurance income also saw strong growth of 38%, and service parks and other revenue rose 32% compared to the prior year. Overall gross margins surged 360 basis points with margin increases -- increases across all categories.

The tremendous growth during the quarter can be attributed to our ongoing investment in our highly effective digital platform, CRM, and innovative sales process. Additionally, the combination of our inventory management systems and dynamic pricing strategy continues to lay the foundation for future outperformance. On the M&A front, we had a very busy start to the fiscal year, completing three of the largest acquisitions in OneWater's history and putting more than $80 million to work for our shareholders. As we have successfully done many times in the past, we are laser-focused on implementing our tried and tested integration playbook.

This translates into increasing sales and EBITDA. Let me briefly recap these new dealerships. First, Tom George Yacht Group enhances our presence on the west coast of Florida and expands new and preowned boat sales as well as yacht brokerage and service and parts. Walker Marine Group marks the largest dealership acquisition in our company's history, adding five retail locations in southwest Florida to serve its established and growing customer base with new and preowned boat sales, quality service and parts, as well as finance and insurance services.

And lastly but certainly not least, Roscioli Yachting Center expanded the company's presence in the yachting category supporting our diversification strategy including higher-margin service and repair offerings. We have completed three acquisitions in line with our expectations of doing two to four deals per year. Since the pandemic hit the U.S. last March, we have kept our emanate pipeline full and remain opportunistic.

We were fortunate to be able to front-load these acquisitions which we expect to have a significant impact on our fiscal 2021 results and long into the future. As we continue to execute on our long-term growth strategy, we are confident that through the integration of our recent M&A activity, continued investment in our innovative digital technology, and the evolution of our higher-margin business segments we will further drive market share growth and sustain a meaning -- meaningful value for our shareholders. With that, I'll turn it over to Anthony to discuss business operations.

Anthony Aisquith -- President and Chief Operating Officer

Thanks, Austin. The agility of our sales and marketing teams drove higher than normal sales for the first quarter. Our team hosted several smaller VIP events at our stores where customers were able to have a more intimate interaction with the product and sales team in the absence of organized boat shows. At these events, we showcase the incredible new and exciting models introduced by several of our key manufacturer partners.

The new models launch in multiple categories including saltwater fishing, skiing weight boats, runabout, and pontoon boats. All of these new models have innovative design and capabilities and they were all well-received by our customers. We also use the assets of boat shows to our advantage by focusing on selling boats locally instead of preparing for and attending multiple shows across the country. This resulted in significantly higher sales in what is seasonally the lowest quarter of our fiscal year.

We continue to lean on our strong relationships with manufacturing partners and our nationwide inventory to ensure we have the boats that our customers want. We do expect inventory to build slowly through 2021 with the expectation that it should start to normalize in early 2022. Our inventory management system and operational dashboards continue to give us great visibility into the business and inventory, including boats on order or in production. With inventory tight across the industry, OneWater has a significant competitive advantage as our digital tools provide our sales team with the intelligence on exactly what inventory is available or coming available and where the inventory is located.

This allows us to engage with our customers and presell boats that are inbound to any of our locations. Additionally, the lower inventory levels and higher turns result in a reduction of floor plan interest, inventory maintenance, and general carrying costs. While sales in January remained elevated, we continue to lever our state-of-the-art digital platform to provide intelligence on how the changing dynamics are impacting the seasonality of boat sales. We will use this intelligence to help drive strategy moving forward while continuously improving and outperforming for the benefit of all our shareholders.

I will now turn the call over to Jack who will talk about the financials in more detail.

Jack Ezzell -- Chief Financial Officer

Thanks, Anthony. We delivered exceptional results in the first quarter with total revenue increasing 39% to $214.1 million in 2021 from $153.7 million in 2020. This generated an increase in same-store sales of 38% which was primarily driven by an increase in new unit sales as well as a modest increase in the average unit price of new and preowned boat sold. We continue to see increased demand even during the offseason from previous boaters returning to the water.

