MarineMax, Inc. — Q2 FY2014 Form 10-Q
Reporting period: Three and six months ended March 31, 2014; balance-sheet comparisons are with September 30, 2013. Amounts below are in millions of dollars except per-share data and percentages. MarineMax operates 54 recreational-boat retail locations in 18 states and related brokerage, service, financing and insurance businesses.
Financial performance
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Revenue, 2014 / 2013 | $136.6 / $160.0 | $246.2 / $259.1 |
| Gross profit, 2014 / 2013 | $34.8 / $37.7 | $64.7 / $63.9 |
| Gross margin, 2014 / 2013 | 25.5% / 23.5% | 26.3% / 24.7% |
| SG&A, 2014 / 2013 | $35.7 / $36.1 | $68.0 / $65.5 |
| Operating income (loss), 2014 / 2013 | $(0.9) / $1.6 | $(3.3) / $(1.6) |
| Net income (loss), 2014 / 2013 | $(2.0) / $0.3 | $(5.3) / $(3.8) |
| Diluted EPS, 2014 / 2013 | $(0.08) / $0.01 | $(0.22) / $(0.17) |
- Quarterly revenue declined 14.6%; comparable-store sales fell 15.8%. Six-month revenue fell 5.0%, with comparable-store sales down 6.1%.
- Gross margin improved in both periods, but lower revenue and higher SG&A relative to sales contributed to operating losses. Quarterly SG&A was 26.1% of revenue versus 22.6%; six-month SG&A was 27.6% versus 25.3%.
- Interest expense decreased to $1.1 million for the quarter and $2.1 million for six months, reflecting a lower credit-facility rate. No income tax expense was recorded in 2014; deferred tax assets had a full valuation allowance due to cumulative recent losses.
Cash flow, liquidity and debt
- For the six months, operating cash used was $30.5 million, compared with $6.4 million a year earlier. The filing attributes the use largely to net loss, inventory growth and seasonal receivables, partly offset by higher customer deposits.
- Investing cash used was $3.1 million, versus $9.6 million; financing cash provided was $40.7 million, versus $22.5 million, mainly from increased short-term borrowings and stock-plan proceeds. Cash rose $7.0 million to $30.8 million.
- At March 31, current assets were $319.6 million and current liabilities $204.1 million; short-term borrowings were $160.1 million. No long-term debt was reported. Inventory was $260.4 million, up from $228.0 million at September 30.
- The inventory-financing facility has a commitment of up to $205 million, subject to borrowing-base limits; approximately $15.1 million of additional availability remained. The facility matures in June 2016, with two possible one-year extensions subject to lender approval. Borrowing rate was one-month LIBOR plus 355 basis points. The company reported compliance with covenants at quarter-end.
- Management said existing capital resources should fund operations for at least 12 months, except for possible significant acquisitions. A 100-basis-point rate increase on March 31 debt would add an estimated $1.6 million of annual pretax interest expense, absent offsets.
Business changes, outlook and risks
- Management cited inclement weather as reducing boat sales and said large-yacht sales appeared delayed. Quarterly gross-margin gains reflected improved new- and used-boat margins, commission-structure changes and a higher mix of brokerage, finance and insurance, service, parts, storage and charter activities.
- Management said it had gained market share and expects its retail strategies to support future revenue and growth opportunities as conditions improve. It plans to accelerate acquisitions and store openings when economic conditions are more favorable; no quantified guidance was provided. No acquisitions had been completed in FY2014 through March 31.
- Key exposures include the cyclical, discretionary nature of boating and sensitivity to weather and consumer confidence. Florida generated approximately 51% of FY2013 revenue. Brunswick new-boat sales were approximately 38% of FY2013 revenue, and Azimut boats approximately 13%, creating manufacturer and dealer-agreement concentration risks.
- Inventory aging can reduce borrowing capacity under the floor-plan facility. All short-term debt bears variable LIBOR-based rates; the company was not using foreign-currency hedges at quarter-end despite exposure to European- and Chinese-sourced products.
- Inventory valuation allowance increased from $1.8 million at September 30 to $3.0 million at March 31. Management reported no identified impairment of long-lived assets and concluded goodwill impairment testing was not required based on its qualitative assessment.
- A former-acquisition shareholders’ lawsuit seeks damages exceeding $10 million. The company obtained summary judgment on the remaining claim, but plaintiffs appealed; management believes the matter should not materially affect financial condition, results or cash flows. Management reported disclosure controls were effective at a reasonable-assurance level.
Most important facts for investors to verify
- Whether weather-related sales weakness and delayed yacht deliveries reversed after quarter-end, and whether comparable-store trends improved.
- Whether higher gross margins can offset SG&A costs and restore operating profitability as sales recover.
- Inventory levels, aging, valuation reserves, floor-plan borrowing availability and compliance with facility covenants.
- Cash generation and the company’s ability to fund seasonal working capital without materially increasing borrowings.
- Exposure to variable rates, key manufacturers and Florida, plus developments in the appealed lawsuit.