OneWater Marine Inc. (ONEW) Q3 2022 Earnings Call Transcript

OneWater Marine Inc. (ONEW -3.52%)
Q3 2022 Earnings Call
Aug 04, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to OneWater Marine fiscal third quarter 2022 earnings conference call. [Operator instructions] I would now like to hand the call over to chief financial officer, Jack Ezzell. Please go ahead.

Jack Ezzell -- Chief Financial Officer

Good morning, and welcome to OneWater Marine's fiscal third quarter 2022 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 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 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. 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. Our exceptional third quarter results reflect broad-based strength across the business, the diversity of our business model and the power of our acquisition engine. We delivered another record quarter with revenue increasing 41% to $569 million and adjusted EBITDA rising 45% to $95 million compared to the prior year. Same-store sales increased 12%, reflecting our continued outperformance of the industry.

Importantly, as the quarter progressed, we shifted to both unit growth, as well as price increases continue to drive sales growth. This momentum continued in July as we saw a double-digit increase in same-store sales and continued unit growth during the month, all at a time when OneWater and the industry are at a record low field inventory. Our same-store inventory compared to 2019 is down 10%-plus in terms of dollars and in excess of that in terms of units. We do not see inventory returning to a new normal for 24 months with the current demand.

Growth during a time when OneWater and the industry are at record low levels of inventory is a testament to the dedication of our team and the resilience of our business model. Our results through the first nine months of the fiscal year have already outpaced all of last year. We expect a strong finish to the year as demand remains robust. This, coupled with the strength of our OEM partners and our leveraging our inventory footprint, gives us confidence we will be able to get our customers the boats they want, supporting our increased full year outlook.

Our record results in the quarter clearly highlight the power of our aggressive acquisition strategy, which accelerated organic growth in the quarter. For example, our recent acquisition of Denison Yachting contributed significantly to a 38% increase in preowned sales and a 390 basis point improvement in preowned margins. The addition of our parts and service acquisition engine, T-H Marine, propelled a more than 150% increase in service, parts and other sales. We continue to use our acquisition platform to fuel the expansion of our higher-margin revenue streams, including our recent announced agreement to acquire Ocean Bio-Chem.

OBCI is a leading supplier and distributor of cleaning and maintenance products for the marine industry, as well as the automotive, power sports, recreational vehicles and outdoor power equipment markets. We see tremendous synergies and expect to significantly advance growth in our parts and accessories businesses. Our integration playbook continues to drive best-in-class results and support significant top line growth while enhancing our margin profile. Our ability to significantly improve EBITDA of our acquired companies has been a meaningful contributor to growth over the past two years and will continue to be our secret sauce in the coming years.

For the fiscal year, we have already completed our acquisition guidance of four to six dealerships and two to four parts and service acquisitions per year. With that said, the pipeline remains robust, and we will maintain our track record of disciplined strategic acquisitions as we evaluate our next opportunity. Since becoming a public company just over two years ago, we have continuously delivered for our shareholders. And we believe that we have the strategy, scale, the expertise to position us for continued outperformance.

And with that, I will turn the call over to Anthony to discuss business operations.

Anthony Aisquith -- President and Chief Operating Officer

Thanks, Austin. As Austin mentioned, we continue to outperform the industry. During the quarter, same-store sales increased 12%, reflected of solid organic growth. As Austin mentioned, we are starting to see growth in both units and average prices.

This compares to the industry, which is reportedly down 10% to 20%. Demand continues to be strong. Presold inventory remains elevated. Customer deposits in the quarter increased nearly 50% compared to the prior year and are also up compared to the prior quarter, while our backlog is at record levels, reflecting continued customer demand.

