MarineMax, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2020. MarineMax operates boat and yacht retail, brokerage, service, storage, financing-related and charter businesses. Figures below are in millions, except per-share data and percentages.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $498.3 (2019: $383.5), up 29.9% | $1,111.0 (2019: $929.0), up 19.6% |
| Gross profit / margin | $123.5 / 24.8% (2019: $97.7 / 25.5%) | $282.2 / 25.4% (2019: $235.4 / 25.3%) |
| Income from operations | $48.6 (2019: $28.7) | $74.0 (2019: $48.0) |
| Net income | $34.9 (2019: $19.1) | $49.1 (2019: $29.3) |
| Diluted EPS | $1.58 (2019: $0.84) | $2.23 (2019: $1.26) |
| Interest expense | $2.1 (2019: $2.9) | $8.5 (2019: $8.5) |
Third-quarter comparable-store sales rose 36.7%; nine-month comparable-store sales rose 21.8%. Management attributed growth mainly to new and used boat sales. Third-quarter gross margin declined as boat sales, which carry lower margins, grew; nine-month gross margin edged higher, helped by higher-margin businesses and Fraser Yachts. SG&A was $74.8 million in the quarter and $208.3 million year to date; as a share of revenue it declined to 15.0% and 18.7%, respectively, reflecting operating leverage and efficiencies.
Cash flow, balance sheet and liquidity
- Operating cash flow was $221.3 million for the nine months, versus $4.4 million in 2019. The increase was principally associated with a $163.4 million reduction in inventory, alongside net income and other working-capital movements.
- Investing activities used $7.2 million, versus $25.4 million in 2019. Financing activities used $165.9 million, mainly due to $165.0 million of net repayments on short-term borrowings.
- Cash was $86.9 million at June 30, 2020, versus $38.5 million at September 30, 2019. Inventory was $314.1 million, down from $477.5 million.
- Short-term borrowings were $147.0 million, down from $312.1 million at fiscal year-end; the company reported no long-term debt. The May 2020 credit facility provides up to $440 million subject to a borrowing-base formula; $93.4 million of additional availability was reported at June 30. The company was compliant with its covenants.
- The credit facility expires in May 2023, subject to lender-approved extensions. Covenants require leverage not above 2.75:1 and a current ratio above 1.2:1. A 100-basis-point increase in borrowing rates would, based on the period-end debt balance, add approximately $1.5 million to annual pretax interest expense.
Outlook, risks and other notable items
- No quantified earnings or revenue guidance was provided. Management stated that cash generated from sales and existing capital resources were expected to cover liquidity and capital needs for at least the next 12 months, except for possible significant acquisitions.
- COVID-19 led to temporary closures beginning in March 2020; many stores were fully or partially operational by the filing. Management cited digital sales activity and customer interest in boating, but said the pandemic’s duration and business impact could not be determined.
- Key risks include economic weakness and reduced discretionary spending, the cyclical and seasonal nature of boating, weather and hurricanes, inventory valuation and aging, reliance on manufacturers and the credit facility, and variable interest rates. Florida generated 54% of fiscal 2019 revenue.
- MarineMax acquired Northrop & Johnson in July 2020, after quarter-end. It adopted lease accounting effective October 1, 2019, recording $44.0 million of lease liabilities, $42.1 million of right-of-use assets and a $0.6 million after-tax cumulative adjustment to retained earnings.
- Management reported no long-lived-asset or goodwill impairment at June 30. Ordinary-course legal proceedings were not expected to have a material adverse effect. The filing reported no risk-factor changes under Item 1A; disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the strong comparable-store sales and operating leverage persisted after June 30, 2020, and how COVID-19 affected demand, store operations and supply.
- Inventory levels, aging and valuation allowances, and whether changes affect borrowing-base availability or gross margins.
- Borrowing-base capacity, covenant headroom, variable-rate exposure and the terms and integration effects of the Northrop & Johnson acquisition.
- The sustainability of cash generation, which benefited materially from inventory reduction, and any future acquisition or capital-allocation needs.
- Manufacturer and brand concentration, including the company’s dependence on dealership agreements and its exposure to Florida and other weather-sensitive markets.