This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the One Water Marine, Inc. Fiscal First Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star then 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your host today, Jack Ezell, Chief Financial Officer. Please go ahead.
Jack Ezell
Good morning, and welcome to the One Water Marine Fiscal First Quarter 2021 Earnings Conference Call. I'm 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 One Water 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 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 of the company's website, and in his filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. And with that, I'd like to turn the call over to Austin Singleton, who will begin with a few opening remarks.
Austin Singleton
Austin? Thanks, Jack, and thank you, everyone, for joining today's call. We delivered tremendous results in the first quarter of 2021, including a 39% increase in revenue compared to the prior year. Expanded gross margins and significantly increased earnings. Same-source sales increased 38% in the quarter, on top of a 17% increase in the prior year and a 25% increase last quarter. Leveraging our efficient sales process, innovative digital platform, and key relationships with our manufacturers, we realized growth across all market segments. Year over year, new boat sales increased 48%, while pre-owned boat sales grew 18%. Our high margin finance and insurance income also saw strong growth of 38%, and service parts and other revenue rose 32% compared to the prior year. Overall gross margins surged 360 basis points with margin increases across all categories. The tremendous growth during the quarter can be attributed to our ongoing investment in our highly effective digital platform, CRM, and innovative sales process. Additionally, the combination of our inventory management systems and dynamic pricing strategy continue to lay the foundation for future outperformance. On the M&A front, we had a very busy start to the fiscal year, completing three of the largest acquisitions in OneWater's history and putting more than $80 million to work for our shareholders. As we have successfully done many times in the past, we are laser focused on implementing our tried and tested integration playbook. This translates into increasing sales and EBITDA. Let me briefly recap these new dealerships. Tom George Yacht Group enhances our presence on the west coast of Florida and expands new and pre-owned boat sales, as well as yacht brokerage and service and parts. Walker Marine Group marks the largest dealership acquisition in our company's history, adding five retail locations in southwest Florida to serve its established and growing customer base with new and pre-owned boat sales, quality service and parts, as well as finance and insurance services. And lastly, but certainly not least, Rossioli Yachting Center expanded the company's presence in the yachting category, supporting our diversification strategy, including higher margin service and repair offerings. We have completed three acquisitions in line with our expectations of doing two to four deals per year. Since the pandemic hit the U.S. last March, we have kept our M&A pipeline full and remain opportunistic. We were fortunate to be able to front load these acquisitions, which we expect to have a significant impact on our physical 2021 results and long into the future. As we continue to execute on our long-term growth strategy, we are confident that through the integration of our recent M&A activity, continued investment in our innovative digital technology, and the evolution of our higher margin business segments, We will further drive market share growth and sustain a meaningful value for our shareholders. With that, I will turn it over to Anthony to discuss business operations.
Austin
Thanks, Austin. The agility of our sales and marketing teams drove higher than normal sales for the first quarter. Our team hosted several smaller VIP events at our stores where customers were able to have a more intimate interaction with the product and sales team in the absence of of organized boat shows. At these events, we showcase the incredible new and exciting models introduced by several of our key manufacturer partners. The new models launch in multiple categories, including saltwater fishing, ski and wake boats, runabouts, and pontoon boats. All of these new models have innovative design and capabilities, and they were all well received by our customers. We also used the absence of boat shows to our advantage by focusing on selling boats locally. Instead of preparing for and attending multiple shows across the country, this resulted in significantly higher sales in what is seasonally the lowest quarter of our fiscal year. We continue to lean on our strong relationships with manufacturing partners and our nationwide inventory to ensure we have the boats that our customers want. We do expect inventory to build slowly, through 2021 with the expectation that it should start to normalize in early 2022. Our inventory management system and operational dashboards continue to give us great visibility into the business and inventory, including boats on order or in production. With inventory tight across the industry, OneWater has a significant competitive advantage. as our digital tools provide our sales team with the intelligence on exactly what inventory is available or coming available and where the inventory is located. This allows us to engage with our customers and pre-sell boats that are inbound to any of our locations. Additionally, the lower inventory levels and higher turns result in a reduction of floor plan interest, inventory maintenance, and general carrying costs. While sales in January remained elevated, we continue to lever our state-of-the-art digital platform to provide intelligence on how the changing dynamics are impacting the seasonality of boat sales. We will use this intelligence to help drive strategy moving forward while continuously improving and outperforming for the benefit of all our shareholders. I will now turn the call over to Jack, who will talk about the financials in more detail.
