Q3 2022 MarineMax Inc Earnings Call
Good morning, and welcome to the Marine Max Inc. 2022 fiscal third quarter conference call.
Today's 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 its fiscal third quarter 2022 conference call I'm sure that you've all received a copy of the press release that went out this morning, but if not please call Linda Cameron at seven to 7531171.
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 Company.
This amount 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 cup.
<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 I have to start by thanking the marine Max team for their outstanding performance in our seasonally important third quarter.
We are proud to have one of the finest and most tenured teams in the industry.
And it's important to note that consumers are boating and the demand for the boating lifestyle is strong.
Let me continue by touching on a few details on the June quarter, where we generated record revenue record gross margins of over 34% and record earnings per share of $3 17.
Our diversified business model enabled us to produce robust earnings growth and cash flow.
That we accomplished this one inventory for large boats remains almost nonexistent as truly an achievement.
While our same store sales declined 5% for the quarter. The change was primarily related to the timing of shipments of pre sold customer both primarily large higher end product.
With the backlog of new boat orders at the highest level starting the fourth quarter. There is no question that we were impacted by the ongoing challenges of the supply chain.
We were just not able to receive as many boats as anticipated.
That said, excluding the Midwest, which seem to be hampered by a delayed start to the boating season, we drove same store new unit sales growth in excess of 8% during the quarter.
Simply put given our backlog and the desire by customers to get out on the water if.
If we would've had the product to deliver it would have translated into higher revenue.
I will also share that trends did seem to accelerate as we move through the quarter.
This strong demand environment is also highlighted by our customer deposits, which increased 60% to $138 million year over year.
We are leveraging our scale global presence product diversification and digital platform to generate these results.
Based on available industry data, we believe we continue to gain market share.
From a supply chain perspective, it remains challenging, albeit we are seeing some improvements we continue to work closely with our manufacturing partners to ensure we are properly communicating with our customers and getting them into their boats as quickly as possible.
From a nine month perspective, we delivered almost $1 $8 billion in revenue with gross margins growing to a record 34% and.
And we delivered almost $160 million and net earnings were $7 at 11 and earnings per share.
Another powerful achievement.
I'd like to underscore our strategic growth plan, which drive sustained market share gains and revenue growth, while expanding companywide margins by focusing on higher margin businesses that drive even greater profitability. We are building on our previously communicated strategic vision that we began deploying in too.
19, which was to transform marine Max into a more diversified business model that will create greater resilience across ever changing economic cycles.
This quarter, we increased our operating margin to 13, 8%, a 170 basis points over last year's record. This.
This performance is directly attributable to our ability to execute our strategy of growing our higher gross margin businesses.
To that point, our growth strategy has been focused on acquiring great companies with strong management and a higher margin profile.
These strategic acquisitions combined with improvements in finance and insurance service brokerage and the expansion of our substantial Marina and storage operations have resulted in structural increases to our gross margin.
Additionally, as we integrate our acquisition they continued to perform very well and are aligned with our margin expansion strategy.
We have seamlessly integrated these businesses into marine Max and we believe opportunities exist for the continued sharing of best practices and resources to drive even greater growth in the years ahead.
Now, let me discuss the growing confidence we have in our overall growth strategy we.
We have very strong visibility in terms of the near record backlog and are well positioned to serve our customers.
Foundational pillars of our strategy are creating exceptional customer experiences through the best team services products and technology.
Our team is committed to our mission, which is resulting in strong execution that is delivering record high net promoter scores and increased sales and margin.
We continue to accomplish this through our global market presence premium brands valuable real estate locations exceptional customer service technology investments strategic acquisitions, and our unwavering commitment to build on our strong company culture.
Supported by one of the strongest balance sheets in the industry, we will actively pursue strategic acquisitions in a disciplined manner, which also supports our organic growth.
Our broad global presence allows us the ability to grow by adding additional dealers marinas storage service related offerings manufacturing and other asset light businesses.
