Ladies and gentlemen, thank you for standing by, and welcome to the OneWater Marine Fiscal Second Quarter twenty twenty Earnings Conference Call. At this time, all participant lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jack Giselle, Chief Financial Officer.
Thank you. Please go ahead, sir.
Good morning, and welcome to the OneWater Marine fiscal second quarter twenty twenty 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 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 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 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 its filings with the Securities and Exchange Commission.
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. And with that, I'd like to turn the call over to Austin Singleton, who will begin with a few opening remarks. Austin?
Thanks, Jack. And thank you, everyone, for joining our fiscal second quarter twenty twenty earnings call. We delivered strong results in the second quarter of twenty twenty with sales increasing in boat and non boat segments despite the slowing environment the last few weeks of the quarter. As we have discussed, we have a proven adaptable model and our performance during the quarter shows the optionality of our portfolio. During the quarter pre owned boat sales grew nearly 19% while our high margin finance and insurance increased by 27% compared to the prior year.
In total revenues rose 5% to 190,000,000 while gross margin expanded 150 basis points year over year. Same store sales through mid March outpaced the prior year by over 10% before slowing in the last two weeks of the quarter as the impact of the corona-nineteen global pandemic began to materialize. Over the last month and a half we really showcased the strength of our organization. As the COVID-nineteen pandemic spread quickly across The U. S, the economy came to a virtual standstill ushering in a level of uncertainty never experienced in the industry.
And while the ultimate impact of the macroeconomic environment is not yet known, we immediately took actions to protect the health and safety of our team members. At the same time we implemented our 02/2008 playbook to ensure we remained nimble which included reducing costs, securing liquidity and mitigating the possible impact of a prolonged period of lower demand. Moving forward into the back half of our year, there are still significant questions around consumer demand, credit availability and the continued impact on our dealership by state and local shelter in place orders. As such, we tapped all available resources to ensure not only the health of our employees but the financial stability of the company as well. In late March and early April, we faced an incredible magnitude of unknowns.
At that time we met qualifications to receive funds under the Paycheck Protection Program. As such we applied for and then subsequently received the funds in late April. However after the dust settled from the cost reduction actions that we enacted immediately following the beginning of acceleration of COVID-nineteen on our business and after a rebound in April and looking forward into May, we no longer feel this assistance is needed and return the money. We also believe our employment is at an appropriate level to fully execute on our plan. Importantly, we also rolled back the non executive compensation adjustments previously announced.
We are truly seeing the resilience of our business as we move into our fiscal third quarter. Sales through April were up in excess of 10% and have been better than expected in certain locations. More specifically, boat sales in Georgia, Alabama and South Florida successfully delivered same store sales growth. While some stores are still seeing the impact of COVID and the weather. Once the weather breaks we do expect to see a bump in sales from these stores as well.
While we are excited and encouraged by these numbers there are still many unknowns. We will continue to adapt as conditions change and leverage our recession playbook to ensure we are well positioned to navigate through a variety of operating environments in the coming months. While we are being prudent in all aspects of our business, we do believe boating provides a great activity for people in this new normal we find ourselves in. Air travel, summer camps, travel sports are likely to be altered for the foreseeable future. And recreational boating allows families to get on the water, enjoy the fresh air while continuing to practice safe social distancing on their terms.
Based on current trends, we are cautiously optimistic as we move forward into the prime selling season. Before I turn it over to Anthony to talk about the operations, I want to remind you of our long term strategy. Our team remains focused on expanding our dealership in regions with strong boating cultures, enhancing the customer experience, and generating value for our shareholders. With that in mind, we are taking a temporary pause on acquisitions until the current macroeconomic environment stabilizes. We are using this time to better evaluate targets and ensure we can continue on our track record of cutting the purchase multiple in half inside the first twenty four months.
We have not seen any significant change to the acquisition pipeline, but we are remaining patient in our execution. With that, I will turn it over to Anthony to discuss business operations.
Thanks, Austin. We continue to adapt our business model to customer demand, while at the same time complying with current federal and local mandates. Our business model was designed to support cycle resilience. And no matter what's going on in the economy, we are built to be flexible to the changing market conditions as we have successfully done in the past. Over the last few weeks, our service departments are working hard, being mindful of shelter in place orders to deliver boats and customers on the water.
