Business context and reporting period
MarineMax, Inc. is a U.S. recreational boat retailer, also providing brokerage, service, parts, storage, financing and insurance-related products. This Form 10-Q covers the fiscal third quarter and nine months ended June 30, 2013; financial statements are unaudited. At quarter-end, the company operated 54 locations in 18 states.
Financial performance and liquidity
Amounts below are in millions, except per-share data. The filing reports its statements in thousands.
| Metric | Three months 2013 | Three months 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $175.8 | $151.3 | $434.8 | $387.1 |
| Gross profit | $46.8 | $40.3 | $110.7 | $100.2 |
| Gross margin | 26.6% | 26.6% | 25.5% | 25.9% |
| Operating income | $13.8 | $5.6 | $12.1 | $6.0 |
| Net income | $13.6 | $4.6 | $9.8 | $2.7 |
| Diluted EPS | $0.56 | $0.20 | $0.41 | $0.12 |
| Operating cash flow | Not stated separately | Not stated separately | $(0.4) | $23.5 |
- Quarterly revenue rose 16.1%; comparable-store sales increased 16.4%. Nine-month revenue rose 12.3%, with comparable-store sales up 12.8%.
- Quarterly gross profit grew 16.2%, while nine-month gross margin fell 0.4 percentage points, primarily due to a mix shift toward larger, generally lower-margin yachts.
- Reported SG&A was $33.0 million in the quarter and $98.6 million year to date. Both periods included a $7.0 million Deepwater Horizon settlement recovery recorded as a reduction of SG&A. Excluding the recovery, quarterly SG&A was $40.1 million (22.8% of revenue); nine-month SG&A was $105.6 million (24.3% of revenue).
- At June 30, cash was $37.3 million, current assets were $307.0 million and current liabilities were $195.3 million. Short-term borrowings were $142.3 million; the company reported no long-term debt. It had approximately $16.6 million of additional borrowing availability, subject to borrowing-base limits.
- Operating cash use of $0.4 million for nine months reflected increased inventory and receivables, partly offset by income and higher customer deposits. Investing activities used $10.6 million; financing activities provided $24.7 million, primarily from increased short-term borrowings. Cash increased $13.7 million from the fiscal year start.
Material changes, outlook and risks
- In June 2013, MarineMax amended its principal inventory financing facility, raising the commitment from $150 million to $205 million and extending maturity to June 2016, with two possible one-year extensions subject to lender approval. The interest rate became one-month LIBOR plus 355 basis points. Availability is constrained by eligible and aging inventory. A separate $30 million Azimut inventory facility was extended through August 31, 2013.
- The company was in compliance with facility covenants at June 30, 2013. Management said existing capital resources should fund operations for at least 12 months, except potentially in the event of significant acquisitions.
- Management attributed sales growth to new-boat sales, additional brands, used boats and finance and insurance products, alongside improving economic conditions. Persistent poor weather and Hurricane Sandy’s lingering effects weighed on northern markets. Management expects its strategies to support future revenue and growth, but cautioned that economic conditions and results remain uncertain; no quantified earnings or revenue guidance was provided.
- Operations are seasonal and sensitive to weather, discretionary consumer spending and economic conditions. MarineMax noted that Brunswick-manufactured new boats represented about 47% of fiscal 2012 revenue, creating supplier concentration exposure. Variable-rate borrowings expose earnings to rate changes: a hypothetical 100-basis-point increase was estimated to add about $1.4 million to annual pretax interest expense.
- The company recognized a favorable $1.0 million income-tax benefit year to date from a state tax settlement and said its net deferred tax asset remained fully reserved. Hurricane Sandy-related costs were largely offset by insurance proceeds. The company said ordinary-course legal matters were not expected to have a material adverse effect; a former-acquisition shareholders’ lawsuit seeking damages exceeding $10 million remained pending, with MarineMax asserting it was without merit.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- How much of the sharp increase in quarterly and year-to-date earnings reflects the $7.0 million settlement recovery and the state tax benefit, rather than recurring operations?
- Whether inventory growth, borrowing-base restrictions and seasonal working-capital needs affect cash generation or access to floor-plan financing.
- Whether sales momentum and comparable-store growth persist, given weather exposure, yacht mix and economic sensitivity.
- The renewal or replacement status of the Azimut inventory facility, which was extended only through August 31, 2013.
- The outcome and potential exposure of the pending litigation, and any further Deepwater Horizon settlement recovery; the filing does not specify a clear amount for any additional recovery.