The combination of robust operating leverage significant cash flow and strong consumer demand led to record results. The first nine months of 2022, and we believe we will drive sustainable growth for the remainder of 2022 and beyond.
And with that update I'd like to ask Mike to provide more detailed comments on the quarter Mike.
Thank you Brad and good morning, again, everyone. I'd also like to start by thanking our team for their strong efforts that produced record profitability and cash flow through the first nine months of the year for.
For the quarter revenue grew to over $688 million largely due to contributions from recent acquisitions.
Our same store sales decline of 5% as Brett mentioned was primarily related to the ongoing shortage of inventory in large higher end product specifically, we expected more to be delivered and we actually received.
<unk> New unit growth was fairly good in the quarter and as mentioned earlier, excluding our Midwest region was up over 8% on a same store basis.
Our gross margin rose 360 basis points to over 34%.
This record third quarter gross margin was due to several factors.
These are improving margins on boat sales impressive service parts and storage performance expansion in our higher margin finance insurance and brokerage businesses as well as our global Super Yacht services organizations of Northland Johnson and Fraser yachts.
Additionally, our manufacturing operations of cruiser yachts, and Intrepid also performed well and helped drive the margin growth that we achieved.
About one third of our margin improvement in the quarter came from expansion of new and used margins. The remainder was through growth of our higher margin businesses.
Regarding SG&A the majority of the increase was once again due to rising sales margins and related commissions combined with the recent acquisitions.
Overall, we believe SG&A is generally on track on an annual basis, but we will continue to monitor inflationary pressures carefully.
Our operating leverage in the quarter was over 60% driven by the strong gross margins.
The leverage produced very strong earnings growth setting another quarterly milestone with pretax earnings of over $94 million.
Our record June quarter saw net income grew 18% and earnings per.
Share rise over 22% generating $3 17 versus $2 59, a year ago.
Moving on to our industry, leading balance sheet, we continue to build cash with over 281 million at quarter end.
Our inventory shows a 79% increase but excluding the acquisitions year over year, plus an increase of deposits paid to manufacturers as well as boats and transit, but not able to be delivered inventory was up less than 30%.
Much of the increase was sold just not able to be delivered our balance sheet reflects the sizable increase in property in.
In addition to growth due to acquisitions most of the growth is due to our purchases of several marinas and the development up other marine is on properties that we own.
As we've indicated we have found that where we can own and control storage locations, coupled with our retail strategy. It results in great earnings and cash flow and increases the stickiness with our customers.
We have amassed a meaningful real estate portfolio in key markets that adds additional security to our already strong balance sheet.
Looking at our liability short term borrowings increased $104 million due to inventory and the timing of payments.
Customer deposits increased 60% to a new June quarter record of $138 million sequentially not surprisingly deposits did decline from March due to the deliveries of sold boats.
Our current ratio stands at $1 78, and our total liabilities to tangible net worth ratio is at one seven.
Both of these are very impressive balance sheet metrics.
Our tangible net worth is $495 million.
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.
Now turning to our outlook for fiscal year 2022.
The June quarter generated robust operating leverage and profitability and industry demand trends remained strong with.
The challenge in 2022 remains the supply chain.
<unk> given what we're being told from our various manufacturing partners and given the recent supply chain issues. We have experienced we think it's prudent to expect flattish unit growth.
This should provide annual same store sales growth around the low single digits and overall revenue growth in the high single digits to the low to mid teens.
Much of this depends on the timing of product that arrived to our stores.
We continue to hope that supply chain improvements will provide upside as we move through the quarter.
Given the visibility provided by our backlog, we are raising our earnings per share guidance to the range of $8 five.
To $8 45 for 2022 from $7 90 to $8 30.
Our guidance now reflects a substantial increase from the initial outlook on fiscal 2022 started which was $7 20 to $7 50.
Our guidance excludes the impact from any additional acquisitions that we may complete.
Our guidance assumes a share count of about $22 7 million shares and an effective tax rate of 25%.
