Ladies and gentlemen, thank you for standing by, and welcome to the OneWater Marine, Inc., Fiscal Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session [Operator Instructions]. 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 Ezzell, Chief Financial Officer. Thank you. Please go ahead.

Good morning, and welcome to OneWater Marine's Fiscal Third Quarter 2020 Earnings Conference Call. I am joined on the call today by Austin Singleton, Chief Executive Officer and Anthony Aisquith, President and Chief Operating Officer. Before we begin, I would like to remind you that certain statements made by management in this morning's conference call regarding OneWater Marine and its operations may be considered forward-looking statements under 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 2020 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 59% and 30% 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 in the current environment, 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 in first-time boat 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,…

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 increased roughly 500%, and the investments we've made in our custom CRM have enabled us to efficiently handle this tremendous surge. Our inventory management tool 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 issue securing inventory to meet the heightened demand we saw during the quarter. I would like to thank all of our manufacturer partners who are working through this challenging environment while keeping their teams safe and still manufacturing incredible products for our customers to enjoy out on the…

Thanks, Anthony. We delivered tremendous results in the third quarter with total revenue increasing 49% to $408.3 million in 2020 from $274.8 million in 2019. Same-store sales increased a record 44%, primarily driven by an increase in the number of units sold. Throughout the entire third 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. 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 million in the fiscal third quarter of 2020 from $180.7 million in the prior year, and pre-owned boat sales increased 29.9% to $85.9 million from $66.1 million. 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 $16.6 million in our fiscal third quarter 2020. Revenue from parts, service and other sales increased 4% to $18.7 million 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 $94.7 million in the third quarter compared to $62.7 million 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 to 23.2% compared to 22.8% in the prior year. While selling, general and administrative expenses increased to $43.2 million from $34.7 million, SG&A as a percentage of sales declined to 10.6% from 12.6% in the…

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

So first question, Jack, I just wanted 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. 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?

Well, Joe, I think that's, 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 of 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, 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 pull 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, you want to add to that?

Yes. I mean a little bit, Austin. 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. And the brands that we are aligned with currently today every year, they're coming out with either it's technology, design, layout, they're coming out with an "oh my gosh" boat. So these boaters that are coming back into boating. They're, number one, they're wowed by "Oh, my God, look how far this has changed since I've [been missing] 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, if you will, if that makes 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 of the boat?

Well, absolutely. For the new boater, there's more engagement, yes. For 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 in 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.

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 is an emotional purchase, and 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 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.

[Operator Instructions] Our next question comes from Mike Swartz with SunTrust.

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 [indiscernible]?

Go ahead, Anthony.

Not really because if you look at our business model, at this time, our inventory starts rising pretty heavily and traditionally in September and it peaks around March or April, and then it just steadily drops all the way through September. So the best time for this to happen if it had to happen was the best time because that's, as our sales start declining, going into our first quarter, which is October, that's where your sales are the lightest. So that's what the comment of having less carrying costs because what we're not going to have is extra loss with boats stored and so on and so forth and 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 out so I don't see the shortage at all.

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 in 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 30th. Give us a couple of days to prefer it and turn it around and the customer could take it August 1st.

And just a commentary around M&A, maybe 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&A until fiscal year '21. Now it sounds like it's more and then, 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 target 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, gotten 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 it. I'm just wondering if you look at the target differently. 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.

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 had conversations with customers who are maybe delaying repairing some fiberglass work or something like that until later in the year 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 were 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, varies, 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, right, what Jack was just saying and the reason that Anthony kind of has been pushing for this, and 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 new and their past customers. And then they end up having a 10%, 15%, 20%, 25%, 30%, 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 2022, 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 the service.

Our next question comes from Craig Kennison with Baird.

I apologize, I hopped on late here. So I wanted to ask about 2 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 they're lifelong boaters? Apologies if you've been asked those questions. Well, I mean, I want you to talk about that, but I think there's a lot of technology that we put in place, and I'm going to let Anthony cover that, but it's kind of comical that we had this technology that we've been working on that we launched on 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 was here. 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. But 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 or 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 [indiscernible] a boat that's in Texas and somebody is 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 can handle the same brand. So we're able to share that inventory in real time.

Anthony, one more thing that I, 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 what's the technology and how it comes in. I mean we're very fortunate enough to have this CRM built where all of our manufacturer leads, every boat trailer leads, 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 in, during business hours. Our goal is less than 30 minutes. And unfortunately, in our industry, if you were to put a lead into someone's Web site, you may get something back in a day or so. So we're communicating with people in less than 30 minutes during our business time.

What is the lead increase, Anthony? We didn't cover that earlier.

It's 500%. Yes. I did on the call. For the quarter, it's 500%. But we would not have some of the tools in place that we have today, where if 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, end of March, 1st of April, I mean we were sheltering places. People, we were having partial store closures and so the sale 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&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 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 in revenue to any acquisition that we do.

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.