Good day and welcome to the OneWater Marine Fiscal Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jack Ezzell, Chief Financial Officer. Please go ahead.

Good morning and welcome to OneWater Marine’s fiscal second quarter 2022 earnings conference call. I am joined on the call today by Austin Singleton, Chief Executive Officer and Anthony Aisquith, President and Chief Operating Officer. Before we begin, I’d like to remind you that certain statements made by management in this morning’s conference call regarding OneWater Marine and its operations maybe 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 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?

Thanks, Jack, and thank you, everyone, for joining today’s call. Across the board, we delivered exceptional results for the second quarter of 2022 and outperformed the industry. Same-store sales increased 8% on top of an incredible 57% comp in the prior year. Our results reaffirm the strength of our proprietary technology, scale and access to our global inventory pool and proven acquisition model that allows us to outperform. But most importantly, the enthusiasm and persistence of our team to leave no stone unturned led to this record quarter. Revenue for the quarter increased 34% to $442 million despite the industry-wide supply chain bottleneck impacting OEM production. Importantly, we saw this flow through to the bottom line with adjusted EBITDA growing 65% to $66 million for the quarter. Contributing to those amazing achievements, I want to highlight the significant increase in our higher-margin service, parts and other revenue, which was up a whopping 178% versus the prior year period. Our emphasis on building out the higher margin, stable revenue streams is really coming to light with the addition of T-H Marine. As this portion of our business grows, we become less exposed to typical cyclicality of the new boat market. While we are not seeing any signs of the demand abating, we believe OneWater is in a strong position regardless of where we are in any given cycle. As aggressive as we have been with our acquisitions, we hold less than 4% of the total market share. In such a fragmented market, we have a long runway to capitalize on our winning strategy and post-acquisition synergies. This proven strategy and synergies gives us a very healthy run-rate EBITDA of $240 million that could easily grow in excess of $275 million as synergies take form over the next 24 months. Looking at…

Thanks, Austin. Strong demand from the beginning of the year carried into the second quarter despite typical winter seasonality, while SSI data showed a decline for the industry. Our customers are out in our stores, shopping for their next boat with no signs of slowing down. Both are flying off the lot, in many cases before they even arrive. Our team is doing an excellent job leveraging our technology to pull boats in every which way to satisfy customer demand. In fact, pre-sold inventory remains elevated at almost double the level in the prior year period. At the same time, we are continuing to add amazing dealers to our portfolio that are utilizing our global inventory to help fuel their outperformance. For example, Walker Marine, which we acquired in December of 2020, has more than doubled its pre-acquisition EBITDA in the last 12 months. While recently acquired dealers are doing an extraordinary job in pulling from our global inventory, this does put some pressure on the same-store sales calculation, which could cause some choppiness over the next two quarters. However, we have an incredible business model with proven performance and a great position within our sector and we are very confident in our yearly same-store sales guide. Our advanced inventory tools, allows us to work efficiently around the low inventories. We can hold less assets in the store, reducing our floor cost and supporting a higher margin profile while still providing for our customers. The business model drove a 530 basis point increase in gross margins for the quarter compared to the prior year. Over the last two quarters, we have focused on building inventories in preparation for the summer selling season. At the end of the second quarter of 2022, we held $293 million of inventory, an increase of…

Thanks, Anthony. Second quarter revenue increased 34% to $442 million from $329.6 million in the prior year quarter, fueled by a significant increase in parts, service and other revenue and an 8% increase in same-store sales. New boat sales grew 21% to $290 million in the fiscal second quarter of 2022 and pre-owned boat sales increased 35% to $75.9 million. We continue to benefit from our diversification strategy and growing the higher margin parts of our business, which contributed substantially to our results in the quarter. Finance and insurance revenue increased 27% to $14.9 million in the second quarter of 2022. Service, parts and other sales climbed 178% to $61.3 million, driven by the contributions from our recently acquired businesses. Gross profit increased 61% to $142.5 million in the second quarter compared to $88.8 million in the prior year, primarily driven by the increase in gross margin of new and pre-owned sales and the fundamental mix shift towards the higher-margin service, parts and other sales. Gross profit margin increased 530 basis points to 32.2% compared to 26.9% in the prior year. Second quarter 2022 selling, general and administrative expenses increased to $75.5 million from $48.3 million. SG&A as a percentage of sales bumped up to 17% from 15% in the prior year. This increase in SG&A as a percentage of sales was due mainly to higher variable personnel costs, driven by the increased level of profitability compared to the prior year quarter. Operating income increased 53% to $59.4 million compared to $38.7 million in the prior year, driven by an increase in gross profit primarily offset by SG&A expenses. As a result, adjusted EBITDA increased to $66.1 million compared to $40.1 million in the prior year. Net income for the fiscal second quarter totaled $42.4 million, or $2.54 per diluted…

Thank you. [Operator Instructions] Our first question comes from Craig Kennison with Baird. Please go ahead.