Now turning to current trends, we expect July we'll end with positive same store sales growth and our backlog remains at historic levels.
As we've said industry demand remained strong and we are generally outperforming these elevated levels.
I'll now turn the call back over to Brett for some closing comments alright.
Thank you Mike.
As I stated at the beginning of this call. Our teams performance. The first nine months of fiscal 2022 demonstrates excellent execution as our diversified model and exceptional customer service generate sustainable growth.
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 the boating community.
This is the basis of the success of our model and we will continue to work hard to deliver.
We remain committed to the long term financial strength of the company and will pursue acquisitions additional brand expansion and higher margin businesses with a focus on recurring revenue, which will support our overall growth strategy.
With a view to create long term shareholder value.
That operator, let's open up the call for some questions.
Thank you.
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One moment, please while we poll for questions.
Our first question comes from the line of Joel <unk> with.
Raymond James Please go ahead.
Thanks, Hey, guys. Good morning, I guess first.
Question I wanted to kind of square statements that you made I guess for you.
Talked about our record backlog and then.
Follow up to that you talked about customer deposits.
Sequentially.
From March to June .
Who are those two data points why is backlog at record levels, Yes, we're seeing deposits coming down.
Yes, I can comment that Brett can chime in if he wants to but the record.
Backlog is that at this point in the year, starting the fourth quarter heading into next fiscal year. We've never had a backlog that's big nor is our customer deposits ever been this big for this time of year sequentially. When you look at the history of the marine industry traditionally deposits have declined for March.
Through June .
They build in the Wintertime then they fall this time of year, which is why we said not surprisingly.
They fell clearly we keep seeing strong demand out there and what product comes in thats, not otherwise deposit it tends to lead pretty quickly.
Anything else yes.
Does that help Joe.
It does I appreciate that and then maybe just a follow up on that in terms of inventory.
Hmm.
What your inventory in units.
It looks like.
Today versus let's call. It three years ago on a same store sales basis.
Great question and I know there are some people in the industry are talking about declines if we go back and look at the units we have on hand today at the end of June versus what we had on hand at the end of the June quarter of 2019.
We have 15% to 20% of the units today is closer to 15% to be honest with you I know, there's some data out there that shows slightly higher than that but for us with this fastest our team gets the product and delivers it and with the markets that we're in we're down around 15% of the units at the end of the normal of the level back correct.
And that's like for like excluding acquisition same store basis, but it shows you how low inventory is in the industry and how long it's going to take four.
Some level of build in the in the industry. Good question Joe.
Okay. Thanks, Scott.
Yeah.
Thank you.
Our next question comes from the line of Michael Swartz with foolish.
<unk>. Please go ahead.
Hey, guys. Good morning. This is Lucas on for Mike.
Could you give any color as to the differences in demand.
Our premium units versus the lower end products.
Yes ill comment I think overall demand for US has remained strong.
Our profile of customer and really the premium level of all of our products.
What we internally might call out.
Smaller smaller boat really isn't a low end product so I would say.
Once you kind of work through the entire quarter everything had really good demand there wasn't any real.
Soft spot in a certain unit size and keep in mind the level of premium products, we carry as well might factor into that.
Okay, and then just one more.
On the supply chain.
There has been issues industry wide for the past 18 months.
Is it this quarter that.
Made a bigger impact for you and.
Just any color around that would be helpful.
Yes, I think just the general supply chain issues, you experienced by the manufacturers.
<unk> are still out there.
Maybe getting a little better in some areas.
But for us that just impacts how quickly the bulk can leave a factory how.
How quickly it can actually get an a on it.
A truck or a shift that get here in time and so some of the supply chain is still related to the availability of shipping and so I think thats, where youre seeing some of the timing timing for us.
Anything Mike.
If there was it seemed like it was it impacted some of our larger product more so.
At least from a revenue mix perspective this quarter.
Thank you.
You.
Thank you.
Our next question comes from the line of James Hardiman with Citi. Please go ahead.
