MarineMax, Inc. — Form 10-Q Summary
Business context and reporting period
Reports fiscal 2018 first-quarter results for the three months ended December 31, 2017, compared with the three months ended December 31, 2016. MarineMax operates boat and yacht retail, brokerage, service, storage, financing and insurance businesses, plus yacht charters. It had 60 retail locations in 16 states at quarter-end; the filing says 62 locations as of the filing date.
Financial performance
| Metric | Q1 2017 | Q1 2018 |
|---|---|---|
| Revenue | $226.9 million | $236.9 million |
| Gross profit | $53.1 million | $59.2 million |
| Gross margin | 23.4% | 25.0% |
| Operating income | $6.0 million | $9.0 million |
| Interest expense | $1.6 million | $2.5 million |
| Net income | $2.6 million | $4.2 million |
| Diluted EPS | $0.11 | $0.19 |
| Cash used in operating activities | $43.2 million | $56.2 million |
At December 31, 2017, cash was $35.6 million, inventory $440.7 million, total assets $676.9 million, and shareholders’ equity $309.5 million. Short-term borrowings were $307.7 million, with no long-term debt and approximately $17.0 million of additional borrowing availability. The company reported compliance with credit-facility covenants.
Material changes and cash flow
- Revenue rose 4.4%; $10.8 million of growth came from acquired stores not yet in the comparable-store base, partly offset by a roughly $0.8 million decline in comparable-store sales. New and used boat sales drove store revenue.
- Gross profit increased 11.5%, with improved new- and used-boat margins and a greater revenue mix from brokerage, finance and insurance, service, and storage.
- SG&A rose 6.7% to $50.2 million, primarily due to acquisitions. Interest expense increased 62.0%, reflecting higher borrowings and interest rates; the borrowing rate was approximately 4.7% versus 4.0% a year earlier.
- Operating cash use increased to $56.2 million, mainly from inventory growth, receivables, lower accounts payable and seasonal working-capital changes. Financing provided $52.3 million, principally through net borrowings; investing used $2.5 million.
- Cash and cash equivalents declined $6.4 million during the quarter. Inventory rose from $401.3 million at September 30, 2017 to $440.7 million at December 31, 2017.
Outlook, risks and unusual items
- Management expects existing capital resources to fund operations for at least 12 months, except for possible significant acquisitions. Acquisitions and new store openings remain growth priorities; management plans to accelerate growth as conditions improve.
- The business is seasonal and cyclical, with typically higher inventory and borrowings in the December and March quarters outside Florida. Consumer confidence, discretionary spending, weather and economic conditions may affect demand; Florida generated 55% of fiscal 2017 revenue.
- Hurricane Irma affected British Virgin Islands inventory and facilities. The filing notes $7.6 million of damaged inventory at September 30, 2017 and says the full effects of damage and repairs remained uncertain. Q1 cash flows included insurance proceeds.
- Inventory financing is variable-rate and secured by substantially all personal property, subject to exceptions. The $350 million facility matures in October 2020, subject to possible lender-approved extensions. A hypothetical 100-basis-point rate increase would add approximately $3.1 million to annual pretax interest expense, based on quarter-end debt and stated assumptions.
- The Tax Cuts and Jobs Act led to an approximately $889,000 reduction in beginning deferred tax assets and an increase in Q1 tax expense; the final impact could change as guidance and interpretations develop. The effective tax rate fell to 34.8% from 40.9%.
- Management expects the new lease standard to materially increase balance-sheet assets and liabilities when adopted, primarily due to retail-location leases; planned adoption is fiscal 2020. Revenue-standard adoption is planned for fiscal 2019 and was not expected to have a material impact.
- Ordinary-course legal proceedings were not expected by management to have a material adverse effect. The filing reports effective disclosure controls and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether comparable-store trends, acquired-store contributions and boat-sales margins sustain revenue and profit growth.
- Inventory aging, seasonal cash needs, borrowing-base availability and continued covenant compliance, particularly given limited additional availability.
- Exposure to variable interest rates and the effect of rates on financing costs and customer demand.
- Final Hurricane Irma insurance recoveries, repair costs and any further inventory write-downs.
- The eventual tax impact of the Tax Cuts and Jobs Act and the balance-sheet effect of lease-accounting adoption.
- Manufacturer and brand concentration, including fiscal 2017 revenue exposure to Brunswick products, and risks from changes to dealership agreements.