MarineMax Inc (HZO) 2012 Q2 法說會逐字稿

Good day, everyone, and welcome to the MarineMax Inc. second quarter 2012 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, operator. Good morning, everyone, and thank you for joining this discussion on MarineMax's 2012 fiscal second quarter results. I'm sure that 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 fax or e-mail one to you.

I would now like to introduce the management team of MarineMax, Mr. Bill McGill, Chairman, President and Chief Executive Officer; and Michael McLamb, Chief Financial Officer of the Company. Management will make some comments about the quarter, and then 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. These statements involve 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 capitalize on opportunities or grow its market share, and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission.

With that in mind, I'd like to turn the call over to Bill.

Thank you, Mike, and good morning, everyone. I need to start with a thank you to our team. I am proud of our team's effort that produced $144 million of revenue, and more importantly, earnings in the March quarter. This was our sixth quarter in a row of new unit sales growth.

Our growth has largely been in contrast to industry reports, which until recently, had not reported unit growth in the segments in which we primarily operate. We produced an increase of 26% in same store sales for the quarter, with a portion of the increase coming from the brand expansions that we executed on during the past downturn. It is encouraging to see the success that is just beginning to occur from these expansions.

We are now tapping into segments of the industry that we never addressed before the downturn started. Our experience is that it takes a few years for new brands to gain momentum. These brands should continue to contribute to our growth as they ramp, especially as business continues to improve.

From the industry perspective, there are increasing reports that indicate the industry is gradually improving as economic conditions and consumer confidence gets better. It is also very encouraging to note that in addition to the 26% same store sales growth, we grew gross profit dollars 28%, and we were able to hold our costs to essentially flat, as we obtained substantial SG&A leverage.

As we have said before, 53 of our 54 stores that we operate today did over $1 billion in revenues in 2006 and 2007. As such, we should expect some additional leverage when our volume returns, and we begin to benefit more from the cost controls we implemented during the downturn. We are constantly managing expenses, albeit with a focus of not cutting costs that could negatively impact the experiences of our customers, such as our getaway events, mobile service, and women on water courses.

Our margins for the quarter continued to increase. The increase in gross margin was supported by incremental growth in our higher margin businesses of storage, service, parts and accessories, and finance and insurance.

For the six month period through March, we are close to profitability, and have produced positive cash flows when adding back our non-cash expenses. Interestingly, our consolidated gross margins are the highest we have ever posted for the first six months of any fiscal year. This again is evidence of the ongoing incremental growth we have managed to achieve in our higher margin businesses. As Mike will discuss in a few minutes, we still have greater margin upside opportunity when the margins on our boat sales return to historical levels.

MaineMax Vacations, our charter business we launched in October, should help to offset some of the cyclicality that comes with boat sales. We have made progress generating interest from our customers' base, and others, for this charter business, which is based in the British Virgin Islands. This is a long-term venture that will take time to grow and maximize, and we expect it to be a very profitable venture over the long term.

Our team is committed to writing the best charter experience in the world, just as we do with our primary businesses.

With that update, I'll now ask Mike to provide more detailed comments on the quarter. Mike?

Thank you, Bill. Good morning again, everyone. Before I go through the numbers, I also want to thank our team for a strong quarter, and for delivering the first March quarter's profits in several years.

In the three months ended March 31, 2012, our revenue increased to $144 million. The entire revenue growth was driven by a 26% increase in same store sales. As Bill mentioned, some of the growth was driven by the new brands we expanded with. About one quarter of our same store sales growth was from new brands. Our sales in the quarter were up in most markets, and also, across all segments that we operate. And while some segments have been unusually slow to recover, like our 25' to 35' cruiser segment, they all showed renewed strength.

We also generated a strong increase in gross profit dollars. Gross profit, as a percentage of revenue, increased to about 23.9% in the quarter, up about 70 basis points from last year. Our improvement this quarter was driven by our higher margins on new boat sales, and increases in revenue on all our other higher margin businesses, as Bill mentioned.

