Q2 2020 Earnings Call
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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 million wide gross margin expanded 150 basis points year over year.
Same store sales through mid March outpaced the prior year by over 10% before slowly in in the last two weeks of the quarter as the impacted the Corona.
19, global pandemic began to materialize.
Over the last month and a half we really showcase the strength of our organization.
As the coded 19 pandemic spread quickly across the U.S. the economy came to a virtual standstill.
Oh <unk> in a level of uncertainty never experience in the industry.
And while the ultimate impact of the macro economic environment is not yet no immediately took action is to protect the health and safety of our team members.
At the same time, we implemented are 2008 playbook to ensure we remained nimble which included reducing costs securing liquidity and mitigating the possible impact of a pro long period of lower demand.
Moving forward into the back half of our year. There are still significant questions around consumer demand credit availability and to continue to impact on our dealership by state and local shelter in place orders.
As such we tap all available resources to ensure not only the health of our employees, but the financial stability of the company as well and late March in early April April.
We face an incredible magnitude of unknowns.
At that time, we met the qualifications to receive funds under the Paycheck protection program.
Such we applied for and then subsequently received the funds in late April However, after the dust settles from the cost reduction actions that we enacted immediately following the beginning.
Of acceleration of covert 19 on our business and after a rebound in April.
And looking forward into May we no longer feel this assistance is needed and returned the money.
We also believe our unemployment is at an appropriate level to fully execute on our plan.
Importantly, we also roll back the non executive compensation adjustments previously previously announced.
We are truly seen the resilience of our business as we move into our physical third quarter sales through April we're up in excess of 10% and have been better than expected in certain locations.
More specifically both sales in Georgia, Alabama, South, Florida successfully delivered same store sales growth awesome stores are still seeing the impact of coded and the web.
What's the weather breaks we do expect to see a bomb in sales from these stores as well.
While we're excited 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.
<unk> operating environments in coming months.
While we are being prudent and all aspects of our business. We do believe boating provides a great activity for people in this new normal we find herself yet air travel summer camps travel sports for likely.
To be altered for the foreseeable future and recreational boating allows families to get on the water enjoy the fresh air why continues to practice safe social distancing on their terms.
Based on current trends, we're 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 or teen remains focused on expanding our dealership in regions with strong boating cultures, enhancing the customer experience in generating value for shareholders.
That in mind, we were taken a temporary pauls.
On acquisitions until the current macro economic environment stabilizes.
We are using this time to better evaluate tar against any sure. We can continue on our track record of cutting into purchased multiple in half inside the first 24 months.
We have not see any significant change to the acquisition pipeline, but we will remain patient and our execution.
With that I will turn it over to Anthony to discuss business operations.
Thanks Austin.
Continued to adapt or business model to customer demand all of the same time complying with current federal and local mandates or business model was designed to support Psycho resilience and no matter, what's going on with the economy.
We are built to be flexible to the changing market conditions as we have successfully done in the past.
The last few weeks her service departments are working hard.
Mindful of shelter in place orders delivered boats and customers on the water and at the same time. Her sales team members are fully engaged with customers and providing them with ritual walk throughs of imagery.
One with private.
Showings either at their homes around the water is Austin said, we are selling boats at all dealerships, which has been significantly enabled by the investments we have made in or proprietary digital platforms. This platform, coupled with enhance marketing tools and strategies, that's supported and increase of over two times.
<unk> 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.
Working from home and other remote locations, where customers are comfortable doing business.
<unk> positions with our scale investing class technology.
To actively pursue I've opportunities while at the same time between the excellent customer service, we are known for even while opera in these unique more virtual environment.
As is typical in the second fiscal quarter each year inventory was that a peak level in February March in order to prepare for a prime selling season.
We believe we are in shrunk position as we worked through our current inventory and move into the second half of our fiscal year most of our U.M. partner shut down production at the end of large.
And through a good portion of April which helped determine through reductions at her stores.
Stay at home orders live and it becomes safer for people to be out and start working again production lines, we'll get back up in movie.
With that said, assuming <unk> continue to ramp up production, we should have sufficient inventories to support retail sales.
Well this reality, we find herself.
Is filled with uncertainty we are able to offers a sense of normalcy to our customers who are accustomed to spending time on the water are flexible business model allows her team to continue to support our customers no matter, what their bodie needs might be.
And with that altering the call over to Jack to discuss the financials in more detail.
Thanks, Anthony we delivered a strong second quarter with total revenue, 5.1% to 190 million from 180.8 million and physical second quarter of 2019.
Sales from Sores recently acquired contributed to the increase in revenues were partially offset by 2.7% decline and same store sales.
Increased demand for both continued into March but as a covert 19 pandemic quickly spread across the U.S. The Pacers sales decline as a result, neubert sales for the quarters were essentially flat year over year. However, as consumer demand tends to shift in weaker economic environment. We are prepared to generate income through our diverse business model.
Our focus on preamble sales and higher margin products like fans and insurance parts maintenance and repair services will allow us to meet consumer demand and generate sales across on markets are continued focus on these businesses generated an increase in pre embedded sales of 19, 4.4% to 43.
