Q3 2021 MarineMax Inc Earnings Call
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Good morning, and welcome to the Marine Max incorporated 2021 fiscal third quarter Conference call Today's conference is being recorded.
At this time I would like to turn the call over to Don Frankfort of ICR Investor Relations from Marine Max. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining the discussion of Marine Max the fiscal third quarter 2021 conference call.
I'm sure that you've all received the copy of the press release that went out this morning, but if not please call Linda Cameron at 7 to 75311, and 712 and she will email 1 to you right away.
And now I would like to introduce the management team of Marine Max Mr. Brett Mcgill, President and Chief Executive Officer, and Mr. Mike Mclamb, Chief Financial Officer of the company.
Management will make a few comments about the quarter and then be available for your questions and.
And with that in mind, let me turn the call over to Mike. Please go ahead Mike.
Thank you Don good morning, everyone and thank you for joining this call before I turn the call over to Brett I'd like to remind 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 <unk>.
Current 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 and 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 and mind I'd like to turn the call over to Brett.
Thank you, Mike and good morning, everyone and thank you for joining the call on.
Our team continues to set records with their performance and our third quarter was no exception.
Produced record sales record margins record profit and on top of that record net promoter scores.
Today I'd like to share of the highlights from our very productive third quarter, and then discuss the results of our strategic growth plan, which will continue to create shareholder value and 2021 and beyond.
And then Mike will discuss our financial results in more detail and provide color on our updated 2021 financial outlook.
Let me start by touching on our third quarter performance.
And I'm extremely excited about our results and the quarter with both sales and earnings exceeding expectations and.
Im, especially proud of the marine Max team for continuing a high level of execution on our key strategic initiatives, which continue to gain traction and resonate with customers and we've capitalized on a favorable consumer spending backdrop, along with a continued demand of consumers seeking the boating lifestyle.
And.
The record sales and earnings growth, we delivered was driven by solid 6% same stores sales growth, which is on top of the robust 37% same store sales growth a year ago.
From a 9 month perspective same store sales growth was up 21% on top of a 22% a year ago.
Our significant geographic and product diversification, along with the effective utilization of our digital platform is driving sustained growth.
Additionally, the marine industry continues to experience a significant acceleration of new customers given our scale and global position, we are benefiting from our growing share of the market and based on available industry data. We believe we continue to gain market share.
We have meaningful revenue growth across most brands and categories of product and continue to leverage our investments and technology, which is driving the leads that are being converted into sales and enhanced profitability.
We built on our prior quarter's profitability and increased our operating margin to over 12%.
This performance is directly attributable to our ability to execute against our strategy focusing on higher gross margin businesses, including finance and insurance Marina storage parts services and brokerage the.
The gross margin strength, we produced and the first half of the year accelerated and the June quarter to 37%.
Additionally, our acquisitions have performed well and are aligned with our strategy of contributing to the margin expansion and we expect our 2 most recent acquisitions cruisers yachts and this swap marine to further contribute to this growth.
And the quarter of gross margin expansion and good expense control led to outstanding operating leverage of over 20% and record earnings per share of $2.59.
Now let me discuss the confidence we have that our strategy will continue to create sustained growth and long term shareholder value and 2021 and beyond.
We are making significant progress on our vision of creating exceptional customer experiences through best services products and technology. Our teams remained focused on these initiatives, resulting in strong sales and margin.
We are uniquely positioned to drive this growth for years to come we will accomplish this through our global market presence premium brands and valuable real estate locations.
Exceptional customer service technology investments strategic acquisitions, and industry, leading inventory management and finally, a continued commitment to build on our strong company culture.
Supported by 1 of the strongest balance sheets and the industry, we will continue to make strategic accretive acquisition and a disciplined manner. The.
The combination of being well capitalized and having a broad global geographic presence has allowed and will allow us to grow in many ways by adding additional dealers marinas.
Storage service related offerings manufacturing and asset light businesses, such as our Super Yacht services businesses.
We continue to have strong demand driven and visibility and we are well positioned to serve our customers. The sheer size of our backlog continues to provide us with added confidence that we should outperform for the remainder of 2021 and well into fiscal 2022.
