MarineMax Inc (HZO) 2006 Q2 法說會逐字稿

Welcome to the MarineMax Incorporated Second Quarter Fiscal 2006 Earnings Results Conference Call. Today's call is being recorded. At this time for opening remarks and instructions, I would like to turn the call over to Brad Cohen.

Thank you very much, operator. Good morning, everyone, and thank you for joining this discussion of MarineMax's fiscal 2006 second Quarter results. I'm sure that you've all received a copy of the second quarter press release, but if you have not, please call Linda Cameron at 727-531-1700 and she will fax or e-mail one to you immediately. I would now like to introduce the management team of MarineMax, Bill McGill, Chairman, CEO, and President, and Mike McLamb, Chief Financial Officer for the Company. Management will make some comments about the quarter and then be available for your questions. Mike.

Thank you, Brad. Good morning and welcome to MarineMax's Fiscal 2006 Second Quarter Earnings Conference Call, which is also being broadcast over the internet. Before I turn the call over to Bill, I'd like to tell you that certain of our comments are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations. These risks include but are not limited to the impact of seasonality and weather, general economic conditions and the level of consumer spending, the Company's ability to complete and integrate its acquisitions into existing acquisitions, and numerous other factors identified in our Form 10K and other filings with the Securities and Exchange Commission. With that in mind, I would like to turn the call over to Bill.

Thank you, Mike, and good morning, everyone. We appreciate you joining us as we share our results of the second quarter of fiscal 2006. I will discuss our quarterly results, which Mike will elaborate on further, then provide you with an update on current business trends and our recent acquisitions, followed by an outlook for the remainder of fiscal 2006.

I would like to start by thanking our team for their unwavering dedication and hard work, which again has resulted in our strongest second quarter results, ever. Revenue grew about 26% over last year, which was also a record quarter, to over $287 million with our net income interview in excess of 22% over last year's results, yielding $0.46 cents earnings per diluted share.

Typically the major driver of our business is the numerous boat shows that we participate in across the country from New York to Miami to California and many other strategic cities. The show this year were mixed with some better than others -- which is not that unusual. However, similar to last year, March, which is a month driven more by store traffic than boat shows was pretty strong. We are encouraged by this trend. Overall business is healthy, including in Florida where we saw a rebound from the hurricane inflicted December quarter.

In fact, while most of our operating regions showed solid growth during the quarter, our same store sales growth was a little stronger in Florida than in the rest of the country, again showing the resiliency of our customer. However, when we travel the state, parts of Florida have not still fully rebuilt from the hurricanes, particularly important Southeast coast. Over time, this could still prove to be an opportunity for us to as the recovery progresses, however, it is a slow rebuilding process.

We experienced solid revenue growth across most of the major categories in which we focus. Also, we saw a substantial increase in our average unit selling price as larger boats have remained strong and the availability of small boats and manufacturers has failed to keep pace with last year's levels, resulting in fewer small unit sales. Keep in mind it takes a lot of small 15,000 boats to make up one $400,000 or even a $1 million yacht. We feel pretty comfortable that had we had the same level of availability of smaller product this year during the boat show season as we did last year, that our unit growth and therefore our revenue would have been even higher.

In addition to healthy boat sales, we are happy with the progress we made in non-boat sale revenue growth, such as finance, and insurance, and service categories, which expanded modestly as a percentage of our business. These categories help to keep our gross margins close to last year's levels, despite an increase in larger boat sales which typically carry particularly lower gross margins.

As we have discussed in the past, our ongoing area of focus for us is to improve our operating leverage. We did achieve some leverage during the quarter, and were able to reduce our SG&A as a percentage of sales. We hope to continue to leverage our fixed cost base and allow more of the revenue dollars to flow through the bottom line. I caution, however, that while we anticipate continuing progress, you should not expect accelerated improvement. We are actively pursuing operating efficiencies, but as we have shared with you before, we will not cut expenses such as training and customer services at the risk of diluting the important customer experience.

Before turning the call over to Mike, I would like to make a few comments on our recent acquisitions. Over the past 4 months we have announced 3 significant expansions, which besides just making us a larger company have brought a number of tangible benefits. We have expanded our geographic presence in several important boating markets, including the Midwest, with the Port Arrowhead Group acquisition, which we completed in mid January, and in the Northeast with the Surf Side 3 marina acquisition we completed March 31st. Additionally with the Great American Service Yard we acquired in February, we added our ability to better serve our customers' needs on the important west coast of Florida. In particular, the Great American expansion helps us better take care of the larger boat and yacht customer, which we feel will be a continuing area of growth and a focus for MarineMax.

Additionally, these acquisitions have diversified our revenue strength, seasonally, geographically, and by product line including additional opportunities to expand our service, parts, accessories, and finance and insurance businesses. Ultimately, they will allow further operating efficiencies in such areas as inventory management and marketing, and they have helped create a stronger relationship with Brunswick, our largest product partner.

