and gentlemen, thank you for standing by, and welcome to the OneWater Marine, Inc. Fiscal Third Quarter twenty twenty Earnings Conference Call. At this time, participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference may be recorded.
I would now like to hand the conference over to your speaker today, Mr. Jack Ezel, Chief Financial Officer. Thank you. Please go ahead.
Good morning, and welcome to OneWater Marine's fiscal third quarter twenty twenty earnings conference call. I am joined on the call today by Austin Singleton, Chief Executive Officer and Anthony Aspleth, 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 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 results are discussed in the company's earnings release and can be found on the Investor Relations section of the company's website and in its SEC filings.
The company disclaims any obligation or undertaking to update the forward looking statements to reflect circumstances or events that occur after the date of the forward looking statements are made, except as required by law. With that, I would 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. Our third quarter twenty twenty was a record quarter for OneWater and possibly for the industry. Our team executed incredibly well considering we started the quarter with shelter in place orders expanding around the country and ended the quarter with unprecedented retail demand. During the quarter, we saw revenues increase 49% and a record same store sales increase of 44% year over year, significantly outpacing industry reports and delivering substantial market share gains across all segments of our business. Our highly efficient sales process, innovative retail technologies and strong manufacturing partnerships enabled the team to pivot quickly, supporting the growth of new and pre owned boat sales by 5930% year over year, respectively.
Our high margin finance and insurance income also saw a dramatic increase of 66% year over year. In total, not only did we achieve record revenue growth, we also saw gross margin expand 40 basis points, which is significant given our diverse model mix. This growth can be attributed to the effectiveness of our digital platform, CRM and custom technologies along with our dynamic pricing strategy, all of which help us to outperform the industry during the quarter and will continue to serve as a competitive advantage going forward. Our flexible business model has proven to be effective in supporting cycle resilience. During the quarter, our team quickly adjusted to work under shelter in place orders and adopted new selling techniques to operate effectively whether it was conducting virtual sales appointments or taking one on one appointments with customers at home or out on the water.
We are extremely encouraged by the surge buyers. We believe they can find boating to be an exceptional outdoor activity that can be enjoyed with friends and family in a safe social distanced way. As with so many, we believe these new customers will return to the dealership for annual maintenance and to purchase new parts and accessories on a regular ongoing basis. Additionally, they may realize how boating is a lifestyle that they can't live without. Historically, once purchases a boat, they tend to remain in boating for years.
Throughout this life cycle, they may purchase a larger boat, a different type or style of boat or be interested in the incredible new technology coming from so many of our manufacturers today. OneWater uniquely stands ready to serve them with a talented and well trained team and a diverse product portfolio of over 70 brands that are carried in some of the leading markets in the country. As previously announced, at the start of the third quarter, we were focused on implementing our 02/2008 playbook and initiating cost controls to help navigate through Despite a tremendous recovery in sales, many of these cost cuts and controls remain in effect today. Additionally, we have continued to evaluate new cost savings opportunities to further strengthen our financial position. We are running a better, more efficient company today than we were prior to the outbreak of COVID-nineteen because of these disciplined approach.
To that end, we recently announced successful completion of our long term debt refinancing. We also elected to use excess cash to make a significant paydown of the principal amount of our debt in conjunction with the refinancing. These actions will reduce our interest expense by more than $6,000,000 in 2021. I would like to thank SunTrust and Synovus teams who acted as joint book runners in the syndication for helping us complete this refinancing with very favorable terms in the wake of a turbulent credit environment. After taking a temporary pause on acquisitions last quarter, so that we can understand the impact of shelter in place orders on our acquisitions EBITDA and manufacturers' ability to supply product to maintain that EBITDA, we are back in acquisition mode.
M and A is a key part of our strategic growth plans and our acquisition pipeline remains full with opportunities that can both strengthen our current geographic footprint and help us to expand into some of the best boating markets in the country. We have built a significant cash position on the balance sheet and expanded our revolver, which provides us significant dry powder to complete acquisitions in the future. With that said, we will be disciplined in our executions as we evaluate potential acquisitions, but are excited about our near term prospects. We remain focused on executing our long term growth strategy and are confident that through the completion of strategic acquisitions, implementation of innovative technologies, ongoing improvements and the evolution of our higher margin business segments, we will be able to expand our market share and generate meaningful value for our shareholders as we move forward. With that, I will turn it over to Anthony to discuss business operations.