Also there is no question that our scale as a competitive advantage as we leverage our deep manufacturing relationships are nationwide shared inventory and strong balance sheet to support the growing demand.
As we will discuss later on the call based on our third quarter results. We are again, raising our full year of 2021 guidance.
This reflects another great quarter and the confidence we have and the business as we build our backlog and look ahead to the new product that will start to flow and the future.
We believe the combination of driving operating leverage and generating significant cash flow coupled with strong consumer demand will result in sustained growth well into fiscal 2022 and beyond.
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 I'd like to start by thanking our team for producing a fifth consecutive record quarter, which significantly topped last year's outstanding June quarter for.
For the quarter revenue grew 34% to over $666 million due largely the same store sales growth of 6%, which was on top of 37% of year ago.
The strong results from the acquisitions, we have completed the.
Namely skipper Buzz Northrop and Johnson and cruisers yachts.
Overall, our growth has been demand driven across generally all segments of products.
As expected the supply chain challenges have resulted in low industry inventory, which led to reduced overall unit sales versus our record last year. However, with greatly increased backlog visibility coupled with our broad product portfolio and production insight from our.
Factoring partners we.
We're positioned to drive growth and many of our key categories.
This approach resulted in a double digit expansion of our average unit selling price. We also believe this strategy will continue to work well as we move ahead.
Our gross profit dollars increased over $81 million, while our gross margin rose 590 basis points to 37%.
And our initiatives to drive margin growth over the last several years is clearly working.
Margins rose with contributions from multiple segments of the businesses, including new and used boats storage are higher margin finance insurance and brokerage business as well as our global Super Yacht services businesses, Northrop and Johnson and Fraser yachts.
We would note that the Super yacht charter business is starting to see improvement with the reopening of Europe.
Assuming the reopening continues we would expect a much improved charter season compared to August and September last year.
Regarding SG&A the majority of the increase was again due to rising sales and related commissions combined with the recent acquisitions generally expense trends are on track.
Our operating leverage and the quarter was over 20%, which drove very strong earnings growth setting another quarterly record with pretax earnings of over $80 million.
Our record June quarter saw both net income and earnings per share rise more than 60% generating $2.59, and EPS versus the $1.58, a year ago.
For the first 9 months of the year I will make just a few comments.
Our revenue exceeds $1.6 billion, driven by a 21% increase and comparable store sales.
Gross margins exceed 30% on.
Our operating leverage is around 20% our EPS is at $5.33, and our EBITDA is over 180 million of <unk>.
Very impressive 9 months.
Moving onto our balance sheet, we continue to build cash with over 200 million at quarter end.
Our inventory at quarter end was 209 million exclude.
Excluding skipper buds and cruisers yards are inventories near historically low levels on a relative basis.
However, it is important to reiterate that we have reasonable visibility from our manufacturing partners.
That coupled with our backlog allows us to direct our efforts to drive growth like we did this quarter.
Looking at our liabilities short term borrowings decreased sharply due to lower inventory and related financing as well as the increase and cash generation.
Customer deposits almost tripled to over 86 million due to the demand we are seeing setting a new record.
Our current ratio stands at 2 <unk> and our total liabilities to tangible net worth ratio is below 1 <unk>.
Both of these are very impressive balance sheet metrics, our tangible net worth is $386 million.
Our balance sheet has always been a formidable strategic advantage and now more than ever and it provides the capital for growth and expansion as opportunities arise.
Turning to guidance for 2021 the.
And the June quarter exceeded expectations and industry trends remained strong.
Industry estimates for 2021 retail unit growth is and the high single digits.
We expect our annual same store sales growth to be and the high teens. This is generally consistent with our comments last quarter.
Given the strength of earnings and the June quarter, and the demand driven and visibility we are raising our estimates for earnings per share guidance to the range of $6.40.
The $6.55 sets in.
In summary, we do expect our pre tax earnings to rise and the fourth quarter, which gets dampened a bit by a higher tax rate of around 25%. This year as well as higher outstanding shares which results in the EPS guidance range.
Our guidance excludes the impact from any potential acquisitions that we may complete.
Our updated 2021 guidance implies an EBITDA level well in excess of $200 million.