At the same time, our sales team members are fully engaged with customers and providing them with virtual walk throughs of inventory along with private showings either at their homes or on the water. As Austin said, we are selling boats at all dealerships, which has been significantly enabled by the investments we have made in our proprietary digital platform. This platform coupled with enhanced marketing tools and strategies has supported an increase of over two times the lead flow compared to the prior year. These tools have also allowed our sales team members to engage and build relationships with new and existing customers effectively while working from home and other remote locations where customers are comfortable doing business. While we're well positioned with our scale and best in class technology to actively pursue opportunities while at the same time maintaining the excellent customer service we are known for even while operating in this unique more virtual environment.
As is typical in the second fiscal quarter each year, inventory was at a peak level in February and March in order to prepare for a prime selling season. We believe we are in a strong position as we work through our current inventory and move into the second half of our fiscal year. Most of our EOM partners shut down production at the March and through a good portion of April, which helped inventory reductions at our stores. As stay at home orders lift and it becomes safer for people to be out and start working again, production lines will get back up and moving. With that said, assuming OEMs continue to ramp up production, we should have sufficient inventories to support retail sales.
While this reality we find ourselves in is filled with uncertainty, We are able to offer a sense of normalcy to our customers who are accustomed to spending time on the water. Our flexible business model allows our team to continue to support our customers no matter what their boating needs might be. And with that, I'll turn the call over to Jack to discuss the financials in more detail.
Thanks, Anthony. We delivered a strong second quarter with total revenue up 5.1% to $190,000,000 from $180,800,000 in fiscal second quarter of twenty nineteen. Sales from stores recently acquired contributed to the increase in revenues, but were partially offset by a 2.7% decline in same store sales. Increased demand for boats continued into March, but as the COVID-nineteen pandemic quickly spread across The U. S, the pace of sales declined.
As a result, new boat sales for the quarters were essentially flat year over year. However, as consumer demand tends to shift in weaker economic environments, we are prepared to generate income through our diverse business model. Our focus on pre owned boat sales and higher margin products like finance and insurance, parts, maintenance and repair services will allow us to meet consumer demand and generate sales across all markets. Our continued focus on these businesses generated an increase in pre owned boat sales of 19.4% to $43,000,000 and a 27.2% increase in finance and insurance revenue to $8,100,000 in our fiscal second quarter of twenty twenty. Revenue from service parts and other sales decreased in the quarter 4.3% to $11,000,000 compared to $11,500,000 in the prior year.
This decline was a result of temporary store closures, social distancing requirements and shelter local shelter in place orders, which made it physically difficult for us to complete retail parts and service sales. Gross profit increased to $44,600,000 in the second quarter compared to $39,700,000 in the prior year, driven by increased pre owned unit sales and higher finance and insurance revenue. Gross profit as a percentage of sales increased 150 basis points to 23.5% compared to 22% in the prior year. Selling, general and administrative expenses increased to $32,100,000 from $27,500,000 and SG and A as a percentage of sales increased to 16.9% from 15.2% in the prior year. The increase in selling and general and administrative expenses was primarily due to the stores acquired in the back half of twenty nineteen.
It is important to note that the previously announced expense cuts had little to no impact on the quarter. Operating income decreased $4,100,000 to $8,700,000 driven by the higher selling, general and administrative expenses, as previously mentioned, and IPO related expenses, which are included in transaction costs. Adjusted EBITDA remained essentially flat at $9,900,000 compared to the prior year. Net income totaled $3,000,000 for the second quarter and compared to a net loss of $3,000,000 in the prior year. The increase is primarily due to the timing of the $12,300,000 reduction in income related to the noncash change in fair value of the warrant liability recognized in the prior year, partially offset by higher interest expenses, income taxes, and transaction costs in the current period.
Post IPO, OneWater's share count changed dramatically as a result of the stock split and share offering. Additionally, the warrant liability and redeemable preferred interest were also converted and repaid respectively at the IPO. Now turning to the balance sheet. As of 03/31/2020, we had $20,400,000 of cash and $10,000,000 worth of availability on our revolving line of credit. Total inventory at 03/31/2020 increased to $333,400,000 compared to $298,500,000 at March 3139.
