OneWater Marine Inc. (NASDAQ:ONEW) Q4 2023 Earnings Call Transcript
OneWater Marine Inc. (NASDAQ:ONEW) Q4 2023 Earnings Call Transcript November 17, 2023
Operator: Good day, and thank you for standing by. Welcome to OneWater Marine's Fiscal Fourth Quarter 2023 Financial Results Conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Jack Ezzell, Chief Financial Officer. Please go ahead, sir.
Jack Ezzell: Good morning, and welcome to OneWater Marine's Fiscal Fourth Quarter and Full Year 2023 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 the future results are discussed in the company's earnings release, which can be found in the Investor Relations section on the company's website and in its SEC filings. 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: Thanks, Jack, and thank you, everyone, for joining today's call. I would like to begin by thanking the OneWater team for their solid execution in the challenging operating environment. Despite the return to historical buying patterns and normalized pricing, we delivered record revenue in 2023, which increased 11% on top of the 42% growth in 2022. Furthermore, the team delivered same-store sales growth of 3% for the full year. For the quarter, same-store sales of 14.6% significantly outperformed the industry, which market data indicated was down high-single digits. Full year revenue from our higher-margin service, parts and other sales grew 26%, which helped us offset the expected decline in new boat margins as the industry returned to normalized pricing.
Margins in the fourth quarter were in-line with the third quarter, which is encouraging. Overall, we believe that margins will continue to fluctuate the seasonality in model mix, but it does seem to feel like boat margins were stabilizing. OneWater's proven track record of managing through various economic cycles served us well during 2023. Over the past year, our proactive and aggressive approach to inventory management resulted in inventory levels at 19 weeks on hand compared to an industry average of 25 weeks on hand. We continue to aggressively work down non-current inventory, saving on interest expense and other carrying costs. This positioned us with a good supply of model year 2024 boats compared to 2023, which provides a more compelling sales opportunity.
This competitive positioning in a market flooded with non-current inventory is driving results today and set us up for success in the quarters to come. I'm pleased to announce that earlier this week, despite the difficult banking environment, we were able to increase our floor plan facility by $100 million to a total capacity of $650 million. This will support the business and recent completed acquisitions. It's important to note that while same-store sales inventory hasn't grown in terms of units compared to 2019, it has increased more than 40% on a dollar basis. This additional capacity provides us greater flexibility, especially as we integrate the dealers we have acquired over the past few years. We also completed a sale leaseback agreement for Roscioli Yachting Center, which bolstered our cash, allows us to sharpen our focus on Sunseeker Yacht sales, warranty and service operations.
The proceeds from the sale were used to pay down a portion of our long-term debt and to acquire the remaining 20% interest in Quality Boats located on the West Coast of Florida. As a reminder, we first acquired a major interest back in December of 2021 and have been pleased with Quality's performance in one of the most attractive boating markets in the country. On the M&A front, deal pipeline continues to be attractive, and our strong balance sheet provides dry powder for the right deal. While we are seeing plenty of activity, we are being extremely selective and scrutinize every opportunity to find the right dealership to add to our portfolio. In summary, I'm proud of our team's execution while navigating industry challenges as we return to a more normalized operating environment.
We continue to work tirelessly to provide our customers with the boat [Technical Difficulty]. We remain nimble in our response to changing market dynamics and continue to focus our efforts on strategic priorities that position OneWater for long-term success. With that, I'll turn it over to Anthony to discuss business operations.
Anthony Aisquith: Thanks, Austin. Despite the normalizing the sales environment, our team remains active in delivering a solid close to the summer selling season. Customer sentiment is holding up and the fourth quarter same-store sales was over 14% was supported by strength from new and pre-owned boat sales. Our manufacturing partners continue to be very innovative on building exciting new models in the premium segment with unique features that customers want. We saw this excitement firsthand at recent boat shows, including the Fort Lauderdale International Boat Show, which [indiscernible] activity. While we're too early in the boat show season to draw on a conclusion, we are off to a good start. Turning to our higher-margin businesses, finance and insurance income for the fourth quarter was also up slightly, though not proportionately to boat sales due to the current spread on the interest rate.
The average customer seems to be getting used to higher interest rates and credit continues to remain widely available and widely used. We believe the majority of the customers use some degree of financing to pay for a portion of their purchase. To this point, approximately 70% of new boat customers in the September quarter financed a portion of their purchases directly with us, which is on the high side of historical averages. From where we sit today, our customers are generally adjusting the higher cost of financing their boats tend to be somewhat insulated from interest rates and economic headwinds. Overall, we believe our retail strategy has positioned us to continue to outperform the industry. With that, I'll turn the call over to Jack to go over the financials in more detail.
Jack Ezzell: Thanks, Anthony. Fiscal fourth quarter revenue increased 13% to $451 million in 2023 from $398 million in the prior year quarter. New boat sales grew 12% to $264 million in the fiscal fourth quarter, while pre-owned boat sales increased 36% to $92 million. We are pleased with the pace of boat sales that have outperformed industry reports despite the challenging macroeconomic environment. Revenue from service, parts and other sales for the quarter increased 1% to $82 million compared to the prior year and finance and insurance revenue grew 2% to $13 million in the fourth quarter. These sales gains generated over 14% same-store sales growth for the quarter, which significantly outpaced the industry. Gross profit decreased 6% to $119 million in the fourth quarter compared to $126 million in the prior year, driven by the normalization of gross margins on boats sold.