Our product margins are still trailing our historical averages by about 150 to 200 basis points, which should provide future long-term incremental upside as product margins gradually recover. We are also pleased with our ability to control costs, evidenced by the very small uptick in our selling, general and administrative expenses.

Obviously, when sales and gross profit dollars grow to the extent they did, certain expenses increase, like commissions. The reason expenses overall remained in check was the efforts we have made over the last few years to reduce other costs, such as fixed costs for our stores, and marketing costs for boat shows. Also, as our inventory aging continues to improve, the costs associated with maintaining it decreases.

Interest expense increased to approximately $1.2 million for the quarter as a result of increased borrowings due to the brand expansions and the accelerated timing of receiving inventory.

Moving to income taxes, the Company had a tax benefit of $116,000 for the quarter. As we have indicated before, our effective income tax rate will remain essentially zero until we achieved sustained annual profitability.

Net income for the second quarter increased $6.8 million, to $2.3 million or $0.10 per diluted share, compared with a net loss of $4.5 million, or $0.20 per share last year.

Now, onto our balance sheet. At quarter end, we had approximately $129 million in cash, an increase of 35% compared to the quarter a year ago. But as I have commented before on these calls, our cash balance is a function of how much we leverage our inventory. We have substantial cash in the form of unlevered inventory, in addition to our debt-free real estate.

Our inventory at quarter end was $206 million, down 8% from the December quarter, and the aging of the inventory continues to improve. Seasonally, peak inventory levels usually occur at the end of March. We are comfortable with our inventory, as we head into what has historically been our strongest selling season.

Turning to our liabilities, our short-term borrowings were $120 million, which is up over the prior year, due to the increased inventory. Customer deposits increased 10% year over year. This increase relates to an increase in deposits on larger yacht orders.

Our balance sheet continues to be very strong and healthy. We ended the quarter with a current ratio of 1.59, and total liabilities and tangible net worth ratio of 0.86. Both of these balance sheet ratios are very strong. Our tangible net worth now stands at $195 million. We own over half of our locations, all of which are debt-free. The majority of these locations are waterfront, or on busy highways.

We remain focused on our costs and driving additional cash flow through our historically busy summer selling season. We also look forward to a continued recovery of the economy and a rebound in consumer confidence. But since we cannot control these factors, we will keep our focus on outperforming the industry and gaining market share.

Before I turn the call over to Bill, I want to comment about current trends. First, last year's April was a very strong month in a quarter where we produced 33% same store sales growth. So we are up against a tough comparison. With one week to go in the month, April is poised to exceed last year's April.

Having said that, I need to caution that we as emerge from these difficult years, we have seen other quarters that look promising, only to be later affected by events outside of our control. Last year, for example, we had year over year increases in the three quarters through June, only to have several external economic factors, such as the national debt debate and the European financial crisis, drive down consumer confidence, which negatively impacted our business.

Accordingly, we believe it will take a few quarters of sustainable improvement before we'll be able to conclude that not only is our business poised for ongoing recovery, but that our economy is heading in a direction that will produce growth quarter after quarter after quarter for the foreseeable future.

With that, I'll now turn the call back over to Bill.

Thank you, Mike. While our results caused us to have a greater sense of optimism, as Mike said, we need to have sustained recovery to feel significantly better about the industry and our results. There is no question that we have made, and continue to make progress. The earnings power in the Company is growing, as we have focused more on the segments of the business which we can control.

We remain committed to the importance of finding ways to drive our gross margins. While we cannot control the timing of a sustained economic recovery, and therefore, the strength of boat sales, we do have a greater ability to positively impact our higher margin businesses, and also expenses.

To that end, we have been incrementally growing these businesses just about every single quarter for years. These efforts should result in ongoing improved gross margins that give a revenue level relative to that same revenue we generated historically. While product mix shifts can affect our gross margins from quarter to quarter, we believe that we can continue to make progress on improving our annual gross margins over the long term.

As I've stated before, our customers are out on the water using their boats more and more. They are attending our getaways and related events in greater numbers. And our customer classes at our stores are vibrant.

