MarineMax, Inc. — Form 10-Q Summary
Business context and reporting period. MarineMax is a recreational boat and yacht retailer, with related service, brokerage, financing, insurance, storage, and charter operations. At March 31, 2018, it operated 63 retail locations in 16 states. This filing covers the fiscal second quarter and six months ended March 31, 2018; financial statements are unaudited.
Financial performance
| Metric | Three months ended March 31, 2018 | Six months ended March 31, 2018 |
|---|---|---|
| Revenue | $270.6 million; up 10.4% year over year | $507.5 million; up 7.5% |
| Gross profit / margin | $69.3 million / 25.6%, versus $61.1 million / 24.9% | $128.5 million / 25.3%, versus $114.2 million / 24.2% |
| Operating income | $10.6 million, versus $6.3 million | $19.6 million, versus $12.3 million |
| Interest expense | $2.8 million, versus $2.0 million | $5.4 million, versus $3.6 million |
| Net income | $6.2 million, versus $2.7 million; diluted EPS $0.27, versus $0.11 | $10.4 million, versus $5.4 million; diluted EPS $0.46, versus $0.22 |
For the quarter, comparable-store sales rose 8.4%; acquired locations outside the comparable-store base contributed $5.0 million of revenue growth. For the six months, comparable-store sales rose 4.2%, and such acquired locations contributed $15.8 million. Management attributed margin gains to improved used-boat margins in the quarter, improved new- and used-boat margins over six months, and a larger contribution from higher-margin brokerage, finance and insurance, service, and storage activities. SG&A rose in dollars but declined as a percentage of revenue.
Cash flow, balance sheet, and debt
- Six-month operating cash flow was negative $19.4 million, compared with negative $42.3 million a year earlier. Investing cash outflow was $8.5 million, versus $26.6 million; financing provided $43.0 million, versus $82.0 million. Cash increased $15.2 million to $57.1 million.
- At March 31, 2018, inventory was $423.9 million and current assets were $521.9 million. Current liabilities were $368.2 million; total assets were $690.2 million and shareholders’ equity was $318.9 million.
- Short-term borrowings were $299.2 million, up from $254.2 million at September 30, 2017; the company reported no long-term debt. The inventory financing facility has a $350 million commitment, subject to borrowing-base availability, with approximately $23 million additionally available at quarter-end. The reported interest rate on outstanding borrowings was approximately 5.1%, versus 4.2% a year earlier.
- The company reported compliance with its credit-facility covenants. Its stated covenant limits include a maximum leverage ratio of 2.75 to 1.0 and a minimum current ratio greater than 1.2 to 1.0.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management said existing capital resources should be sufficient for operations for at least 12 months, except for possible significant acquisitions, and identified acquisitions and new-store openings as growth strategies.
- Results are seasonal and exposed to discretionary consumer spending, economic and boating-industry cycles, weather, and regional concentration; Florida represented about 55% of revenue in fiscal 2017. Inventory aging can reduce borrowing capacity under the floor-plan facility.
- A hypothetical 100-basis-point increase in variable borrowing rates would add approximately $3.0 million to annual pretax interest expense, based on quarter-end debt and the assumptions stated in the filing. The company was not then using foreign-currency hedges.
- Hurricane Irma-related insurance proceeds and employee retention credits affected the period. The six-month tax rate was 27.1%, compared with 38.1%; the Tax Cuts and Jobs Act remeasurement increased tax expense by approximately $889,000. The filing also notes hurricane-damaged British Virgin Islands inventory and ongoing repair work.
- Adoption of the new lease standard is expected to materially increase recorded assets and liabilities, primarily from operating leases; the company planned adoption in fiscal 2020. Revenue-standard adoption was planned for fiscal 2019 and was not expected to have a material impact.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. Ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether sales and margin growth continue, particularly comparable-store trends and the contribution of higher-margin services and finance and insurance products.
- Inventory levels, aging, valuation allowances, and the borrowing-base availability supporting the floor-plan facility.
- How rising interest rates and borrowings affect interest expense and covenant headroom.
- The final accounting and cash-flow effects of hurricane damage, insurance recoveries, and tax-law changes.
- The eventual balance-sheet impact of lease-standard adoption and the company’s capacity to fund acquisitions and growth while maintaining liquidity.