Good day and thank you for standing by. Welcome to the OneWater Marine, Inc. Fiscal Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jack Ezzell, Chief Financial Officer. Please go ahead.

Good morning and welcome to OneWater Marine's fiscal second quarter 2021 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 operation 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 could cause actual results 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 on the Investor Relations section on the Company's website and in its SEC filings. The Company disclaims any obligations or undertaking to update forward-looking information 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 today's call. We delivered incredible results for the second quarter of 2021 with growth across every part of our business. Revenues increased 74% to a record $330 million. Adjusted EBITDA increased 315% and same-store sales increased 57%. Importantly, our higher-margin finance and insurance revenue also grew significantly by 46%, and we doubled our service parts and other revenue. The continued expansion of these businesses emphasized the strength of our strategy to move beyond new and pre-owned boat sales, adding stable revenue streams for our long-term growth. OneWater is firing on all cylinders and I am extremely proud of our team's ability to remain agile in today's fast-paced, dynamic environment. Our investment in technologies continue to enable us to differentiate ourselves in the market and capture the seamlessly limitless customer desire to get out on the water. These technologies bolster our ability to not only sell boats, but also sell the right boats to the right customers, as quick as possible. Importantly, our digital solutions drive operational efficiencies across our business, maximizing profit and extending our competitive advantage throughout the industry. With no indications of slowing down, we believe this level of demand will remain heightened as new and experienced boaters come to OneWater for our arsenal of premium boats and robust service capabilities. During the last several months, we have had a number of exciting announcements and developments. First, we executed the soft launch of BoatsForSale.com, our all-inclusive virtual platform to buy/sell and compare boats that provides easy access to financing and insurance offerings. Anthony will talk more about this in his remarks, but suffice to say while a small part of our business today, we see this platform as having a potential to be a big opportunity for us. Further, we…

Thanks, Austin. Customer enthusiasm is at an all-time high. The incredible customer demand for boats across all categories continues to drive sales with our technology investments supporting tremendous lead generation. Our sales team have remained agile by utilizing our state-of-the-art operational dashboards, supporting further outperformance within the industry. We are focused on providing an exceptional selling experience to keep the veteran and new foundational layer of boaters enthusiastic about the boating lifestyle, and the OneWater family of dealerships for years to come. Inventories remain at historically low levels as supply chain continues to be pressured. Our inventory planning tools, our strong OEM relations, has given us confidence that we will have sufficient inventory to meet demand throughout the prime selling season, although we recognize it will be a challenge. We are in constant communication with our manufacturers and barring any further supply chain disruption, we are expecting a strong finish to the year. As Austin mentioned during the second quarter, we launched BoatsForSale.com. Along with the acquisition of the domain in August of 2020, we aggressively developed a new consumer, seller-focused marketplace that serves as an extension of our store footprint, including new, pre-owned boats, and finance and insurance services. Nearly 1 million boats are sold per year person to person and we believe this platform will completely change the way people sell their boats. Utilizing the site, sellers across the country can list their boats for sale and immediately increase the reach of potential buyers. In turn, buyers can search the listed boats, adding or removing parameters for the boat they desire and even receive what we call a boatification or a notification when a boat is listed that meets their exact parameters. Importantly, the site also enables us to build our pre-owned boat inventory by bidding on a listed boat and offering the seller a cash offer. While in its early days since the launch, we are very encouraged by the growth opportunities that can be created through this innovative marketplace, including our ability to broaden our customer and geographic reach. As Austin mentioned, the platform is a small piece of the business today, but we believe it will create an additional avenue for growth for OneWater. Near term, our goal is to have over 15,000 boats on the platform by the end of this fiscal year. Therefore, would expect to see a modest incremental revenue-generating starting in fiscal 2022. I will now turn the call over to Jack, who will talk more about the financials in detail.