All of our customer-centric strategies, and our passionate team, greatly differentiate MaineMax in the marketplace. I am convinced that it's our strategies of teaching, servicing and showing our customers how to enjoy boating with MaineMax that has allowed us to exceed the industry unit trends for so long, and improve our market share.

We are convinced that with our focus on our team and our customers, we will continue to exceed the growth that the industry otherwise will generate.

With a turn toward more positive consumer sentiment, and generally improved economic conditions, coupled with our team's ability to enhance and improve our customers' lives through boating, we are well positioned to build on the progress which we are making. Our team remains committed to our customers, and we are encouraged by our customers' passions for our great recreation, which connects them with their family and friends, and enriches their individuals' lives. We are proud to provide a recreation that impacts and changes lives.

With that, Operator, we'll open it up for questions.

Thank you so much. (Operator instructions) With that, we'll take our first question from James Hardiman with Longbow Research.

Good morning. Thanks for taking my call, and congrats on a fantastic quarter here, guys. Couple questions. Obviously, it's real early in the year. We don't want to get ahead of ourselves. But can we talk a little bit about where you guys fit into the broader narrative of this -- at least, what was in the first quarter a nice little pop here, somewhat of an industry recovery. On the one hand, we've got the industry up, call it mid-teens, but you know, the sterndrive fiberglass still underperforming some of the other segments. That said, you guys were up 26%.

How should I think about that, with some of that geography? You mentioned some of the new brands in there, but how do I -- you know, how do you guys fit in with the broader industry at this point?

Well, first of all, thank you for the congratulations, James, congratulations. And boy, that sure is more fun that what it's been in previous years here.

But you know, what we saw is that businesses pretty well across all our segments were up, and most of the industry increase has been in the outboard segment, in aluminum and outboard fishing and runabout type business. But we saw an improvement in sport cruiser businesses, as an example, which has been a long time coming. And so it appears that the consumers, as they feel a little more confident, are willing to go ahead and make that decision.

So, you know, we're cautiously optimistic, is probably the way to say it, and as Mike mentioned in what he said about what happened to us last year, as we all know very well, is we were well positioned for a good year last year, and all of a sudden, it didn't happen, with all external things.

So we're worried about, you know, the macro environment, from a standpoint of, you know, it's an election year, and the world issues that are out there. But we're very encouraged by our customers and their attitudes and the fact that they're still out boating, and they're boating more. So we're keeping our fingers crossed, and working as hard as we can to make hay while the sun shines here, not knowing what the rest of the year is going to bring in.

I just would comment, James, for -- let's say the five quarters through December, right? So if you go back a quarter, we had pretty good, in a lot of those quarters, double digit unit growth for the segments that we operate -- fiberglass, inboard, runabouts. During that time, the industry for those segments was all negative.

In the March quarter here, we've again had pretty decent unit growth, as you would think, through our same store sales growth, and I believe there are reports that are coming out right now at the end of March that are saying that the segments we participate in are actually up, not a whole lot, maybe about flat to up a couple basis points.

So I think what you're seeing, and what you've been seeing for several quarters, is us outperforming due to the strategies that Bill already talked about. But now what's nice is that we were -- we now have an industry that's beginning to get its sea legs, if you will, and it's beginning to increase also. That's the reports that I've seen here, of late, in late March here and early April.

Very helpful. And how should I think about, I guess, two different impacts. One, geography. I mean, obviously, you guys are overexposed to the Florida market generally. How did that compare to some of the other parts of the country, which in theory -- I guess this leads to the second question. Will the role that weather played over the course of the quarter -- obviously, weather pretty favorable up on the East Coast and the Midwest, and yet, nonetheless, you guys are overexposed to that Florida market and put up fantastic numbers.

I would tell you, Florida has been becoming an asset for us again for the last several quarters, and I would say that we have stronger growth out of Florida incrementally than we did out of the rest of the country. When we speak with our stores, it's hard to quantify the impact of weather. It doesn't seem like there's been a material impact in the northern markets. If your boat's winterized for the winter, it's winterized for the winter. There's not a whole lot you can do about it.

