MarineMax Inc (HZO) 2012 Q4 法說會逐字稿

Good day, and welcome to the MarineMax fourth-quarter and year-end earnings conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to Mr. Brad Cohen, at ICR. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining this discussion on MarineMax's 2012 fiscal fourth-quarter and year-end results. 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 Cameron at 727-531-1700, and she will fax or e-mail one to you right away.

I would now like to introduce the management team of MarineMax. 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. With that, I'll turn the call to Mike. 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'll turn the call over to Bill.

Thank you, Mike, and good morning, everyone. Let me start by saying for those of you who are impacted by Hurricane Sandy, our thoughts and our prayers are with you and also your communities. I will comment more on the storm later.

We are pleased with our fourth-quarter and fiscal 2010 results, as we improved earnings $12.6 million over 2011, and report a profitable year. Our team put forth exceptional efforts in a still challenged industry, and we ended the year with a revenue increase of about $44 million. This is more than a 9% increase from less stores, driven by a double-digit annual same-store sales growth of over 11%.

It is encouraging that we ended the year with a strong fourth quarter, as revenues rose over $17 million, with an 18% increase in same-store sales. And for the eighth quarter in a row, our overall new boats unit sales grew.

It is great to see a growing number of reports that indicated that the industry health is improving, given the soft economic recovery. To be clear, though, the strength in the industry has primarily been in segments where we have not historically been heavily concentrated. The growing segments are aluminum, almost anything with an outboard engine, and jet boats, as well as certain segments of our core products.

As a reminder, the bulk of our revenue comes from the stern-drive and inboard-powered boats. And as we have seen these other segments in the industry recovery, we expanded our presence in those areas, such as pontoon products and more outboard products in select markets where it makes sense.

I'm also very pleased to see that our core suppliers are broadening their offerings to include jet boats, as well as more outboard-powered product for 2013, which should help drive sales and also market share.

Also, the initial reports that emerged as the September quarter closed, indicated that our core traditional products were also starting to see some strength. Our stern-drive and inboard-powered boat owners are still boating, and with the age of their boats increasing every year, opportunities for us should improve going forward. While it's way too early to get too excited, it's much better news than a few years ago.

From an inventory and operating perspective, we continue to make improvements. We are comfortable with our current inventory levels, and that speaks well to the strategies we have put in place to make sure we have the right models in our stores to meet our customers' demands for the selling season.

Additionally, the cost-reduction strategies we put in place several years ago, allowed us to grow our annual sales by over 9% and gross profit dollars by over 11%, while our expenses remained unchanged. The operating leverage that we indicated we would be able to achieve, is now beginning to show up in our results.

We are very focused on maintaining a lien and effect expense structure. However, as I've noted in the past, we will not reduce our efforts to service our customers or help to ensure that they are enjoying the boating lifestyle. These efforts include our getaway trips, mobile service, our educational classes, and our captains that teach our customers how to really use their boats.

As the industry recovery continues, we want to build on our investments in the long term, which we have focused on over the past 4 years. Our team is proving we can succeed in controlling the elements that are within our control, as indicated by our improved results.

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 September 30th, 2012, our revenue was $137 million, up about 15%, or $18 million from the prior year. Our same-store sales increased by 18%. Our same-store sales growth was essentially across all categories of products we sell, with a skew towards larger product. Geographically, while most of our markets were up, Florida was the strongest of our markets.

Based on available industry data, our September quarter new boat unit sales for the segments we are in is above reported industry trends.

For the quarter, we grew gross profit more than $3 million or 10%. Gross profit as a percentage fell year-over-year because of a modest shift to sales of larger product, combined with the mix shift of our overall revenue to more boat sales. The margins on the underlying product that we are selling are doing fine. As Bill mentioned, we are gaining operating leverage in the business. It's nice to see the growth in sales and margin dollars in the quarter, with an overall decrease in expenses. The largest driver in this expense reduction was a decrease of marketing dollars associated primarily with boat shows, as well as less costs incurred to maintain our inventory, which comes as inventory aging improves. We've also taken a fresh look at every major recurring expense and have been successful at obtaining additional reductions.

For the quarter, we had an income tax benefit of $60,000, compared to $34,000 last year. As we've said in the past, our effective income tax rate will remain essentially zero for the near term, primarily due to the limitations [of] our net operating loss carry-back availability.