Thanks, Austin. Our team continues to adopt new sales strategies to deliver boats on time and keep our growing customer base out on the water. As mentioned earlier, with people hesitant to travel in the current environment and other activities being canceled, we have seen more individuals and families turn to boating this summer. In this more virtual world, our sales team has embraced our initiative, industry leading technology and proprietary digital platform to effectively engage with new customers and continue building relationships with existing customers. While all of our stores have since reopened during the quarter, many stores were temporarily closed due to shelter in place restrictions.
And some employees are continuing to work remotely today. Our employee safety remains our priority. And as a result of our technology we put in place, they've been able to continue to sell and service customers in a new safer environment. In this high demand environment we're operating in, we've seen inbound leads increase roughly 500% and the investments we've made in our custom CRM have enabled us to efficiently handle this tremendous surge. Our inventory management tools and operational dashboard have made it easy for us to sell boats across all of our dealerships, move inventory across locations to meet rising demand and have provided visibility into inbound inventory coming in from our diverse list of manufacturers.
These tools support our current and future sales trends and will help us continue to outperform the industry. Our close relationship with our manufacturer partners ensured we did not face issues securing inventory to meet the heightened demand we saw during the quarter. I would like to thank all of our manufacturer partners for working through this challenging environment while keeping their team safe and still manufacturing incredible products for our customers to enjoy out on the water. As we have mentioned before, no one brand represents more than 11% of our revenue. However, in many cases, we represent more than 30% of our brand's annual sales.
We are a material customer to these manufacturers and as a result, they work with us to get us the inventory we need in a timely manner. We were one of the first ones to receive both once the manufacturers resume production on the temporary shutdowns at the beginning of the quarter. And the majority of the boats that were incoming to our dealerships each day were presold. As a result, our inventory is lower than it normally would be at this point in the boating season. However, stocking levels remain sufficient as we finish the summer selling season.
This reduction in inventory, carrying costs and floor plan interest over the next several months will generate additional savings for the business, ultimately driving margin expansion in fiscal year twenty twenty one. Looking ahead, we are laser focused on the continued development of our high margin businesses, which have proven to be effective in generating income during times of uncertainty. While our parts and accessory and repair and maintenance service business experienced more moderate growth during the fiscal third quarter due to shelter in place restrictions and increased sales volume. We are preparing for an increase in our service activity in fiscal twenty twenty one. As part of our efforts to expand our high margin business, we are in the process of opening two new locations that will be service only.
We have added a service location in the Atlanta area and are restructuring service operations in Alabama to establish a second location for retail service. We expect to see the changes and additions we are making now drive our higher margin business in the months and years to come. We also remain committed to expanding finance and insurance and there are several opportunities to grow this business even further, including increasing our penetration rates and the number of products that are available to customers. As part of our broader sales we are always looking for new ways to improve operations at both our core stores and newly acquired stores and our teams made great strides this quarter. Our flexible and resilient business model and technology have enabled our team to actively pursue new business opportunities and continue providing our customers with everything they need.
While a lot of uncertainty remains about what the coming months may look like, our size, technology and team have us well positioned to continue to outperform the industry and our competitors, growing our same store sales and expanding market share. And with that, I'll turn the call over to Jack to discuss the financials in more detail.
Thanks, Anthony. We delivered tremendous results in the third quarter with total revenue increasing 49% to $408,300,000 in 2020 from 274,800,000 in 2019. Same store sales increased a record 44%, primarily driven by an increase in the number of units sold. Throughout quarter, we saw the pace of sales increase and the demand for new and pre owned boats rise as consumers look for a way to get outside and spend time with their friends and family while maintaining safe social distances. Spend We did not see the reduced consumer demand, which typically occurs in a weaker macroeconomic environment, and new boat sales grew at 58.8% to $287,000,000 in the fiscal third quarter of twenty twenty from $180,700,000 in the prior year.
