OneWater Marine Inc (ONEW) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the OneWater Marine Fiscal Fourth Quarter and Full Year 2020 Earnings Call. (Operator Instructions). I would now like to introduce your host for this conference call, Mr. Jack Ezzell. You may begin, sir.

Good morning, and welcome to OneWater Marine's Fiscal Fourth Quarter and Full Year 2020 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 would 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 obligations or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except where 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.

Thanks, Jack, and thank you, everyone, for joining today's call. We delivered record results in our first year as a public company, highlighting our strong execution and flexible business model. I would like to thank our team and customers for their unwavering commitment to OneWater. Full year 2020 revenue surpassed $1 billion for the first time in OneWater's history, which was an increase of 33% compared to the prior year. Same-store sales increased 24%, more than doubling our expectations. Our high-margin finance and insurance revenue grew by a whopping 41% compared to the prior year and will continue to be a major focus with a lot more room for growth in the years ahead.

We continue to gain substantial market share in all our business segments. At the same time, our full year 2020 adjusted EBITDA of $83.3 million nearly doubled from the prior year, mainly due to our superior execution and strong business model. Importantly, our M&A execution is second to none. The synergies and growth we have been able to realize from our recent acquired stores have significantly contributed to our 2020 results.

Bolstering our full year results was a strong fourth quarter, where we continue to take market share and meet heightened retail demand. In the fourth quarter, revenue increased 30%, and same-store sales increased 25% year-over-year, comfortably above our expectations. This increase comes on top of a 20% same-store sales increase in the fourth quarter of 2019. Our highly efficient sales process, innovative retail technologies and strong manufacturing partnerships enable the team to continue to deliver strong results. In 2020, the marine industry experienced a surge of first-time buyers, which has expanded our addressable markets. History has shown us that many of these customers will stay in the boating lifestyle for years to come. Our customer-focused team and huge selection of products will keep them coming back to OneWater for all their boating needs, which will support further margin expansion.

Finally, our industry-leading digital platform, along with our dynamic pricing strategy will continue to enhance operations of our dealers and serve as a clear competitive advantage. Inventories remain at historically low levels, but they have begun to build since the end of the fourth quarter. Despite supply chain constraints cited by OEMs in recent weeks, we do expect the inventories to build further throughout the slower winter months, setting us up for a fresh lineup of inventory for the spring selling season.

Our strong OEM relationships are a differentiator, and our inventory planning tools allow us to have a great visibility into boats on order or in production. This enables us to engage with the customers and pre-sell inventory that is inbound to all locations, creating an enormous savings on floor plan interest, inventory maintenance and general carrying costs.

M&A remains a core component of our long-term growth strategy, and our acquisition pipeline has continued to build on pace with our historical trends. We are seeing the size of the opportunities increase as well. Just like with our latest deal, Tom George Yacht Group, which is one of our largest acquisitions to date. We are excited about the return of this critical growth component of our business. Our proven system of employing a disciplined and prudent approach to identify top dealers in high-performing markets and then systematically capitalizing on improvements and synergies will continue to advance our position as an industry leader.

Our results this year were outstanding, and we are excited about 2021. The ramp-up in our M&A activities and the strong execution across our dealers will continue to support our growth, while the evolution of our high-margin business segments and heightened focus on technology innovation will enable us to further gain market share. We believe all these efforts will support meaningful value for our shareholders as we move into 2021 and beyond.

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

Thanks, Austin. With more and more families turning to boating as a lifestyle, demand continued at an unprecedented level in our fiscal fourth quarter. Our team continue to provide superior customer service to keep our growing customer base out on the water. Our custom CRM, along with our inventory management tools, operational dashboards have helped us outperform the industry by selling boats across our dealerships, moving inventory to different locations to meet the demand levels and providing more visibility into inbound inventory from all of our manufacturers. With critical data at their fingertips, our sales team is able to seamlessly integrate the surge in new customers into the OneWater family and continue to outperform the industry.

