MarineMax, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended September 30, 2018. The filing also reports fourth-quarter results for the three months ended September 30, 2018. MarineMax is a U.S. recreational boat and yacht retailer operating 63 locations in 16 states.
Financial performance
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Revenue | $1,177.4 million | $1,052.3 million | +11.9% |
| Gross profit / margin | $298.2 million / 25.3% | $265.3 million / 25.2% | Margin +0.1 percentage point |
| Operating income / margin | $63.2 million / 5.3% | $45.3 million / 4.3% | Margin +1.0 percentage point |
| Net income | $39.3 million | $23.5 million | +66.9% |
| Diluted EPS | $1.71 | $0.95 | +$0.76 |
| Operating cash flow | $70.4 million | $4.7 million | +$65.7 million |
Fiscal 2018 revenue growth included 10% comparable-store sales growth ($100.3 million) and a net $24.8 million contribution from stores outside the comparable-store base. Same-store sales growth was 5% in FY2017. New boats supplied 71.2% of FY2018 revenue; used boats supplied 14.8%.
Fourth-quarter revenue was $308.6 million, compared with $250.6 million in the prior-year quarter. Net income was $11.5 million versus $3.9 million; diluted EPS was $0.50 versus $0.17.
Cash, debt and liquidity
- Cash and cash equivalents were $48.8 million at September 30, 2018, up from $42.0 million a year earlier. Working capital was $179.3 million, versus $139.1 million.
- Short-term inventory borrowings were $212.9 million, down from $254.2 million; the company reported no long-term debt and no debt secured by real estate. The filing reports approximately $71.6 million of additional borrowing availability under the borrowing base.
- The inventory facility provides up to $400 million, bears interest at one-month LIBOR plus 345 basis points, and has leverage and current-ratio covenants. MarineMax reported covenant compliance at year-end. In October 2018, it amended the facility, increasing the commitment from $350 million and extending maturity to October 2021, with two possible one-year extensions subject to lender approval.
- Investing cash outflow was $23.3 million and financing cash outflow was $40.2 million. Cash increased by $6.9 million during the year. Management said existing capital resources should fund operations for at least 12 months, except potentially significant acquisitions.
Material changes and unusual items
- Gross margin improved slightly, reflecting better boat margins and contribution from higher-margin service, parts, accessories and storage. SG&A was $235.1 million; management cited increased sales commissions, compensation and healthcare costs, while SG&A as a share of revenue declined to 20.0% from 20.9%.
- Interest expense rose 32.4% to $9.9 million, attributed to higher borrowings and interest rates. A hypothetical 100-basis-point increase in variable rates would add about $2.1 million to annual pretax interest expense, based on year-end debt.
- The effective tax rate fell to 26.2% from 37.7%, primarily reflecting the federal corporate-rate reduction under the Tax Cuts and Jobs Act and hurricane-related employee retention credits. The company recorded an $805,000 non-cash deferred-tax remeasurement charge.
- FY2018 SG&A included a $1.4 million reduction from contingent-consideration adjustments and $1.2 million of increased non-recurring unusual costs. FY2017 included $2.9 million of Hurricane Irma-related expenses. FY2018 operating cash flow included insurance proceeds related to Irma.
- Hurricane Irma damaged the British Virgin Islands charter operation and fleet. Charters resumed on a limited basis during FY2018; management expected full operations in 2019.
- Brunswick announced it would discontinue Sea Ray sport-yacht and yacht models. Those models represented approximately 10% of MarineMax FY2018 revenue; management believes product diversification can replace the sales, but does not quantify the replacement.
Outlook, risks and contingencies
Management plans to pursue acquisitions, new locations, broader product and service offerings, and growth in higher-margin finance and insurance, service, parts and storage. No specific FY2019 revenue or earnings guidance is provided. Management’s outlook is conditional on economic and industry conditions.
- Key exposures include discretionary and luxury spending, rising interest rates and customer financing availability, seasonal demand, weather and hurricanes, and the concentration of revenue in Florida (51% in FY2018).
- Manufacturer dependence is significant: Brunswick brands accounted for approximately 40% of FY2018 revenue, including Sea Ray at 21% and Boston Whaler at 17%; Azimut accounted for approximately 11%. Dealer agreements, product supply and manufacturer incentives can affect sales and margins.
- Inventory is financed primarily through a variable-rate, borrowing-base facility; aging inventory can reduce borrowing capacity. Compliance with covenants and lender funding availability are important to liquidity.
- Operating lease commitments totaled $55.6 million. The company expected adoption of the new lease accounting standard in FY2020 to materially increase reported assets and liabilities.
- Legal proceedings arise in the ordinary course; management did not expect them to have a material adverse effect. The company also disclosed environmental monitoring and remediation matters at certain properties, but did not identify material environmental liabilities.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor reported effective internal control as of year-end.
Investor verification priorities
- Assess whether Sea Ray yacht revenue can be replaced after the announced product discontinuation and whether customer demand and margins support that transition.
- Verify the borrowing-base availability, inventory aging, variable-rate exposure and covenant headroom; the filing’s reported additional availability is approximately $71.6 million.
- Review the sustainability of 10% comparable-store sales growth and FY2018 cash generation, including the effects of inventory reductions and hurricane insurance proceeds.
- Track Florida and Brunswick/Azimut concentration, seasonality, weather impacts and the recovery of the BVI charter operation.
- Monitor FY2019 revenue-standard adoption and the expected $0.2–$0.8 million after-tax retained-earnings increase, as well as the balance-sheet impact of lease accounting adoption.