MarineMax, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2016. Financial statements are unaudited. MarineMax is a U.S. recreational boat and yacht retailer; it reported 52 retail locations in 15 states as of March 31, plus a British Virgin Islands charter operation.
Financial performance
| Metric | Three months ended March 31, 2016 | Six months ended March 31, 2016 |
|---|---|---|
| Revenue | $199.6 million, up 15.9% | $369.1 million, up 11.8% |
| Gross profit / gross margin | $49.0 million / 24.6% | $90.6 million / 24.6% |
| Operating income | $5.6 million | $8.2 million |
| Interest expense | $1.6 million | $2.8 million |
| Net income | $2.4 million; diluted EPS $0.10 | $3.3 million; diluted EPS $0.13 |
Six-month operating cash flow was negative $53.5 million, versus negative $24.9 million in the prior-year period; the principal use was inventory growth, alongside higher receivables. Investing cash outflow was $13.9 million, including $9.3 million used for acquisitions, while financing cash inflow was $78.8 million, largely from increased floor-plan borrowings. Cash increased to $44.0 million.
At March 31, total assets were $575.2 million and stockholders’ equity was $286.3 million. Inventory was $346.4 million. Short-term borrowings were $219.0 million; the company reported no long-term debt and approximately $27.1 million of additional facility availability, subject to borrowing-base limits.
Changes versus prior comparable periods
- Quarterly comparable-store sales increased 16.2%; six-month comparable-store sales increased 12.2%. Management attributed growth primarily to new-boat sales and improving economic and industry conditions.
- Gross margin rose from 24.5% to 24.6% for the quarter and from 24.1% to 24.6% for the six-month period, primarily reflecting improved new-boat margins.
- SG&A increased in dollars, but declined as a share of revenue: 21.8% versus 23.6% for the quarter and 22.3% versus 23.2% for six months. Management cited operating leverage and efficiency, partly offset by sales commissions and new-brand marketing.
- Interest expense increased with higher borrowings. Income tax expense was $2.1 million for six months versus none in the prior period, following the release of most of the deferred-tax valuation allowance in fiscal 2015.
Outlook, risks and notable items
- No quantified earnings or revenue guidance was provided. Management said it expects existing capital resources to fund operations for at least 12 months, except for possible significant acquisitions, and intends to pursue acquisitions and new-store growth as conditions improve.
- The inventory financing facility was amended in October 2015: commitment increased to $260 million and maturity extended to October 2018, with possible one-year extensions subject to lender approval. Borrowings bear interest at one-month LIBOR plus 345 basis points. The company reported covenant compliance at March 31.
- All short-term debt bears variable rates. A 100-basis-point rate increase was estimated to raise annual pretax interest expense by approximately $2.2 million, assuming no mitigating actions or additional vendor assistance.
- The business is seasonal and exposed to weather, economic and consumer-spending conditions, especially in Florida. It also depends on key boat manufacturers and dealer agreements; foreign-currency movements can affect imported-product costs and competitiveness.
- Inventory valuation allowance for new and used boats, motors and trailers increased from $1.8 million at September 30, 2015, to $3.3 million at March 31, 2016. Management reported no long-lived-asset impairment and no material adverse effect expected from ordinary-course legal proceedings.
- MarineMax repurchased 147,306 shares during the quarter at an average $15.18 per share. A new program authorized purchases of up to 1.25 million shares through February 28, 2018.
Key facts for investors to verify
- Whether revenue growth and improved new-boat margins persist, and how much was driven by industry recovery versus company-specific performance.
- Inventory levels, aging, valuation allowances and borrowing-base availability, given the substantial seasonal operating cash outflow and reliance on floor-plan financing.
- Facility covenant headroom and sensitivity to LIBOR increases, inventory curtailments and lender availability.
- Cash conversion and the returns and integration outcomes of the two small acquisitions reported in the current fiscal year.
- The sustainability of profitability and deferred-tax-asset realization assumptions following the prior-year valuation-allowance release.