MarineMax Inc (HZO) 2017 Q4 法說會逐字稿

Good day, and welcome to the MarineMax, Inc. Fiscal Fourth Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brad Cohen, Investor Relations for MarineMax. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank for joining this discussion of MarineMax's 2017 fiscal fourth quarter and full fiscal year 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 e-mail one to you right away.

I would now like to introduce the management team of MarineMax, Mr. Bill McGill, Chairman and Chief Executive Officer; Mr. Brett McGill, President and Chief Financial Officer; and Mr. Mike McLamb, Chief Financial Officer of the company.

Management will make a few comments about the quarter and the year and then be available for your questions. And with that, let me turn the call over to Mr. Mike McLamb. Mike?

Thank you, Brad. Good morning, everyone, and thank 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 by the Private Securities Litigation Reform Act. These statements involve risks and uncertainties that could 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'd like to start by thanking our MarineMax team for all their efforts and focus on producing an exceptionally strong close to the fiscal year. I say the word exceptionally largely due to our team's ability to overcome the major disruptions caused by Hurricanes Harvey and Irma. While both Harvey and Irma were bad for each affected geographic area, Irma had the greatest impact on MarineMax.

Irma virtually shut down Florida, our largest market with over 50% of our business, for 2 to 4 weeks in September as we first prepared our stores and customers for the approaching storm and then we had to clean up and repair damage while simultaneously responding to customers' urgent needs. We had some damage at just about every facility in the state. Our team members had their own families and properties to tend to, but amazingly within 24 hours of the storm passing, almost every store was in cleanup mode.

Equally exceptional is our customers' passion for the boating lifestyle. While being sensitive to our customers' personal issues, we were reluctant to reach out to them regarding upcoming deliveries. Of course, we were very proactive in helping address their post-storm service needs. However, shortly after the storm passed, our phones began to ring about deliveries and the status of their boats, truly a testament to the strength of the relationship formed between MarineMax and our customers as well as the benefits that come from the boating lifestyle. Our insurers were amazed at how we mitigated damage at our stores and inventories and they complimented our teams for their preparedness.

Clearly, we had significant financial impact from both storms in the quarter. But we believe that our results ended up much better than otherwise should have been expected. In the quarter, we grew revenue over 10% through a 5% increase in same-store sales in addition of stores we acquired through the Hall Marine acquisition.

Gross margins expanded to 26.5% and we produced one of our better leverages or flow-through quarters in recent memories, over 10%, while adding back the Irma-related cost. For the quarter, our team produced a comparable pretax earnings growth of 38% despite the adversity and a comparable 22% growth in earnings per share.

We believe our growth is continuing to drive market share gains. As we have discussed on past calls, the breadth of new model development over the past few years along with our customer centric strategies continues to be a strong contributor to our growth.

Likewise, the significant brand and segment expansions we completed over the past several years is a major factor of our success as the brand is growing maturity in the given market.

For the full fiscal year, we ended with revenue closing in on $1.1 billion. Gross margins climbed over 120 basis points compared to what pretax grew about 17% and adjusted earnings per share increased 15%.

Let me comment on our charter operations in the British Virgin Islands. While the business is not material to overall results, it has been growing in terms of our brand. Clearly, Irma had a massive impact on the Islands, having passed right over as a Category 5 storm and the strongest recorded Caribbean hurricane. Thankfully, our entire team and their families survived. While many had major home damage, they were all largely helping us clean up and reassemble our base in the following days. Like our stores in the States, our team did an outstanding job protecting our boats and assets; so much so, we think we are far better off than most charter operations. We have clearly received inquiries from customers who had booked other charter companies to see if they can switch to MarineMax. Encouraging on many fronts. While it's still too early to determine the near-term prospects for the operations long term, we remain well positioned.

And with that overview, I'll turn it over to Brett McGill, our President and COO, for some additional comments and color. Brett?

Thank you, Bill, and good morning, everyone. Overall, our results for the quarter and fiscal 2017 were solid. But as we discussed last quarter, bigger boat sales began to be challenged midway through the year. The choppiness in that category did lead to elevated inventory levels. We have been working closely with each of our manufacturing partners over time to align our inventory with our sales outlook.

Fortunately, our manufacturers continue launching new models with innovative technology and design, which positions us with very fresh inventory. From a trend perspective, I would add that except for larger boat choppiness, the industry generally seems healthy. Most of our fall boat shows have been up year-over-year, which is another encouraging sign. The strong increases in outboard-powered product continues to help our overall results, especially in our coastal markets.

Certainly pontoons, ski and wakeboard boats are driving growth in the markets in which we carry them. Our decision to expand into new segments and brands over the past several years continues to show positive results. We are far more diversified today and better able to serve a broader customer base.