And pre owned boat sales increased 29.9% to $85,900,000 from $66,100,000 Focusing on growing all aspects of the business has helped us to outperform our competitors and gain market share in what has been an unprecedented operating environment. We grew finance and insurance revenue by 66.3% to $16,600,000 in our fiscal third quarter twenty twenty. Revenue from parts, service and other sales increased 4% to $18,700,000 compared to the prior year, but was impacted by store closures, which prevented us from being able to execute on certain retail parts and service sales. Gross profit increased 50.9 to $94,700,000 in the third quarter compared to $62,700,000 in the prior year, driven by the increase in new and pre owned unit sales and higher finance and insurance revenue. Gross profit as a percentage of sales increased 40 basis points percent compared to 22.8% in the prior year.
While selling, general and administrative expenses increased to $43,200,000 from $34,700,000 SG and A as a percentage of sales declined to 10.6 from 12.6% in the prior year. The decline in SG and A as a percentage of sales was due to the increase in the sales volume and the cost reduction actions enacted in response to COVID-nineteen at the March. Operating income increased 88.2% to $50,700,000 compared to $26,900,000 in the prior year, driven by increased boat sales and lower transaction costs. Adjusted EBITDA rose 94.7% to $49,200,000 compared to twenty five point three million dollars in the prior year. Net income totaled $40,600,000 in the third quarter, up 24.3% from $32,700,000 in the prior year.
The increase is primarily due to the growth in sales, partially offset by higher interest expense and income taxes in the current year. It's important to note that the prior year contained income related to a noncash change in fair value of a warrant for $10,400,000 Excluding the income related to the noncash change in fair value from the prior year, results in net income being up 82.1% year over year. Now turning to the balance sheet. As of 06/30/2020, we had $88,000,000 of cash and $10,000,000 availability under our revolving line of credit. Total inventory at 06/30/2020 was $171,300,000 compared to $259,300,000 at June 3039.
This substantial decrease is primarily due to current sales demand for new and pre owned units and manufacturing shutdowns related to COVID-nineteen seen at the beginning of the quarter. Our strong and diverse manufacturer partnerships have positioned to continue building inventory to meet current demand, but we believe our carrying costs will be significantly lower this winter, which should lead to meaningful savings for the business. As previously announced on July 22, we successfully refinanced our long term debt. The new credit facility consists of an $80,000,000 term loan with a $30,000,000 undrawn revolver and replaces our former $110,000,000 facility with Goldman Sachs Specialty Lending, which included a $10,000,000 undrawn revolver. The credit facility has a five year term and provides us with $50,000,000 accordion feature to expand the line.
The initial interest rate on the loan is LIBOR based with a 75 basis point floor plus a sliding scale of 200 to 300 basis points based on our net leverage ratio. At closing, the initial rate on the facility is 3%. The new credit facility offers more flexible covenants and terms and is currently projected to deliver annual savings more than 6,000,000 in fiscal year twenty twenty one. This refinancing strengthens our balance sheet and provides additional liquidity, enhances our financial flexibility and will support the continued execution of our long term growth strategy as we pursue strategic acquisitions and expand our geographic footprint into regions with strong voting markets. In light of the uncertainty exists around COVID-nineteen pandemic, on March 26, we withdrew our fiscal year twenty twenty guidance that was previously provided.
As it turns out, 2020 is shaping up to be another record year. We are encouraged to see sales trends continuing in July and the fourth quarter is off to a great start. Despite being up against a strong 20% comparable sales figure in the prior year, we believe we are on track toward a similar same store sales figure for the fourth quarter of fiscal twenty twenty. With that said, there are many unknowns that remain, including the macroeconomic environment, how COVID-nineteen pandemic will impact back to school and if any shelter in place orders will be issued. We are offering no additional guidance at this time, but expect to provide more insights into our fiscal year twenty twenty one on our fourth quarter and year end earnings call later this year.
This concludes our prepared remarks. Operator, will you please open the line for questions?
Thank you. Our first question comes from Joe Altobello with Raymond James. Your line is now open.
Great. Thanks, guys. Good morning. So first question, Jack, I just want to clarify something that you just said about July being off to a good start or Q4 off to a good start. And you said you expect a similar I think you said you expect a similar comp as 4Q of last year.
