Q1 2022 MarineMax Inc Earnings Call
Okay.
Good morning, and welcome to the Marine Max Inc. 2022 fiscal first quarter conference call.
This conference call is being recorded.
At this time I would like to turn the call over to Dawn of ICR Investor Relations for Marine Max. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining this discussion of Marine Max This fiscal first quarter 2022 conference calls.
I'm sure that you've received a copy of the press release that went out this morning, but if not please call Linda Cameron at seven to 75311712, and she will email one to you right away.
I now 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.
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 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 comps.
<unk> 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 Brett right.
Thank you, Mike and good morning, everyone and thank you for joining this call.
Let me start by thanking the marine Max team for their continued focus and commitment which drove record sales record cash flow and record earnings growth in the quarter on top of these great financial results, our net promoter customer satisfaction levels hit another new record.
This is the most important achievement of all as it will drive many years of future sales and profitability.
Today I'd like to share highlights from our first quarter touch on how we are strategically approaching the important peak selling season, followed by a discussion of the results of our strategic growth plan.
Then Mike will discuss our financial results in greater detail and provide some color on the balance of the year.
Q1 results were a great achievement, given the extremely lean inventory and well documented supply chain issues with.
With the peak selling season ahead, we expect to build on the strong start to our fiscal year and remain confident that we will continue to enhance long term shareholder value.
Let me touch on the December quarter, where we generated 15% revenue growth.
Record gross margins of 35% and record earnings per share of $1 59.
I am extremely pleased that our diversified model enabled us to again exceed expectations as we produced robust margins and earnings growth.
For the quarter, we are particularly pleased with our strong same store sales growth, which rose to 9%.
It's important to note that our same store sales growth was primarily driven by an increase in unit sales, which is notable given the industry wide supply chain challenges.
Additionally, we drove meaningful expansion across essentially all brands categories and geographic regions.
The marine industry continues to experience consumers embracing the boating lifestyle.
This strong demand environment as highlighted by our customer deposits, which exceed a 144 million and grew sequentially on top of our strong same store sales growth are.
Our team continues to capitalize on consumers' actively seeking the boating lifestyle as we leverage our scale broad geographic presence product diversification and digital platforms.
Based on available industry data, we believe we continue to gain share.
From a cadence perspective, the supply chain headwinds improved as we moved through the quarter.
Benefiting our ability to fulfill customer orders.
As many experts in the industry are forecasting the supply chain environment will most likely stay choppy and not improve materially until late in fiscal 2022.
Accordingly, we continue to work closely with our manufacturing partners for the best up to date information, while working to satisfy the strong demand.
Now, let me turn to how we are approaching the important peak selling season.
We are well positioned and prepared to serve our customers Covid has changed all aspects of customer expectations, including boat shows our team has adapted with greater digital capabilities and refocused marketing spend that leverages, our stores and our online experience generating exceptional results.
Our deep manufacturing relationships and nationwide shared inventory continue to give us a competitive edge.
Many of our brand expansions continue to mature and accelerate within our retailing model.
Which should keep driving future incremental growth.
With the largest selling season ahead, we expect to build on the strong start to our fiscal year and deliver exceptional customer experiences.
I also want to underscore our strategic growth plan and how it propel sustained market share gains revenue growth and expanding company wide margin.
This quarter, we increased our operating margin by 220 basis points over last year's record 210%.
Quite an accomplishment and our historically smallest quarter.
This performance is directly attributable to our ability to execute our strategy of growing our higher gross margin businesses.
To that point many of our recent acquisitions have had a higher gross margin profile than is typical in our industry.
These strategic acquisitions combined with improvements in finance and insurance service brokerage and the expansion of our substantial storage operations as a resulted in structural enhancements to our gross margin profile.
Additionally, as we integrate our acquisition they continue to perform very well and are aligned with our strategy of contributing to marine Max as record margin expansion.
From a profitability perspective, one of the best elements of the quarter was once again, our strong gross margins at over 35%.
The meaningful margin expansion in the quarter was bolstered by increased product margin and our higher margin businesses that drove significant operating leverage in the quarter.
To that point, the margin expansion and controlled SG&A levels produced an impressive 26% operating leverage in the quarter.
The combination of gross margin expansion and focused expense management resulted in a record $1 59 of EPS for the quarter.
In the December quarter, we added, Texas Master craft that intrepid power boats to our families. These.
<unk> combined generated over $100 million in revenue in 2020.
We are seamlessly integrating these businesses into marine Max and believe many opportunities exist for sharing best practices and resources to drive even greater growth in the years ahead.
