Ladies and gentlemen, thank you for standing by, and welcome to the OneWater Marine, Inc. Fiscal First Quarter 2020 Earnings Conference Call. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Jack Ezzell, Chief Financial Officer. Please go ahead, sir.

Good morning, and welcome to the OneWater Marine Fiscal First Quarter 2020 Earnings Conference Call. I am joined on the call today by Austin Singleton, OneWater Chief Executive Officer; 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 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 on the company's website and in its Form S-1 and other filings with the SEC. The company disclaims any obligations 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. This conference call may also include discussion of non-GAAP financial measures. Please see the company's earnings release for a reconciliation to GAAP financial measures. Also, please note that any time-sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the transcript. And with that, I'd 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 us for our first fiscal quarter 2020 earnings call. Following the successful IPO earlier this month, we are thrilled to report a strong start to our fiscal year. Revenues for the fiscal first quarter of 2020 grew 49% to $154 million. Given this is our first quarter as a public company, let me provide a brief overview of OneWater Marine, including our history, competitive advantages and path forward. OneWater Marine is one of the largest and fastest-growing premium boat retailers in the United States, providing a wide variety of high-quality products and services at premium boat dealerships across the country. OneWater has a long track record of delivering profitable growth through organic and acquisitions. Today, we operate 63 stores across 21 dealership groups in 11 states, offering a diverse inventory of products and services in each of our dealerships. We have established strong partnerships with our manufacturers and maintain a portfolio of some of the most sought-after brands from more than 52 different manufacturers. OneWater maintains a strategic footprint in highly attractive premium boat markets. Eight of the 11 states that we operate in today are among the top 20 states for marine retail expenditures, and we are the top dealer in 12 out of the 17 markets. In fiscal year 2019, we sold roughly 8,500 new and pre-owned boats. I'm incredibly proud of the team we have brought together over the last 30 years, which is led by an experienced, proven management team with a track record of delivering strong results. Before I turn the call to Anthony to discuss our competitive advantages, I would like to quickly talk about our growth strategy to date and going forward. From an acquisition standpoint, we employ a disciplined and prudent approach to identifying top dealers in high-performing markets. We started with one dealership in 1987 and have grown to 63 locations today. Since 2014, we have successfully acquired 40 locations. The acquisitions generally maintain 1 to 3 stores, generating revenues between $20 million and $30 million and adjusted EBITDA of $1 million to $2 million. In any given year, we look to complete 2 to 4 of these acquisitions. That said, the size of these deals may vary, which would dictate whether we come in at the low or high end of that range. Once we bring a new dealership into the fold, we allow them to retain their name and logo, preserving each dealership's brand recognition and unique identity in their marketplace. These dealerships we acquire see positive increases to sales and EBITDA, with OneWater identifying and implementing improvements almost immediately. Post-acquisition, we focus on financing and insurance, introduce new brands and boat types, grow pre-owned boat sales, upgrade systems and optimize expenses. Supporting our acquisition strategy, our organic growth initiatives have delivered constant and sustainable growth. From an organic perspective, we remain focused on growing our existing offerings by deepening our relationships with current customers, leveraging investments in our sales and marketing infrastructure and using our brand strategy to continue to outperform the industry. We remain focused on strengthening our leadership position, implementing product and service improvements and diversifying our geographic footprint. And with that, I would like to turn it over to Anthony. Anthony?

Thank you, Austin. As you know, we operate in a highly fragmented industry. And I would like to touch on some of the key competitive advantages and what sets OneWater apart from others in the industry. First, we have a broad product portfolio with multiple revenue streams that are supported by our strategic footprint and growing presence within key boating markets. In addition to the sales of new and pre-owned boats, we have focused on growing our high-margin finance and insurance, parts and accessories and repair and maintenance services. Second, we have an attractive and flexible business model which has allowed us to achieve significant scale and deep penetration in core boating markets. Our diversification amongst premium brands and boat types allows us to adjust for shifting trends and developments in boating while maintaining long-term partnerships. That said, not one brand represents more than 10% of our sales, providing us the flexibility to adjust for shifting trends and any new developments to meet customers' demands across all markets. Third, we use technology in a way that others in the industry may not have the scale to develop or implement. For example, our custom CRM inventory management tools and offshore operational dashboard provide a significant advantage for our dealers. With technology as our backbone, we can collaborate and share best practices while at the same time driving our sales initiatives forward and maintaining a lean expense structure to enhance our overall profitability. We customize our inventory to local market demand, providing customers with a unique and more satisfying experience that is tailored to meet their needs. In addition, our growing product services extend the relationship through the cycle of their boating needs for long-term repeat customers. Finally, the most important aspect is our employee-first culture. Our team is like a family. As a result, we have very happy team members who are excited to work for a great company with a shared vision in a fantastic industry. This really sets the tone for superior customer experiences every day. Our team focuses on delivering unparalleled customer service which positions OneWater as the best choice for customers, whether they're buying a boat for the first time or they've been boating enthusiasts their entire lives. Our team is incredibly excited for the next chapter of growth for OneWater. Now let me turn the call over to Jack to take us through the financials. Jack?

