OneWater Marine Inc.

Good day and welcome to the One Water Marine fiscal fourth quarter and full year 2024 conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Jack Izzle, Chief Financial Officer. Please go ahead.

Good morning and welcome to One Water Marine's fiscal fourth quarter and full year 2024 earnings conference call. I am joined on the call today by Austin Singleton, Chief Executive Officer, and Anthony Asquith, 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 one 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 sections of the company's website, and in its filings with the SEC. The company declaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. Please note that all comparisons of our fourth quarter 2024 results are made against the fourth quarter of 2023, unless otherwise noted. With that, I'd like to turn the call over to Austin Singleton, who will begin with a few opening remarks.

Austin? Thanks, Jack, and thank you everyone for joining today's call. This past year has been challenging for our team, our industry, and our communities. Tragically, in late September, Hurricane Helena struck, followed by Hurricane Milton in early October, causing extensive damage and disruption across the west coast of Florida. Our thoughts and prayers remain with those affected by the storms. Most importantly, I am pleased to report that our teams are safe and most of our stores sustained only minor damage. As of today, while a few docks are still under repair, all retail locations have reopened and are fully operational. Despite the hardships, the resilience and support within these communities has been remarkable. I'm incredibly proud of our team's dedication to our customers and the communities during these difficult times. As you would expect, the disruption from Hurricane Alina significantly impacted Our fourth quarter results. As previously disclosed in our press release in late September, we temporarily closed several stores in preparation for the storm and as insurance companies imposed a moratorium on writing new policies. As a result, sales were disrupted during a typically strong selling period for us. While the number of sales were closed in October, it is difficult to predict when the remaining sales will deliver. Customers are starting to settle insurance claims and rebuild their lives, and our teams are prepared to serve them when they are ready. This past year was challenging for the marine industry as demand and pricing reset to historical norms. Our team's strong operational execution, along with our revenue, brand, and geographic diversity helped us mitigate these challenges. We remain focused on disciplined expense management and keeping our operating model in line with current demand. As a result, we executed further cost saving measures in the fourth quarter, including rationalizing additional brands and consolidating certain parts and service facilities to more efficiently serve our customers. Although these restructuring actions impact margins in the fourth quarter, we expect to see benefit in 2025. We implemented similar actions earlier in the year that are already yielding results. as reflected in our lower SG&A expenses compared to the prior year period. We believe this positions us for success in the coming year. Turning to full year results, same-store sales were down 7%, reflecting softer demand within the broader recreational marine market. While this fell slightly short of our target, it's worth noting that through August, same-store sales we're down only 5% aligning with our expectations before the impact of Hurricane Alina. Our distribution segment service parts and other sales were also negatively impacted throughout the year by lower production for manufacturers. With higher interest rates on our floor plan and the current selling environment, we remain focused on managing our inventory to align with retail demand. I am proud with the progress we've made in executing our inventory strategy and we are well positioned as we head into 2025 with inventory tracking in the right direction. Turning to M&A, we were relatively quiet in 2024 as compared to prior years, but the pipeline remains active. Opportunistic transactions with a minimal capital outlay continue to be attractive and plentiful. We are actively monitoring the market and pursuing targets that meet our discipline, financial criteria while also supporting our strategic objectives. As we look back on the year, our diverse revenue streams, strategic brand offering, and geographic reach have helped us offset some of the challenges from macroeconomic uncertainty and adverse weather. This has enabled us to navigate what remains a complex operating environment. While cautious, we hold an optimistic view as we move into 2025. As Anthony will touch on shortly, the customer is active and we are strategically managing our inventory and our cost optimization efforts for March and September are working. Recent interest rate cuts and inventory reduction have helped reduce our overall interest expense and carrying costs. While not embedded into our guidance, future interest rate cuts should provide additional tailwinds to our business. With that, I will turn it over to Anthony to discuss the business operations.

