Good day, ladies and gentlemen, and welcome to the OneWater Marine, Inc. Fiscal Fourth Quarter and Full Year 2021 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will given at that time. [Operator Instructions] As a reminder, this call is being recorded. [Operator Instructions] I would now like to turn the call over to your host, Jack Ezzell, Chief Financial Officer. Please go ahead.

Good morning, and welcome to OneWater Marine's fiscal fourth quarter 2021 earnings conference call. I am joined on the call today by Austin Singleton, Chief Executive Officer; and Anthony Asquith, President and Chief Operating Officer. Before we begin, I'd like to remind you that certain statements made by management in this morning's conference call regarding OneWater Marine and its operations may be considered forward-looking statements under security 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 the future results are discussed in the company's earnings release, which can be found in the Investor Relations section of the company's website and in its filings with the SEC. The company disclaims any obligations 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 over the call to Austin Singleton, who will begin with a few opening remarks. Austin?

Thanks, Jack, and thank you, everyone, for joining today's call. We delivered another year of record results highlighted by our proven growth strategy and strong execution. I would like to thank our team for their relentless efforts throughout all the challenges presented by the pandemic and its after effects. Full year 2021 revenue increased 20% to $1.23 billion on top of 33% growth in 2020, while same-store sales increased 10%, in line with our expectations. At the same time, our higher-margin service, parts and other sales grew by an incredible 52% compared to the prior year. These areas of the business will continue to be a major focus for us, and we see plenty of runway for growth in the years ahead. Taking the 10,000-foot view of the business, OneWater is surging. Our full year 2021 adjusted EBITDA of $156 million nearly doubled again this year due largely to our superior execution and strong business model. Importantly, our ability to find, acquire and successfully integrate M&A targets continues to be a strong recipe for success. While not factoring into our same-store sales calculations, the synergies and growth we have been able to realize from our recent acquired stores significantly contributed to the 2021 results. To that end, since we announced that we have reached a definitive agreement to acquire Norfolk Marine, a third-generation family-owned and operated business that will expand our presence in the mid-Atlantic U.S. Norfolk provides a great lineup of premier boating brands and has transformed itself into a full-service dealer in its 75 years of operation. We couldn't think of a better cultural fit as Norfolk continues to expand and diversify its offerings, their path forward falls in line with our own growth strategy. We look forward to sharing our experience with Norfolk and supporting them on…

Thanks, Austin. The fierce levels of demand that we have seen over the past year continue in the fourth quarter with no signs of waning. On the product side, we are seeing strength across the board, ski wake, pontoons, saltwater fish, runabout and the yacht categories are all performing well. Certain brands have select new hot models already sold out for 2022. And other brands continue to provide quality products that the customers are excited about as boaters can't wait to get out on the water. On the customer side, we continue to see strong demand from our existing customer base who continue to operate under the recurring purchase cycle of 3 to 5 years. We are also seeing continued influx of former boaters returning to the boating lifestyle. Many of these customers are amazed at how the product has advanced over the years. Regardless of the categories, the manufacturers continue to provide product enhancements that make customers say, wow. Many of these customers are experienced boaters who are very particular about what they want, and they are willing to wait for it, and they're willing to pay for it. Many of these customers will stay in the boating lifestyle for years to come, which presents a very sticky business opportunity as they return to OneWater to upgrade their boat and further maintenance and repair services. Throughout our operations, we continue to focus on improving all aspects of the business. Revenue from our higher-margin service, parts and other sales increased 52% for fiscal 2021. The team worked very hard to provide customers with quality maintenance and repair services and also the parts and accessories they needed. These reoccurring sales and services we provide customers is set up for growth on the heels of another strong year of boat sales. I'm…