Thanks, Anthony. During the first quarter, we have continued to demonstrate strong growth with revenue increasing 49% to $153.7 million in the fiscal first quarter of 2020 from $103.3 million in the first quarter of 2019. Same-store sales increased 17% from dealerships that have been in the base for 13 months or more. This strong increase in same-store sales was driven by increases in both units sold and price per unit. We saw increases in all boating categories, most significantly ski, wake and also runabouts, including forward-facing stern drives. Good weather and positive consumer sentiment drove a strong start to the 2020 boat show season. At most major shows so far this year, our sales exceeded our high single-digit expectations, which supports our confidence in the current macroeconomic environment. Growing sales across our non-boat segments remains a key focus area for the business, and we made meaningful strides this quarter. Finance and insurance sales increased 100% year-over-year to $4.3 million. Service, parts and other revenue were flat at $13.5 million. During the fiscal first quarter, we saw improvements in parts and accessories sales as customers continued to use their boats late into the year, given the unseasonably warm weather. However, this was offset by the closure and relocation of a service operation in Southeast Florida and a reduction in maintenance services. For the quarter, gross profits were up 38% to $32.2 million from $23.3 million in the prior year. Gross profit as a percentage of sales declined 170 basis points to 20.9% from 22.6% in the prior year. The decline in gross profit as a percentage of sales was due to a shift in the model mix of new and pre-owned boats sold, the margin profile of the recently acquired locations and our emphasis on generating same-store sales during the period. Selling, general and administrative expenses increased to $28.4 million from $21.6 million, and SG&A as a percentage of sales declined 240 basis points to 18.5% from 20.9% in the prior year. The decline in SG&A as a percentage of sales was a result of the leverage we achieved on our same-store sales increase. Operating income increased 176% to $3 million, and adjusted EBITDA rose to $1.1 million from a loss in the prior year, both in our slowest seasonal quarter of the year. Net loss for the first fiscal quarter of 2020 totaled $1.1 million compared to net income of $2.5 million in the fiscal first quarter of 2019. This decrease is primarily due to a $3.9 million reduction in the income related to the noncash change in the fair value of the warrant liability. It is important to note that per share amounts in the fiscal first quarter do not reflect the IPO stock issuance, the stock split, exercise of the warrants and redemption of the preferred stock. These amounts won't be reflected in our fiscal second quarter ended March 31, 2020. Now turning to the balance sheet. At December 31, we ended the quarter with $10.5 million of cash and $313.8 million of inventory. This increase in inventory and related floor plan notes payable is primarily the result of the acquisitions that were completed last year and inventory levels to support our same-store sales growth. With that said, at December 31, we had an excess of $49 million worth of equity in inventory. We remain keenly focused on proactively managing our inventory levels and keeping them in line with current sales trends. We are very comfortable with our current inventory levels as we enter the spring selling season. PP&E decreased year-over-year as a result of the sale-leaseback transaction we completed in September of 2019, partially offset by routine maintenance capital expenditures and the purchase of a retail dealership in Alabama in December 2019. Identifiable tangible assets and goodwill increased as a result of the acquisitions we completed in 2019. As mentioned before, the long-term warrant liability fluctuates at fair value until it was converted into common equity at the IPO. Long-term debt increased related to the 2019 acquisitions that were completed. With the IPO, the term loan facility was expanded and used in conjunction with the proceeds from the IPO to fully redeem the preferred interest in our subsidiary. Post-IPO, the balance of the term loan facility was $100 million and our trailing net debt to adjusted EBITDA leverage ratio was 2.3x. Turning to guidance. For fiscal year 2020, we expect same-store sales growth of low double digits. We also expect adjusted EBITDA to be in the range of $56 million to $58 million. This concludes our prepared remarks. Operator, would you please open the line for questions.

