MarineMax Inc (HZO) 2009 Q1 法說會逐字稿

Good day everyone and welcome to the MarineMax Inc. first quarter fiscal 2009 earnings conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Brad Cohen. Please go ahead sir.

Thank you so much. Good morning everyone and thank you for joining this discussion on MarineMax's 2009 fiscal first quarter results. I'm sure you have all received a copy of the press release that went out this morning but if you have not, please call Linda Cameron at 727-531-1700 and she will e-mail or fax one to you. I would now like to introduce the management team of MarineMax -- Mr. Bill McGill, Chairman, President and CEO; and Michael 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 would 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 would like to turn the call over to Bill.

Thank you Mike and good morning everyone. As you saw by our results, we continue to be impacted by the ongoing challenges in the consumer environment and soft economy in general. In my thirty-six years in this industry, this is probably the worst environment we have seen.

Thankfully, MarineMax has amassed substantial tangible net worth over the years which provides us with the confidence and flexibility to weather this storm. It is this financial strength, proven customer-centric strategies and our passionate team that will help to insure we capitalize on the opportunities even more when the economy begins to recover.

As we mentioned on our last call, we're very focused on managing the areas of our business that we can control. This focus allows us to report a significant decline in our expenses and inventory levels on a year-over-year basis as well as secure an amendment to our credit agreement.

As you may remember from our last call, we made additional reduction in our orders for manufacturers for model year 2009 which approximated a 70% reduction in purchases in dollars and units as compared with model year 2008. These reductions combined with our achieved sales allowed us to report a $92 million reduction in inventory levels compared to the prior year.

Usually during the winter, inventories rise sequentially from September to December quarter yet we were able to report a significant reduction. While we're constantly evaluating our purchases, we will conservatively bring in new models which assist in marketing and selling of existing models.

We expect sizable year-over-year inventory reductions as the year progresses provided that retail sales do not deteriorate significantly further from current levels. We believe these efforts to reduce our inventory levels will also help support gross margins on our core products. Our new boat margins have held up relatively well in this environment albeit we are working and will continue to be aggressive on sales of the more aged inventory.

On the expense front, we continue to look for opportunities to take cost out of our business and better align our expenses with sales trends without taking away from the many services we offer our customers. During the first quarter, we reduced our SG&A expenses by approximately $14 million including store closure costs.

Our biggest and most difficult reductions have come from the reductions in our number of team members as we right-size our business to the sales levels. Additionally we've closed five of our stores since the end of fiscal 2008 and we will continue to evaluate our footprint.

These were and are always very difficult decisions as they affect the lives of families. But they're actions that were and are necessary. With all the reductions in expenses, we remain committed to maintaining our high standards of customer service and growing our customer base as we seek to continue to gain market share and keep our customers enjoying their lifestyle of boating.

One of the things that is encouraging to us as we look at the industry is that the cost of owning a boat is about as low as it has been for over a decade. Interest rates are relatively low, financing has tightened some but is still available to our customers at low rates.

Fuel is more affordable and slips are even less expensive and readily available. We know the passion for the boating lifestyle has not waned and we believe it is even stronger as family looks for the escape and the family bonding attributes of boating.

In fact reports in Florida were this holiday season was the busiest on record with our customers out boating. We're confident that customers have not lost their passion for boating and they will continue to turn to MarineMax for our service, our brands and our team.

In the meantime, we expect continued pressure and we will keep our focus on controlling the areas of our business that we can impact and stay actively involved with our customers. I will now ask Mike to provide more detailed comments on the quarter.

Thank you Bill and good morning again everyone. For the three months ended December 31, 2008 our first-quarter revenue decreased to $100 million from $215 million last year. Our same-store sales declined approximately 52% or about $108 million compared with a 9% decrease in the same quarter last year.

Revenue from stores not eligible for inclusion in the same-store sales base approximated $7.6 million. The December quarter last year benefited from several large yacht sales which helped to make it our least impacted quarter last year and as such our hardest comparison this year.

Generally we experienced softness across all of our markets and segments that we participate. I will add that the worst month by far was October which is usually the largest in the quarter.

Interestingly, we did see increases in certain categories of our Sea Ray products in November and December which was largely led by activity in Florida. Gross profit as a percentage of revenue increased approximately 130 basis points to 23.7%. This increase in our overall gross profit margin was attributable to several factors.

