Good day and thank you for standing by. And welcome to the OneWater Marine Inc. Fiscal First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jack Ezzell, Chief Executive Officer. You may begin.

Good morning, and welcome to OneWater Marine's fiscal first quarter 2023 earnings conference call. I'm 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 may be considered forward-looking statements under securities law and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, which would cause actual results and events to differ materially from those described in the forward-looking statements. Factors that might affect future results are discussed in the company's earnings release, which can be found on the Investor Relations section of the company's website and in its filings with the SEC. The company disclaims any obligation or undertaking to update the 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. Before we get into the quarter, I want to thank our team for their continued efforts in response to Hurricane Ian. We continue to help our communities impacted by the storm to rebuild, but the process is far from over. As of today, all of our stores are open, but several are operating at limited capacity. We expect sales activity in areas heavily impacted by the storm to remain lean until homes, docks, and storage facilities can be repaired. Lost volume has yet to be recovered, as many customers still do not have anywhere to put their boats. The timing of this recovery demand is difficult to project, but we will continue to support our team and the community. Turning to our quarterly results, the first quarter played out largely in line with our expectations. We once again delivered record revenue in the quarter and gross margins of 30%. Importantly, we saw an 86% growth in our service parts and other businesses, which is demonstrating our evolving business model that is diversifying us away from the more cyclical boat buying cycles. As we discussed last quarter, our customers are returning to normal pre-COVID buying patterns. With the supply chain improving and lead times decreasing, many customers no longer feel the urgent need to preorder their boats months in advance of the season. That said, overall demand remains healthy, as evidenced by our backlog that is up over the prior year, strong store traffic, and robust activity at the boat show so far this season. I want to spend a few minutes discussing quarterly results and what a return to historical seasonality means for OneWater. Sales for the first quarter grew 9% on top of a 57% increase in the prior period. Same-store sales were down 14% in the quarter, following same-store sales growth of 28% and 38% in the first quarter of 2022 and 2021 respectively. In a typical seasonal environment, we have realized lower sales and higher levels of inventory in the first quarter, which is typical of the smallest quarter of the year. Looking back to the 2017 to 2019 period, the December 31 quarter represented about 15% of our annual sales and 10% of our annual EBITDA. Our parts and service business continues to grow organically and has also benefited from a number of strategic acquisitions over the last 18 months. The diversification of our businesses supported gross margins in the quarter and will enable us to maintain our track record of profitable growth regardless of industry or economic cycles. During the quarter, we also completed the acquisition of Taylor Marine centers and Harbor View Marine. Taylor Marine is an award-winning dealer with a strong reputation and complements our presence in the Mid-Atlantic US, while Harbor View fortifies our presence in the Florida Gulf Coast market. The acquisition pipeline remains robust and going forward, we will remain opportunistic, while we monitor the macroeconomic environment and apply a thorough analysis to any potential transactions. Based on where we stand today, all signs are pointing to an upbeat selling season in 2023. Boat shows to date have been strong, traffic is good, and demand remains intact. Additionally, gross margins are holding up and customers are not resisting the current interest rate environment. At the same time, there is considerable macroeconomic uncertainty and all the recent industry data is down. It is not clear if it is the impact of historical seasonality or consumer demand. With so many unknowns, we think it is prudent to revise our outlook for the fiscal year. However, we believe consumer sentiment holds, interest rates level out, and macro conditions improve, we have an opportunity to outperform. While we know there are a lot of questions out there around the health of the consumer and the current demand levels, we will be back here in a few months with a bit more clarity on the peak selling season. Finally, we announced last month that Mitch Legler will retire as Chairman of the Board. I would like to thank Mitch for his tremendous contribution and guidance to OneWater over the last several years through the IPO and a period of rapid growth. In line with our succession plan, John Schraudenbach, currently serves as Vice Chairman of the Board, and we expect John to be elected as Chairman at our upcoming annual meeting. I look forward to working with John in his new capacity and ensuring the continuity of leadership and governance. With that, I will turn it over to Anthony.

