OneWater Marine Inc (ONEW) 2024 Q4 法說會逐字稿

Good day and welcome to the OneWater Marine fiscal fourth-quarter and full year 2024 conference call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Jack Ezzell, Chief Financial Officer. Please go ahead.

Good morning and welcome to OneWater Marine's fiscal fourth quarter and full year 2024 earnings conference call. I am joined on the call today by Austin Singleton, Chief Executive Officer and Anthony Aisquith, President and Chief Operating Officer.

Before we begin, I'd like to remind you that certain statements made by management in this morning's conference call regarding OneWater Marine and its operations may be considered forward-looking statements under securities law and involve a number of risks and uncertainties. As a result the company cautions you that there are a number of factors, many of which are beyond the company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements.

Factors that might affect future results are discussed in the company's earnings release, which can be found in the investor relations sections of the company's website and in its filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date, the forward-looking statements are made except as required by law.

Please note that all comparisons of our fourth quarter, 2024 results are made against the fourth quarter of 2023, unless otherwise noted.

With that, I'd like to turn the call over to Austin Singleton, who will begin with a few opening remarks. Austin?

Thanks Jack and thank you everyone for joining today's call. This past year has been challenging for our team, our industry, and our communities. Tragically, in late September hurricane Helene struck followed by hurricane Milton in early October, causing extensive damage and disruption across the west coast of Florida.

Our thoughts and prayers remain with those affected by the storms. Most importantly, I am pleased to report that our teams are safe and most of our stores sustained only minor damage. As of today, while a few docks are still under repair, all retail locations have reopened and are fully operational.

Despite the hardships, the resilience and support within these communities has been remarkable. I'm incredibly proud of our team's dedication to our customers and the communities during these difficult times.

As you would expect the disruption from hurricane Helene significantly impacted our fourth quarter results. As previously disclosed in our press release in late September, we temporarily closed several stores in preparation for the storm and as insurance companies imposed a moratorium on writing new policies.

As a result, sales were disrupted during a typically strong selling period for us. While the number of sales were closed in October, it is difficult to predict when the remaining sales will deliver. Customers are starting to settle insurance claims and rebuild their lives, and our teams are prepared to serve them when they are ready.

This past year was challenging for the marine industry as demand and pricing reset to historical norms. Our team's strong operational execution along with our revenue brand and geographic diversity helped us mitigate these challenges.

We remain focused on disciplined expense management and keeping our operating model in line with current demand. As a result, we executed further cost saving measures in the fourth quarter including rationalizing additional brands and consolidating certain parts and service facilities to more efficiently serve our customers. All these restructuring actions impact margins in the fourth quarter, we expect to see benefit in 2025.

We implemented similar actions earlier in the year that are already yielding results as reflected in our lower SG&A expenses compared to the prior year period. We believe this positions us for success in the coming year.

Turning to full year results, same store sales were down 7% reflecting softer demand within the broader recreational marine market. While this fell slightly short of our target, it's worth noting that through August, same store sales were down, only 5% aligning with our expectations before the impact of hurricane Helene.

Our distribution segment service parts and other sales were also negatively impacted throughout the year by lower production for manufacturers. With higher interest rates on our floor plan and the current selling environment, we remain focused on managing our inventory to align with retail demand.

I am proud with the progress we've made in executing our inventory strategy and we are well positioned as we head into 2025 with inventory tracking in the right direction.

Turning to M&A we were relatively quiet in 2024 as compared to prior years. But the pipeline remains active. Opportunistic transactions with a minimal capital outlay continue to be attractive and plentiful.

We are actively monitoring the market and pursuing targets that meet our disciplined financial criteria while also supporting our strategic objectives.

As we look back on the year, our diverse revenue streams, strategic brand offering and geographic reach have helped us offset some of the challenges from macroeconomic uncertainty and adverse weather. This has enabled us to navigate what remains a complex operating environment.

While cautious, we hold an optimistic view as we move into 2025 as Anthony, will touch on shortly, the customer is active and we are strategically managing our inventory and our cost optimization efforts from March and September are working.

Recent interest rate cuts and inventory reduction have helped reduce our overall interest expense and carrying costs. While not embedded into our guidance, future interest rate cuts should provide additional tailwinds to our business.

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

Thanks Austin. The sales pace for the quarter started in line with the month of June with demand increasingly slightly in August. However, September was challenged due to hurricane Helene and October was further impacted by hurricane Milton. These disruptions on the west coast of Florida impacted sales for September and will continue to have an effect for the first half of the year as customers rebuild.