New boat sales grew 48% to $151.8 million in the fiscal first quarter of 2021, and preowned boat sales increased 17% to 38.6%. We remain focused on growing all aspects of the business to further outperform the industry and sees additional market share as we move further into the year. Finance and insurance revenue increased 38% to $6 million in the first quarter of 2021, and revenue from service parts and other sales increased 32% to $17.7 million compared to the prior year. Gross profit increased 63% to $52.4 million in the first quarter, compared to $32.2 million in the prior year, driven by the increase in margin on new and preowned sales, shift in the model mix in the size of boat sold in the higher average unit price.

Additionally, higher finance and insurance, service parks, and other sales contributed meaningfully to the increased gross profit. Gross profit as a percentage of sales increases 360 basis points to 24.5% compared to 20.9% in the prior year. With the increase in sales in the first quarter of 2021, selling general administrative expenses increased to $34.9 million from $28.3 million. However, SG&A as a percentage of sales declined 210 basis points to 16.3% from 18.4% in the prior year.

The decline in SG&A as a percentage of sales was driven by our ability to leverage our existing expense structure to support the increase in revenue and reduction in se -- selling expenses including boat shows, partially offset by event-based -- based marketing and increased public company expenses. Operating income surged to $16.1 million from $2.7 million in the prior year, driven by the higher sales, expanding gross profit, and SG&A as previously mentioned. And as a result, adjusted EBITDA rose to $16.7 million, compared to $1.2 million in the prior year. Net income totaled $11.8 million, or $0.71, per diluted share in the first fiscal quarter of 2021, compared to a net loss of $1.1 million in the prior year.

The increase is primarily due to the operating performance of the company. Turning to the acquisitions we completed during the quarter. The combined $83.9 million purchase price included the real estate associated with Roscioli Yachting Center and was funded by $47.6 million of cash, $30 million from the company's revolving line of credit, $2.1 million in seller note payable, and $4.2 million in estimated contingent consideration. Subsequent to quarter-end, the company expanded its term loan credit facility by $30 million and used the proceeds to pay off the revolving line of credit that was utilized to fund these recent acquisitions.

This expansion provides the company with $30 million of future liquidity in addition to $26 million of cash on the balance sheet as of December 31, 2020, an additional availability under the company's floor plan facility. Total inventory on December 31, 2020, was $193 million, compared to $313.8 million on December 31, 2019. This substantial decrease was primarily due to the sales increase we achieved last year combined with the manufacturing delays as a result of the COVID-19 pandemic. As a result of improving manufacturing environment and seasonality, inventory was up $46 million, or 30%, sequentially from the quarter ended September 30 of 2020.

We continue to prioritize normalizing the supply chain by utilizing our key relationships with manufacturers and leveraging our competitive advantage stemming from our industry-leading inventory management technology. As often mentioned, our emanate pipeline remains robust even after completing three acquisitions in December. We are excited to be back on our regular pre-IPO cadence of transactions and our focused on integrating these phenomenal businesses into the OneWater family. Looking ahead for the full fiscal year 2021, we continue to expect same-store sales to be up approximately mid-single-digits.

The three acquisitions that closed in the first quarter of 2021 will contribute significantly to the full-year results and we now anticipate adjusted EBITDA to be in the range of $95 million to $100 million, and diluted earnings per share to be in the range of $4 to $4.20 excluding any additional acquisitions that might be completed during the year. This concludes our prepared remarks. Operator, please open the line for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Craig Kennison with Baird. Your line is now open.

Craig Kennison -- Baird -- Analyst

Hey, good morning. Thanks for taking my questions. Jack, you just mentioned your -- your guidance in the first quarter same-store sales was up 38%. You're going to face some really challenging comps in the second half.

I'm just wondering if you see any quarters where you might have like a negative same-store sales rate in order still to get to that mid-single-digit rate of growth for the full year? I mean, you're starting off on such a high note. I'm wondering how you feel the rest of the year will unfold?

