Good day and thank you for standing by. Welcome to the One Water Marine Inc. Fiscal Second Quarter 2021 Earnings I would now like to hand the conference over to your speaker today, Jack Ezell, Chief Financial Officer. Please go ahead.
Good morning, and welcome to 1 Water Marine's fiscal 2nd quarter 2021 earnings conference call. I am joined on the call today by Austin Singleton, Chief Executive Officer and Anthony Asquith, President and Chief Operating Officer. Before we begin, I would like to remind you that certain statements made by management in this morning's conference call regarding 1 Water Marine and its operation 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 to differ earnings release, which can be found on the Investor Relations section on the company's website and in its SEC filings. The company disclaims any obligations or undertaking to update forward looking information to reflect circumstances or events that occur after call to 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?
Thanks, Jack, and thank you, everyone, for joining today's call. We delivered incredible results for the Q2 of 2021 with growth across every part of our business. Revenues increased 74% to a record 330,000,000 Adjusted EBITDA increased 3 15% and same store sales increased 57%. Importantly, our higher margin finance and insurance revenue also grew significantly by 46% and we doubled our service parts and other revenue. The continued expansion of these businesses emphasize the strength of our strategy to move beyond new and pre owned boat sales adding stable revenue streams for our long term growth.
1 Water is firing on all cylinders and I am extremely proud of our team's ability to remain agile in today's fast paced dynamic environment. Our investment in technologies continue to enable us to differentiate ourselves in the market and capture the seamlessly limitless customer desire to get out on the water. These technologies bolster our ability to not only sell boats, but also sell the right boats to the right as quick as possible. Importantly, our digital solutions drive operational efficiencies across our business, maximizing profit and extending our competitive advantage throughout the industry. With no indications of slowing down, We believe this level of demand will remain heightened as new and experienced boaters come to 1 Water for our arsenal of premium boats and robust service capabilities.
During the last several months, we have had a number of exciting announcements and developments. First, we executed the soft launch of boatsforsale.com, our all inclusive virtual platform to buy, sell and compare boats that provides easy access to financing and insurance offerings. Anthony will talk more about this in his remarks, But suffice to say, while a small part of our business today, we see this platform as having a potential to be a big opportunity for us. Further, we announced the creation and expansion of 1 Water Yacht Group, which unifies 1 Water's yachting presence and provides a launch pad for further growth. At the same time, we amplified our service and repair offerings at the Rosiola Yachting Center.
Additionally, last week, we announced that 1 Water was named the sole U. S. Distributor for Sunseeker Yachts, a leading manufacturer of premier yachts based in the UK with customers across the globe. 1 Water Yacht Group has been a key dealer for Sunseeker across most of the Eastern seaboard. And under the terms of the agreement, we will now manage the Sunseeker dealer network in other markets throughout the U.
S. This first of its kind agreement is a statement to our proven execution and strong partnerships. It is exciting to say the least as it will allow us to further enhance our portfolio of premium brands and expand our geographic reach and presence in the luxury yacht market. Finally, the integration of our 3 acquisitions, Tom George Yacht Group, Walker Marine and Rosioli's are progressing well and in alignment with our proven playbook. Our disciplined and prudent approach to identify top dealers in high performing markets and our flawless integration continues to advance our position as an industry leader.
With these integrating well, we now expect to complete 4 to 6 typical acquisitions per year for the next several years. As we execute our long term growth strategy, we are confident that through continued investment and our innovative digital platforms, the evolution of our higher margin business segments and the integration of our recent M and A activities, we will further extend our market share and generate meaningful value to our shareholders. With that, I will turn it over to Anthony to discuss business operations.
Thanks, Austin. Customer enthusiasm is at an all time high. The incredible customer demand for boats across all categories continues to drive sales, with our technology investments supporting tremendous lead generation. Our sales team have remained agile by utilizing our state of the art operational dashboards, supporting further outperformance within the industry. We are focused on providing an exceptional selling experience to keep the veteran and new foundational layer of voters enthusiastic about the boating lifestyle and the One Water family of dealerships for years to come.