While the industry continues to face a challenging supply chain, we are benefiting from the scale and quality of our dealerships as they leverage the available inventory across the network. At the end of the third quarter of 2022, inventory totaled $269 million, which includes our recently acquired dealerships, compared to the fiscal second quarter of 2022, inventory was down $24 million. As the summer selling season ramps on a same-store basis, inventory is down approximately 10% in terms of dollars and in excess of 20% in units compared to 2019. Utilizing the flexibility and the sophistication of our inventory tools, our team has done an excellent job of not only preselling the boats that our customers want, but also using the tools to make sure the boats are delivered as efficiently as possible.

At our recent dealer meetings, we've had a sneak peek into some of the incredible new products coming to the market. Manufacturers are introducing innovative new products that are selling out well into 2024. Our customer engagement remains high, and the team continues to provide excellent service for all their boating needs. As we have discussed before, our exclusive technology and powerful inventory tools, combined with our strong vendor relationships, enable us to navigate the environment efficiently and effectively.

With our proprietary tools and technology at our disposal, we feel confident in our ability to continue to outperform the industries, regardless of the persistent macro and challenges. In summary, our processes and procedures across all aspects of the business are continuing to drive market-leading results. Our team continues to deliver strong growth quarter after quarter, further positioning OneWater as the leader in the industry. I will now turn the call over to Jack to review the financials.

Jack Ezzell -- Chief Financial Officer

Thanks, Anthony. Fiscal third quarter revenue increased 41% to $569 million in 2022 from $404 million in the prior year quarter. This is a result of a 12% increase in same-store sales and revenue from recently acquired businesses. New boat sales grew 31% to $377 million in the fiscal third quarter of 2022, and preowned boat sales increased 38% to $98 million.

We continue to benefit from our diversification strategy and growing the higher-margin parts of our business, which contributed substantially to our results in the quarter. Service parts and other sales climbed 153% to $75 million, driven by contributions of our recently acquired businesses. Finance and insurance revenue increased 25% to $19 million in the third quarter of 2022. Gross profit increased 45% to $184 million in the third quarter compared to $127 million in the prior year quarter.

This is primarily driven by our strategic acquisition of higher-margin, less cyclical service parts and other revenues, as well as the shift in our mix and size of boats sold in our dynamic pricing. Gross profit margin increased 90 basis points to 32.3% compared to 31.4% in the prior year. Third quarter 2022 selling, general and administrative expenses increased to $88 million from $61 million. SG&A as a percent of sales was 15% and in line with the prior year.

Operating income increased 35% to $88 million compared to $65 million in the prior year, driven by the increase in gross profit. As a percentage of sales, operating income margin was 15.4% in the quarter. And as a result, adjusted EBITDA increased to $95 million compared to $66 million in the prior year. Net income for the fiscal third quarter totaled $65 million or $3.86 per diluted share, up 25% from $52 million or $3.04 per diluted share in the prior year.

For the fiscal third quarter of 2022, charges related to transaction costs and continued consideration adversely impacted diluted earnings per share. These amounts tax-effected at 25% were $0.20 per diluted share in the third quarter of fiscal 2022. Turning to the balance sheet. As of June 30, 2022, total liquidity was in excess of $125 million, including cash on the balance sheet, availability under our revolving line of credit and floor plan facilities.

Total inventory as of June 30, 2022, was $269 million and remains constrained as evidenced by our same-store inventory being down approximately 10% in dollars compared to June 2019, this despite the price increase that have occurred over the past three years. Total long-term debt as of June 30, 2022, was $336 million. Adjusted net debt or long-term debt, net of cash, was one times trailing 12-month EBITDA. While we are comfortable with our liquidity and leverage position, we continue to monitor the macroeconomic environment and are being prudent in our capital allocation.

Our strategy for capital allocation perspective has not changed. We are focused on reinvesting in the business to accelerate organic growth; strategic M&A opportunities, and as we have discussed, a potential share repurchase. To that end, last quarter, we announced that the Board authorized a share repurchase program of up to $50 million. As indicated in the release, we were blacked out from making purchases until the March quarterly earnings were released.