On the last earnings call, we provided you with additional insights on the Port Arrowhead acquisition. And today I would like to give you a few specific thoughts on Surf Side 3. But first I will tell you that Port Arrowhead, the integration process is continuing to proceed very well and according to our plan.

As for Surf Side, we are excited to have the Surf Side team join MarineMax. I have personally known the principals for over 28 years and our teams already have a good working relationship. Their 15 locations in New York, Connecticut, and the surrounding areas give us a very prominent position in one of the most important boating markets in the world. This is our largest acquisition since MarineMax formed over 8 years ago and we believe that it's an excellent opportunity to establish and grow the MarineMax presence in the strategic northeast market. While we paid slightly more than we typically do on an acquisition, this does not represent a change in our acquisition philosophy. In this particular case, we felt the many benefits warranted the price and at the same time, the transaction is immediately accredited to our shareholders. Not only does this represent a very strong demographic market, a large number of Surf Side customers also have residences in Florida and along the Atlantic Coast where we have have a MarineMax presence. We can now better serve their needs up and down this popular boating route and offer sunny Florida boating during the cold winter months.

The [Barbaro] family has run a very good business. But as we have shown in the past acquisitions, we believe there are opportunities for many synergies and for us to avoid additional -- to add, excuse me, additional product in some of these new markets without cannablizing the existing brands. We also believe we can improve an already solid market share along with an operational and marketing efficiencies, and expand their operating margins. We are actively integrating our systems and procedures and just like we have commented in the past, it takes us about 24 months to begin to see the full benefits of the combined operation. We are pleased that Surf Side 3 management will be staying with us and we want to welcome the entire passionate Surf Side team to the MarineMax family.

And now I would like to turn to ask Mike to review the second quarter results in more detail and provide you with an updated guidance for fiscal 2006.

Thank you, Bill. I would also like to express my thanks to our team for delivering yet another strong quarter.

For the 3 months ended March 31st, 2006, revenue jumped about 26% to $287 million driven by a 14.4% increase in same store sales. As Bill indicated, this growth came from the expansion of the average unit selling price, driven by the continued strength in boat sales. From a high level perspective, a decline in small boat a sales, which by definition are more numerous than large boat sales, can have a disproportionate impact on the calculation. But as we have demonstrated this quarter, their impact on our overall results are not as significant either. I do want to be clear, we did see unit growth in most of the major categories in which we operate, with the notable exception being the smaller boats below 20 feet.

Gross margins dropped slightly to 23.9%. This decline was primarily attributable to the trend to larger boats that carry lower margins offset by modest expansions in our higher margin finance, insurance, and service businesses.

Our Selling, General, and Administrative expenses increased over 22% to 50 million and fell about 50 basis points as a percentage of revenue to 17.4%. Excluding the expense for stock options, the SG&A as a percentage of sales fell to about 17%. Additionally the Port Arrowhead acquisition that we completed in January does not operate with the same cost structure as MarineMax Consolidated, also inflating the SG&A percentage. Interest expense was up 59% due to a rising rate environment and additional borrowings associated with the acquisitions we completed. Our tax rate was up modestly to 39.5%. However, going forward with the higher tax structure in New York and Connecticut and surrounding areas, we are projecting our tax rate to migrate between 39.5% and 40%.

Finally net income for the second quarter increased 22.5% to $8.6 million, or $0.46 per diluted share, compared to net income of $7 million or $0.39 per diluted share a year ago. Excluding the impact of expensing stock options, our net income increased over 31% which is extremely strong earnings growth, especially considering that last March quarter was a record quarter as well.

Now I want to make a few comments on the 6 months ended March 31st, hitting only a few of the highlights. On the surface, our net income is down, but when you add back the $1.5 million associated with stock option expensing, and the $1.2 million in hard Hurricane Wilma costs, our net income is actually up about 13% year to date. Additionally our same store sales growth has recovered to be 6%. Both of the numbers are pretty good, but even much better considering that Hurricane Wilma adversely affected our largest market, Florida. Lastly, our gross margins are up through the first 6 months. Remember, we have indicated that bigger boat sales have been a driver of our same store sales growth, and as you all know bigger boat sales can carry lower gross margins. This means since margins are up, that we are not seeing any pricing pressure to speak of.

Turning to our balance sheet, at quarter end we had $14.9 million in cash, but as I said in the past, we utilize excess cash to reduce our inventory financing, so we have substantial cash in the form of unleveraged inventory. At March 31, we had equity in inventory, if you will, of approximately $130 million, which is down from the December quarter due to the Port Arrowhead and Surf Side acquisitions we made. Inventory increased to 514 million from $354 million at the end of March last year. Of this increase, over $120 million is attributed to the Port Arrowhead and Surf Side 3 acquisitions. Excluding these two acquisitions, inventories increased 11%, a rate lower than our March quarter same store sales increase and very much in line with the expectations we discussed on our December earnings call. As this year wraps up, we expect to see our same store inventory increase fall in line with our sales growth expectations. Remember we front loaded some of our larger boat purchases, which has proven to be a good decision.