Jack Ezell
Thanks, Anthony. We delivered exceptional results in the first quarter, with total revenue increasing 39% to $214.1 million in 2021 from $153.7 million in 2020. This generated an increase in same-store sales of 38%, which was primarily driven by an increase in new unit sales, as well as a modest increase in the average unit price of new and pre-owned boats sold. We continue to see increased demand even during the off-season, from previous boaters returning to the water. New boat sales grew 48% to $151.8 million in the fiscal first quarter of 2021, and pre-owned boat sales increased 17% to 38.6%. We remain focused on growing all aspects of the business to further outperform the industry and seize additional market share as we move further into the year. Finance and insurance revenue increased 38% to $6 million in the first quarter of 2021, and revenue from service parts and other sales increased 32% to $17.7 million compared to the prior year. Gross profit increased 63% to $52.4 million in the first quarter compared to $32.2 million in the prior year, driven by the increase in margin on new and pre-owned sales, a shift in the model mix in the size of both sold and the higher average unit price. Additionally, higher finance and insurance, service parts and other sales contributed meaningfully to the increased gross profit. Gross profit as a percentage of sales increased 360 basis points to 24.5% compared to 20.9% in the prior year. With the increase in sales in the first quarter of 2021, selling general administrative expenses increased to $34.9 million from $28.3 million. However, SG&A as a percentage of sales declined 210 basis points to 16.3% from 18.4% in the prior year. The decline in SG&A as a percentage of sales was driven by our ability to leverage our existing expense structure to support the increase in revenue and reduction in selling expenses, including boat shows, partially offset by event-based marketing and increased public company expenses. Operating income surged to $16.1 million from $2.7 million in the prior year, driven by the higher sales, expanding gross profit, and SG&A, as previously mentioned. And as a result, adjusted EBITDA rose to $16.7 million compared to $1.2 million in the prior year. Net income totaled $11.8 million, or 71 cents per diluted share in the first fiscal quarter of 2021, compared to a net loss of 1.1 million in the prior year. The increase is primarily due to the operating performance of the company. Turning to the acquisitions we completed during the quarter, the combined $83.9 million purchase price included the real estate associated with Rossula Yachting Center and was funded by 47.6 million of cash $30 million from the company's revolving line of credit, $2.1 million in a seller note payable, and $4.2 million in estimated continued consideration. Subsequent to the quarter end, the company expanded its term loan credit facility by $30 million and used the proceeds to pay off the revolving line of credit that was utilized to fund these recent acquisitions. This expansion provides the company with $30 million of future liquidity and in addition to $26 million of cash on the balance sheet as of December 31, 2020, and additional availability under the company's floor plan facility. Total inventory at December 31, 2020 was $196 million compared to $313.8 million in December 31, 2019. This substantial decrease was primarily due to the sales increase we achieved last year combined with the manufacturing delays as a result of the COVID-19 pandemic. As a result of improving manufacturing environment and seasonality, inventory was up 46 million, or 30%, sequentially from the quarter ended September 30th, 2020. We continue to prioritize normalizing the supply chain by utilizing our key relationships with manufacturers and leveraging our competitive advantage stemming from our industry-leading inventory management technology. As Austin mentioned, our M&A pipeline remains robust even after completing three acquisitions in December. We are excited to be back on our regular pre-IPO cadence of transactions and are focused on integrating these phenomenal businesses into the OneWater family. Looking ahead for the full fiscal year 2021, we continue to expect same-source sales to be up approximately mid-single digits. The three acquisitions that closed in the first quarter of 2021 will contribute significantly to the full year results, and we now anticipate adjusted EBITDA to be in the range of $95 to $100 million and diluted earnings per share to be in the range of $4 to $4.20, excluding any additional acquisitions that might be completed during the year. This concludes our prepared remarks. Operator, please open the line for questions.
Operator
Thank you. As a reminder, to ask a question, you will need to press star then 1 on your telephone. To withdraw your question, please press the pound key. Our first question comes from the line of Craig Kennison with Baird. Your line is now open.
Craig Kennison
Hey, good morning. Thanks for taking my questions. Jack, you just mentioned your guidance. In the first quarter, same-store sales was up 38%. You're going to face some really Challenging comps in the second half. I'm just wondering if you see any quarters where you might have like a negative same-store sales rate in order still to get to that mid-single-digit rate of growth for the full year. I mean, you're starting off on such a high note. I'm wondering how you feel the rest of the year will unfold.