Inventories remain at a historically low level as supply chain continues to be pressured. Our inventory planning tools, our strong OEM relations has given us confidence that we will have sufficient inventory to meet demand throughout the prime selling season, although we recognize it will be a challenge. We are in constant communication with our manufacturers And barring any further supply chain disruption, we are expecting a strong finish to the year. As Austin mentioned, during the Q2, we launched boatsforsale.com. Following the acquisition of The Domain in August of 2020, We aggressively developed a new consumer seller focused marketplace that serves as an extension of our store footprint, including new pre owned boats and Finance and Insurance Services.
Nearly 1,000,000 boats are sold per year person to person, And we believe this platform will completely change the way people sell their boats. Utilizing the site, sellers across the country can list their boats for sale and immediately increase the reach of potential buyers. In turn, buyers can search the list of boats, adding and removing parameters for the boat they desire and even receive what we call a notification or a notification when a boat is listed that meets their exact parameters. Importantly, the site also enables us to build our pre owned boat inventory by bidding on a list of boat and offering the seller a cash offer. While in its early days since the launch, We are very encouraged by the growth opportunities that can be created through this innovative marketplace, including our ability to broaden our customer and geographic reach.
As Austin mentioned, the platform is a small piece of the business today, but we believe it will create an additional avenue for growth for 1 Water. Near term, our goal is to have over 15,000 boats on the platform by the end of this fiscal year. Therefore, would expect to see a modest incremental revenue generating starting in fiscal 2022. I will now turn the call over to Jack, who will talk more about the financials in detail.
Thanks, Anthony. 2nd quarter total revenue increased 74% to $329,600,000 in 2021 from $190,000,000 in 2020, fueled by the increase in same store sales of 50 7%. This increase was primarily driven by new unit sales and an increase in the average selling price of new boats sold and to a lesser extent an increase in the average price of pre owned boats sold. New boat sales grew at 81% to $239,700,000 in the fiscal Q2 of 2021 and pre owned boat sales increased 47% to $56,100,000 Finance and insurance revenue increased 46% to $11,800,000 in the Q2 of 2021 and revenue from service parts and other sales increased 101 percent to $22,100,000 compared to the prior year. Gross profit nearly doubled to $88,800,000 in the 2nd quarter compared to 44 and size of the boat model sold as well as an increase in the average unit price.
Additionally, higher finance and insurance service and other sales contribute significantly to the increase in gross profit. Gross profit as a percentage of sales increased 340 basis points to 26.9% compared to 23.5% in the prior year. While selling, general and administrative expenses increased to $48,300,000 from 32.4 SG and A as a percentage of sales decreased to 14.7% from 17% in the prior year. The decline in SG and A as a percent of sales was primarily driven by the increase in sales across the businesses and the reduction of expenses, including the cancellation of certain boat shows. Operating income rose sharply to $38,700,000 from As a result, adjusted EBITDA rose to $40,100,000 compared to $9,700,000 in the prior year.
Net income totaled $30,600,000 or $1.83 per diluted share and the fiscal Q2 of 2021, up from $3,000,000 or $0.18 per diluted share in the prior year. Turning to the balance sheet, as of March 31, total liquidity was in excess of $100,000,000 including cash on the balance sheet, availability under our revolving line of credit and availability under our floor plan facility. Total inventory at March 31, 2021 was 180 experience in recent quarters combined with industry wide supply chain constraints. From a capital allocation perspective, We are focusing on reinvesting in the business to accelerate organic growth and the strategic M and A opportunities as we have discussed. In addition, we will continue to evaluate other capital allocation strategies that increase shareholder return.
Looking ahead, for the full fiscal year 2021, we are increasing our guidance for same store sales to be up approximately mid to upper teens given the broad based outperformance in the first half of the fiscal year twenty twenty one. Additionally, we have raised our outlook for adjusted EBITDA to be in the range of $130,000,000 to $135,000,000 and diluted earnings per share to be in the range of $5.80 to $6 per diluted share. This all excludes any additional acquisitions that may be completed during the back half of the year. Our guidance assumes 1 Water manufacturers can maintain production at the current pace and meet the elevated demand in the face of industry wide and supply chain challenges. This concludes our prepared remarks.
