Good day and thank you for standing by. Welcome to the One Water Marine Acquisition of T. H. Marine Call. At this time, all participants are in listen only mode.
After the presentation, there will be a question and answer session. I'd now like to hand the conference over to your host today, Mr. Jack Ezell, Chief Financial Officer. Please go ahead.
Good morning, everyone, and welcome to One Water Marine's call to discuss our acquisition of T. H. Marine. I'm joined on the call today by Austin Singleton, Chief Executive Officer. Before we begin, I'd like to remind you that certain statements made by management in this morning's conference call regarding 1 Water 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 press release and slides, which can be found on the Investor Relations section 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 of the forward looking statements are made, except as required by law. During this call, we will not be discussing or entertaining questions regarding our fiscal year 2021 Q4 financial results. We plan to discuss those results on our regularly scheduled earnings call in November.
And with that, I'd like to turn the call over to Austin, Singleton's CEO, who will begin with a few opening remarks. Austin?
Thank you, Jack. Good morning and thank you all for joining us on this call. This morning, we announced that we reached an agreement to acquire T. H. Marine, an industry leading provider of marine branded products.
This is a strategic transaction for One Water as it significantly enhances our growth and diversification strategy And is expected to more than double the size of our service, parts and other sales with a highly complementary Product portfolio of aftermarket and OEM marine parts and accessories. Since its founding in 1975, the T. H. Marine team has Established an industry leading platform and a comprehensive product portfolio. From its roots As an OEM supplier, the team has transformed itself into a premier omnichannel platform Serving the rapidly growing recreational boating market.
T. H. Marine has provided T. H. Marine has proven It has a proven ability to acquire and integrate niche products and categories and leverage its strong reputation for innovation.
It has expanded its aftermarket parts and accessories through its e commerce site, various marine and big box retail sites and through marine distribution channels. Today, T. H. Marine maintains over 5,000 SKUs And you will find their products on nearly all recreational boats under 35 feet manufactured in the U. S.
With many of its products written into the manufacturing specifications. Even more interesting is aftermarket products today Only accounts for half of T. H. Marine's revenue mix. As I mentioned, T.
H. Marine represents a strong natural fit to our service, parts and other sales. Fin offers an additional platform from which to grow. The combination will provide an opportunity to gain more fire business away from new boat sales, while at the same time reducing our exposure to typical marine cycles, a core tenant of our long term strategy. To put a finer point on this, in fiscal year 2020, our service parts and other sales was roughly 16% of total sales.
And with the addition of T. H. Marine, it expands to 16% and we believe this can further grow over time. Jeff Huntley and his team will join the One Water family post close. Their strong track record for both organic and acquisitional growth, e commerce expertise The strategic vision for the business will undoubtedly benefit our own vision for expansion into these higher margin areas of our business.
Together, we will continue to foster a culture of award winning innovation marked by over 25 patents and 75 trademarks In an extensive product development pipeline. Looking forward, T. H. Marine is well positioned to capture a sustainable momentum In the more than $6,000,000,000 marine aftermarket product and accessories market, supported by net growth Of the large installed boat base of over 10,500,000 boats on the OEM front, T. H.
Marine Strong lean assembly capabilities will allow them to capitalize on the new boat inventory replenishment cycle that we believe will continue through 2023. We are thrilled to welcome Jeff and his team to the One Water Marine family. This transaction marks a significant milestone And the execution of our diversification strategy, we are poised to drive further growth for One Water and unlock significant value for our shareholders. I would now turn to Jack, our Chief Financial Officer, to review the financial details of this transaction.
Thanks, Austin. Good morning, everyone. As Austin announced, we signed a definitive agreement to acquire T. H. Marine for 185,000,000 And the transaction is subject to customary closing conditions as well as regulatory review and approval and expected to close in the Q4 of calendar 2021.
T. H. Marine has consistently delivered strong financial performance supported by attractive fundamentals to deliver near and long term shareholder value. The transaction is expected to be immediately accretive to growth, operating margins and earnings per share. For calendar year 2021, T.
