MarineMax, Inc. — Q3 FY2017 Form 10-Q
Reporting period: Three and nine months ended June 30, 2017; amounts below are in millions of dollars except per-share data. MarineMax is a recreational boat and yacht retailer operating 62 locations in 17 states, with related service, brokerage, financing, insurance, storage, and charter businesses.
Financial performance
| Metric | Three months ended June 30, 2017 | Year-over-year change | Nine months ended June 30, 2017 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $329.8 | Down 4.6% | $801.7 | Up 12.2% |
| Gross profit | $84.8 | Up 7.5% | $199.0 | Up 17.4% |
| Gross margin | 25.7% | Up from 22.8% | 24.8% | Up from 23.7% |
| SG&A expense | $59.6 | Up 9.6% | $161.4 | Up 18.1% |
| Operating income | $25.2 | Up from $24.6 | $37.6 | Up from $32.8 |
| Interest expense | $1.9 | Up 28.8% | $5.5 | Up 28.7% |
| Net income | $14.2 | Up from $13.8 | $19.6 | Up from $17.0 |
| Diluted EPS | $0.57 | Down from $0.56? No; up from $0.56 | $0.78 | Up from $0.69 |
Third-quarter comparable-store sales fell 10.0%, primarily due to lower large-boat and yacht sales; acquired stores partly offset the decline. For the nine-month period, comparable-store sales rose 5.5%, supported by new and used boat sales and, in management’s view, improving industry and economic conditions. Management attributed improved gross margins in both periods mainly to stronger new- and used-boat margins and a greater contribution from higher-margin brokerage, finance and insurance, service, parts, storage, and charter activities. SG&A growth reflected acquisitions and increased business.
Cash flow, balance sheet, and financing
- Nine-month operating cash flow was a use of $5.7 million, versus $24.0 million provided in the prior-year period. Management cited inventory growth and timing of boat receipts, higher receivables, and lower customer deposits.
- Investing activities used $30.1 million, including $12.4 million of property and equipment purchases and $18.7 million of net cash used in acquisitions. Financing activities provided $56.2 million, mainly from increased short-term borrowings.
- Cash was $58.9 million at June 30, 2017; inventory was $385.3 million. Short-term borrowings were $241.6 million, with no long-term debt. Total current assets were $491.8 million and current liabilities were $323.3 million.
- The May 2017 amended inventory financing facility increased the commitment to $350 million from $300 million and extended maturity to October 2020, with two possible one-year extensions subject to lender approval. Approximately $49.4 million of additional borrowing availability remained at quarter-end. The facility rate was one-month LIBOR plus 345 basis points; the reported rate on outstanding borrowings was about 4.5%.
- MarineMax said it was in compliance with facility covenants and expected existing capital resources to fund operations for at least 12 months, except for possible significant acquisitions. A hypothetical 100-basis-point increase in borrowing rates was estimated to add about $2.4 million to annual pretax interest expense.
Outlook, risks, and notable items
- No specific earnings or revenue guidance was provided. Management said acquisitions and new-store openings remain growth priorities and described plans to accelerate growth as conditions improve.
- Results are seasonal and cyclical; boat sales and inventory financing are sensitive to consumer confidence, discretionary spending, weather, and economic conditions. Florida represented 55% of fiscal 2016 revenue, and the business has significant exposure to certain manufacturers and dealer agreements.
- Inventory aging can reduce borrowing capacity under the floor-plan facility. Variable-rate debt exposes earnings to LIBOR movements; foreign-exchange changes may affect pricing and profitability of imported products, though the company said it was not then hedging foreign-currency exposure.
- MarineMax acquired Hall Marine Group in January 2017, recording $16.0 million of goodwill. Management reported no identified long-lived-asset impairment and said its qualitative goodwill assessment did not indicate impairment at June 30.
- Pending adoption of the lease accounting standard was expected to materially increase reported assets and liabilities because of retail-location operating leases. Management did not expect the new revenue-recognition standard to have a material impact. Adoption of the inventory standard had no reported impact.
- Ordinary-course legal matters were not expected by management to have a material adverse effect. Disclosure controls were assessed as effective at a reasonable-assurance level, with no material change in internal controls reported for the quarter.
Investor verification points
- Reconcile the sharp quarterly comparable-store sales decline with the nine-month growth, including boat mix, acquired-store contributions, and subsequent demand trends.
- Assess inventory levels, aging, margins, and the borrowing-base availability and covenant headroom under the amended credit facility.
- Review whether operating cash flow improves as inventory is sold and seasonal customer deposits and working-capital balances change.
- Evaluate acquisition integration and the contribution of Hall Marine Group against higher SG&A, borrowing, and goodwill.
- Confirm the expected balance-sheet impact of lease accounting and monitor manufacturer concentration, weather exposure, and variable-rate interest costs.