Q2 2023 MarineMax Inc. Earnings Call
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At this time I would like to turn the call over to Scott Solomon of the company's Investor Relations firm Sharon Merrill. Please go ahead Sir.
Thank you and good morning, everyone. Thank you for joining us hosting todays call are Brett Mcgill Chief Executive Officer, and President of Marine Max and Mike Mclamb, The Companys Chief Financial Officer.
Greg will discuss the Companys operating highlights Mike will take you through the financial results.
We will make some concluding comments and then management will be happy to take your questions.
By now you Should've received a copy of the earnings release issued today, if not please email our IR team at <unk> Investor Relations Dotcom and a copy will be mailed to you with that I'll turn the call over to Mike Mclamb.
Thank you Scott good morning, everyone and thank you for joining this call.
I'd like to start by reminding you that certain of our comments are forward looking statements as defined by the private Securities Litigation Reform Act of 1995.
Any forward looking statements speak only as of today.
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.
Global economic conditions, and the level of consumer spending.
The companys 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.
Also on today's call, we will make comments, referring to non-GAAP financial measures. We believe that the inclusion of these financial measures helps investors gain a meaningful understanding of the changes in the company's core operating results.
These metrics can also help investors, who wish to make comparisons between marine Max and other companies on both a GAAP and a non-GAAP basis.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in today's earnings release with that let me turn the call over to Brett.
Thank you, Mike and good morning, everyone and thank you for joining us.
Let me begin by thanking our exceptional team more than 3900 strong around the globe for consistently delivering on our mission to provide customers with the world's best pleasure boating experience.
While the industry buying cycle is looking different than it was over the past couple of years Whats abundantly clear is that the passion for being on the water has never been stronger than it is today.
Little more on this later.
Turning to our results. This morning, we reported second quarter revenue of $570 million.
This was the second best March quarter top line in our history surpassed only by the record $610 million achieved in last year's fiscal second quarter.
After the exceptionally strong results we saw in fiscal 2022, our revenue performance. This past quarter reflects the boating industries return to seasonality amid growing macroeconomic uncertainty fueled in part by the crisis that hit the U S banking sector last month.
Traditionally March is the strongest month of the second quarter, often as big as January and February combined this year. However, despite march being a good month with positive same store sales growth. It was weaker than what was projected leading to a larger decrease in same store sales for the <unk>.
<unk>.
Same store sales increases of 7% and 45% in the prior two March quarters contributed to an especially challenging comp this year.
Based on our performance to date and with the level of macroeconomic uncertainty worsening as the second quarter progress, we are bringing down our adjusted earnings and adjusted EBITDA guidance for the full year, Mike will address our fiscal 2023 outlook in more detail in his remarks.
Although our second quarter performance was not what we had anticipated it is important to keep the results in context fiscal.
Fiscal 2022 was a record year for marine Max and by and large for the industry as a whole.
Which benefited from a confluence of factors, including supply chain shortages reduced inventories, a low interest rate environment and robust consumer spending.
By contrast inventories are beginning to return to more normalized levels interest rates are up and consumers are exhibiting a bit more caution.
While those factors create a tough comparison for this year, we continue to focus on delivering results for our stakeholders over the long term.
And it is through that lens that our performance. This year demonstrates the changes we have made to position marine Max for the future.
From time to time, there may be some greater than expected variances in our performance based on what's going on at the macro level, but we are confident in the underlying strength of the business.
That strength becomes evident when comparing the more dynamic business. We are operating today with the company we were several years ago.
As we noted in this morning's earnings release compared with the first six months of fiscal 2019, our revenue for the same period. This year has nearly doubled to $1 1 billion.
Gross margin has climbed more than a thousand basis points to 36% and diluted EPS has increased more than fivefold to $2 23.
The initiatives, we have taken have enabled us to build scale in new and exciting areas of the market that over time have the ability to dramatically increase both our recurring revenue and our earnings power, reducing our exposure to normal seasonal trends.
<unk> marinas, which we acquired in October continues to perform well.
<unk> has a global portfolio of premium yachting destinations of 'twenty three marinas in 12 countries.
These property serve as a resilient platform for expansion and profitable growth as do many of our other higher margin revenue streams, including Super yacht brokerage and luxury yacht services.
