OneWater Marine Inc. (ONEW) Q2 2021 Earnings Call Transcript

OneWater Marine Inc. (ONEW -3.06%)
Q2 2021 Earnings Call
Apr 29, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the OneWater Marine Inc., fiscal second-quarter 2021 earnings conference call. [Operator instructions] I would now like to turn the conference over to your speaker today, Jack Ezzell, chief financial officer. Please go ahead.

Jack Ezzell -- Chief Financial Officer

Good morning, and welcome to OneWater Marine fiscal second-quarter 2021 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 would like to remind you that certain statements made by management in this morning's conference call regarding OneWater Marine in its operation, may be considered forward-looking statements under securities law and involve a number of risk and uncertainties. As a result, the company cautions you that there are a number of factors many of which are beyond the company's control, which could cause actual results to differ materially from those described in the forward-looking statements.

Factors that might affect future results are discussed in the company's earnings release which can be found on the investor relations section on the company's website and in its SEC filings. The company disclaims any obligations or undertaking to update forward-looking information 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 would 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 incredible results for the second quarter of 2021 with growth across every part of our business. Revenues increased 74% to a record $330 million, adjusted EBITDA increased 315%, and same store sales increased 57%. Importantly, our higher margin finance and insurance revenue also grew significantly by 46% and we doubled our service parts and other revenue.

The continued expansion of these businesses emphasized the strength of our strategy to move beyond new and preowned boat sales, adding stable revenue streams for our long-term growth. OneWater is firing on all cylinders and I am extremely proud of our team's ability to remain agile in today's fast-paced dynamic environment. Our investment and technologies continue to enable us to differentiate ourselves in the market and capture the seamlessly limitless customer desire to get out on the water. These technologies bolster our ability to, not only sell boats, but also sell the right boats to the right customers as quick as possible.

Importantly, our digital solutions drive operational efficiencies across our business, maximizing profit and extending our competitive advantage throughout the industry. With no indications of slowing down, we believe this level of demand will remain heightened, as new and experienced boaters come to OneWater for our arsenal of premium boats and robust service capabilities. During the last several months, we have had a number of exciting announcements and developments. First, we executed the soft launch of boatsforsale.com, our all-inclusive virtual platform to buy, sell, and compare boats that provides easy access to financing and insurance offerings.

Anthony will talk more about this in his remarks, but suffice to say, while a small part of our business today, we see this platform as having a potential to be a big opportunity for us. Further, we announced the creation and expansion of OneWater Yacht Group, which unifies OneWaters yachting presence and provides a launchpad for further growth. At the same time, we amplified our service and repair offerings at the Roscioli Yachting Center. Additionally, last week, we announced that OneWater was named the sole U.S.

distributor for Sunseeker Yacht, a leading manufacturer of premier yachts based in the U.K., with customers across the globe. OneWater Yacht Group has been a key [Inaudible] for Sunseeker across most of the Eastern Seaboard. And under the terms of the agreement, we will now manage the Sunseeker dealer network and other markets throughout the U.S. This first of its kind agreement is a statement to our proven execution and strong partnerships.

And it's exciting to say the least, as it will allow us to further enhance our portfolio of premium brands and expand our geographic reach and presence in the luxury yacht market. Finally, the integration of our three acquisitions, Tom George Yacht Group, Walker Marine, and Roscioli's are progressing well and in alignment with our proven playbook. Our disciplined and prudent approach to identify top dealers in high-performing markets and our flawless integration continues to advance our position as an industry leader. With these integrating well, we now expect to complete four to six typical acquisitions per year for the next several years.

As we execute our long-term growth strategy, we are confident -- confident that through our continued investment in our innovative digital platforms, the evolution of our higher-margin business segments and the integration of our recent M&A activities, we 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.

Anthony Aisquith -- President and Chief Operating Officer

Thanks, Austin. Customer enthusiasm is at an all-time high. The incredible customer demand for boats across all categories continues to drive sales with our technology investments supporting tremendous lead generation. Our sales team have remained agile by utilizing our state-of-the-art operational dashboards, supporting further our performance within the industry.