First as I just mentioned, we sold fewer large yachts which carried lower margins this quarter versus a year ago. Second, since our parts and service businesses are less cyclical, we experienced a mix shift towards these higher margin businesses. Last (technical difficulty) our boat margins have been impacted, they're holding up relatively well in this environment.

Our selling, general and administrative expenses decreased approximately 27% or $14 million in the first quarter including approximately $400,000 of costs associated with closing five stores during the quarter. The dollar decrease in SG&A expenses is primarily due to the decrease in personnel costs from downsizing our workforce as well as reductions in sales commissions and manager bonuses along with a decrease in marketing, T&E and other expenses.

Interest expense decreased 31% to $4.1 million as a result of a reduction in our average borrowings on our line of credit, the early payoff of all of our outstanding long-term debt in the second half of fiscal 2008 and more favorable interest rates. Finally, our reported net loss for the first quarter of fiscal 2009 was $14.3 million or $0.78 per share compared to a reported net loss of $6.4 million or $0.35 per share for the comparable quarter last year.

Turning to our balance sheet, at quarter-end we had approximately $15 million in cash. Keep in mind that the amount of cash we have at any point in time is a function of how much we leverage our inventory. As I've stated stage before, we have a significant amount of cash in the form of unleveraged inventory.

We ended the quarter with about $441 million in inventory which is down approximately $92 million for the comparable period last year. This reduction in inventory level is due to our continued efforts to aggressively manage our inventory to reduce our purchases for manufacturers amidst the challenging retail environment.

While our dollars showed sizable reductions, our units fell much greater. At December 31, the new units that we had on hand of all brands were down about 40% from the year ago period.

This is a very significant drop and is part of the reason that margins are doing better than they would otherwise be expected in this tough environment. While we have substantially decreased our purchasing, our manufacturing partners have continued to support us and our customers well and continued to invest in development of new models which will be sought after by customers as the economy recovers.

Additionally, as I mentioned last quarter, our dealer agreement with Freddie expired on August 31 requiring them to repurchase our remaining inventory at essentially our purchase price less the cost to repair and refurbish the products. During the quarter, they repurchased approximately $20 million and we are negotiating with them on the remainder of the inventory that they are contractually required to repurchase. While this may prove more difficult given their current financial situation, we are in regular communication with Freddie and feel that we will be able to reach an agreement.

Turning to our liabilities, our total debt also decreased by about $92 million on a year-over-year basis. This is roughly made up of about $62 million reduction in our short-term borrowings and then the complete payoff of about $30 million in mortgages versus the year ago period.

Overall our tangible net worth now stands at approximately $235 million or about $12.75 per share. We own over 30 of our stores which have no outstanding mortgages. In a very difficult December quarter, we were able to produce in excess of $28 million in cash from operations largely due to the sequential inventory reduction from September to December and we believe the potential for sizable cash flows will continue as we manage the balance sheet.

Against the backdrop of difficult economic conditions, we continue to believe that our significant amount of tangible net worth including unleveraged real estate position helps provide strength to weather these economic conditions. During the quarter we secured an amendment to our credit agreement which provides us with increased financial flexibility to operate our businesses during these difficult market conditions.

The amended facility provides a line of credit with asset-based borrowing availability of up to $425 million which steps down to $350 million by September 30, 2009 and steps down again to $300 million by May 31, 2010. The amendment includes a cumulative EBITDA covenant quarter until June 30, 2010 and replaces the prior fixed charge coverage ratio with an interest coverage ratio for the year ending September 30, 2010 and thereafter.

This amendment also modified our current ratio requirement, reduced the amount of allowable capital expenditures to $5 million plus lease hold improvements and requires lender approval for any stock repurchases and acquisitions by the Company. Our interest rate also increased to LIBOR plus 425 basis points through September 30, 2010 and thereafter at LIBOR plus 150 to 400 basis points depending on our Company's performance.

The facility matures in May of 2010. We are pleased and appreciate our bank's partnership that allowed us to secure an amendment during such a difficult credit department and believe it provides us with the financial flexibility we need in this environment. And now I'll turn the call back over to Bill for some closing comments.

Thank you Mike. And Mike let me correct one thing you said. The facility, the new facility expires in May of 2011.

I'm sorry (multiple speakers)

I want to take the opportunity to reiterate my confidence in our customers' passion for the lifestyle of boating with their families and then our business model to teach, to service and to show our customers how to have fun.