Bolstered by the addition of <unk> revenue from higher margin maintenance repair storage rental and parts and accessories at our Marina location has increased dramatically and Mike will provide more color on this later.
We're also pleased with the growth of our manufacturing segment comprised of Intrepid power boats and cruisers, yet both of which we acquired in 2021.
Intrepid a premier manufacturer of Powerboats recently launched its new flagship model the 51 panacea.
This new model, which was on display at the Palm Beach boat show is selling very well.
Cruisers, one of the world's Premier manufacturers of premium yachts offers innovative handcrafted, yes that fill a unique and growing demand in the market for American made sport yacht and yacht models.
Now let me update you on the continued momentum of our technology platform, which fueled customer engagement and created value added services to help achieve our business objectives.
We continue to rapidly add boat dealers to the boats on platform, our innovative online digital product for the boat and marine retail marketplace.
Boson connects consumers, who are looking for boats finance insurance and other products to a network of dealers across the country.
We're very excited about the capability of the technology to propel the growth of our higher margin businesses as more and more dealers and boaters continue to leverage the product.
Our technology portfolio also includes boat yards, a subscription based product that targets the service side of the market enhancing the ownership experience.
Boat yard is being well received by the dealer community furthering our reputation for service excellence.
Together, both John and boat yard are key components within our recently created new wave innovation business.
We expect new ways to play an integral role as we leverage our technology innovation and marketing capabilities to expand our higher margin businesses.
I started this call with a comment on the demand for the boating lifestyle.
Based on our digital traffic participation in our customer events Marina traffic and boat show traffic the demand for the boating lifestyle remains very strong.
Over the last few years the industry added a meaningful layer of new boating participants that are enjoying their boats and many are already beginning to trade up.
To sum up we remain extremely confident in the underlying fundamentals of our business and our ability to outperform the market over the long term, we continue to focus on balancing prudent expense management with investments to generate sustained profitable growth.
As we head into the traditionally strong summer selling season are historically high backlog reflects the growing worldwide enthusiasm for boating as well as the demand for the high quality products and services, we are delivering to this global market.
And with that update I'll ask Mike to provide more detailed comments on the quarter.
Thank you Brett and good morning, again, everyone I'd also like to thank our team for their continued hard work during the quarter.
For the quarter revenue declined about 7% to $570 million largely due to a 13% decrease in same store sales, partially offset by the addition of <unk>, which we acquired October one.
As Bret noted the.
The decrease in same store sales reflected the boating industries return to seasonality amid what continues to be an uncertain economic climate, which contributed to a double digit decline in units in the quarter while.
While units were lower across most categories, our premium brands continue to meaningfully outperform the value segment of the market.
Geographically our locations in Florida, and other coastal areas have performed ahead of those in the Midwest and other interior regions of the country, which tend to be more seasonal.
Average unit selling price continues to grow with the relative strength in premium versus value and the migration to larger product.
It's worth noting that same store sales were down in January improved in February and they were positive in March.
Gross profit dollars were down modestly to 201 million, while gross margin grew about 150 basis points to 35, 2% a new March quarter record.
The increase was primarily driven by the acquisition of <unk> as well as strong performance in many of our higher margin businesses.
Excluding <unk> gross margin in the second quarter was down slightly.
Compared with the prior year, which does indicate that product margins, while down modestly we're relatively healthy.
To provide more context on the performance of our higher margin businesses.
Beginning with our second quarter 10-Q, we are taking a step to increased disclosures around our marina related business as well as our higher margin businesses in general.
We will add tables that show the percentage of revenue by specific categories for both our retail operations and product manufacturing segments as well as all our revenue categories on a quarterly basis like we have done annually in our 10-K.
We will also be providing revenue in aggregate for maintenance repairs storage rental and parts and accessories.
It represents a 120% increase from the same period last year largely due to <unk>.
Moving down the income statement SG&A expenses rose $12 million, primarily attributable to the addition of <unk>.
Partially offset by a decrease in commissions on lower sales volume.
SG&A was also impacted by the timing of internal sales of cruiser yachts to our stores versus to retail buyers.
A significant portion of our team is on performance or commission based pay plans, which rise and fall based on the company's performance.
But with plenty of inventory delays over the past few years. It is nice to be able to have product available to deliver as we head into the selling season.