We are focused on providing an exceptional selling experience to keep the veteran and new foundational layer of boaters enthusiastic about the boating lifestyle and the OneWater family of dealerships for years to come. Inventories remain at a historically low levels as supply chain continues to be pressured. Our inventory planning tools, our strong OEM relations has given us confidence that we will have sufficient inventory to meet demand throughout the prime selling season, although we recognize it will be a challenge. We are in constant communication with our manufacturers and barring any further supply chain disruption.

We are expecting a strong finish to the year. As Austin mentioned during the second quarter, we launched boatsforsale.com. Following the acquisition of the domain in August of 2020, we aggressively developed a new consumer-seller focused marketplace that serves as an extension of our store footprint, including new preowned boats and finance insurance services. Nearly 1 million boats are sold per year, person to person, and we believe this platform will completely change the way people sell their boats.

Utilizing the site, sellers across the country can list their boats for sale and immediately increase the reach of potential buyers. In turn, buyers can search the listed boats, adding or removing parameters for the boat they desire, and even receive what we call a notification or notification when a boat is listed that meets their exact parameters. Importantly, the site also enables us to build our preowned boat inventory by bidding on a listed boat and offering the seller a cash offer. While in its early days since the launch, we are very encouraged by the growth opportunities that can be created through this innovative marketplace, including our ability to broaden our customer and geographic reach.

As Austin mentioned, the platform is a small piece of the business today, but we believe it will create an additional avenue for growth for OneWater. Near-term, our goal is to have over 15,000 boats on the platform by the end of this fiscal year. Therefore, we'll expect to see a modest incremental revenue generating starting in fiscal 2022. I will now turn the call over to Jack, who will talk more about the financials in detail.

Jack Ezzell -- Chief Financial Officer

Thanks, Anthony. Second-quarter total revenue increased 74% to $329.6 million in 2021 from $190 million in 2020, fueled by the increase in same-store sales of 57%. This increase was primarily driven by new unit sales and an increase in the average selling price of new boats sold, and to a lesser extent, an increase in the average price of preowned boats sold. New boats sales grew at 81% to $239.7 million in the fiscal second quarter of 2021 and preowned boat sales increased 47% to $56.1 million.

Finance and insurance revenue increased 46% to $11.8 million in the second quarter of 2021 and revenue from service, parts, and other sales increased 101% to $22.1 million, compared to the prior year. Gross profit nearly doubled to $88.8 million in the second quarter, compared to 44.6 million in the prior year, driven by the increase in margin on new and preowned sales, a shift in the model mix in size and the boat model sold, as well as, an increase in the average unit price. Additionally, higher finance and insurance, service and other sales, contribute significantly to the increase in gross profit. Gross profit as a percentage of sales, increased 340 basis points to 26.9%, compared to 23.5% in the prior year.

While selling, general, and administrative expenses increased to $48.3 million from $32.4 million, SG&A as a percentage of sales, decreased to 14.7% from 17% in the prior year. The decline in SG&A as a percent of sales was primarily driven by the increase in sales across the businesses and the reduction of expenses, including the cancellation of certain boat shows. Operating income rose sharply to $38.7 million from $8.5 million in the prior year, driven by the higher sales and expanded gross profit, partially offset by higher SG&A. As a result, adjusted EBITDA rose to $40.1 million, compared to $9.7 million in the prior year.

Net income totaled $30.6 million or $1.83 per diluted share in the fiscal second quarter of 2021, up from $3 million or $0.18 per diluted share in the prior year. Turning to the balance sheet. As of March 31st, total liquidity was in excess of $100 million, including cash on the balance sheet, availability under our revolving line of credit, and availability under our floor plan facility. Total inventory at March 31st, 2021 was $186 million, compared to $333 million at March 31, 2020.

The substantial decrease was due to the sales increase experienced in recent quarters combined with industrywide supply chain constraints. From a capital allocation perspective, we are focusing on reinvesting in the business to accelerate organic growth and the strategic M&A opportunities as we have discussed. In addition, we will continue to evaluate other capital allocation strategies that increase shareholder return. Looking ahead, for the full fiscal-year 2021, we are increasing our guidance for our same-store sales to be up approximately mid to upper teens, given the broad-based outperformance in the first half of the fiscal year 2021.

