MarineMax Inc (HZO) 2012 Q3 法說會逐字稿

Good day, everyone, and welcome to the MarineMax 2012 fiscal third-quarter earnings conference call. Today's call is being recorded. At this time I would like to turn the conference over to Mr. Brad Cohen. Please go ahead.

Thank you very much, operator. Good morning, everyone. Thank you for joining the discussion on MarineMax's 2012 fiscal third-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 it to you directly.

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 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 would 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 the 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 would like to turn the call over to Bill.

Thank you, Mike, and good morning, everyone. In our historically largest quarter of the year, our team's effort resulted in revenue of $151 million and $4.6 million of earnings for the quarter.

Although we had a slight year-over-year reduction in total revenue, we had a positive same-store sales growth as we operated fewer stores in the quarter than a year ago. It is also important to recall that last year we had an exceptionally good June quarter partially fueled by larger boat sales which drove a same-store sales growth of over 33%.

During the quarter, during the current quarter, we were reminded that the industry's recovery can be choppy when negative headlines drain consumer confidence as we have seen from the ongoing European issues and to a degree the political banter which creates pause for customers. But at the same time, the fact that we had positive same-store sales growth supports the mounting evidence that the industry is indeed improving.

I am extremely proud that we grew earnings over 37% on slightly less revenue as we once again were able to produce greater gross profit dollars on basically flat revenues. We were also able to reduce expenses on a year-over-year basis as structural changes we implemented as we emerged from the depths of the recession are really paying off.

As we have said many times, the 53 stores we operate today did over a billion in revenue in 2006 and 2007. As such, we are achieving leverage from our fixed costs. This combined with our relentless focus on costs, which do not negatively impact our customers experience with MarineMax, is allowing us to improve our earnings at given revenue levels.

We have stressed that we are focused on managing the areas of the business that we can control, like our higher-margin businesses and expenses. Part of our gross profit growth came from the continued incremental growth we are seeing in service, parts and accessories, finance and insurance, and brokerage.

Interestingly through June, our gross margin percentage is the highest it has been in the history of MarineMax. I attribute this to the improving product margins and our team efforts at growing the higher-margin businesses.

During the quarter, the brands which we had expanded with continued to help drive unit growth. However, our average unit selling price dropped somewhat in the quarter due to what we believe is the timing of larger yacht sales.

The quarter also saw a generally improving industry report adding further support to the recovery. Most of the reports focused on improvements in aluminum and small fiberglass outboard boats. However, I wish to point out that the core products that we sell, stern drive and inboard pleasure boats, are still challenged, albeit these customers are actively boating and pent-up demand is increasing.

Industry data is mixed, but would point to a decline in stern drives for the quarter to basically being flat. Ultimately, I mean excuse me -- unfortunately, accurate data won't be available for about 90 days. This is one of the reasons we have diversified into other segments of the industry that are doing better like we are beginning to grow our aluminum and our outboard powered products.

I am pleased that we were profitable for the nine months ending June. This is the first year since 2007 that we have been able to say that. The great news is that we still have greater margin upside opportunity when the margins on our boat sales return to historical levels. We are still approximately 75 to 100 basis points below our historical levels.

As the industry continues to recover and as the recovery broadens to include all segments of the industry, we believe our structure, our team and our retailing strategies will allow our earnings to accelerate.

With that overview, I will ask Mike to review the quarter in more detail. Mike?

Thank you, Bill. Good morning again, everyone. Before I go through the quarter, I also want to thank our team for producing strong year-over-year earnings growth. It's really great to see.

For the three months ended June 30, 2012, our revenue decreased slightly to $151 million. The decrease is because we closed stores on a year-over-year basis. We did have a slight increase in same-store sales growth. We also again grew our unit sales for the seventh consecutive quarter, albeit certainly less than last year.

As Bill mentioned, we had a very strong quarter last year with over 33% same-store sales growth while the industry was down double digits. Accordingly, we were up against a very tough comparison. In contrast, the September quarter we are now in had slightly negative growth last year which in theory would imply we have an easier comparison in the current quarter.

On a smaller revenue base, we generated over a 3% increase in gross profit dollars. Gross profit as a percentage of revenue increased to 26.6% in the quarter, up over 100 basis points from last year. The increase in gross profit as a percentage of revenue was primarily the result of higher margins on new and used boat sales, generally across all product segments.

The increase in our higher-margin businesses also added to our overall margin expansion. As Bill mentioned, we believe we still have upside in the product margins as they gradually return to historical averages.

SG&A expenses decreased to $34.7 million for the quarter, consistent with other recent quarters, we are seeing the benefits from the leverage in our fixed costs. We also continue to take a rightful approach at all expenses and have seen reductions in marketing as well as items like inventory maintenance given the improving age of our inventory. It's great to see gross profit dollars grow while expenses fall.

Interest expense increased to approximately $1 million for the quarter as a result of the increased average borrowings giving our inventory levels throughout the quarter.