Now let me discuss the confidence we have that our strategy will continue to create sustained growth and long term shareholder value in 2022 and beyond.
We continue to make significant progress on our vision of creating exceptional customer experiences through best services products and technology.
This is evidenced by our record net promoter customer satisfaction scores that I mentioned in my opening comments.
Our team remains focused on these initiatives, resulting in strong demand and margins.
We will accomplish this through our global market presence premium brands valuable real estate locations exceptional customer service technology investments strategic acquisitions industry, leading inventory management and finally, our unwavering commitment to build on.
On our strong company culture.
Supported by one of the strongest balance sheets in the industry, we will actively make strategic accretive acquisitions in a disciplined manner.
Our broad global geographic presence has allowed and will continue to allow us to grow by adding additional dealers marinas storage service related offerings manufacturing and asset light businesses.
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.
Yeah.
Thank you Brad and good morning, again, everyone I'd like to also start by thanking our team for producing another record quarter driven by strong same store sales growth gross margin expansion and great operating leverage for the quarter revenue grew 15% to $473 million largely due to same store sales.
Growth of 9%.
And the contribution from our various recent acquisitions.
Our 9% same store sales growth was driven primarily by unit growth, which is impressive given the continued industry wide supply chain challenges.
Overall, our growth has been demand driven across generally all segments or products in every global market a.
A big takeaway from our results. This quarter is our ability to post very strong comps on top of already strong comps, our 9% growth. This quarter was on top of 20% and 24%. The last two years, which were also largely unit driven.
Our gross profit dollars increased over $43 million, while our gross margin rose 540 basis points to over 35% or.
Our record gross margin was due to several factors. Among these are improving margins on new and used boat sales.
Impressive service parts in storage performance.
Expansion in our higher margin finance insurance and brokerage business as well as growth in our global Super Yacht services organizations of Northland Johnson and Fraser yachts.
Our higher margin businesses have been a focus of ours for some time, including our acquisition strategy.
Only about a third of our margin improvement in the quarter came from growth in new and used margins the.
The remainder was expansion of our higher margin businesses.
Regarding SG&A the majority of the increase was again due to the increase in sales and related commissions combined with the recent acquisitions.
We believe SG&A overall is generally on track on an annual basis, but we will watch the inflationary pressures carefully.
Our operating leverage in the quarter was about 26%, which drove very strong earnings growth setting another quarterly milestone with pretax earnings of over $46 million and historically our smallest quarter.
A record December quarter saw both net income and earnings per share rise over 50% <unk>.
Generating $1 59 in EPS versus a $1 four a year ago. These.
These results include a limited contribution from the two acquisitions, we completed in the quarter.
Moving on to our industry, leading balance sheet, we continue to build cash with over $216 million at quarter end versus $121 million a year ago.
Our inventory at quarter end was down 14% to $325 million from last year, but excluding the acquisitions, our inventory is down closer to 25%.
Looking at our liabilities short term borrowings decreased 31% due to lower inventory and related financing as well as the increase in cash generation.
Customer deposits, while not the best predictor of near term sales increased sequentially around 50% from September to over $144 million due.
Due to the timing of orders and strong demand along with a contribution from intrepid.
Our current ratio stands at 157, and our total liabilities to tangible net worth ratio is 140.
These are very impressive balance sheet metrics, our tangible net worth is $386 million or.
Our balance sheet has always been a formidable strategic advantage and today more than ever it continues to protect us in uncertain times, while providing the capital for expansion as opportunities arise.
Turning to our outlook for fiscal 2022.
The December quarter, certainly exceeded expectations and industry demand trend remains strong.
The challenge in 2022 remains around the assumptions for the supply chain.
Today, given what we're being told from our various manufacturing partners. We continue to expect retail unit growth in 2022.
However, it is also clear that uncertainty exists in the ultimate visibility due to the supply chain challenges.
As such we think it's prudent to continue to expect flattish unit growth and two we are able to successfully move through more seasonal quarters.
This combined with increases in our average unit selling price should provide annual same store sales growth around the mid single digits.
Including the remainder of the cruisers and this will acquisitions, along with Intrepid in Texas faster graft, we expect total annual revenue growth in the mid teens.
We do hope the supply chain improve will improve and allow us to have upside as we move through the coming quarters.
Given the inflationary pressures in the marketplace as noted on our last call. We do expect modest gross margin pressure.
We have levers to mitigate these pressures, but believe it's prudent to include in our expectations for now.
Our guidance is also before any other acquisitions that we may complete.