This increase is due to the dealerships we acquired in the back half of fiscal twenty nineteen. We remain keenly focused on managing our inventory levels and are comfortable with our current position as we navigate the spring selling season in conjunction with the COVID-nineteen pandemic. As previously announced, in March, we evoked our option to defer payment of interest on our senior term loan facility for a period of twelve months, which will reduce the annual cash interest payments by approximately 8,500,000 Accordingly, there are no interest payments due until 12/31/2020, and scheduled principal payments on the senior term loan facility do not begin until March 2022. In light of the uncertainty that exists around COVID-nineteen pandemic, on March 26, we withdrew our fiscal twenty twenty guidance that was provided on our last call. We are offering no additional guidance at this time.
This concludes our prepared remarks. Operator, will you please open the line for questions?
Our first question comes from Craig Kennison with Baird. Your line is open.
Hey, good morning. Thanks for taking my question. Just looking at the press release, it says that April sales were solid. I'm curious if you actually saw something close to positive retail trends in April And would be also curious if you could break that up into new versus used sales.
Yes, Craig. Good morning. I would say that it's
a bit
of a mixed bag. But generally speaking, we were up approximately 10% in the month of April. You know, you had some locations where they're still heavier have a greater impact on the shelter in place orders. And so it's, you know, it's you you see certain locations, particularly the Northeast, maybe a little more impacted than, you know, the state of Georgia, for example. And so, you know, we continue to see, revenue from all of our product lines, whether it be new, pre owned, and finance.
I don't have necessarily the breakdown of that 10% across those categories in front of me, but we did see positive comps year over year.
Thanks. And then maybe you could just shed some light on the pitch here. It's just really a remarkable outcome here to show positive results in April in the middle of a pandemic. Are you pulling forward a lot of demand with a really exceptional pitch? I mean, just to shed a little light on on that extraordinary result.
Thanks.
Yeah. Craig, I I think that, you know, what what we offer from an industry perspective is is like Jack said in in earlier, we're offering, you know, social distancing on your time. We offer a recreational leisure activity where families can get on the boat and can control their environment. So they might have their little inner circle that they allow on their boat, or it might just be the immediate family. And I think that the people are starving to get out.
And we've seen that, especially on the in the southern part of the country where, like, the lake that I actually, live on, you know, it it looks like the fourth of July out there. There's that many boats on the weekend boating. And I think as the weather continues to improve, the industry's got great tailwinds behind it because we are offering something to to people that they can get out and and actually live their life a little bit. And I'm just we're super excited about, you know, the amount of traffic we're seeing on the lakes.
Great. Thank you.
Thank you. Our next question comes from Joe Altobello with Raymond James. So
the commentary on April, obviously, very encouraging. And I know we're only a month in here. But just curious, has that momentum continued into May? Or is that really just pent up demand coming out of March?
Yeah. I'd say, you know, we're we're still very early in May, obviously, but, you know, the pace of the pace of leads and activity has continued.
Okay. Great. And then secondly, on on costs, you guys mentioned that you did return the PPP loan, which is kind of interesting. So I'd be curious to hear what the the rationale was behind that, and maybe help us understand what you guys are doing on on the cost front, maybe, you know, rent abatements, or renegotiations, and and maybe a sense for, how much of your, of your cost today are are variable versus fixed.
Jack, you want me to take the first part of that? Yeah. Let me take the p p the PPP piece. You know, Joe, good to talk to you this morning. But the the the payroll protection, program, when it first came out, you know, in in that, and they they didn't have a whole lot of guidance behind it.
And at that time, you know, we there was a lot of unknowns, which we spoke about earlier, and we did qualify, for that. And so we filed that. And and and as we continue to move forward and got out of March into April, you know, we we had a modest headcount, reduction, but we we felt that two things. We felt that our headcount reduction put us at the appropriate level of employer you know, employees to execute on our plan moving forward. So it's not like we really needed to bring them back.
And then when the the PPP continual guidance continued to change, and the language was just so, you just you you didn't know whether or not you should take it or not take it. And then as April continued to go as it did, we just really looked at it, we were like, we don't really need this money. We don't really wanna bring back that headcount because we we feel our business is where it needs to be to operate efficiently. And so if we weren't gonna bring back or didn't really think we had to bring back the headcount reduction and our business was doing good. That money needed to go back and and and, you know, be available to somebody that really needed it.
Got it. Okay.