Moving to income taxes, the Company had no material income tax benefit for the quarter, compared to a tax benefit of $333,000 last year. Our effective income tax rate will remain essentially zero until the Company returns to sustained annual profitability.

Net income for the third quarter increased over 37% to $4.6 million or $0.20 per diluted share, compared with net income of $3.3 million or $0.15 per diluted share last year.

For the nine months, I will be brief and comment that the trends in the quarter also exist for our year-to-date performance. We have grown gross profit dollars by about 12% with only a 1% increase in expenses. As such, our earnings are much better and we are profitable for the first nine months. It's nice to see the leverage we've obtained.

Now onto our balance sheet. At quarter end, we had approximately $33 million in cash, an increase of 23% compared to last year. 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 $199 million, down 3% from the March quarter and the aging of the inventory continues to improve. Inventories decreased 1% year-over-year which is good considering the new brands we've expanded with over the last year. We feel pretty good about where we stand with inventory, especially with the industry's improved ability to adjust orders if trends require it.

Our short-term borrowings were up about $6 million year-over-year due to the timing of borrowings and repayments. Following the close of the quarter, we also completed an extension of our credit facility that provides for up to $30 million for floorplan financing for our Azimut product line.

Our balance sheet continues to be strong and robust. We ended the quarter with a current ratio of 1.67 and total liabilities to tangible net worth ratio of 0.79. Both of these balance sheet ratios remain very strong and comfortably within compliance of our debt agreements.

Our tangible net worth is over $200 million. While we repeat this often, a few key points should be made. We own over half of our locations, all of which are debt-free. The majority of these locations are waterfront or on high-traffic roads. Our focus continues to remain on outperforming the industry and gaining market share while managing the areas of the business we can control.

We continue to look forward to the recovery of the economy and improvement in consumer confidence and a broadening marine industry recovery.

Before I turn the call back over to Bill, I want to comment about current trends. With one week to go in the month, July will exceed last year's July. Having said that, I do need to caution that as we emerge from these difficult years, we have certainly seen choppiness in the recovery, and we have a lot of work to do before the current quarter ends.

I will now turn the call back over to Bill for closing comments.

Thank you, Mike. Our solid June results and our return to profitability through the first nine months of the year provides us with the confidence that we are making the right decisions and correctly positioning the Company to truly benefit when an economic turn emerges and is sustained.

However, our industry is finally starting to see some positive data points emerging. We are convinced that MarineMax will be the direct beneficiary as the industry trends continue and they broaden.

I would like to reiterate that all of our cost-cutting efforts and repositioning will truly drive future cash flows and earnings. The earnings power in the Company is growing as we have focused more on the segments of the business that we can control. As sales continue to rebound and return toward historical levels, we are confident that MarineMax will produce strong operating cash flow and meaningful earnings per share growth.

We will continue to focus on pursuing select opportunities that are accretive and strengthen our presence in key markets. We have the financial strength and flexibility to expand our presence in the MarineMax brand.

Customers are returning and it is our job to enhance the time they spend on the water. Our passionate team is committed to differentiating MarineMax and will continue to pursue and execute on our strategies of teaching our customers, servicing them and showing them how to maximize their enjoyment of boating with MarineMax. The result will be happier customers and enthused clients who will continue to help us increase our share in the market while building on our customer's passion for spending quality time connecting with their family and friends through the great activity of boating with MarineMax.

We do understand that boating changes people's lives like it has for Mike and for mine. With that, operator, we will open it up for questions.

(Operator Instructions) Jimmy Baker, B. Riley & Co.

Hi, good morning. So, first just to clarify, in your prepared remarks regarding the timing of yacht sales, is that in reference to large yacht sales that slipped into Q4?

Well, the comment related to -- if you look at last year's June quarter, we had a higher AUP than we have this quarter, averaging at price, because we closed some yachts in that quarter. But overall we are not concerned about the yacht business because of what is booked to close into the future, whether it is Q4 or even Q1 of next year. Sometimes with yachts, it has to do with the timing as to when they close.

Okay, that's helpful. Look, you guys have been doing this a long time and you have seen ups and downs. I just can't recall ever seeing a divergence like we've seen this year or this selling season with regard to how strong the low end of the market has been and yet how relatively weak the high end express cruiser yacht market continues to be.

I'm just interested to hear what you see as a catalyst to kind of get that high end of the market moving again, which can be a really critical source of revenue for you.

Well, Jimmy, first of all, if you look at the sport cruiser and sport yacht business, fiberglass stern drive inboard business, what we are seeing is that consumers are still out there boating so that hasn't really backed off at all. What is -- what we believe has been going on more than any other thing is that a lot of those consumers are business owners and they are reluctant to make a move right now, because they are concerned about what is going to happen come this election year is what we hear from our customers.

Mike and I were up at Nantucket with a bunch of our Azimut customers and you know, a great event. We had about 30 customers with boats there and everybody having a great time. And the message we kept getting from a lot of our customers is their concern as it relates to their business and with what is going on today. And I think that is the thing that is going to really make a difference as we go forward.