Let me now add a little more color around the gross margin improvement we have achieved. As I mentioned, we have great models to sell, which helps demand a higher margin. We also continue to execute better on market pricing to ensure we are addressing specific competitive factors, which vary by market. Additionally, we are not seeing signs that the industry is in a discounting mode. Another key driver for our margin gain is the continued growth of our higher margin businesses such as service and F&I, which are incrementally improving overall. Operationally, we are committed to doing a better job aligning expenses with sales.

As discussed on prior calls, we made a decision to invest early in fiscal '17 to strengthen our team with the anticipation of additional growth. While we remain confident that growth will come, the pressure on larger boat sales has certainly provided a pause.

While we anticipated additional expenses from the acquisitions of Russo and Hall Marine, the largest component of increased costs was our investment in personnel and expanded boat shows. We have challenged our team and ourselves to dig deeper to better align our cost structure with anticipated sales.

From an integration perspective, our 2 relatively recent acquisitions continue to progress ahead of schedule. We're very happy having both organizations as part of the MarineMax family and have already seen many benefits and synergies. We also remain in discussions with other dealers and will work to execute additional accretive acquisitions.

We will only do so when the terms, culture and target markets are aligned and we are certain they can add value to MarineMax. And with that update, I'll ask Mike to provide more detailed comments on the quarter. Mike?

Thank you, Brett, and good morning again, everyone. For the quarter, our revenue grew to more than $250 million, driven by same-store sales growth of 5%, which is on top of 12% last year. Overall, on a same-store basis, we saw about an 8% decline in units during the quarter, which is largely due to Irma's impact on Florida. Irma also caused a relatively high unit show, Tampa, to be moved from September to October. Industry data indicates that units in Florida fell over 30% in September. Our unit decline would imply about a 13% increase in average unit selling price to arrive at the overall 5% increase in same-store sales. With a 10% increase in overall revenue, it was encouraging that we grew gross profit dollars over 17%. We produced one of our better September quarterly margins of 26.5%, up over 160 basis points. This marks the fourth quarter in a row with increased product margins. Generally, we made progress across each brand and segment in which we operate. Selling, general and administrative expenses were $58.6 million for the quarter. However, when removing the $2.9 million of Irma-related costs, our SG&A was about $55.7 million.

About $3 million of the year-over-year increase is due to the Hall Marine acquisition. I would comment that the Irma costs are actual hard costs like asset write-offs or damage we incurred. That bucket excludes all the inefficiencies which we definitely incurred with our Florida stores in shutdown or cleanup mode for an extended period. The remaining increase in SG&A is the additional cost that we had in expectation of greater growth, which Brett discussed.

For the quarter, interest expense increased $790,000 as a result of increased borrowings from higher inventory levels, share repurchases and a rise in interest rates.

After removing the costs associated with Irma, we grew pretax earnings 38%, quite strong considering the obstacles we were up against. From an income tax perspective, as we've stated on prior calls, our effective tax rate should be around 39%. The rate in the fourth quarter was less than that primarily because of deductions that were allowed due to the recent change in tax status of our charter company from foreign to U.S. Additionally, as expected, we have now absorbed the bulk of our NOLs. As such, our income tax rate will be about 39% until any corporate tax reform that may happen.

Additionally, the fourth quarter last year, we had a deferred tax asset valuation allowance reversal of $1.1 million or $0.04 per diluted share. In the quarter, excluding the onetime costs associated with Hurricane Irma and the tax related items in both periods and applying a pro forma tax provision of 39% to both, our comparable non-GAAP diluted earnings per share rose more than 22% to $0.22 per diluted share in fiscal '17 compared to $0.18 last year.

For our balance sheet at fiscal year end, we had approximately $42 million in cash.

As a reminder, we have substantial cash in the form of unlevered inventory. Our inventory at year-end was about $401 million, which is up about 25% over last year, primarily due to the choppiness in larger boat segments. As Brett mentioned, we are focused on efficiently working through the inventory and managing our purchases to better align inventory and sales.

Turning to our liabilities. Our short-term borrowings were about $254 million at year-end, which was up due to the increased inventory and timing of payments on our line.

While not the best predictor of near-term sales, customer deposits are down 30%, due primarily to the lumpiness of deposits, deposit timing and a softer close to the year due to Irma. But let me get to the current trends section so you get a better understanding of what we're seeing at retail.

While we invested or are repurchasing about 2.4 million shares in the quarter, we ended the year with a strong balance sheet. Our current ratio stands at 1.42 and our total liabilities tangible net worth ratio is at 1.22, all very good metrics. Our tangible net worth is $276 million or $11.71 per diluted share. We own about half of our locations which are all debt-free, and we have no additional long-term debt.

Turning to guidance, we are initiating earnings per share guidance for fiscal 2018 of $1.10 to $1.20. Our guidance takes into account that we are up against a solid 3-year stack same-store sales growth of about 49%. Currently, most in the industry believe the unit growth will continue to be in the mid-single digit and most feel the choppiness in larger boats will work itself out with greater progress in Washington.

