MarineMax Inc (HZO) 2008 Q2 法說會逐字稿

Good day, everyone, and welcome to the MarineMax, Incorporated second quarter fiscal 2008 earnings conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the conference over to Mr. Brad Cohen. Please go ahead, sir.

Thank you very much, operator. Good morning, everyone, and thank you for joining this discussion of MarineMax's 2008 fiscal second quarter. I'm sure that you've all received a copy of the press release that went out this morning, but if you have not, please call Linda at 727-531-1700 and she can fax or email it out to you again.

I would now like to introduce the management team of MarineMax, Mr. Bill McGill, Chairman, President and Chief Executive Officer, and Mike McLamb, Chief Financial Officer of the Company. Management will make some comments and then will be available for your questions. Mike?

Thank you, Brad. Good morning, everyone, and thank you for joining this call. 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 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 operations and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission.

With that in mind, I will turn the call over to Bill.

Thank you, Mike, and good morning, everyone. Let me state at the onset that everyone at MarineMax is disappointed with our financial performance during this quarter. Having said that, we also recognize that we are operating in perhaps the worst marine retailing environment in over 30 years. I want to thank our team for their dedication and passion, for our customers and fellow team members during these challenging times.

From a trend perspective, January and February same-store sales were both softer than last year in the low double digit area. March weakened significantly starting after the first week or so and continued to get worse as the month progressed. You may recall that March is usually about as big as January and February combined. With such a weak month of March, it drove the entire quarter down significantly from a same-store sales standpoint.

While our same store sales were down 28% for the quarter, we can't lose sight of the fact that our customers are still out there buying boats and boating. The trend is still soft, although, and as we closed April yesterday, I can report that April was not nearly as soft as March. Having said that, it's important to realize that April is the smallest month in the June quarter, so it's important to not extrapolate April's trend into the entire quarter, giving the uncertainties that exist today.

Our final March quarter results, which reflected a net loss of $0.19 per share, were in line with our preannouncement on April 16th. As we expected, our gross margins did indeed rise. While the margins on the boats we sell do move around, they have been generally stable. Despite the soft environment, we have not felt unusual margin pressure today, which we attribute to the buyers in these times seeking a complete MarineMax boating lifestyle experience, rather than just buying a boat.

While industry inventory levels are higher than ideal, we don't see them to be at the problematic levels that we- - that have caused margin erosion during the past downturns. Based upon the significant reduction in boat orders that we have made this year, we expected our ending inventory levels to be below those of last year. However, the unexpected weak March offset the inventory reduction progress we were anticipating. And Mike will give you more specifics, but we expect our September ending inventory to be below that of last year, as we indicated when this year started.

We also have made some progress on the expense reduction side of things. But, again, with such a significant drop in March, it's hard to reduce expenses at the same speed, resulting in the overall earnings loss that we experienced.

Currently, we are balancing SG&A reductions against the need to not lessen our customers' experience with MarineMax, as the boating season begins in our northern markets.

Based on my 35 years of industry experience, I want to comment on this downturn. As I mentioned earlier, inventory levels seemed to be better managed in general by both the manufacturer and the dealer today, than in the past significant downturns. The U.S. manufacturers that we partner with are being aided by the weak dollar, allowing our partners to increase their international business, allowing them to continue to invest in not only retail level support that helps drive sales, but also in research and development efforts.

In the past significant downturn, the manufacturers were unable to assist dealers in retail support and certainly slowed their research and development efforts. The R&D efforts will give us one of the youngest lineups of products to sell, as we move through the summer and into next year. Obviously, we would rather be in a tough environment with new models to sell, than with stale models. We believe that having new innovative models as retail improves will give us an even greater competitive advantage.

Many of you will recall that during the past two September quarters we held the World's Largest Boat Sale. This event, generally held at offsite locations, has been very successful at driving increases in market share and unit sales. At the start of the fiscal year, we decided to do a major offsite event in the June quarter after Memorial Day. The logic is that the June quarter is the largest quarter, so we wanted to capitalize on the best selling environment versus an end of the season event. We will be holding the sale in late May and early June this year and are convinced it will lead to market share gains and incremental sales over and above what we would have otherwise experienced. We are also prepared to hold another major offsite event in September, if we need to.

I will now ask Mike to provide more detailed comments on the quarter. Mike?

Thank you, Bill, and good morning, again, everyone.

For the three months ended March 31st 2008, our second quarter revenue decreased to $233 million, from $325 million last year. Our same store sales declined approximately 28%, or just over $90 million, compared with a 2% increase in the same quarter last year.

Revenue from stores that are not eligible for inclusion in the same-store sales base decreased approximately $1.4 million.

Bill previously indicated that we experienced the most softness in March. As a reminder, geographically, Florida was over 40% of our business in fiscal 2007. Due to seasonality, Florida is even a larger percentage of our business in the December and March quarters. The housing issues in Florida have amplified the economic softness that has been widely reported, making it one of our softer markets. Historically, as we move into the June and September quarters, Florida shrinks as a percentage of our overall revenue.