But in a lot of cases, that consumer that buys our sport cruisers and sport yachts is a business owner and has been impacted significantly with what has been going on and is worried about Obamacare and all these other things that are going on. And -- but the good news is, they are out there boating.

And there -- our getaway events as I have mentioned many times, continue to be filled up and doing very well. And so, they are enjoined the lifestyle of boating, it is just they are cautious right now.

Okay, and I just have a question on your inventory. I'll back out. The inventory actually down year-over-year, despite the positive comp. I would have thought that you might need a little more inventory as you expand coverage of higher AUP lines like Azimut. How should we be expecting that inventory number to trend going forward? I know it's seasonal, but should it roughly track with your comp trend from here?

You know what, honestly, what we are focused on is improving our turn, the industry turn level has dropped to historic lows, as did ours for MarineMax, and what we are trying to do is to get our turns improving. This year when the year ends up, we are probably going to be someplace north of 1.5 times which is low for us, and we need to get that closer to 2 and then even above. So we would like to see inventory levels not necessarily growing in line with same-store sales growth but getting the turns to improve.

There is a balancing act there between the manufacturers producing and on a timely basis and us getting the boats in and getting them to the right place and selling them. Based on our market share and what we have seen through the -- I guess I will say the published market share through the 12 months ending March, we are doing really pretty decent on market share which would indicate the inventory levels have probably been fine for the market demands. And based on our intelligence that we are getting in the June quarter, I would say the same thing is holding true in the June quarter as well.

And so we are working on turns, and ultimately that will help the Company become even more profitable as well.

Okay, appreciate the color. Thanks, guys.

Greg McKinley, Dougherty & Company.

Yes, thank you. You guys mentioned in the prepared remarks that you feel you have an opportunity to continue to expand the Company. I'm assuming that either means brands or potentially the acquisition of other dealerships. Can you talk about what you are seeing in the market in terms of availability for acquisition targets and are you seeing attractive opportunities out there right now?

Greg, we are seeing that -- it hasn't really changed too much in the last year or two or three, and that is there are other dealers that we would love to be part of the MarineMax family and we are in discussions with them. As you know, we are -- our motto is we pay based on historical earnings of a multiple and the earnings have been negative or low for a lot of them. And even though they are good dealerships, they are in a lot of cases, they are not willing to accept nothing or pay us to take the dealership.

And so, that's -- the good news is there is no one out there else that is really competing and so it is not like we are going to lose the opportunity going forward. But there are discussions with dealers as -- right now, and if it makes sense for the Company, we will execute on it like we did in Panama City up in the Panhandle this last year.

And -- but we are not going to overpay, and we are going to do our due diligence to make sure that we have a team there or we have a team ready to go in because as you have heard us say a thousand times, it is all about the people as much as the market.

Yes.

There is some potential additional brands -- the brand expansion of brands that we currently carry so if you kind of look at our geographic footprint, we are pretty happy with the brands we have but we don't have them in every market and we are in discussions with manufacturers about opportunities that may become available which would make a lot of sense for us because then we leverage our cost structure that we already have invested in the brands, our marketing team, our products team and stuff like that. So some of that we will continue to investigate and work on as well, Greg.

Can you talk a little bit about your view on market share? My perception is in the last year to year and a half you very consistently picked up share in the industry if we look at boat title registrations, MarineMax sales seem to always be growing at a healthier rate than what we are seeing in the industry.

This quarter it felt maybe it was more in line with industry. You addressed some of that being maybe some timing issues around large boat sales, but wonder if you could talk about how you felt your share performance held up in the quarter versus what you had done in recent quarters and why any changes may have occurred?

Our intelligence, which is primarily from talking to manufacturers now because a lot of the data that is out there is what we call flash data which means it is not mature. But based on our intelligence and talking with different manufacturers, brands we carry and brands we don't carry, we believe our share is continuing to -- I use the word incrementally expand.

We did have unit growth in the quarter, albeit it was mid single-digit unit growth. When we looked at the data, InfoLink has got a new report out, came out recently that shows stern drive and jet boats are up slightly. If you take jet boats out of there, I would make -- I don't know but I would make the assumption that the data will come out that stern drives are probably down in the quarter. How far down I don't know, but if were up, I would say that we will probably continue to grow our share.

One thing to keep in perspective is last year we had that massive growth of 33%, which we had a lot of units driving that and we did have some bigger boats driving that. And this year our units are up, so we still sold that many units and I think if you go look at the industry's growth -- or actually they were down last June quarter, and then you look at the growth or maybe about zero this quarter, I think our units are still significantly higher than what is happening overall for the industry.

Yes, okay. Thank you.

(Operator Instructions). It appears we have no further questions at this time.

Thank you, everyone, for your continued interest and support in MarineMax. I would also like to thank our team members for all 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. Thank you.

Again, that does conclude today's presentation. We thank you for your participation.