Using the low end of our historical leverage range, plus a modest share increase and a tax rate of 25% results in our earnings per share guidance range of $7 60.
The $8. This implies fiscal 2022 EBITDA of over $260 million.
Turning to current trends January is forecasted to end with positive same store sales growth and our backlog is at record levels.
As we have said industry demand remains strong and we are generally outperforming these elevated levels.
With those comments I'll turn the call back over to Brett for some closing comments Bret.
Thank you Mike.
Marine Max continues to benefit and capitalize on the surge in demand and the desire of consumers to embrace the boating lifestyle. Our team's performance to start the fiscal year has shown continued excellent execution, even on top of a very impressive same store sales a year ago.
The original vision for the creation of Marine Max was to create a better customer experience by building a team that is dedicated to the passion and lifestyle of boating, we continue to work hard to deliver on this and this is the success of our model.
We remain committed to the long term financial strength of the company and will pursue additional brand expansion and higher margin businesses to support our strategy to create long term shareholder value.
And with that operator, let's open up the call for questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the Q.
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Our first question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your question.
Hey, guys. Good morning, Thanks for the question maybe.
Maybe just to start could you touch on.
I get that it's tough to predict sort of the unit delivery cycle, but can you talk about the unit number thats included in that January same store sales.
Commentary, what you are expecting to be positive just moved around a lot. So.
How should we think about that yes. Good question, Fred we don't really give on a month by month basis I know, we do say that we're going to.
Same store sales growth is January closes up and actually I don't recall right now really if it is going to be up or down, but I would tell you that we've had some in the December quarter. We had some good supply chain activity positive, which is have we had the the unit growth in the quarter. However, I think the message is is that there's still some choppiness out there.
There and it seems like it's a.
A different problem on any given day with each different manufacturers. So I think until we move more through the seasonal quarters I think our guidance number.
Flattish until we get further into the year, probably makes the most sense with the with the uncertainty.
Okay that makes sense.
You guys. Both had positive comments on sort of the medium and the long term outlook for the business and I know that you guys have historically been active on the M&A front, but could you just sort of touch on.
The potential to lean into the buyback here, just given the valuation and sort of how the stock has performed.
Especially since.
That's set to expire in March of this year. So any thoughts there would be helpful. Yes, you can imagine we have a <unk> five plan in place that would be buying it.
Prices drop and we're aware when the current plan expires and we would be.
At least talking to our board about reactivating that plan before it expires. So we're aware of those states.
Say that we've been public for a long time and Theres been other times, where the valuation of the company gets.
Dislocated from what it should be reality and in those time periods, we've always been a little more active in our share buybacks. We do continued however to look at.
And of the long term at about good strong businesses to bring into the company with good strong management team. So it's a balance of what's happening right now from a valuation perspective, as well as where we're trying to take the company long term. So I think we'll be looking at both avenues.
We buy back some stock when it makes sense and continuing our discussions with the.
With deferred.
Opportunities to expand the business and grow for the long term.
Great. Thanks, guys.
Welcome.
Our next question comes from the line of Eric Wold with B Riley Securities. Please proceed with your question.
Thank you good morning, Mike.
Obviously, the great same store sales.
Obviously, it can be influenced somewhat.
Goodbye.
You're satisfying past orders getting delivered.
Two OEM by Oems as kind of a supply channel does not maybe give great deposit number of dividend growth sequentially, maybe just kind of anecdotally anything youre seeing.
Real time in terms of dealer traffic.
The mix of first time boaters coming into dealerships.
Stock market Choppiness requests around deposits amazing that kind of would give you pause in terms of where we are in terms of the demand cycle.
Yeah, Eric it's Brett.
Great question, and we monitor almost all of those things you listed literally on a daily basis website traffic lead generation.
Everything going on in the website and those numbers continue to be very strong which is just we're watching it close to look to see if okay. When will this kind of settle down a little bit but demand is still strong.
We watch first time to marine Max buying boats, we watch that percentage.
<unk> remains high which is great news for the industry, new people coming into boating.
So the only little thing out there that.
That we that we watch and this is just common is some really hot models that have been extremely long timeframe.
To wait to get about that I would call those cooled off because if you can't get above for two years right.
That model.
But I would tell you we still have activity around some of those models.
Striking so we watch that a little bit, but so to finally answer your question in summary, as demand and traffic everything continues to be very strong I'll, let akshay ill add one comment to what Brett Zane I said it during my prepared remarks, but.
Our customer deposits are up 300% from a year ago and the 12 months, leading from then till now we're a pretty good 12 month period for for the marine industry and for Us and our deposits are up 300% going forward.