Additionally, we have raised our outlook for adjusted EBITDA to be in the range of $130 million to $135 million and diluted earnings per share to be in the range of $5.80 to $6 per diluted share. This all excludes any additional acquisitions that we may be completed during the back half of the year. Our guidance assumes OneWater manufacturers can maintain production at the current pace and meet the elevated demand in the face of industrywide supply chain challenges. This concludes our prepared remarks.

Operator, would you please open the line for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Brett Andress with KeyBanc Capital Markets. Your line is open.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys. I wanted to ask about the Sunseeker agreement. Just any more details you can share around exactly how the management part of that works. I mean, there's a plan to eventually be the only Sunseeker dealer in the U.S.

And then secondly, I mean, how do the economics of that agreement flow also?

Austin Singleton -- Chief Executive Officer

Yeah. So, we were -- the U.S. distributors, all the boats coming into the United States will run through OneWater. You know, I don't -- I don't see us in the near- or mid-term future being the only Sunseeker dealer.

There's a couple other guys out there that do a really good job. We're kind of still putting it all together. You know, one of the things that we're excited about is, being able to consolidate and show them at Roscioli's because we have -- we have the space to do that and kind of having a base for U.S. operations.

So a customer that's really interested, can come down and see them all, but you know, we don't really have any stores in the Midwest that might be interested in this. Of course, there's a great dealer out on the West Coast. So we'll be looking for some sub-dealers, but it just gives us a little bit more control on what comes in. I would -- don't really want to get into how it was set up prior to us doing this, but it was a little bit of a wild, wild west.

I mean, both were coming from all over the place. So just -- it just gives a little bit more professional set up in the United States for how the boats come through and flow. And then of course, you know, we'll be responsible for the U.S. marketing and overseeing boat show displays, print marketing, if we choose to do that, customer events and all that stuff.

So that comes with an expense. Because of that, there is there is a percentage that comes to OneWater off of every boat. But it's a good deal just because it -- it really gives the ability to have a complete plan put together for the country. And you know, if we can find some really good dealers that we think will -- will be additive to where we already are, where we have no intention of going anytime soon.

So it's a good overall deal and we're excited.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Got it. OK. Makes sense. And then, Austin, just more of a high-level industry question.

But if you look at the broader industry and the dealers that you compete with in your markets, I mean, how does their inventory situation look right now compared to yours? I mean, I have to imagine that there will be some pain out there among the smaller dealers, the selling season. And I just wonder, if that was one of the drivers behind taking that M&A target up to four to six years.

Austin Singleton -- Chief Executive Officer

No, I don't think that was the change in the M&A strategy. I think when I spoke to -- on the last earnings calls, you know, one of our Achilles' heels on the acquisition front has been integration. And it's not been integration on our side, it's getting CDK lined up for the training and moving everything over. You know, if you go and do a deal and they're on the same software, it's a pretty easy move over.

But if they're on dock master or control for one of the other softwares, getting all that information, input it, and mapped correctly, and then getting the the the acquisition, their employees up speed on CDK, it's just been a little bit of a slow heal because we have to plan so far out. So we would have these these deal slots. Well, you know, we kind of said this is great, but it's not working exactly the way we want it. So the last couple of deals, we've kind of done all that on our own.

You know, we still use them, still have them helping us with integration, but we've gotten to the point where we've taken that issue and basically eliminated it because we're doing it in-house now. So that gives us the confidence and the ability to probably increase this, you know, our cadence on this. You know, of one or two deals a year plus, plus the other thing was we always said we want to do it with free cash flow. And the free cash flow is a lot better than it was three years ago or two years ago, so it's just a combination.

