OneWater Marine Inc. (ONEW) Earnings Call Transcript & Summary

Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the OneWater Marine, Inc. Fiscal First Quarter 2026 Conference Call. [Operator Instructions] 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 First Quarter 2026 Earnings Conference Call. I'm joined on the call today by Austin Singleton, Executive Chairman; and Anthony Aisquith, Chief Executive 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 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 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. Please note that all comparisons of our fiscal first quarter 2026 results are made against our fiscal first quarter 2025, 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?

Thank you, Jack. Good morning, everyone, and thank you for joining us today to discuss our first quarter 2026 results. We delivered a solid first quarter in line with expectations, demonstrating the resilience of our business model and continued progress against our strategic priorities. Revenues increased slightly and same-store sales were flat even with the impact of our strategic inventory initiatives. Importantly, we are pleased with our inventory levels and despite a highly competitive environment, we believe we are operating from a position of strength. Our inventory mix and age profile are healthy, and our OEM partners continue to be supportive while maintaining disciplined production schedules. This has allowed us to sharpen our focus on disciplined execution as we navigate the current environment and position the business to benefit as industry conditions improve. We successfully completed our strategic brand initiatives last year. While the first quarter is typically the smallest from a seasonal standpoint, we are beginning to see the benefits of those brand rationalization efforts reflected in our gross margins. First quarter margins were better than expected, also driven in part by a favorable model mix. We expect the positive impact of discontinued brands to be realized in different levels throughout the year, and we remain confident in the long-term benefit of these strategic actions. As part of our ongoing portfolio optimization efforts, we have decided to sell certain distribution segment assets that are no longer core to our long-term strategy. This decision reflects our focus on simplifying the business and allocating capital to areas with the strongest strategic fit. This action is not a reflection of underlying operational performance, but rather an opportunistic step to sharpen our focus and strengthen the balance sheet. We expect proceeds from the transaction to enhance financial flexibility and support our capital allocation priorities going forward. With the strategic actions we have taken to optimize our portfolio, improve our cost structure and enhance our balance sheet, OneWater is well positioned to continue gain share and expanding profitability as conditions normalize. With that, I will turn it over to Anthony.

Thanks, Austin, and good morning, everyone. During the quarter, lower unit volumes were offset by pricing and mix as we improved our margin profile. While the first quarter includes the seasonality slower winter months, we were encouraged to see the less price resistance from our customers during the purchase process. This was driven in part by a more stable news environment around tariffs and interest rates, which helps support customer sentiment. The early boat show season has kicked off, and we will continue to stay close to our customers to gather insights as we move into the peak selling season. Inventory across the industry is normalizing. And as Austin mentioned, we entered the calendar year from a position of strength with a healthy mix of new boats across our premium portfolio of brands [Technical Difficulty] new and exciting models from our top manufacturers. In addition, trade-in availability has continued to improve, supporting continued growth in the Pre-Owned Boat sales. Gross margins benefited from our strategic initiatives to optimize inventory and enhance profitability, partially offset by a variability of commodity product margins in the distribution segment. We expect the overall positive impact to continue in the quarters ahead, but there will be some variability quarter-to-quarter. Overall, we expect New Boat margins to improve by 100 basis points on the year as a whole. Expanding profitability is a top priority for the year, and we are driving that across dealerships by doing what we do best, taking care of our customers. We have an incredible team leveraging our CRM, advanced inventory management tools and the best inventory network in the industry to locate and deliver the customers the boat of their dreams. And with that, I'd like to turn the call over to Jack.