During that blackout, our conversations with OBCI accelerated and our governance guidelines prevented the blackout from lifting. As such, we were unable to make any repurchases during the quarter. We remain committed to opportunistically repurchasing shares and believe this to be another strategic avenue to return value to shareholders and make strategic investments in what we view as a very undervalued asset. Looking ahead, for the full fiscal year 2022, we are raising our outlook for adjusted EBITDA to be in the range of $240 million to $250 million and earnings per diluted share to be in the range of $9.20 to $9.60 per diluted share.

We now anticipate same-store sales to be up low double digits for the year despite the ongoing inventory challenges. These projections include acquisitions that have been completed during the third quarter but exclude any additional acquisitions that may be completed during the year. To conclude, we continue to rapidly expand the business and position OneWater for sustainable growth. We remain committed to successfully executing on our strategic growth strategy and returning value to our shareholders.

This concludes our prepared remarks. Operator, would you please open the line for questions?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Drew Crum of Stifel. Drew Crum, your line is open.

Drew Crum -- Stifel Financial Corp. -- Analyst

Guys, good morning. So the comments around dealer inventory not normalizing for another 24 months, how much of a factor is supply chain where others have suggested some easing more recently? Or is this more related to the consumer demand you're seeing or anticipating? And then I have a follow-up.

Austin Singleton -- Chief Executive Officer

Well, I mean, I think it's a combination of the two, Drew. I mean, we're still -- the manufacturers seem to be getting a better footing and getting a little bit more consistent than they were back in April and the first part of May. So we're getting a little bit more visibility on when boats are coming in. But as we talked about earlier in the script, that demand has not waned at all.

I mean, we saw unit increases in June and July. And that's something we hadn't seen for a while. It's mainly been price. So I think it's just a combination of the two, and I don't know how to weigh one over the other right now.

Drew Crum -- Stifel Financial Corp. -- Analyst

OK. Fair enough. And then, Austin, you highlighted your acquisition strategy. I think, Jack, you mentioned in your prepared remarks some prudence around capital allocation.

Is the four to six dealer acquisitions per year and two to four on the service and parts side still a reasonable cadence? Or would you look to slow the pace in this environment and alternatively do buybacks?

Austin Singleton -- Chief Executive Officer

Yeah. I mean, I think we're going to look at what is the best return on capital. When you look at where the stock price was yesterday versus where it was three months ago, it's quite a bit different. I think we just have to look and manage kind of both.

I mean, I don't know why we can't find a fair balance between the two. I think that since we've already kind of completed the cadence for the year, with all the macro that's out there, I think we're just going to be a little bit slower on the pedal for the next 30, 60 days, 90 days, kind of wait and see how things shake out. But I think that we're not going to lower our cadence on the acquisitions. They're just too accretive.

But we're also going to be mindful of what the return is on the stock repurchase dependent on when the time is right to do that.

Drew Crum -- Stifel Financial Corp. -- Analyst

Thanks, guys.

Operator

Thank you. Our next question comes from the line of Joseph Altobello of Raymond James. Joseph Altobello, your line is open.

Joseph Altobello -- Raymond James -- Analyst

Good morning. I guess first question, I want to delve into the 12% comp increase you saw in the quarter. I think you mentioned you saw unit growth in June and July. How much of that 12% was units in the quarter?

Jack Ezzell -- Chief Financial Officer

Yeah. I'd say units in the quarter were essentially flat. So it really was more in the back end, started to see that trend, the tide turn there.

Joseph Altobello -- Raymond James -- Analyst

OK. And then, maybe more of a broader question. Why do you guys think your customer is being less impacted by macro headwinds, as we're seeing a number of companies warn so far this earnings season on slowing demand?

Austin Singleton -- Chief Executive Officer

Yeah. I mean, I think that it's -- we're selling a high-end premium product. I think we've mentioned this in a couple of other calls, actually last quarter, that I think there's been a pretty good push to on or near water as a secondary or a primary home over the last two years, and I think that's leading a lot of it. But it also goes back to what Anthony talked about earlier, that the manufacturers are continuing to come out with really good innovative, stylish new product that keeps the consumer excited.

