MarineMax, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results for the fiscal second quarter and six months ended March 31, 2017, compared with the same periods in 2016. MarineMax is a U.S. recreational boat and yacht retailer, with related service, brokerage, financing, insurance, storage, and charter operations. At quarter-end it operated 62 retail locations in 17 states. In January 2017, it acquired Hall Marine Group.
Key financial metrics
Amounts are USD millions except per-share data. Quarterly and six-month comparisons are year over year.
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Revenue | $245.0; up 22.8% | $471.9; up 27.9% |
| Comparable-store sales | Up 13.2% | Up 20.2% |
| Gross profit / margin | $61.1 / 24.9%, versus $49.0 / 24.6% | $114.2 / 24.2%, versus $90.6 / 24.6% |
| Operating income | $6.3, versus $5.6 | $12.3, versus $8.2 |
| Net income / diluted EPS | $2.7 / $0.11, versus $2.5 / $0.10 | $5.4 / $0.22, versus $3.2 / $0.13 |
| Interest expense | $2.0, versus $1.6 | $3.6, versus $2.8 |
Six-month SG&A was $101.9 million, or 21.6% of revenue, compared with $82.4 million, or 22.3%. For the quarter, SG&A was $54.8 million, or 22.4% of revenue, versus $43.5 million, or 21.8%.
For the six months, operating cash flow was negative $42.3 million (versus negative $53.5 million); investing cash flow was negative $26.6 million (versus negative $13.9 million); and financing cash flow was positive $82.0 million (versus $78.7 million). Cash increased $13.1 million to $51.7 million from September 30, 2016. The operating cash use primarily reflected increased inventory and receivables and reduced customer deposits.
At March 31, 2017, total assets were $673.1 million and shareholders’ equity was $320.8 million. Current assets were $498.3 million and current liabilities $347.7 million. Short-term borrowings were $265.9 million, with no long-term debt; borrowing availability under the inventory facility was approximately $34.1 million. The company reported compliance with facility covenants.
Material changes and management commentary
- Quarterly revenue growth included $26.4 million from comparable-store sales and approximately $19.1 million from locations outside the comparable-store base. Six-month growth included $73.5 million from comparable stores and approximately $29.3 million from other locations.
- Quarterly gross margin improved, primarily due to improved new- and used-boat margins. Six-month gross margin declined as boat sales increased as a share of revenue, reducing the mix of higher-margin brokerage, finance and insurance, service, parts, and storage; larger, lower-margin boat sales also weighed on margins.
- Management attributed sales growth partly to improving industry and economic conditions. Acquisitions and new-store openings remain growth strategies. It believes existing capital resources can fund operations for at least 12 months, except for possible significant acquisitions; the filing gives no numerical earnings or revenue guidance.
- Inventory rose to $404.7 million from $322.0 million at September 30, 2016. The inventory valuation allowance for new and used boats, motors, and trailers increased to $1.5 million from $1.0 million.
Outlook, risks, contingencies, and unusual items
- The business is seasonal and cyclical, with weaker sales and higher inventory and related borrowings generally in the quarters ending December and March outside Florida. Weather, consumer confidence, discretionary spending, and economic conditions may materially affect demand.
- All short-term debt is variable-rate and tied to LIBOR. The inventory facility bears interest at one-month LIBOR plus 345 basis points; a hypothetical 100-basis-point rate increase would add approximately $2.7 million to annual pretax interest expense, assuming no mitigating changes.
- The $300 million inventory financing facility matures in October 2019, with two potential one-year extensions subject to lender approval. Borrowing capacity depends on eligible inventory and its age; management noted that aging-related curtailments reduce availability.
- MarineMax depends on manufacturer and dealer relationships. Brunswick brands represented about 40% of fiscal 2016 revenue; management also cited Florida’s significant share of historical revenue. Loss or changes to key agreements, economic weakness, or credit-market disruption could harm results.
- Management expects the new lease accounting standard to materially increase recorded assets and liabilities, principally from operating leases. Revenue-recognition adoption was not expected to have a material impact. No material long-lived-asset impairment was identified; goodwill was $25.9 million in total after the Hall Marine acquisition, including $16.0 million recorded for that acquisition.
- The company is party to ordinary-course legal matters and does not expect them to have a material adverse effect. No material contingencies or quantified litigation exposure are identified in the filing.
Important facts for investors to verify
- Whether comparable-store growth and margins persist, particularly given the weaker six-month gross margin and boat-sales mix.
- Inventory aging, valuation allowances, floor-plan borrowing availability, and compliance with credit-facility covenants.
- Acquisition integration and returns, including the contribution of Hall Marine to revenue, earnings, and cash needs.
- Cash conversion and seasonal working-capital needs, given continued operating cash outflows.
- Exposure to variable interest rates, key manufacturers, Florida markets, weather, and consumer demand.