Is that what you said? Yes, that's correct. So something in the high teens. I think last year, we were 19% just shy of 20% for the quarter. So something in that high teens.
Perfect. Thank you. And then secondly, obviously, we're seeing a lot of new boaters into the space, and I'm sure you guys are benefiting from that as well. Just curious how you think about that? Is there some perhaps some pull forward from next year, in terms of new boat buyers?
And maybe what are you doing differently to make sure that those new boaters stay engaged in the category?
Joe, I think me and Anthony can kind of tag team that one. I'll start off by saying, I think at the beginning when we really started to see this ramp up in early April, as April went on, we thought we might be pulling some business forward. But as it's continued to trend in the same way, I don't really know if that's the case. I think what we're seeing is a couple of different things. You're seeing past boaters that aren't boaters anymore getting rejuvenated because it's an activity, a leisure recreational activity that they can jump into that they've known from the past and they like it.
And then you do have that new brand new boat owner that has discovered this as an outlet for the current environment we're in. So we kind of look at it that if we perform the way we're supposed to and deliver that experience, we're able now to create lifelong boaters. I think when you looked at it from the past, when you had people that would jump into the industry and jump out, I think a lot of that was a lot of that happened because the experience of the consumer was not at the level that it is, not only with OneWater, but just at the industry as a whole today. I think your premier dealers, the ones we're looking at for acquisitions, our competitor MarineMax, us, some of the premier dealers are delivering a boating experience that should captivate these guys into something that makes it pleasurable and something they won't want to get out of and we should be able to grow a lot new long term these first time buyers into long time boating enthusiasts, is kind of what I think. I don't think that we've pulled business forward from next year.
I just I think it's just a trend that is going to keep driving people to it because of the reasons, that the environment has presented to us. Anthony, you got want to add to that?
Yes. I mean, little bit, Austin. The years ago, some of these people that are coming back into boating, Joe, I mean, back when I started in the boat business, each year the manufacturer would come out with their new boat and it was just a different color. It wasn't anything new. The brands that we are aligned with currently today, every year they're coming out with either its technology, design, layout, they're coming out with an oh my gosh boat.
So these boaters that are coming back into boating, number one, they're wowed by, oh my God, look how far this has changed since I've been this in the past. And we're so blessed to be with these current manufacturers and brands that I think they're going to see them stay in boating, because of the new models that continue to come out. It's more than just a color change, you will. Does that make sense?
No, it does. I was just curious, is it changing the way that you guys do business, meaning in the past, it may have been a more transactional relationship between yourselves and the boat buyer. But if you have a lot of new boat buyers or new boaters in general, does that mean there's more engagement between you and that buyer post purchase?
Absolutely. For the new boater, there's more engagement, yes. But the people that used to be in boating, that is the lion's share of these people that are buying, these people expect a great experience and I think that's where we shine in all of our stores is the experience that we give these boaters to want to stay in boating because at the end of the past when they were in boating, they were dealing with other dealers or other things that didn't have things in place to actually keep them in boating.
Got it.
I want to add to that real quick, Joe. I think a little bit of that is our sales process and maybe a little bit of our secret sauce on buying a boat is an emotional purchase. It's not like buying a car. You have to have a car to go get food and go to work and take kids to school. Buying a boat an emotional purchase.
We really work on that part of the business of having our sales guys and the process that Anthony has put in place that creates that relationship between not only our sales staff, but
the
service that almost is becoming like a friendship instead of a transactional type experience. We want it to be more of an emotional friendship type deal versus the old way I think it used to be.
Got it. Okay. Thank you, guys. Appreciate it.
Thank you. Our next question comes from Mike Swartz with SunTrust. Your line is now open.
Hey, good morning guys. Good morning, Mike. Just maybe starting off on the inventory environment, a lot of what we hear out there is obviously things are very tight and you've made comments that obviously you'll have lower carrying costs going through the fall and the winter given what's going on. But is there any reason to suspect that what we're seeing could actually start to limit or present somewhat of a headwind to sales until the inventory environment, the availability improves?