Operator, will you please open the line for questions?
Thank you. Our first question comes from Brett Andress with KeyBanc Capital Markets. Your line is open.
Hey, good morning guys. I wanted to ask about the Sunseeker agreement. Just any more details you can share around exactly how The management part of that works? I mean is the plan to eventually be the only Sunseeker dealer in the U. S?
And then separately, I mean how do the economics
So we were the U. S. Distributors, so all the boats coming into the United States We'll run through 1 Water. I don't see us in the near or Midterm future being the only Sunseeker dealer, there's a couple other guys out there that do a really good job. We're kind of still putting it all together.
One of the things that we're excited about is being able to consolidate and show them at Rosioli's Because we have the space to do that and kind of having a base for U. S. Operations. So a customer that's really interested could come down and But we don't really have any stores in the Midwest that might be interested in this. Of course, there's a great dealer out on the So we'll be looking for some sub dealers, but it just gives us a little bit more control on what comes in.
I don't really want to get into how it was set up prior to us doing this, but it
was a little bit of
the Wild, Wild West. I mean boats were coming from all over the place. So it just gives a little bit more Professional setup, in the United States for how the boats come through and flow. And then, of course, We'll be responsible for the U. S.
Marketing and oversee boat show displays, print marketing if we choose to do that, customer events and all that stuff. So That comes with an expense. So because of that, there is a percentage that comes to 1 Water off of every boat. But it's a good deal just because it really gives the ability to have a complete plan put together for the country. And we can find some really good dealers that we think will be additive to where we already are, where we have no intention of going anytime soon.
So it's a good overall deal and we're excited.
Got it. Okay. Makes sense. And then Austin, just more of a high level industry question. But as you look at the broader industry And the dealers that you compete with in your markets, I mean, how does their inventory situation look right now compared to yours?
I mean, I have to imagine that there will be some pain out there among the smaller dealers this selling season. And I just wonder if that was one of the drivers Behind taking that M and A target up to 4 to 6 a year.
No, I don't think that was the change in the M and A strategy. I think And I spoke to it on the last earnings call. 1 of our Achilles heels on the acquisition front has been integration. And it's not been integration on our side. It's getting CDK lined up for the training and moving everything over.
If you go and do a deal and they're on the same software, it's a pretty easy move over. But if they're on Dockmaster or Control 4, one of the other softwares, getting all that information inputted and mapped correctly and then getting The acquisition, their employees up to speed on CDK, it's just been a little bit of a slow hill because we have to plan so far out so we would have These deal slots, well, we kind of said this is great, but it's not working exactly the way we want it. So the last couple of deals, we've kind of done all that on our own. We still use them, still have them helping us with integration, but we've gotten to the point where We've taken that issue. We basically eliminated it, because we're doing it in house now.
So that gives us the confidence and the ability To probably increase this, our cadence on this of 1 or 2 deals a year. Plus the other thing was we always said we want to do it with free cash will. And the free cash flow is a lot better than it was 3 years ago or 2 years ago. So there's just a combination. I think from an inventory perspective, I think the next couple of quarters for all of us are going to be challenging.
And I think that where we really can shine on that is just the amount of information in I mean, they're working themselves to the bone. I mean, they're out there taking care of customers, fixing problems. They don't have the time to sit in their office and call in every manufacturer they represent every other day to go, okay, where is this boat, where is that boat. It's kind of more of a When the customer is screaming or yelling at them, where's my boat, that's when they kind of follow-up. So I think our digital tools and being able to forecast what we need, know where it's going It's probably the one thing that is going to help us on the inventory deal, but that really didn't have anything to do with the acquisition cadence increasing.
Got it. Okay.
Our next question comes from Drew Crum with T Cell. Your line is open.
Hey, guys. Good morning. So a lot of moving pieces in the gross margin improvement during the quarter. Can you rank order the importance of the various drivers And those that you see as sustainable going forward. And then separately, you mentioned the ASP being up for both new and pre owned boats.