Looking at liabilities, our short term borrowings at March 31 rose $440 million from last year.
As such we are lowering our full year same store sales assumptions from a modest decline to a decline in the high single digit range.
Quick question.
I'd say as active as ever maybe not.
We are expecting increased margin pressure on products that we sell themselves just as inventory builds a little bit in the industry and we don't think it's going to be real significant we think margins will do will still remain healthy.
For Marine Max in particular with the addition of <unk> This year, which we did not have in the June or the September quarter, that's going to we believe it's going to offset all of that in our full year margin should be in the in the mid <unk> or our other businesses that we've talked a lot about our higher margin businesses finance and insurance service our Marina.
Thrive, especially in a maybe a tempered same store sales environment. It does help too.
Support margins, even greater as you can imagine.
Got it okay. Thanks, guys. Thanks drew.
Our next question comes from James <unk> with Citi.
Group.
Hi, This is Sean Wagner on for James I'm.
I guess modest decline expected for April and even the high single digit decline for the <unk>.
Full year.
And then the units is what's driving the March growth or I guess, how should we get that.
The high single digits, which would tell you our units were down something like.
In our forecast we're expecting also.
That's what reconciles to our unit commentary for the.
And so in March the the growth was driven by units and the same for the April decline.
In March the same store sales decline you mean in the month of March if you were asking specifically for the month of March actually don't have the our AEP for the month of March but I would tell you it would be up.
I guess do you know if the units units were down in March are up in March.
I'm going to tell your units were down in March as they were for the industry, but ours. We had several brands that did well in the month of March meeting they were up themselves year over year.
Okay, and I guess piggybacking off of that are you seeing any differences in demand.
One thing we've been consistent on is are we skewed towards the very premium end with our.
Our average unit selling price being close to $300000 and so the premium product continues to do better than the industry, then the value product and we see that within our own business as well, but I would add that the kind of the macroeconomic pressures theme.
Seem to have kind of moved up in that price scale more so than let's say six months ago, when we start talking about.
Smaller cheaper boats being under pressure, causing some interest rates. It's creeping the pressures are creeping up creating pause with consumers, they're taking longer to make decisions I would say you could even call that they're getting back to kind of the older buying cycle theyre coming into the funnel earlier there.
They're excited about growing voting either already have about theyre looking for a boat and they are actively shopping but.
There was no active shopping there was people walked in and they bought so the buying cycles there.
Our next question comes from Eric Wold with B Riley's acuity.
Thanks, a couple of follow up questions I guess follow up on the.
Having the higher margin businesses offset some of the pressures you may be seeing on.
Does that look like right now with where you see the <unk> and everything else in terms of our pro forma gross margin.
Points or thereabout, so call it 300 to 330 or something would be due to product margins.
Our next question comes from Eric Wold with B Riley Securities.
Thanks, a couple of follow up questions I guess follow up on the the gross margin comments and questions I know you talked about.
Having the higher margin businesses offset some of the pressures you may be seeing on.
Product sales as inventory comes back maybe to take that.
The handle inventory and I know, we've talked a lot about rising inventory.
Please step further and talk about if you took margins on new and used boat sales completely back to 19 levels, even a little bit more if it worsens.
What does that look like right now with what you see with <unk> and everything else in terms of our pro forma gross margin. If you assume it got a lot worse.
It's a good question, Eric I actually have not done that exact math, what I've said on some of these calls is that the product margin benefit has been something like a third of the overall improvement of margins prior to adding <unk>. So if you look at 2022.
Versus 2019, I think we're up roughly 1000 points or thereabout, so call. It 300 to 330 or something would be due to product margins.
I do I would offset a lot of that if it actually fell all the way back to 2019 levels, which we don't think that's going to happen but.
But I don't have the exact math for you, but it's a good question help healthy inventory good models in stock all help you that pressure as well.
We don't.
The way the industry is trying to.
All of the manufacturing partners that we work with and ourselves are all really trying to keep inventories at a healthier long term level.
With higher turns exactly where that lands will be determined but.
But sorry, I don't have the exact answer but I'd argue why would offset a lot of it.
Total micro just safe to assume that.
We even have an exact number but you feel confident going to keep margins above 30% and then kind of about 30% return back on product.