I think from an inventory perspective, I think the next couple of quarters for all of us are going to be challenging. I think that where we really can shine on that is just the amount of information in the forecasting and understanding what's coming, when it's coming, when you deal with a single mom and pop, I mean they're working themselves to the bone. I mean they're out there taking care of customers, fixing problems. They don't have the time to sit in their office and then call in every manufacturer they represent every other day to go, OK, where's this boat where's that boat? It's kind of more of a -- when the customer's screaming or yelling at them, where's my boat? That's when they kind of follow up.

So I think our digital tools and being able to forecast what we need, know where it's going is probably the one thing that is going to help us on the inventory deal. But that really didn't have anything to do with the acquisition cadence increasing.

Brett Andress -- KeyBanc Capital Markets -- Analyst

OK. Thanks. Thanks a lot guys.

Austin Singleton -- Chief Executive Officer

Thanks.

Anthony Aisquith -- President and Chief Operating Officer

Thanks, Brett.

Operator

Thank you. Our next question comes from Drew Crum with Stifel. Your line is open.

Drew Crum -- Stifel Financial Corp. -- Analyst

Hey, guys, good morning. So a lot of moving pieces in the gross margin improvement during the quarter. Can you rank the order of importance of the various drivers and those that you see as sustainable going forward? And then separately, you mentioned the ASP being up for, both new and preowned boats. With inflation and the creation and expansion of The Yacht Group, how do you see ASP for your boats trend going forward? Is that likely to accelerate? Or should we see it rise more in line with the industry? Thanks.

Austin Singleton -- Chief Executive Officer

Yeah. So on the first question, I would tell you that, you know, new boat sales because it's such a large portion of revenue, that that increase in margin had the greatest impact on overall margin. But you know, we're equally as excited as to see improvements in sales of our non-boat business because we obviously feel like that that's a lot more sustainable for the long-term and the increase in parts and service, with revenue being up 100%, a large part of that's driven by Roscioli in addition to the results, but that gives us good, sustainable, recurring revenue streams. You know, as far as makeshift -- makeshift will always put -- make margin and projecting margins, a little bit of a challenge.

You know, even with Tom George and Walker Marine, the two acquisitions we did in December, we saw a little bit of a mix shift to some larger boats, which larger boats typically have a lower gross margin percentage. And we feel like there's a lot that we're doing within the OneWater Yacht Group that can help us improve overall yacht margins. But as that mix shifts and as you have large boats come through, it will put some pressure on the margin percentage. I hope that helps answer your question.

Drew Crum -- Stifel Financial Corp. -- Analyst

Yeah. And then just a follow-up. Just to follow up on the question on ASP, your expectations going forward?

Austin Singleton -- Chief Executive Officer

You know, ASP, our -- as we projected model, right, we look for what we put out a same-store sales number we look to get. You know, probably half of it from unit growth, half of it from ASP growth. And so, I think that's -- that's how we're looking at things and modeling things internally.

Drew Crum -- Stifel Financial Corp. -- Analyst

OK. All right. Thanks, guys.

Austin Singleton -- Chief Executive Officer

Thank you.

Operator

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

Joe Altobello -- Raymond James -- Analyst

Hey, guys, good morning. A couple of questions. I guess, first on inventory and I know it's hard to quibble with a 57% comp year, but do you guys feel like you lost any sales because of a lack of inventory in the quarter?

Anthony Aisquith -- President and Chief Operating Officer

No, sir, not at all.

Joe Altobello -- Raymond James -- Analyst

OK. I mean obviously --

Anthony Aisquith -- President and Chief Operating Officer

I mean, we're outpacing the industry pretty heavily, you know, so I don't -- we've been in contact and utilizing all the tools that we have to ensure that we have boats available.

Jack Ezzell -- Chief Financial Officer

I think it's important Joe to also remember, as Austin kind of alluded to earlier, when you -- when you're up against a mom-and-pop dealer, you know, they may -- maybe have let's say 20 orders with the manufacturer. You know, we maybe have 200 orders with that same manufacturer. And so with our digital tools, having the insight on those 200 orders and our ability to shift it from one location to the other, to get it to where the customer wants it is, is tremendous.