Gross profit as a percentage of revenue increased by approximately 105 basis points to 23.4%. The increase in our overall gross margin was due to generally stable margins on the boats that we sold and incremental increases as a percentage of revenue in our higher margin businesses, such as finance and insurance and service and parts and accessories.

Our selling, general and administrative expenses decreased 5.6%, or $3.3 million, in the second quarter. However, last year, our SG&A was net of a $2 million gain from insurance proceeds associated with Hurricane Wilma in 2006. As such, SG&A expenses in the prior year would have been higher.

Accordingly, on a comparable basis, we experienced a reduction of $5.3 million in expenses, which is a decrease of approximately 8.6% over the prior year.

The decrease in dollars of SG&A expenses is due to lower personnel costs, including a decline in commissions and bonuses, as well as lower marketing costs. As we mentioned on our last call, we did a reduction in force of about 10% of our team members in January. Since that time, we have incrementally further reduced our team through attrition. We experienced relatively limited savings in the quarter from these actions, due to the timing and payments of severance, et cetera. We have also gone line-by-line to reduce costs where we can to help keep costs in line with retail trends.

Interest expense decreased 21% to $6 million as a result of the more favorable interest rate environment and generally less borrowings throughout the quarter.

Our tax benefit in the quarter was $4.2 million, which equated to an approximate 54% tax rate for the quarter.

Finally, our net loss for the second quarter of fiscal 2008 was about $3.5 million, or $0.19 per share, compared to a reported net earnings of $3.3 million, or $0.17 per diluted share, for the comparable quarter last year. Backing out the insurance gain gives a comparable diluted earnings per share last year in the March quarter of $0.11 per share.

For the six months through March I'll only comment on a few quick things.

First, our same store sales have dropped about 20%, partly driven by the soft month of March.

Second, our margin decline on a year-over-year basis is primarily due to the mix of generally larger yacht products in the December quarter. The larger yachts carry a lower margin. On a product-by-product basis, our margins on the boats that we are selling are generally stable.

Turning to our balance sheet, at quarter end we had approximately $24 million in cash, compared to $23.5 million a year ago. Additionally, we have substantial cash in the form of unleveraged inventory, as we utilized excess cash to reduce our inventory financing. We ended the quarter with $554 million in inventory, up $5.9 million, or approximately 1% from the comparable period last year. The increase in inventory is essentially attributable to the sharp decline in March sales. Our inventory was tracking below the prior year levels, until sales slowed in March.

We have further reduced our orders since our last call, when we indicated we were expected to purchase approximately 20% less in units and 15% less in dollars. Today, through additional cuts with our manufacturing partners, we now expect that we will order more than 30% less in units and approximately 25% less in dollars this year versus last year.

The model year essentially ends June 30th for most of our manufacturers. We have not yet begun the process of forecasting for the 2009 model year, which starts generally July 1st, but we believe the reductions we have made on orders to date, along with our purchases for 2009, will allow us to achieve a lower inventory level when this fiscal year ends in September. Of course, much of this expectation depends on retail activity.

Customer deposits decreased about 36% year-over-year, but as we have said repeatedly in the past, our deposits are lumpy and are not necessarily reflective of current business trends.

Overall, our balance sheet has gotten stronger year-over-year with book equity exceeding $367 million. Our book value per share now stands at approximately $20, before giving any credit to the appreciation that has occurred over the years in our real estate, which we have previously estimated at $60 million above book value.

I would also note that our current ratio improved over the year-ago quarter, as did our ratio of total liabilities to tangible net worth.

Speaking of tangible net worth, our tangible net worth per share, again before the upside in our real estate, is approximately $13.40 at the end of the quarter.

And now, I'd like to turn the call back over to Bill for some closing comments.

Thank you, Mike. Historically, difficult times have provided us opportunities to grow. We anticipate that this will occur again, both through new brand expansions and also acquisition opportunities. But we're going to be patient. We know we need to maintain a solid balance sheet, so that we are positioned to capture those opportunities and build value for the long term.

While industry trends are difficult to predict for the remainder of 2008, we will remain focused on taking market share and continuing to inspire our customers' passion for boating. Over the years, we have developed and refined a premium brand offering, outstanding team and customer-centric strategies that we know are very competitive advantages and will continue to benefit us in this current period, as well as when the market turns. In this type of environment, it is important to take market share and, by all available data, our longstanding track record of market share gains seems to be intact.

One of the most encouraging indicators of our future is that our customers are still out there enjoying the boat that they own with their families. Our Getaway Trips, our classes, our excursions are filling up as fast or even faster than ever. This makes us convinced that, when we eventually get some relief on the economic front, those who have sat on the dock and delayed their purchase will return, helping to drive same-store sales. Our business may be cyclical, but our customers' and our team members' passion for boating is not cyclical.

And with that, we'll open it up for questions.

Thank you. The question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) We'll pause for just a moment to assemble the question roster. And we'll take our first question from Ed Aaron at RBC Capital Markets.

Thanks. Good morning, guys.

Good morning, Ed.