Turning to current trends July will close with positive same store sales growth and our backlog is at record levels.
As we have said industry demand trends remained strong and we are generally outperforming these elevated levels.
While we would typically not share perspective beyond the current fiscal year I'd like to provide some additional context as we look out to fiscal 2022.
With the demand side of our business remaining very strong and with the visibility we have with our manufacturing partners and backlog. We do anticipate same store sales growth in 2022.
We'll provide more color around this on our fourth quarter call.
With those comments I'll turn the call back over to Brett for some closing comments.
Thank you Mike.
As evidenced in today's results. We are pleased to see our business continue to build momentum.
Our team's performance of the first 9 months of fiscal 2021 continues to show excellent execution, even on top of the record performance last year, which included very impressive same store sales.
Much of our strategic work is still underway with the true benefit to be realized in the coming quarters and years.
We remain committed to creating exceptional customer experiences through our team's services products and technology.
Record high net promoter scores show that our customer centric approach is fully aligned to drive high levels of satisfaction and repeat business.
We will continue to uncover significant opportunities for brand expansion and higher margin businesses that will strengthen our overall business, while staying focused on our strategy to create long term shareholder value.
And with that operator, let's open up the call for questions.
We will now begin the question and answer session to ask the question you May Press Star then 1 on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
The first question.
It comes from Joe at the Belo with Raymond James. Please go ahead.
Thanks, Hey, guys good morning.
Glad to hear of July comp positive.
And it sounds like Youre expecting.
Instead of comp growth next year, well I guess, the flip side because that is how concerned are you about margin next year.
Promotion levels of potentially normalizing and with lowering costs going higher hopefully on the higher inventory.
Did you say with promotional.
Normalizing next year, yes, assuming they do yes.
I don't think anybody is expecting.
Promotional environment next year.
And then the past year, but has to be very incremental inventory levels of very low and it's going to take a while for the industry. The return to if it returns to prior levels.
We see inventory continuing to be very lean through fiscal 2022, but again with the insight we're getting from our manufacturing partners coupled with the demand.
And we see a.
The runway to same store sales growth for 2022.
Okay Super and then just to follow that up.
The lack of inventory.
Impacting sales I mean, anecdotally, we're hearing about customers canceling of orders have you seen an uptick in order cancellations and if so.
And it's somewhat come and that afternoon and pick up that order effectively and so it's really it's really not impacting the overall number.
Yes, Joe we really haven't seen any any any uptick in cancellations at all people are locked in I think there is a dynamic out there that in the past people voters of always upgraded both right. They want of larger boat 1 day and I think in the past people would say hey, Yes next season, let's go looking for boats right now people are looking at it and see.
<unk>.
And we better get our boat on order now if we want it for next season and so there is that's creating some patients in and of itself and people are being more proactive about their future purchase and we're figuring out of way to keep them on the hook, but no no order canceling at all but I do think your first part of the question was.
And with sales be even higher and I think the answer to that yes, I think every dealer would tell you that.
And you just look at our backlog of our customer deposits and the strength of demand today, and so I think the industry trends would be even stronger if it wasn't for some of the supply chain challenges that the.
And it's gene.
Okay, great. Thank you guys and thanks Joe.
The next question comes from Jamie Hardiman with Wedbush Securities. Please go ahead.
Yeah.
Hey, good morning.
So I wanted to drill down a little bit on the the really strong trends that youre seeing and pricing.
And then you said the double digit for the quarter maybe.
And maybe walk us through how much of that is the function of mixed right.
The.
Higher price Mercy.
The lower price both from how much of that is like for like pricing.
Our customers are you seeing any customers balk at at price increases.
And then the July same store sales I think you said.
We're going to finish positive.
Should we expect a similar trend to what we saw on the third quarter, meaning.
From declines in units, but the big.
And are you Peter.
Hey, Great question, James and I would tell you on the current quarter in terms of my comment around what drove same store sales of the overwhelming majority of it was.
Of mix change to larger product more expensive product the.
The the incremental pricing on new and used product, which we are also seeing which is helping to drive margins.
It was part but it would be.
Small part of the of the overall increase and.
On the pricing environment doesn't seem to be dampening demand at all currently.