Jack Ezell
Yeah, I mean, we've spoken many times about the June quarter and the 44% comp that we have to go on top of. I wouldn't say I'm forecasting to be negative in the June quarter, but that's probably more a flat quarter compared to being up significantly this quarter. And just also, right, you've got to remember this quarter is the smallest quarter of the year. I suspect next quarter, if business continues, we should have nice comps, right? We're up against a negative 2% comp last year. And so, you know, the comp in the March quarter is certainly easier for us to comp. But I think when you roll out the numbers and if you have good comps in the first half and then, you know, some lower comps in the back half, I think you get to that mid-single digits without, you know, any quarter going negative.
Craig Kennison
Oh, that's helpful. Thank you. And then just as it relates to the acquisitions, can you confirm that all of the acquisitions were paid for in fiscal Q1, or was there any cash outlay in Q2?
Jack Ezell
Yeah, no, it was all in Q1. It was December. Tom George closed on the 1st of December, and then Rossioli and Walker Marine both closed on December 31st. And so all the cash was out as of December 31st.
Craig Kennison
Got it. And then, Austin, you're integrating three deals now. Could you just remind us all of what your integration process is? What do you like to achieve in the first, let's say, 100 days of an integration? And then how stretched is your team today, given you've got three integrations ongoing, such that you probably need to wait until those are integrated before you move on to the next? consolidation target?
Austin Singleton
Well, I mean, you know, Tom George Jotts was done on December 1, so, you know, it was fully integrated on December 1 as far as, you know, the system and all that stuff. So, you know, continuing on with Tom George, now it's just starting to get the processes of, you know, the CRM process, you know, F&I, you know, start ramping up the synergies and the things that we can bring to the table. So that one's in really good shape. So we don't really have three ongoing right now. We really only have Walker, because Rossioli's is more of a boatyard service storage area. So it's on a different system right now. We will be bringing that over to our current platform. But it's done a little bit different, so there's some tweaking we have to do to that, just because it's a different animal. So, you know, we're not having any, you know, our team is stretched. They're always stretched because there's always improvements we can do, not only with acquisitions, but our internal business that these people also work in when they're not integrating. So, you know, we're in a pretty good spot. I mean, Jack probably can expand on that a little bit more if you want some more, Craig, but it's, you know, we're in a good spot.
Jack Ezell
Yeah, one thing I'd point out often is we are in a seasonally slower time, so some of our admin staff and service and parts staff who often are heavily involved with integrating acquisitions, they do have the time right now to assist with these transitions. I just would also point out that both Tom George and Walkers, they were on our ERP system of Lightspeed, and so the transition for them is a bit easier because we're not training them on how to use the system, we're just converting over their system. Rossioli's a little bit different like Austin mentioned. But, you know, fortunately with them, they are more higher dollar, lower volume type transactions, right? People aren't necessarily coming in for a $200 oil change, you know, at that facility. They're coming in for a, you know, $200,000 paint job. And so, you know, building back up that service process, you know, just doesn't have the volume maybe of a traditional dealership. But the team's actively working on it. And, you know, you know, we will have them all integrated on our system here in very short order.
Craig Kennison
Great. I'll get back in the queue. Thanks.
Operator
Thank you. Our next question comes from the line of Joe Altavello with Raymond James. Your line is now open.
Joe Altavello
Great. Hey, guys. Good morning. Just wanted to circle back on the EBITDA guidance for a second. So your prior guidance was up low to mid single digits off of last year's $83 million. Since then, you've done, as you mentioned, three acquisitions. So could you break out for us the outlook for the base business? Is it still low to mid singles growth this year? And what's the incremental impact from those acquisitions?
Jack Ezell
Yeah, I think as of this point, it's probably leaning more towards the higher side of that low to mid. The December quarter is such a small quarter in the full year. And we've done, I think the team has done a great job of organizing events to supplement the absence of boat shows. And so I think there's just a little more question as to the seasonality. Is the seasonality of the year going to be altered because of the lack of boat shows and the events that we're having? And so I think we're keeping the base business because you know, we do have such a big year to comp, you know, just trying to be conservative and keep the base businesses to the reasonable amount of growth and not necessarily just rolling Q1 performance on top of prior projections.
Joe Altavello
Got it. Okay, that's helpful. And just you mentioned the lack of boat shows this year, and it was obviously very helpful in terms of the cadence for comps, but I'm curious how you think about You know, the impact of boat shows or lack thereof in terms of March versus June quarter. Could there be sales that typically occur in the March quarter at boat shows that slip into June? And maybe secondly, you guys spend a fair amount of money on those boat shows. Where does that money go? Does it go towards digital marketing? Does it drop to the bottom line, a mix of the two? Thank you.