You would think there would be some benefit from it, but it doesn't seem to be very significant, given Florida's trend versus the rest of the country.

And in the northern markets, as you know, James, the boating season is just beginning. So we've got to wait and see what that does.

Great. And then last question here, just on the operating leverage front. I mean, you grew sales about $28 million, operating income about $7 million, so call it 25% leverage.

As I think about the year, obviously, there's a lot of different ways we could look at this. But how should I think about what level -- if we continue that trajectory of operating leverage, you're looking at maybe $525 million will get you back to breakeven. Is that how you guys think about it? And obviously, the top line is the biggest unknown. But how should I think about the leverage in terms of getting back to breakeven?

Well, I think basically, we've been operating pretty darn close to breakeven for the last 18 months, let's just say, maybe longer than that, just depending on a couple of margin assumptions, our ability to control expenses, and so forth. So I think we're very close to that now.

I think the leverage we had in this quarter was fantastic. I think there are a couple of things going on in this quarter that you need to think through. One, in the year ago quarter, we had 57 stores, and this quarter we had 54. We did more volume, which has been the story we've been talking about for a long, long time. As we think we can get more volume through our stores. So about a third to 40% of our cost structure is fixed, and we're not planning on opening a lot of stores, so we ought to get additional leverage, from that perspective.

We also did a pretty good job in the quarter of controlling boat show costs, as I mentioned, and this is the quarter where we have most of our boat show expenses. We have a little bit in the June quarter, a little bit in the September quarter, but most are March. So we were able to reduce some costs there, that we don't quite have that opportunity in the June quarter.

So while it's management's goal and directive to get as much leverage out of business, this leverage in this quarter was pretty stout.

Got it. Thanks again, and congrats, guys.

Thanks, James.

Thank you.

(Operator instructions) Our next question today will come from Greg McKinley with Dougherty.

Yes, thank you. Wonder if you could comment on the new boat brands you've brought into the fold recently, and the contributions they've made so far?

Well, Greg, as far as the new brands that we've added is, we've added Bayliner, we've added --

Nautique.

Nautique, which is sort of my passion, out skiing. I'd say Malibu, similar type boats, wakeboard ski boats. We've also added [Prince] -- not [Prince] (inaudible), but --

Crash pontoons.

Crash pontoons. And we've expanded some brands as well, you know, a little bigger footprint with Azimut, as an example.

As far as contributions, I don't think we --

It was about a quarter of our same store sales growth. So if our growth was 26% in the quarter, about 25% of that came from the new brands, if you follow that math, Greg, and some of those brands we had last year, so that's the growth on top of the brands that we had last year.

There are new segments that we didn't used to participate in, which to me is pretty exciting. In some cases they're -- maybe they're more of a value opportunity, Bayliner, Mako. And certainly, the aluminum, which is -- I think you guys all know, has been very strong, and that's continued to grow.

And Scout, Scout fishing market, boats in select markets.

Right.

Okay. So a quarter of your -- and you feel like you have more exposure to a more value segment of the boating market with those brands?

Yes, for some of them, and some of the other brands that we mentioned aren't necessarily value, more premium brands, like Nautique or Malibu --

More premium brands, Nautique and Malibu.

Scout.

Okay. On the inventory front, you commented that typically, inventories peak seasonally each year in March. Is that going to be different this year, given the fact that you're starting to see recovered retail demand? Are you -- is there a need to put more product on the floor than we might have seen in past years, given that we're heading in the right direction now, or how should we think about that?

I think kind of along the comments that we've made. I mean, if we continue to see the growth, or accelerating growth, then certainly, we'll be -- we'll need product to satisfy that appetite. But I think given -- even given our strong quarter, given what we see today, given our ability to get product from our manufacturers because of capacity faster, we feel really pretty good about where we stand today, and our ability to meet the demand that we think is out there.

