MarineMax, Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months ended March 31, 2019. The company sells and services recreational boats and yachts, and provides related finance, insurance, brokerage, storage, and charter services. It reported 64 retail locations at March 31; MD&A says 67 locations as of the filing date.
Key financial results
Amounts below are in millions of dollars except per-share data. Quarterly comparisons are with the three months ended March 31, 2018; six-month comparisons are with the corresponding 2018 period.
| Metric | Quarter 2019 | Quarter 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $303.6 | $270.6 | $545.5 | $507.5 |
| Gross profit | $74.2 | $69.3 | $137.7 | $128.5 |
| Gross margin | 24.4% | 25.6% | 25.2% | 25.3% |
| Operating income | $10.2 | $10.6 | $19.2 | $19.6 |
| Net income | $5.3 | $6.2 | $10.2 | $10.4 |
| Diluted EPS | $0.23 | $0.27 | $0.44 | $0.46 |
- Quarterly revenue rose 12.2%, driven by 12.2% comparable-store sales growth, primarily from new and used boats. Six-month revenue rose 7.5%, including 6.7% comparable-store growth and $3.9 million from stores outside the comparable base.
- Gross profit dollars increased, but quarterly gross margin fell 1.2 percentage points. Management attributed the decline to a higher mix of used boats, which generally have lower margins, and a lower proportional contribution from higher-margin parts and service. Six-month gross margin declined slightly.
- Quarterly SG&A increased 9.1% to $64.0 million; as a share of revenue it declined to 21.1% from 21.7%. Six-month SG&A rose 8.8% to $118.5 million and increased to 21.7% of revenue from 21.5%.
Cash flow, debt, and liquidity
- Cash and cash equivalents were $63.6 million at March 31, 2019, compared with $48.8 million at September 30, 2018. Inventory increased to $454.6 million from $377.1 million.
- For the first six months, operating cash outflow was $62.2 million, versus $19.4 million a year earlier. The primary use was inventory growth, partly offset by higher customer deposits and accrued expenses.
- Investing cash outflow was $7.5 million, mainly for improvements to existing facilities. Financing cash inflow was $84.5 million, primarily from increased short-term borrowings. Cash increased by $14.8 million during the six months.
- Short-term inventory and working-capital borrowings were $297.5 million; the company reported no long-term debt and approximately $44.9 million of additional borrowing availability. The borrowing rate was approximately 6.0% at March 31, versus 5.1% a year earlier. The facility is secured primarily by personal property and subject to inventory-based borrowing limits and financial covenants; the company reported covenant compliance.
- Management said existing capital resources should fund operations for at least 12 months, except for possible significant acquisitions. A hypothetical 100-basis-point rise in rates was estimated to add about $3.0 million in annual pretax interest expense, assuming no offsetting actions or additional vendor assistance.
Outlook, commentary, and risks
- No quantified revenue or earnings guidance was provided. Management identified acquisitions and new store openings as continuing growth strategies and said it plans to accelerate growth as industry conditions improve.
- Quarterly interest expense rose 6.8%, primarily due to higher interest rates. SG&A growth reflected acquisitions, new stores, marketing investment, and restarting the British Virgin Islands charter business after Hurricane Irma.
- The business is seasonal and cyclical, with exposure to discretionary luxury spending, consumer confidence, weather and storms, and local economic conditions. Florida generated about 51% of fiscal 2018 revenue. The company also faces reliance on manufacturer and dealer agreements; Sea Ray sport-yacht and yacht models discontinued by Brunswick had represented about 10% of fiscal 2018 revenue. Management said brand diversification had replaced that revenue through March 31, 2019.
- The company adopted ASC 606 on October 1, 2018 using the modified retrospective method, recording a $399,000 after-tax adjustment to opening retained earnings. For the March 2019 quarter, adoption reduced reported revenue by $1.314 million and net income by $463,000 versus the figures that would have been reported under prior revenue rules; six-month net income was unchanged. Prior-year comparisons were not restated.
- The company expected adoption of the new lease standard in fiscal 2020 to materially increase balance-sheet assets and liabilities. Ordinary-course legal matters were not expected to have a material adverse effect; no risk-factor changes were reported in this 10-Q. Disclosure controls were judged effective at a reasonable-assurance level.
Important facts for investors to verify
- Reconcile reported growth and margins with the ASC 606 transition effects, particularly for the March 2019 quarter, and note that comparative periods were not restated.
- Verify the inventory build, its aging and saleability, and the resulting borrowing-base availability and cash needs.
- Confirm the credit facility maturity: the financial-statement note says October 2021, while MD&A says October 2020; both describe two additional one-year extensions subject to lender approval.
- Clarify the location count: the filing reports 64 retail locations at March 31, 2019 and 67 as of the filing date.
- Monitor variable-rate borrowing costs, consumer demand and weather exposure, and the sustainability of the claimed replacement of discontinued Sea Ray yacht-model revenue.