Thanks, Anthony. Second quarter total revenue increased 74% to $329.6 million in 2021 from $190 million in 2020, fueled by the increase in same-store sales of 57%. This increase was primarily driven by new unit sales and an increase in the average selling price of new boats sold and to a lesser extent, an increase in the average price of pre-owned boats sold. New boat sales grew at 81% to $239.7 million in the fiscal second quarter of 2021 and pre-owned boat sales increased 47% to $56.1 million. Finance and insurance revenue increased 46% to $11.8 million in the second quarter of 2021. And revenue from service, parts and other sales increased 101% to $22.1 million compared to the prior year. Gross profit nearly doubled to $88.8 million in the second quarter compared to $44.6 million in the prior year, driven by the increase in margin on new and pre-owned sales, a shift in the model mix and size of the boat models sold as well as an increase in the average unit price. Additionally, higher finance and insurance, service and other sales contributed significantly to the increase in gross profit. Gross profit as a percentage of sales increased 340 basis points to 26.9% compared to 23.5% in the prior year. While selling, general and administrative expenses increased to $48.3 million from $32.4 million, SG&A as a percentage of sales decreased to 14.7% from 17% in the prior year. The decline in SG&A as a percent of sales was primarily driven by the increase in sales across the businesses and the reduction of expenses, including the cancellation of certain boat shows. Operating income rose sharply to $38.7 million from $8.5 million in the prior year, driven by the higher sales and expanded gross profit, partially offset by higher SG&A. As…

[Operator Instructions] Our first question comes from Brett Andress with KeyBanc Capital Markets.

I wanted to ask about the Sunseeker agreement. Just any more details you can share around exactly how the management part of that works? I mean, is the plan to eventually be the only Sunseeker dealer in the U.S.? And then separately, I mean, how do the economics of that agreement flow also?

Yes. So we're the U.S. distributors, so all the boats coming into the United States will run through OneWater. I don't see us in the near or midterm future being the only Sunseeker dealer. There's a couple of other guys out there that do a really good job. We're kind of still putting it all together. One of the things that we're excited about is being able to consolidate and show them at Roscioli because we have the space to do that and kind of having a base for U.S. operations. So a customer that's really interested could come down and see them all. But we don't really have any stores in the Midwest that might be interested in this. Of course, there's a great dealer out on the West Coast. So we'll be looking for some sub-dealers, but it just gives us a little bit more control when what comes in. I don't really want to get into how it was set up prior to us doing this, but it was a little bit of a wild, wild west. I mean, boats were coming from all over the place. So it just gives a little bit more professional setup in the United States for how the boats come through and flow. And then, of course, we'll be responsible for the U.S. marketing and oversee boat show displays, print marketing if we choose to do that, customer events and all that stuff. So that comes with an expense. So because of that, there is a percentage that comes to OneWater off of every boat. But it's a good deal, just because it really gives the ability to have a complete plan put together for the country and we can find some really good dealers that we think will be additive to where we already are, where we have no intention to go in anytime soon. So it's a good overall deal and we're excited.

Got it. Okay. Makes sense. And then Austin, just more of a high-level industry question. But as you look at the broader industry and the dealers that you compete with in your markets, I mean how does their inventory situation look right now compared to yours? I mean, I have to imagine that there will be some pain out there among the smaller dealers, the selling season. And I just wonder if that was one of the drivers behind taking that M&A target up to four to six a year.

No. I don't think that was the change in the M&A strategy. I think -- and I spoke to it on the last earnings call. One of our Achilles heels on the acquisition front has been integration. And it's not been integration on our side. It's getting CDK lined up for the training and moving everything over. If you go and do a deal and they're on the same software, it's a pretty easy move over. But if they're on DockMaster or Control4, one of the other softwares, getting all that information inputted and mapped correctly, and then getting the acquisition, their employees up to speed on CDK, it's just been a little bit of a slow heel because we have to plan so far out, so we would have these deal slots. Well, we kind of said, this is great, but it's not working exactly the way we want it. So the last couple of deals, we've kind of done all that on our own. We still use them, still have them helping us with integration, but we've gotten to the point where we've taken that issue and basically eliminated it because we're doing it in-house now. So that gives us the confidence and the ability to probably increase this -- our cadence on this of one or two deals a year. Plus, the other thing was we always said we wanted to do it with free cash flow. And the free cash flow is a lot better than it was three years ago or two years ago. So there's just a combination. I think from an inventory perspective, I think the next couple of quarters for all of us are going to be challenging. And I think that where we really can shine on that is just the amount of information into forecasting and understanding what's coming, when it's coming. When you deal with a single off mom and pop, I mean they're working themselves to the bone. I mean they're out there taking care of customers, fixing problems. They don't have the time to sit in their office and be calling every manufacturer they represent every other day to go, "Okay, where is this boat, where is that boat?" It's kind of more of a -- when the customer is screaming or yelling at them, "Where's my boat?" That's when they kind of follow-up. So I think our digital tools and being able to forecast what we need, know where it's going, is probably the one thing that is going to help us on the inventory yield, but that really doesn't have anything to do with the acquisition cadence increasing.