Thanks, Anthony. Fourth quarter revenue increased 3.4% to $280.3 million in 2021 from $271 million in the prior year quarter. Ongoing supply chain challenges dampened our ability to deliver boats to customers. New boat sales grew 3.3% to $193 million in the fiscal fourth quarter of 2021, while pre-owned boat sales decreased 9.9% to $50.6 million. As part of our diversification strategy, we continue to focus on growing high-margin parts of our business, which contributed meaningful to the results for the quarter. Finance and insurance revenue increased 25% to $9.7 million in the fourth quarter of 2021, and revenue from service, parts and other sales increased 33% to $27 million compared to the prior year. Gross profit increased 39.4% to $89.3 million in the fourth quarter compared to $64.1 million in the prior year, driven by the increase in the average unit price of new and pre-owned sales and an increase in the high-margin service, parts and other sales. Gross profit margin increased 830 basis points to 31.9% compared to 23.6% in the prior year. Fourth quarter 2021 selling, general and administrative expenses increased to $55.4 million from $39.8 million. SG&A as a percentage of sales increased to 19.8% from 14.7% in the prior year. The 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 and increased costs associated with the current labor and supply chain environment. Operating income climbed 77.9% to $29.2 million compared to $16.4 million in the prior year, driven by increased gross profit, partially offset by higher SG&A expenses. As a result, adjusted EBITDA increased to $33.6 million compared to $22.9 million in the prior year. Net income for the fiscal fourth quarter totaled $22.5 million…

[Operator Instructions] Our first question comes from the line of Joe Altobello with Raymond James. Your line is now open.

Congrats. So a couple of questions on fiscal '22. I guess, first, for Jack, the high single-digit comp growth outlook, how does that trend throughout the year? I assume you're expecting that to be mostly second half weighted. I'm curious how you're thinking about first half versus second half comps?

Yes, for sure. I mean, I think we've said a couple of times over the last year that with the way demand has kind of been through COVID the seasonality of the business has kind of shifted around a little bit, and you're seeing some changes. With the December quarter being our smallest quarter in terms of dollars, it makes it probably the easiest to comp. But your point right is that in Q2 we were up against a 58% comp. But then in the back half, we're up against negative comp. So I definitely would see the back half, certainly a lot easier to comp than the first half or in particular second quarter.

And then secondly, on margins. If I look at your boat margins, you're in the mid-20 s in fiscal '21, you were in the high-teens, not that long ago. So how should we think about boat margins trending in fiscal '22, given the inventory environment, given the promotional environment that we're in today?

Yes. I mean, I think they'll start leveling off. I mean we're now, I think, really cycling over the prior years where we had elevated boat margins. So I think you'll see them start to level off as we move through the year. So I think throughout the year, they'll remain elevated, right? They'll certainly be impacted -- potentially impacted by manufacturers' costs as they push those incremental cost to us. And to the extent that we can recapture those costs from the customer, the margins will hold.

Our next question comes from the line of Mike Swartz with Truist Securities. Your line is now open.

Maybe another question, if I may, on FY '22 guidance. Jack, I guess, with the high single-digit comparable store outlook for the year, can you maybe give us a sense of how you're thinking about that between unit volume and ASP mix?

Yes. Certainly, as you think about '21, '21 has really been driven by price or I think as we move into '22, we'll start to see an uptick of unit volume and start to get back to a maybe more normal pace of truck driving both units and price.

And just help us with the -- I think your guidance on EBITDA was $170 million to $175 million. Just give us a sense of maybe what that looks like if we include Norfolk and T-H in that number?

Yes. I mean, it's going to be subject to when those acquisitions close exactly, you have the remainder of the year for their performance. But we'll certainly give some updated guidance as we get down the road, but I'd expect them to contribute something in the range of probably about $15 million for the year. And that's their partial year. So it's not their full year. But somewhere around $15 million, $16 million for the year.

And Jack, you also mentioned just the price increases being passed through by the OEMs, and we've all heard of the price increases that were enacted in the calendar fourth quarter by almost every OEM. Maybe give us a sense of the conversations you're having with customers who have boats on order and to the extent that the backlogs aren't price protected. Just -- I mean, what's the -- I guess, how sticky is that demand looked over the past month or so?