From that perspective, and then I think from an industry perspective on your July commentary.
And if you look at the industry, if I remember right in April of the units for the industry were up 86% and May they were up 2% of thinking about that trajectory 86 to 2 I think 1.
I think when June gets published because of supply there is going to be of negative print on units posted and June because of supply and probably same with July and so we're still targeting high.
Same store sales and the high teens, then, yes, we would still be expecting.
Increases and the AEP and in July.
Got it and then certainly and maybe roll that question forward.
Really encouraged by the.
And the confidence you have and in growing same store sales in 2022, I guess, let me, let me drill down on that a little bit.
Do you think the units.
And the sold can actually grow in 2022 or is that.
Primarily the confidence primarily a function of of just the the momentum with respect to <unk>.
Great question and based on all of the feedback and insight we have from our manufacturing partners and we will obviously get more into this on our call next quarter, but sitting here today. It looks like that we can have the unit growth next year based on our manufacturing partners.
There's a lot of a lot of moving pieces and that but that's what it does look like which is great news.
Really encouraging okay. Thanks, guys I'll hop in the queue. Thank you.
The next question comes from Eric Wold with B Riley Securities. Please go ahead.
Thanks, Good morning, guys.
A couple of questions kind of on the on the cost side of the will and I guess.
1 is the kind of approach the booties and again clearly.
And you guys and a great job kind of manage and Covid pandemic and kind of people shifting ability and desire to kind of purchase large items kind of.
Online and that is the importance and I guess at if you back to you at a normal volume.
Boat shows the open full capacity situation like we did at pre pandemic of how would you expect.
You're spending to look like and that environment and your involvement of OIBDA on demand versus pre pandemic and get back to where it was or would you be scaled down somewhat.
And I'll, let Mike comment a little more detail, but I'll mentioned first I think we're really working with.
The show promoters and the manufacturers to figure out of way to get back the shows and a much different and.
And more cost effective way. So we definitely don't want to return to the old expense structure and thats going to take a lot of work and time, but thats just a general comment that we don't want to allow us to get back to there for a lot of reasons and.
So might be.
But if we start going back to shows that would be a and incremental inquiries and SG&A in the marketing side of things for sure. If I remember at last year, we did at the Fort Lauderdale show in the.
For the December quarter, and really no. Other major shows after that that I can remember off top of head. So.
And if there is any impact it would probably be in the back half of the year.
And and as that and cost savings from the more cost effective way of going about at cost saving.
Pocketed and so to speak on.
And then moving to a different category.
And spend.
And just like and the this past year. It wasn't all just pocketed, we've put it towards other marketing efforts.
Holding in house events, and our getaways events are more costly now because you've got to be much different and safer. So we put the money to work, but not all of it.
And then and the last question obviously.
And the cash flow you got down to almost no.
The floor plan financing on the books at the corner of couple of million Bucks what of your strategy around that going forward, assuming the inventory does start to catch up over the next 12 to 18 months of coming back and obviously the business would be strong in the meantime, what is your strategy around kind of how much of the inventory you'd like to finance versus what you did.
And prior years.
Well you may have seen we put out of release.
Last week I think it was that we did amend our facility and <unk> and like the it for another 3 years.
And do see and that time period inventories beginning to build.
I'm not sure of that time period, and I don't think theyre going to build at even back to levels. They were before but I think we wanted to have the facility and the place to give us the flexibility with how we finance the business. So I would I see the overall industry at Ics kind of returning to some reasonable level.
The floor plan financing facilities of very flexible.
Basically accounts payable, which is of very attractive financing facility for us. So we like it so there'll be some of that and the future but.
There's not going to be much of it for a while.
Sounds good thanks, guys.
Thank you.
The next question.
She comes from David Macgregor with Longbow Research. Please go ahead.
Hi, This is Joe Nolan on for David Macgregor.
Joe.
Alright.
And I was just wondering could you talk about the recent acquisition of cruises yachts and just the whole of it of vertical integration plays into the strategic direction of the company and.
And then also just on top of that are you planning due and acquire any other boat Oems and your plans and if so what boating segments would you be prioritizing.
So great question on cruisers, and we're really proud of the cruisers, the joined and the Marine Max family and we've.