Million, and a 27.2% increase and finance and insurance revenue to 8.1 million and our fiscal second quarter of 2020.
Revenue from service parts and other sales decreased in the corner, 4.3% to 11 million compared to 11.5 million into 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 increase to 44.6 million and the second quarter compared to 39.7 million and the prior year driven by increased pre owned unit sales and higher financing insurance revenue gross profit as a percentage of sales increased 150 basis points to 23.5.
Percent compared to 22% and the prayer.
Selling general administrative expenses increase to 32.1 million from 27.5 million and as soon as a percentage of sales increased to 16.9% from 15.2% and the <unk> the increase in selling in general administrative expenses was primarily due to the stores acquired in the back half of.
19.
It's important to know that the previously announced expense cuts had little to no impact on the corner.
Operating income decrease 4.1 million to 8.7 million.
By the higher selling general administrative expenses as previously mentioned and IPO related expenses, which are included in transaction costs.
Adjusted even have remained essentially flat at 9.9 million compared to the Friday or.
Net income totaled 3 million for the second quarter and compared to a net loss of 3 million in the prior here the increases primarily due to the timing of the 12.3 million dollar reduction in income related to the noncash change and fair value of the warrant liability recognizing the prior year, partially offset by higher.
Interest expenses income taxes and transaction costs in the current period.
Post I.P.O., one water shared count change dramatically as a result of the stocks split and share offering.
Additionally, the weren't liability and redeemable for an interest were also converted and repaid respectively at the idea.
Now turning to the balance sheet as of March 31st 2020, we had $20.4 million with cash and $10 million worth of availability on a revolving line of credit.
Total inventory at March 31st 2020 increase to.
333.4 million compared to 298.5 million at March 31, 2019. This increase is due to the dealerships we required in the back half a fiscal 2019, we remain keenly focused on managing or inventory levels and are comfortable with our current position as we navigate the spring selling season.
In conjunction with the Coven 19 pandemic.
As previously announced in March we have vote or option to defer payment.
Interest on her senior terminal facility for a period of 12 months, which will reduce the annual cash interest payments by approximately 8.5 million. Accordingly, there are no interest payments due until December 31st 2020, and scheduled principal payment on the senior term loan facility do not began until March 2022.
In light of the uncertainty that exists around cobin 19 pandemic on March 26, we were through our fiscal 2020 guidance that was provided on our last call. We were offering no additional guidance at this time.
Concludes our prepared remarks, operator will you. Please open the line for questions.
I don't mind their task question, given me depressed I want to your telephone to try a question press the pound key.
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Hi, first question comes from crank Kennison with back here line or something.
[noise] 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 it up into new versus you sales.
Yeah Kragh, good morning, I would I would say that you know, it's it's a bit of a mixed bag, but generally speaking we were approximately 10% in the month of April into you had some locations where there are still.
Heavier have a greater impact on the shelter and place orders and so it's it's east you see certain locations, particularly the northeast maybe a little more impacted then you know the state of Georgia for example, and so you know we continue to see you know revenue from from all of our product lines weather.
The new pre and and finance and <unk>, let's say the breakdown of that 10% cross of categories in front of me, but we we did see you know positive cops heavier.
Thanks, and then maybe you could just shed some light on the pitch here. It's just really a remarkable I'll come here to show positive results in April in the middle of a pandemic is you pulling forward a lot of demand with a really exceptional pitch I mean, just she had a little light on on that extraordinary.
<unk> <unk> <unk> <unk> I think that you know what what we offer from an industry perspective is it was like Jack said in in earlier, we're offering you know social distancing on your time, we offer a recreational leisure activity.
Families can get on the Bodie 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 people are starting to get out and we've seen that especially on the in the southern part of the country [noise].
Where like the lake that I actually live on you know it looks like in the fourth of July out there there's that many boats on the weekend Bodie 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 basically get out and and actually lived there.
Or life, a little bit and not just we're super excited about you know the amount of traffic we're seeing on the lakes.
Great. Thank you.
[noise]. Thank you know next question comes from Joe out to mellow with frame you change on line or something.
It's good morning, so the commentary on April obviously, very corrupting and I know, we're only a month in here, but just curious hides that momentum contain it may or is that really just picked up the man are coming out of mark.
Yeah, I'd say you know, we're we're still very early and and they obviously, but no the pace of the pace of leads an activity has continued.
I agree that second we on on costs.
You have mentioned that did return.
The P.P.T., though it was just kind of exciting that'd be curious to hear what the the rationale behind that and maybe help us understand what you guys are doing on on the costs surprise, maybe you'll read departments, where we'd negotiations and and they get sent for how much of your of your costs today are variable versus fixed.
So if you'll need to take the first part of that Yeah. Let me take out the P.D.P.T. <unk> you know Joe good to talk to you. This morning, but 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 were.
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 and April.
You know, we we had a modest headcount a reduction but we we felt that two things we felt that our head count reduction.