Thanks, Anthony. Fiscal first quarter revenue was $381 million, representing a 1% increase compared to the $376 million in the prior year period. New Boat sales were down 6% compared to the prior year and Pre-Owned Boat sales were 24% higher, driven by both increased unit sales and average unit price. Service, Parts and Other revenue grew by 10% compared to the prior year period. This growth demonstrates improvements in our distribution segment, the strength of our service operations and the loyalty of our customer base even during periods of softer New Boat demand. Finance and Insurance income decreased slightly as a percentage of total sales due to the mix shift in products sold. First quarter gross profit increased to $89 million compared to $84 million in the prior year period. Most importantly, our gross profit margin expanded to 23.5%, an improvement of 110 basis points compared to the prior year quarter. This margin expansion was driven by gross margins on New Boats sold, Pre-Owned Boat sales volumes and the positive impact of our portfolio optimization efforts. Selling, general and administrative expenses totaled $81 million compared to $79 million in the prior year period. The increase was due to higher variable expenses, including sales commission that increased due to the higher gross margins on Boats Sold. During the quarter, we recognized a $7 million impairment charge related to certain distribution assets classified as held for sale. Net loss for the quarter totaled $8 million or $0.47 per diluted share compared to a net loss of $14 million or $0.81 per diluted share in the prior period. This variance was largely driven by a $13 million income tax benefit in the quarter compared to a $5 million income tax benefit in the prior year period. Adjusted loss per diluted share was $0.04 compared to adjusted loss per diluted share of $0.54 in the prior year period. Adjusted EBITDA increased to $4 million compared to $2 million in the prior year. Now turning to the balance sheet. During the quarter, we classified certain assets and liabilities within our distribution segment as held for sale following a Board-approved plan to divest of these operations. These amounts are measured at the lower of carrying value or estimated fair value less cost to sell. We expect the transaction to close prior to March 31, 2026, with net proceeds applied toward repayment under our credit facility. There is no impact to the first quarter revenue or adjusted EBITDA from the held-for-sale classification. While these amounts are classified as held for sale at this point, we have not entered into a definitive agreement. Since these negotiations are ongoing, we cannot provide additional comments regarding the potential for completing a transaction. We will provide future updates if the transaction is completed. As of December 31, 2025, we maintained total liquidity of approximately $46 million, including $32 million of cash and cash equivalents plus availability on our credit facilities. Total inventory decreased to $602 million as of December 31, 2025, compared to $637 million as of December 31, 2024. This reflects inventory reclassified as held for sale and the impact from our disciplined inventory optimization. Our long-term debt position was $399 million as of the quarter end and net debt representing 5.1x our trailing 12-month adjusted EBITDA. Reducing leverage remains our top capital allocation priority in the year, and we are confident in our path forward. Based on our solid first quarter performance and current market visibility, we are maintaining our fiscal year 2026 guidance ranges and remain cautiously optimistic. Our outlook is anchored in our expectation that the industry will be flat to down low single digits year-over-year. While we anticipate outperforming the industry, we expect same-store sales to be impacted by brand rationalization headwinds, resulting in flat same-store sales overall. We anticipate total sales to be in the range of $1.83 billion to $1.93 billion, and we expect adjusted EBITDA to be in the range of $65 million to $85 million and adjusted earnings per diluted share to be in the range of $0.25 to $0.75. As we move closer to the selling season, our strategic priorities are clear: driving profitability and reducing balance sheet leverage are the focus for OneWater. As we await signs for a broader marine recovery, we see significant upside potential as the industry recovers and market volumes return towards historical long-term averages. We will continue to execute with precision and position OneWater to emerge from this cycle as even a stronger and more profitable organization. This concludes our prepared remarks. Operator, will you please open the line for questions?

[Operator Instructions] Your first question comes from Joe Altobello from Raymond James.

I had a quick question on the sort of mix shift you're seeing within your segments. If you look at, obviously, New versus Pre-Owned, Pre-Owned significantly outperformed this quarter. Is that a shift you're seeing among buyers toward lower-priced units? Or is that just better availability of used inventory?

Yes, it's definitely better availability. We're just taking in more trades. We've spoken to this in the past that you had a lot -- especially in the peak of COVID and stuff, you had a lot of pre-owned boats that went from person to person instead of running through dealerships because of the time lag. And because there's not really a time lag anymore, we're getting more trades, so we have more to offer to the consumer.

Got it. Okay. And in terms of the outlook for this year, obviously, you kept your guidance intact, but your industry outlook is a little bit softer. How are you thinking about things like year-end net leverage and year-end inventory, for example?

Well, I think I'll let Jack jump in. Yes, go ahead, Jack.

Yes. I think from a leverage perspective, right, with the sale of the distribution assets, that should bring our leverage down to almost 4x at the end of the March quarter and then under 4x by the year-end. So I think that's going right down the way we like and getting to where we want it to be. As far as inventory, inventory is great now, and we're going to manage it according to what's happening at retail. Q1 SSI data for the segments we operate in was, I want to say like negative low double digits, high single digits. So that's a little softer. But again, Joe, it's such a weird quarter with the December and the holidays and everything. So we don't want to get too far ahead of it and trying to see what's happening there. If you think about long term -- long-term numbers, right? We're at 145,000 units, new units, versus a long-term average is like 180,000. And we still expect to kind of start -- at some point, start reflecting and turning back towards that long-term average.