With inflation and the creation and expansion of the Yacht Group, how do you see ASP for your boats trending going forward? Is that likely to accelerate or should we see it rise more in
line with the industry? Thanks.
Yes. So on the first question, I would tell you that New boat sales, because it's such a large portion of revenue, that increase in margin probably had the greatest impact on overall margin. But we're equally as excited as to see improvements in sales of our non boat business because we obviously feel like That's a lot more sustainable for the long term and the increase in parts and service with revenue being up comp. Part of that's driven by Rossi's addition to the results, but that gives us good sustainable Recurring revenue streams. As far as mix shift, mix shift will always put Make margin and projecting margins a little bit of a challenge.
Even with Tom George and Walker Marine, the 2 acquisitions As we did in December, we saw a little bit of a mix shift to some larger boats, which larger boats We have a lower gross margin percentage. We feel like there's a lot that we're doing within the 1 Water Yacht Group that can help us improve overall yacht margins. But as that mix shifts and as you have large boats come through, it We'll put some pressure on the margin percentage. So hope that helps answer your question.
Yes. And then just to follow-up on the question on ASP, your expectations going forward.
As we project and model right, we look for We put out a same store sales number. We look to get probably half of it from unit growth, half of it from ASP growth. And so I think that's how we're looking at things and modeling things internally.
Okay. All right. Thanks, guys.
Thank you.
Thank you. Our next question comes from Joe Altobello with Raymond James. Your line is open.
Hey, Hey, guys. Good morning. Couple of questions. I guess, first on inventory, and I know it's hard to quibble with a 57% comp here. But do you guys feel like you lost any sales because of a
lack of inventory in the quarter?
No, sir. Not at all. Okay. I mean, obviously, I mean, we're outpacing the industry pretty heavily. So I don't We've been in contact and utilizing all the tools that we have to ensure that we have boats available.
I think it's important Joe to also remember as Austin kind of alluded to earlier, when you're up against a mom and pop dealer, They maybe have, let's say, 20 orders with the manufacturer. We maybe have 200 orders with that same manufacturer. And so with our digital tools, having the insight on those 200 orders and our ability to shift it from one location to the other To get it to where the customer wants it is tremendous.
That's helpful. Thank you. I guess in terms of seasonality, Q2 was typically a quarter where you build inventory. Q3 is typically a quarter where you draw down inventory. So it sounds like we're probably going to see that inventory number go even lower in the Q1.
So I'm curious, when do you expect to start growing inventory again? And maybe when do you think it normalizes?
Well, I
would jump in, Joe. I'll let Anthony speak, but right after I say this, I would tell you if demand Keith, at the pace it is, it's going to be a long time before we can really start building on inventory. Door swings, lead volume, All that stuff continues to be very, very strong. And the manufacturers, they just don't like flip a switch and then the month of June, they're going to produce 10% or 15% more boats. It's a slow ramp up for them to get to where they're doing 1% or 2% more and it kind of starts to compound over time.
So it's a great dynamic, in my opinion, and Anthony will have a better gauge on this. From my opinion, it's a great dynamic to be selling the boats out that are coming in 2 weeks from now, 4 weeks from now, 6 weeks from now, and And we're not carrying inventory because inventory cost is way down. Anthony?
Yes. I would say that we probably Pre pandemic probably hit, we're carrying too much inventory. So to get back to those levels, The more we utilize our tools that we have, we want to continue to increase our turns. No, when the inventory is going to get back to normal, I don't think I what is normal, it would be the question. I would say we're a year or so away from having lots full of inventory.
Our goal is always to continue to order the right boats And have timely things done with lower interest for carrying costs and everything else like that. So it's going to be Over a year, I think before we'll have normalized whatever the new normalize of inventory.
Got it. Okay. Just one last one for me in terms of product quality with OEMs struggling to get boats out the door. Are you seeing product quality slip at all? Are you Seeing customers coming back and asking for rework, is that a record?
I wouldn't say that we're seeing poor quality. We've always been the last Piece of the build, if you will, with our rigging, putting some finished assembling the boats and all that kind of stuff. So I don't see the Quality of the boats going backwards or anything like that, no.