Thanks Austin. During the quarter, we experienced a change in customer buying cadence, rising interest rates, and a decline in the macroeconomic environment due to the impacts from Hurricane Ian, yet we still capitalized on solid demand to drive growth. We were able to key in on consumer trends at several boat shows during the quarter, where we logged strong activity. Manufacturer rebates and discounts made a return to boat shows, resulting in a more normalized pre-COVID pricing environment. Additionally, customers did not seem to be deterred by higher interest rates. In fact, a vast majority of the sales made at the Atlanta Show were financed. As Austin mentioned, with the normalization of certain parts of the supply chain, many customers no longer feel the sense of urgency to lock in a deal months in advance. This is especially true for the smaller standard units where inventory has normalized. However, there are still extended wait times for larger, more sophisticated boats in excess of 30 feet. Fortunately, we have the right portfolio of innovative products, a strong sales team, and the right tools to get customers across the finish line into the boat of their dreams. Total inventory at the end of the first fiscal quarter increased 112% to $527 million compared to a year ago, driven by the return of seasonal inventory built and acquired businesses. While we remain optimistic about the future, we're also closely monitoring our inventory levels in relation to retail sales. Should trends shift beyond expected seasonality, our proprietary tools will allow us to adjust our orders and inventory stocking levels. Furthermore, our flexible operating model enables us to swiftly align our cost structure with the new levels of demand. We have said it several times, we have not seen a material shift beyond a return to seasonality. Retail and boat show demand remain robust, but we continue to keep our fingers on the pulse of consumer activity to identify and make any necessary changes. Our service parts and other businesses contributed significantly to sales and gross margins in the quarter. Despite macroeconomic pressures and seasonality, our service parts and other businesses were also challenged by the destocking that occurred with big box retailers that had a build-up inventory in response to the supply chain delays. This area of the business continues to be an important growth driver for OneWater and now accounts for 16% of the total revenues and 22% of the gross profit on a trailing 12-month basis, consistently growing over the last few years. This contribution marks a significant shift in our diversification, offering a stable high-margin revenue profile to OneWater. As we return to a more cyclical environment for boat sales, we will rely on the stability of this business to smooth out our overall gross margins. In summary, demand remains healthy as the industry returns to a traditional sales cycle and the supply chain continues to recover. Our flexible business model allows us to adapt to the dynamic operating environment to continue providing excellent service to our customers, while driving value to our shareholders. I will now turn the call over to Jack to review the financials.

Thanks Anthony. Fiscal first quarter revenue increased 9% to $367 million in 2023 from $336 million in the prior year quarter, despite a 14% decrease in same-store sales. New boat sales fell 2% to $232 million in the fiscal first quarter of 2023 and pre-owned boat sales increased 4% to $56 million. We continue to benefit from our emphasis on growing our higher-margin parts of our business, which contributed substantially to our results in the quarter. Service parts and other sales climbed 86% to $70 million, driven by contributions from our recently acquired businesses. Finance and insurance revenue continues to pace with new and pre-owned boat sales. Gross profit increased 9% to $110 million in the first quarter compared to the prior year, primarily driven by margin insulation offered by our service, parts, and other revenues, partially offset by a shift in the mix of the size of the boat sold. Gross profit margin remained flat at 30% compared to the prior year. First quarter 2023 selling, general, and administrative expenses increased to $78 million from $59 million. SG&A as a percentage of sales was 21%, an increase from the fiscal first quarter of 2022. In a normal seasonal environment, SG&A is typically higher in the December quarter related to the level of sales and marketing activity associated with boat show participation. In addition, this year the average cost per show increased compared to boat shows we attended in prior years. We expect these levels of promotional activity to return as we revert to a more traditional sales cycle. Additionally, we expect our SG&A to be higher than historical levels as we integrate acquired parts and service businesses. Operating income decreased 15% to $27 million compared to $31 million in the prior year, driven by higher SG&A and expenses associated with our acquisitions. Adjusted EBITDA decreased to $28 million compared to $41 million in the prior year. Net income for the first fiscal quarter totaled $11 million or $0.61 per diluted share, down 51% from $23 million or $1.45 per diluted share in the prior year. Contributing to this decline was also a $10 million increase in interest expense, which was $12 million in the quarter up from $2 million in the prior year. This increase is a result of the rising interest rate and an increase in the average borrowing on our debt facilities. Turning to the balance sheet, as of December 31st, 2022, total liquidity was in excess of $100 million, including cash on the balance sheet, availability under our revolving line of credit, and floorplan credit facilities. Total inventory was $527 million as industry-wide supply chain constraints continued to ease in the first quarter. I would like to remind you that we are currently approaching the peak of the seasonal inventory build that typically occurs in February and March. Long-term debt as of December 31st, 2022 was $464 million. Adjusted net debt or long-term debt net of cash was 1.8 times trailing 12 months EBITDA. We are comfortable with our liquidity and leverage position and continue to monitor the macro environment as we manage our capital allocation. Looking ahead, we believe it's prudent to reduce our annual guidance to reflect the uncertainty around the macroeconomic environment and the potential impacts on marine demand. As a result, we are now guiding same-store sales to be flat to up mid-single digits compared to the prior year and expect adjusted EBITDA to be in the range of $200 million to $225 million, with earnings per diluted share to be in the range of $7.50 to $8 per share. These projections exclude any additional acquisitions that may be completed during the year. Our strategy from a capital allocation perspective has not changed. We are focused on reinvesting in the business to accelerate organic growth, pursuing strategic M&A opportunities, paying down debt, and repurchasing shares, while maintaining appropriate levels of leverage. As always, we're methodical in our approach and we'll put our cash to work where it will drive long-term shareholder value. This concludes our prepared remarks. Operator, will you please open the line for questions.