Thanks, Austin. The sales pace for the quarter started in line with the month of June with demand increasingly slightly in August. However, September was challenged due to Hurricane Helene, and October was further impacted by Hurricane Milton. These disruptions on the west coast of Florida impacted sales for September, and will continue to have an effect for the first half of the year as customers rebuild. We are pleased to report a record Fort Lauderdale boat show with a unit sales up double digits compared to the prior year. The strong activity highlights the sustained customer appetite for boating despite uncertainty in the election and overall economy at the time. Our manufacturer partners unveiled a variety of new 2025 models, adding to the excitement and driving demand. Our diverse brand portfolio has been significant competitive advantage, ensuring we have the right vote for every customer, regardless of their location. Promotional activity remains robust, with the manufacturers consistently offering support to drive sales and clean out aged inventory. Elevated inventory levels have been a common theme across the industry this year. Although we typically increase inventory in the fourth quarter as part of a seasonal build, Our inventory was slightly down sequentially due to our optimization efforts. As we redefine our product strategy and phase out certain brands, we expect inventory to decrease another 10% next year. Regarding our current inventory composition, we are comfortable with the mix of 2024s and 2025 models. We have reduced our orders for model year 2025 and are being replaced at a slower pace than prior year. Our finance and insurance penetration remains strong and well within our target range. Customers have appreciated a slightly lower interest rate environment, so any future rate cuts should make financing options even more attractive to them, while also improving the economics of the boat's finance through OneWater. And with that, I'll turn the call over to Jack to go over the financials in more detail.

Thanks, Anthony. As mentioned, our fourth quarter results were impacted by Hurricane Malia. The closure of stores and insurance markets prior to the storm directly affected our revenues. Fiscal fourth quarter revenue decreased 16% to $378 million in 2024 from $451 million in 2023. New boat sales were down 18% to $217 million in the fiscal fourth quarter of 2024, while pre-owned boat sales decreased 20% to $73 million. Revenue from service parts and other sales for the quarter, decreased 7% to 76 million. Driving this was a reduction in sales at our distribution segment, which was partially offset by increases in our dealership segment. Finance and insurance revenue decreased 12% to 11 million in the fourth quarter, but was slightly higher as a percentage of total boat sales. Gross profit decreased 24% to 91 million in 2024, compared to 119 million in 2023. This was driven by the return to pre-COVID margins on both sales, lower margins on brands we are exiting, and restructuring charges included in cost of sales. Sequentially, gross profit margin declined, but absent the restructuring charges in cost of sales, gross profit was in line with the June quarter and with our expectations. Fourth quarter 2024 selling general administrative expenses decreased to $80 million from $85 million SG&A as a percentage of sales was 21%, up 220 basis points on lower sales. On a dollar basis, SG&A was down 6% due to the previous cost reduction action and ongoing expense management and lower personnel costs in the quarter. Operating income increased $4 million from a loss of $117 million, and adjusted EBITDA was $8 million compared to $30 million. Net loss for the fiscal fourth quarter totaled $10 million, or $0.63 per diluted share, compared to a net loss of $111 million, or $6.89 per diluted share. In the fiscal fourth quarter, adjusted loss per diluted share was $0.36, compared to an adjusted earnings per diluted share of $0.42. Again, these amounts were significantly affected by the impacts of Hurricane Helene. Total revenue for 2024 decreased 8% to $1.8 billion compared to the prior year, driven by a decrease in units sold for both new and pre-owned. Same-store sales decreased 7% in fiscal 2024, which was impacted by a softer retail environment and weather-related closures. Additionally, service parts and other revenue decreased 10%, to $291 million for fiscal 2024, driven by lower sales from our distribution segment, partially offset by increases in sales from our dealership segment, which was up year-over-year as we expand this important part of our business and service our customers. Full-year 2024 gross profit decreased 19% to $435 million as a result of changing market dynamics, and gross profit margin for fiscal 2024 was 24.5%. Selling general and administrative expenses in fiscal 2024 decreased to $333 million, or 18.8% of revenue, from $346 million, or 17.8% of revenue, in fiscal 2023. The increase in selling general and administrative expenses as a percentage of revenue was driven by lower revenues. However, our variable cost structure and targeted cost actions support lower SG&A on a dollar basis. The cost reduction actions we made in March and September will continue to moderate our overall SG&A. We will continue to practice proactive expense management and have the flexibility to accelerate cost actions as necessary should the need arise. Full year 2024, operating income grew to $65 million compared to the prior year operating income of $18 million, primarily due to a non-cash impairment charge related to certain intangible assets during the fourth quarter of 2023. Net loss for fiscal year 2024 was $6 million or $0.39 per diluted share compared to a net loss of $39 million or $2.69 per diluted share in the prior year. The business generated adjusted EBITDA of $82 million for the fiscal year 2024 and adjusted earnings per share of $98 per diluted share, compared to $5.10 per diluted share in 2023. Turning now to the balance sheet, on September 30, 2024, total liquidity was $30 million, including $17 million of cash and additional availability under our credit facilities. Total inventory on September 30, 2024, was $591 million, compared to $599 million on June 30, 2024. We are comfortable with our current mix in aging, and as we execute on our brand rationalizations, we expect an incremental benefit from further inventory reduction. Total long-term debt as of September 30, 2024, was $423 million, resulting in a net leverage of 4.9 times trailing 12-month adjusted EBITDA. The hurricane impact on the business has pushed our net leverage higher than our expectation, but as the West Coast of Florida recovers, we will reduce our leverage in the back half of 2025. Looking ahead to 2025, we are cautiously optimistic as we expect demand to fluctuate with traditional seasonal cycles. We anticipate total sales to be in the range of 1.7 billion and 1.85 billion, with same-store sales up in the list of those digits noting a softer start to the year as we work through the impact of Hurricane Helene and Milton in the first quarter. We expect adjusted EBITDA to be in the range of $80 to $110 million and adjusted earnings per share to be in the range of $1 to $2. To conclude, we continue to focus on optimizing our costs, inventory, and debt levels as we adapt to the changing market dynamics. While 2024 was a challenging year, We have taken actions to position 1-1 for success and look forward to 2025. This concludes our prepared remarks. Operator, will you please open the lines for questions?