We are pleased to report a record Fort Lauderdale Boat Show with a unit sales up double digits compared to the prior year. The strong activity highlights the sustained customer appetite for boating despite uncertainty in the election and overall economy at the time. Our manufacturer partners unveiled a variety of new 2025 models adding to the excitement and driving demand.

Our diverse brand portfolio has been significant competitive advantage ensuring we have the right vote for every customer regardless of their location. Promotional activity remains robust with the manufacturers consistently offering support to drive sales and clean out aged inventory.

Elevated inventory levels have been a common theme across the industry this year. Although we typically increase inventory in the fourth quarter as part of a seasonal build, our inventory was slightly down sequentially due to our optimization efforts. As we redefine our product strategy and phase out certain brands, we expect inventory to decrease another 10% next year.

Regarding our current inventory composition, we are comfortable with the mix of 2024s and 2025 models. We have reduced our orders for model year 2025 and are being replaced at a slower pace than prior year.

Our financial insurance penetration remains strong and well within our target range. Customers have appreciated a slightly lower interest rate environment. So any future rate cuts should make financing options even more attractive to them. While also improving the economics of the boat's finance through OneWater.

And with that, I'll turn the call over to Jack, to go over the financials in more detail.

Thanks Anthony. As mentioned, our fourth quarter results were impacted by hurricane Helene. The closure of stores and insurance markets prior to the storm directly affected our revenues.

Fiscal fourth quarter revenue decreased 16% to $378 million in 2024 from $451 million in 2023. New boat sales were down 18% to $217 million in the fiscal fourth quarter of '24. While preowned boat sales decreased 20% to $73 million.

Revenue from service parts and other sales for the quarter decreased 7% to $76 million. Driving this was a reduction in sales at our distribution segment which is partially offset by increases in our dealership segment.

Finance and insurance revenue decreased 12% to $11 million in the fourth quarter but was slightly higher as a percentage of total boat sales. Gross profit decreased 24% to $91 million in 2024 compared to $119 million in 2023.

This was driven by the return to pre-COVID margins on boat sales. Lower margins on brands, we are exiting and restructuring charges included in cost of sales.

Sequentially, gross profit margin declined but absent the restructuring charges in cost of sales gross profit was in line with the June quarter and with our expectations. Fourth quarter, 2024 selling general administrative expenses decreased to $80 million from $85 million.

SG&A as a percentage of sales was 21% up 220 basis points on lower sales. On a dollar basis SG&A was down 6%, due to the previous cost reduction actions and ongoing expense management and lower personnel costs in the quarter.

Operating income increased to $4 million from a loss of $117 million in adjusted EBIDA was $8 million compared to $30 million. Net loss for the fiscal fourth quarter totaled $10 million or $0.63 per diluted share compared to a net loss of $111 million or $6.89 per diluted share. In the fiscal fourth quarter, adjusted loss per diluted share was $0.36 compared to an adjusted earnings per diluted share of $0.42.

Again, these amounts were significantly affected by the impact of hurricane Helene. (inaudible) total revenue for 2024 decreased 8% to $1.8 billion compared to the prior year, driven by a decrease in units sold for both new and pre-owned. Same store sales decreased 7% in fiscal 2024, which was impacted by a softer retail environment and weather-related closures.

Additionally, servers and annual revenue decreased 10% to $291 million for fiscal 2024. Driven by lower sales from our distribution segment, partially offset by increases in sales from our dealership segment which was up year over year as we expand this important part of our business and service our customers. Full year '24 gross profit decreased 19% to $435 million as a result of changing market dynamics and gross profit margin for fiscal 2024 was 24.5%.

Selling general and administrative expenses in fiscal 2024 decreased to $333 million or 18.8% of revenue from $346 million or 17.8% of revenue in fiscal 2023.

The increase in some general administrative expenses as a percentage of revenue was driven by lower revenues. However, our variable cost structure and targeted cost actions support lower SG&A on a dollar basis.

The cost reduction actions we made in March and September will continue to moderate our overall SG&A. We will continue to practice proactive expense management and have the flexibility to accelerate cost actions, as necessary. Should the need arise?