We are very proud of our teams' efforts, which resulted in a major narrowing of our net loss for the fourth quarter, to $1.6 million, or $0.07 per share, compared to a net loss of $5.7 million, or $0.25 per share last year.

For the year, I will highlight just a few items. Revenue increased over 9% to $524 million. Of this increase, $53 million was due to an 11% increase in same-store sales. We also increased gross margins almost 60 basis points, while we kept expenses flat, improving our earnings overall by $12.6 million, and producing a profitable year.

Onto our balance sheet. At year end, we had approximate $24 million in cash, up about 22% from last year. Keep in mind, we have substantial cash in the form of unlevered inventory. Our inventory at year end was about $215 million, which was down slightly from last year. The aging of our inventory also continues to be healthy. Turning to our liabilities, our short-term borrowings were about $120 million, about the same as last year.

Our balance sheet is very solid. We ended the year with a current ratio of 1.63 and total liabilities to tangible net worth ratio of 0.82. Our tangible net worth stands at over $200 million. We own more than half of our locations, all of which are debt free, and we have no additional debt, other than inventory financing.

As we continue to work through the current environment, we are focused on positioning ourselves to gain leverage as sales improve, and drive additional cash flow and earnings. I will comment that October started off strong and was poised to end strong, until Hurricane Sandy delayed many closings in the Northeast. It is also important to note that we had a strong Fort Lauderdale boat show in the midst of the hurricane, which is very encouraging.

While it appears the industry recovery is continuing, we need to get through the impact of the hurricane and the elections to get a clearer picture of the sustainability of the recovery of our industry.

With that background on the quarter and year, I'll turn the call over to Bill.

Thank you, Mike. We are still assessing the full extent of damages from Hurricane Sandy to our New York and New Jersey locations, and we did sustain damage from the storm at a number of the Northeast facilities, as well as some damage to our inventory. Additionally, many of our customers sustained damage from the storm to their boats.

The good news is that our team members and their families are all okay. Our team will respond to our needs and the needs of our customers, as we are best positioned to service boaters in these markets, given our ability to respond to these extreme weather conditions. From our years of experience from previous hurricanes, it's too early to quantify the impact to MarineMax. But since the storm hit at the start of the winter season, I suspect on a full-year basis, we should be in good shape by the start of the boating season.

I will also remind you that we have been through multiple hurricanes in Florida and the Carolinas, and that our customers are very resilient. They're going to still want to get back and boat.

Our year-end and fourth-quarter 2012 results, plus the Fort Lauderdale boat show positive results, gives us an increased confidence that the industry has begun to rebound and that we will continue to build on these positive industry trends. Additionally, our customers are actively boating and their boats are aging more each year, creating a pent-up demand which will benefit us as consumer confidence returns.

The earning power in our company is strong, and as sales improve, our expense leverage [had resulted] in exponential growth in cash flow and earnings. Not only can we generate internal growth through market share expansion, but we also plan to seek accretive external growth opportunities and contribute to our overall growth, such as the recently announced expansion with Azimut and our recent acquisition in the Northeast.

Assuming the boating recovery is sustained, we will remain focused on enhancing our gross margins. Healthy margins remain a top priority for us. Although they may move from quarter-to-quarter, our overall goal is to expand margins year-to-year.

MarineMax is well positioned as we continue to gain market share and strengthen our position as the leader in our industry. We do not just sell boats, but rather, we sell a lifestyle that allows a person the ability to enjoy one's time on the water. We are impacting the lives of our customers for the better, and as we connect them with their self and also with others. We believe the current technology environment will continue to enhance our new boat sales in future quarters as customers find the need to purchase more technological-driven boats with enhancements, enhancements that were not offered in previous makes and models.

As we have stated before, our customers are still out there, anxious to get on the water with their family and friends. We remain convinced that our financial strength, our proven operating model, our solid team, our prominent locations, and a broad array of brands supported by an apparent industry revival, greatly differentiates MarineMax in the current marketplace.

With our customer-centric strategies of teaching, servicing, and showing our customers how to have fun with their family and friends, we are poised to create additional value for our customers and our shareholders as this recovery begins to take hold.

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

(Operator Instructions) Jimmy Baker with B. Riley and Company.