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then 2. Our first question comes from Joe. Alton Bello with Raymond James. Please go ahead.

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

Yeah, thanks, Joe. You know, that's a tough one to actually get a very specific number on, you know, the period of time. It really was out a little over a week's time from quarter end. you know, but we're estimating it's probably in that 30-plus million range. You know, some of it we were able to, you know, we were able to get some deals, you know, like on the east coast of Florida, which wasn't impacted. We had some insurance markets open up right on the 30th. So, you know, real fluid, but, you know, it's somewhere in that, you know, I'll call it all that range.

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

Yeah, you know, it's difficult to exactly, you know, see how it's going to play out. Obviously, our expectations would be next, the fourth quarter of 25 would be, you know, a very easy count for us to overcome and expect to see that up. significantly. But I do think there's some expectation that, you know, the back half will see some recovery from the west coast of Florida. But, you know, just as you know, Joe, right, when you have a hurricane, you know, customers don't just rebound the next day. Many people are having to replace homes, cars, businesses, and unfortunately the boat, you know, is further down the list. Sometimes it can take, you know, 18 months before they're ready to purchase the boat. So you don't ever really expect a big spike coming from a post-hurricane event. But we do think after a six-month period, certain customers will be back in the market and active. But we're monitoring the West Coast. We've had some mixed results. Some stores are tracking better than others. But we have about 10 stores in that, let's call it Tampa, Tampa Clearwater down to Fort Myers and that span there. So a number of stores in the impacted area. Okay.

Thank you.

Thanks, Joe.