Without giving much credit to the latter, our guidance currently assumes we will grow same-store sales 5% to 10% and we will have leverage in line with the last few years. We obviously will strive to do better on both fronts, but we feel this guidance is proper considering current trends and other factors. Our guidance uses the share count of around 23 million shares. The guidance excludes the impact from any potential acquisitions that the company may complete.

Let me provide some additional context for 2018. Marine dealers, including MarineMax, most often lose money in the December quarter. As an example since 2000, 2/3 of our December quarters produced losses. Additionally, we're up against 3 consecutive profitable December quarters with an 81% stack same-store sales basis. This combined with the 2 recent Northern acquisitions should create the expectation that we will likely report a loss for the upcoming December quarter. Of course, again we would do all we can to overcome that, but prudence would suggest otherwise.

Turning to current trends, October looks like it will finish with solid same-store sales growth. Additionally, our backlog, which means total boats under contract, a metric we often refer to, is up year-over-year. This further illustrates why we historically have noted that our customer deposit line is one metric, but not the best predictor of near-term activity.

Lastly, the Fort Lauderdale Boat Show, which starts tomorrow, is a meaningful contributor to the December quarter and our team is poised and ready for a great show.

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

Thank you, Mike. And let me again thank the team for their efforts last year and the continued focus in this upcoming year. As Mike mentioned, the Fort Lauderdale Boat Show is one of the largest boat shows in the world and we will be represented as the largest dealer at that event. Enthusiasm and attendance at this show and others continues to build, which is exciting as we enter fiscal 2018.

With fresh inventory marked by innovative new products, together with our positive consumer confidence, we are well positioned to drive growth. Our teams are energized. We have initiatives in place that not only drive sales and gross margins, but to align cost. Together MarineMax is positioned to drive cash flow and earnings as we dive into another year of boating, led by our passionate and determined team and our customers that all believe in the boating lifestyle. We remain encouraged and committed to the understanding that boating changes people's lives by connecting them with their inner emotions, with their families and their friends, while making memories of a lifetime.

And with that, operator, we'd like to open the call up for questions.

(Operator Instructions) We first go to Joe Altobello with Raymond James.

Just a couple questions. I want to delve more into the trends throughout the quarter. Obviously, Irma had a big impact on Florida in September. But could you tell us first what comps were for July and August?

We were trending positive, Joe. We had a good July and a good August. I don't have that data right in front of me as to exactly what the number was. But we were positive comp in July and August and had good momentum heading into September.

For sure better than what we did for the quarter.

Yes.

And that's units up as well, not just total comp right?

Units and dollars, that's right.

Right.

Okay. Okay. And secondly, on the boat replacement cycle or potential boat replacement cycle post Irma, is that baked into your guidance? And do you have any anecdotal estimates as to the damage that Irma may have caused to the boat infrastructure in Florida?

It's definitely not baked into our guidance. We're still waiting on some data that will come out from the insurers that will talk about exactly how much was damaged in the state. Obviously, Southwest and Southeast Florida would be the most heavily impacted. But there was even damage up here in Tampa Bay.

Correct.

So there'll be -- in the '04 and '05 hurricanes, when the state was hit by several, there was a replacement cycle. It typically took the anywhere from 6 to 12 months back in that time period. We'll have to wait and see how this one works itself out.

Okay. Great. And then just one last one if I could. When you guys talk about large boats, you're still talking about 60-foot and above, right?

Right. So great question. So we -- our comments today, because of the -- we often refer to the industry choppiness in larger boats, that would be what the industry is saying, which is essentially 40 and bigger. And so the choppiness that we began to see in the June quarter as an industry, which is still a bit choppy in the September quarter, would be 40 and bigger.

Next question comes from Gregory Badishkanian with Citi.

Just to follow-up on the 2004, 2005 hurricanes. That's 6 to 12 months before you began seeing replacements come in, or is that what you meant by the 6 to 12 months?

Yes. It takes a while for the underwriter to get out there, assess what's happened, process checks. Individuals have other things they may be working through, whether it's on their home or business. So it takes about that long.

But Sandy was very damaging, Greg, to the infrastructure in New Jersey and parts of New York. And so people had their vacation homes totally destroyed. Now we're seeing that the Keys where we have an operation in Ocean Reef and impact some of our Miami business as well. But there's still areas in the Keys without power, just to give you an example. And so it takes a while for people to, first of all, take care of their home and business before they start talking about getting their next boat or replacing the boat, or et cetera. In New Jersey, we are still replacing boats for people that had damage in Sandy, just to give you an example. But that was a much more devastating storm as far as infrastructure and to people's homes and to their families and businesses than this was. The BVIs was a different -- is a different story. I was down and met with the Premiere of the British Virgin Islands and about 30% of the British Virgin Islands has power and not much more than that number have water. And so it's going to be a while. But that being said, as I arrived at Tortola in the British Virgin Islands, the water was beautiful and the sands were beautiful and I stayed on one of our boats while I was there. And it was like, "Oh my, gosh. I got to get my family down here". That being said, before a lot of the infrastructure gets rebuilt in the British Virgin Islands, consumers will be down chartering boats with us. And we've already booked the entire month of December and, I think most of January with a reduced fleet, because we did have a lot of damage. But there will be lot of opportunity, but to Mike's point, we haven't baked it into our numbers.