Couple of questions for you. First, you had made a comment about market share. And your comps were down 28% in the quarter. That seems to be a little bit worse than what the industry data is showing for the first calendar quarter of the year. How should we think about it as relates to your market share? And do you have any data that shows, just relative to your exposure and your specific markets, how you performed versus the industry in the quarter?

Yes, I think, Ed, I think that some of the industry data out there is, as I just said, it's industry-wide data. If you look at the geographic areas where MarineMax does business- - Florida and the different markets that we're in- - the data that we- - we do get flash data as the quarter and the month closes. And the data shows that our market share in the quarter has held up fine. And it also shows that, within the markets that we operate, that the unit decline's actually greater than the- - than our same store sale dollar decline.

Correct.

Okay. The inventory targets for the end of the year- - I know what you're doing with your orders- - but, if demand is, call it 20% lower this year versus last year, would you infer from that inventories need to be down year-over-year by about that same order of magnitude in order to have supply and demand essentially more balanced?

If demand is down 20%, I think it would be ideal to have your inventories down around that same level.

Or greater.

Yes, I don't think that's out of the realm of reason.

Okay. And then lastly, just a couple of questions on the gross margin. It held up pretty nicely in the quarter, all things considered. Did you see any- -? I'm assuming there are some dealers out there that are under a little bit of financial stress, you might say, in this environment. And just wondering if you saw any impact of that from dealers that might be needing to move some inventory, if they're going out of business or just desperate to move product. And how- - what you saw in your markets as far as that's concerned and how you're able to hold the line on price?

Well, Ed, the pressure, as we said on the call here, is not as great as it's been in the past, because we don't believe that the inventory levels in most of the dealers out there is way up. And so it is a manageable process. And also the manufacturers are helping them. But, so we haven't seen a lot of pressure from the other dealers.

Now, there have been a few that have gone out and some of those boats that are now owned by the banks will have to work their way through the system. But, mainly the thing that's different about this time than any other is, as we mentioned, the international business has, for some of the manufacturers, given them the ability to kind of help the dealers. And that's a good thing, because we don't need a lot of the pressure on the inventory.

But, that being said, what we're seeing is is that people who are going to make this purchase decision today, it's not about as much about buying a boat at a discount from local Joe, boat dealer, as it is getting the whole experience that they get with MarineMax. And so it's even more important to make sure that it meets the needs for themselves and their family. And that's the thing that's helping us, even though the economy and all the news is not helping us.

Right. And how would you think about- -? You talked in your prepared remarks about possibly having two different kind of year-end clearance programs this summer, if need be. And how do you go about preserving the pricing integrity of your business, when, if you have to run those programs with greater frequency than you did in the past?

Well, the programs really, Ed, are not about giving the boats away. In fact, what we saw in the World's Largest Boat Sales that we did historically in August is that we really didn't give up very much margin, if any at all, during the event. It was more about creating excitement and introducing people into boating. And that's what we're planning on doing with this event as well.

If you remember, about two-thirds of the sales that we made at the World's Largest Boat Sales, which were offsites, were to customers that probably weren't going to buy a boat or weren't even in our database in a lot of cases. And so, the old saying, you fish when the fish are biting, is kind of what's driving. Let's do something the weekend after Memorial Day and following into early June, because that's the best time to be out there and really promote it. And we still may turn around and do something in August, but we do not believe that it will have a big impact on our margins, but yet, at the same time, it will give us a chance to even make more progress on our inventory.

Okay. Thanks, guys.

Thanks, Ed.

And we'll go next to Steven Rees at J.P. Morgan.

Hi. Thanks. Just on the SG&A cuts. It sounds like you made some nice progress there this quarter. But I guess, what further opportunity do you see for more cuts? And I guess what would you need to see in your business to implement those cuts, if there are opportunities?

I think the line-by-line initiatives that we've already done to date- - and, again, you don't see necessarily all the benefits in the quarter of that, because of the timing of those are about, I wouldn't say it's down to the bone, but it's about what we can do for now as we're going into the very important boating season. As Bill said, the northern dealerships are getting all the customers' boats into the season and beginning the season up there. So, it's important to balance the SG&A cuts with the right experience level for the customer.

So, I think as we move into the June and September quarter, the actions that we've already did should actually show even a greater increase in the reduction of SG&A dollars. I can't speak too much about how that's going to look as a percentage of revenue, because we don't know for sure what revenue's going to do. But I would expect we'd see some bigger increases in the dollars as we go in the June and September quarters.

But, Steven, we're being real careful to make sure we can deliver to our customers the experience that we promised them. And, at the same time- - and this is not your question, but I'll speak to it- - at the same time, we're- - we have major initiatives in our company to make sure that our customers are as happy as they can possibly be.

And, based upon the book called "The Ultimate Question," which is how you measure your customer satisfaction by basically one simple question- - would you recommend MarineMax to a friend or associate? And then follow it up with one more question- - why did you give us the score you gave on a scale of zero to ten?