And the next question comes from Craig Kennison with Baird. Please go ahead.

Hey, good morning. Thanks for taking my question. Austin, I'd love to ask you just to give Your point of view on the state of the boat consumer, you know, it's got a difficult environment to predict whether it's, you know, you mentioned the Fort Lauderdale show, which is positive. You've got a lot of other trends that are somewhat negative in the industry. And then you've got the election result, which I assume is friendly towards the boat consumer. But how do you unpack all of that and digest the information to provide a boat outlook?

Yeah, I mean, that's a tough one, but I mean, if you look at Lauderdale, Lauderdale was a great show. It was kind of like, I mean, and I'll let Anthony jump in on this, too, because he was on the docks a pretty good bit, but it was like a breath of fresh air. Like, it just seemed different, you know, and I don't know if it was just, you know, there was a relief that the unknown of the election was over, you know, because the weather wasn't that great the first couple of days, but it was It was a lot better than we were expecting. We were kind of expecting it to continue on the, you know, let me rephrase. October was a pretty daggum good month. Now we just, you know, some of that was, you know, pulled forward from September. But it was just a, it just felt different. Anthony, you want to jump in and make a comment on that? I mean, it just, it's hard to explain, but you just, the vibe and the tone just felt completely different than what we've seen in the last nine months.

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

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

I think we've seen that for the last, you know, five years, seven years. I mean, you know, the fluency of our customer just continues to increase, and it's just One of those things that when you look at it from a financing perspective, we have to work really hard, and we do work really hard, and we're kind of still staying in our range of what we want from a penetration standpoint. Now we've just got to spread that margin. But, yeah, the customer is definitely more affluent than it was 10 years ago. I mean, a lot of it's access to water and more people getting to water, which is exciting because it just increases the churn. So a scarcity of access to water that's overloaded by fluency is a good thing for the churn as we move the industry forward. That's great. Thank you.

And the next question comes from Drew Crum with Stiefel. Please go ahead. Okay, thanks.

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

Yeah, 100%. I think it was how we have so many stores kind of on that Gulf Coast area And so I think when you factor that in, you know, we were slightly worse than, you know, I think the industry, the segments we participated in was around 13%, 14%. So we were certainly a couple points worse than that. But, you know, obviously have a much heavier concentration on that Gulf Coast, right? Because when that storm was brewing in the Gulf, we had, you know, every store from the Florida Keys, you know, to Orange Beach, Alabama. you know, all of those coastal stores, you know, in preparation mode. And so, right, the service department shut down. We're not doing retail work. We're getting customer boats out of the water, our boats out of the water, you know, battening down the hatches. So, I think that probably overweights it a little bit.

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

Yeah, no, I think it's, you know, we continue to look at acquisitions. You know, some of them, last couple of deals we've done, have been minimal capital outlay. And I think there's a number of them in the pipe that are such. There's also some larger deals where they're still going through a normalization process of their earnings. And they have to kind of anniversary that before they're going to be realistic with purchase prices. So we're conscious of You know, where we're at, we're working towards, you know, reducing debt and driving things forward, you know, with the cost actions that we took, with the brand, you know, alignment that we took and reducing the number of brands. All of that helps to simplify our business, increase the profitability of our business, and, you know, strengthen us as we go forward.

Thanks, Jack.

Yep.

And the next question comes from Fred Reitman with Wolf Research. Please go ahead.

Hey, guys. Good morning. I was hoping you could just help us out a little bit with some of the segment level expectations, particularly when it comes to gross margins. You mentioned that new boats are sort of back to where they were from a pre-COVID perspective, but there's also a lot of promo in the market. So as you think about fiscal 25, do you expect that to sort of be up, down, sideways? How should we think about that?

