Hello. Thank you for standing by, and welcome to the One Water Marine, Inc. Fiscal Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Jackie Zell, Chief Financial Officer.
Good morning, and welcome to One Water Marine's fiscal Q3 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'd like to remind you that certain statements made by management in this 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 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 section on the company's website earnings 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. And with that, I'd like to turn the call over to Austin Singleton, who will begin with a few opening remarks. Austin?
Earnings. Thanks, Jack, and thank you, everyone, for joining today's call. Overall, we delivered solid results for the Q3 of 2021. Despite industry wide inventory challenges, which pressured the top line, We grew our operating margin to 16% and we delivered record adjusted EBITDA of 66,000,000 an increase of 33% compared to the prior year. Sales for the Q3 of 2021 were up against an extremely difficult 44% same store sales comp in the prior period.
As a reminder, the prior period benefited significantly from business that shifted from March 2020 to April May 2020 because of the COVID shutdown. This year same store sales for the Q3 were down 11%, all driven by significant inventory shortages across the industry, but partially offset by improvements in service parts and other sales. We believe we would have posted positive same store sales if we had the inventory. It's noteworthy that same store sales excludes new and acquired store sales until the end of the store's 13th month of operation under our ownership. Our Tom George Yacht Group and Walker Marine Acquisitions were 2 of our largest and leveraged our global inventory to meet the red hot West Coast of Florida retail environment.
We ended up sharing the same store inventory and inventory planning tools with these acquisitions, which ultimately pressured same store sales, but is exactly where we see the power of our network of dealers and show the interconnectivity of our organization. For comparative purposes, same store sales for the Q3 year to date 2021 when compared to the same periods in 2019 were 14% 26%, respectively. Earnings. Importantly, we grew our higher margin less cyclical service parts and other revenue by 58% compared to the prior year, which mostly offset the shortfall from new and pre owned boat sales. Sales activity remains robust.
Store swings and lead generations continue to be strong and as a result our pre sold inventory is up nearly 400%. Gross margin expanded by a whopping 8 22 basis points, driven primarily by the mix to boat models sold and was further bolstered by the sharp increase in service parts and other revenue. We continue to focus on executing our multifaceted growth strategy through strategic acquisitions and growing our higher margin business segments to help us expand our market share and drive long term shareholder value. As a reminder, we typically pay less than 4 times EBITDA were target and we expect to cut that purchase multiple in half within 24 months. Our strong cash generated from operations fund our acquisitions and we generally enter into long term leases on the dealership's real estate.
Now let's take a minute to talk about 2 of our recent announced deals. The first is Naples Boat Mart, a 3rd generation family owned and operated business that expands our presence on the West Coast of Florida and complements our recent acquisition of Walker Marine Group. Naples Boat Mart represents premium boating brands including Grady White, Hurricane and Key West, while offering factory trained technicians to deliver quality service for its customers, including a full rigging shop and mobile service units. We expect this transaction to close in the Q4 of 20 21. The second announcement we made was an agreement to acquire Partsview, is expanding our parts and service offerings, which commands a significant margin and helps insulate the company from the cyclicality of boat sales.
Partsview generated approximately $25,000,000 in sales over the past 12 months and has a history of organically doubling sales volume annually since launch in 2016. We expect this acquisition to close in Q4 of 2021. Our significant margin expansion and earnings growth further underscores our superior execution and efficient operating model. Continue meeting the needs of our customers and pre selling inventory. At the same time, we continue advancing the other parts of our business that support further margin expansion and strengthen our relationship with customers.
We feel very confident as we finish our year that we will be positioned well to drive long term shareholder value. With that, I will turn it over to Anthony to discuss business operations.
Earnings. Thanks, Austin. Customer demand remains at historically high levels with no sign of slowing down. Our sales team has outstanding job driving sales in this dynamic environment aided by our sophisticated state of the art inventory management tools that provide the sales team with powerful intelligence and access to our global inventory. Every one of our dealerships, including the 2 largest acquisitions, have full access to our broader inventory pool.
Whether the inventory is in the store or on its way to the store, our sales teams are able to sell it. As a result, our pre sold inventory is up over 400% compared to the prior year. Customers are coming to us today to order boats for next season. They are no longer waiting for boat shows because they are wanting to ensure they get their boat in time. We don't see inventory normalizing in the near term and we have adapted quickly and continue to drive sales.
