MarineMax, Inc. — FY2019 Form 10-K Summary
Business context and reporting period
MarineMax is a U.S. recreational boat and yacht retailer with 59 locations in 16 states as of September 30, 2019. It also provides brokerage, service, storage, financing and insurance services, and operates yacht-charter activities and Fraser Yachts Group. The fiscal year ended September 30, 2019; the filing also reports the quarter ended that date.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $1,237.2 million | $1,177.4 million |
| Gross profit / margin | $322.8 million / 26.1% | $298.2 million / 25.3% |
| Operating income / margin | $60.5 million / 4.9% | $63.2 million / 5.4% |
| Net income / diluted EPS | $36.0 million / $1.57 | $39.3 million / $1.71 |
| Cash from operating activities | $(12.4) million | $70.4 million |
| Cash from investing activities | $(56.3) million | $(23.3) million |
| Cash from financing activities | $58.6 million | $(40.2) million |
Revenue grew 5.1%; comparable-store sales grew 1%, versus 10% in FY2018. New boats represented 70.1% of revenue, used boats 14.9%, and maintenance, repair, storage and charter services 6.9%. Sea Ray and Boston Whaler together generated about 34% of revenue; Brunswick brands overall generated 36%, and Azimut 9%.
At year-end, cash was $38.5 million, working capital $155.7 million, total assets $784.1 million and shareholders’ equity $368.8 million. Inventory was $477.5 million, up from $377.1 million. Short-term inventory and working-capital borrowings were $312.1 million, with approximately $39.9 million additional availability under the borrowing base; the company reported no long-term debt. It was compliant with facility covenants. The credit facility bears a variable rate tied to one-month LIBOR; a 100-basis-point increase was estimated to add about $3.1 million in annual pretax interest expense.
For the September 2019 quarter, revenue was $308.1 million versus $308.6 million a year earlier; net income was $6.7 million versus $11.5 million, and diluted EPS was $0.31 versus $0.50.
Material changes and unusual items
- Gross margin improved, principally from higher-margin businesses and the Fraser Yachts acquisition; operating income declined as SG&A rose 11.6% to $262.3 million.
- FY2019 operating cash flow turned negative, primarily due to higher inventory, receivables and prepaid expenses. Inventory growth also contributed to increased borrowings.
- The company acquired Sail & Ski Center in April 2019 and Fraser Yachts Group in July 2019. Goodwill and other intangible assets rose to $64.1 million from $27.5 million, largely reflecting acquisitions.
- FY2019 SG&A included $3.1 million of store-closing and related costs, partly offset by a $1.2 million Deepwater Horizon settlement recovery. The British Virgin Islands charter business returned to full operations in 2019 after Hurricane Irma damage.
- MarineMax adopted ASC 606 using the modified retrospective method; the adoption increased opening retained earnings by $0.4 million. FY2019 reported revenue was $0.7 million lower than it would have been without the new standard.
Outlook, risks and contingencies
No quantified FY2020 earnings or revenue guidance is provided. Management plans to pursue acquisitions, new locations and growth in higher-margin services, and stated existing capital resources should fund operations for at least 12 months, except potentially significant acquisitions. In November 2019, after year-end, the company amended its inventory facility: the commitment increased from $400 million to $440 million and maturity was extended to October 2022, subject to borrowing-base availability and lender approval of extensions.
Key risks include economic weakness and reduced discretionary spending on premium boats; reliance on Florida, which generated 54% of FY2019 revenue; dependence on Brunswick and other key manufacturers and their dealer agreements; inventory valuation, aging and floorplan financing; interest-rate and LIBOR-transition exposure; seasonality and weather; acquisition integration; and environmental, product-liability, cybersecurity, foreign-exchange and trade-policy risks. The company reported ordinary-course legal matters that it did not expect to materially affect its financial condition, results or cash flows. KPMG issued an unqualified opinion on the financial statements and internal controls; Fraser Yachts’ controls, representing 2% of assets and 1% of revenue, were excluded from management’s control assessment.
Investor facts to verify
- Whether the 1% comparable-store growth and weaker industry conditions persist, and how FY2020 sales and margins develop.
- How inventory levels, aged inventory, borrowing-base availability and covenant headroom evolve; year-end availability was approximately $39.9 million.
- Whether Fraser Yachts and other acquisitions deliver expected growth and margins, and how acquisition-related goodwill and contingent consideration change.
- The ongoing effects of manufacturer concentration and Sea Ray’s discontinued sport-yacht and yacht models.
- The impact of the post-year-end credit-facility amendment, LIBOR replacement and expected lease-accounting adoption on financing costs and reported balance-sheet liabilities.