Okay. I think it's more of a challenge of them getting it Complete than quality issue. It's not like they're building a worse boat today than they were 18 months ago, 36 months ago, it's that they got a boat that's completely finished and it's missing 1 seat cushion or it's missing This one thing on it and it's just going to sit up there for a month so that one thing comes that doesn't hinder the boat. I mean Like porta potties. I mean, a customer, if you really go, hey, look, we can get you your boat next week, but it's not going to have the porta potty in it.
They're like, I don't care, I want to vote. So I agree with Anthony. I think it's more of a they're struggling more with getting the boats complete versus a quality issue.
Got it. Okay. Thank you, guys.
Thank you. Our next question comes from Mike Swartz with Chua Securities. Your line is open.
Hey, guys. Good morning. Sorry if I missed this in your prepared comments, but maybe Jack or Austin, any color on the trends you're seeing thus far in your fiscal Q3, so April, maybe your comparable store sales or backlog or any metrics you can provide?
Yes. I would say that go ahead, Austin. I
was just going to say, Mike, that will get me in trouble. So I will let Jack, talk about
that one. Yes.
I mean, obviously, we're up against a really big comp for the quarter and the back half of the year. I think if you look at our same store guide, it's projecting low single digit comps in the back half. And we continue to have, as Austin mentioned, good retail demand, Customer interest is elevated. Leads coming in, door swings are all very positive. So We feel comfortable with that same store sales increase for the back half of the year, and just with the continued levels Of demand, just from what we've seen so far.
Okay, great. And maybe just to add on to that, with guidance, I think you called out The $130,000,000 to $135,000,000 in EBITDA, which would basically imply that EBITDA dollars are flat
in the back half of
the year, but you're talking about comparable store growth and you've got some acquisitions here that seasonally speaking should be pretty strong in the back half of your fiscal year. So what I guess what are the offsets to get to that flat number?
Yes, I think I'd have to double check my numbers, but I think the from consensus numbers, the back half is up Double digits increase
at that 30
And then Dan,
just go
ahead. No, I was
just going to say, it might give you the stock comp that
I think you have in your numbers that we don't put in ours.
Right, Right. No, that makes sense. And just final question for me, just you're talking about the new yacht group that you're building out. And obviously with Rosioli and Sunseeker, you're going to have a much bigger presence there. Are there any overhead Costs or any investment costs to think about going into that business in the near term?
No, not anything really out of the normal that's really going to make a big impact on our CapEx Because that was the whole thing. Rossiolis was a turnkey. So Anthony, correct me if I'm wrong, but most of the additional costs that we're going to have getting into this would be put on the boat anyway.
Correct.
We expect to expand the profitability of the brand over time with having some incremental SG and A type costs from a marketing perspective, but expect those to level off and absorb those costs with the increased sales.
Yes. And the other thing real quick, I mean, one of the beautiful things about Sunseeker is, I mean, they build an incredible boat and It's a global it's globally sold. So it's not like they're fixing to send us 32 of these things. I mean, they're going to trickle in. We don't expect to see a huge impact from this.
It will incrementally increase over time as more boats are available when we pre sell those slots. I mean, if you come in today and want to answer, I mean, how long is it out on the 90? I mean, are we 2 years out,
6 months? Yes, 18 months, call. 18 months.
18 months. So I mean, it's not like all of a sudden we're going to have all these boats tomorrow. And that's one of the things that intrigues us about it is We need a place for our customers to continue to move up in size. And This gives us one with the way we look at it with really a low inventory risk. We're not going to have $150,000,000 of these things, dollars 150,000,000 worth of the stuff sitting on the ground on our floor plan.
A lot of it will be pre sold slots. We'll have some inventory come in, but I mean we're going to share that out through hopefully an incredible dealer network that we're looking to build out Across the whole United States.
Okay, great. That's it for me. Thank you, guys.
Thank you. And there are no other questions in the queue. This concludes today's conference call. Thank you for participating. You may now disconnect.