Talked about and other releases at.
And that was a segment of our business.
And that went away with the sea Ray sport yachts, and yachts and when the opportunity with cruiser came available to have a <unk>.
American built product here and to secure our future and just the opportunity lined up along with the fact that we could.
Grow the production levels and a substantial way at cruisers that had a big impact on the decision to do it and so great acquisition with great opportunity for upward growth there.
And they are of cruisers debt.
And as far as other manufacturers, we will look at opportunities that are out there, but it's not a high priority strategic pattern that youll see from US. However, we will look at some opportunities as they come up.
Got it thanks for that and then also just wondering on the boats. If we could just talk about gross margin I understand the prices have gone up quite a bit just wondering how that.
Impacting the margins in the business.
Yes, so the pricing on new and used both debt has increased and.
It is helping our margin if I had to <unk>.
Estimated probably a third of our margin increase is just on the product the demand side, which has increased new and used the other increase of the margin is really the changes we've made to the business around the F&I stores. Some of these acquisitions that we've made that all add to our margin. So we.
We are getting some benefit from the.
New and used the margin increases.
Got it thanks I'll pass it along thank you Joe Thank you.
And the next question is from James Hardiman with Wedbush Securities. Please go ahead.
Okay.
And it looked like on back on so.
And so a couple.
A couple of modeling questions.
The the manufacturing business it looks like in the third quarter at had.
Better overall margin than retail operation is the VAT.
Should we expect that over the course of a of a full year.
And and how do we think about sort of the gross margin versus operating margin and.
In that range.
So great Great question, I think what our 10-Q gets filed theres going to use of additional language around the segment reported within the retail operations or other costs that are associated with the manufacturing segment.
And so it's what will explain that a little bit more and the.
And the Q so the.
Manufacturers like cruisers are typically going to be and the high single digit from an EBITDA perspective.
And so when you start getting that down to operating margin from a GAAP basis, it's a little lower than that that's that's looking back historically when you look forward with their new.
Plant, that's coming online and with some of the growth obviously their plans and our plans are to grow those those that earnings stream and the earnings as a percentage of the business as well.
From a margin perspective, what happens from our business as you get we will end up getting the manufacturing margin. So 1 of them on 1 of our stores sales of cruisers.
And we will get the obviously the retail margin within our stores and will get the manufacturing margin. So we kind of get like a doubling of the margin on the business that we do from cruisers and so that way it will overall it will help our overall consolidated margins.
The margins on the manufacturing side and on our industry tend to be in the <unk>.
1.5% range, which is similar to what the dealers recognize.
I'm not sure if I answered all your questions but.
Probably hit a few of them I think.
Yeah, you did and and so should I think about this being at.
I guess on a full year basis accretive to both the gross margin and the the.
The EBIT margin that's correct yes.
Okay.
And then similar questions of I think about.
Before I got how would you say that and you haven't been from them.
And the recent deal that you guys acquired.
$35 million in 2020 revenue is that growing at a similar rate to 2 you're on.
Organic business and should we think about a similar seasonality and margin structure there as well.
The good niswonger, great Great dealership. Good addition to our team and I'll remind you that.
Part of what made at really good as their storage component of their business. They are higher margin focus on things. So that's very helpful. But they might comment more but theyre seeing growth like every other dealer would see and we hope we can bring some synergies to improve finance and insurance and other pieces of the business.
Yeah, and because of their storage.
File of typical dealer.
And historically, it's going to be in the low maybe mid single digit pre tax if they were running at a really good business. These guys have been and high single digit.
Times, even probably break and above that they run of very very good business.
Great Great team, but from your you asked about seasonality and obviously they are of Minnesota, So theyre going to be more 60 per cent of the year is going to be in the summertime, 40% is going to be at the wintertime or at December and March quarters, there'll be more seasonal than marine Max.
Got it perfect appreciate it guys. Thanks James.
This concludes our question and answer session I would like to turn the conference back over to Mr. Mcgill for any closing remarks.
Well. Thank you again for joining the call today, everybody and the both Mike and I are available. If you have any additional questions and we look forward to updating you on our future progress on the next quarterly call.
The day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.