Thank you. And our first question comes from the line of Joe Altobello with Raymond James. Your line is open, please go ahead.

Thanks. Hey, guys. Good morning. I guess the first question, maybe a housekeeping item for Jack, the comp number, did you break that opportunity units in price in the quarter?

Yes, I would say that during the quarter, we saw some increase in price and then a decline in units. I'd say units would be down in the mid-single digits.

Okay, that's helpful. And then I guess in terms of the guidance and the quarter, you mentioned the quarter was in line with your expectations. Talked about a strong selling season, positive boat show activity, and healthy demand, yet you're cutting your guidance really dramatically. And I know you talked about the macro clouding your outlook. But is it that much cloudier versus three months ago? Or are you concerned that there may be more than just seasonality going on here?

Well, I think it's too early to know that, Joe, and I think that's a little bit of our issue. I think if we were to come out today and raise our guidance or leave it alone, it would still prompt doubt on what we're saying. So, if we were to take it to $12, people would just say we were crazy. If we left it alone, the critics would still argue that we're wrong. So we went back to the model and really spent time going through the numbers. We know there's going to be more new boat compression and margin compression. So, we took a conservative approach based on what we know. We just don't know today; it feels like seasonality because demand in terms of internet leads, foot traffic, things are back up at the manufacturers. We just can't answer that yet. I think we'll have a clearer picture in three weeks.

Okay. So the guidance is more than seasonality. It sounds like.

It could be, yes. I mean, we've mentioned before that we're in a recession. So we looked at it and said, let's get this right so we don't have to keep adjusting it. I think we spent a lot of time on the model to factor in potential margin compression. We took a conservative approach since we don't want to come back again.

The only thing I'd add is looking at consensus, most people have Q2 higher than Q4. And again, that's not our typical seasonal cycle, right? Q1 and Q2 are typically the smallest quarters of the year. Q3 is the largest, and then Q4 is a little bigger than Q2. So there's some of that external cadence.

Got it. Thank you, guys.

Thank you. And one moment for our next question. Our next question comes from the line of Drew Crum with Stifel. Your line is open, please go ahead.

Thanks. Hey, guys. Good morning. So I'm the same-store sales and several factors that contributed to being down 14% in fiscal 1Q. The updated guidance would suggest that you think that metric improves over the course of fiscal 2023. I just want to confirm that and understand what's driving confidence behind that assumption?

Yes, definitely. The backlog gives you some confidence to it, but it's the seasonal change, right? Yes, we had a 28% and a 38% December comp the last two years. So in order to return to a normal seasonal cycle, that dynamic has to change. And I'm not surprised that it was where it was at. Next quarter, we're up against some heavy comps. But if you look at trends, the softer comps are in the back half of the year during those larger quarters. I also think that historically, as we work our way through the season, inventory availability improved dramatically.

Jack also, I mean, was January a positive comp?

Yes, January was positive. We're cautiously optimistic with the data out there. If you look at some of the SSI data in the December quarter, it was down around 28-30%. So being down 13% is considerably better than that. However, there’s just a lot of unknowns out there.

Got it. Okay. That's helpful. And then Austin, in your preamble, you talked about M&A a little bit. I think. Just want to get a better understanding of what the current thinking is on that. A few months ago, you decided to hit the pause button, and you were going to rely on some of the January boat shows to gauge the health of the industry. Are you at a point now where you can share more definitively what the company's plans are for the balance of fiscal 2023? And if so, what is the strategy?

Yes, we're probably going to hold tight until there's more clarity in the macro environment. Both shows were good, and we've heard that from others in the industry. But we're still dealing with a big inflated new boat margin out there that needs to normalize somewhat. We believe it’s prudent for us to continue building cash on the balance sheet, but we will be opportunistic if something comes along at the right price.

Got it. Okay. Thanks, guys.

Thank you, and one moment for our next question. Our next question comes from the line of Michael Swartz with Truist. Your line is open, please go ahead.

