MarineMax, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2013; compared with the three months ended December 31, 2012 unless otherwise noted. Financial amounts below are in U.S. dollars.
Business context
MarineMax is a recreational boat retailer with 54 locations in 18 states and a yacht-charter business in the British Virgin Islands, which was not material to results. Its operations include boat sales, service, brokerage, storage, and arranging customer financing and insurance. The quarter falls in a seasonally weaker period for most markets outside Florida.
Financial performance
| Metric | Quarter ended Dec. 31, 2012 | Quarter ended Dec. 31, 2013 |
|---|---|---|
| Revenue | $99.1 million | $109.6 million |
| Gross profit / gross margin | $26.3 million / 26.5% | $29.9 million / 27.3% |
| SG&A / share of revenue | $29.4 million / 29.7% | $32.3 million / 29.4% |
| Operating loss | $3.2 million | $2.4 million |
| Interest expense | $1.0 million | $1.0 million |
| Net loss | $4.2 million | $3.4 million |
| Basic and diluted loss per share | $0.18 | $0.14 |
| Cash used in operating activities | $9.8 million | $11.4 million |
Revenue rose 10.6%; comparable-store sales increased 9.5%. Management attributed growth to new-boat sales, including newer brands, parts and service, and improving economic and boating-industry conditions. Gross margin improved with higher sales and stronger new- and used-boat margins. SG&A increased with commissions, insurance costs, and payroll, but declined as a percentage of revenue. There was no income tax benefit in either period; deferred tax assets remained fully valued due to cumulative recent losses.
Cash, debt, and liquidity
- At December 31, 2013, cash was $15.9 million, versus $23.8 million at September 30, 2013. Current assets were $272.4 million and current liabilities $156.4 million.
- Inventory was $238.1 million, up from $228.0 million at September 30, 2013. The company cited seasonal inventory buildup and timing of boat receipts as drivers of operating cash use.
- Short-term borrowings were $125.9 million; the company reported no long-term debt. It had approximately $35.1 million of additional borrowing availability under its inventory-financing facility.
- The facility provides up to $205 million, subject to borrowing-base limits, and matures in June 2016, with two possible one-year extensions subject to lender approval. The variable interest rate was 355 basis points above one-month LIBOR; the reported rate on borrowings was approximately 3.6%. MarineMax was in compliance with facility covenants at quarter-end.
- Investing activities used $1.6 million, mainly for improvements to existing retail facilities. Financing activities provided $5.1 million, primarily from net borrowings and stock-plan proceeds.
Changes, outlook, and risks
Compared with the prior-year quarter, revenue, gross profit, gross margin, and loss per share improved; operating cash use increased. Management said improving economic conditions and industry inventory levels supported sales and margins. It believes prior actions to address weak market conditions have helped it gain market share and expects its retail strategies to support future growth. No quantified earnings or revenue guidance was provided. MarineMax had completed no acquisitions in fiscal 2014 to date and said acquisitions and store openings remain longer-term strategies as conditions normalize. Management said existing capital resources should fund operations for at least 12 months, apart from possible significant acquisitions.
- Seasonality and demand: Boat retail is cyclical and discretionary; most locations typically see lower sales and higher inventory and borrowings in the December and March quarters. Economic weakness, consumer confidence, and local conditions—particularly in Florida, which represented about 51% of fiscal 2013 revenue—could hurt results.
- Weather and inventory: Weather can disrupt sales and operations. Inventory aging and market changes may reduce borrowing capacity or require larger valuation allowances; the inventory valuation allowance rose from $1.8 million at September 30 to $2.5 million at December 31, 2013.
- Financing and rates: All short-term debt bore variable rates. A 100-basis-point increase was estimated to raise annual pretax interest expense by about $1.3 million, assuming no mitigating actions or additional manufacturer assistance. Borrowing availability also depends on eligible inventory, lender funding, and covenant compliance.
- Brands and foreign exchange: New Brunswick boats represented approximately 38% of fiscal 2013 revenue. Changes to dealer agreements or manufacturer programs could affect results. Currency movements can affect products sourced from Europe and China; MarineMax was not using foreign-currency hedges at quarter-end.
- Legal matter: Former Surfside-3 Marina shareholders appealed a judgment in MarineMax’s favor in a lawsuit alleging damages in excess of $10 million. The appeal was pending; management believed the case lacked merit and would not materially affect the company.
Investor verification points
- Whether comparable-store growth and improved boat margins persisted after the seasonally weak quarter.
- Inventory levels, aging, valuation allowances, and the resulting borrowing-base availability under the floor-plan facility.
- Operating cash use and liquidity through seasonal inventory and working-capital needs.
- Variable-rate debt exposure, covenant headroom, and the pending Surfside-3 appeal.
- Actual acquisition and store-opening plans, and whether the expected economic and industry improvement materialized; the filing provides no quantified forward guidance.