Our next question comes from Drew Crum with Stifel.

So a lot of moving pieces in the gross margin improvement during the quarter. Can you rank order the importance of the various drivers and those that you see as sustainable going forward? And then separately, you mentioned the ASP being up for both new and pre-owned boats. With inflation and the creation expansion of the Yacht Group, how do you see ASP for your boats trending going forward? Is that likely to accelerate or should we see it rise more in line with the industry?

Yes. So on the first question, I would say that new boat sales, because it's such a large portion of revenue, that increase in margin probably had the greatest impact on overall margin. But we're equally as excited to see improvements in sales of our non-boat business because we obviously feel like that's a lot more sustainable for the long term. And the increase in parts and service, with revenue being up 100%, part of that's driven by Roscioli's addition to the results. But that gives us good sustainable recurring revenue streams. As far as mix shift, mix shift will always put -- make margin and projecting margins a little bit of a challenge. Even with Tom George and Walker Marine, the two acquisitions we did in December, we saw a little bit of a mix shift to some larger boats, which larger boats typically have a lower gross margin percentage. We feel like there's a lot that we're doing within the OneWater Yacht Group that can help us improve overall yacht margins. But as that mix shifts and as you have large boats come through, it will put some pressure on the margin percentage. I hope that helps answer the question. Yes.

Yes. And then just to follow-up on the question on ASP, just your expectations going forward.

Yes, ASP, there are -- as we project and model, right, we look for -- we put out a same-store sales number. We look to get probably half of it from unit growth, half of it from ASP growth. And so I think that's how we're looking at things and modeling things internally.

Our next question comes from Joe Altobello with Raymond James.

A couple of questions. I guess, first on inventory, and I know it's hard to quibble with a 57% comp here. But do you guys feel like you lost any sales because of a lack of inventory in the quarter?

No, sir.Not at all.

Okay. I mean, obviously.

We're outpacing the industry pretty heavily. So I don't -- we've been in contact and utilizing all the tools that we have to ensure that we have boats available.

I think it's important, Joe, to also remember, as Austin kind of alluded to earlier, when you're up against a mom-and-pop dealer, they maybe have, let's say, 20 orders with the manufacturer. We maybe have 200 orders with that same manufacturer. And so with our digital tools, having the insight on those 200 orders and our ability to shift it from one location to the other to get it to where the customer want it is tremendous.

That's helpful. I guess in terms of seasonality, Q2 is typically a quarter where you build inventory. Q3 is typically a quarter where you draw down inventory. So it sounds like we're probably going to see that inventory number go even lower in the June quarter. So I'm curious, when do you expect to start growing inventory again? And maybe when do you think it normalizes?

Well, I would jump in, Joe. I'll let Anthony speak, but right after I say this. I would tell you if demand keeps at the pace it is, it's going to be a long time before we can really start building on inventory. Door swings, lean volume, all that stuff continues to be very, very strong. And the manufacturers, they just don't like flip a switch and -- in the month of June, they're going to produce 10% or 15% more boats. It's a slow ramp-up for them to get to where they're doing 1% or 2% more and it kind of starts to compound over time. So it's a great dynamic in my opinion and Anthony will have a better gauge on this. But from my opinion, it's a great dynamic to be for selling the boats out that are coming in two weeks from now, four weeks from now, six weeks from now, and we're not carrying inventory because inventory cost is way down. Anthony?

Yes. I would say that we probably, pre-pandemic, probably were carrying too much inventory. So to get back to those levels, the more we utilize our tools that we have, we want to continue to increase our turns. When the inventory is going to get back to normal, I don't think I -- what is normal, it would be a question. So I would say we're a year or so away from having lots full of inventory. But our goal is always to continue to order the right boats and have timely things done with lower interest recurring costs and everything else like that. So it's going to be over a year, I think, before we'll have normalized -- whatever the new normal is of inventory.