I mean go ahead, Anthony.
Not really, because if you look at our business model, this time, our inventory starts rising pretty heavily traditionally in September and it peaks around March or April. And then it just steadily drops all the way through September. To say it was the best time for this to happen, if it had to happen was the best time because that's as our sales start declining, you're going into our first quarter, which is October, that's where your sales are the lightest. So that's the comment of having less carrying costs because we're not going to have extra lots with boats stored and so on and so forth to be ready for the season. So the way we've got it timed and we've been ahead of the curve, if you will, dealing with our manufacturers and making sure that we have the right amount of inventory coming up.
I don't see shortage at I'd
also add to that, right. We carry a lot of different brands at a lot of different locations. And so we have with our inventory management tools, we have a lot of good visibility. A salesperson in one location can pull up a particular model at all of our locations with a touch of a button as well as present that boat to a customer right on the spot. And so that helps facilitate transactions when the boat is not physically there.
And then secondly, we are have a good pipeline and order volume going into our manufacturers and very good visibility of what's coming out of our manufacturers. And so our ability to sell a boat that's going to land at the store on July 30, give us a couple of days to prep it and turn it around and the customer could take it August 1.
Okay. That's helpful. And just a commentary around M and A, it's just me, but the language sounded a little different in terms I think the last time we talked, you said you'd kind of be holding off on M and A until fiscal year twenty twenty one. Now it sounds like it's more imminent. So I guess, am I reading that correctly?
And then second, given everything that's happened in the industry over the past three to four months, is there any change in the way you look at acquisition targets just in the aftermath of COVID?
So to answer the first piece of it, we did kind of signal that we were slowing down and it's mainly like Jack mentioned in the earlier comments. It was really just so that we made sure that we were evaluating our targets EBITDA and the impact of COVID to that EBITDA because we didn't know if it'd be negative. And then once we kind of figured out that we had some tailwinds and the people we were looking at had the same tailwinds, then we had to make sure that they were going to be able to get inventory to support these tailwinds. And we've kind of crossed got both of those boxes checked. And so about the only thing that we've done in changing in the way we look at stuff is we're probably moving a little bit more towards a certain percentage of the purchase price being in an earn out just to make sure that we protect ourselves if there was a little pull forward, or if we were to have another flare up of this COVID stuff that impacted us differently through the winter or into next spring.
I think that answered the first one. What was the second question again?
No, that was just wondering if you look at the targets So maybe that's the answer just in terms of how you structure a purchase.
Yes. I don't think we're looking at them any differently. I think we're just looking at a little bit of a small tweak to the structure.
Okay. No, that's helpful. And then I don't know question maybe for Jack. Just in terms of the service, the parts, the repair business, which obviously was impacted by store closures during the quarter. Any sense of what the pipeline looks like there for maybe work that couldn't have been completed during the quarter that maybe you'll get to in the current quarter or beyond?
Yes. I wouldn't say we really don't have a great sense of exactly what those dollars are. I mean, certainly, anecdotally, we've conversations with customers who are maybe delaying repairing some fiberglass work or something like that until later in the year or after the season. But we certainly believe as more boats get into the market, then obviously, there's going to be more boats to service. And we that's part of in Anthony's remarks where he made the comment about some stand alone service only facilities that we're in the process of opening up.
It's partly to capture that demand, demand not only for our customers, but other customers that need an oil change, need a maintenance, need a winterization, various varying level of service, but then also take some burden off our existing stores to help them continue to grow and expand on the retail sales side.
And let me add one
thing too, Mike. What Jack was just saying and the reason that Anthony kind of has been pushing for this is it's not just us, it's other dealers. So if you have a dealer that's been running a mom and pop that's a competitor in the same market we're in, that's a great dealership, They've got great service, but they've always been kind of maxed out on the service side. They've done all they could to service what they were selling to in their past customers. And then they end up having a 10%, fifteen %, twenty %, twenty five %, thirty % all of sudden increase, that's just going to flood the market.
And we think there's huge upside in this running into next season, to next fall, into the spring of twenty twenty two, where there's going to be so much demand for service, not just from the extra boats we've been selling, but from the extra boats that are just entering the total amount of the market of the increase. So I think that we have some good tailwinds on service.