In addition, we are focused on levers within our control, including building out the higher margin areas of our businesses. Service, parts and other revenue surged 58% to $30,000,000 with approximately 50% dropping to the bottom line. We see tremendous growth opportunities with these non boat related business lines and we'll continue to expand in These areas, as Austin mentioned, our efficient operating model allows us to do more with less, which is reflected in our industry leading operating margin of 16%. We remain focused on stellar execution and further expansion of our business. I will now turn the call over to Jack, who will talk about the financials in more detail.
Thanks, Anthony. 3rd quarter revenue decreased 1% to $404,200,000 in 2021 from $408,300,000 in 2020, fueled by a decline in same store sales of 11%. This decrease was primarily driven by the industry wide supply chain shortages earnings and primarily and partially offset by improvements in service parts and other sales. New boat sales decreased 2% to 2 $288,200,000 in the fiscal Q3 of 2021 and pre owned boat sales decreased 9% to $71,100,000 Finance insurance revenue decreased 8% to $15,200,000 in the Q3 of 2021 and revenue from service parts and other sales increased 58 percent to $29,600,000 compared to the prior period, mostly offsetting the shortfall in boat sales. Gross profit totaled $127,000,000 in the 3rd quarter compared to $94,700,000 in the prior year, driven by an increase in the margin on new and pre owned sales and the shift in the model mix and size of the boat sold.
Additionally, higher margin service parts and other sales contributed significantly to the increase in gross profit. As a percentage, our gross profit margin increased 8 22 basis points to 31.4% compared to 23.2 percent in the prior year. For the fiscal Q4 of 2021, We expect continued elevated margins due to the lack of inventory at higher than historical averages, but is dependent on inventory and model mix. Selling, general and administrative expenses increased to $60,500,000 from 43,100,000 SG and A as a percentage of sales increased to 15% from 10.6% in the prior year. The increase in SG and A as a percentage of sale was primarily driven by the higher variable personnel costs driven by the increased level of profitability compared to the prior year.
Operating income rose to $64,900,000 from $50,700,000 in the prior year, driven by expanded gross profit, partially offset by higher SG and A. And as a result, adjusted EBITDA rose to $65,500,000 compared to 49,300,000 the prior year. Net income totaled $51,600,000 or $3.04 per diluted share in the fiscal Q3 of 2021, up from $40,600,000 or $2.36 per diluted share in the prior year. As of June 30, 2021, our cash and cash equivalents balance was $113,200,000 an increase of $25,300,000 compared to $88,000,000 in the prior year. Total inventory as of June 30, 2021 was $116,900,000 compared to $171,300,000 in the prior year due to the industry wide supply chain shortages.
Inventory hasn't been this low since 2017. As Anthony mentioned, our presold boats are up 400%. And while customer deposits are not a perfect indicator of presales and can be lumpy at times, as of June 30, 2021, They are up to $43,100,000 more than 3 times the prior year amount. Total long term debt currently stands at 115 point $7,000,000 And when you subtract the cash and cash equivalents, adjusting for the pending dividend payment yields a very low net debt to adjusted ratio of 0.2 times. From a capital allocation perspective, we are focused on reinvesting in the business to accelerate organic growth and strategic M and A opportunities as we have discussed.
Looking ahead for the full fiscal year 2021, we are raising our outlook for adjusted EBITDA to be in the range of $150,000,000 to 155,000,000 and diluted earnings per share to be in the range of $6.60 to 6 point including any additional acquisitions that may be completed during the year. However, based upon the continued broad based inventory challenges in the industry This outlook assumes 1 Water's manufacturers can maintain production at the current pace, allowing us to deliver presold units and build inventory in the face of the industry wide supply chain constraints. This concludes our prepared remarks. Operator, will you please open the line for questions?
Earnings. Our first question comes from Drew Crum with People may proceed with your question. Okay, thanks. Hey guys,
good morning. I know you're not providing guidance for fiscal 2020 Yes, but you mentioned that you don't expect inventory levels to normalize anytime soon. So given that dynamic and some tough comps at least over the next couple of quarters. How should we be thinking about same store sales performance? And then separately, maybe for Jack, The gross margin performance you cited boat mix and service and parts growth.
Sounds like you're anticipating something similar in fiscal 4Q. Should we anticipate a similar gross margin lift beyond fiscal 2021? Thanks.
Earnings? Jack, do you want to take that?
Jack? Earnings?
Yes. On the same store sales note, we're doing a lot of work in and around 2022 and projections right now. So not really prepared to speak to that. I think that we're looking for our manufacturers To provide adequate inventory, I know they're faced with a lot of supply chain constraints. And so I think as we get more and more information out of them, it will be Easier for us to get a better projection on same store sales.