Overall, except for the lack of availability of some smaller product, we feel pretty comfortable with our inventory levels as we move into the summer selling season. The balance sheet caption, other long-term assets, jumped over $4 million. This category includes the investment we have made in the Great American Service Yard that Bill mentioned. The investment, which has been made in conjunction with Brunswick, is currently still held jointly, but will be separated so each company will receive their respective property. At that time, it will move to property and equipment on our balance sheet, which also saw a sizable jump from last March. The increase of property equipment is due primarily to the Port Arrowhead acquisition, where we acquired three pieces of property including a large marina, and some other property we've acquired over the past 12 months. Our real estate is a growing asset with substantial value over its carrying amount with most of it on the water in very desirable markets within the country.

Customer deposits are up 68%, although much of this increase is due to the two new acquisitions. As with we have said in the past, it's nice to see deposits up, regardless of the percentage, but this line is not necessarily indicative of true trends or the future, as our deposits are very lumpy.

The timing of the acquisitions also impacted the balance on our revolving line of credit, which grew to $385 million at the end of the quarter. The balance on the line will drop dramatically as we move into the very high cash flow period of the summer.

Now on to our most recent acquisitions, Surf Side 3. Under the agreement, MarineMax acquired the operating assets of Surf Side for $24.8 million in cash and approximately 665,000 share of MarineMax stock, plus working capital, some adjustments, and the assumption of certain liabilities, including floor plan financing obligations relating to Surf Side's inventory. As we stated in the acquisition press release, we expect the acquisition to be accretive, contributing approximately $0.10 to $0.12 to MarineMax' dilutes earnings per share in the first 12 months. Seasonally, Surf Side usually loses money December quarter, struggles to break even in the March quarter, and makes substantially all of its profits in the June and September quarters. As we look to provide you guidance on Surf Side's impact to MarineMax in the back half of fiscal 2006, we recognize that in any acquisition, the business and the team get distracted due to the integration efforts and changes that occur, which often impact normal ongoing operations. As such, while it's true that Surf Side traditionally earns more in the June and September quarters than it does in the December and March quarters, we feel at this early stage in the integration process, it is prudent to use the $0.10 to $0.12 contribution range through the remainder of our Fiscal 2006, as well.

Surf Side, as I just mentioned will bring additional seasonality to MarineMax. With all of the operations in the northeast, Surf Side's revenues and more importantly its profits are weighted toward the summer months. As you are updating your models, it is very important to think of the increased seasonality that both these two significant acquisitions bring to MarineMax. I encourage everyone to think about the December quarter as a small loss quarter for MarineMax. Given our shift away from the Sunbelt, this is the proper way to think about our business. March will also be damp and modestly as well from the seasonality shift. As an example, achieving this year's bottom line results, next month will be a challenge.

Now, let me discuss our guidance for fiscal 2006 which includes the impact of the Surf Side 3 acquisition. I will start by generally reminding you that we only give annual guidance due to the impact of seasonality, the weather, and the lumpiness that larger boat sales can bring to our results. At this point, while we may technically be six months into our year, from an earnings standpoint, we are only 25% or less due to the very high profits we make in the last two quarters of our year. Based on this quarter's results, positive industry trends, and the estimated earnings accretion from Surf Side, we are raising our Fiscal 2006 EPS guidance to a range of $2.05-$2.13 per diluted share. This guidance excludes the impact from any potential future acquisitions which we may make.

The most specific assumptions we have made to arrive at these estimates are as follows: Currently we believe that our full year same source sales growth will be in the mid-single digits, which is slightly more aggressive than last quarter's guidance. We expect the growth will be driven by larger products, given the current small boat availability. Keep in mind this is on top of the 23% same store sales growth we generated last year, which is obviously a sign that we are confident about the marine industry and we are enthusiastic about our product line-up for this year and the trends we are experiencing. We expect modest gross margin improvements, but anticipate our SG&A to be about where it was last year to perhaps slightly higher given the cost associated with stock option expensing, the hurricane costs, and the SG&A structure of both Port Arrowhead and Surf Side. This will result in a very slight increase in our operating margin. We expect our annual interest expense will track higher than 2005 due to the rising rate environment and the cash we invested to complete the Port Arrowhead and Surf Side 3 transactions. It is likely that our interest will incrementally exceed 1% of revenue. Lastly our tax rate should be approximately 39.8% for the reasons I cited earlier. Additionally, as I just noted, this guidance is net of in estimated $0.10 per diluted share impact from adopting the new stock option accounting requirements.

Now, I'll turn it back over to Bill for additional comments.

Thank you, Mike. Before we take your questions, I just want to reiterate a few points. The ongoing success this Company has been able to achieve each quarter and over the long-term validates that we are building one of the strongest experienced focused brands to serve customers in the recreational industry, by focusing on the lifestyle of boating, mainly what boating does for the individual and for the family. Our growth strategy is two-fold, organic same store sales augmented by strategic acquisitions. Same store sales growth will continue to drive our business is one of the key metrics that validates that our strategies are working. The retail marine industry is very fragmented and we believe there are still many opportunities to consolidate and increase efficiencies and serve boating customers even better.