I, as the CEO of the Company, am looking at every single one of the responses and emailing on a weekly basis to each of the store managers what those responses are. Whether that's a- - they give us a nine or a ten, which means what we call them as a fan. The book refers to it as a promoter, which means they will recommend us to their friend or associate. Or, if they happen to give us a zero to a six, which means they're not out there helping us, we're all over the top of it. And the store managers and service managers and team are getting back to me and to their regional presidents and all and saying, here's what we're doing about it to make sure customers are happy.

And if we took major market share, which we have over the last 18 months or so, it is incumbent upon us to make sure that these customers are as happy as they can be with our experience. And so, we're not only measuring it, we're acting upon it. And you better believe that our company understands we need to make sure they're all fans.

And so, it's a major thing that we're doing. It's a major initiative. And it's not that we haven't always been on top of our customers, but it's more about making sure that every single thing and touch point that we do for our customer, that they are a fan. And they're out recommending to their friends and also repeating their business with us.

So, there's things that we're not going to back off on, especially during this busy season, in the way of SG&A initiatives that we could. But, that being said, we are - - we could look at maybe combining some stores down the road, and we have done that to date, if things were to get even worse. But right now we think we're well positioned for this spring and summer selling season.

Okay. Thanks. And just finally on the same-store sales- - and I missed the beginning of the call, so I may have missed this- - but, with Florida becoming a smaller percentage of your upcoming quarter, is it logical to assume any improvement in reported same-store sales? And could you just comment on April, whether that sort of continued March's trend?

I can comment that overall Florida, for - - in fiscal '07 was about 40% of our business, maybe a little bit north of 40%. Generally, the December and March quarters, that percentage goes to- - I think probably it averages about 60%, when you combine the two quarters together. And then in the back half of the year, it drops to about 35- - or actually less than that, probably a third, something like that, of our business, where it averages just over 40.

So, with Florida being a softer market, one of the softer ones that we're operating in, the potential is there for the northern markets to kick in and to offset some of the softness that we're experiencing down here.

The only caveat that I'd say on that is that we haven't experienced the season up in the up north markets. We don't really know for sure how they're going- - how it's all going to pan out. But I think the theoretical question and the outcome is potentially there.

And I will say- - I think this addresses your next question - - the March quarter, in the month of March, our sales were down about 44%, which is a big number. And the month of April, as Bill said, April's not near as bad. April, we actually are still booking business, closing deals that came in overnight. But it looks like April is going to be down in the 19, 20% range, which is a lot less than what March was down. I mean, we would have taken 19 or 20% down in March.

But, as Bill said- - well, 19, 20 down is not that great, but it's a lot better than 44. We just don't know what the rest of June is going to hold until we get into May and June. And we've got some marketing events that should help to incrementally improve whatever business we would have had in the June quarter through the World's Largest Boat Sale type of event in the June quarter.

But we all got clobbered. Our customers got concerned and everything with all the banking news that occurred, bad banking news that occurred, late March. And I think that's what kind of shut our customers down in March.

It appears that way.

Okay. Thanks. That's helpful.

Thank you.

And we'll go next to Laura Richardson at BB&T.

Morning, everybody. Couple of questions for you all. What should the tax rate be for the year and the share counts?

Tax rate's going to be around that 50% level. When the earnings of a company shrink, your permanent items and your non-deductible items, like stock-based compensation, goes up. So, your tax rate increases. So, we're at 48%, I think right now, through six months. I would use 50% to be safe.

So, that's going to hurt your more in the profitable quarters.

That's correct. It arguably helps you in a loss quarter and hurts you in a profitable period. So, the next two quarters, it hurts you.

The share count.

Pardon me?

The share count.

Yes, the share count is going to be, on a full year basis, should be around 19 million.

Okay. And I want to also follow up on Ed's question on, when you talk about the purchases and how you're trying to balance sales expectations and the inventory levels and what you're ordering. Can you talk me through that again?

We'll, we're- - I'll update you on what we've done to date. To date, we're going to order- - it's over 30% less in units and it's about 25% less in dollars. And that does not include the reductions that could be made as we go into the September quarter, which is the first quarter of the new model year. And when I say it doesn't include it, it does include with some manufacturers orders all the way through the September quarter. But for our larger manufacturers, it does not. So, when we go through and forecast for the '09 model year, which we start that process here in about a month, the- - whatever orders we give, if that's below what we had last year, that would be a further reduction in our fiscal year purchases. Does that make sense?

Yes. So, in terms of what I should be forecasting for inventory and the balance sheet, it's- - if sales are as you expect, then the inventory should be down, like 25% from last year. Is that what you're saying? By the end of the June quarter?

No, I think it all depends on what assumption you have for retail. If we're- - we've said that we'll buy 25% less in dollars, depending on what everybody's assuming our sales activity's going to be, then to delta that would be the reduction in inventory.

So, in other words, if sales are just miraculously up and your purchases are down 25%, then, yes, you'd have a big reduction. If sales are down 10%, you're buying 25% less, then you're only going to get a 15% reduction. Just using swag numbers, that's kind of logically how it would work.