While this is certainly one of the most significant downturns we have seen, we know that growth will eventually return and when it does, we believe our customers will continue to trust and turn to MarineMax as the leader in the industry with the best boating experience when they decide to make a purchase or recommend us to a friend or associate.

We're focused on continuing to make our organization leaner through reducing expenses, managing our inventory, keeping our team focused and optimizing our store footprint to protect our financial strength. And I know this is a difficult time for all consumers but I am always inspired to see how many people continue to be involved in the boating lifestyle and am convinced this should continue to strong financial growth for MarineMax and our shareholders when conditions improve.

With that, operator, we will open it up for questions.

(Operator Instructions) Robert Henderson, Rutabaga Capital Management.

I was wondering if you could give us a few additional numbers if they are available for the quarter, the depreciation and amortization, the restructuring expense in the quarter if there was any and the stock option expense of the quarter if there was any.

Depreciation and amortization tends to run about $2.5 million for us. I think that was about the number in the December quarter.

We put in the press release that from the store closures we had -- it's about $400,000 worth of store closures related costs. For the five stores that we closed -- the stores that we closed in the prior year were pretty much expensed in the prior year.

Stock based comp I think was down around -- a little bit over $1 million which is lower than it typically is really due to the downsizing of our team members. It also has some equity awards that were retired when they left the Company.

Great, thank you.

Hayley Wolff, Rochdale Securities.

Can you give us a sense of what you have seen in January in terms of same-store sales inventory reduction? And then as we roll into the boating season, can you comment on what the year-over-year comparison looked like? When do they get you easy?

The January trends, we're not seeing improvements obviously from what we had in the December quarter. We're putting the finishing touches on the month. Same-store sales are going to be in the mid to maybe high 40s down.

Boat shows are down anywhere from probably -- we probably have a couple that are flat. Most are probably 20 to 40% down from a boat show perspective. The December quarter is our toughest same-store sales comparison with the 9% decline where the March quarter is 28 down, the June quarter last year was 29 down and September's 45% down.

In theory, we start coming up against easier comps. I think that we have got to continue to get through these boat shows seasons and more importantly get into the March which is a very important month of this quarter.

From an inventory perspective, I don't have the specific balance sheet for January. But we continued to make pretty darn good progress in getting those dollars down. And that is -- our focus obviously is to right-size the balance sheet, get inventories down and grow market share this year obviously and (multiple speakers)

Hayley at the shows, attendance (technical difficulty) most which you would expect but the quality of the buyers are still there. And what we're hearing at the shows is no discussion, almost none, about what is going on in the world today, more focused on boating.

But as Mike said, we have got some left and we've got some that are down 40%. But that being said, we're seeing that those that we're putting on paper and writing which are less than last year, they seem to be holding better and taking delivery.

And so we're hoping the retention will be better than it was last year and offset some of that. But very positive with our customers. I think that is the most encouraging thing and I think you saw some of the activity with the (inaudible) and up at the mountain there (multiple speakers) snow skiing.

That was a pretty wild sight actually. Last year when you talked about the second quarter down 28%, what if we think about January, February, March? Do things start to drop off in March or what was the distribution like on a monthly basis?

March was -- if you remember from the comments that we made right around -- I don't know if it's a coincidence or if it's tied directly to the Bear Stearns weekend, but that second weekend in March which I think is when Bear Stearns collapsed, our business dropped off dramatically from there to March 31.

And that month is typically as big as January and February is combined. So March was the real soft month and January and February were soft but March is what drove the whole quarter down to the degree that it did.

The March sales, what is the geographic distribution typically?

I don't have that specific. I would tell that I'm sure that you -- Florida is still playing a pretty big part of that month.

And we have got the Miami show (multiple speakers)

You've got the Miami show in February, some deliveries in March. If I had to guess, it is probably 55% non-Florida, 45% Florida, something like that.

Greg McKinley, Doherty & Co.

Mike, could you remind me, you are now at a $425 million facility availability and that steps down to 350 at the end of this fiscal year?

That's correct. It's 425 now. There is an interim stepdown on May 1 of 375 and at the end of this year it has to be 350. Then it has one more drop next May, a year and a half away, all the way down to 300. We don't think those stepdowns are a problem at all in terms of our progression that we're making on our balance sheet and so forth.

Are there any stipulations as to whether that full amount is available to you or it is fully available to you until the stepdowns occur?

The full amount is available. There is a borrowing base formula, so you have to have assets to borrow against.

But you don't anticipate that being an issue?

No.