Our recent uptick in acquisition activity is a result of our unique position of the only consolidator in the industry. We pursue acquisitions when they make sense from a strategic, cultural, and financial perspective and our balance sheet strength allows us to take advantage of the opportunities when they do become available. We now have 85 locations and 21 states, and we're not done yet.

But I want to reiterate, same store sales is what we focus on hourly, daily, monthly, all the time. Every day our sales senior team and stores focus on how to drive more business to our existing infrastructure while exceeding our the expectations of our customers and team members. We understand we are in the people business and top grading is a vital culture of MarineMax, and we make sure we have the right people in the right seats. We are singularly focused on maintaining our momentum and getting even better at reducing costs and maximizing that value of our assets. MarineMax generates significant cash and we're always looking for best ways to redeploy to get the optimal return on investment, whether it's expanding our presence, enhancing our product line-up, or enhancing our operations. In our view, if we focus on these competencies, we [INAUDIBLE] even more of a valuable company in the future.

Our performance demonstrates once again the strength that the core strategies along with the commitment and the ability of our team to execute. We are enthusiastic about the business prospects for fiscal 2006 and beyond and are confident that we are unique in our ability to leverage our industry leading position. We confident that by adhering to these customer-centric core strategies, we will continue to gain market share and generate short and long-term shareholder value.

I'd now like to turn the call over to the operator who will open the call up to your questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll pause for just a moment. Our first question will come from Andrew Hodkin with RBC Capital Markets.

Good morning, thanks.

Morning, Andrew.

On the Surf Side acquisition, are you planning on doing anything differently for this one? And integrating it because of the performance building your, kind of your identity on the East Coast?

No, really, Andrew, he only thing that's probably a little different with this acquisition than let's say like the Ozarks, is that there's a new computer system that we installed actually prior to the acquisition, so we've got a lot of training that's still ongoing, so to get them up to speed on our systems and procedures is a little bit more of a challenge than it was with, or is with the Lake of the Ozarks. But as far as the customers are concerned, as far as marketing is concerned, as far as the opportunities for the north, south MarineMax connection, we're going to stay on course with what we always do and they're on the page. So not a whole lot of changes, except more in the system, the infrastructure, but not in the sales and marketing end of the business.

Okay, great. Can you comment on your used business. Kind of how that's performing, sales growth and kind of margins?

You know, it's funny, we get asked that question from time to time, sometimes people think used is getting better or worse depending on what's happening, from a big picture standpoint, used continues to be about the same percentage of our business now as it is been in the past. I guess as we see strength in the the larger boats, you know, continued strength and gaining strength really, you do get more trades there so that kind of goes hand and hand with the larger boat sales that we're seeing.

But the key there, Andrew, is that most of our used business is a result of trades. So it kind of tracks as a percentage of our total revenues just like the new boats do.

Okay. And then just kind of staying on the used boats, if you were to look at your inventory, that has the amount of used boat inventory changed year over year?

Dollar-wise, it's up because we've grown, but as a percentage, I don't believe it's up as a percentage. I have not done that math at the end of this quarter. But we watch all of our inventory very closely, and we track it actually by unit by day, we don't talk about turns within MarineMax, we talk about that unit's been in our store for 30 days, for 60 days, and our used seems to be tracking about like it did last year, as well.

But one of the real synergies, Andrew, is that like with you know, Surf Side and the Lake of the Ozark acquisitions, we have the ability to move that inventory around. So some of that used product that's in New York or in Missouri, you know, may be sold in other parts of the country and vice versa, and the same goes with the new inventory. So that's one of the large synergies that exists is the availability of new and used inventory as one company.

Okay, and then just lastly, there have been been some reports on slowing housing markets in Florida. I know you said Florida was up this quarter, but are you seeing any kind of evidence as of, you know, the housing prices kind of rolling over, impacting a demand for boats?

I could tell you we have certainly not up until now. You know, Florida is -- continues to be a very strong growth state overall, I mean there is a lot of people moving into the state. We continue to expect to see good things coming out of Florida.

Okay, great. Thanks a lot.

Thank you, Andrew.

Thank you, Laura Richardson with BBT has our next question.

I just wanted to dig in a little more in this small boat verses large boat subject. Is it -- it sounded like you're expecting that there's going to be a shortage of the small boat inventory for how long going forward?

I would say from now through the rest of this model year that ends June 30th.

Okay.

Some of it was a decision on our part. Last year we got very, very aggressive in select markets to grow market share and so we went out as more of a price model on some of the smaller entry-level products. We elected this year not to do it.

Okay.

And so as a result, the, you know, we didn't go out and drive the share and as such didn't have the products available. They were lower in gross profit type decisions that were made to gain market share. So not all of it is the manufacturer's inability to produce, some of it is the fact that we made a decision.

Yeah. Understood. So Mike, you said probably through June, it's going to be the same pattern?

Yes, correct, now I will tell you that, you know, as MarineMax's going beyond $1 billion level, the shortfall in those units is not going to have a material impact. And it's already all baked into the expectations we just talked about.