But with our 54 stores that we have, if anything, we're a little tight on inventory. And so we need that, really, to be doing business and have the products for the consumer that want it now for the season. And that's one of our real strong benefits that we have in MaineMax, is the ability to move them around. So if you have someone in New York that needs a larger boat that's in Florida or Texas, we can get that boat for them.

Yes. All right, thank you. Nice quarter.

Thank you, Greg.

Thank you, Greg.

And we'll go next to Michael Fox with Park City Capital.

Good morning, guys, and congratulations on a very strong quarter.

Thanks, Mike.

I was just wondering if you could talk about if you think there was any pent-up demand in the quarter. And then second question was just regarding if you think you're at the point where you're starting to see opportunities to make acquisitions, because I know you didn't want to really do that during the downturn, but just seeing where your thought process is around that, that would be great.

When you have a huge quarter like we had in the March quarter, with the bulk of that being in the actual month of March, which is historically the way it is, there is some pent-up demand that's created. And so, it can cause -- take a little bit of business from April, and you throw it over into March. But we're seeing signs that we're bringing it back around.

So there definitely is some pent-up demand that was created, and --

In the industry, there's a ton of pent-up demand because of three to four years of low unit sales.

(multiple speakers), the units are really out there, getting older and older and older.

Right.

And that pent-up demand could -- I mean, that could kind of persist through the spring, in theory, given that, like you said, three years of weak sales.

I would tell you that given the -- if you look at '08, '09, '10, '11, and even '12, the unit sales are historically well off their peaks. There's a lot of people out there who have not yet traded up into their new boat. And so we believe there's a fair amount of pent-up demand, and that the industry units ultimately are going to return. Whether return to 300,000 or something over 200,000, I think is something that we all need to wait to see on, but certainly, there's a fair amount of pent-up demand, and as people begin to feel better, they're going to get their -- enjoy their pleasures, as Bill was talking about.

Acquisitions, I just would point out that we've done a lot of growth these last several years. Bill mentioned it, brand expansions, the brands we've taken on, or expanding with brands that we currently have. I think Bill mentioned taking Azimut on in Florida, expanding with Hatteras and Cabo in the Northeast, and so forth. And I think there's going to be more and more opportunities like that, where you're not paying blue sky.

But certainly, if the right opportunity comes around, and if the economics are proper, we've had a pretty disciplined acquisition policy years ago. We're not going to deviate from that. We would certainly look at something.

And we continue to get opportunities thrown at us through acquisitions, but you know, unless they make a lot of sense, and they're steals, we're not going to do them, because there's no need to, as Mike just explained. We can grow the business with the leverage that we have with brands, and our ability to grow the Company back without having to take on the additional risk.

Great. Great. Thanks a lot, and congratulations again on the quarter.

Thanks, Mike.

Thanks, Michael.

And currently, ladies and gentlemen, we do have one other question in the queue. (Operator instructions) Our next question will come from Jimmy Baker with B. Riley & Company.

Hi, good morning, guys. Great quarter here. Good start to the retail season.

Thank you.

As you think about -- I just have a couple of, really, follow ups to some prior questions. So as you think about expanding with brands like Nautique or Malibu, and then also, some more value-oriented offerings, like your pontoon lines, can you even speak to, even anecdotally, trends in your customer mix, maybe broken down by first time boat buyers versus trade-in buyers, versus those just adding, let's say, incremental boats, multi-boat owner that's just increasing his fleet, if you will?

Jimmy, with the brands that we were not representing before, like in the ski and the wakeboard brands, Nautique and Malibu, obviously, that's adding customers to our database. If you look at Bayliner, we're actually -- we're picking up customers that were not doing business with the premium brands, you know, of Sea Ray, that we had before, that are now in the -- into our family. And so, you know, they're more value conscious, however, they're very high quality boats. And so that's the reason it fits within our Company. It's not like we're selling a low quality product with Bayliner. We're selling a very high quality product, it's just not contented at the level of some of our premium brands.