Where your backlogs are price locked. Anthony, correct me if I'm wrong, I'm pretty sure that's the way it is with almost every manufacturer. I'm not saying there's not 1 or 2 out there that hadn't. But nothing meaningful that we don't have a price lock in, really not seeing much of an issue with this because even with the price increases, historically, for the last 30 years, we pushed that on to the consumer. And with more and more people looking at financing and us converting more and more people to financing, you're talking about a $4 to $15 a month change in payment. So it's just not that difficult to pass that on and just don't see a lot of issue with that. Now if you have manufacturers coming out at midyear with double-digit price increases that could make them noncompetitive or might take it out of the market. But I just don't see that coming on top of the price increases we've already absorbed.

That's correct.

Our next question comes from the line of Craig Kennison with Baird. Your line is now open.

I guess, I wanted to understand the pandemic buyer a little bit better. I'm wondering if you've followed up with any of those, I guess, first-time buyers or pandemic buyers to get a feel for what their experience has been like and whether you think they will convert to lifelong boaters? Or some of them may say, look, this is not for me, but it gives you an opportunity to sell more used boats. Just -- it's still early, but I'm wondering if you captured any of that data.

Yes. I mean I -- go ahead, Anthony.

The majority of them, right, that are coming in were boaters in the past. And they got out of boating. As in the past 15, 20 years ago, the only thing that changed on the boats was the color of the boat. So -- and they've been driven back into our showrooms, and they're generally blown away with the boats that are available out there. And every one of our manufacturers just keep on coming up with say, Oh my God; staff every year, where in the past, it was every 5 or 6 years, something dramatically would change. So they're making -- you don't have to be a great boat driver, if you will, to enjoy boating, the technology that comes out with these is really going to keep -- continue to keep people in the boating that were in boating in the past. So first buyers can do? Sure. But there's not nearly as many as the people that were boaters in the past.

Yes. I just want to add, Craig, one thing that we've heard rumblings in RV space and stuff like that, that we're not seeing in marine is typically, when you come out of seasons. So we're going into the slower season just because of weather. School and weather drops really the boating season. So as things start to cool off, leaf start falling off trees, schools in full swing, everything from, except maybe you take Florida and some of Texas, boating starts to really slow down now. And so if there's ever a time for this first time boat buyers who essentially have been boating now for almost 2 full boating seasons. 2021 -- I mean, 2020 and 2021. You would think that if they were getting out, they would be unloading now because now it's when the carrying costs kick in and you have no enjoyment. And if you just look at our pre-owned sales from the last quarter that they're down, we still can't find enough used both. So that's -- that kind of speaks to the stickiness of those first time boat buyers that were buying when the pandemic was at its high, they're not coming in and selling their boat. We did see a lot of them make lateral moves this year, where they came in the first time and bought a ski boat. And then they said, well, that's really not the boat we need for our family and they move to a pontoon or they went from a pontoon to a reverse drive or they went from a center console to a little bit bigger center console, we saw some lateral movement, but the stickiness, so far, of the new consumer from 2020 and into this year has been pretty -- extremely sticky because there are no used boats. They're not there. They don't exist.

And then as it relates to your M&A pipeline, are there geographies that you would like to penetrate? Or will you -- will the deal flow really depend on just the attractiveness of the dealership itself?

Yes. We're opportunistic. We look at -- like I said many times in the past, I mean, the most important thing to us is the people. We got to make sure that the dealership under the principle has really, really good people. And once we find that, everything else is kind of just checking boxes. I mean, of course, we've said this in the past, we would love to keep concentrating areas that we're in, but we're not afraid of new areas. We're not afraid of the West Coast. We're not afraid of the Extreme Northeast. We're opportunistic where we find the best opportunity from a people and upside and like brands. But we do want to stay close to home and concentrate certain areas. We just think that's a really good move, but it's strictly based off what the opportunity is.

Our next question comes from the line of Fred Wightman with Wolfe Research. Your line is now open.

I was hoping you could unpack the sequential pickup in inventories that you guys saw. It doesn't sound like used availability improved a lot. Was that all on new? Anything you could sort of give us to size that would be helpful.