Joe Altobello -- Raymond James -- Analyst

That's helpful. Thank you. I guess, in terms of seasonality, you know, Q2 is typically a quarter where you build inventory. Q3 is typically a quarter you draw down inventory.

So it sounds like we're probably going to see that that inventory number go even lower in the June quarter. I'm curious, when do you expect to start growing inventory again? And maybe, when do you think it normalizes?

Anthony Aisquith -- President and Chief Operating Officer

Well --

Austin Singleton -- Chief Executive Officer

I would jump in, Joe. I'd let Anthony speak, but right after I say this. I would tell you, as demand keeps at the pace it is, it's going to be a long time before we can really start building on inventory. Door swings in, you know, lean volume, all that stuff continues to be very, very strong.

And the manufacturers, they just don't like to flip a switch and produce -- you know, in the month of June, they're going to produce 10% or 15% more boats. It's a slow ramp up for them to get -- you know, to where they're doing, 1% or 2% more, and it kind of starts to compound over time. So you know, it is a great dynamic in my opinion, and I -- you know, Anthony, you'll have a better gauge on this. For my opinion, it's a great dynamic to be forced to -- you know, sell on the boats out that are coming in two weeks from now, four weeks from now, six weeks from now, and we're not carrying inventory because inventory cost is way down.

Anthony?

Anthony Aisquith -- President and Chief Operating Officer

Yeah. I would say that we probably -- it -- pre-pandemic, probably hit [Inaudible] carrying too much inventory. So to get back to those levels, you know, with -- the more we utilize our tools that we have, we want to continue to increase our churns. When the inventory is going to get back to normal, I don't think I -- what is normal? It would be the question.

So I would say, we're a year or so away from having lots full of inventory. But you know, our goal is always to continue to order the right boats and have timely things done with lower interest inventory costs and everything like that. So it's -- it's going to be over a year, I think before we'll have normalized -- whatever the new normal is for inventory.

Joe Altobello -- Raymond James -- Analyst

Got it. OK. Just one last one for me. In terms of product quality, when we go struggling to get boats out the door, are you seeing product quality slip at all? Are you seeing customers coming back and asking for -- we were up for, probably work, etc?

Anthony Aisquith -- President and Chief Operating Officer

I wouldn't say that we're seeing poor quality. You know, we've always been -- the last piece of the build if you will, without wrecking, you know, some of -- finish assembling the boats and all that kind of stuff. So I don't see the quality of the boats going backwards or anything like that, no.

Austin Singleton -- Chief Executive Officer

I think it's more of a challenge of them getting it complete than quality issue. You know, it's not like they're building a worse boat today than they were 18 months ago, 36 months ago. It's that they got a boat, this is completely finished. It's missing one seat cushion or it's missing, you know, this one thing on it, and it's just going to sit up there for a month.

So that one thing comes, that doesn't hinder the boat. I mean, like, porta potties. I mean, you know, a customer if you really go, hey, look, we'll get your boat next week, but it's not going to have the porta potty in it. They're, like, I don't care.

I want a boat. So I agree with Anthony. I think it's more of -- they're struggling more with getting the boats complete versus a quality issue.

Joe Altobello -- Raymond James -- Analyst

Got it. OK. Thank you, guys.

Operator

Thank you. Our next question comes from Mike Swartz with Truist Securities. Your line is open.

Mike Swartz -- Truist Securities -- Analyst

Hey, guys, good morning. Sorry, if I missed this in your prepared comments, but maybe Jack or Austin. Any color on the trends you're seeing thus far in your fiscal third quarter? So April, maybe your comparable store sales or backlog or any, any metrics you can provide?

Jack Ezzell -- Chief Financial Officer

Yeah. I would say, yeah -- go ahead, Austin.

Austin Singleton -- Chief Executive Officer

I was just going to say, Mike, that will get me in trouble. So I'll let Jack talk about that one.

Jack Ezzell -- Chief Financial Officer

Yeah. I mean obviously, obviously, we're up against a really big comp for the quarter and in the back half of the year. I think if you look at our our same-store guide, it's projecting low single-digit comps in the back half. And you know, we continue to have, as Austin mentioned, good retail demand, customer interest is elevated.