Our deposits are up about 50% from September so just three months ago, our deposits were up 50% during a quarter, where we actually produced same store sales growth. If you think about how that math works.
Deposits are leaving the balance sheet as we're delivering the boats were adding deposits.
So it actually build the deposit line by 50% in one quarter and also have 9% same store sales growth.
Zinc should let people know demand is still pretty good in the recreational marine retail environment.
Perfect and then just.
Final question.
Inventory is up.
48% sequentially.
Yeah.
Are you getting stock inventory back on the floor is that kind of transitory inventory to kind of hit your balance sheet, but it was kind of going out too.
Already purchased both buyers and kind of in this quarter, how would you kind of frame.
Where your floor inventories are maybe on a percentage basis versus kind of where you'd like them to be that is actually expected a question about that from sequentially, but so there is some I'll say very modest building.
Increases in inventory when you add up all of our locations, yes, we have a little bit more inventory on the ground seasonally today, what's also in that number our deposits because as as our customers are paying us deposits. We do pay some manufacturers to deposits for boats that are coming a year from now or 18 months from now so that's in there. So that's not something we can delay.
Ever today that technically right in the December quarter.
We had boats coming from international suppliers. So they are literally on the oceans that are coming to us for delivery hopefully during the March quarter, but and so that again is products you can't actually deliver rate them because they are out in the ocean. So it was.
Those handful of things made it look like we may have actually more inventory in our stores because trust me, it's still pretty lean in the store when you break it down and look at what's on the showroom floors.
Other than may be some.
No.
More entry not entry level, but maybe ill call them pontoon boats in the northern markets that Shire that there's I'd say, there's less boats for sale available in each store.
Very helpful. Thanks, guys. Thank you Eric.
Our next question comes from the line of Joe <unk> with Raymond James. Please proceed with your question.
Thanks, Hey, guys good morning.
First question is a follow up on Eric's regarding inventory.
Given your revenue guide for 'twenty two you.
Do you guys expect to end the year with inventory up versus 21 are flattish.
No I actually it's a good question I do.
Kind of going with what the industry is saying and what people are talking about that.
I think the expectation is sometime during this summer.
The supply chain issues, hopefully will get better although I am not really sure if anybody really knows I think everybody is just kind of punting. The answer until then let the supply chain gets better I think technically we will will probably have.
Some more inventory, but it's still going to be extremely lean.
Walk into any one of our locations.
What's the backlog just about as fast as it gets here inventory is going to be going out, but I think I would think technically if the supply chain does get a little bit better than if we ended up seeing better unit growth and are then maybe even what's in our in our guidance and yes, there could be a little bit more inventory on the ground.
Okay.
Terms of the EPS guidance, you raised the midpoint by about 45%.
What's baked in for Intrepid in Texas Master craft in that number.
It wasn't in the old guidance.
Yes, good question and there's a couple of analysts have come out there and they put numbers out from 15 to 25.
I think when you look at the cash that was used to make the two mergers we have.
Baked in around 20, <unk> for both of those for the full year, both businesses are performing well, Texas Master crafted a little more seasonal so we had two months of the quarter.
Intrepid is doing great and certainly glad to have them on board, but yes. Thanks for asking that in the quarter I did comment there was a little bit of contribution from both less than a nickel just given some of the cost to acquire them that also were in the in the quarter, but.
Thanks for asking that yeah got it and just one last one if I could you guys own a fair amount of Florida waterfront real estate.
As you're well aware, it's done very well.
Rice standpoint, I know, you're starting to monetize a portion of that but do you have any plans to do more of that in 'twenty two and beyond.
Yeah.
We constantly look at our balance sheet and look at how we're how we best leverage the the company. We are always exploring different ideas I wouldn't say, there's a hard core plan in place, but your point is accurate we own a lot of real estate, we actually bought some more this quarter than we do.
Do think it's.
The fair value greatly exceeds but it's on our books for so and we're very that we think thats a great long term strategy for this business.
So I think youll see us continue to buy great unique waterfront properties, especially if we can do storage on them and I think youll see us.
Not going to we're not going to buy a property that necessarily top of the market. We will try to get properties at the right valuation, which is what all of ours have been we believe.
There's a lot of.
Capital and a lot of potential capital is tied up in our real estate for sure.
Okay got it. Thank you guys. Thank you.
Our next question comes from the line of Mike Swartz with tourists Securities. Please proceed with your question.
Hey, guys good morning.
Mike.