I will jump in first here, Jack, you can fill in the blank. I think we -- it's just all about timing of when certain things were coming in. I don't expect it to see a huge buildup from here. It will build up some but the presales going forward are so strong. A lot of the stuff that will be coming in as we move into the first half of 2022 is going to be presold. And so the inventory is not coming in as much as it did. I think it was just a timing aspect that allowed us to build on the new side. Jack, if I'm wrong, correct me on what I've said.

Yes, I would say we somewhat expected it to build a little bit and further expect it to build into the December quarter. But you can look at where our inventory is at. We're turning inventory really fast. You're looking at -- I don't have the calculation put together, but just looking at some rough numbers, you're talking 5 times, 6 times where the -- that's more than double what the normal boat dealer would do. And quite honestly, what we would do on the new side historically. And so it's -- we're turning stuff quickly. Things are coming in. We're getting larger, but yet inventory staying flat. And then I think it just speaks to the model of our ability and our tools to get inventory to the right locations, to the customers and out of the door.

Makes sense. And you guys touched a little bit on the Fort Lauderdale Show, but I think you've been a little bit more skeptical about just the role that boat shows would have going forward. Has anything that you've seen so far changed how you're thinking about that going forward or not?

No. I mean, I think that we always have been consistent with the bigger boat shows, especially with some of the bigger boats, it's very important for us to do those shows. I think it was the more regional shows that we're not really sure the value is there. Anthony and his team did an incredible job last year when there were zero shows doing these customer events and pulling the customers into our store for that more intimate atmosphere in order to sell. And we think that's a great model moving forward. But it doesn't take out these bigger shows. The bigger shows were important to us, and we doing those going forward. It's the more regional shows that will be still in the back burner for probably several more years.

[Operator Instructions] Our next question comes from the line of Drew Crum with Stifel. Your line is now open.

This is David on for Drew. I just wanted to follow-up on the inventory. How does the pre-owned boat inventory level play into your fiscal '22 outlook? And separately, how are you thinking about inventory management going forward, given all of the moves that you guys have had to make over the course of this pandemic?

Yes. I would say as we look at the '22 outlook, I think we anticipate access to pre-owned inventory remaining a challenge. We have a lot of buyers that are out there scouring docks and marinas looking for pre-owned boats that we can just buy directly and then flip those and sell them at retail. So I think it's certainly part of the model. We certainly expect to have a good amount of growth there, again, in that, I'd say, along the lines of our same-store sales number. And I mean inventory management going forward is how it's -- I mean, I think it gets a little bit easier going forward as manufacturers as their supply chain stabilize more, they get more consistent in their output, we can get more consistent in our expectations, and it smooths things out and make things a little bit easier. But we're in regular contact with manufacturers. What we're seeing at retail, what models we need more of, less of and working with them so they can manage production to what's happening at retail.

I want to add to that, too, we're trying to feel like going forward, this is going to take a good long time to really build up what the new norm of inventory is. If demand stays tightened like it is today, and it continues to go on. This can go on for a lot longer than we were thinking. And so as we kind of look at it, I feel the manufacturers are getting to more of a level production schedule to where it's more of a flat line instead of these peaks and valleys where we get loaded up in this month and then don't get anything this month. So as this new normal comes around, I think it's going to make both of us a lot more efficient. One of the things or the tailwinds that I think we have, not only at OneWater, but as an industry, is because of the way the manufacturers will get to a more level production schedule, we kind of had a chance to hit the reset button because of COVID, I think it makes us all have more turns. So it makes this carrying cost go down, and this is from an industry perspective. I think every manufacturer gets a little bit more level. They get a little bit more precise on how they're building and how they're shipping. And then if demand stays heighten like it is now, we're going to continually have to battle this for many years. But if it softens a little bit, I think we all still stay extremely efficient on our turns, which lowers like Anthony said earlier, lowers our carrying cost and also allows us to probably keep that margin higher for a longer period of time.

There are no further questions. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a great day.