Got it. And maybe one last one for me. What are you seeing so far from boat show season?

It's been pretty good. Well, let me say, it's been what we thought, flat. It just seems like it's flat, maybe even you could say slightly down, but the enthusiasm is there. The consumer still is there. And I think one of the things that probably shocked us a little bit, and again, we don't want to get out in front of our skis here on the margin, but the margin is better than we expected. Now a little bit of that comes into model mix, and it comes into people at the boat shows are typically buying the new hot unit where you don't have as much competition or it's not as a competitive environment versus just the same old, same old because it's mostly limited stuff. But it's been good. I think we feel like we've called it pretty good that this is going to be for us, maybe flat to slightly up, and it's really this year could be a margin play why everybody else starts to get their inventory in line, and it could end up being a decent year.

Your next question comes from Craig Kennison from Baird.

I wanted to follow up on the question Joe had about the pre-owned market. It sounds like availability is much better. And I think, Austin, you mentioned that maybe there are just fewer person-to-person transactions and more person-to-dealer transactions. But I guess what I'm curious about is, are consumers who are trading a boat trading to buy another boat? Or is that pandemic era buyer just maybe exiting the industry at a different rate?

Well, I don't think it'd be considered a trade-in if they weren't trading it for something. That would be a downright out sale. And I will tell you, Anthony, how many buyers do we have today?

What do you mean buyers? I am not understanding.

Just guys that sit around and [ basking on boats ].

Yes. There's about 12 of them, yes. It's all...

Yes, 12 guys, their livelihood depends on them buying boats, and they're not being able to buy any more today than they were 2 years ago. Still, it's just a tough environment to find that product. I'll go back and I'm going to be a broken record. Hopefully, it never changes. But again, it's one of the biggest problems we have or biggest issues is there's not enough pre-owned inventory out there. We could take twice what we have. And you get in there and it's just a tough environment to really get any kind of meaningful numbers going at it. I mean we look at it, and I think we're still like 0.5% or 1% of the total pre-owned market. And so there's a lot of runway there. But it's -- the real difference today than COVID was the consumer has less time -- or they have all the time they want, but the consumers not have the -- they don't have to wait 9 months, 12 months, 16 months to get their new boat. Most of the time, we can source it out of our inventory on a new boat side of things and get it to them in a couple of weeks. So they don't have that huge amount of time to tell 50 people that they're getting a new boat and somebody go, "What are you doing with your old one?" And that's why we started to see an uptick. The uptick in trade-ins really started last year. And it's just because people are being able to get their new boat quicker, and so they're not -- they don't have the time to mess around or keep using their old boat and tell people about it. I think that's really the only dynamic that's changed.

That's helpful. And then a different question, just on inventory. How would you frame the freshness of your inventory, current versus noncurrent? And how has that trended in the last several quarters?

It is in the best shape that it's been since I can remember being in this business, and it was painful to get there, but we're there. And we still have some last year models and some stuff we're moving through, but we're in a really, really comfortable place when it comes to dated or aged inventory. And talking with Wells, there's still some cleanup in the industry, but the majority of your premium dealers are in really good shape today versus where they were 6 months, 9 months, 12 months ago. I think that there's still a lot of inventory out there that's dated in the industry, but most of that's on the value side.

Your next question comes from Michael Albanese from BankSmart.

Just wanted to ask if you could comment on any impacts from the storm that -- and the cold that's rolled through the country, particularly in some of the states?

Yes. Luckily for us, that's kind of in a -- it kind of came through an area that we don't really have a whole lot of representation in. The Carolinas got a little bit, but it's being that we're in January, fixing to roll into February, it's not really boating season. It's boat show season, but not boating season. So we're not really feeling any impact from that right now. I think Texas was an area that we've had -- historically, we've had some issues with weather in the past, and it just -- it wasn't as bad there as it was through like that Northern Mississippi, Tennessee, Southern Kentucky going into the North Carolinas, maybe touching the South Carolina. It just -- that's nonissue for us.