Jack Ezzell -- Chief Financial Officer

Yeah. I mean, we're -- it's -- we've -- we've spoken many times about the June quarter and the 44% comp that we have to go on top of. I -- I wouldn't say I'm forecasting to be negative in the June quarter but that's probably more a flat quarter compared to, you know, being up significantly this quarter. And -- and just also, right, you got to remember this quarter is the smallest quarter of the year.

I suspect next quarter if -- if business continues, we should have nice comps, right? We're up against a negative 2% comp last year. And so you know, the comp in the March quarter is certainly easier for us to comp. But I think when you roll out the numbers and you -- if you have good comps in the first half and then, you know, some lower comps in the back half, I think you get to that mid -- mid-single-digits without, you know, any quarter going negative.

Craig Kennison -- Baird -- Analyst

Oh, that's helpful. Thank you. And then just as it relates to the acquisitions, can you confirm that all of the acquisitions were paid for in fiscal Q1, or was there any cash outlay in Q2?

Jack Ezzell -- Chief Financial Officer

Yeah, no. It was -- it was all in -- all in Q1. It was December, you know, the Tom George closed on the first of December and then Roscioli and Walker Marine both closed on December 31st. And so, all the cash was out as of December 31st.

Craig Kennison -- Baird -- Analyst

Got it. And then, Austin, you know, you're integrating three deals now. Could you just remind us all of -- of what you're integration process is? What do you like to achieve in the first -- let's say 100 days of in -- integration? And then, how stretched is your team today given you've got three integrations ongoing, you know, such that you probably need to wait until those are integrated before you move on to the next consolidation target?

Austin Singleton -- Chief Executive Officer

Well, I mean, you know, Tom Goerge Yacht was done on December 1. So you know, when we -- it was fully integrated on December 1 as far as, you know, the system and all that stuff. So you know, continuing on with Tom George, now it's just starting to get the processes of, you know, the CRM process. You know, after not, you know, start ramping up the synergies and the things that we can bring to the table.

So, that was in really good shape so we don't really have three ongoing right now. We really only have Walker because Roscioli is more of a boatyard service storage area, you know. So, it's -- it's on a different system right now. We will be bringing that over to a -- to -- to our -- our current platform.

But it's -- it's done a little bit differently so there's some tweaking we have to do to that and just because it's a different animal. So you know, we're not having any, you know, our team to stretch, they're always stretched because there are always improvements we can do not only with acquisitions but our -- our internal business that these people also work in when we're -- when they're not integrating. So you know, we're in a pretty good spot. I mean, Jack probably can expand on that a little bit more if you want some more, Craig.

But it's, you know, we're in good -- we're in a good spot.

Jack Ezzell -- Chief Financial Officer

Yeah. One thing I'd point out, Austin, is you know, we are in a seasonally slower time so some of our admin staff who tip in -- in service and part staff who often are heavily involved with integrating acquisitions, they -- they do have the time right now to assist with these transitions. I just would also point out that you know Tom's boat -- Tom George and Walkers, you know, they were on our ERP system of lightspeed and so the -- the transition for them is -- is a bit easier because it's -- we're not training them on how to use the system, we're just converting over their system. Roscioli is a little bit different, like -- like Austin mentioned.

But you know, fortunately, with them, they are more higher-dollar, lower-volume type transactions, right? People aren't necessarily coming in for a -- a $200r oil change, you know, at that facility. They're coming in for, you know, a $200,000-paying job. And so you know, building backup that -- that service process, you know, just doesn't have the volume maybe of a traditional dealership but the teams are actively working on it, and you know, we will have them all integrated on our -- our system here in -- in very short order.

Craig Kennison -- Baird -- Analyst

Great. I'll get back in the queue. Thanks.

Operator

Thank you. Our next question comes from the line of Joe Altobello with Raymond James. Your line is now open.