During the quarter, we made some key leadership changes to double down on our digital strategies and foster future growth. We named Dave Witty, a marine industry veteran and a long-time OneWater teammate, as our Chief Technology Officer. Dave will focus on expanding our growing digital infrastructure with integrated marketing to enhance the customer experience and to provide tools for the new OneWater team to facilitate growth.

In addition, we leveraged our deep bench of leadership talent and made a number of organizational realignments to position business leaders closer to our customers, which enhances our ability to capitalize on near and long-term growth opportunities. The boat show season is shaping up to look very different this year, with shows operating under significant restrictions, others being postponed and a number being canceled altogether.

We are taking the opportunity to host a more intimate VIP or smaller local events at our stores where customers can have a more personalized interaction with our product and our team. And our results have been outstanding. As for traditional boat shows, we recently attended the Fort Lauderdale boat show. We scaled back our presence at the show, and our team operated under restrictions and safety measures. Encountered some challenging weather, yet our sales were still higher than the prior year. Additionally, we saw sales increase in the weeks leading up to and following the show at certain locations since many customers shopped locally versus traveling to Fort Lauderdale.

This is a testament to our ability to leverage our highly effective digital platform to maintain our momentum. As part of our long-term strategy, we remain focused on continuing to develop our high-margin businesses which historically have provided stability for our company. Our service, parts, and other revenue increased 9% in the fiscal fourth quarter, driven by 2 new service locations that recently went into operation in Georgia and Alabama.

Finance and insurance revenue continued to increase during the quarter and is up 41% year-over-year. The F&I as a percentage of sales has increased to 3.6% of sales. We remain committed to expanding this line of business and identifying opportunities to increase penetration rates and the number and types of products that are available to our customers.

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

Thanks, Anthony. We delivered strong results in the fourth quarter, with revenue increasing 30% to $271 million in 2020 from $208.8 million in 2019, and same-store sales increased 25%, primarily driven by an increase in the number of units sold, as well as an increase in the average unit price of new and pre-owned boats. This same-store sales increase sits on top of a 20% increase in the fourth quarter of 2019. During the fourth quarter, we continued to meet the heightened demand for new and pre-owned boats across our business, as customers continued to choose boating to enjoy the outdoors with friends and family in a safe, socially distanced way.

New boat sales grew 29% to $186.8 million in the fiscal fourth quarter of 2020 and pre-owned boat sales increased 47% to $56.2 million. As Anthony said, we continue to focus on growing the higher-margin segments of our business that offer attractive market share growth opportunities for near and long term. Finance and insurance revenue increased to $7.7 million in the fourth quarter of 2020; and revenue from service, parts, and other sales increased to $20.3 million. Gross profit increased to $64.1 million in the fourth quarter compared to $46.4 million in the prior year, driven by an increase in new and pre-owned sales and higher service, parts, and other sales.

Gross profit as a percent of sales increased 140 basis points to 23.6% compared to 22.2% in the prior year. With the significant increase in sales, the fourth quarter 2020 selling, general and administrative expenses increased to $39.7 million from $32.6 million in the prior year. However, SG&A as a percentage of sales declined 100 basis points to 14.6% from 15.6% in the prior year.

The decline in SG&A as a percentage of sales was mainly due to the increase in sales and the cost reduction actions enacted in response to COVID-19. Operating income climbed 29% to $16.5 million compared to $12.8 million in the prior year, driven by higher sales, partially offset by higher SG&A expenses and the $6.8 million charge related to contingent consideration on a 2019 acquisition.

Adjusted EBITDA rose 108% to $23 million compared to $11 million in the prior year. Net income totaled $6 million in the fiscal fourth quarter of 2020, up 18.9% from $5 million in the prior year, keeping in mind that the prior year did not reflect our post-IPO organizational structure and was not subject to income taxes.

In our first full year as a public company, our team delivered record results for the year. For the first time in OneWater's history, full year revenue exceeded $1 billion, an increase of 33% compared to the prior year, highlighting the strength of our team and the resiliency of our business model. Same-store sales increased 24%. This is on top of a 12% increase in the prior year.

New and pre-owned boat sales increased 36% to $717 million and 34% to $206 million, respectively.