Okay, great. Thanks guys.
Thank you. Our next question comes from Craig Kennison with Baird. Your line is now open.
Hey, guys. Thanks for taking my questions. I apologize, I hopped on late here. So I wanted to ask about two things. One, just, did you comment at all on the retail technologies that you've invested in driving some of your seeming outperformance in the quarter?
And then second, what are you doing to, I guess, take advantage of all these first time customers and make sure that they're lifelong voters? Apologies if you've been asked those questions.
Sure. Let me talk
I mean, let
me I want you to talk about that, but I think there's a lot of technology that we've put in place and I'm going let Anthony cover that, but it's kind of comical that we had this technology that we've been working on, that launched in March 1 that had we had no idea how impactful it was going to be to the company when COVID hit. It wasn't something that we thought about once COVID It was something we've been working on for about a year now. And Anthony got it launched in March, which was just perfect timing. Why don't you cover some of the stuff, Anthony?
Yes. It's just how our team is able to process and handle the leads that we receive and we're mining for leads in different ways that I probably don't want to talk about. But wherever our staff is, whether they're on vacation, they're at home, they're in the grocery store, wherever they have access on their phones to do almost a complete boat deal besides take the money and give the real time quotes of an example would be a boat that's in Texas and somebody's in Atlanta and they could be at home at night and touch a couple of buttons and they have access to that inventory, full pictures and sales quotes are being done instantly where it's usually a process you have to get to that other location. So we're able to share that inventory, even though we do own or we do represent 73 different brands, we still have a lot of parts of the country that handle the same brand. So we're able to share that inventory in real time.
One thing I want Anthony to cover real quick is, I mean, give a general sense of how many I mean, where our lead generation has how much it's up this year and how I don't think we want to get into particulars, but how our system allows for super efficient, fast follow-up sourcing and for us to monitor that stuff on a digital platform. And so that we know that we're maximizing from an efficiency standpoint of making sure we're the first people in front of every customer who sends a lead in.
Sure. I mean, it's just with the technology, how it comes in. I mean, we're fortunate enough to have this CRM built where all of our manufacturer leads, every boat trader leads, I mean, all of our websites are monitored with real time people to talk to. We've also installed in some parts of the country a BDC center to ensure that customers are talked to during business hours. Our goal is less than thirty minutes.
And unfortunately in our industry, if you were to put a lead into someone's website, you may get something back in a day or so. So we're communicating with people in less than thirty minutes during our business time.
What's in the waiting for you, Anthony? We didn't
cover that five hundred percent. I did on the call. You did. It's 500%. But we would not have some of the tools in place that we have today where somebody comes on our website, we're able to start talking with them before they actually put their information in and then turn that into a real lead that is then followed up within 30 minutes during business hours.
Yes. It's also important to note, right? I mean, with this technology and if you think back through the quarter, March, first of April, I mean, we were sheltering places, people we were having partial store closures. And so the sales staff was were displaced from their typical office and being asked to work from home, out on the lake, at a customer's house. And all of this technology enabled them to do so in just a tremendous way.
I definitely see that as a significant competitive advantage and certainly helped and impacted our results during the quarter.
And maybe if I could, as a follow-up, with respect to your consolidation strategy, one element of your synergy would come from the F and I department, where you have advantages versus maybe a target. I'm wondering to what extent you think this CRM lead generation tool is another form of synergy in the sense that you think it might be a tool to drive better sales than that target might be able to achieve without you?
No question. No question that it will deliver better sales. I mean, we are talking to some phenomenal dealers that are in like that are doing great. I mean, they're one or two in their market. They carry great brands.
They're in great boating markets and they have one guy with one price sheet. They do everything on legal pads and sticky notes. Absolutely, this technology will drop additional sales and revenue to any acquisition that we do.
Perfect. Hey, thank you so much.
Thank you.
Thank you. And at this time, I'm showing no further questions in the queue. I'd like to turn the call back to Mr. Austin Singleton for any closing remarks.
Well, we just want to thank everybody for jumping on the call and we appreciate your interest in OneWater and this concludes the call. Thanks.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.