Good morning. Thanks for taking my question. Bill, I think you talked about some of your key OEMs, extending their lineup into some new categories. And I was just hoping that maybe you could speak maybe more generally about the level of new product innovation that's out there for model year '13, maybe relative to other years in the post-recession era and then kind of how your lines are measuring up against competing brands here in model year '13.

Well, Jimmy, we're very excited about what's going on in Brunswick, with Brunswick with the new models. We went to the Fort Lauderdale boat show with the new 510 Sea Ray, with the new 37 Venture, the outboard-powered sport cruiser, and also with a new 35 and updates on some other models. And we were very successful at the show, as our customers embraced the new models.

Additionally, we're very excited about the jet boats coming back. We used to have the Sea Ray, [their] jet boat line back a bunch of years ago, and we were very successful. I actually remember one year at our Clearwater store, I think we sold 400 of them. And so we're excited to see that business return. What's really exciting about it is one of the two competitors that was in the jet boat business currently is exiting. Bombardier is no longer there. So really it's between Yamaha and now Sea Ray and Bayliner, because power pretty well controls the product there. And so that's very exciting.

We've been pushing, and Sea Ray and Bayliner have been responding for outboard models. And we all know that in our industry, the outboards is the segment that's really been growing the fastest. And so we see that as a real opportunity for us going forward as well.

You saw that we're now the entire US distributor for the Azimut products, and Azimut continues to give us new models. And there again, we had a very good show with the Azimut product as well. Bayliner -- not Bayliner, but Boston Whaler has been giving us new models for a bunch of years now and continues to do so. And we see the results in our stores and also at boat shows.

So I think it's an exciting time that Brunswick and Azimut have really stepped up with the new products. Now, that being said, also, we're doing Nautique in a bunch of our markets. And they have some new models that are just kind of my passion, the skiing, even though my grandkid's into wakeboarding. But they got some new models, the G23, a G25, which are really game-changers in our industry.

So it's an exciting time ahead of us. And as we move forward, I think we're getting what we need as far as new products to offer to our customers to serve their pent-up demand.

It's probably the most new models that we've had to roll out, I bet you 7 or 8 years, really --

Correct.

-- been a long time, which is very encouraging.

That's helpful. And I think it's maybe the worst kept secret at this point that the industry faced a pretty severe mix headwind here in the 2012 selling season, and, yet, it sounds like your mix actually favored larger product here in the quarter. Can you maybe talk about how you've been able to kind of grow against the grain in that regard?

Well, the people that have discretionary dollars, a lot of them still are out there. And the desire for boating has not really changed, Jimmy. And with the products that we have from Azimut and some of the larger Sea Rays, the customers are still out boating with us and their excitement to get the new product is there such that we've been able to drive that part of our business.

And the sport cruiser part of our business, which has pretty well been the heart of our business and the hardest hit in the industry, we're starting to see that come back as well. So we're starting to move the needle in the right direction. The good news is, and we've said this many times, those customers, a lot of them are still out there boating. And as housing starts to recover and consumer confidence starts to come back, I think we'll see it come back.

We are convinced that the sport cruiser market is not dead. It has changed some. But they're still out there and families are still wanting to connect to a greater extent and they do that through boating with MarineMax.

Okay. I just have one more and I'll back out of the queue here. I'm just hoping that you could maybe talk a little bit about the impact of the election. It seems like, I don't know, a fairly prevalent opinion in the industry that a Romney win could be a meaningful boost to the big boat market. I mean, one, would you agree with that? And two, if instead there's no change in the oval office, does that mean that we just kind of stay on trend here or does that present some downside risk, in your view?

Well, Mike was just cautioning me. So as we talk to a lot of our customers, and we do, we do Azimut events and Sea Ray events and we take them by the numbers to the Bahamas and out to Newport or whatever it may happen to be, Nantucket or out on the lakes. As we talk to them, for really the first time in many years, we hear them going out of their way to really say, oh, my gosh, we've got to stop some of this silliness that's occurring in our country. And what our fore -- our founding fathers would roll over in the grave with some of the things that have happened.

So [obviously], if we can make a change, I think it will be a catalyst to our business like we haven't seen in many, many, many years. Now, that's what I believe. That's what we hear from our customers. And we actually had people at the Lauderdale boat show that wanted to write a contract and say, well, I'll pay your price, assuming that we make a change at election time. But if not, I'm going to pay much less if we don't.