Okay. And then so when you had mentioned earlier solid October same-store sales with backlogs up year-over-year, that's not really -- is that part of that replenishment or that -- is that just underlying demand?

It's underlying demand. And understand, when it's announced that there's a huge storm going into St. Martin, going into the British Virgin Islands, skating by, potentially going over Puerto Rico and that's Irma. And by the way, it looks like it's going to head to Florida, our business pretty well stopped. People were in a let-me-get-prepared type mode. We're doing that our stores. Additionally, the consumer is not focused on oh, let me go ahead and do that demo ride. Let me go ahead and get my new boat. Insurance starts to shut down. So you can't even deliver boats if people want them. And then here comes the storm. And we thank the Lord every day that it came up through the state and not off the West Coast or it would have been very devastating. But now people are in that mode. Then they're in the cleanup mode. And I drive home every day and you wouldn't believe the stockpiles of trees and plants that are being created to deal with -- trees and limbs in Tampa that are still on the side of the road and next to people's homes. So it takes a while for things to get back normal. But as I mentioned in the call here, I mentioned that the phone was ringing off the hook. And it was, "Is my boat okay?" Can I still take delivery of my new boat? How is it? Did everything survive?" But then we heard something else. "How can I help?" And we had people offering their jets and in some cases we took them up on it, taking generators to the Keys, taking generators to the BVIs, offering to help in any way they can. Donations being made to the British Virgin Islands, as an example, to help our team. So it takes a while, Greg. But at the end of the day, this ramp-up of business that we're seeing, increase of business that we're seeing for this month, which this is the last day, and so we still got a little bit more to come. Our business is up. But it's not people are replacing boats. It's people, "Hey, I would have maybe made this decision and taken delivery last month if it hadn't been for the hurricanes."

Yes. Okay. Yes. No, that makes sense. It's not like we have big hurricanes fortunately every year, so this is helpful. And then finally, if you think about the 5% to 10%, what's your expectation for the industry, the same-store sales for 2018? What's your expectation for the overall industry versus part of that coming from share gains and then through your outlook for the bigger boat segment?

Yes, I can tell you the guidance. So we assumed that there was going to be some level of choppiness in the bigger -- in the larger boats, which -- and when I define larger boats, that's 40-feet and bigger, which is what the industry sort of looks that. So we assumed it would be maybe similar to what it is now, not getting much better. Obviously, we're hopeful that it does. The industry's unit growth is largely expected to be in that 4%, 5% or 6% range. And that's baked into our guidance. So on the low end, our AUP would be close to 0 or flat. And we would keep up or maybe exceed the industry units to gain incremental share. And on the higher end, we're getting some benefit perhaps from the larger boat choppiness subsiding or at least leveling out, again market share gains and you get the 5% to 10% overall growth at this point.

And if you talk about the larger boats and the softness in the industry, the fact that it's slowed down. And we've said this before, but it's primarily due -- I think a lot of business owners and wealthy people are waiting to see what's going to happen with the tax cuts. And so there's kind of a wait and see as to whether that's going to come through. And if it does, and we're all hopeful that people get off of fake news and get onto let's keep this economy growing and businesses prospering more and doing better for the citizens of the United States, that we're all hopeful that it'll take off, maybe like a rocket ship if we'll get this thing through. And so I think that's the thing that has people kind of let's wait and see more than anything. The interest has not declined. Our events, our Getaway events are at an all-time high. The interest that we're seeing from our customers and excitement is still there in the larger boats. But their willingness to jump and pull the trigger has been slowed down little bit because of, "Hey, what's going to happen here?"

Next question comes from Seth Woolf with Northcoast Research.

Just wanted to start off, with -- I know it's been asked a couple of different ways, so maybe I'll give it a shot. If you look at same-store sales outside of the State of Florida, which I think is where the majority of the Irma impact would have been, can you give us a sense for what comps were looking like during the period?