On the higher-margin side of our business, finance and insurance revenue increased 41% to $36.8 million, contributing directly to our bottom line. Full year 2020 gross profit increased 37% to $235.5 million. Gross profit as a percentage of sales increased 60 basis points compared to fiscal 2019, driven by the increased volume of new and pre-owned units sold and an increase in the average unit price compared to fiscal 2019.

Full year 2020 operating income surged 47% to $78.5 million compared to $53.3 million in the prior year. Net income increased 30% to $48.5 million, and adjusted EBITDA climbed 80% to $83.3 million.

Now turning to the balance sheet. At September 30, 2020, we had $66.1 million of cash and $30 million of availability under our revolving line of credit and in excess of $10 million available on our floor plan. Total inventory at September 30, 2020, was $150 million compared to $277 million at September 30, 2019. This substantial decrease is primarily due to demand for our products and the production shutdowns at our OEM partners last spring.

As Anthony mentioned, we are confident that we are able to meet current retail demand in a timely manner as we leverage our strong partnerships and our industry-leading inventory management technology. With the lower levels of inventory and higher inventory turns, we anticipate floor plan interest expense to be down significantly in 2021. As previously announced in September, we closed on the public offering of 3.2 million shares of Class A common stock at $20 per share. The majority of these shares were secondary, but the company did issue 425,000 of primary shares and received approximately $8.1 million in proceeds after underwriting discounts and commissions.

The proceeds from the transaction will be used for general corporate purposes, including expansion of the business. Looking ahead to 2021, we are seeing strong momentum continue and expect to see same-store sales to be up approximately 5%, with adjusted EBITDA to be up low to mid-single digits. This excludes acquisitions completed during the year. As Austin mentioned, our M&A pipeline is strong, and we are returning to the cadence of transactions that we had prior to our IPO. We are excited to continue to grow in the current business and scale our proven strategies across newly acquired dealerships. This concludes our prepared remarks. Operator, would you please open the line for questions.

(Operator Instructions) And our first question will come from the line of Craig Kennison from Baird.

I wanted to start just with guidance, a point of clarification. Does guidance include the Tom George Yacht deal? Or would that be additive?

That would be additive. It's not included in there.

And with respect to the 2021 outlook, it seems many investors fear that this is as good as it gets from an industry perspective and that industry boat demand could return to normal in 2021. I guess, Austin, how do you weigh all the macro factors from lapping the pandemic to the surge in first-time buyers and overall growth in the industry to political events, things like that, to get you comfortable that your growth outlook is achievable?

Craig, I mean, I think one of the things that we looked at when we were kind of -- when we got to year-end was really what was the contribution to this increase from just our business model. If you kind of take the acquisitions that had not matured, we talk about needing 24 months with an acquisition to really feel those synergies and get that push that we're looking for. We had several that were in their first year or just coming up on their 24th month in this calendar year. So we look at thinking and feeling that a good portion of our results this year were because of improvements or normal improvements to the acquisitions that were maturing that we'd already closed on.

So we know we got a COVID bump. We know that drove new buyers into the space. It brought people that had been on the sidelines that might have had an older boat back into the space. And I think Anthony probably tells it the best when he talks about how boating today from an industry perspective and how you use your boat and what the experience is. It's completely different than it was 10 years ago. And we feel 2 things: one, we've still got acquisitions that we're bringing online that we're going to get a push from those. We still got a lot of internal stuff from our same-store sales that have a lot of upside.

But then you still -- you can take that COVID bump and say, okay, well, we're not going to get that bump again. But you've got all these people that have come into the market that really probably just bought a boat to buy a boat. And after they spend a season out on the lake, we feel that a lot of them are going to make adjustments this year. You've got a young couple that comes in that thinks that they have to have a ski boat in order to enjoy the water. They buy a ski boat, they spend time out on the lake and the wife's getting beaten to heck and back because it's rough on the lake, and they're not skiing. They've got little kids. That's just what they thought.

And then they see another couple passing in a pontoon boat that's got a full drink that's not even spilling over the rim, and they're like, we want to do that. But then there's the flip side of that, people come in and buy a pontoon. So we think that there's going to be this push for the new boat owner that's gotten excited about boating that might trade or might change segments. Then we've got -- going back to -- we've got all these things internally that we've looked at on our same-store sales where there's improvement, and we're just pretty comfortable where we are.