Gross profit margin appears to be stabilizing when compared to the June quarter, but has declined from the fourth quarter of last year. We now expect margins to fluctuate with historical seasonal patterns and model mix. In the pre-COVID era, we typically benefited from stronger margins during the summer selling months with a mix shift to higher unit volumes and lower ASP as opposed to the slower winter months, where the mix shifts to higher ASP with lower margins. Fourth quarter 2023 selling, general and administrative expenses increased to $85 million from $80 million. SG&A as a percentage of sales was 18.8%, down 120 basis points from the prior year, driven by the variable cost structure of the business, cost optimization and integration efforts of the acquired parts and service businesses.
In the fourth quarter, the company reported a non-cash impairment charge of $147 million. The charge is primarily related to the write-down of goodwill and identifiable tangible assets that were reported in our Distribution segment and was largely driven by the recent decline in the segment results, the stock price and the overall valuation. We believe there's tremendous value in our Distribution segment, which we will be realized as part of our long-term growth strategy. As a result, we posted an operating loss of $117 million compared to income of $40 million in the prior year. Net loss for the fiscal fourth quarter totaled $111 million or $6.89 per share compared to net income of $22 million or $1.28 per diluted share in the prior year. Excluding the impairment charge and other adjustments, we reported adjusted EBITDA of $28 million compared to $45 million in the prior year.
We have also introduced a new metric, adjusted earnings per share to assist with the comparability of the results. Accordingly, for fiscal fourth quarter of 2023, our adjusted earnings per diluted share was $0.42 compared to $1.68 in 2022. Turning to our full year results. Total revenue for the year 2023 increased 11% to $1.9 billion compared to the prior year, driven by an increase in the average unit price of both new and pre-owned boats, an increase in the unit sales of pre-owned boats and sales growth from higher-margin businesses. Same-store sales increased 3% in fiscal 2023. Additionally, service, parts and other revenue increased 26% to $322 million for the fiscal 2023, driven by contributions from our recently acquired businesses and dealer operations.
Full year 2023 gross profit decreased 3% to $535 million compared to the prior year as a result of industry-wide normalization of boat pricing, partially offset by meaningful contributions of acquired parts and service business. Gross profit margin for fiscal 2023 was 27.6%, a decline of 410 basis points compared to fiscal 2022. Selling, general and administrative expenses in fiscal 2023 increased to $346 million, or 17.8% of revenue from $302 million, or 17.3% of revenue in fiscal '22. The increase in SG&A as a percentage of revenue was driven by the return of more traditional promotional environment and higher costs associated with our acquired service, parts and other businesses. We will continue to moderate cost with our variable expense structure and bring the higher expense structures of the acquired businesses in-line with the legacy business.
Full year 2023 operating income fell $18 million compared to the prior year's operating income of $218 million, primarily driven by the $147 million impairment charge reported in fiscal year 2023. Net loss for fiscal year 2023 was $39 million or $2.69 per share compared to net income of $153 million or $9.13 per share in the prior year. The business generated adjusted EBITDA of $167 million for the fiscal year 2023, and adjusted earnings per diluted share of $5.10 compared to $10.55 per diluted share in 2022. Turning now to the balance sheet. On September 30, 2023, the total liquidity continues to be in excess of $100 million, including $85 million of cash and availability under our credit facilities. As Austin mentioned earlier, we entered into a sale leaseback transaction disclosed on September 30 that did not fund in October 2nd.
As such, $45 million proceeds reflected as a receivable on our books at the close of the year. While the sale has a slightly negative impact on adjusted EBITDA, overall, it increases cash flow on an annual basis. Subsequent to year-end, we used $25 million of proceeds to pay down long-term debt and the balance to purchase the non-controlling interest of Quality Boats. Total inventory on September 30 was $610 million compared to $373 million at September 30, '22. As a result of improved lead times and industry normalization, our boat inventory has returned to pre-COVID levels, and both units are up less than 1% compared to fiscal 2019 on a same-store basis. Long-term debt currently stands at $458 million, a net debt to adjusted EBITDA ratio is 2.2x.
We are comfortable with our liquidity and leverage position, and we'll continue to monitor the macro environment as we manage our balance sheet. Looking ahead to 2024, we expect demand and margins to continue to moderate to more traditional seasonal cycle and are not assuming a major economic downturn or a recovery as part of our outlook. We anticipate same-store sales to be up low to mid-single digits. We expect adjusted EBITDA to be in the range of $130 million to $155 million, and earnings per diluted share to be in the range of $3.25 to $3.75. We would like to note that beginning in fiscal year 2024, our adjusted EBITDA calculation will exclude stock-based compensation and will remain part of our definition for both guidance and results on a go-forward basis.
We feel this methodology is more in-line with industry standards and provides better insight into the company's true performance. Our fiscal fourth quarter and full year 2023 results provided under the historical definition, but I would like to direct our investors to the reconciliation tables in this morning's press release for further explanation of these factors. Finally, our capital allocation priorities remain unchanged. We will continue to monitor the macroeconomic environment as we conservatively evaluate opportunities to deploy cash. We will also continue to explore opportunities like sales leaseback transactions, which improved the balance sheet and annual cash flows. We remain disciplined in our approach and unwavering our commitment to drive long-term value for shareholders.
This concludes our prepared remarks. Operator, will you please open the line for questions?
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Michael Swartz with Truist Securities. Your line is now open.
See also 25 Cities With the Best Nightlife in the World and 30 Smartest Animals in the World.
To continue reading the Q&A session, please click here.