Yes. Just about every region outside of Florida had positive comps for the quarter and certainly heading into September they were up positively as well, as was Florida. Florida, you got to keep in mind a couple of things. We got 50% of our business here. We tend to be very coastal. So when the coastline is being evacuated, both coasts were evacuated during the storm, our impact and our exposure was greater than you otherwise may have thought. Our unit decline in Florida was much greater than 8% percent decline because of our -- 2 things. One, our coastal exposure; and then, two, the Tampa Boat Show, which is the meaningful show to the industry, but also to us, in particular, got moved because of Irma from September to October. And so we had the show in the beginning of October. It was a good show. And so we had done it -- it's all due to Irma, but we had a larger unit decline in Florida than you otherwise would have expected overall.

And we had Harvey the month before.

In Houston.

In Houston and that impacted business not only in Houston, but also in Northern Florida. Even in the Panhandle, I mean, there was belief there for a while that it was going to head into that market. And also, there was a lot of rain and everything associated in the Panhandle. So we got a double whammy when it came to hurricanes.

Okay. And then just a little clarification on your response to Greg's question, has to do with the boat ASPs. So I think you said you think ASPs will be flat. And I guess, for -- the big boats have been a little bit of a drag this year. So when we think about next year, is sales are still lower year-over-year for the first half? And then does that imply that you think they're going to be positive in the back half of next year, kind of working out to it's going to be like a net neutral? And then there's been a lot of talk about channel inventory and reducing inventory in some of these categories. Do you feel like you're already at a good spot now as we sit here today or do you think there's more adjustments in the offing?

So my comment to Greg was in the low end of our range of 5%. We obviously don't plan on losing market share. So if the industry is growing in the 4%, 5% or 6% range, our units are going to grow in that same 4, 5 or 6 percentage, which means our average unit selling price is going to be very close to flat. That's on the low end of our guidance range. On the higher end of our guidance range, you start to seeing some migration up of the average unit selling price as perhaps the bigger boat recovery -- or bigger boats recover slightly. There's no real baked in big swing in bigger boats. As for inventory, I mean, Brett said on the call, we're working closely with our manufacturer.

Yes. We have been for a while and continue to work with our manufacturers getting the inventory in the right place, and making sure the hot models get here when we need them and getting the inventory in line with where we see the forecast.

Okay. So as we see sit here today, you're happy with where things are sitting?

We're -- I think we said on the call, we're a little heavier inventory than ideal. If our inventory's up 25% and if our overall revenue is up 12%, we're a little heavier than we'd like ideally. However, we've got big boat shows coming up, all the fall boat shows are coming up. We work very closely with our manufacturers to right-size our inventory. And (inaudible).

Fort Lauderdale Boat Show and then a big expo event in December is coming up. And we're seeing lots of good appointments and registrations early for those, so we're seeing good signs on that right now.

Okay. I'm just trying to sift through the noise of the timing and then the hurricane and how that impacts everything. All right. I guess, the last question then is, Mike, you talked about the flow-through rate being similar to what we've seen the last couple years. And I think back, part of the reason -- I think safe to say that part of the reason you kind of had reduced your expectations a little bit for the flow-through has been some of the gross margin pressures that we've seen. So now we're looking at a couple quarters in a row, I think, 4 straight quarters where we've seen gross margin has been positive. Looking to next year, how are we -- what's the best way to think about gross margin? And then would -- the delta between what you used to guide to flow-through rate and what you're talking about now, is that a function of the SG&A investments you made?

Yes. So we ended the year with pretty good flow-through of double-digit, a little over 10%, which is among the better flow-through rates we've had in the last recent memory. Our margins are making nice progress north, they're increasing. We didn't think it was prudent to bake into our guidance a different flow-through rate than we've actually achieved the last 3 years. We just basically took an average there, which is a low -- or a mid single-digit flow-through rate. Again, we just ended the year with 10%, which is good. I think the 3 of us, that's -- we're striving to get there or higher. Certainly margins are a big impact of that. And we talked on the call about trying to manage expenses going forward also. Because we had -- we did invest in expenses -- or in personnel and resources starting this year in anticipation of higher revenue. So if we could right-size expenses with the sales forecast, there's an opportunity to do better than what our flow-through has been. But we think it's prudent to get out there and do it before baking it into our guidance.

Next question comes from James Hardiman with Wedbush.

So quick clarification. You may have already answered this. We talked about the choppiness in big boats. But you had a plus 13% ASP in the quarter. How do we square those 2 things?

Good question. We had a couple successful very big boat sales during -- throughout the quarter, which has spiked our overall unit selling price. And so those would be far greater than, let's say, 65 feet. They'd be larger product.

Okay. And then, Bill, the comments I think you had on the big boat customer, I think were really important. Because I think a lot of us here are scratching our heads and trying to figure out what's going on there. I guess my question is, is it more about the uncertainty with respect to tax reform because it's not like taxes have gone up in the past year. I guess another way of asking that question, what if we don't get tax reform? Do you think at least if there were certainty, then people would at least go back to normal and you might get some of that back? And then how should I even think about what we should be looking in terms of tax reform? And what are your customers -- would they benefit more from a corporate rate deduction -- or reduction I should say, which seems more likely, relative to maybe the individual rate, certainly for higher income consumers?