Full year 2024 operating income grew to $65 million compared to the prior year operating income of $18 million. Primarily due to a non-cash impairment charge related to certain intangible assets during the fourth quarter of '23. Net loss for fiscal year 2024 was $6 million or $0.39 per diluted share compared to a net loss of $39 million or $2.69 per diluted share in the prior year.

The business generated adjusted EBITDA of $82 million for the fiscal year 2024 in adjusted earnings per share of $0.98 per diluted share compared to $5.10 per share in 2023.

Turning now to the balance sheet on September 30, 2024, total liquidity was $30 million including $17 million of cash and availability under our credit facilities.

Total inventory on September 30, 2024, was $591 million carried to $599 million on June 30, 2024. We are comfortable with our current mix in aging and as we execute on our brand rationalizations, we expect an income benefit from further inventory reduction.

Total long term debt as of September 30, 2024, was $423 million resulting in a net leverage of 4.9 times trailing 12 month adjusted EBITDA.

The hurricane impacts on the business have pushed our net leverage higher than our expectations. But as the west coast of Florida recovers, we will reduce our leverage in the back half of 2025.

Looking ahead to 2025 we are cautiously optimistic as we expect demand to fluctuate with traditional seasonal cycles.

We anticipate total sales to be in the range of $1.7 billion and $1.85 billion with same store sales up in the digits, noting a softer start to the year as we work through the impact of hurricane Helene and Milton in the first quarter. We expect adjusted EBITDA to be in the range of $80 million to $110 million and adjusted earnings per share to be in the range of $1 to $2.

To conclude, we continue to focus on optimizing our costs, inventory, and debt levels as we adapt to the changing market dynamics. While 2024 was a challenging year, we have taken actions to position OneWater success and look forward to 2025.

This concludes our prepared remarks operate where you please open the lines for questions.

(Operator Instructions) Joe Halton Bello, Raymond James.

Thanks. Hey guys, good morning. First question for you, Jack, I guess if you could quantify for us, you know, what the impact on revenue and EBITDA in the quarter was from Helene.

Yeah, thanks Joe. You know, it's a tough one to actually get a very specific number on the period of time it really was out a little over a week's time from quarter end. You know, but we're estimating it's probably in that, that $30 million-plus range.

You know, some of it, we were able to get some deals, like on the east coast of Florida, which wasn't impacted, we had some insurance markets open up right on the 30th. So, you know, real fluid, but it's somewhere in that, I'll call it all that range.

Okay, helpful. And then in terms of the expectation for Helene and Milton, maybe help us understand how are you thinking about the first quarter in terms of EBITDA? And does your guidance assume that you recoup any of those lost sales over the balance of the year?

Yeah, you know, there's, it's difficult to exactly, you see how it's going to play out. Obviously, our expectations will be next, the fourth quarter of '25 would be a very easy comp for us to overcome and expect to see that up significantly.

But I do think there's some expectation that, you know, the back half will see some recovery from the west coast of Florida. But, you know, just as you know, Joe, right when you have a hurricane, customers don't just rebound the next day, many people are having to replace homes, cars, businesses and unfortunately, the boat, is further down the list.

Sometimes it can take 18 months before they're ready to purchase the boat. So you don't ever really expect a big spike coming from a post hurricane event. But, you know, we do think after, you know, a six-month period, certain customers will be back in the market, you know, and active.

But we're monitoring the weather, we've had some mixed results, some stores are tracking better than others. But, you know, we have about 10 stores in that, let's call it Tampa, Tampa Clearwater down to Fort Myers and that span there. So a number of stores in the impacted area.

Okay, thank you.

Thanks Joe.

Craig Kennison, Baird.

Hey, good morning. Thanks for taking my question. Austin, I'd love to ask you just to give your point of view on the state of the boat consumer. You know, we've got difficult environment to predict whether it's, you know, you mentioned the Fort Lauderdale show, which is positive, you've got a lot of other trends that are somewhat negative in the industry.

And then you got the election result, which I assume is friendly towards the both consumer. But how do you unpack all of that and digest that information to provide a boat outlook?

Yeah, I mean, that's a tough one. But, I mean if you look at Lauderdale, Lauderdale was a great show. It was kind of like a, I mean, I'll let Anthony jump in on this too because he was on the docks a pretty good bit, but it was like a breath of fresh air. Like it just seemed different.

I don't know if it was just, there was a relief that the unknown of the election was over. You know, because the weather wasn't that great the first couple of days, but it was a lot better than we were expecting. We were kind of expecting it to continue on the, you know, let me October was a pretty damn good month.