Okay. I think I've got it. And then, my last question is, last conference call, Bill had some really interesting comments on the boater psychology and at the boat shows the cancellations and purchases and that kind of- - So, could you update us on where you think the boater mentality is these days? And beyond what you already said about- - there's enthusiasm still for boating, because, it's good to hear that that's there. But, what's keeping people from buying the boats do you think?

Well, it's- - what's keeping the people from buying the boats is probably uncertainty. Some of it is what's going on in their business, because some of our customers have been impacted by construction or by additional fuel cost expenditures in their own business. And, but most of it is just general uncertainty.

And I think that there's two inflection points here in our business. And one is whenever we become convinced or kind of convinced and the news gets out there that, okay, we've hit bottom. It's as bad as it's going to get. And I think that will bring a lot of our customers into making the trades and purchases that maybe they're delaying right now.

The second inflection point, which is the more obvious one, is whatever, oh my gosh, we're on our way to recovery. And I told our team- - and right now we've got eight store managers in here for training. And so, we're keeping those type of efforts going. And I told our team, I said, you better hang on with both hands when the recovery starts, because it's- - they're going to be coming out of the woodwork like there's no tomorrow, ready to make that purchase.

When we do our Getaway Trips- - and I mentioned that we're doing a lot of them, Laura. And, I'll give you a great example. We did a specific Meridian trip to South Seas Plantation about three weeks ago. South Seas Plantation is a resort out of Fort Myers. And I believe that it's $9 a foot a night for your boat there. And these boats were ranging in size from 34 to 50 feet. And most of the customers were there three to five nights.

Whoa.

They were eating in the restaurants. They had burned the fuel to go as far as Clearwater, which was a three-hour trip away, or Naples or Marco Island, which were a couple of hours away, to be together. And what we heard at the event is nothing about what's going on in the economy? It was families enjoying their family and other families and enjoying this whole boating lifestyle resort. Whether it was out fishing during the day or whether it was playing a little golf on their nine-hole golf course or whether it was eating in the restaurant or having a docktail party on the back of their boat.

And so, as we- - as I've learned over the 35 years that it is a- - one of the best stress reliefs that's out there. And when I- - I still water ski. I'll be out Sunday. And when I get out on that water- - and I'm going with a couple of my grandkids- - I forget it all. And that's exactly what our boaters do. When they get out on that water with their family, they totally forget everything else that's going on that maybe pressures them. And it is a fabulous family experience. And so, those two things is what sustains our recreation better than any. But, they're out, they're boating and they're not- -

And it's not fuel. And I was over at one of our stores a couple of days ago and one of the salesmen said, I'm trying to sell this $2.6 million Hatteras and said, the customer said to me, with fuel prices today, I don't know if I ought to be doing this. And so, he said to the customer, he said, okay, there's 1,800 gallons of fuel on the boat. And you're spending $2.6 million for this boat, because of what it will do for you and your family. He said, okay, so when you pull up to the gas pump, if it's a dollar a gallon more, is that $1,000 or $1,800 extra going to stop you from boating? And the guy said, you're right. Let's move on. And that's really the case.

Now, what about the boat that's got 50 gallons? Is it the extra dollar a gallon that means $50 of boating? Which you're not going to use all that in a weekend- - most people wouldn't. It's not going to make any difference. So, it's not about fuel, but fuel does have a trickledown effect on a lot of our customers and- - with what's going on in their business.

Right.

So, things are still there. That passion is there greater than ever, Laura. Mike's a boater. He's out on the water. I heard him comment that he pulled up to Three-Rooker Bar I think a couple of weeks ago and couldn't find a place to bring the boat in.

People are- - there's a marina I drive by and it's a very large marina on the West Coast of Florida. And last Sunday it was as crowded as I've ever seen it, which is great news. I mean, obviously, if people aren't buying boats, at least they're using boats, which is great.

Right. And when are we going to have a getaway for the investment community?

How about this weekend? We're ready.

Okay. I have to schedule a little farther in advance, but you're talking it up really well. I'm sure there will be a lot of demand for such an event.

And, okay, last follow up to this, so you had mentioned something on the last call about the number of cancellations from boat shows was high and is that still the case? And was it ever the same for- - people who placed an order in the store and then backing out, out of the uncertainty, or- -?

You get a much lower cancellation rate at the stores. You always have some cancellation rate. It's probably no higher now- - I actually don't have the number- - but it's probably no higher now. May even be lower. Because the issue now is, when you're driving up and down the street and you're listening to your satellite radio or whatever it may be with all the bad news, you're not likely to pull into a dealership. Those that do pull in are more serious. And so, at the store level, your fallout rate arguably could be lower, subject to real bad events, like a Bear Stearns meltdown. You may have had an increase in cancellations around that event.

But the boat show fall off was greater during the boat show season this year than we would have liked. And I don't have the final numbers, but it definitely tracked higher than last year.

Okay. Thanks a lot, guys. And good luck.

Sure, Laura.

Thank you.

And we'll go next to Hayley Wolff at Rochdale Securities.

Hi, guys. Just a couple of questions. First, you commented that April improved incrementally from March. Can you give any color on sort of geographic strength, weaknesses? Or is it just too early to tell what's going to go on in the New York markets or the northern markets?