Well, James, uncertainty is -- you described it very well. And to answer the question a little better, if people know where they are and what's happening, the uncertainty goes away and of course, they adjust to it. And the desire for boating and the lifestyle of boating has not diminished. If anything, it's accelerating. And so that's all good. I'd say it is on corporate tax rate. We're one of the highest nations in the world, and a lot of the money is offshore for some of these larger corporations, which should be in our economy, working here. And so I think if those -- if the corporate tax rates can change, understanding it would be nice to help some people with the personal tax rates as well, because that'll create spending, which helps everybody's business even more. But uncertainty is what's driving it. And we're hearing it from customers. I wish we'd stop all this silliness and get on with running the country and doing what's right and stop all this. And I'm with the president, it's fake, disgusting news. And I know I'm not supposed to get political, but it makes me angry and it should make all Americans angry. And I'm telling you, it makes our customers angry of all this silliness that's going on. Because we need to be draining the swamp or cesspool, not trying to destroy everything that our president is trying to do. So uncertainty is it. And our customers will adjust to whatever it is because they haven't lost their passion for the boats. We were making deliveries a week after the storm and there was still cleanup and infrastructure issues in Southeast Florida. So getting out on that water and with what boating does is everything.

Just so we're clear with the tax issue. Obviously, anything that helps our economy is going to help the boat industry and is going to help your business. I guess my question is, specifically your customers, if we get a lower corporate rate but the individual rate is unchanged, are a significant amount of your customers, is the corporate rate essentially their personal rate, such that even if the broader economy doesn't take off, that they specifically would see a big benefit there?

Yes. Thanks, James. I mean so many -- if you look at who drives our revenue, right, the #1 driver of our revenue in terms of a demographic is the small business owner. It could be an S Corp, it could be a C corp, we don't know all those details. But they're small business owners. They have 10 McDonald's, 50 McDonald's, they have restaurants, they have cleaners, they have manufacturing operations, they're all successful. And so a relief around the corporate area would be a meaningful driver to our customer base in terms of their additional capital that they can then deploy in their business, deploy elsewhere, deploy how they want, perhaps even upgrade their boat.

Got it. And then my last question -- I think this is my last question. So I guess the concern with respect to big boats is the notion that the last time around, meaning I think it was 2006, that 40-plus foot -- or 40-foot to 60-foot category turned negative in 2006. And then obviously in '07, some of the other segments followed and we were in a free fall, essentially in '08 and '09. I guess if you guys think back to that time, does this feel different than that, a year when most other segments were up but big boats were down?

James, it's a big difference. If you go back to '06 and '07, financing for boats and equity requirements to purchase larger boats, it was a free for all almost, in that people were looking to their home equity as a big asset and being able to finance larger boats. And that's pretty well gone away today, and the banks are more cautious. But at the same time, that equity in the home is almost not a factor today in considering someone for a loan. So the loans are much better and there were people that were buying larger boats back in '06 and '05 that were stretching in a major way they do, just like they were doing with their home purchases, with the mortgages. And so that's a huge difference from where it is today. I think things are a lot more stable than they were back then.

And I think choppiness is probably the keyword there. We still have some models that are so hot, there's a several month, if not more backlog, in order to get those. So we're seeing a kind of a Tale of Two Cities there.

No, I said that was my last question. That was actually not true. So I apologize. So with respect to the bigger boats, let's stay on that topic. It sounds like you're assuming that, that flattens. I guess it begs the question, what if bigger boats decline again this coming year? Do you think you'll be able to absorb that? And then just maybe size the charter operations. Obviously, that's problematic right now. I think it's a rounding error, essentially, but just give us the size of that.

Yes. On bigger boats, we're not assuming that it gets worse from where it is today. If we all start seeing that it's getting worse, that would be a potential challenge for us.

But we're seeing no signs of that whatsoever.

No. In fact, if you look at the industry data, I mean the September quarter, if you take Florida out, was better overall for boats over 40 feet, incrementally better than it was in the June quarter. So from 1 sequential quarter to another, it improved. So hopefully, we keep seeing some stability in that. And we haven't baked a whole lot of improvement at all into our guidance either. The charter operation -- do you have a question, James?

Just when you say incrementally better, was it down less, or was it up year-over-year in the September quarter, the bigger boats?

So it would be down less and it also was -- I use the word less choppy. It -- I think we had 2 months with generally good data, 1 month with bad data. As opposed in the June quarter, I think it was 2 with bad, 1 with good. And then the month of March was down. So 4 out of the last 7 months basically has shown bad data, 3 have been positive, 2 were in the September quarter. So that's making progress. The -- Bill...

Right. But it's down less. You would need that to flatten out, essentially, is basically what your 2018 guidance assumes?

