MarineMax, Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2016; comparisons are with the periods ended June 30, 2015. Amounts below are in millions of dollars unless stated otherwise.
Business context
MarineMax is a U.S. recreational boat and yacht retailer, with 56 locations in 16 states and a yacht-charter operation in the British Virgin Islands. It sells new and used boats and related products and services, including financing, insurance, maintenance, brokerage, and storage. Results are seasonal and exposed to consumer demand for discretionary purchases. The company completed three acquisitions in fiscal 2016 through the filing date; its April 2016 purchase of Russo Marine generated $8.8 million of goodwill.
Financial results
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $345.6, up 49.1% from $231.8 | $714.7, up 27.1% from $562.1 |
| Gross profit | $78.9, up 38.3%; gross margin 22.8% versus 24.6% | $169.5, up 24.0%; gross margin 23.7% versus 24.3% |
| Operating income | $24.6 versus $16.0 | $32.8 versus $19.0 |
| Interest expense | $1.5 versus $1.1 | $4.3 versus $3.5 |
| Income before taxes | $23.1 versus $14.9 | $28.5 versus $15.5 |
| Income tax provision | $9.0 versus none | $11.2 versus none |
| Net income | $14.1 versus $14.9 | $17.4 versus $15.5 |
| Diluted EPS | $0.57 versus $0.59 | $0.70 versus $0.61 |
Comparable-store sales increased 43.8% in the quarter and 25.2% for the nine-month period. Management attributed growth mainly to higher new and used boat sales and improving industry and economic conditions. Boat sales increased as a share of revenue, reducing the contribution from higher-margin brokerage, finance and insurance, service, parts, and storage; larger boat sales also weighed on quarterly margin. SG&A declined as a share of revenue, reflecting sales growth and operating leverage. The prior-year SG&A included a $1.6 million real-estate sale gain.
The current-period tax provision followed the release of most of the deferred-tax-asset valuation allowance in the fourth quarter of fiscal 2015. The prior-year periods had no tax expense because a full valuation allowance was then in place. The 2016 effective tax rate was 39.1% for both the quarter and nine-month period.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $23.9, compared with $8.2 a year earlier. The company cited net income and increases in payables, customer deposits, and accrued expenses, partly offset by inventory and receivables growth.
- Investing cash outflow was $25.4, including $17.1 of net cash used for business acquisitions and $8.5 of property and equipment purchases. Financing cash inflow was $24.4, mainly from increased short-term borrowings.
- Cash was $55.6 at June 30, 2016, versus $32.6 at September 30, 2015. Inventory was $306.6, up from $273.9; current liabilities were $241.7, including $177.0 of short-term borrowings.
- The amended floor-plan facility provides up to $300 million, subject to borrowing-base availability; $47.9 million was additionally available at June 30. The facility matures in October 2019, with two potential one-year extensions subject to lender approval. The rate is one-month LIBOR plus 345 basis points, with a 10-basis-point unused-line fee. No long-term debt was outstanding.
- The company reported compliance with facility covenants at June 30. Covenants include a maximum leverage ratio of 2.75 to 1.0 and a minimum current ratio of 1.2 to 1.0. Management said existing resources should fund operations for at least 12 months, except for possible significant acquisitions.
Outlook, risks, and other matters
Management intends to pursue growth through acquisitions and new store openings as economic conditions improve, but provided no quantified earnings or revenue guidance. It cautioned that the boating business is cyclical and seasonal, and sensitive to consumer confidence, luxury spending, weather, and economic conditions; Florida represented approximately 53% of fiscal 2015 revenue. The company also depends on manufacturer and dealer agreements, and relies on inventory-backed financing. Inventory aging can reduce borrowing availability. A hypothetical 100-basis-point increase in borrowing rates would add approximately $1.8 million to annual pretax interest expense, based on the June 30 debt balance.
Foreign-currency movements can affect products sourced from Europe and China; the company was not using foreign-currency hedges at June 30. Management reported no long-lived-asset impairment and no material adverse effect expected from ordinary-course legal proceedings. Disclosure controls were assessed as effective at a reasonable-assurance level, with no material changes in internal control reported during the quarter.
Important facts for investors to verify
- Whether elevated comparable-store sales and boat demand persist, and how product mix affects gross margins.
- How the Russo Marine and other fiscal 2016 acquisitions contribute to sales, earnings, goodwill, and cash needs.
- Inventory aging, borrowing-base availability, covenant headroom, and the cost and availability of floor-plan financing.
- Whether tax expense remains near the reported effective rate and whether deferred tax assets are realizable.
- Exposure to seasonality, adverse weather, economic conditions, key manufacturers, and foreign-exchange movements.