And when you look at just the churn, the growth that we had in the industry, because of COVID and now that growth is churning into new products as pre-owns holding a really good dollar. I mean, you can sell preowned real good. So the churn is just there because of the excitement. That's the best thing I can put at it.

I think there's just been a great flight to water or on water, near water. And then, just the innovation and the technology that's out there is just keeping the consumer excited.

Joseph Altobello -- Raymond James -- Analyst

That's helpful. And then, maybe one last one for me. In terms of price increases that you're seeing on model year '23, what does that look like? And what does that look like versus model year '21 and '22, for example?

Austin Singleton -- Chief Executive Officer

I'm going to have to default that one to Anthony. I haven't really looked at the -- across the board. It might be a --

Anthony Aisquith -- President and Chief Operating Officer

Yeah. They're continuing to go up. We used to in the past be it price increases -- you're at the beginning of the year, now unfortunately, with some manufacturers, and it's two to three of them. But again, like Austin said, it's not the same old boat with a different color.

I mean, there's things that they're putting the boats that are making people -- they're got-to-have kind of things.

Joseph Altobello -- Raymond James -- Analyst

Is pricing stabilizing, though, Anthony, at all?

Anthony Aisquith -- President and Chief Operating Officer

Yeah, it's starting to.

Joseph Altobello -- Raymond James -- Analyst

OK, great. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Fred Wightman of Wolfe Research. Fred Wightman. Your line is open

Fred Wightman -- Wolfe Research -- Analyst

Good morning. Could we just touch on the new boat margins in the quarter? It was up year over year, but down a little bit sequentially. I think you guys had signaled that you were expecting that to find a new normal last quarter, but how do you sort of see that trending going forward?

Jack Ezzell -- Chief Financial Officer

Yeah, I'd say what you see there is a little bit of seasonality that different season, different types of boats. We do see some variation. I think the margin environment remains robust. There was not significant discounting at all in the quarter.

So I don't want that number to suggest that there was. But we continue to go-to-market with a dynamic pricing approach, where we're looking at what are the market dynamics, what is in each individual market and adjusting price accordingly. So I think that's more a function of mix than really any other sort of indication.

Fred Wightman -- Wolfe Research -- Analyst

OK. That makes sense. And you guys have also talked about some potential same-store sales headwinds from inventory sharing just with some of these dealerships that have been acquired, but haven't come into the comp base. I mean, is there any -- did you see any of that in the quarter? Is there any way to sort of size what that impact was just on what looks like a pretty strong comp number? I guess, could this have been better if we sort of reflected some of those units on those acquired?

Austin Singleton -- Chief Executive Officer

You have pockets that are hotter than others. That West Coast of Florida is really hot. The Quality deal was a large deal. They run a lot of volume through there.

I don't think it was super meaningful, Fred. It's not like the 12 would have been an 18 or 16. The 12 could have been maybe a 12.5 or 13. So we've done a really good job.

And most of the stuff that came in, in this past quarter was stuff that was on order or that it was already in stock at that dealership and it was the quick turn. So I don't think it's a meaningful move at all.

Fred Wightman -- Wolfe Research -- Analyst

Perfect. Thank you.

Operator

Thank you. Our next question comes from the line of Michael Swartz of Truist. Michael Swartz, your line is open.

Michael Swartz -- Truist Securities -- Analyst

Guys, good morning. A few questions for me. First one, just a point of clarification on the guidance, Jack. I just want to confirm that your new guidance does not include the Ocean Bio-Chem acquisition, correct?

Jack Ezzell -- Chief Financial Officer

That is correct. And as you think about that, we indicated before that we expect that to close here in our fiscal fourth quarter, and it will not have a meaningful impact to the quarter. It maybe grows maybe $1 million a month of EBITDA out there. But with this type of transaction, we're going to have some pretty substantial transaction costs associated with it.