H. Marine is anticipated to deliver revenues of approximately 100 and $15,000,000 and adjusted EBITDA in the range of $19,000,000 to $20,000,000 continuous track record of growth. Further, we anticipate double digit Revenue compound annual growth and mid to high double digit adjusted EBITDA growth for the period through 2023. The transaction offers significant and immediate growth to our parts and aftermarket accessories business. As Austin mentioned, our service parts and other sales in fiscal 2020 was 6% of total sales and expected to increase that number to 16% Post transaction, it has the ability to grow over time.
This transaction will also integrate well with our recently completed parts view acquisition As we look forward to leveraging T. H. Marine's management team sourcing expertise and relationships while expanding the cycle The acquisition of T. H. Marine provides us with a large suite of products Added to our portfolio and helps us to become a one stop shop so that customers can come to One Water for all their marine product needs.
We are excited about this opportunity that will also give us key insights into customers' needs and wants. The transaction is expected to be financed through a combination Cash and approximately $7,000,000 worth of stock. For the debt component, we have received a commitment letter from Truist Securities to expand our current term loan facility by 200,000,000 At closing, we anticipate net debt to adjusted EBITDA leverage to be in the range of 1.2x to 1.7x. We are very comfortable with this leverage level given our ability to generate strong free cash flows and pay down debt. We will provide more detailed financial information and formalized guidance during our Q4 fiscal 2021 earnings call in November and post closing of this transaction.
This transaction is a major step forward in our growth and diversification strategy and provides us with an additional platform for growth. We are excited to welcome to T. H. Marine and are confident in our ability to integrate the company as we open new doors for growth and value creation for shareholders. This concludes our prepared remarks.
Operator, will you please open the line for questions?
Our first question comes from Fred Wightman with Wolfe Research.
Hey, guys. Good morning. I was wondering if you could just give a little bit of historical context For the revenue number that's quoted, the EBITDA performance, sort of what those growth rates have looked like and then also just how that OEM versus aftermarket Yes.
It's I will also note that we did put out a small deck that might have some additional information that you'd be interested in. It's on the with the call details. But The company's performance has trended up significantly in recent years. And it's again, it's a platform for growth. They've done 14 acquisitions in recent years.
So that's Helping them grow over time, in some years having very significant growth. The OEM to aftermarket The revenue is about fifty-fifty today, and we think that the aftermarket is an area that we can Work to expand in the future. And I believe that's I maybe hit on all your questions, if not.
I guess just the follow-up was sort of how that fifty-fifty split. I mean, I know it's in the deck. That's sort of a point in time in what these You're doing, but this has been sort of consistent over the past few years. Has aftermarket been outpacing OEM? I think that's sort of the case.
How is that going?
Aftermarket has been significantly outpacing the OEM. So I mean, it started as OEM only and over time has transitioned into that fifty-fifty split today.
Perfect. And then I guess, you guys sort of alluded to this in the prepared remarks, but any big material exposures To keep in mind for them, do they have stuff contracted forward and sort of how have they been pricing in the current environment?
Yes. They in the current environment, they have their challenges like everybody in the industry with supply chain. But I would say that it's not been it's what we've seen on the similar on the boat side, it's been fairly reasonable. We're not seeing exorbitant pricing coming from any particular category.
Great. Thank you.
Our next question comes from Mike Swartz with Truist Securities.
Hey, good morning, guys. Maybe help us understand, I think you said that you anticipate double Digit revenue growth and I think you said mid to high double digit EBITDA growth through 2023. What I guess, just a point of clarification, what does mid to high double digit EBITDA growth mean? Is that mid to high teens or something Yes,
team. Sorry about that. Okay.
No, that's helpful. And then I see that one of their channels of distribution is through dealers. Was this or were you a customer of theirs 4? And if so, were there $115,000,000 in revenue that's anticipated for this year, does that include any eliminations That would come from doing business with them?