Now we just, you know, some of that was pull forward from September. But it just felt different, Anthony, you want to jump in and make a comment on that. I mean, it's hard to explain, but you just the vibe and the tone just felt completely different than what we've seen in the last nine months.

Yeah, we didn't have a lot of the interest rate conversations with customers. We didn't have a lot of, negative conversations where they were waiting for something. Everybody was pretty positive, and the boats were priced accordingly and aggressively to also move some older inventory. So it created a lot of stir, and it felt very good back to the boat business usually feels to me personally.

And just to follow up on that, it sounds like, you know, you didn't get a lot of pushback on interest rates. Were you seeing a customer that's more affluent and just not sensitive to rates? And if so do you have any comment on how the rate sensitive consumer might be thinking?

I think we've seen that for the last, five years, seven years, I mean, the fluency of our customer is, it just continues to increase. And it's just one of those things that when you look at from a financing perspective, we have to work really hard and we do work really hard and we're kind of still staying in that, in our range of what we want is from a penetration standpoint. Now we just got to spread that margin.

But yeah, the customer is definitely more affluent than it was 10 years ago. I mean, and it's, you know, a lot of its access to water and more people getting to water, which is exciting because it just increases the churn. So a more, you know, a scarcity of access to water that's overloaded by fluency is a good thing for the churn as we move the industry forward.

That's great. Thank you.

Drew Crum, Stifel.

Okay, thanks. Hey guys, good morning. So on your same store sales for the quarter appeared to lag the industry. Is it simply the geographic concentration in Florida or there are any other factors you think contributed to the share loss? And then I have a follow up.

Yeah, 100%. I think it was the how that we have so many stores kind of on that Gulf coast. And so I think when you factor that in it, we were worse than, I think the industry that the segments we participate in was around 13%, 14%. So we were certainly a couple of points worse than but, you know, obviously we have a much heavier concentration on that Gulf coast, right?

Because when that storm was brewing in the Gulf, we had every store from the Florida Keys, to Orange Beach, Alabama. All of those coastal stores in preparation mode and so, right, the service department shut down, we're not doing retail work. We're getting customer boats out of the water, our boats out of the water, you know, battening down the hatches. So I think that probably overweighted a little bit.

Got it. Okay, thanks Austin. And then, you know, with your pro forma leverage approaching five times, can you address what kind of flexibility you have around uses of cash? And I guess I'm an a specifically, I think you mentioned that you got a full pipeline entering fiscal '25. And where do you expect to be at year end? Thanks guys.

Yeah. No, I think it's, we continue to look at acquisitions, you know, some of them last couple of deals we've done have been minimal capital outlay. And I think there's a number of them in the pipe that are such, there's also, some larger deals where, you know, they're still going through a normalization process of their earnings.

And they have to kind of anniversary that before they're, going to be realistic with purchase prices. So we're conscious of we're at, we're working towards reducing debt and driving things forward, with the cost actions that we took with the brand alignment that we took and reducing the number of brands, all of that helps to simplify our business, increase the profitability of our business and strengthen us as we go forward.

Thanks chair.

Fred Reitman, Wolf Research.

Hey guys, good morning. I was hoping you could just help us out a little bit with some of the segment level expectations, particularly when it comes to gross margins. You mentioned that new boats are sort of back to where they were from a pre-COVID perspective, but there's also a lot of promo in the market.

So as you think about fiscal '25 do you expect that to sort of be up, down sideways? How should we think about that?

Yeah, let me jump in, Jack. I'm cautiously optimistic that we can get a little bit of margin help on new boats as we move into 2025. That the, what will be interesting is how the overall industry, the reduction of field inventory or dated field inventory comes down and how aggressive or fast the, promo dollars go away and those have to be backfilled with just straight margin from us.

But as you get through dated inventory and everybody's not in a, you know, I'm paying interest on this vote, I got to get rid of it. That you should see some sort of margin relief to the upside. Is it a half a point? Is it a point? Is it a point and a half that still be still to be determined.

But I don't think we see that till you get into the gut of the season till you get into those April May deals because there's still going to be some flushing out when you look at an overall gross margin still going to be some flushing out of this old inventory. So, I'm expecting to see some bump up. But we just got continue to keep chugging along like we are.

