Earnings Call Transcript - ONEW Q2 2025

Operator, Operator

Good morning. My name is Ina, and I will be your conference operator today. I would like to welcome everyone to the OneWater Marine Inc. fiscal Second Quarter 2025 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to Jack Ezzell, Chief Financial Officer. Please go ahead.

Jack Ezzell, CFO

Good morning and welcome to OneWater Marine's fiscal second quarter 2025 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 would 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 the securities laws 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 influence 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. Please note that all comparisons of our second quarter 2025 results are made against the second quarter 2024, unless otherwise noted. And with that, I would like to turn the call over to Austin Singleton, who will begin with a few opening remarks. Austin?

Austin Singleton, CEO

Thanks, Jack, and thank you everyone for joining today's call. Our teams executed well despite considerable macroeconomic uncertainty and a challenging environment. Same-store sales declined 2% for the quarter, driven primarily by softer sales on the West Coast of Florida, which continues to recover from the impact of Hurricanes Helena and Milton. Performance from our impacted locations is improving over time, with results more in line with the rest of our dealerships compared to the first quarter. Total unit sales for the industry were down in excess of 10% for the quarter, with our results continuing to outperform the industry and take market share. In face of these headwinds, our teams across the country continue to execute on our inventory and brand rationalization strategies, where we are seeing tangible benefits. Through strategic planning and a strong push to close sales, we reduced inventory by 12% year-over-year and 5% sequentially, outpacing the industry. This not only improves working capital but also strengthens our long-term position. We continue to be focused on keeping a clean slate of inventory that includes our highest performing brands as we make our way through the selling season. Gross margins remain challenged largely due to the current promotional environment within the industry. We are being thoughtful with our pricing, striking a balance between closing the deal and maintaining margin integrity and brand value. We are also continuing to execute on our cost savings initiatives. However, higher costs associated with boat shows and inflationary pressures on our fixed costs more than offset savings, leading to higher selling general and administrative expenses compared to the prior year period. Moving forward, we expect further benefits from our initiatives as we accelerate cost actions in our Distribution segment at the end of the quarter. We will continue to adjust our cost structure to align with retail activity given our flexible operating model. Turning to the tariff landscape, we are keeping a close eye on the situation and monitoring developments. From where we stand today, we do not expect any impact on pricing on our current inventory. We are communicating with our manufacturing partners who are doing their best to mitigate tariff impacts and temper pricing increases for the upcoming model year. While the direct impact on the supply chain is still being determined, we are taking a more cautious view on the demand environment, and consequently, we are updating our outlook. While April results are in line with the prior year, the macro environment remains uncertain. We are focused on factors within our control, including rationalizing our brand portfolio, streamlining operations, and meeting the needs of our customers. These efforts are positioning us to not only weather the challenges of today, but to emerge stronger and more competitive over the long term. With that, I will turn it over to Anthony to discuss the business operations.

Anthony Aisquith, President and COO

Thanks, Austin. I'll take a few minutes to walk through our operational performance in the quarter, where we continue to see steady progress across key parts of the business. Our teams remain focused on cleaning aged inventory and those efforts are tracking ahead of schedule. The selling environment is competitive and we continue to receive support from our manufacturing partners, helping to drive robust traffic at our dealership level. Web traffic was up year over year, which is positive given that March 2024 was one of our strongest months in our history. The average unit price of new boats increased, driven by continued strength in larger boats. Demand for premium models is holding up well, reflecting our ability to deliver on the performance features and design customers are looking for in the high-end market. Pre-owned boat sales were strong, with higher volumes supported by an increase in trade-ins and, importantly, trade-ups. After several years of limited pre-owned inventory, we're seeing a healthy turnover of boats for upgraded models. Financing and insurance revenue continues to be a strength of our business model. Penetration was up slightly, both in terms of dollars and a percentage of total sales, and speaks to the quality of our in-store financing programs and our ability to deploy them across the portfolio. In our parts and service business, revenue was up 2%, a modest increase driven by solid performance from our Dealership segment, partially offset by the Distribution segment that continues to see headwinds stemming from the reduced boat manufacturing production schedules and now tariff concerns. We continue to view the business as a valuable source of recurring revenue and customer engagement. On inventory, we remain thoughtful about our order intake. Brand rationalization efforts have been accelerated, with additional brands added to our plan. We expect to clear this inventory as part of our broader strategy over the balance of the selling season, and we are well on track to exceed our initial full-year goal of a 10% reduction in inventory. We now expect to end the year with inventory down 10% to 15%, which will leave us better positioned with tighter and more productive lineups of brands. And with that, I'll turn the call over to Jack to go over the financials in more detail.