So that's kind of how our customers feel and how we feel. But also, if we do not make a change, we'll figure out how to get through it. A lot of people in the US are very resilient. We're a country that is not going to become Europe, and somehow we'll figure out how to get through it, but it will not be as positive as if we can put a business person in running the country.

All right. Very helpful. Thanks a lot for the time.

Peter Mahon from Dougherty and Company.

Good morning, guys. Great quarter. Just a few follow-up questions. Same-store sales were 18%, and that was certainly ahead of our expectation. I was hoping you could maybe walk us through kind of how the quarter trended July to August to September to really get a feel of when that momentum started to change. Because if I remember correctly, I don't believe you guys gave quite that optimistic of an outlook on the June quarter call.

I think what we had said on that quarter call was that July was going well. I have to go back and look at my notes. But I think we were feeling pretty good about July. We had positive comps to a degree in July, positive to a degree in August. We had a very strong September, which is good. And usually the way the quarter falls, July's a big month and September's a big month and August is not so much of a big month. There's a lot of boat shows in September in the Northeast and a couple in Florida that start kind of boat show season. And the kids are back at school, so people are thinking about boating again.

But we had a strong close to the quarter, although I think every month was up on a comparable basis. And it was broad-based, as I said. I mean, I believe all of our markets were up. It was stronger in Florida. We did have strength in segments of the industry that have been reported down, like inboard products and we saw improvements in stern drive and so forth. And then some of the brands that we expanded with more than 2 years ago or about 2 years ago, are contributing to some of the growth. Probably about a third of the overall growth was some of the new -- maybe a little less than a third were the new brands. The existing brands, like Sea Ray and Azimut and the other brands that Bill mentioned were the primary drivers of it, which is kind of encouraging.

But it was a good -- and then you follow that up with October that was going really pretty well. It got dampened a little bit because of Hurricane Sandy, but we also have a great Fort Lauderdale boat show at the end of October, which is encouraging. We just need to get through the elections and so forth and then determine exactly the [state-ability] of what [we] experience right now.

Got it. So you would say that the strength that you guys saw in September was carrying over into October, obviously until the end of the month here in dealing with the hurricane?

Yes.

Would that be fair?

Yes.

Okay. And then we definitely got a read on the title registrations in Florida being not nearly as strong as you guys are alluding to. Do you feel like you're grabbing meaningful market share in the state? Or kind of what's your sense about how things are trending there, because obviously that'll be a larger part of your business going into the winter months.

Peter, we already have very good market share in Florida, and we believe we continue to gain the market share through these times. And it's because we just absolutely have stayed focused on making sure our customers are out enjoying their boats and having fun. And we measure the satisfaction of our customers with what's called net promoter score. And we have world-class net promoter scores, the company. And it's in a time that customers are more demanding, if anything, and value their recreation even more. But we're convinced that we continue to take market share. And with the expansion of some of the brands, as an example, Bayliner into the market, and the growth of Azimut, if you put it all together, I think we're doing very well in these times and will continue to do so.

Great. Thank you. And then just one final question, [so to do] with the selling and G&A expense line, do you guys feel -- you've done a lot of work to really control that expense line. Do you feel like you have any room left to leverage that? Or have we kind of reached a level where now the margin expansion's really going to come from sales growth?

I think there's probably -- a CFO will always say there's opportunities on the expense side of the business. I think there's opportunities, but I think the opportunities are fairly limited. If there were to be some other step-down in the industry, we would obviously go back and attack the structure of the company, but we don't foresee that. At sales of this level and with the locations that we've got, we're in pretty good shape from an SG&A perspective. And now we've got to drive same-store sales growth. We've got to drive market share. And we got to continue to drive margins overall through our higher margin businesses and also the products that we sell, to gain some significant earnings and cash flow into the company.

And we are investing into the charter business in a big way, and it's meeting our expectations or maybe even exceeding it in some cases with the initial run-up of the business, but it is a drain on our earnings right now. But it's something that'll be good for al our shareholders and our customers and the company long term.

Okay. Great. Thanks a lot for your time, guys.

(Operator Instructions) Joe Hovorka with Raymond James.

Couple quick things. First, did you say you will not pay taxes or book a tax number for next year, assuming you're profitable?

We will not have a tax expense for 2013.

Okay. And then did you --

I guess it depends on how profitable we are.