I can make just a couple of comments based on what we experienced through the seven months through April. And all this is going to be pretty consistent, I think, with what you've read in other industry reports. California is very soft. Florida is soft, not as soft as California. Our Midwest states, which would be Minnesota, Ohio and Missouri, are- - they're soft, but they're doing relatively well. They're not as soft as Florida or California. Texas is doing pretty well.

Our New York, Connecticut, Rhode Island markets are doing really, reasonably well for the time of year and the season. New Jersey is a little softer.

So, you kind of get a little bit of gyrations as you move around. I would say, when you sum it all up, everybody's softer than you would like- - than we would ideally like. But there are pockets of differences. And I think that's consistent with some other reports that have been put out there about even like delinquency rates on loans and number of inventory of houses. It's- - the markets where we're seeing the greatest softness are where you have the greatest inventory of homes and the greatest defaults on loans and all type of stuff. There's a pretty high correlation between some of that activity and what's- - what we're seeing at retail.

But a lot of it, Hayley, is you just can't get away from the news. And we- - I just said to the store managers and I sent out a letter to the whole team that basically said my suggestion is turn off the TV. Don't get the newspaper. Don't listen to the radio. And focus on boating and your customers, because if you listen to the news, you think the world is ending and, at the end of the day, we all know we live in the very best country in the whole world. So, let's focus on that and not on the negative. And with the election that's going on and who knows what's going to happen there, it's just that's everything you hear is not positive. And there's just so much positive that is going on. I mean, look at the stock market, as an example.

So, the customers are- - get shut down and they start delaying their decisions whenever they get uncertain. And that's- - the previous question about cancellations is more to do with, oh my gosh, I listened to some bad news or I got a little concerned, so maybe I ought to wait and see. And in a lot of cases, it's not the ability to buy the boat or the desire that keeps them from moving forward, as much as, oh, well, are we at the bottom? Is it going to get worse?

And so, that's back to the point that I think we'll start making some significant progress once we get some data that shows, hey, it's bottomed out and things are starting to at least not get worse.

There's been some talk about pushing back the model year to maybe September from July. What is your opinion of that? And would this be a good opportunity to take that step?

Well, our opinion is the model year should be in September. We believe that's really the appropriate thing to do. I mean, it doesn't make sense to make everything last year's model at the peak of your season. And that's what our industry has done.

It's not going to happen this year and that's unfortunate. But, at the end of the day, it has to do with what's going on in the market that I think is limiting it. Plus, there's time that's necessary to prepare for the model year change. And we're going to push and voice our opinions to the manufacturers and the industry that the right time to have the model year change is September. And I think maybe we can get it done for 2010 model year. But for this year, it's not going to happen.

And last question, to beat a dead horse on the inventory versus your purchases. Your purchases are going to be down 25% in dollars this year. When you define year, you're defining your fiscal year, September to September, not a model year and not a calendar year, right?

Yes, actually, what I'm defining is some of our manufacturers have a model year that ends on our year, September basically. And so for those manufacturers we know what we're buying through the September quarter. There are some other manufacturers, including some very significant manufacturers like SeaRay, who- - which is our largest supplier- - whose model year ends on June 30th. So, for the SeaRay date, I'm taking through June 30th, because we haven't forecasted the '09 model year yet, as an example. We don't know for sure what we're going to be buying in the September quarter, although today I doubt that it would be up from what we bought last September quarter.

Okay.

And so, the 25% could actually get larger in terms of the dollar reduction, depending on what we end up forecasting for 2009 commitments with our manufacturers.

Okay. And the back-end money, you'll give that up because of the change in your orders?

The back-end programs with manufacturers put the monies at risk. We're negotiating with our manufacturers on a daily, weekly, monthly basis to figure out the overall back-end program for MarineMax.

Okay. Thanks a lot.

Thank you.

Thank you, Hayley.

And we'll go next to James Hardiman at FTN Midwest Securities.

Good morning. Couple of questions. Could you elaborate a little bit about how the downturn is affecting your acquisition strategy? Both in terms of- - obviously you would think there would be attractive opportunities out there, but also your ability to take advantage of those opportunities based on your balance sheet.

Well, James, obviously as you've heard us say many, many, many times- - maybe it's not obvious- - but we continue discussions with other potential acquisition candidates. And I think the thing that's got us not moving forward with some right now, and we could, is to the previous discussions we've had about is it going to get any worse, is -- are we at the bottom, is being factored in to that. As well as, cash is king, and having a strong balance sheet will always be the best thing to do for the Company and for our shareholders for the long term and also the short term.

So, they will be there. The key point here is there's no one else making acquisitions and, even if there were some that were thinking about it, that's pretty well dried up. So, that opportunity will be there, whether it's a month from now or two years from now, because there's no one else that's really doing it. So, there's no competitive pressure to make the acquisition in front of us and eliminate our opportunity for the future.

So, we're taking more of a conservative approach right now, because there is no need to really do it right now. And everything we try to do for the Company is for the long term and protecting that balance sheet is, we think, the most important right now.