Hey, good morning, Thanks for taking my question, so maybe you've answered it but just wanted to sort of quantify and summarized here inventory is up.
There are some sort of offsets to that and you walked us through some of the math in terms of acquisitions and I think even ex acquisitions inventories up sequentially and year over year, but then sales are down because of a lack of inventory just help us square those two things.
Yes, it's a good question James Thanks for asking it. So if you look at the increase in inventory about half of it is Texas Mastercard Intrepid and then a new cruiser yachts facility. So those are kind of not really same store sales. There are new items in the case of manufacturers thats raw materials with things of that cases.
Case in the case of Texas match scrap just that New addition from a dealer perspective.
And then the other half if you look at the customer deposit increase year over year, so customer deposits have gone up like $52 million and eventually the customer money ends up sometimes becoming manufacturer deposits that we pace, let's say some of the other half a good chunk of that another $80 million is actually deposits that we pay.
So now you get down to $30 million or so which is the real dollar increase on a year. If you're following my math and of that $30 million a lot of that sold at our stores that may have come in in the last 10 days in June and we just didn't get it prep and delivered in time and then some of it is some inventory in the Midwest region as an example, where.
We did see a little bit of a weather related softness.
And overall the.
Take the question I'll, just ask a minute ago. The units that we have on hand are very very low and then large boat inventory is virtually nonexistent.
Our pipeline or if you go on our website you can see that hopefully that helps I figured that would be a good question on that I appreciate you asking it.
It does.
Then to this geographic question obviously.
Just trying to figure out.
How much if any weakness was.
Weather related versus macro related.
I guess in an attempt to try to figure that out.
Northern markets.
Versus southern markets dichotomy.
Now that weather has normalized or the northern markets back to being in line with southern or better or are they still lagging and I guess related is there any big difference in the northern and southern markets in terms of types of customers right low end versus high end.
Yes, I'll comment first just say kind of as the quarter went along and accelerating yes, so kind of that gave us confidence.
Things were maybe bouncing back whether related whatever it might have been but the.
The other thing, we really don't see us.
A big difference in the product up there the customer out there.
We're still trying to work through all that but it appears and I think really all others in the industry are saying the same thing it was a delay in <unk>.
But now we don't see anything else that would be causative.
Okay and then just the July you talked about July it looks like it's going to finish up in terms of same store sales, how does that compare to sort of.
The exit rate coming out of the second quarter, I'm, assuming or I'm, sorry, the third quarter for you guys.
I'm, assuming June if the industry trends or any indication June was better than.
<unk> may if not April .
But I'm just trying to figure out on our part as we sit here today are things getting better or are they getting worse versus <unk> versus the end of the quarter. Yes, I think the industry data is a little misleading because what's causing some of that data to really move around is just the lack of inventory last year and supply chain challenges and all that type of stuff I would say.
Like others in the industry I mean, the business did seem to accelerate.
In the markets that we talked about the Midwest and the as we closed June and business seems pretty healthy right now.
Keep in mind largest backlog big customer deposits for this time of year trends seem really pretty healthy people are out there enjoying the boating lifestyle. So.
I don't know what the rate of growth is going to be but we're going to have positive same store sales for July as an organization and I don't recall you'd asked an earlier question.
All markets look like they are doing better in July than EBIT.
At June or most markets do.
Got it and that positive same store sales, if im assuming its units and ASP.
I don't know that broken down, but I would assume that's a safe bet.
Got it okay I appreciate it thanks guys.
Thank you.
Our next question comes from the line of Eric Wold from B Riley. Please go ahead.
Thanks, Good morning.
Thank you Mike.
I wanted to clarify something on the last quarter.
Youre expecting total revenue growth in the mid teens and now we're kind of thing.
High single digit to low to mid teens depending.
Is that kind of.
Is that kind of lead you to believe that the delays in shipments.
Libra pre.
We sold both of them last quarter that that's going on.
It can be corrected in this current quarter, but theyre going to push some of those revenues into next year.
It's a great question Erik Thanks for asking that.