Joe Altobello -- Raymond James -- Analyst

Great. Hey guys, good morning. I just want to circle back on -- on the EBITDA guidance for a second. So, your prior guidance was up low to mid-single digits off of last year's $83 million.

Since then, you've done, as you mentioned, three acquisitions. So, could you break out for us the outlook for the base business, is it still low to mid-single's growth this year? And what's the incremental impact from those acquisitions?

Jack Ezzell -- Chief Financial Officer

Yeah. I -- I think as of this point, it's -- it's, you know, prior leaning more toward the higher side of that low to mid. You know, it's -- the December quarter is such a small quarter in the full year. And you know, we've -- we've done -- I think the team has done a great job of organizing events to -- to supplement, you know, the absolute -- absence of boat shows.

And so, I think, there's -- there's just a little more question as to the seasonality or is -- is the seasonality of the year going to be altered because of the lack of boat shows and -- and the events that we're having. And so, I think, we're -- we're keeping the base business because, you know, we do have such a big year to comp. You know, just -- just trying to be conservative and keep the bay -- base business with a reasonable amount of growth and not necessarily just rolling Q1 performance on top of prior projections.

Joe Altobello -- Raymond James -- Analyst

Got it. OK. That's helpful. And just -- you mentioned, your lack of boat shows this year and it was very o -- obviously very helpful in terms of the cadence for your comps but I'm curious how you think about, you know, the impact of boat shows or lack of thereof in terms of March versus June quarter.

Could there be sales that typically occur in the March quarter at boat shows that slip into June? And maybe, secondly, you guys spend a fair amount of money on those boat shows, where does that money go? Does it go toward digital marketing, does it drop to the bottom line, or mix of the two? Thanks.

Austin Singleton -- Chief Executive Officer

I -- I -- I will jump in a little bit right there. You know, Joe, thanks -- thanks for the question. You know, the boat shows -- I've said it many times, I'm not a big fan of them. There really is the second biggest expense on our P&L.

And when you go to a boat show, you kind of level the playing field for subpar dealers, that's -- that's their only shot this year. But we're still learning a little bit about how the effect of the boat shows is going to impact our total year. I mean, we had a great quarter. One -- one thing I'd point out is, you know, we spend a good part in a normal -- normal year.

We spend a good part of the last part of October, pretty much all in November, and the first two weeks of December preparing for boat shows. I mean, that's -- that's not just Anthony preparing, that is the whole entire team, its training, its pricing. You know, it's just a lot goes into it and then you come out of that, and then the first part of January, you hit the ground running and it's boat show after boat show, hotel late nights, you know, it's just very taxing on our team. And I think, this year, Anthony, you know, came up with this -- this plan to do this advance and market digitally.

And so, we spent this first quarter selling. And you know, instead of preparing for boat shows, we were selling deals. And I -- I think it's, you know, we need to understand the impact of that as --as we move forward into the year. I -- I, you know, I will tell you that January is off to a good start.

We're feeling really good about the year but we're -- we're like, Jack just said, we're in the lower part of the year and it's going to continue to build, we hope, but we just don't know what's this, you know, what we've done by selling in this -- in -- in Q1 versus preparing has done. And we just need a little bit more time to understand that but things -- things are definitely going in the right direction.

Joe Altobello -- Raymond James -- Analyst

Got it. And if -- if I could just follow up on that, Austin. You mentioned January was looking good. If you want to add any color.

I mean, our comps kind of in line with what you saw in Q1 or any slowdown at all?

Austin Singleton -- Chief Executive Officer

Well, I mean, you know, I -- I would just tell you that -- that believes or, you know, we keep waiting for that day where lead starts to slow down. Jack, you -- you can expand on it a little bit more probably than I can on the -- on you know. But it's -- it's definitely -- go ahead.