Right. And would there be- - I guess, would there be a certain debt level that you'd like to get to, I guess, in conjunction with a certain cash flow run rate that you would once again even consider doing that?

From an acquisition perspective, James, we have plenty of cash and plenty of firepower to make whatever acquisitions we'd want to make, just as a general- - not taking anything away from what Bill just said. The size dealers we're talking to, the opportunities that we're talking to, there's no restrictions on- - from that perspective. So, we don't have any challenges there.

Okay. And then second question. You've talked in the past about the value tied into your real estate over and above book value. Given the downturn in the Florida real estate market- - I don't know how much of that is just residential versus commercial land- - but can you give us any sort of an update on where you stand today?

Yes, I would say, just keep in mind, the way we got most of the upside in our real estate is the Company formed in 1998 in a pooling-of-interest transaction. And those of us who've been awhile, you'll remember that the old pooling rules allowed you to bring the acquired company's assets over at net book value. And you did not mark them up and you recognized no good will. And so, a very large chunk of our upside in our real estate came through the original mergers.

And so, like Bill's store- - he's got a store here in Clearwater, Florida, or he had a store- - it's now MarineMax's store- - on a very busy highway on the water in Clearwater. It's on our books for around $400,000 net book value, which is his depreciated basis, plus or minus the improvements that we've made to the store. For those of you who have seen the store, you'll know that's it's easily, even in today's environment, a $6 million facility, if not higher than that. Same thing in some other markets within Florida

So, even though there has been some softness in the Florida markets, we never valued our real estate on a best use basis, like a- - best use would be to put a couple of condominium towers, or at least it would have been a couple of years ago in the state. I'm not sure it would be to do that today. So, we never used those types of valuations, when we were coming up with our estimates to begin with.

And so, I still feel pretty comfortable that the upside is in that $60 million neighborhood, just based on how the evaluations were arrived to begin with. And hope that answers your question.

Yes. So, basically, over and above book, you still think that $60 million is a reasonable estimate. It's just that, you might- - the use of it might be a little bit different based on what's going on. Is that a fair assessment?

Well, our valuation that we did was basically for our type of use. It wasn't for another type of use. So, to the extent that property values have come down for our type of use, it could be some adjustment. But I don't think there would be, because we also didn't update the number as things were going crazy in Florida. It's been $60 million for a while.

Great. And then just last question, not to belabor sort of the difference between March and April, but obviously you've talked about as the geographical mix changes through the year, that helps you guys. Do you think the uptick, or I guess, the relative improvement from March to April was actual improvement in any of your markets? Or was it mainly just that geographical shift?

What I think, when you dig down and look kind of store-by-store and a geographical basis and go back to March and roll it forward, March grew- - started growing soft, like around- - I'm going to say March 10th, or it was around the time of the Bear Stearns announcement. There is a high correlation there. And the build in our contracts written on a day-over-day basis really slowed.

And what I think what's happened in April more than anything is there's at least quite not as bad news as that was, and is our takeaway from what's happened between April and March. Now, I don't know what announcements and what news is going to come out today or tomorrow or the next day that could screw up the psychology of our potential buyers, which is why we put a whole lot of caution around the statement of where April was versus March. But we figure everybody kind of wanted to know what April did.

Okay. Great. Thanks, guys.

Yes, thank you, James.

And we'll go next to Greg McKinley at Dougherty.

Thank you. With your guys' expense cuts occurring during the year, should we sort of look at the- - as the quarters play out, should we continue to look at seasonality in your operating expenses this year as having been similar to prior years? Or would you expect a relatively smaller share of your operating expenses to occur in the second half as you continue to sort of pull the reins back?

I guess in theory, you're right, you'd have a little bit less because of seasonality. I think for modeling purposes I'd probably still use the general overall percentages, I think, although, Greg.

Where it steps up sequentially each of the four quarters?

That's correct.

Okay. And from an inventory standpoint again, not to beat a dead horse here, but obviously with the March sales shortfall, I'm guessing you're entering your June quarter probably ahead of what you were originally tracking on inventory reductions. But now we're cutting purchases meaningfully. So, should we reasonably expect some moderation in inventories in the June quarter? But really the big drop off to get you down maybe towards a 20% decline year-over-year, that would be a big step down in Q4 with only a modest step down in Q3?

Just a couple of things. The Company I don't think has ever said to expect a 20%- -

Oh, okay.

- - year-over-year decline in inventory. We are buying less than 25% less in dollars - -

Right.

- - and subject to retail. I think conceptually it makes sense at the June quarter we could experience a decrease in inventory. I can tell you that we are planning and hoping to have a decrease in inventory.

Okay.

So, much of it, ultimately, Greg, depends on what retail does, but that is certainly in the master plan that we would have a decrease.

Yes. And then, finally, could you just talk to us a little bit about your dialogue with your creditors? Where you feel their opinion is around the availability of financing for your business, your compliance with sort of the metrics they're looking for you to stay within?