Let's hope we do.

We have a very large NOL that needs to be eaten up before we have a tax expense.

What is that? Maybe you ought to --

It's between $50 million and $60 million.

Yes. So with a little --

And did you give -- go ahead.

With a little help, we'll try to beat that.

The unit comp number, did you give that number on the call?

I did not give the unit comp number. But I can tell you that if we had 18% same-store sales growth, it was about 50/50, units versus -- maybe 55/45 units versus average unit selling pricing and migration to larger product.

And your inventory's down at the end of the year with up sales. I know you've been trying to drive --

Turns.

-- inventory turns. Is it where you want it to be now? Do you still want turns to kind of inch up a little bit from here?

Yes. No, we want it to keep improving from here. The industry turns in the industry have always been relatively low from our perspective. We've always been 2.5 to 3 times, and we're still far below that today. So we're still striving for higher turns in the industry. And I think Bill mentioned making sure we have the right models in the right store at the right time. And it is challenging in this environment when sales are still relatively low. You bring in a 26-foot boat, and the customer wants a 24-foot boat. And so you have issues like that.

But we'll keep making progress as we go through 2013, on our inventory turns.

And with the lead time of manufacturing being greater now for most of our manufacturers, it's important that we have the product. So we've got a little higher than we would do if the response time was less from the manufacturers. But I think that we believe it's the prudent thing to do.

And the lead time is greater now because of demand or --?

No, the lead time in terms for them to build a boat takes longer.

Right. Why is that? Why has that changed?

Because they've got less workers in the factories.

Okay. Just want to --

Yes, the manufacturers scaled back all of their operations, so it takes longer to build a given boat now than it used to.

Okay. All right. That's all I had. Thanks, guys.

Jimmy Baker with B. Riley and Company.

Thanks. Just had a couple follow-ups. First, a follow-up to Joe's question. Are you seeing longer lead times in all product categories or more specifically just kind of in the big boat market?

For sure the big boat market. I'd even say even on the smaller stuff, though, it takes longer than it did 5, 6 years ago when the factories were producing 3 times the product they're producing today.

And some of that is suppliers to the manufacturers.

yes.

Like windshields and equipment to the boats. There's a shortage of engines, as an example, so that impacts it. So when you put it all together, it's not all in the manufacturers' control, because they've got to depend on suppliers.

Okay. And I just wanted to ask about the Sandy impact. I realize [it's] very early to begin to quantify anything. But do you think it's fair, just kind of directionally, to claim it as a negative impact here in the December quarter, but potentially positive for the full fiscal year as you maybe pick up some incremental high-margin service and repair revenue as well as maybe some replacement boat sales?

Yes. I think when we look back historically at nature or natural events, whether it's some of the storms we've had in the Midwest or the hurricanes we've had in Florida, what we've experienced is what you just said. You usually have a spike in costs in the near term as you repair your facilities and pay deductibles and do things of that nature, which we're getting our hands around those costs as we speak. And then there's typically a, we've got to reach out to our customers and help them get back in boating and work with their insurance companies fixing their boat. So there is usually a sizeable service piece of the business that comes. And then there's a replacement cycle where some customers decide just to trade into a new product or take their insurance check and buy a new product, which usually plays out over the course of the year.

And so it's hard to tell exactly on a quarter-to-quarter basis how that's all going to play out. But I think on an annual basis, we should be fine on an annual basis.

But there's also the infrastructure for the customer. I mean, a lot of them their docks are gone and they're working on their home, and so that delays the focus on the boat for a while until you get your home back going.

Right.

And they've got to get docks re-built, et cetera. But I think long term it won't impact our year, as we said. If anything, it could be a positive.

Very helpful. Well, thanks for taking the follow-ups. And again, great quarter, guys.

(Operator Instructions) And at this time there are no other questions in queue. We'll turn it back to our presenters for any closing remarks.

Thank you, everyone, for your continued interest and support in MarineMax. As always, I would like to thank our team members for their hard work and passion for our business and also our customers. And especially those team members in the Northeast that are giving it their all right now to get our stores back returned and take care of our customers needs. Due to their solid efforts, we're the leading boat retailer in the country, and we're excited about the future.

Mike and I are available today if you have any additional questions. And with that, Operator, thank you very much.

That concludes today's conference call. We appreciate your participation.