And then I'm just wondering from a liquidity and balance sheet standpoint, can you talk to us a little bit -- you mentioned your 30 stores that you own with no mortgage. When you're looking at your cash flow needs going forward, are they to the point where you've started thinking about how can we use some of these other assets to create liquidity? Or maybe you could give us some context for how you look at that just so we can understand how broadly you're looking at ways to bring cash into the business?

I think in general, Greg, reducing the inventory and right-sizing the balance sheet is going to generate very substantial cash flows from operations this fiscal year. It did in the December quarter (technical difficulty) you'll see the [draft] has $28 million of cash from operations in the smallest quarter of the year.

I think that's the number one focus. I will add that our facility that we amended does allow us to pledge real estate that can then be leveraged to give us cash if we need it and that is an enhancement from our previous facility. Our previous facility, you could not pledge real estate and in this environment companies trying to get real estate mortgages out there, it is challenging and so we appreciate the flexibility that we've got in our current facility.

We think that's sort of out of a cautionary position that we got that into the document. It's not that we really need it. At least we don't foresee that we need it.

Number one, Greg, it's bringing the balance sheet in line and that will generate a lot of cash; and then two, we do have the ability to leverage some of the real estate through our current facility. And then I guess third is if we needed to leverage other facilities, we can still do that as well.

If you had everything sort of come together from a working capital standpoint to the degree that you would like, where could that $440 million end up being toward the end of the fiscal year?

We have been reluctant on previous calls to give specific numbers because we're not giving guidance anymore in just trying to predict what is going to happen at retail. I think the comments that Bill used either on this call or last call, we're looking for a pretty significant reduction in our September 30 year-over-year inventory.

I would say the December quarter is giving you a magnitude and I think reflects the Company's ability in partnering with its manufacturers and how it can make impact. I guess I would also point out that we made the progress. We're $92 million down in one quarter and really the Freddie group was contractually required to buy back $38 million in that quarter. So in theory we could've been down $130 million in one quarter.

And Freddie didn't buy anything down?

Nothing in addition to us what I disclosed in the last call which was $20 million in the month of October.

How about from a use-of-cash standpoint and from your operations, $39 million om operating expenses. Of course there's non-cash items in there. But are there likely (technical difficulty) closures to occur as you consolidate market areas into less square footage?

How about from a corporate standpoint as the market shrinks? Where's your infrastructure set up? Can you give us some thoughts there?

We're looking at our footprint given what is going on with retail whether that is stores or whether that is our facility here and the office space that we have here, we're certainly looking to make sure that our expenses are in line with what we're seeing at retail. As I think everybody on the call knows to a certain degree, it's been challenging from a forecasting perspective. But we're looking at additional stores. We're looking at lease space here to reduce costs.

Some of the most -- some of the most significant cuts we've made in SG&A has occurred at the corporate level and we will continue to look at it.

Maybe just one last question. Is there a sale leaseback environment that could become attractive to if you needed to pull cash out of the real estate or is that market bone dry as well?

I think the pricing, the cost, everything associated with that market would not be our best option. Our best option would be to leverage some under our current facility and if we need to, go get other mortgages from the third-party lenders to bring cash in. So that would be the most likely scenario if we need the liquidity.

Tim Conder, Wells Fargo Wachovia.

Gentlemen, just two questions here. Mike, the Sea Ray movement that you talked about in Florida in December, do you know was that current product or older product? And again, was that just being driven by substantial discounts or just a little more color on that?

And then second question relates to your inventory and I apologize if I missed this earlier. If you could just break down your inventory that you guys have and the percent that's in the 12 to 18 month category and then the amount that is over 18 months and whether that -- in your answer whether it's going to be framed in terms of unit basis or dollars.

On the sales in Florida, it was primarily two categories of product. We actually saw some beginning of positive signs in the third category, Sea Ray sport cruiser category which is 24 to 34 feet. But in the sport yacht category, 38 feet to 50 and then 50 to 60, we actually finished up in units in November which is the first time in probably 18 months that we were up in any category of -- just about any category of product. We've had a few here and there, brands have had some positive signs.

But that would be mostly driven by (multiple speakers) not '09 product. That's mostly '08 product. I would tell you can tell from our margins that we're not giving away the product. There certainly is some additional discounting going on now but it was encouraging to see that.

Then in December, similar trends in sport yachts and yachts. I say Florida -- we saw some positive signs elsewhere. It's just because of Florida's size to our business and that type of product, it tended to show a little more in Florida.