So it won't be meaningful to that. But then we'll update the guidance post close.

Michael Swartz -- Truist Securities -- Analyst

That's helpful. And then, I know, Austin, your comments suggest you're not seeing any change in the consumer backdrop, consumer dynamic. Are you seeing any changes in trends or disparity in trends? I know you're predominantly in the Southeast, but any changes in trends among geographies any changes in demand across different boating segments?

Austin Singleton -- Chief Executive Officer

Not yet. I mean, that might raise its head once you get further into the -- what we would call the slower time of the year. But right now, I mean, we're in the middle of the season. And Anthony is really better equipped to answer that.

But I'm not seeing it, so I'm sure he's not seeing it. You don't have anywhere that's hotter. Once the weather gets cooler up North, it will slow down, but that's expected and seasonal like we're used to dealing with. Anthony, you want to add anything to that?

Anthony Aisquith -- President and Chief Operating Officer

Yeah, I think you hit it directly on, Austin. I mean, I think that each one of those segments that we play in have some pretty incredible stuff, and none of it seems to be slowing here. And some of the stuff is still sold out until 2024.

Michael Swartz -- Truist Securities -- Analyst

And then last question for me, and I think you kind of touched on it earlier, but I didn't fully understand it. On the preowned margins in the quarter jumped pretty significantly, both year over year and more importantly, sequentially. So I'm just wondering -- and I think you called out Denison as part of that. Maybe just help us understand what that quarter-over-quarter jump stemmed from? And is that a sustainable level going forward?

Jack Ezzell -- Chief Financial Officer

So yeah, so what that has to do with is the mix within preowned, right? preowned is made up of three components. One is going to be used boats that are traded in. Second is going to be consignment boats that we deal. And third is going to be brokerage.

And Denison has a very significant brokerage operation. Brokerage is one of those types of transactions that you record on a net basis, so that it has the ability to move margin on low revenue dollars. So it certainly helped generate that significant increase in revenue, but then also definitely impacted the margins. And I think there'll be some variability among the mix.

But I do think going forward, we will have an elevated margin on that preowned line.

Michael Swartz -- Truist Securities -- Analyst

OK. That's extremely helpful. Thank you.

Operator

[Operator instructions] Our next question comes from the line of Kevin Condon of Baird. Kevin Condon, Your line is open.

Kevin Condon -- Baird -- Analyst

I think a lot of my questions have been addressed. But I did want to ask about the unit and ASP commentary you gave in disaggregating that same-store sales growth. When you say unit growth was positive in June and July, is that total units? Or does that also apply to new? Or are you seeing like better strength in used relative to new?

Jack Ezzell -- Chief Financial Officer

Yeah, that would come as more on a same-store basis, right? So we've been having significant unit growth just because of the acquisitions. But when you peel it back and look at it on a same-store basis, that would be a combination of both new and preowned.

Kevin Condon -- Baird -- Analyst

OK. Are they fairly similar in terms of same-store unit growth? Or is one category another matter?

Jack Ezzell -- Chief Financial Officer

Yeah, I don't have that number broken down, but I would suspect they're trailing fairly similar. If anything, maybe preowned, may be lagging a little bit just because throughout -- while new boat inventory has been tough, preowned has been even more difficult to get your hands on. So we've had now, throughout this year, challenges on the preowned line just because of the limited inventory. And so, I would maybe suspect that maybe fell a little bit behind.

Kevin Condon -- Baird -- Analyst

Got it. Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Jack Ezzell -- Chief Financial Officer

Austin Singleton -- Chief Executive Officer

Anthony Aisquith -- President and Chief Operating Officer

Drew Crum -- Stifel Financial Corp. -- Analyst

Joseph Altobello -- Raymond James -- Analyst

Fred Wightman -- Wolfe Research -- Analyst

Michael Swartz -- Truist Securities -- Analyst

Kevin Condon -- Baird -- Analyst

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