Okay. And would you get a little more specific on that composition of the 14% comp in this quarter. Was it -- is it fair to assume that was entirely price?

Yeah, absolutely. The strength that we continue to see and it's actually, it's gaining momentum, let's say above 30 feet. We certainly experienced that this quarter, so it was entirely price. I won't say entirely larger product.

Right. So units could have been like zero or --

Yeah, let me just comment on that. It's entirely a migration to a larger product, let's say above 30 feet in general, but when we go in and look into the details of the categories that we're in and unit by unit, with the exception of the below 20-foot product that Bill talked about, we see unit growth happening within the fish boat series that we carry and also in Sea Ray and the other brands that we have. And that's why we made the comments that we did about the industry being healthy and --

and one of the challenges is, as you know very well, Laura, $15,000 sale counts as one unit just like a $1 million sale.

Right. Okay. Understood. And then just the last question on that subject is, so for the year, you think the gross margin should be relatively flat? Is that mostly because second half of last year, you know, we had some gross margin contraction?

It's the migration to larger product, still.

But to be flat for the year, you still need, you know, you can't have your gross margin go up the next couple of quarters -- excuse me, your cost of goods go up the next couple of quarters.

That's correct.

So it should be kind of flattish, just up minimally the next couple of quarters, cost goods.

Yes.

Okay, good. And then I also want to ask about marketing, I've been getting a lot more e-mails from you guys. Is that a deliberate thing? Is it just my Maryland dealers? Is it something going on nationally? And what's going on with your newspaper advertising and your other types of advertising?

We are trying to make more advantage of the internet which is a very cost-effective way to market, and we're finding good successes with our e-sales team which is based here. And to your point about newspapers, we continue to do regional USA Today ads, which we're the only dealer that does that. I will add that our marketing expenses, and actually I think even absolute dollars did drop during the quarter, and I think we're getting a little more science behind what we're doing from a marketing perspective, which is good to see. Obviously from a CFO's perspective, it's nice to see declining market dollars but revenue going up.

Right. Right. You know you're not throwing the money away. Okay and last question, what are you thoughts on what hurricane season might be like this year? And what's baked into our projections?

We're not watching the weather channel this year.

We don't have a crystal ball here.

We've not baked anything into our expectations from a hurricane perspective.

And you know, Laura, who knows what the weather is going to do here over the next 6 months or 8 months or so. But, I think the thing that, you know, that's really, really important is the resiliency of our boating customers. And you know, for Florida to have a positive same store sales growth after coming off of the hurricanes for our first quarter, I was in Miami a few weeks ago and there's still office buildings without windows, they've still got plywood up, still people that have the blue tarps over their roofs, that type of things. But, you know, this thing called boating, it's an escape and it's a family recreation, and it's amazing how people rebound. Whether that's the panhandle that's been clobbered a couple of times over the last few years, of whether that's the Florida that had two direct hits in, you know, a year and a half ago. It's -- we'll get through it. And you know, the customers just come back with the business, is what we can see. We saw that at the Fort Lauderdale Boat Show. People there without power in their business and homes, and they were there talking about boating and no discussions about the traffic lights down and everything else getting there.

Well, priorities, I guess. Fun is a priority.

Well, I've known it for 33 years because when I got in the boat business in 1973, that's when the Arabs cut off the oil. And why would anybody after standing in line two hours to put 5 gallons worth of fuel in their car because that's all they would let them have, be interested in a boat? And what I discovered was they wanted an escape, they said heck with all this nonsense, let's get away from the boob tube that's screaming about it and let's get out on the water ask focus on a recreation that gives us a chance to get rid of it.

Interesting, well, thanks, guys, good luck.

Thank you, Laura.

Thank you, Anthony [Orbizinsky] with Sidoti and Company has our next question.

Good morning. First, you acquired the Port Arrowhead deal, it was actually in mid-January, was wondering about the sales contribution from that transaction in the March quarter.

It's most of the difference in the release, we say it would be, it's about $30 million. It's most of the difference between what we say same store sales contribute and then the difference in the revenue between last year and this year. We did open, if you recall, we opened up Duston last year, Chattanooga last year, and Baltimore last year, which are also not in the comp. I think besides those three stores and the Port Arrowhead stores, all of the other stores are in it. It's in the neighborhood of $30 million.

Okay, and any plans to open any stores organically this fiscal year?

We traditionally open anywhere from 1-3 stores and I would expect that around the country we probably have a need for a couple of stores --

It could be a retail store, it could be a service location, as well.

As far as the Surf Side 3 transaction, how many boats, both brands, actually, do they have now and what kind of brands additions do you plan to actually add to them?

They -- their primary brand the Sea Ray and they also sell Boston Meridian just like we do. They do a little in entry level fishing boats or mid-level fishing boats with SeaPro, And they sell a major Italian brand called Asma, which is competitive with the one brand of the Ferretti Group called Ferretti, and we will not be selling Asma in the same locations we sell Ferretti, but we will open a Ferretti location in the Northeast are our plans, but we will keep this separated because there's enough difference in styling to, you know, where they're almost different buyers in some regard, but at the same case, we can be successful in both of them. We get a new brand added to the family, from MarineMax, but we will -- we absolutely will make sure we do no cannablize anything we have with the existing brand.