Hi, good morning. Thanks for taking my questions. So we’re in a rising rate environment. We saw the Fed move yesterday. I’m curious what the average rate your consumer pays and whether you’re seeing any change in behavior as rates rise, whether they put more money down, cancel deals or change their behavior in any way because of rising rates?

Craig, thanks. I’ll let Anthony kind of maybe jump in on this, but I’ll just start off by saying we have continuously had to fight for F&I. It’s not something the majority of our customers come in planning on writing a check and its conversion that we really had to work on. So I don’t think there is been a shift of that at all. The rates haven’t moved significantly. One of the things I’ll point out that as rates continue to go down, boat financing rates did not. They kind of hung out in that low-5s, mid-4s to low-5s. And so they haven’t seen the increase as fast as or as quick as like mortgage rates, but anything is better than that on the day-to-day, especially over the last couple of weeks.

Yes. I mean, the rates we have always operated at a bit higher rate, if you will. And we continue to do exactly what Austin said. We continue to fight to get people to finance. And so it has zero effect on us at this point.

Okay, great. And then, Jack, just a follow-up on your share repurchase program. Can you give us a feel for what your diluted share count could be for the full year, at least based on your guidance?

Yes. I think at this time, we’re not projecting in our guidance a material change in the number of shares. I’ll remind you that we did indicate that we were going to wait until after the earnings release got out there before we were in the market buying shares. And so we will be opportunistic and certainly update you as the program goes along.

Great, thank you.

Thanks, Craig.

Our next question comes from Joe Altobello with Raymond James. Please go ahead.

Hi, guys. Good morning. A couple of questions for me. I guess, first of all, there is no doubt more macro uncertainty today than there was, call it, 6 months ago. And given the longer lead times in terms of delivery throughout the industry, and I think you guys are seeing that as well, is the customer less likely to commit to a purchase today for delivery 3 to 6 months out or even longer if they don’t know what the macro is going to look like? I mean it sounds like you guys are not seeing that, but we heard from Camping World, for example, yesterday, mentioned some softness starting in February. And I’m curious if you guys are seeing that at all in your business?

Zero.

Nothing. Zero. Nothing.

Joe, the other neat thing, as I spoke about before, is our manufacturers is so unlike 20 years ago. The manufacturers continue to come out with innovative products that everybody wants and they are willing to wait for it. It’s – 20 years ago, they changed the color of the boat from year to year, and there is – every one of our manufacturers has a minimum of 2, up to 7 different models that are coming out with that are just, Oh my gosh. So people are willing to wait for it because it’s – they are that spectacular.

Okay. That’s very helpful. And maybe a second question on capital allocation. You talked about doing two to four parts and service acquisitions, four to six dealer acquisitions and then the $50 million buybacks. Could you do all of that together? Or would the $50 million buybacks potentially cause you to do fewer M&A deals?

Well, I mean I think it would be based on the size of the M&A deals. This year, if you look at the sheer size of Denison, if you look at Quality, I mean those two deals are alone – those two deals alone are bigger than, if you go back several years ago, six deals we did 1 year, just those two. So it really is going to depend on the size of the deal. And we do have some bigger deals in the pipeline right now. I mean I think that we’re just going to look at it as where are we? What’s the price of the stock at the time that we’re ready to allocate capital? And where is the timing of the deals. But yes, we could do them all if they were on the smaller side. If they were on the bigger side, we can’t do two to four and four to six just on the acquisition side, if they are all really big. So it’s – the guide for the number of deals is just kind of where we know our pipeline is. But if a bigger deal comes along, we might only do one P&A deal if gets big. And we might only do three dealership deals if they are big because they are going to be the same as doing six. So it’s really going to be just what’s out in front of us from a timing perspective of when we can get deals closed. But yes, we could do it all at one time if we wanted to, if they are the right-size.

And with that said, I mean we’ve already completed four dealership acquisitions this year and two P&A acquisitions this year. Typically, the June quarter is, because of season, is typically a quarter that we don’t close a lot of acquisitions traditionally, but it also is a quarter where we generate significant cash flow. And so we’ve done a number of acquisitions in periods of slow cash flow, and now we’re in a peak cash generation season.

Okay, great. Thanks, guys.

Our next question comes from Michael Swartz with SunTrust Robinson Humphrey. Please go ahead.

Hi, guys. How are you? Good morning. Just I guess starting off maybe for Jack. Just trying to, I guess, better understand the moving pieces to the comparable sales, the plus 8% in the quarter. I guess I’m just trying to back into unit volume versus price mix, and then maybe how that compares to how the industry performed on a unit basis in the first quarter.

Yes. From what I recall, we performed ahead of what the industry did from a units perspective, but a lot of the increase was due to price and mix.

Okay, thank you for that. And then just on guidance, I’m just trying to make sure I’m thinking about this correctly. You raised the range on EBITDA by about $20 million. And I think the kind of partial year benefit from Denison in yacht was maybe somewhere in the, call it, $10 million range. I guess, am I thinking about that right? And if so, then it seems like you took up guidance by another $10 million on the base business. Is that just because you performed better in the second quarter than you had previously anticipated or am I thinking about that wrong?