I mean, we do feel like when you look at the quarters earnings? And there's some back in the March quarter, we were 57% same store sales. I mean That's going to be an interesting comp to go up against. So there may be some variability through the year. I think though that there is demand from what we're seeing today that there's demand that will continue to drive a positive same store sales.
So we got to work through this inventory challenge and I think move that forward. As far as gross margins, I mean, I do think So long that inventory continues to be constrained, we're going to do what we have to do. And We think that's going to present a more favorable margin environment. I wouldn't go about modeling things up 8 122 basis points. But I certainly expect them to be elevated as we go forward.
One other thing I'd like to add to that too though is that we're going to be continue to be aggressive on our acquisition platform. And as we noticed in this quarter that when you take a dealership that we've acquired and you allow it To pull from the global inventory that could have an impact on same store sales if that particular market is hotter and they're able to get additional inventory that in cash they hadn't. So with the Tom George and Walker's, those acquisitions, they had their inventory that they had ordered for the year, But now they had this global inventory that they could pick and choose from as needed and they were able to generate some sales. So As we continue to move forward and lay in Stone Harbor and Naples Boat Mart and some other acquisitions, Keeping that cadence that we spoke to, that'll put a little pressure on same store sales while the inventory constraint is where it is today.
Earnings. But I mean, ultimately that Ross, that's just good business and it's going to drive additional EBITDA growth for the company.
Got it. Okay. Thanks, guys. Earnings. Thank you.
Our next question comes from Mike Swartz with Truist Securities. You may proceed with your question.
Hey, guys. Good morning. I don't think inventory constraints are all that surprising to anyone who covers this industry. But I think when we go back to late April, your last conference call, I don't remember kind of the commentary being maybe as dire from the inventory situation as maybe it is today. So maybe give us a sense of what happened over the past few months, whether that was Retail demand related or whether that was maybe OEM production related?
Well, I mean, I don't think it was earnings? Retail demand, I mean, retail demand has remained pretty consistent and strong. I think the bigger issue is the OEMs and it's kind of like a earnings? If you have a load of boats that's coming in that gets pushed 2 weeks, that can hinder a quarter, but that load getting pushed 2 weeks pushes the next load 2 weeks or 3 weeks, which pushes the next load 4 weeks. So it's kind of like a domino effect that keeps pushing it out.
And I think that we were confident After talking with our manufacturers back in April that they were they had kind of started to feel they were over the hump, but it's I think they didn't realize that it was other things that we're going to sneak up and buy them. Anthony, do you want to add more to that?
Yes, I mean, it's just been a constant earnings? Between gel coat and foam and everything else that goes in them has been a shortage of. It started back In February in that storm in Texas that really, I guess we all didn't realize how many things are built out of a gel coke.
Earnings. Another thing too though is, I mean, the consumers themselves have been pretty understanding and patient. Earnings? So when you get to the end of a month or the end of a quarter that last 7 days can really make an impact because if you don't get what you're suspecting to get, it pushes into the next month of the next quarter. And so we're not losing the sales, it's Just getting delayed and like we spoke of in the opening comments, our pre we really kind of dug into that and that pre sold inventory that we've got coming in is, I mean, it's north of 400% of where it was this time last year.
Earnings. Thanks for the color there. And maybe just for Jack, maybe give us a sense On the new boat side particularly what units versus pricing look like during the quarter?
Earnings? Yes. I would say it's largely driven by price. Units were in the quarter were down slightly, earnings? But it's those what we're able to in this environment command from the pricing perspective that we're pushing.
Earnings. Okay, great. Thank you.
Thank you. Our next question comes from Joe Altobello with Raymond James. You may proceed with your question.
So first question is just a housekeeping item. The guidance that you gave us this morning for EBITDA and EPS, does that include any contribution at all the recent acquisitions or you
No. Yes, those will roll in when those acquisitions close. Earnings? With us being so close to the year end, if we were able to close 1 or 2 here before we get to the year end, I don't think it'll move the needle much.
Okay, got it. And in terms of model year 2022, we're hearing some pretty big numbers in terms of price increases. What are you guys seeing in terms of pricing for the model for the new model year? Is there any concern about passing on the any tumor? And could that put potentially downward pressure on margins on both margins in the next year?