Additionally, on the, you know, on the cost front, you know, we we started, quickly action to, you know, reduce you know, obviously, this environment, nobody's really traveling, but, you know, travel, you know, other type of expenses, some marketing, really tried to, you know, pull back those those costs and and and spend money only in a very targeted way. We did reach out to a number of our landlords. We had, some landlords provide, you know, abatement of rent, others, provide, deferral of payment of rent. And, again, in in light of, you know, our process of working with them and their their willingness to work with us, you know, we we kinda felt the same way with them. And so, you know, we're in the process of, you know, a lot of times when it's just deferred, it's still an expense in the p and l.
It's just a cash flow item. And so, you know, we, we're in the process of kind of rolling that back as well with our landlords, because we know we wanna be
able to partner with them. And if
we have we have the cash, flowing the cash, you know, we we want to, we don't wanna put pressure on them, and we'd rather, you know, save that for, the time when we really need it. And so, you know, we we feel like we can always go back to, you know, our landlords or in our, we did a for the nonexecutive pay, we rolled that reduction back because, you know, we wanna take care of the team members we have. You know? But on the flip side, you know, we wanna keep that you know, keep that expense card just in case we need it, you know, should, you know, the the results look different than they currently do. So I I would tell you that our, you know, our expense structure is not changing dramatically.
You know, our fixed versus variable kinda still, you know, is around that, you know, fifty fifty. We'll probably move a little more towards the fixed just because with revenue down and some things like that and and us maintaining those costs, you know, it might tick up a little bit. But generally speaking, you know, we continue to to watch all of our expenses on a daily basis, you know, trimming costs where we can.
That's very helpful. Just one last one if I could in terms of unlevered inventory. Can you quantify that for us at this point?
Yeah. You know, it's it's not a it's not a huge number. I mean, obviously, we have a lot of credit availability under our floor plan. I mean, our floor plan has a capacity of 392,000,000. You know, we only have, just under 300,000,000 available.
So there's there's plenty of capacity from the standpoint of, capacity on our floor plan. We are in the season, right, of of declining inventory, declining floor plan. But there you know, there's there's some availability on there, you know, a couple million dollars, like, less than $5,000,000 probably, you know, at this point.
Okay. Great. Thank you, guys.
Thank you. Our next question comes from Mike Swartz with SunTrust. Your line is open.
Hey, guys. Good morning. Good morning. Just wanted to touch on new boat margins during the quarter. That number came in well ahead of what I think anyone had anticipated, particularly given some of the pressures we've seen over the past couple of quarters.
So maybe what turned around during the quarter? And I think mix was part of it as you highlighted in the press release. But any color there? And how should we think about that over the next couple of quarters?
Yeah. I'd say, you know, as as if you go back to our last call, we had talked about, you know, some strategies that that we were implementing to, enhance our F and I penetration, and it was coming at the cost of a bit of of new boat margin. And and that was going to turn as we kinda got out of boat show season and and into the normal season. And so I I would tell you that, you know, absent the pandemic, fully expected margins to increase. And Anthony and team did a great job of folding margin and maintaining margins kind of through the month of March.
But Anthony, maybe you wanna discuss a little bit about what we're seeing on the retail front with respect to margins.
Sure. I mean, I think that we had to plan all along, and we've intentionally dropped the margins down in the past upon our new stuff to to, just like Jack said, to increase our f and I penetration. And our whole plan was to, as we implemented the the the selling process through all of our stores. And once they've gotten it, we we didn't need to continue to to discount the boats as much as we had to. And our plan is exactly working, and our margins are rising from it.
Okay. And and I think you you've you've unveiled publicly some some pretty unique sales and marketing, incentives, on Nuvo's with certain new manufacturers. Can you talk about some of those, as much as you can and maybe how that will impact the P and L in any way?
It shouldn't impact the p and l anyway except increase. So we were able to negotiate, some one off programs with our manufacturers and some of our banking partners that we have have some marketing tools out there that is gonna allow us to be very attractive, for our buyers no matter what's going on in the economy.
And and one final one for me, maybe for Jack. On on a comparable store basis, the what do the F and I and used boat sales look like in the quarter just from a growth perspective? Okay. Thanks a lot. That's all for me.
Thanks.
Thank you. I'm not showing any further questions at this time. Ladies and gentlemen thank you for participating in today's conference. This concludes the program. You may all disconnect.
Everyone have a great day.