What about from a boat show perspective, do you think it's impacted traffic?

I can't tell you because we don't really operate in any boat shows that would be impacted by that. So I don't know.

Well, I'd say we don't operate in a material way. And we have some representation like in the New York Boat Show, which did have the last day cutoff, but it's a very small show for us.

Your next question comes from Noah Zatzkin from KeyBanc Capital Markets.

I guess, first, just kind of circling back to the comments made about favorable mix and maybe some less resistance from buyers on price. Any anecdotes you could point to in terms of maybe the kind of buyers being -- feeling a little bit better or being increasingly, I guess, more agnostic to kind of higher prices?

Well, I don't really know if that's the case. I think the way that I would look at it or a way that I can make an example of it is if a customer came in and was looking for a boat 9 months ago, and it was X brand, just call it brand. Well, we probably had 25 of them in the company across the board. The guy down the street had 6 that was a direct competitor. So instead of being 4 or 5 things to choose from, they had 30 things to choose from and everybody was in a panic mode. And I think what's really kind of more happened is most of the premium brands' inventory is cleaner than it's been and dealers didn't -- haven't been ordering a lot, manufacturers haven't been producing. Everybody seems to be off 35% to 45%. So the inventory is just cleaner, so there's not as much panic selling or fire selling because inventories are back in line. So it's really more like a discipline. I mean we -- by no means are we saying the customers coming in, we're giving them on the price and they're writing us a check. It's still a buyer's market. But instead of working as to like there's no meat left on the bone, it's kind of like here's our best offer. And then when they go to get that guy down the road, everybody kind of has their floor. So it's just kind of just the way the industry has come back and a lot of that's just to do when now everybody is not in a panic mode of having too much inventory or having the wrong dated inventory would be probably a better way to say that.

Got it. That's really helpful. And maybe just one more to pry a little bit just around the comments in terms of kind of realizing margin benefits to different magnitudes throughout the year. Anything in general to keep in mind in terms of cadence would be helpful?

Well, I think that's really tough for us to pinpoint because what you're going to do is you're going to have -- the margin is going to creep up. But as the margin creeps up and the inventory continues to clean up, we'll start to lose some of those promotional dollars from the manufacturers. So once the inventory -- like Step 1 is inventory gets clean. Step 2 is retail manages their new inventory really well. They've got new fresh stuff, margins start to increase. Then if you get any kind of uptick in just macro or just the total industry, then everybody starts ordering boats again. And as soon as people start ordering boats and the manufacturers aren't 45% down, they're only 20% down, the promotion slide off. So there's a little bit of an offset. So that's why there'll be some choppiness as we go through the selling season, and we can't just really say, "Okay, it's 1.5%." We look -- at OneWater, we feel we gave away at least 1% last year just exiting those brands, and that's done. So you would think that somewhere around that 1% is just like an absolute lay down. Now what we're seeing today is we're seeing that it's a little bit better than that just because of the way the consumer is acting. But we don't want to really get too excited about that because it's such a small sampling. The quarter is so tiny. It's coming out of some of the smaller boat shows. This quarter will really tell us how that cadence goes in. But I think that we've wanted to be a little bit conservative because there's some unknowns with how the manufacturers are going to react when boats are going to start getting over. But 1% over this year is very, very, very achievable outside of something macro that we can't control.

[Operator Instructions] Your next question comes from Gerrick Johnson from Seaport Research.

Did you see any adverse impact from the government shutdown in the middle of the quarter?

No, I would say we did not.

Yes. I don't.

Okay. And then during the early season boat shows, are you seeing any evidence of that monthly payment buyer returning?

That is not -- that's really a question for...

I would answer it this way, Gerrick. A lot of our customers aren't necessarily payment buyers, right, because we're dealing in the premium space. But with that said, a lot of our -- majority of our customers finance. So when I look at like some of our show activity and stuff like that, I mean, we're seeing 60-plus percent of customers financing their purchases, right? And that's kind of been -- we average probably on a normal cadence, 60% to 65% of the customers finance some portion of their boat with us. And we think that another call it, 30% are financing a portion of the sale somewhere, whether that be through their local credit union or something along those lines. So -- but I think what you're getting at is more of that low-end consumer -- lower-end consumer who is a lot more price sensitive. They tend to go into more of your value product, and we just don't sell a ton of that.

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