Jack Ezzell, CFO

Thanks, Anthony. Fiscal second quarter revenue decreased 1% to $484 million in 2025 from $488 million in 2024. New boat sales were down 5% to $310 million in the second quarter, while pre-owned boat sales increased 14% to $90 million. Overall, same-store sales were down 2%, driven by a decrease in new boat sales. It's important to note that according to FSI industry data, unit sales were down in excess of 10% during the quarter. Revenue from service, parts, and other sales for the quarter increased 2% to $69 million. The increase was driven by growth in our Dealership segment, which more than offset the impact of lower production from boat manufacturers, which continued to weigh on the sales of our Distribution segment. Finance and insurance revenue increased 10 basis points as a percentage of sales, as customers continue to finance a portion of the purchase through our programs. Gross profit declined to $110 million in 2025 compared to $120 million in 2024. This was driven by lower gross margins on the brands we are exiting and the current model mix and pricing environment on new boats. Second quarter 2025 selling general and administrative expenses increased 1% to $88 million. SG&A as a percentage of sales was 18%, up 50 basis points as a percentage of revenue, as the benefits from previous cost reduction actions were more than offset by inflationary increases in selling expenses, primarily boat shows, as well as an increase in other fixed and administrative expenses. Operating income increased to $16 million and adjusted EBITDA was $18 million. The net loss for the fiscal second quarter totaled $375,000 or $0.02 per diluted share compared to a net loss of $5 million or $0.27 per diluted share in the prior year. Adjusted income per diluted share was $0.13 compared to adjusted income per diluted share of $0.67 in the prior year. I would like to note, at the end of the quarter the remaining Class B shares outstanding were converted into Class A shares. As a result, we will no longer be allocating a portion of our income to non-controlling interest and our Class A share count will increase. Since the income allocated to the controlling interest and A share count will increase proportionally, it should not have an impact on our earnings per share. As of March 31, 2025, total Class A shares outstanding were 16.3 million. Now turning to the balance sheet. On March 31, 2025, total liquidity was in excess of $74 million, including cash on hand and additional availability under our credit facilities. Total inventory on March 31, 2025, was $602 million compared to $687 million on March 31, 2024. Our inventory position continues to strengthen with a healthier mix and aging profile and we still anticipate some incremental benefits from further inventory reductions as we complete our brand rationalizations throughout the year. Total long-term debt as of March 31, 2025, was $427 million and net of cash resulted in a net leverage of 5.4 times trailing 12 months adjusted EBITDA. We remain focused on reducing leverage in the latter half of 2025 as part of our capital allocation strategy. Given the impact of heightened macroeconomic uncertainty on consumer demand due to the tariff environment and results year-to-date, we are updating our previously issued fiscal 2025 guidance. We anticipate total sales to be in the range of $1.7 billion to $1.8 billion, with same-store sales expected to be flat to down low single-digits against an industry backdrop that we now expect to be down as much as 10% to 15%. We now forecast adjusted EBITDA to be in the range of $65 million to $95 million and adjusted earnings per diluted share to be in the range of $0.75 to $1.25. This guidance encompasses our current expectations of the impact that tariffs and increased costs will have on the business. While this situation remains fluid, we are focused on aspects of the business that we can control. We are closely monitoring the macroeconomic environment and our flexible operating model enables us to respond quickly to any changes. This concludes our prepared remarks. Operator, will you please open the line for questions?

Operator, Operator

Thank you. We'll pause for a moment to compile the Q&A roster. Your first question comes from Joe Altobello from Raymond James. Please go ahead.

Joe Altobello, Analyst

Thanks. Hey, guys, good morning. Austin, I think you touched on this earlier, but I want to go back to what you're seeing in April from a demand standpoint post the tariff announcements?

Austin Singleton, CEO

Yeah, Joe. April was in line with last year. We were up in units compared to last year and up in dollars slightly on both of those, which was a pretty positive sign. And as we roll into May, the beginning of May looks to be ahead of where we were at the beginning of May last year. So we're a little bit encouraged that the momentum keeps moving forward. And I think the biggest thing that we got in front of us right now is not demand coming through the door, it's how to start making money on that. And as the inventory continues to correct itself and that outdated stuff runs through, we should be in a pretty good spot to go into the bulk of the season here in May, June, and July and hopefully be able to pick up some margin dollars and continue to get our inventory leaner.

Joe Altobello, Analyst

Yeah, got it. Okay. Just to follow up on that, the margins on used were a little bit softer than I was modeling. I think it's your softest used margin since COVID, really. Maybe talk about what drove that margin down if you could?

Austin Singleton, CEO

I think I will let Jack or Anthony elaborate on this. Part of the situation might be related to the mix of models, specifically how much was pre-owned compared to brokerage and consignment, as that can affect the numbers. Additionally, I believe we are being a bit more aggressive since we are receiving more trades, and we are working to keep our operations dynamic and efficient. Jackie, I’m not sure about the specific breakdown, but that’s my initial thought.

Jack Ezzell, CFO

Yeah, the model mix, the mix between trade, brokerage, and consignment definitely weighed in on that margin profile.

Austin Singleton, CEO

To me, it's a little bit of a positive, Joe, because like Anthony spoke of just a minute ago, we're taking more trades today than we have in the past, which is good. That means people are moving up, either moving into a different segment or they're moving up in both sides. So as that trade continues to come in, that's a positive sign, something we've been waiting on for five or six years now to start being able to get more trades in. That's an exciting, really more of a tailwind than anything for us.