I don't think so, Joe. I mean, every year, earnings? Pre COVID, we always had 3% to 5% price increases. And a good part of that had to do with content that the manufacturers are doing. So I think the Consumers are pretty used to it and the demand for boating continues on.
So I don't think that's going to be an issue.
Earnings. One thing, Joe, and I've spoke to this once, but one thing I'd like to point out, it seems the consumer, especially in this Bodie spaces, is really moved more towards a Cost of ownership versus the cost of the purchase or the purchase price. So we have started really working with our sales associates to really work on earnings kind of pushing the consumer to this is what it's going to cost you to have this boat for 2, 3 or 4 years. And when the pre owned market is just non existent today, it's really driven up the price of pre owned boats. So when you start looking at a customer or talking to a customer that's looking at a $250,000 ski boat and they kind of figure out to own that boat for 2 to 3 years, Using it at the normal hours is going to cost less than going and buying the Chevrolet Suburban on a monthly basis.
It's not hard to get them to pull the trigger. Earnings. And so I'm very confident because it's been a worry of mine pretty much my whole entire life in this industry. Earnings? Oak prices just go up a ton every year, but it's never been hard to pass that on to the consumer.
And I just don't see that being an issue going forward.
Earnings. Okay, got it. Just one last one, if I could. The 3 acquisitions that you just announced, it looks like the combined revenue is about 90 earnings. Dollars or so over the past 12 months.
How should we think about the revenue and EBITDA contributions from those acquisitions next year?
Earnings? Yes. And I think you hit the revenue number right there. A typical acquisition of those sizes will bring earnings? A couple of $1,000,000 worth of EBITDA to the company.
Parts view is a little bit different. Earnings? That entity is in significant growth mode. So there's a lot of reinvestment and additional spending To grow that. So that one will have good gross margins, but it's EBITDA margin will be earnings?
Less than optimal as we continue to push as rapid growth.
Okay, great. Thank you, guys.
Earnings. Thank you. Our next question comes from Brett Andres with KeyBanc Capital. You may proceed with your question.
Earnings. Good morning, guys. A question, I think Jack, you mentioned presales were up 300% year over year. Is there any way to kind of frame that up in terms of I don't know, is that 1, 2, 3 months of sales? And then I guess how have the pace of those presales been here in July?
Any change in earnings cadence or trajectory there?
Yes. No, it's continuing to the pace is continuing to grow. Earnings? It's tough to really, there's a lot of details behind that as to when they'll fall in. We typically need to get the boat from the manufacturer As soon as they're delivered, trust me, we're customers are chomping at the bit and we're pushing to get them turned around absolutely as quickly as we can.
Earnings. But it is a we are starting to hear customers say things like even this late in the season, earnings. Maybe a customer who would normally maybe come to a boat show and put an order in for next season, earnings? They're coming in at the end of this season saying, hey, we want to go ahead and let's get a boat on order. So it's we know for sure it's going to be here next season.
So earnings? That's helping that backlog to continue to grow. And we're working with manufacturers to get those boats slotted, built and prepared for the customers.
Earnings. Got it. Okay. And then just on Partsview, I think that was an interesting acquisition there. But I mean, does that still a need earnings.
Or give you an advantage in your PS and O business? Is it just is there a scarcity of parts out there and now you all of a sudden have them? I'm just kind of curious how that fits the broader picture here?
No, I don't think there's a scarcity of parts at all. I think what it does is it gives us the platform that we've been looking for earnings? To really set us up differently. I mean, one part of the already has been growing great on its own. The platform is solid.
Philip and his team are really passionate about it and so we can kind of leave it in earnings is wheelhouse to grow it. I think we bring some buying power. I think that there's some things just by us bringing it in the fold that we can help accelerate not only the top line but the bottom line. But it does give us that platform that I've been seeking in order to really bolster up our P and A to get to where we can get into a meaningful loyalty program subscription model, earnings, keeping the customers in our fold. And so it's a very important piece of the puzzle and we're super excited about it.
And I think what excites me more than anything is that the guy that's going to run with it, is super passionate about it and he's earnings incentivized to really help us make that thing explode.
And then just the last one on parts view is that, I mean, It's a smaller business, but it's growing rapidly. Just what is the margin profile of that versus your current PS and O business?
Earnings? Yes. I'd say at the gross margin level, it's similar. It's a parts margins in the earnings? Low 30s, but it's right now as far as from an EBITDA margin, it's lagging a little bit.
Earnings? It's profitable, but it's not what you would expect because of that reinvestment in its growth.
Got it.
All right.
Thank you, guys.