2018 guidance is not getting worse from where it is through basically the September quarter data. Yes, so the -- in the charter operations, Bill said the word, it's not a material part of our business. I think in last year's 10-K, it was less than 2% of our revenue from memory. But as Bill said, it's a -- I mean, we've had thousands and thousands and thousands of customers go through there and enjoy charters. So it's establishing and helping to create the MarineMax brand overall.

Plus the boats which we designed and have manufactured for our charter fleet, we are selling retail within our -- not only United States but other areas of the world. And of course, Mike said it, but at the end of the day, you wouldn't believe the number of our customers who are taking advantage of going on charters with us in the BVIs, not only with their family, but also with their family of friends, Getaway events that we do. So it's one of the Getaway events that we offer to most -- all of our stores in order to keep our customers connected during those cold winter months up north.

Next question comes from Michael Swartz with SunTrust.

Just wanted to follow up on the commentary about the Tampa Show and the impact from shifting from September to October. Could you give us a sense of maybe size it, maybe revenue -- percentage revenue or volume that you would do out of that show? And maybe how that's impacting what -- Mike, what you said about October and the backlog thus far?

Yes. We don't like to disclose like one show versus another on a year-over-year basis. But it's -- Tampa is becoming more meaningful show for us, probably for the industry. So it is helping. So my backlog comment was really when the month started, which is even before Tampa. So Tampa would be contributing to the stronger same-store sales that we're seeing here for October, although not all those deals are closing in October. I think the reason why I bring up Tampa is to explain that our unit decline, besides the Irma impact on the coasts, which we're largely coastal in Florida, which impacted us, Tampa which got moved because of Irma, had another whammy in terms of units and, to a degree, revenue. Tampa had been -- if we had the show in the month of September, we would be -- had a better quarter than we had. So it is incrementally positive for September and for our December quarter at this point.

Okay. That's helpful. And just a clarification. I think, Mike, you said inventory was up 25% year-over-year. How much of that is just from Hall Marine not being in the base last year?

So yes, a good chunk of it, probably 10%-ish, something like that, and our sales growth is up. So I don't want to overstate any concerns on inventory because you work your way out of inventory with working your manufacturers, which we've already done. Takes time when you're a seasonal company like we are. But we -- plus, and I think Brett said on the call, we're very loaded with fresh product. We have great models from all of our manufacturers. It's not like it was, let's say, in 2011 or '12 where models were old. We've got good models that are generally in demand by the consumer. So we feel good about where we're at and working closely with our manufacturing partners.

Okay. Great. That's helpful. And then just trying to size the bigger boat piece of your business. Any just sense of how much of your revenue comes from boats that are over 40 feet? And maybe just help us understand the gross margin differential between those boats, and maybe sub-40-foot boats.

Margins, except for when start we talking about 70s, 80s, 90s and 100s, the margins on everything we sell is similar, with very few exceptions. So it's not really a margin challenge as you go between 40 and 65 as a percentage of our business. So on last call, I talked about over 65. Above 40 would be a very meaningful part of our business. I'd be guessing to throw out a number right now, so I'll hesitate to put it out there. But it'd be -- it's very meaningful for us as a percentage of our revenue.

Next question comes from Eric Wold with B. Riley.

Most of my questions have been answered at this point. But a couple. One, and not to beat the large horse -- large boat horse here. But can you talk about kind of the activity you're seeing with potential buyers? Are you still seeing strength in discussions, test drives coming in, looking at product and it's just a function of getting them over the goal line to complete the purchase? Or has there been any change in kind of the initial activity before that point?

Yes. I think I had mentioned a little earlier, but we have the Lauderdale Show starting tomorrow. We have a big yacht expo show event the beginning of December. And we're seeing -- we measure our team by how many appointments are coming at these shows. And we're seeing a larger level of appointments. And for our yacht expo event, and even some small events we're putting on stores where we're featuring a real -- a nice, new large model, we're seeing a lot better turnout than before and demo rides and activity looks to be good.

I know it's probably difficult, but is there any way to frame kind of what that pent-up demand could be if we do get some kind of tax change?

I don't -- I think we'd be guessing at that point.

Yes, it's tough to tell. You would think it'd be material. But...

A lot of small business owners, as Mike said, is our customer base. So it's definitely going to help.

And then on the guidance, I know there's nothing in there for potential acquisitions. Anything in there for organic store openings? And then on the acquisition front, can you frame kind of potential size of acquisitions you're considering in terms of store count?

Yes. Most of the people that -- most of the independent dealers that are out there are going to be -- there's a handful over 100 million, but really, most are below 50 million and there's some between 50 million and 100 million. They're going to be anywhere from 1 to 3 stores for most of them. Few of them have more, but...

And we are in active discussions.

Correct.