It feels like every time we do these calls, I'm like, we're getting closer and it's like running through quicksand. It just takes a little while for all this inventory to flush through the system. But it's better today than it was yesterday and it's better this month than it was three months ago. And I think that, I've talked with wells earlier in the week and that they've seen some good positive trends.

Not only from the Lauderdale Boat Show with other dealers, but also just across the nation of increased payoffs and stuff. So things seem to kind of be lighter and easier and going in the right direction and we just need to keep doing that and we should see a little bit of margin bump as we move into the back half of next year.

Yeah, I'll point out two things. Fred, we had some restructuring charges hit new boat cost of sales, right. So new boats seem to tick down a little bit when you back out those restructuring charges, we get right back to that, you know, 17 and change percent on new boats.

And then the same thing in park service and other, we ticked down just below 40% because of some we consolidated some plants, some warehouses and there's some charges, restructuring charges in there that brought that number down below 40, but on an ongoing basis, it will be above 40 we expect that as well.

I think as we look into the first quarter with some of these brands that we're exiting, we could see some, a little bit of margin pressure there, but we also have some exciting 25 product that we're getting full margin on. So it will be a balance.

Okay. That makes sense. And then on the cost saves, will you just remind us or help us with sort of what the all in expected benefits for that is heading into '25? I know that I think you guys did an action back in March and then there were some September actions too, but as we just think about the SG&A tailwind into next year, what is sort of the all in benefits.

We wanted to, trim some costs we've actually seen, in many cases unit sales increasing in recent months, we have to kind of keep this balance of, you know, we want to make sure we're having adequate staffing to keep, to support our customers. And so, we've made some cuts, the March cut was around $10 million.

So about half of that now is baked in. And then we took in about another $5 million at the end of the year. That'll bake into '25.

Great. Thank you.

Michael Swartz, Truest Securities.

Hey guys. Good morning. Maybe just to drill down a little bit more on your '25 guidance. The low single digit comparable store sales growth expectation give us a little sense of the drivers there. What's your outlook for the industry during your fiscal year? And are you embedding any benefit from share gains pricing, et cetera?

Yeah, I would say we're definitely be embedding some share gain. I think we will outpace the industry. If we're low, single digits positive, the industry is probably low, single digits negative. You know, I think there's some uncertainty for us in particular with respect to the west coast of Florida.

And how quickly that rebounds and exactly what that impact is on the same store sales, guide as well as, we have some exit brands that we're pushing out. We have some store closures that will come out of the base that we did earlier this year. And so it's a little noisy, but we are positive on the air.

Okay. Hang on real quick, clarify that store closings. It's not like, I mean it's one-off satellite locations really small. (multiple speakers) we're not closing any of our major stores or anything that has any substance to it. It's all really just, you know, do we really need to have a satellite that's 30 miles away from the mother ship of the spoken hub just because it was convenient, we got a cheap lease.

You know, consolidating that back down is helping us, you know, with personnel costs and stuff like that. It just doesn't make sense. We won't lose that business. So it's not like we're closing stores. I don't want that to. That didn't sound right.

Okay. No, thanks for the clarification, Austin. And then just maybe to put a finer point on the first quarter. I mean, there's a lot of noise, a lot of obviously disruption and it sounds like you did get maybe some business back that shifted out of the fiscal fourth quarter. But would you expect EBITDA to be negative in the first quarter? I'm just trying to get a sense of, how we should model it?

It wouldn't surprise me if it was slightly negative.

Okay. wonderful. Thanks guys.

I just think, with the unknown of the west coast, it's kind of hard to see, with and then you combined, some aggressive actions on some of these brands we're exiting and clearing out model year '24 in calendar '24. You know, I think as well as right when typically the December quarter tends to be a slightly lower gross margin quarter, when you look at it just from a seasonality perspective as well.

Okay, great.

Noah Zatzkin, KeyBanc Capital Markets.

Hi, thanks for taking my question. Just wondering if you could give any thoughts around kind of the state of the preowned market. Any trends you're seeing there and how you're kind of thinking about '25. Thanks.

Yeah, I mean, I would say the only thing that's really changed or has the only thing about the industry that doesn't seem to ever change is the free market, there's not enough of them.

And, that's pretty steady. You know, case out there still today, we could always use three times as many as we have. So, you know, that's something that we put a lot of emphasis on and it's an important part of our business and we continue to focus on it and it's just a tougher part of our business just because of the lack of inventory that's available.

Thank you.

That is the end of our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.