Mike maybe just on guidance I think you had mentioned your guidance predicated upon operating leverage kind of in that.
More historical range I think you've talked about maybe 12 to the mid teens Dork. Lee you did 26% this quarter I think over the past five or six quarters, you've averaged something around 20%. So maybe give us just a sense of why why you think that 12 to maybe mid teens is more correct going forward relative to what.
We've seen of late.
Your point of late is accurate of later our flow through has been really strong including 26% this quarter really.
Really 2021 was a breakout year from a model perspective, and where margins when our hope is that as we go through this year.
We can update guidance and we'll be more successful in the overall flow through of the business, which if you think fundamentally as margins rise it should be there I think we're just probably being a little prudent this early in the year.
We certainly hope to be able to update.
That target as we move throughout the year then fundamentally.
We finished the second year, let's say, let's say, we finished 2022 with.
Strong margins and we're looking at the different acquisitions. We've done we've got to start thinking Okay does that 12 months to 17% actually now has it changed because of I think Brett said that the margin profile of the company I think is changing EBIT, if you take away the.
Upside that we're seeing today on new and used product I think each quarter I say something like of our margin improvement around a third ish has been new in use which means two thirds have been coming from.
The changes we've made in the business, whether it's growing F&I and storage or some of the acquisitions that we've done to have a higher profile. So.
We're trying to evaluate all of that and to be able to direct and give you guys guidance around.
What's the model changing too as it is at 26% flow through into 'twenty. Two so part of it is kind of early in some of these acquisitions, we've done and.
We hope to be updating that as we move through this year and the next years.
Okay, great and maybe on a related topic in very near term.
Quarter, the Miami shows a couple of weeks away and obviously that didn't occur last year. So I'm just wondering how we should think about maybe adding some cost back relative to last year just from that show.
Yes, it's a good point.
These incremental marketing costs, but yes, I think for the Wii.
Also have a lot of shows going on right now around the country that were not attending.
So I think we've tried to put a different balance on things on what we're going to.
So a lot less shows that we're going to this year, just because there's no inventory.
And.
Pipelines for all the reasons you know.
Okay, great. Thank you. Thank you Mike.
Our next question comes from the line of Gerrick Johnson with BMO capital markets. Please proceed with your question.
Great. Thank you good morning.
Kristin.
Model year price increases like for like price increases on existing models and then.
If that is up I assume it is.
How confident are you about consumers' ability to pay higher prices going into 2022.
Yes, it's a great question I think we've touched on this a couple of times on calls I'd say high single digit in some cases there is there is.
Theres, maybe a double digit increase on it.
If youre looking at kind of what's selling like in June versus June 22 versus June 'twenty.
And the demand that we're continue to see make a comment on our backlog obviously, what we're writing contracts today is on product that has price increases and the I think the demand for the boating lifestyle in too.
Get out there and enjoy things with your voting with your family and friends.
As today's stronger than what the price increases have seen so it continues to be strong yes, we watch it very closely we're very sensitive about our pricing we watch to see if theres any volume decrease as some prices increase and so we'll watch it. The good news is the brands and the models that we carry even within one.
Brand Theres. So many models that can fulfill the same boding need for our customers. So maybe day.
Two years ago. They wanted a 35 footer.
A 31 footer has a lot of great features and the same benefits just so as the years evolve we've got enough product.
Price point, the consumer feels comfortable with but we're watching it closely.
Okay. Okay.
I realize this might be overly simplistic, but if you are seeing same store sales were up 9% and basically units youre seeing high single digit price increases so it would be safe to assume you're selling more lower priced boats in the fourth quarter.
You know what it's technically it's a mix for.
For the fourth quarter I would confirm that we delivered probably a greater percentage of.
Smaller product and it really has to do with people been waiting on their boats and it's just when we got him from the manufacturer. So on a year over year basis, we did delivered a greater percentage of smaller product that we typically do the December quarter is typically a quarter.
And so as the March quarter, a two degree that is skewed by larger product, primarily coming out of Florida as northern markets cooled down but today it doesn't matter where the consumer is if they are in Minnesota or or Florida. If their boat is available and it's finished at the manufacturer they take delivery and then we recognize the sale. So it's kind of smooth.
Doubt some of the.
Maybe some of the seasonal pattern.
As opposed to coming off the line.
Okay, great. Thank you very much.
<unk>.
There are no further questions in the queue I would like to hand, the call back to management for closing remarks.
Thank you all for joining the call today and both Mike and I are available all day. If you have any questions feel free to reach out and we look forward to talking with you at our next next call.
Have a great day.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Yes.