Put us is the appropriate level of employee or 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 P.P.T. continue guidance continued to change and.
And the language was just so <unk>.
You just you didn't know whether or not you should take it or not take it and then that's April continued together as a good we just really looked at it and we were like we don't really need. This money, we don't really want to bring back that head count because we we feel our businesses where it needs to be to operate efficiently.
So if we weren't going to bring back or didn't really think we had to bring Brock the head count reduction and our business was doing good that money needed to go back in and and you know be available to somebody that really needed it.
Got it okay.
Additionally, on the you know on the costs frying you know, we we started quickly to take access to you know we do site you know obviously in this environment Nobody's really traveling but you know travel you know other type of expensive some marketing really try to you know pulled back those those costs and and and spend.
Money only in a very targeted way, we did reach out to a number of our landlord. We had some long landlords provide you know abatement, Iran, others provide deferral of.
A a payment of rent and you know again in in light of you know our process of working with them in their.
Their willingness to work with US you know, we kind of felt the same way with them and so you know we're in the process of you know a lot of five let's just differed is still an expense and the p. and now it's just the cash flow item and so you know we we're in the process of kind of rolling got back as well with our landlords because we don't we wanted to get get partner with them and if we have we have the cash.
And were flown to cash you know, we we want to we don't want to put pressure on them you'd rather you know save that for a time, when we really need it and so you know we feel like we can always go back to you know our landlords or you know our we did a for the non executive pay we were all that reduction back because you know we want to take.
Care that team members we have.
You know, but on the flipside you know we want to keep that you know keep that extends car just in case, we need. It you know should you know the the results look different than they currently do so I would tell you that are you know our expense structure is not changing dramatically you know a fixed versus.
Well kind of stole you know it's around that you know 50, 50 will probably move a little more towards the effect, just because with revenue down, it's and things like that and and ask maintain those costs.
You know it might pick 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 you qualify that for it at this point.
Yeah, you know, it's it's not a a it's not a huge salary I mean, obviously, we have a lot of credit availability under our floor plan or at our floor plan has the capacity of 392 million. You know we only have just under 300 million available. So there's there's plenty of capacity from the standpoint capacity on our for.
Plan, we are in to see them right up declining inventory declining for plan, but there you know there's there's some availability on their you know a couple million dollars like less than $5 million, probably you know at this point okay. Great. Thank you guys.
Mm.
Thank you once again they sent me if you wish to ask a question at this time. Please press Die then why don't you touch tone telephone.
My next question comes on like Sports <unk>, Okay.
You guys good morning.
Just wanted to to touch on any new boat margins during the quarter. It that number came in well ahead of what I think anyone had had anticipated, particularly given the pressure we've seen over the past couple of quarters. So maybe what what turned around during the quarter and I I think mix was part of it as you as you.
Highlighted in the press release, but in any color there and how should we think about that over the next couple quarters.
Yeah, I'd say, a nice as you go back to our last call. We've talked about you know some strategies that that we were implementing too enhance our f. an eye penetration and it was coming at the cost of a bit of new boat, a margin and and that wasn't going to turn as we kind of got Adam.
<unk> season and into the normal season, and so I I would tell you that you know absent that the pandemic you know we expect fully expected mark is to to increase and you know Anthony and team did a great job of upholding margin in maintaining margins.
You know kind of through three of them at the March but you know Anthony maybe when I I, you know discuss a little bit out what we're seeing on the retail fight with respect to margins.
Sure I mean I.
I I think that we had to plan all along and we intentionally drop the margins out in the past on our new stuff to do just like Jack said do increase or F. and I've got a tradition that are a whole plan was to as we have the the the selling process through all of our stores there once they've gotten that we didn't need to continue to.
Discount the boats as much as we had two and or play it is exactly working in our margins are rising from it.
Okay <unk> in I think you you <unk> unveiled publicly some some pretty unique.
<unk> sales and marketing incentives on on new boats for certain your manufacturers. He talk about some of those as much as you can and and and maybe you know how that how that will impact the piano and anyway.
<unk>, you know anyway, except increase so we were able to negotiate or some.
Programs with our manufacturers and so are Becky partners that we have have some marketing tools out there that is going to allow us to be very attractive for our buyers no matter, what's going on in the economy.
In one one final ones for me, maybe even Jack on on a <unk> comparable store basis the <unk>.
What did the F. and I and and you don't sales look like in the quarter just from a growth perspective.
Yeah, Michael we actually we don't break down you know we don't do a same store you know by by pre owned or by you know F. and I you know just looking into some of the numbers you certainly see you know some some of our you know legacy sourcing nice increases with the changes enough and I am with.
With pre out as well as a you know our newly acquired sort. So it is there's a balance of the two I don't win unless they have a you know same store number by you know half an eye same store a pre on same store can't really get at that data for Ya.
Okay. Thanks, a lot that's helped me.
<unk>.
Thank you I'm not showing any further questions at this time they didn't tell me. Thank you for protecting today's coffins. This increase the program email disconnect everyone's have a great Dane.