And that's -- a lot of that is incremental business, but we are seeing also that some of our customers that historically would have bought, perhaps a Sea Ray runabout, or is now buying a Bayliner, and it has to do with their own wallet or their own concern, where the economy is going, financing or whatever the case may be.

We're also seeing there's a shift to pontoons from what historically would have been a large sport boat type buyer. And it's people looking for more value. So I can now put 14, 16 people on the boat, and have a large, big deck on this pontoon aluminum boat, whereas, you know, I've got to buy a much larger sport boat to be able to do that same thing, if I can even do it.

So there is a shift that's occurred out there, and some of that is -- has to do with where people's concern about the economy and maybe their own financial picture. But there is still a lot of wealth out there, and a lot of customers who have the ability to get the financing. Financing is not an issue today. We can get it, if people have good credit, and even if it's marginal credit, we are able to put some deals together.

But you know, a lot of it is tied to, people just need to feel better. We've got to remember that consumer confidence is still very, very low. And you know, the media just does everything they can to paint the most negative picture you can possibly imagine, as we all know. And of course, that kind of shuts our customers down.

So that's the reason we get them out on the water with getaways, and that way, they're not watching the doggone news, because who knows what you can believe today with the news anyway, and it's -- you know. So that's been a real issue for our customers, to feel more confident to want to pull the trigger.

They are boating, I mentioned that, and NMMA actually supports that data, National Marine Manufacturers Association, that consumers are out on the water. I can tell you, ours for sure are out on the water, and a lot more. And so, our trips to the Bahamas, and to --

Lakes and rivers.

You know, the lakes and rivers. It's -- they're all booked, and the customers are out doing it. So, I hope that answered your question.

Yes, those -- if I could just clarify it. It sounds like clearly, you're seeing some incremental customers, new customers to you, to MaineMax. But you feel like they're new to the industry, new to boating? Or maybe we're not really there yet, we need to get further into the recovery.

No, no, we see -- we're seeing both, for sure. Some are new to MaineMax, and so they're conquests. But there are many that are new to boating, as families discover that boating is one of the few recreations out there that, especially if you have kids, you can really connect with your kids, and you've got them as a captive audience. And there's not many recreations do that today.

Families are looking more and more for that, and one of our biggest competitors that we have is the extracurricular activity of kids today, and boating gives a chance to do that. And I'll give you an example.

One of our regional presidents has a son, and he's a teenager, and has gone on numerous getaway events with his dad. And so, we had a Bahama trip planned a few weeks ago, and the sea was just up too much to really do it. And his son had cancelled some baseball games and everything else he was involved in, and of course, was just extremely disappointed that he couldn't do that trip. And that's what families are looking for today. What is there that will bond and bring people together, or can give the ability to make new friends, etc.? So it works.

Somebody actually sent me a card. They want me to come sponsor --

Hey, Brad -- Brad. Jimmy, did we answer your question?

You did. I just had one more, and then I'll back out. Just a follow up to the pent-up demand comments earlier.

I think the question was framed as, you know, kind of in regard to near term trends, if that pent-up demand spills over beyond the spring. I guess I would think the release of pent-up demand, as you see it, would be a multi-year dynamic. I mean, it's going to take several years to get the age of the fleet down. And just getting back to even a natural replacement rate, if you will, I just want to make sure I'm thinking about that the same way that you are.

Yes.

Yes, absolutely. Absolutely. That's the way we're thinking about it.

Okay, all right. Thanks a lot for the time, guys.

Thank you.

And with that, we have no further questions. I'd now like to turn the call back over to Mr. McGill for any final and closing remarks.

Thank you, Operator, and thank you, everyone, for your continued interest and support in MaineMax. I'd also like to, again, thank our team members for their hard work and passion for our Company and our customers. It is truly due to their efforts that we can call ourselves the leading boat retailer in the country.

Mike and I are available today if you have any additional questions, so thank you, everyone.

And with that, ladies and gentlemen, that does conclude today's call. We do thank you for your participation, and ask that you have a wonderful day.