Let me jump in, Jack. I'm cautiously optimistic that we can get a little bit of margin help on new boats as we move into 2025. What will be interesting is how the overall industry, the reduction of field inventory or dated field inventory comes down and how aggressive or fast, the promo dollars go away, and those have to be backfilled with just straight margin from us. But as you get through dated inventory and everybody's not in a, you know, I'm paying interest on this boat, I've got to get rid of it, you should see some sort of margin relief to the upside. Is it a half a point? Is it a point? Is it a point and a half? That's still to be determined, but I don't think we see that until you get into the gut of the season, until you get into those April-May deals, because there's still going to be some flushing out. When you look at an overall gross margin, still going to be some flushing out of this old inventory. So, you know, I'm expecting to see some bump up, but we just got to continue to keep chugging along like we are, eh? It feels like every time we do these calls, I'm like, we're getting closer, we're getting closer. And it's just like running through quicksand. It just takes a little while for all this inventory to flush through the system. But it's better today than it was yesterday. And it's better, you know, this month than it was three months ago. And I think that, you know, I've talked with Wells earlier in the week and that they've seen some good positive trends, not only from the Lauderdale Boat Show with other dealers, but also just across the nation of, increased payoffs and stuff. So things seem to kind of be lighter and easier and going in the right direction, and we just need to keep doing that, and we should see a little bit of margin bump as we move into the back half of next year.

Yeah, I'll point out two things, Fred. We had some restructuring charges hit new boat cost of sales, right? So new boats seem to tick down a little bit. When you back out those restructuring charges, we get right back to that, you know, 17 and change percent. on new boats, and then the same thing in park service and other, we ticked down just below 40% because we consolidated some plants, some warehouses, and there's some charges, restructuring charges in there that brought that number down below 40. But on an ongoing basis, it'll be above 40, and we expect that as well. I think as we look into the first quarter, With some of these brands that we're exiting, we could see some – a little bit of margin pressure there. But, you know, we also have some exciting 25 product that we're getting full margin on. So it'll be a balance.

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

Yeah, it's been interesting. We wanted to trim some costs. We've actually seen, in many cases, unit sales increasing in recent months. So we have to kind of keep this balance of You know, we want to make sure we're having adequate staffing to support our customers. And so, you know, we've made some cuts. The March cut was around $10 million. You know, so about half of that now is baked in. And then we took in about another $5 million at the end of the year. That will bake into $25. Great. Thank you.

And the next question comes from Michael Schwartz with Truist Securities. Please go ahead.

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

Yeah, I would say we're definitely embedding some share gain. I think we will outpace the industry. If we're low single digits positive, the industry is probably low single digits negative. You know, I think it's a – I think there's some uncertainty for us in particular with respect to the west coast of Florida. and how quickly that rebounds and exactly what that impact is on the same-store sales guide as well. As well, we have some exiting brands that we're pushing out. We have some store closures that will come out of the base that we did earlier this year. And so it's a little noisy, but we are positive on the air.

Okay. Hang on. Jack, real quick, clarify that store closings. It's not like, I mean, it's one-off satellite locations, really small. We're not closing any of our, you know, major stores or anything that has any substance to it. It's all really just, you know, do we really need to have a satellite that's 30 miles away from the mothership of a you know, the spoken hub just because it was convenient and we got a cheap lease. You know, consolidating that back down is helping us, you know, with personnel costs and stuff like that. It just doesn't make sense. We won't lose that business. So it's not like we're closing stores. I don't want that to, that didn't sound right.

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

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

Okay. Okay. Wonderful. Thanks, guys.

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

Okay, great.

And the next question comes from Noah Zatskin with KeyBank Capital Markets. Please go ahead.

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

Yeah, I mean, I would say the only thing that's really changed or the only thing about the industry that doesn't seem to ever change is the pre-owned market. There's not enough of them. And, you know, that's pretty steady, you know, case out there still today. We, you know, we could always use three times as many as we have. So, you know, that's something that we put a lot of emphasis on and it's an important part of our business and, We continue to focus on it, and it's a tougher part of our business just because of the lack of inventory that's available.

Thank you.

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