Yes, we have a- - in our facility, we have eight banks. We have a $500 million line of credit. We have three financial ratios that we have to stay in compliance with. Two of those are balance sheet focused, a current ratio and a total liabilities and tangible net worth ratio.

The balance sheet ratios, because of the strengths in the balance sheet, are very well intact. There's really no issues. There's no projection or modeling that would show us to have any concern from a balance sheet perspective.

When this fiscal year started- - let me back up. We also have another ratio, a third ratio, called a fixed charge coverage ratio. I think most of you are familiar with that, but it basically says, how much cash is the Company going to generate in a 12-month basis and how much- - how does that relate to your fixed obligations, like your interest expense, your leases, your current maturities, the long-term debt, stuff like that?

When this year started, we modeled the Company like we always do and we looked out and we ran some different scenarios and we said it's a potential that the fixed charge coverage ratio could at least have an increased risk of having a violation in the foreseeable future. And so we went and talked to our banks in the December quarter. And then we met with our banks in the February quarter- - excuse me, the month of February- - and we kind of rolled through some scenarios with them and showed them the kind of modeling that we're doing and talked to them about the flexibility that we needed to operate the Company and so forth.

And we asked for an amendment to our facility. We were not in violation of anything, so you don't get a waiver. But we asked for an amendment of our facility to reduce the fixed charge coverage ratio. And that was the 8-K that we filed in early March.

I would tell you, just given this banking environment, and all of you guys own stock in companies or you follow companies that have been negotiating with banks, I think the fact that we were able to go to our banks and, within probably less than a month, negotiate amendments to our fixed charge coverage ratio that we think helps the Company, speaks volumes about the relationships we have with our banks.

I think it also speaks volumes about how the banks look at the Company. It's an asset-based lending facility. We have $250 million in tangible net worth, which is almost what we borrow- - not quite. But we have substantial capital in the Company to make the banks feel more comfortable.

Now, having said all of that, we brought the fixed charge coverage ratios down permanently. We also brought it down temporarily for four quarters, starting September 30th of 2008 and ending out in 2009. We brought it down to even a lower level. All of our modeling shows that, at that lower level, we would not have any real risk of violating the lower level.

That temporary dropdown starts in the September quarter and, as we end the June quarter, we're at the permanent dropdown level of 1.25. And there is risk that, if the month of March trends obviously were to continue in the June quarter, you could certainly have risk that our fixed charge coverage ratio could be violated as we finish June. We don't think that's going to happen sitting here today.

I think the possibility is there. I think if it does violate -- I go back to the balance sheet that we've got, the equity the banks have in their inventory, the relationships the Company has with the bank. And while no one likes to violate a covenant, I am fairly confident that the Company and the banks would work their way through this, this time in the industry, and allow the Company to operate its business as it needs to. Perhaps interest expense would be higher or something else.

But we're not there yet. We don't think we'll get there. But I think it is fair to ask the question, at least point out the risk.

Yes. Okay. Are you hearing anything broadly speaking from the banking community about- -? Are they pulling back from other dealers or are you guys- - do you feel like you have unusually strong support from the financing community along those lines? Or are they sort of comfortable where they see the industry heading in terms of inventory management, given the sales backdrop?

Like any industry, you always have your core banks that are- - have always been supporting the industry for a long period of time. Those core banks are standing tall within the industry, supporting the dealers. They certainly are looking at their asset base having higher risk today. And there are some business failures.

Although, what I'm hearing - - we had a very large bank in here yesterday talking about some business opportunities together. And what they were saying is the same thing that Bill said, is that the business failures- - if this was 1991, the business failures would have been much greater today than we're seeing, because of the management of inventory between the manufacturers and the dealers. And I'm talking good brands. There are certainly some substandard brands out there that are having more issues, but that doesn't really affect us as much, because our buyers aren't looking at the substandard brands anyhow.

So, I'd say in general in the wholesale financing, the banks are standing tall. They're committed to the industry. There's been no exiting of the industry.

On the retail financing, which is our customer financing, I can make a general similar statement that the way that the banks go to market, the creditworthiness they look for in the customers and all of that stuff is staying fairly consistent. With one caveat, I think the banks are looking at a higher spread today, than they would have historically, because of all the issues the banks are experiencing. And that could also be true on the wholesale line.

But all the major lenders are standing tall on the retail side. I think just like any other industry, you get some from time to time jump in and jump out. And I wouldn't be surprised if some jump in and jump out, or at least jump out on the retail side. But nothing that I believe is going to significantly impact our ability to get our customers financed, or our ability to keep financing our operations.

Yes. Okay. Thanks.

Yes, thank you.

Thank you, Greg.

Ladies and gentlemen, that will conclude today's question and answer session. I would like to turn the conference back over to your speakers for any additional or closing remarks.

Thank you, everyone, for your continued belief and support in MarineMax. I also greatly appreciate all of our team members for their hard work and continued passion for boating, which is especially important during this challenging period of our industry.

Mike and I are available today, if you have any additional calls. Thank you.

Thank you.

This does conclude today's presentation. We thank everyone for their participation. You may disconnect your lines at any time.