Okay, and with these two sizable transactions that you've done here, how many locations do you actually own right now?

Anthony, I'm going to go with an educated guess, real estate we actually own is probably around 28-30 that we own of the 85.

I bet it's 30.

And then the ones that are leased, whenever we make an acquisition, you know, we have very long-term leases with a bunch of renewal options for us because the, you know, the facilities are somewhat important if we can't buy it, and in the Surf Side transaction we did not buy any of their property, but we have very long-term leases there, we actually have an option to buy the property out there on Long Island and some places that they've got. It's around 30 right now that we own.

Okay, thank you.

We'll go next with Greg McKinley with Dougherty.

Thank you. Guys, could you give us a little color on how important the boat show season is to this quarter, what portion of your sales come out of it? I think people were talking pretty aggressively of how successful that season was. Can you just give us some context there?

The biggest thing that happens, Greg, we're not in very many boat shows during this quarter. This is more of a deliver the boats out of the north as the ice is coming out of the lakes and rivers and bays, and you know, taking care of getting people out on the water and getting them boating, and you know, the excitement goes up as people say spring has arrived and it's time to go. So we do less and less on the boat shows. However during the boat show season, we create the demand and the excitement and in a lot of cases we'll end up delivering the products this quarter, that, you know, we've taken deposits on during the boat show season. So the shows are a very good indicator of what business is going to be, but at the same time what sets the stage for almost a year of business that will occur. And you know, we get people that come in in August and say I saw you at the show at January and maybe it's time for us to get into boating.

And I didn't know if you were specifically asking the March quarter or the June quarter.

Actually I was hoping to get commentary on the March quarter.

I'm sorry, I was talking about the June quarter. I'm already in the next quarter. This is history.

The shows are very important for the March quarter, although I'll tell you the way traffic, or the way the quarter goes. January and February where most of the shows occur at. We certainly contract and close deals throughout January and February, but the month of March, though, begins to be a traffic month. And if you look at the revenue between those 3 months, March is traditionally as big as January and February combined, which is certainly it was again this year. And I would say from what we've heard boat shows for the most part are mixed, up and down, just depending on which market, depending on how -- if they move the show date, if there was snow, if there wasn't, whatever the reasons may have been, but you know, we're quite pleased now for the second year for a row, following all of the shows, we seem to have an increase in floor traffic. We seem to have a pretty good grass roots level March, which, you know, certainly has some show, sales, and contracts coming into it. But that's what's encouraging to us. And our business is much more reliant on the floor traffic than it is boat shows. A lot of other dealers rely on boat shows than we do.

Okay, and in terms of what you're seeing, driving boat sales, I know you talked about big boats, and I think probably any time you do a nice comp like you did, Sea Ray had to do well, but is it the pleasure boats, is it yachts, or is it larger fishing boats or is it all three that are driving the sales?

Well, the three that you just mentioned, I would said it's all three of those. And I make this general statement from time to time, the bigger and more expensive boat, the stronger it is, in terms of retail demand right now.

And what we're saying, even the fishing boat is more of a family-focussed boat, and it turns out to be a fishing, a serious fishing machine, as an example in Hatteras and Berkram, but at the same time it's a family boat. There's a shift that's occurred there over a number of years.

Thank you.

Thank you, Greg.

Thank you, Greg.

Thank you. Next, with Raymond James, Joe. Hovorka.

Good morning, Joe.

Hello.

Can you hear us?

Yes, sorry about that. Mike, did you mention you were going to open a Ferretti store in the Northeast? Did I catch that?

I think what Bill said we will have Ferretti product in the Northeast and we will have it in a distinct location away from the Asma other product.

Would you stick a distinct location away from other product, as well, or just another Surf Side store?

Well, we haven't head up our mind on that. It could be a seperate stand alone Ferretti store or perhaps within one of the Surf Side facilities.

But it won't be in the same store as we have Asma.

How many of the 15 Surf Side locations have that brand?

They sell predominantly out of one.

Okay. And you're -- I'm say assuming you do some business with Ferretti with Northeast customers, is it a lot now?

It's not a lot, but we do have some and we've been gaining momentum in the Northeast even though we don't have the presence up there. A good number of those buyers come to the Fort Lauderdale/Miami boat shows, we've been capturing some there, but we really think with the Surf Side name, which is very powerful in the Northeast, married with the MarineMax name with all of our service locations and retail locations up and down the East Coast, we think it's going to give us a majorly kick start in growing that business up there.

But, you know, there's a lot of other brands like Riva, and Moki Craft and Pershing that are part of the fresh group that are not competitive with Asma.

Sure. Sure. And okay -- and the timing on that Ferretti store?

No, it's something -- Actually we were looking at it even before the Surf Side merger, we have not figured out our plan yet.