Jack Ezzell -- Chief Financial Officer

No. I'm just going to say, if you -- if you rewind back in time, I think we, you know, back in, you know, back around the pandemic timing when things first kind of shut down. If you recall, January and February last year were -- were very strong months and then it really was just the last two weeks of March that -- that things kind of fell off and -- and really shut down the -- the quarter. So we, you know, we're up against some, you know, the double-digit comps, and -- and I would tell you that we're -- we haven't gone through that analysis so we're still working on closing the books but I would tell you that comps are -- are certainly double-digits, you know, so far, through January.

Joe Altobello -- Raymond James -- Analyst

Perfect. Thank you, guys.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Mike Swartz with Truist Securities. Your line is now open.

Mike Swartz -- Truist Securities -- Analyst

Hey -- hey, guys. Good morning. A couple of questions here. I think, in -- in the press release you said that the combined benefits from the three acquisitions you made is about $125 million in annualized revenue.

I think that's on a 12-trailing month basis. Can you give us a sense of what that looks like in -- in fiscal year '21? Are you assuming that kind of grows in that mid-single-digit range that you're -- you're calling out for the underlying or the core business?

Jack Ezzell -- Chief Financial Officer

Yeah. I -- I would say that is on a -- on a full-year basis and -- and if you're looking at -- that's probably something around at $100 million mark for the contribution this year.

Mike Swartz -- Truist Securities -- Analyst

OK. Right. Because I -- I assume this fall into fiscal year '22 as well.

Jack Ezzell -- Chief Financial Officer

Correct. Correct.

Mike Swartz -- Truist Securities -- Analyst

OK. OK. That -- that makes sense. And then just on the -- I noticed that -- that used boats or preowned boats grew about 17% in the quarter while everything else grew 30%, 40% year over year.

Any commentary there on just the availability of preowned products and maybe what you're doing to -- to gain access to inventory there?

Austin Singleton -- Chief Executive Officer

Yeah, yeah. I mean, that has really -- Anthony, I was just going say that's really for you.

Anthony Aisquith -- President and Chief Operating Officer

Yeah. It's -- it's something like that we -- we focus on daily but, you know, we employed employees that are buyers and buyers only. That's all our job is to do is to buy boats. So, it -- it is a -- a challenging part to continue to get inventory.

But it's -- I think we're still doing a great job at getting this, you know. It's not keeping up with the -- the new growth just because, you know, the amount of innovations that are manufactured that were tied to are coming up with. It is just really driving some great growth force. But we used to -- it's something we concentrate on every day.

Jack Ezzell -- Chief Financial Officer

Yep. I think the other thing I'd point out to just a little bit behind the numbers is we -- we saw a significant increase in brokerage sales and as -- as you say brokerage sales but that's revenue. So it's a -- you don't necessarily see the revenue dollars picked up quite as much as -- as you would if it's an actually used unit.

Mike Swartz -- Truist Securities -- Analyst

Got it. That -- that makes sense. Thanks for that. And then -- and then, maybe a final question for Austin.

Maybe just talk about how these stand-alone service centers are -- are contributing and maybe how -- how do you think about that business over the next 12 months?

Austin Singleton -- Chief Executive Officer

You're right out there again, that's an Anthony question. But I mean, you -- you can see in the numbers, we -- we start -- we started -- we saw a -- a good increase in imports and service and, you know, obviously some of that is connected to that. Anthony, I mean, you have any like more day-to-day operational comments?

Anthony Aisquith -- President and Chief Operating Officer

If -- if this continues to be an opportunity for us in the -- in the parts and service world. As we spoke last quarter, and we've gotten three service-only facilities and we could open more stand -- stand-alone [Inaudible] a tremendous demand for that, at this point, is a good thing.

Mike Swartz -- Truist Securities -- Analyst

OK, great. Thanks a lot.

Operator

[Operator signoff]

Duration: 32 minutes

Call participants:

Jack Ezzell -- Chief Financial Officer

Austin Singleton -- Chief Executive Officer

Anthony Aisquith -- President and Chief Operating Officer

Craig Kennison -- Baird -- Analyst

Joe Altobello -- Raymond James -- Analyst

Mike Swartz -- Truist Securities -- Analyst

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