Yes. It may include some eliminations, but I think it's With some of the recent acquisitions and whatnot, we'll still see a significant amount of growth. There's a lot of We're working through the synergy side of what parts are we buying elsewhere that we can buy direct And working out that model, but today, I think there's just a great opportunity on that aftermarket side Beyond the One Water dealerships.
Yes. Let me add in
Mike, one thing on that is, they do a lot of private branding. So from the Marine, I don't think we'll see a lot of eliminations. But because it's not like it's It's almost private branded for particular locations and stuff or their dealership. So that will continue. It will not be significant or I mean it will Pretty much we
mute. Okay. And just one last from me. I see that they own manufacturing assets and just Given the nature of this business, I mean, maybe can you qualify or talk about the working capital intensity of the business maybe relative To the core dealership business?
Yes. Well, I would tell you that it's maybe a little bit more than the core dealership business, but it is You're right. It's more distribution. I'll call it more assembly versus true You know, a hardcore intensive manufacturing. There's definitely some products that they manufacture A to Z, but I'd probably put it more Warehousing and assembly type model versus detailed manufacturing.
Okay, great. Thank you.
Our next question comes from Craig Kennison with Baird.
Hey, thanks for taking my question. I'd be curious how you think this fits with your acquisition of PartsView?
Oh, man. It's a great fit. I mean, there's a lot of things that parts view is going to be able to offer now That come basically direct from T. H. Instead of going through a wholesaler.
There's just a lot of avenues for additional SKUs that parts view didn't have access to Or had to really pay up to get. So the margin profile should be accretive. It shouldn't affect T. H. Marine at all, but it should be accretive on the parts view side.
Jack, you want to add anything to that? I mean
it's Yes, it's a big deal. It also gives us, I say expanded capabilities in the importing section area where we can look to import and I have a different brand to put additional parts out there.
Thanks. And then when we Look at your overall strategy and the desire to diversify the business, you've acquired this large platform business. Do you see a need to acquire any other platform like businesses to realize your strategic vision here? Or will future acquisitions likely tuck into The platforms you have today.
But I don't so the main thing is still the dealership roll up. This is a separate platform That has a very similar opportunity that the dealership model has, a fragmented mom and pop Industry low purchased EBITDA multiples against that very similar to what we're doing in the dealer And that was one of the intriguing pieces of this. I don't think there's another platform out there that tags into this You know, it tags into our strategy at all. We've really focused on our higher margin businesses. When we started doing the service owned facilities, this continues To be accretive to that or be accretive to the service only facilities and this parts thing is something that we the e commerce Port side of this is something that we know is a great business to be in.
And so I don't think there's another platform out there that really fits into our current strategy That I can think of. I mean, Jack, I mean, there's not really anything.
None. I mean, nothing that comes to mind today, but I mean, we certainly would be Opportunistic should something present itself.
Got it. Hey, thank you so much.
Our next question comes from Drew Crum with Stifel.
Okay, thanks. Hey, guys. Good morning. So just maybe a clarification or enhancement on an earlier question, with respect to the sales growth, is that organic or is that assuming Further M and A for T. H.
Marine. And then separately, excuse me, Austin, can you talk about how this influences or impacts your Acquisition strategy for fiscal 2022, it's a fairly large deal. I know in the past you've targeted 4 to 6 acquisitions For fiscal year, does that take the number down in 2022? Thanks.
Jack, you want to tackle the first part of that or you want me to do
Yes. No, I would tell you it does not include acquisition of growth. It does include the acquisitions that those completed during the year, Full annualization of those results.
Yes. And on the acquisition front, it really doesn't anything, Drew. I mean, we our pipeline It's a solid and it's as good as it's ever been and we continue to look forward to closing on those Or on the cadence that we had provided, the updated cadence of 4 to 6 deals in a year.
Our next question comes from Joe Altobello with Raymond James.
Thanks. Hey, guys. Good morning. So first question, what's the rough margin delta between OEM and aftermarket for this business?