Would it be '06 or '07?

Man, you're really pushing it --

You don't have to answer then.

I'm not 100% sure. We always like to do things sooner rather than later, but I can't promise anything.

And the other question, you have Hatteras above 82 feet in that area as well, right?

That's correct.

Are there opportunities with Surf Side for that product or are you already capturing those sales?

There's probably some opportunities, I would tell you that given the, given the limited number of of models above 82 feet, we're probably getting most of that already, but there are other opportunities up there.

And any opportunities of getting the Hatteras below 82 feet in that market, or no?

That's something that we have not looked into and a lot of depth at this point. We'll certainly do that.

Thank you, guys.

Thank you, we have Todd Brooks with Alidar Capital next.

Great quarter.

Thanks, Todd.

The question I want to ask is if you're looking at the mid single digit comp guidance, is there any assumption in there for the new name plate edition, either maybe the Cabo, or maybe a mid-tier fishing line out of Brunswick, or is that also looking more like a fiscal '07 event?

I'd say for many a material perspective, that would be an '07 event. And it would not impact anything materially in '06.

And as we start to think, forward-thinking here, and look at the opportunities in fiscal '07. With the size and the scope of the organization you've put together, what kind of structural lift to comps can adding a name plate mean for MarineMax?

It all depends on which name plate is added, obviously, Todd, and what the market potential is and do we get it in the footprint that we currently operate in or not? You know, so it really depends on what ends up falling out from, you know, different opportunities that we may be pursuing and really opportunities that may come up that we're not even thinking about right now.

Okay. So when, just in a model year transition, when should you have more clarity on new brand offerings? When you start to approach the June 30th model year switch-over?

June, July, yep.

Okay, great. Thanks guys.

Yes.

Thank you, next with Silvercrest Asset Management, we'll go to Jeff Allen.

Hi, good morning, guys.

Good morning, Jeff.

Just wondering if there were any statistics you could share with us that would help us track your progress in expanding the service and maintenance effort. You know, maybe mechanic head count or something like that.

Well, Jeff, we are growing the technician base in our Company, and we've actually got some scholarships that we offer and tuition reimbursement in schools that actually train technicians, there's one in Orlando called MMI. And so our goal of our team is to grow our technician base substantially this year. And with that, will be some expansions like Great American that we did for service and the Miami Service Yard that we bought for the Miami store. And we'll be doing others going forward because we -- it is a major thrust in our Company to do more and more service for our customers and then eventually we'll grow it to servicing customers that didn't buy products from us, because of the 33 years I've been in the business, was is what sells number 2, 3, 4, and 5. And as well as, you know the get away trips and the things we do for them. So it's a key strategy in our Company. And we are making progress. As well as making some progress in the parts and accessories, and it's not huge as a percentage, but in dollars it's substantial.

But the bigger part is we're taking care of more customers which we'll yield to future sales as you said.

Okay, and you know, just to try to quantify it. You know, at the end of this year, you know, what's your goal in terms of head count on technicians relative to the end of last year?

It's a little too early to see where it will be, but I say we will probably add 50-70 technicians to the team this year.

And what's the -- what was the base last year?

I don't have that data in front of me, but it would be a pretty big increase.

Probably 300 --

Probably more than that really.

Could be even a little more. But the Surf Side and Lake of the Ozarks it's probably closer to 400.

Yeah, I think we've already had added through these program, 25 --

30, we've added 30 thus far.

Okay. Thank you.

Thank you. Tim Conder with A.G. Edwards has our next question.

Thank you, operator. A couple of questions. First of all, gentlemen,congratulations again on a great execution. Clarification, Bill and Mike, the IT related to Surf Side, is that something that basically you were putting the system to be compatible to yours, or are you starting a new IT platform with Surf Side?

Well, Tim, everything single one of our operations is on IDS, which is owned by Brunswick. I've had the system now, I guess for 15 years, close to 15 years, and one of our key strategies is that everyone has to be on the same IS system so that we can measure and count, evaluate, and pay people according to what's on those systems. So what we actually did in late November, early December, we actually installed the IDS system in Surf Side and began the training, we didn't actually flip their accounting and all and sales over to IDS until we acquired them because we couldn't do that.

Right. So we threw the switch just prior to closing, but a lot of the training was in place, the hardware, the software was all there, it was all integrated into MarineMax so we weren't floundering whenever we -- Day One. But it's an investment that we made, you know, because we understand how critical it is to, you know, running a good business. So we do not have two systems anyplace in our Company, and that's something we never plan on doing. I just wanted clarity on that, thanks. From an industry perspective, obviously, you continue to gain shares due to your approach. What's your thoughts on how the industry shaping up year to date and then are you seeing any evidence in the markets that you say have been in, established in in the last two-three years that you weren't in previously of some of the competitors downsizing or basically going away?