Just given the supply chain challenges, we thought it was prudent to to not basically be additive. So we did bring down the overall good that you picked up on it.
What we are saying there.
We are still aiming to hit that mid teens, but we did kind of lower the range to the high single digits to the mid teens. It just all depends on what comes in.
Our guidance is comfortable really regardless, we feel good about the earnings that we have enough visibility the mix of the business is such that we feel pretty good about it but.
If more product comes in we'll be even happier.
Got it.
The EPS guidance based on.
Right.
High single digit revenue growth with something in the low to mid teens being added to that EPS.
The EPS.
The assumption is is we're comfortable in that range of high single digit if it gets to as high as the low to the mid teens, there could be some upside, but we're comfortable with the guidance range.
Got it and then lastly.
I know you're going to need to come in earlier you can play.
The higher average price point of both.
Not really considered quarter, but lower end.
Is there anything youre seeing out there.
As you get closer to the lower end types of boats or price points that.
The industry is getting more competitive.
Counting promotional inventory build or anything in the lower end awards.
Is it kind of mirror, what you're seeing across the board.
Yes, I'd probably answer it may be a little differently than you are asking that they are only because what we are seeing maybe a year ago.
Frothy demand people would be willing to put a deposit down for a law and order a boat may.
It may take a long time to get in.
In the higher end of that product they were willing to wait even longer than the lower end of that little less than now that probably.
That tolerance is even lower so somebody that used to let's say last year would be willing to wait six months, maybe they're like <unk>.
<unk> three months, let me still talk about it so it's not a demand comment I don't want to.
Yes, steer you wrong there, it's just that we might be seeing that people are the smaller the boat the lower the price they are not willing to wait as long.
Got it.
Thank you Bob.
You are.
Thank you.
Our next question comes from the line of David Macgregor.
With Longbow Research. Please go ahead.
Hi, Good morning. This is Joe Nolan on for David.
Okay, Hey, Joe.
Okay.
Just had a quick follow up on the supply chain just.
Can you just give a sense of how supply chain dynamics played out through the quarter and like did you start to see any improvement as we move through the quarter, where trends relatively steady throughout the quarter and then.
Maybe also just how that's playing out in July as well.
Yes, I can comment that.
We we track each manufacturer shipments versus expectations.
If I remember right April is probably pretty decent pretty close to expectations may was off in June was up we'll track. It again here when July ends but.
It did seem to be skewed towards some I don't want to actually call. It skewed because I think everybody has some challenges but it.
It impacted us more in the dollar value of product coming in than it did at units and part of that kind of makes sense, its a longer build cycle or a larger product and there is more complexity and more things in the supply chain that could go wrong for any various builders. So.
And it's a challenge out there the headline of automotive news last week said.
Fly chain challenges are here to stay.
And I think it's true for our industry.
I think people are learning to deal with it better, but we just got more delays recently from another manufacturer once it delays, it's hard to find that window to do a quick catch up either it just when it delays the delays and then you kind of stay on a steady pace you don't get that.
We haven't seen that opening window, where you can get a okay. Now we can get caught up.
And the good news the good news people, who are deposit in their boats are coming our team has done a phenomenal job of being communicated with them.
And keeping them excited about their boat, we really don't see cancellations or anything which some of these folks have weighted.
Nine months, maybe even longer from the original expected date so.
It's amazing the passion that people have for the boating lifestyle, which we appreciate.
That's great detail. Thanks, I was going to ask if you saw any.
Taken cancellations as well.
I'll pass it along thanks guys, yes. Thank you.
Thank you.
Ladies and gentlemen, a reminder, if you would like to ask a question. Please press star one.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Okay.
There are no further questions I would like to turn the call back to Mr. Gregg <unk> for closing remarks.
Well. Thank you everybody for joining the call today, and Mike and I are available if you want to reach out and we'll look forward to updating you on the next quarter.
Have a good day.
Thank you Sir.
The conference has now concluded.
Thank you for your participation you may now disconnect your lines.
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