Our first question comes from Joe Altobello from Raymond James.

First, congratulations on getting out there. I guess wanted to get your sense for the overall U.S. market outlook for 2020. We're coming off a year in 2019 that was fairly choppy, particularly in the first half of the year, things seem to stabilize in the second half. So I know it's early, but how do you guys see the overall boat market playing out in 2020?

This is Anthony. We usually get a good sense of the market starting with our boat shows, and so far, all but maybe one or two have surpassed our expectations for the year. I believe this is a strong indication that we are on track for a fantastic year.

So Joe, one other thing I would like to add is that we monitor our lead generation and the flow coming in through our software, and that has remained robust. It is maintaining a healthy pace like it has in the past, so we're not seeing any slowdown there. Following the boat shows and considering the demand from a lead generation standpoint, we feel very confident about this upcoming year.

Great. That's helpful. Just kind of pivoting a little bit to gross margin, maybe a question for Jack, a little bit more color on the gross margin pressure you saw in the quarter. How much of that was mix and how much of that was acquisitions? And it sounded like some of that was on the promotion side as well. You mentioned that you tried to drive same-store sales. So if you could kind of parse out the three pieces effectively that drove down the gross margin in the quarter.

Yes. To remind everyone, last year we completed the acquisition of Ocean Blue Yacht Sales, Caribee, and Central Marine, all of which are Florida-based saltwater dealers. These dealers typically have a higher average selling price but a lower margin profile, which contributed to the decline. We entered the boat show season with some promotions in place. While I wouldn't say they were significantly different from the previous year, we aimed to have strong promotions to drive sales and manage our inventory effectively.

Our next question comes from Craig Kennison from Baird.

Wanted to ask about the implications of a stock market correction on demand. I'm sure you've seen this in the past, but how does your consumer respond to what has been a pretty severe correction?

Yes. I would say, historically, a lot of it has to do with what's driving the corrections. In the past, we certainly can roll through various cycles and have absolutely no impact on the business. I think this one kind of remains to be seen. I think we're a little early in the news and some of the impacts here recently to fully understand the length of the downturn and how that impacts us. But it's not like customers are saying, 'Oh, the stock market is down. I'm not going to buy a boat.' I think it's a broader picture than that, that would curb their purchase cycle.

That's great. And then for those of us who are sort of new to your story on the call here, inventory is always a big question. You seem to manage it well. Could you talk about the discipline you've got in terms of managing inventory, how you work with OEMs and how you may differentiate yourself relative to peers who can struggle with inventory management?

Sure. I mean I can probably take a stab at that. We're looking at our inventory on a biweekly basis, by model, by brand, by store. And we're able to shift our inventories with our relationships with our manufacturers to make sure we have the right inventory in the right place at all times. It's probably one of the key things that sets us apart from everybody else that we have the inventory that the market needs instead of all the inventory, if that makes sense.

I would also add, Craig, that this process of inventory starts at the beginning of the model year where we're working with manufacturers on our orders for the year. We help a lot of dealers. Just from our scale, we're able to see across multiple markets what types of boats sell, what options sell best and use that information for our recently acquired dealers, where some mom-and-pop dealers will go into a dealer meeting and just buy every model that a particular manufacturer sells. We try to help focus them on the models that sell in their market and auction them appropriately and then work with the manufacturers to bring those boats in at the right time. And that just level of sophistication and the tools we have to support that analysis is just something that most dealers do not have the scale or resources to put that information together.

And then lastly, for the benefit of those who are new to your story, F&I is seemingly a big part of it, a big source of profit. Could you talk about what services are included in F&I? What your penetration looks like in general? And then what opportunities you might have to expand those services over time?

Well, the services, besides the finance side, we're still offering extended warranties and some ceramic coating on the outside of the boats and some interior protection of the products that we sell. And as far as our current penetration, our current penetration is right around 50%. We believe that about 95% of the customers actually finance their boats, just only 50% with us. The rest of the 5% are truly paying cash; the rest are borrowing off their HELOC or their own stock account or what have you. So it's just putting a focus with our team and changing the way that they approach the sales process to bring the financing up earlier in the process. And our goal, I guess you could say, is we'd like to get our percentages up to about 70%.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Austin Singleton for any further remarks.

Well, I'd like to thank all of you for participating in our first quarter 2020 earnings conference call. We welcome new shareholders to the OneWater family and we look forward to speaking with you in the future. This is an exciting time for the OneWater family, and I'm proud to lead us into the next chapter of our story. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.