Well, as far as the industry is concerned, and you know, I'm like a broken record on this, Mike and I when we say, what people want today is a customer experience, they want you to make them part of the family, they want you to show them how to have fun boating and do captain indoctrination and get the ladies in with separate courses, et cetera. Most of our industry is not doing that. Some of the better dealers are doing that, and those that aren't doing it, are the ones that are causing the news to come out and say, you know, the industry is going to be flat or slightly down this year. Not seeing significant growth. And so it's an opportunity to, you know, to take share.

But we're way past the days of people coming in and buying a boat for the sake of I'll buy it and I'll take care of it myself and I'll teach myself how to do it. And it's people with discretionary dollars today, they say, you take care of it for me. And you need to show me, and you need to show me how to have fun, I want this to be a family experience, and you know, I met a customer the other day and they said, you know, this Women on Water you did, I got my wife into it. And said, you know what, we're going to move up to that larger boat. I've been pushing her and pushing and pushing her, let's get that larger boat. And when she got on the water with one of our captains and the captain said, you know, before this is over, you're going to learn how to dock this boat. You will leave here knowing how to operate the boat, how to dock the boat, and you may even be the better captain. And he said, you know what? She's in now.

And so that's what it's about, it's all emotional right side of the brain. And our industry, most of it, doesn't understand it. There'll still, boats on lots and, you know, shove you off the dock, or hook you up to the trailer and see you later. And it's not working, and it's never going to work. So our strategies, which is Brunswick's strategy, as well. Let's change this customer's experience. And so that's what we're trying to do.

And to that point. To the second part of your question, we are seeing others that fade away. And as such, you know, the news is not as good for a lot of them as it is for us. But maybe we're contrarian, for sure I guess we are contrarian, because we understand what the customers needs are. That's our focus, and we're going to continue to do that.

Maybe you could use the words that you have before, consolidator, innovator, advancer for the industry. Another question along the comment you just made there, we saw something very innovative in our opinion at the Miami boat show out of Brunswick, the Project Zeus, the joystick docking technology, actually, a much enhanced version from anything that's been on the market. And evidently they're going to put it in a couple of models here in the back half of the calendar year FY '07 models and then roll it out more in the '08 models. What are your thoughts on that in relation to the previous comments you made about training people?

Well, anything that can be done to enhance the usability of a product and make customers feel more comfortable and at ease in the process. I mean, the truth is, you know, after we finish our captain's courses and indoctrination with most of our customers, they can do most of what Zeus can do. But the truth is, you kick up the wind and throw in a current and then Zeus becomes even more important. But we believe it is a benefit, it is something that we will embrace. We've got to see what the cost is going to be and that type of thing, not only with the docking, but with the drive. And it's part of the future, and it's part of what will change things. We're seeing that in electronics, as well. Anything to enhance the experience and ease of using the product for our customers is a plus. But you know, it doesn't do any good to have Zeus on a boat or have, you know, advanced navigation equipment on the boat if you don't teach customers how to use it. And so that's part of indoctrination of the customers, which a lot of our industry is still not doing.

Two last questions here, any additional regional color beyond Florida? And then Mike, you talked about the real estate value, periodically you've given us sort of a general idea what it's on the books for verses an approximate market value? Any update there?

Two things, on the regional comment. We did see a rebound in Florida, which is really a result of the hurricane, the December quarter pushing a little bit of business into March quarter. A little over half of our same store sales came from contributions from the state of Florida the rest of it outside the state of Florida. And really it was pretty much evenly spread around the U.S. The only market that, you know, we continue to see softness although it is recovering from last year's levels, would be Ohio and I think that's tied into the Detroit auto market up there, we are starting to see a little recovery up there. And Jim, your second question was --

Oh, the real estate value, periodically.

I will tell everybody, we have not gone out and reevaluated, I think on last call, someone had asked me a couple of questions, and they actually said well, could it be around 50 million? And I said, yes, in terms of the value over and above our balance sheet. It's probably north of that, probably 50-60 million in value that's not on our balance sheet today. And, you know, a lot of our property is in Florida, we have not revalued it, and we always make the example of the store we bought from Bill in March of '98 which is on our books for 400,000 and it's worth $5-6 million today. And we've got a lot of that. And that's kind of an educated guess. There's probably some upside to that educated guess. Our intention is to hold that property, it is not to monetize it, it's not to sell it, not to do a sell lease back. In our industry like many, you know the facilities you operate out of when you're on a busy highway on the water, that's very important to control that for your future, and it certainly makes our balance sheet that much stronger, but it's our intention just to keep building it and kind of forget we own it, and one day be worth a whole lot of money.

Okay, well, thank you, gentlemen.

Thank you, Jim. I think we're out of time.

Okay. Our final question will come from Kevin Full with Magnitaur Capital.

Nice quarter. A lot of my questions have been answered so, I -- that's it.

Thank you, Kevin.

So that's the final question. We would like to thank everyone for participating in our second quarter conference call and web broadcast this morning. You know, Mike and I are available after this call to answer any questions you may have, and more importantly, our team of passionate boaters are available to help you with your boating needs 7 days a week. So thank you for your continued support and belief in MarineMax.

Thank you, gentlemen. That does conclude our call today. We'd like to thank everyone for their participation. Have a nice day.