You know, leads coming in door swings are all very positive. So we feel -- we feel comfortable with that that same-store sales increase for the back half of the year, and you know, just with the continued levels of demand just from what we've seen so far.

Mike Swartz -- Truist Securities -- Analyst

OK, great. And maybe just to add onto that, you know, with guidance, I think you called out the 130 to 135 in EBITDA, which would basically imply that EBITDA dollars are flat in the back half of the year. But you're talking about comparable store growth and you've got some acquisitions here that, you know, seasonally speaking, should be pretty strong in the back half of your fiscal year. So what -- I guess, what are the offsets to get to that flat number?

Jack Ezzell -- Chief Financial Officer

Yeah. I think I'd have to double check my numbers, but I think the consensus numbers in the back half is up double digits increase at that 30 --

Anthony Aisquith -- President and Chief Operating Officer

Got those numbers --

Jack Ezzell -- Chief Financial Officer

Yeah.

Mike Swartz -- Truist Securities -- Analyst

Maybe that's just -- yeah, that's probably versus my numbers then. OK. And then I -- might just -- just -- go ahead.

Jack Ezzell -- Chief Financial Officer

No, I was just going to say you might give into the stock comp that I think you have in your numbers that we don't put in ours.

Mike Swartz -- Truist Securities -- Analyst

Right. No, that makes sense. And then, just final question for me. You're talking about the new yacht group that you're building out.

And obviously, with Roscioli and some [Inaudible] there are going to be much bigger presence there. Are there any overhead costs or any investment costs to think about going into that business in the near-term?

Austin Singleton -- Chief Executive Officer

No, not anything -- not anything really out of the normal that's really going to make a big impact on our capex because that was the whole thing. Roscioli's was a turnkey you know. So, Anthony, correct me if I'm wrong, but most of the additional costs that we're going to have getting into this would be put on the boat anyway.

Anthony Aisquith -- President and Chief Operating Officer

Correct.

Jack Ezzell -- Chief Financial Officer

Yeah. Yeah, I think -- I think it goes back to what we originally said on Sunseeker is, you know, we expect to expand the profitability of the brand over time with having some incremental SG&A type costs from a marketing perspective, but expect us to to level off and absorb those costs with the increased sales.

Austin Singleton -- Chief Executive Officer

Yeah. And the other thing real quick. I mean, you know, one of the beautiful things about Sunseekers, I mean, they build an incredible boat and it's a global -- it's globally sold. So it's not like they're fixing to send us 32 of these things.

I mean they're going to trickle in. We -- we don't expect to see a huge impact from this. You know, it'll incrementally increase over time as more boats are available and we pre-sell those slots. If you come in today and want to -- Anthony, I mean, how long is it out on the 90? You know is, I mean, are we two years out, six months?

Anthony Aisquith -- President and Chief Operating Officer

18 months, 18 months, yeah.

Austin Singleton -- Chief Executive Officer

Eighteen months, so I mean, it's not like all of a sudden, we're going to have all these boats tomorrow. And that's one of the things that intrigues us about, is you know, we need a place for our customers to continue to move up in size. And this gets us one with the way we look at it with really a low inventory risk. You know, we're not going to have 150 million of these things, $150 million worth of this stuff sitting on the ground on our floor plan.

While it'll be pre-sold slots, we'll have some inventory come in, but I mean, we're going to share that out through. Hopefully, you know, an incredible dealer network that we're looking to build out across the whole United States.

Mike Swartz -- Truist Securities -- Analyst

OK. Great. That's -- that's it for me. Thank you, guys.

Operator

[Operator signoff]

Duration: 33 minutes

Call participants:

Jack Ezzell -- Chief Financial Officer

Austin Singleton -- Chief Executive Officer

Anthony Aisquith -- President and Chief Operating Officer

Brett Andress -- KeyBanc Capital Markets -- Analyst

Drew Crum -- Stifel Financial Corp. -- Analyst

Joe Altobello -- Raymond James -- Analyst

Mike Swartz -- Truist Securities -- Analyst

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