Austin Singleton
I want to jump in a little bit right there. Joe, thanks for the question. The boat shows, I've said it many a times, I'm not a big fan of them. It's the second biggest expense on our P&L. When you go to a boat show, you kind of level the playing field for subpar dealers. That's their only shot at the year. We're still learning a little bit about how the effect of the boat shows is going to impact our total year. We had a great quarter. One thing I'd point out is You know, we spend a good part in a normal year. We spend a good part of the last part of October, pretty much all of November and the first two weeks of December preparing for boat shows. I mean, that's not just Anthony preparing. That is the whole entire team. It's training. You know, it's just a lot goes into it. And then you come out of that, and then the first part of January is you hit the ground running and it's boat show after boat show, hotel, late nights, you know, it's just very taxing on our team. And I think this year Anthony, you know, came up with this plan to do these events and market digitally. And so we spent this first quarter selling. And, you know, instead of preparing for boat shows, we were selling deals. And I think it's, you know, we need to understand the impact of that. as we move forward into the year. I will tell you that January is off to a good start. We're feeling really good about the year. But we're, like Jack just said, we're in the lower part of the year, and it's going to continue to build, we hope. But we just don't know what we've done by selling in Q1 versus preparing has done. And we just need a little bit more time to understand that. But things are definitely going in the right direction.
Joe Altavello
Got it. And if I could just follow up on that, Austin, you mentioned January was looking good. If you wanted to add any color, I mean, are comps kind of in line with what you saw in Q1 or any slowdown at all?
Austin Singleton
Well, I mean, you know, I would just tell you that the leads are, you know, we keep waiting for that day where leads start to slow down. Jack, you can expand on it a little bit more probably than I can on the, you know, but it's definitely, go ahead.
Jack Ezell
No, I'm just going to say if you rewind back in time, I think back around the pandemic timing when things first kind of shut down, if you recall, January and February last year were very strong months, and then it really was just the last two weeks of March that things kind of fell off and really shut down the quarter. So we're up against some double-digit comps. And I would tell you, we haven't gone through and done an analysis, and we're still working on closing the books. But I would tell you that comps are certainly double digits, you know, so far through January. Perfect.
Joe Altavello
Thank you, guys.
Operator
Thank you. As a reminder, to ask a question, you will need to press star, then one on your telephone. Our next question comes from the line of Mike Swartz with Truist Securities. Your line is now open.
Mike Swartz
Hey, guys. Good morning. A couple questions here. I think in the press release you said that the combined benefit from the three acquisitions you made is about $125 million in annualized revenue. I think that's on a 12-trailing month basis. Maybe give us a sense of what that looks like in fiscal year 21. Are you assuming that kind of grows in that mid-single-digit range that you're calling out for the underlying or the core business?
Jack Ezell
Yeah, I would tell you that is on a full-year basis, and we'll be looking at probably something around that $100 million mark for the contribution this year. Okay.
Mike Swartz
Right, because some of it I assume would fall into fiscal year 22 as well. Correct. Okay. Okay. That makes sense. And then just on the noticing that used boats or pre-owned boats grew about 17% in the quarter while everything else grew 30%, 40% year over year, any commentary there on just the availability of pre-owned product and maybe what you're doing to gain access to inventory there?
Austin Singleton
Yeah, I think that's really, Anthony, I was just going to say that's really for you.
Austin
Yeah, it's something like that we focus on daily with, you know, we employ employees that are buyers and buyers only. That's all our job is to do is to buy boats. So it is a challenging part to continue to get inventory, but I think we're still doing a great job at getting it, you know. It's not keeping up with the new growth just because of, You know, the amount of innovations that our manufacturers that we're tied to are coming up with is just really driving some great growth for us. But used is something we concentrate on every day.
Jack Ezell
Yep. I think the other thing I'd point out, too, just a little bit behind the numbers, is we saw a significant increase in brokerage sales. And as you said, brokerage sales are revenue. So you don't necessarily see the revenue dollars pick up quite as much as you would if it was an actual used unit.
Mike Swartz
Gotcha. That makes sense. Thanks for that. And then maybe a final question for Austin. Maybe just talk about how the standalone service centers are contributing and maybe how to think about that business over the next 12 months.
Austin Singleton
Right there again. That's an Anthony question, but, I mean, you can see in the numbers. We saw a good increase in parts and service, and, you know, obviously some of that is connected to that. Anthony, I mean, do you have any, like, more day-to-day operational comments?
Austin
You know, it just continues to be an opportunity for us in the parts and service world. As we spoke last quarter, we've opened three service-only facilities in looking to open more. There's a tremendous demand for that at this point. Okay, great. Thanks a lot.
Operator
Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Disclaimer