It takes a while to cross all the Ts and dot all the Is and make sure that what we're getting is a similar culture, as Brett mentioned. So -- but we're staying very active where it makes sense in given markets as well as bringing in the right team into our company.

Anything for organic openings? Or is that flat?

In the existing markets, so we look at how do we best serve our existing markets. And with our physical location where they're at, with the power of the Internet and our team, we don't have plans to really increase our cost structure in our existing markets where -- we've been proving that we're able to grow share right from where we're at today, and that's a pretty profitable model. So share count -- or store count would grow through most likely acquisitions that we do.

Okay. And then final question, any initial thoughts on potential proceeds for business interruption insurance?

We -- you know what, I don't -- that's a great question following the storm that we had. Our team's working on it. I don't know what the dollars are going to be. We will get something here in fiscal 2018 for sure on it.

We'll take our final question from David MacGregor with Longbow Research.

I guess, on the big boats. Can you just talk about how growth in the value segments of big boats compares with what's happening in the main tier and the premium tier?

For us, in particular, I'll just serve it up and if Bill or Brett wants to chime in. But we're seeing very strong growth with the Galeon brand.

Yes. We launched the Galeon brand quite some time ago. It continues to grow and we continue to have -- it's one of the products where we have a strong backlog on it. So it's -- I don't know how to compare it to the -- maybe the higher premium brands. But those are still doing well. As we said the choppiness, there's some new models that all of these manufacturers have come out that are -- just continue to be very well accepted in the market.

As an example, Azimut will have several new models at the Lauderdale Boat Show. Sea Ray will have some new models, Boston Whaler, Scout. So they're all doing it. Galeon is a real success story from us, from our standpoint. We got a quality product with a lot of innovation at a good price and that's a winning formula.

Right. I guess I'm just wondering just kind of industry-wide if you're seeing stronger performance, as much as big boats is down across the category perhaps, but if value just industry-wide is still performing at the premium?

No. You know what, it's not. It's choppy, which would point to the uncertainty question that someone had asked earlier. It's not choppy just in premium product. It's also impacted some of the value brands, for us in particular, because we are continuing to expand with Galeon, it's been up nicely for us.

But there's been some value brands that are really not on the -- are also lower quality that have hit the United States that, that catches up and starts coming in on the manufacturer. As I'll give you an example, one of our customers is heading to the Keys with their boat and their buddy has one of these value price boats that he saved a lot of money buying, foreign brand. And on the way to the Keys could not continue with the value brand boat. It wouldn't take the seas and the ride and the comfort and concerns about the boat itself were an issue versus the premium product, quality product that will basically go through anything. So -- and the prices of a lot of these manufacturers that have come to the U.S. to buy their way in, their prices are increasing. So the gap is becoming less than it was before.

Okay. I just -- a couple other quick questions, follow-ups here because I know we're running out of time. But you talked about extended backlogs on some modes. Where are you seeing the greatest backlogs? Where within the line structure?

Most recent models that have been introduced, to be honest with you, it's kind of a consistent theme that we started seeing several years ago with strong demand. But some of the new Sea Rays, Sea Ray's actually launching a new product at the show, but...

Some of the larger outboard, day boat product has been very, very successful, so...

Okay. That's good to hear. Can you talk about outboard repower market and just what you're expecting there in 2018?

It's not a real material part of our business. We're growing with it. It's an opportunity for us in terms of service and parts and accessories.

And just finally on used boats. I guess, could you talk about the percentage of mix? Was it up in your business, was it down? I'm guessing from what looks like the gross margin, it may have been down as a percent of your business, but if you could comment on that. And just the gross margin realization on the used boats, was that up or down?

For used boats, because we're a dealer, so we take a trade in. And what we take, the type of boats that we take in on trade don't typically alter from 1 year to another too much. So used as a percentage of our overall business usually in the same general range of, call it, 17% to 21% of our overall revenue. I don't have the exact number this year, but it's probably in that same range. Margins on used are doing fine. The used boat market out there is still in short supply. Late model boats are highly sought after, which makes it easier for people to trade. So I think incrementally, we probably had some improvement our used margin year-over-year, as well as our -- the other product margins.

I would circle back while I have you on the phone, David. I just would circle back to the question that someone asked about boats over 40 feet and the percentage of business that they are. Michael -- I'm not sure, James or Michael, who asked that. But it's in that 30% to 35% range. I don't want people to get off the call thinking it was 60%, our exposure to larger boats. So about 1/3 of our business, give or take a little bit.

And ladies and gentlemen, that does conclude our question-and-answer session for today. I'd like to turn the conference back over to Bill McGill for closing remarks.

Thank you, operator. In closing, I'd like to thank all of you for your continued support and interest of MarineMax. Mike, Brett, and I are available today if you have any additional questions. Thank you.

Ladies and gentlemen, that does concludes today's conference. We thank you for your participation. You may now disconnect.