Hey, guys, good morning. Just a few follow-up questions on the guidance. It doesn't look like you took down your comparable store outlook too much in the update here. Give us a sense of how you're thinking about the bottom-up build with that comparable store outlook in terms of your industry outlook. Maybe where it is versus where it was when you first gave guidance, pricing, mix, shared gains, anything of that nature that you can kind of help us with?

Yes, I would say the December numbers and everything that has come out has been a little bit more negative than it was as of September. However, all the feedback we've seen, like Austin mentioned, with respect to traffic and lead generation has been positive. So, we're trying to be cautiously optimistic, and I think that places us in a good position in the industry. I think you'll see unit volumes level off, though price will still be a factor, albeit to a lesser degree than in recent years.

Okay. That's helpful. And then I think you made, Austin, you made the point that you expect new boat margins to compress, which I think most people have anticipated? Can you give us a sense of how you're thinking about that now relative to pre-COVID or versus some of the elevated margins we've seen in the mid-20s the past two years? How should we think about boat margin this year as it pertains to the guidance?

Yes, I'll let Jack speak to that. We discussed various scenarios after the January boat shows and it was evident there was a lot of promotional pricing from manufacturers, more than we expected, which allowed us to maintain our margins albeit with discounts. So while that helps now, we still anticipate shifts as we progress through the selling season.

Yes, as you look at how we end up this quarter, margins will fluctuate quarter to quarter as we sell different types of boats at different times of the year. We are discounting a bit, but it's not drastic. Despite these reductions in new boat margins, our used boat margins are holding up well, and our expansion into service and parts is notably supporting our overall margins, keeping it around 30%. The likelihood of maintaining that 30% range is quite strong.

Okay.

Also, to reiterate a previous point, boat shows are typically our lowest-margin business. We have to be competitive, and there's still a lot of needy deals. We're focused on getting every dollar from the consumer, and the sales team understands it’s not business as usual but a new mindset to perform better. That quarter coming out of boat shows usually does yield lower margins.

Okay. And then just one last question for me, maybe for Jack. I think you said inventory was over $500 million in the quarter. Is there any way to break down just in terms of new boat inventory, maybe what that looks like on an apples-to-apples or same-store basis relative to pre-COVID? Just to give us a sense excluding acquisitions?

Yes. We've tried to dig into that, but I don't have a same-store inventory number for now. We're currently at about 16-17 weeks on hand; that's influenced a bit by acquisitions. In 2018 and 2019, we were at 24 weeks on hand. So, we're at that seasonal peak right now. We'll see it at the highest levels from now into February and March, depending on the weather. If this spring season kicks off as anticipated, we would expect to see sales increase. I can work to get more detailed breakdowns in the future.

Okay, wonderful. Thank you.

Thank you. And one moment for our next question. Our next question comes from the line of Craig Kennison with Baird. Your line is open. Please go ahead.

Hey, good morning, guys. Thanks for taking my question. Just wanted to follow up on Hurricane Ian. I'm wondering if there's a way for you to look at markets affected by the hurricane versus markets that were unaffected by that catastrophe and maybe parse the same-store sales environment in that context?

Yes, we looked into it a bit. The stores in affected areas were down about $2 million EBITDA, and we had a lot of expenses maintaining our staff and rebuilding. The hurricane definitely contributed, but it's complex to trace exactly how much revenue it impacted, and replenishment cycles will complicate this further as well.

Good stuff. Great, thanks a lot.

I mean, we're seeing a lot of consumers returning to those markets.

Thank you. And one moment for our next question. Our next question comes from the line of Griffin Ryan with D.A. Davidson. Your line is open, please go ahead.

Yes, thanks, guys. I was just wondering if you could talk about the availability of used boats, and what the current demand looks like for them?

Yes, availability has gotten a little better. You can see that a little bit in our results where pre-owned was up. The market continues to remain strong for pre-owned boats.

Yes, it's an area we've been focused on. We have dedicated buyers sourcing boats, and there's tremendous upside potential that we are pursuing, and there hasn’t been any slowdown in our efforts.

Okay, great. And then can you just talk about valuation segments compared to the premium segment right now?

Well, I think we've been talking about seasonality. The value segment over the last two years was strong, and now we're reverting to more seasonal buying. Recent data from the Atlanta Boat Show shows that the value boats are selling as well as in the past, indicating a strong market.

Yes, the value customer tends to come in with urgency, wanting to get a new boat quickly, which aligns with the seasonal sales strategy. This behavior is more typical for the upcoming quarters.

Thank you. And I'm showing no further questions. So this is going to conclude today's question-and-answer session. Ladies and gentlemen, this is also going to conclude today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.