Yes, Joe, I don't have that number right here in front of me. I know they as you think about margins, Their margins are certainly a lot higher than our boat margins. So we anticipate getting a nice lift And our overall margins by having this higher margin business added to our consolidated results.
Yes, but as the business skews more toward aftermarket, I would think you would get an even further lift from that. I'm just trying
to figure out
What that lift would be?
Right. I think that's something that we'll continue You know, share our anticipation and guidance with respect to margins as we move forward in time, as we work to integrate the acquisition And develop out those strategies.
Okay. Okay. And maybe a few modeling questions for you. How much incremental D and A is involved With T. H.
And what's the borrowing rate on your truck facility?
The borrowing rate is roughly 3% today. It has a sliding scale based on our leverage ratios, but right in that low 3, 3.25 range. From a D and A perspective, Their depreciation expenses is fairly, I'd say, a little maybe their CapEx spend is a little bit higher than ours, right? We average 0.5% of sales. I think they're more in the 1% of sales range, but Not horribly, not massive numbers.
And then D and A is probably in the range of $500,000 a year. Okay, got it. And one last one for you.
I think in the press release, you mentioned your net leverage At closing should be somewhere between 1.2x and 1.7x, which is awfully wide.
Are you able to understand why there's a lack of precision there? Yes. Yes. Well, first of all, let's remember, right, we haven't provided 2022 guidance. We're not preannouncing 2021 results.
So really, it's kind of difficult to get a really provide a precise adjusted EBITDA number. We'll certainly update once we issue our annual results. We'll certainly get you some updates. But just keep in mind too, right, the timing of close, We expect it to be in the Q4, given where we're at, right, as you think about the seasonality of the quarter, We're moving into the seasonal slowest time. We're also moving into a period where Seasonally, you see an increase in working capital traditionally.
However, this year with inventory supply, that's a pretty big variable as What that impact is going to be on cash and working capital. And just finally, just remember, We deployed a significant amount of capital in the Q4 with the acquisition of Stone Harbor, Partsview and Naples Boat Mart. And we're working on generating cash and replenishing balances. So I understand it's a pretty wide range and I'll commit to give you a much tighter range Or an actual number as we get to our full year earnings call.
Okay, great. Thanks guys.
Our next question comes from Fred Wightman with Wolfe Research.
Hey, guys. Just one follow-up. Could you give us a sense for any backlog that they have, Whether it's dollars or months, however you want to sort of quantify it?
Yes, I don't know that they have a significant amount of backlog. I mean, they're working Get their on the OEM side, get them product when they need it, as well as Then on the retail side, it's more of a start really something that generates a backlog. But I wouldn't say it's a significant component of their business today.
Great. Thank you. Fred, it's a pretty consistent Rollout, they do things in same time, real time for the manufacturers to keep their product or To keep T. H. Product rolling out to keep that assembly line moving.
And so it's not like a manufacturer comes in and they're building 2,000 boats next They were 2,000 of these things to go sit at the warehouse. It's more in line with the production schedule of the manufacturers. And they're not really having a huge or significant or even a meaningful supply chain issue right now. They're pretty consistent On meeting the manufacturers on the OEM side, their demand in that timely manner to keep their Boat lines moving forward. And like Jack said, P and A is
yes, go ahead.
Yes. I would say that's a great point because when you look at their business, right, it's much Less, seasonal than water One Water has been traditionally. And to some degree, it's counter seasonal to One Water's typical business where they'll have greater sales in our fiscal Q1 and Q2 Versus Q3 and Q4, right. So they're in Q1 and Q2, right, manufacturers are loading up for the model year. They're providing them some increased Sales and then that dies off as the bottle of your dies off and then they prep for the next model year.
Yes. But their business is fairly consistent.
Yes. They do a fantastic job. Jeff and team have done a fantastic job of keeping things streamlined and keeping the momentum Matching what the manufacturers need on their production level, which was pretty impressive.
Great. Thank you.
I'm I'm showing no further questions in queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.