Got it. Okay. Just one last one for me. In terms of product quality, with OEMs struggling to get those out the door, are you seeing product quality slip at all? Or are you seeing customers coming back and asking for rework, et cetera?

I wouldn't say that we're seeing poor quality. It's -- we've always been the last piece of the build, if you will, with our rigging finished, assembling the boats and all that kind of stuff. So I don't see the quality of the boats going backwards or anything like that, no.

I think it's more of a challenge of them getting it complete than quality issue. It's not like they're building a worse boat today than they were 18 months ago, 36 months ago. It's that they got a boat that's completely finished and it's missing one sea cushion or it's missing this one thing on it, and it's just going to sit up there for a month. So that one thing comes, it doesn't enter the boat, I mean like porta potty's. I mean, a customer, if you really go, "Hey, look, we can get you your boat next week, but it's not going to have the porta potty in it. " They're like, "I don't care, I want a boat." So I agree with Anthony. I think it's more of a -- they're struggling more with getting the boats complete versus a quality issue.

Our next question comes from Mike Swartz with Truist Securities.

Sorry if I missed this in your prepared comments, but maybe Jack or Austin, any color on the trends you're seeing thus far in your fiscal third quarter, so April, maybe your comparable store sales or backlog or any metrics you can provide?

Yes. I would say -- go ahead, Austin.

I was just going to say, Mike, that will get me in trouble, so I'll let Jack talk about that one.

Yes. I mean, obviously, we're up against a really big comp for the quarter and the back half of the year. I think if you look at our same-store guide, it's projecting low single-digit comps in the back half. And we continue to have, as Austin mentioned, good retail demand. Customer interest is elevated. Leads coming in, door swings are all very positive. So we feel comfortable with that same-store sales increase for the back half of the year and just with the continued levels of demand just from what we've seen so far.

Okay. Great. And maybe just to add on to that, with guidance, I think you called out the $130 million to $135 million in EBITDA, which would basically imply that EBITDA dollars are flat in the back half of the year, but you're talking about comparable store growth and you've got some acquisitions here that seasonally speaking, should be pretty strong in the back half of your fiscal year. So what -- I guess, what are the offsets to get to that flat number?

Yes. I think I'd have to double-check my numbers, but I think the -- from consensus numbers, the back half is up double digits increase at that.

Yes, those numbers are correct.

Yes.

That's fair. It's probably just versus my numbers then. Okay. And then, Mike, just -- go ahead.

No, I was just going to say I might give you the stock comp that I think you have in your numbers that we don't put in ours.

Right, right. No, that makes sense. And just final question for me. Just you're talking about the new Yacht Group that you're building out. And obviously, with Roscioli and Sunseeker, you're going to have a much bigger presence there. Are there any overhead costs or any investment costs to think about going into that business in the near term?

No, not anything. Not anything really out of the normal that's really going to make a big impact on our CapEx, because that was the whole thing. Roscioli was a turnkey. So Anthony, correct me if I'm wrong, but most of the additional costs that we're going to have getting into this would be put on the boat anyway.

Correct.

Yes.

Yes, I think it goes back to what we originally said on Sunseeker is we expect to expand the profitability of the brand over time. With having some incremental SG&A type costs from a marketing perspective, but expect those to level off and absorb those costs with the increased sales.

Yes. And the other thing real quick, I mean, one of the beautiful things about Sunseeker is, I mean, they build an incredible boat, and it's globally sold. So it's not like they're fixing this into 32 of these things. I mean, they're going to trickle then. We don't expect to see a huge impact from this. It will incrementally increase over time as more boats are available when we presell those slots. I mean, if you come in today and want to -- Anthony, I mean, how long is it out on the 90? Does that mean, are we two years out, six months?

18 months. 18 months.

18 months. So I mean, it's not like all of a sudden, we're going to have all these boats tomorrow. And that's one of the things that intrigues us about it is we need a place for our customers to continue to move up in size. And this gets us one with the way we look at it with really a low inventory risk. We're not going to have $150 million of these things, $150 million worth of the stuff sitting on the ground on our floor plan. A lot of it will be pre-sold slots. We'll have some inventory come in. But I mean, we're going to share that out through hopefully an incredible dealer network that we're looking to build out across the whole United States.

Thank you. And there are no other questions in the queue. This concludes today's conference call. Thank you for participating. You may now disconnect.