I mean, I'm excited about this coming year. The inventory being on the tighter side is going to help us with margins. I think that I'll let Anthony and Jack jump in if they want to add to that, but I think we're pretty confident with our forward-looking 2021 and where we're going to end up.

That's terrific. And then my last question was just on BoatsForSale.com. It seems like a very interesting strategy. You didn't really address much of it in your prepared remarks. But if you would, just tell us how that works, when that platform might open and what kind of investment you'll need to make in order to achieve some scale in that platform?

So the easy part's the investment. The investment is more time than dollars. Where we sit right now, we have the first 3 pieces of that we're actually beta testing or testing in our -- with our sales staff right now. We have the part of the way that the trade evaluation or the pricing tool works.

Is -- Anthony, how long have we been doing that? It's been about 4 weeks? 3 weeks?

Yes, about 6 weeks so far.

Six weeks on that one. And then -- so we're hoping to have that rolled out. Optimistically, I would say before the end of the year, but I think it's going to be into the first quarter of next year before we get it out. It's very, very important that when we roll it out, that everything work perfectly on it. Because if you roll it out and it doesn't work right, then it kind of might die in the water, and that's not what we want.

And so we're running it internally right now and having all the sales guys use the tools that we'll be rolling out in this first phase. So that we -- when we do roll it out, it's a flawless execution. But I would -- conservatively, I think we're still 60 days before it rolls out.

Our next question comes from the line of Mike Swartz from Truist Securities.

Just a follow-up on the guidance for 2021. With the mid-single-digit comp store growth and then low to mid single digit adjusted EBITDA growth, implying some sort of margin deleverage at the bottom end of that range. Is there any reason for that or any investments that you're making that would drive that?

Yes. I think one of the things as you think year-over-year, we don't have a fully baked public company cost into the prior year. So that's certainly going to be a bit of a headwind for us. And that's probably the largest item, I would say, kind of going into the expense structure and probably going to have the effect of seeing SG&A tick up a little bit as a percent of sales.

But we're just trying to, I think, be conservative in putting the model together.

Okay. And then maybe just given the state of boat shows being canceled or postponed or scaled back over the next 9 to 12 months, maybe talk about some of the things that you're doing in a little more detail in terms of customer interaction and your own digital platform?

(multiple speakers) It's a lot of events, in-house events make it a much safer environment for the customers and gives them reasons. We're blessed to be partnered with 72 different brands that every year are coming out with just some oh-my-gosh products. So we have a lot to talk about. Yes, that's pretty easy, once you're in boating, like Austin was saying earlier about -- if you had a pontoon, you might want to go to an inboard boat. I mean, each one of these manufacturers each year are coming out with some oh-my-gosh stuff. So it's pretty easy to get people to come in for some private events.

And then one more, if I may. Just in terms of the quarter -- fourth quarter, as I look at the different revenue line items, strong double-digit growth in both new and pre-owned boat sales, but F&I was up less than 2% year-over-year. Why was there that disconnect in the quarter? Was there something specific?

Yes. I think a lot of it (multiple speakers) you got to remember, we were up -- for the full year, it's up 41%, keeps being something that we drive hard. But if you look back to last year, last year, F&I in the quarter was actually up 80%, significantly outpacing the sales increase. So that kind of played into the effort there. But, no, it's still -- it still is an area we feel very strong about, and we feel that it's the growth of F&I is going to outpace our same-store sales.

(Operator Instructions) Our next question comes from the line of Joe Altobello from Raymond James.

Just want to get an update on the overall M&A environment. Tom George was, I think, your first acquisition in quite some time. So is 2 to 4 acquisitions a year still the target? Could we see some catch-up in 2021, since last year was relatively quiet?

Hey Joe, I think our cadence will probably stay the same. One thing that might change a little bit on the cadence is just the size of the deals. They're going to be on the larger side, pretty much everything that I've got close right now is bigger than what our average would be. But I don't think we're going to be able to get more in.