And, Tim, when you look at the aging of our product in terms of units and if you just do how many do you have on hand today that are '08's versus '09's or that are a year old versus under a year old, you're going to get distorted information because we're not bringing in any '09's. I think Dusty made a similar comment on his call last week that the percentages started getting pretty big in terms of how much is '08 versus '09. It's the biggest percentage we have ever had of '08 product versus '09 because we're not buying '09.

But I think if we look at our units which are down 40% year-over-year at the end of December which is enormous and that's -- not all that progress is made in one quarter because we were down some in September. And then you look at the dollar declines that we've made in one quarter, we're comfortable -- we'd certainly like to have less of the product that's 18 months or so. But we're comfortable with what we have got and in the environment and continuing on our goal of getting that product and our balance sheet down.

Tim, we have a big focus by all store managers and regional presidents and sales team members to move the oldest first. And we're doing things like if there's a boat that is 400 days old and there's another one that is 200 days older, 100 days old or whatever it may have to be, we're moving the 400 day old boat to another store just to get her done because obviously that is the biggest focus we need in our Company.

So we're actually rewarding some of the sales team members and store managers in order to keep the focus on the older first. But I think we're making good progress on it and we will continue to do that as the market allows.

Hayley Wolff, Rockhouse Securities.

As you think about liquidity on your balance sheet given the cash you generated in the first quarter versus what you typically do in the first quarter, do you -- are you concerned about liquidity going through the year or do you think you'll roll enough inventory off?

We're not concerned about liquidity. We think we will roll enough inventory off.

And with the new banking agreement, there's more liquidity in the inventory (multiple speakers) some of that changed.

It just seems like liquidity is not that central of an issue right now for you.

No, we feel that with the progress we have made and we continue to make that that should not be an issue for us as we go through '09.

Do you ever kick around the notion of share repurchase down here? Is it that hard to waive with the banks?

Well I mentioned that it takes a lender's approval to do a share repurchase at this point with the amendment that we have got. We certainly have talked about it with the lenders but currently we don't have their permission to do a share repurchase.

Have you evaluated land sales at all, just explored?

I'm sorry, say that again?

Have you explored land sales?

We have two stores that we have closed that are on the market and we have had -- those stores we obviously would sell and we've had a couple contracts on one of the properties and in this environment we have got kind of close to the businesses and the businesses have not been able to get financing for the property which is I'm sure a couple of years ago would've been done by now.

But the rest of the property that we own, we believe they are very important in our business and obviously we understand the industry is in a very big funk now but the industry's going to come back and we need our facilities to operate our business effectively.

[John Harlow, Darryl Hanley].

I was curious about tax-free funds. If you're NOL from your losses, are you likely to get some cash back from the government this year? Then a follow-up on the same subject -- if the carrybacks go from two to five years as the law changes, how much cash would that bring you?

That would be a pretty sizable benefit to us (multiple speakers) because the '08 -- '08 our loss was carried back to '06 and '09 we will carry it back to '07 but our income in '07 is limited. So depending on where the assumptions are for '09, if there's a tax loss, you could be limited by our limited income in '07 to some degree. If the law gets changed, you then have more years to carry back to when we made substantial income. It also helps just from a GAAP accounting perspective besides the cash flows. In 2008 we generated pretty sizable refunds by carrying it back to '06.

Have you received a refund yet?

We got the refund in the December quarter for carrying it back 2006.

How much was that?

About $12 million.

Okay is there anything to be gained or gotten back between now and June or this year, calendar year '09?

Nothing of any size, nothing like that.

Do you have an estimate for what it would be, how much cash you'd be able to bring back in?

I don't because (multiple speakers)

Uncle Sam if they went back five years?

We carried everything back we could for '08.

I understand.

So really it becomes an '09 question as to what happens in '09 and we just finished one quarter so we don't have -- we don't have what '09 is ultimately going to bring to figure out how much we can get back. But if the law gets changed, basically take 35% of our loss in theory and we ought to be able to carry that back.

At this time, there are no further questions. I'd like to turn the call back to Mr. Bill McGill for any additional or closing remarks.

Thank you everyone for your continued interest and support in MarineMax. I would also like to acknowledge our team and express my sincere gratitude for their continued commitment to our customers during these challenging times.

They continue to work very hard, make personal sacrifices but they remain passionate about our future and our continued success. Mike and I will be available today if you have any additional questions and we thank you for joining us.