Joe Altobello, Analyst

Got it. Okay, thank you.

Operator, Operator

Thank you. Your next question comes from Mike Albanese from Benchmark. Please go ahead.

Mike Albanese, Analyst

Hey, good morning, guys. Thanks for taking my question here.

Jack Ezzell, CFO

Good morning.

Mike Albanese, Analyst

Just wanted to ask about the share gains. I think you alluded to the market being down about 10%. Obviously, on a same-store basis, you guys are down 2%. Could you just add some color as to where you're taking share, premium versus value segment, etc.?

Austin Singleton, CEO

The majority of our business is in the premium segment, which is really where we operate. We do have some presence in the value segment, but it's quite limited. When we refer to premium, we are not discussing size, but rather the perception of our brand and its standing within its specific segment. Freshwater offerings differ from saltwater, and larger boats also present different dynamics. Considering the industry as a whole is down over 10% and we are only down approximately 2%, we view this as a positive outcome. While we are not thrilled about being down 2%, it does provide us some reassurance compared to the overall industry performance, and aligns with our expectations.

Mike Albanese, Analyst

All right. Then maybe you could just as a follow-up to that, add some color to the promotional and discounting environment. I guess the question is, are you having to discount heavily to essentially move more volume and gain share? Is that, I guess, A, is that's what's happening, and B, that's strategic?

Austin Singleton, CEO

Certainly, here's a summary of the earnings call remark: Yes, that's part of what's going on and it is strategic. There are a few aspects to consider. In terms of non-current inventory from 2024 and older, most of the outdated boats are extremely competitive due to issues like curtailments and high-interest expenses. Everyone is being very aggressive, and we need to remain competitive to increase sales. However, for the current model year, we are seeing decent margins. As we continue to manage our inventory, we anticipate a modest increase in gross margins from new boat sales. Additionally, we've increased our exiting brands from 13 to 15, which positions us better to collaborate with our key manufacturers. Currently, we have over 3,000 boats in inventory, with only 56 exiting brands remaining. Once we sell about 50 more boats, we will no longer have those boats going out at a zero or negative margin. This will positively affect our performance as we approach the selling season and prepare for 2026. It's an encouraging sign for us moving forward.

Mike Albanese, Analyst

Great, that's really helpful. Thank you.

Operator, Operator

Thank you. Your next question comes from Craig Kennison from Baird. Please go ahead.

Craig Kennison, Analyst

Okay. Good morning. Thanks for taking my question. Austin, you mentioned exiting, I think, 15 brands. I'm curious, big picture, how you see the industry shaking out after we exit this slowdown period? Will we see far fewer brands and therefore maybe a more rational market, or do you think those brands are going to come back and hit the same dynamic going forward?

Austin Singleton, CEO

That's a really, really, really good question and one that's somewhat difficult to answer in a short time period because I could talk about this a lot. I would go back and point to ’08/’09 and how resilient the manufacturers were during that period of time and how we really didn't lose many manufacturers at all. And this is nothing like that. What I think is going to be interesting and what I think, in my opinion, is going to happen over the next three to 10 years as we've come into this new norm of higher interest rates or higher carrying costs on floor plans. Supply chain did something to the industry that is something that we've never seen before and it took a lot of the suppliers out. When you start looking at 10 brands, let's say, just take a segment, let's use runabouts. 10, 12, 15 years ago, there was a gap between what was the highest premium and maybe the mid-range of brands. So you could take brand X and brand Z and there was a $20,000 difference in true cost because brand Z didn't build it like brand X. When those suppliers went out, now they're all using the same suppliers so their costs are all about the same. And so what I think is going to happen over time is you're going to have the gap between brand X and brand Z is really closed. So if you've got higher interest rates or higher carrying costs to brand the lower brand's dealer network, it's going to be harder for them to compete and make money. Okay? So then it's going to be harder for that manufacturer to make margin because they're going to have to buy basically by the sales. And so I think that this gap closing is going to make it where at some point in time, over time, you're either going to have consolidation or you're going to have manufacturers and dealers that struggle to make money. And then one day, they're going to wake up and go, why are we doing this? And so, that's coming. I just don't know how big it'll be and what it'll do. That's one of the reasons we want to stay positioned on the premium higher end side of the business in all the segments. And we want to consolidate what we're doing more with our top brands. And that's a little bit of why we reconfigured what we're selling today and why we're exiting 15 brands today, which we probably would have never thought of exiting brands five years ago.

Craig Kennison, Analyst

Really interesting. Maybe could you just tell us how many brands you started with and what you'll have left when you're completed with this project?

Austin Singleton, CEO

I will mess those numbers up to be exact, but I'll throw that back to Jack because he probably knows it off the top of his head.

Jack Ezzell, CFO

It's still a lot, Craig. We probably have 50 plus brands still.

Operator, Operator

Thank you. There are no further questions at this time. This concludes today's conference call. You may now disconnect.