Yes. No, it’s because we performed better in the quarter than we anticipated.

Okay, great. Thank you.

Our next question comes from Fred Wightman with Wolfe Research. Please go ahead.

Hey, guys. Good morning. Maybe just a follow-up on that quarterly comment for the comps, I think you had talked about sort of being close to flattish this quarter, but you came in ahead of that. Was that just better price recognition? Did you actually see better deliveries than you had planned? Where was sort of the disconnect?

I think we’ve been pretty consistent over the last year, Fred, that when you go into the end of the quarter, that last 14 days of the quarter really can change it or make it better or worse or whatever. And I think that the manufacturers, for whatever reason, first quarter this year, they did really well as far as getting deliveries out and getting the boats to us. I know that April has been a pretty good struggle for most of our manufacturers from a production or supply chain issues and challenges they were having. But it just – the quarter came together. Anthony, if I’m wrong, let me know, but it just really came together, the last couple of weeks. March was a good month, as we’ve seen April to be a good month also. It is just deliveries. It’s just the season.

Makes sense. And the other thing that you guys have sort of talked about is just the impact on reported comp sales as you integrate some of these dealers may have access to a wider inventory suite, right? So even though reported revenues benefit from that, the actual comp impact is a little bit detrimental. Could you sort of talk about how to think about that into the back half of the year? Is that impacting sort of this implied slowdown on a 2-year and 3-year basis for comps in the back half of the year or are you more skittish on the consumer, more skittish on sort of deliveries? Like how does that all work out into the guidance that you’ve outlined?

Yes. We’re definitely not skittish on the consumer. Same-store sales, we talked about this at year-end, and we’ve talked about this and it’s going to be choppy. And it really goes in, like I just said, the last 14 days of the quarter can swing it. But also, we’re looking at Quality, was – is a huge dealership that’s never had enough inventory. They haven’t had enough inventory for the last 3 to 5 years with certain brands. And now they can pull from the global inventory that we have. So you can look at Grady or Pursuit. They can sell more bigger Grady-Whites, more bigger Pursuits than they have been able to in the past because we have more allocation because of the total network. And so let’s say we’re supposed to get a big Grady-White up in Ohio, well, if we can sell it in Florida beforehand, they’ll take that production spot and you can skew same-store sales. I don’t see it being significant. It’s not like we’re guiding to a double – a high single digit, and it’s going to be negative or it’s going to go – jump up between, but it can swing this, they pull from the global inventory for stuff that’s not counted in same-store sales, they could swing it, Jack, what 2% to 4%?

Yes, it definitely could move at 1% or 2%.

Yes. Just with the dollar volumes, it doesn’t take a lot of units. And so we just have – we’re kind of keeping an eye on that. I mean, I think, we’re – we’ve never really given out or never really worried about quarterly same-store sales comps versus the yearly guide. We’re very comfortable, like Anthony said in his side of the leash, that the high single digits is what we’re pretty confident in that. Just to say that there is no slowdown in the consumer right now. We’re not seeing that at all.

Yes. I think if anything, there is some conservatism built in about concerns with some of what we’ve heard a little bit from some of the manufacturers with supply chain hitting some bumps in the road here recently. Hopefully, they are able to work through those quickly, but that would probably be the area of concern.

Awesome. Super helpful, guys. Thank you.

[Operator Instructions] Our next question comes from Drew Crum with Stifel. Please go ahead.

Okay, thanks. Hi, guys. Good morning. So the past several quarters, new boat growth has outpaced pre-owned, but that was not the case this quarter. Can you talk about what some of the dynamics were behind that? And then I have a follow-up.

Yes. We have continued our strategy, as we talked about in the past, of running our five business groups together, and we’ve added multiple used boat buyers, if you will, just going out of the market. And that’s what our job is to do, is to buy and grow our used boat business. I mean it’s – there is a lot of growth ahead of us with our pre-owned market, no matter what’s going on in any environment. There is always – there is a statistic out there. There is 1 million used boats a year that change hands and the majority of it is person to person. And what we are working feverishly trying to get in the middle of that.

Got it. Thanks for that Anthony. And then Austin, in your preamble, you suggested adjusted EBITDA of $275 million. I think you said it was easily achievable over the next 24 months. I think last quarter, you guys talked about a $300 million plus number. I just want to make sure I am understanding those two correctly, if you could reconcile the two figures? Thanks.

Yes. I would say those are a little bit of an apple and an orange. What Austin was kind of referring to was just kind of where our run rate is at today and our ability to synergize that number. The previous number we got at was just talking about, if you look at our adjusted EBITDA and you layer in growth, 10% to 15% growth from acquisitions and 5% to 10% from the base business that gets you to a $300 million number by 2024 without any sort of synergies. And so I think we’re just trying to just provide some color around the different ways we can – that – how we look at the business and what we see ahead of us with growth opportunity and how our EBITDA can increase over time just as we continue to run the business.

Got it. Thanks, guys.

Thank you. That will conclude our Q&A session and the conference call today. Thank you for your participation. You may now disconnect.