And it's not that we don't want to, it's just that -- we've talked about perfect execution. And it's not that -- we cannot have one of these not work perfectly because the credibility that we have with the manufacturers and the support and them still being our #1 lead generator, you don't want to have a deal that goes bad or something go wrong, where you lose that manufacturing support. And closing the deals -- the hardest part for us, closing the deals right now is the integration of the software.

And the 45 days prior to closing, the 45 days after, but it's also scheduling the software company to come in and do the integration and the training. So that's a little bit of our challenge. But I mean we're going to have -- I'm glad that Anthony and Jack have pulled me out of the house and said for me to go do deals again.

So we're excited about this year. We've got a great pipeline. We're in a good position that if something were to happen with one deal, we've got deals that can slide right into that place. We're running some dual tracks right now, just to make sure that we have a good, solid year of acquisitions. And we've been on the sidelines for a while, and it was nice to get this Tom George Yacht deal done because we've been talking with Tom for a number of years, and it's exciting; and some of the things that we're going to be able to do with this actual acquisition from a strategic standpoint are exciting to us.

That's very helpful, Austin. And maybe kind of a follow-up on that, on the inventory side. I think Jack, you mentioned you're at $150 million of inventory at year-end, that's down almost 50% year-over-year. How long do you think it will take you guys to get back to what you perceive to be ideal inventory levels? And do you expect to operate at a higher turn rate permanently going forward?

I want to start on this one. We're never going to get back to that level. We don't ever want to get back to that level. I mean, we -- the inventory is -- you can look at inventory and look at your P&L and you can see the cost of inventory. But then you can also look at inventory and look at your P&L and you don't see the cost of inventory. I mean, moving a boat 10 times on a yard, you don't really keep up with that on the P&L. And so less inventory, higher turns to us means lower cost, higher margins.

And the manufacturers are doing the best they can. All of our manufacturers are doing a phenomenal job getting us boats. I know they're killing themselves. They're looking to ramp up production. But from where we sit, I think that the way that Anthony has spent the last 4 years developing his inventory tool and fine tuning that, that we're going to be able to operate with higher revenues or higher boat sales with less inventory, because the forecasting tools and the stuff that he has put into place and the way that we're now getting the data that we need to make the right decisions will allow us to forecast even better than we have in the past.

So I don't think we'll ever return back to that. As we scale the company, the inventories will, of course increase, but we want to operate with -- if you ask me, I'd like to get 3 more turns a year. I don't think that's possible, but that's what we're going to work towards in the software and what Anthony and his team have really gotten fine tuned and the data that we're getting today will allow us to continue to make that even stronger.

Well, Austin you pretty much stole most of my thunder. I think the only thing I would add is that...

That's why I did it.

Is that we -- subsequent to year-end, we have seen inventories begin to build as we expected. So over the last 1.5 months, shipments have been coming in, we're in a seasonally slower cycle, and stores are starting to build inventory on their lots.

And our next question comes from the line of Mike Swartz from Truist Securities.

And just wanted to follow-up on the comments you made regarding the fiscal year '21 outlook. I think you said you saw the momentum carry into the early part of the year. And since no one's asked the question, any color or quantification you can provide just in terms of what you saw on a comp store basis in October or maybe even quarter-to-date as we sit here today?

Yes. I would say it's moving at a good pace, similar to what we've seen in recent months. There's still -- it's a seasonally -- obviously, it's a seasonally slower period, so sales are slowing as we go through the month of October, November; and then December is the smallest month of the quarter. And with the kind of being -- it's also our smallest quarter of the year, so it's -- just from a seasonality perspective, it's one of those where it's tougher to gauge a full year number or a full year forecast just off of the smallest quarter.

So I think -- from a seasonality perspective, I think that's going to be one of the challenging things as we look to model out the year. We feel good about our annual model. What's unclear about is, how the quarters line up. And just with -- Q2 last year was a lower quarter because of shutdowns and COVID, Q3 obviously was a large quarter for us. But some -- it's really unclear as to how boat shows will play into Q2 results as well as Q3 results.

Thank you. (Operator Instructions). And I'm not showing any further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.