You said, you're still light on a on a same store sales basis, maybe kind of talk about what.
What areas are you might on heading into the selling season and kind of.
Is that a risk or do you think you've got kind of other products that could be.
<unk> large larger product and larger.
Which is generally consistent in the industry also is where were light.
Yeah, but I think going into this season, we don't we've got a lot of great models to sell so it shouldn't put pressure on the ability if somebody is ready to purchase a boat we should have the right selection of product for imports come in.
Got it and then just final question if I may I know, there's been some increase in discussions around Europe .
Your real estate portfolio and kind of how unappreciated that may be and I know you guys had taken some.
Some actions to take mortgages I always take some capital out of that you know over the past couple of years and I know maybe difficult to comment but.
You know any any thoughts on if there is.
You know additional thoughts on possibly looking around that real estate in most of the board looking to do something to maybe you know realize that value and these make it takes that got you realize out there.
We have a great portfolio of real estate that is so highly strategic to our operation.
Many different ways so.
And very valuable to the revenue streams and the growth of those revenue streams. So.
We are.
We like the properties.
We're looking to leverage them as far as getting more revenue streams coming through those but.
Nothing nothing actively.
It's a question that comes up.
As cycles occur like this cycle.
Often it's a defensive type and I'm not suggesting you're asking this this often sometimes defensive about.
If liquidity gets tight or something like that in the.
The company's cash liquidity position is very strong right now in the <unk>.
Our ability if we ever need to do leverage the real estate to use the cash for strategic reasons.
Acquisitions, whatever we need still exists like we've done historically.
How much of revenues coming from our Marina properties, both international and here in the states. So that's the $126 million I mentioned in the first six months of the year, which is <unk>.
Helpful. Thanks, Mike I appreciate it.
Yeah. Thank you Eric.
Our next question comes from John Healy with Northcoast research.
Obviously considered stickier, we haven't gotten to an EBITDA calculation, yet on the property and something that we are still exploring and it's it's really the.
Thank you just wanted to ask a big picture question. Obviously this businesses is continuing to evolve.
Many different ways, So would love to hear your thoughts just about the new disclosure and how we could think about maybe I don't know how to call. It a recurring revenue our recurring EBITDA level of the business just associated with maybe that parts and service in the Marina business or is there any way to think about that number that you guys have made.
We come up with it maybe a percentage of revenue or percentage of EBITDA, which as you know.
So you could you could look at some of that data and apply it to our Rev.
Kind of not tied to retail in any given year.
Very good question, John and I did comment that we are beginning to increased disclosures around the different businesses that we're in and the higher margin businesses and specific to marinas.
Absent us providing our own EBITDA number which is going to take us a little bit of time to kind of work through that on our end, but it's a good question is something that we're working towards okay.
The 10-Q is supposed to be filed today it will get filed today.
And there'll be some new tables in there, which will begin to shed light on.
How much of revenues coming from our Marina properties, both international and here in the states. So that's the $126 million I mentioned in the first six months of the year, which is.
Just how integrated.
A lot of our marinas are with our with our retail operations and how and how we got to break apart the P&L as they get to get an EBITDA down to that level.
We will start with revenue and there are there are a number of obviously.
Reached that now own marinas that investors could look at.
You get an idea of what typically flows from a marina.
So you could you could look at some of that data and apply it to our revenue.
Revenue to try to come up with some ideas of what the EBITDA maybe.
That's one thought process that has been suggested to us.
Absent us providing our own EBITDA number which is going to take us a little bit of time to kind of work through that on our own but it's a good question, it's something that we're working towards okay.
Our next question comes from random hauling with D. A.
Davidson.
One follow up question and one housekeeping question.
You mentioned the REIT structure.
Comparable is that number or something that you guys have kind of have spent time evaluating if you could structure and operating company and the property company and.
Does it maybe make sense to think about that and then secondly that gain on the equity investment in the quarter.
Where did you guys have that kind of net against that in SG&A or Cogs.
I'll start with the second one.
It's in SG&A, it's netted down in SG&A.
I can yes.
Yes, as far as REIT structures.
Just just closed on the acquisition I G Y getting to know the team.
The platform it is amazing platform with some.
Revenue streams. In addition to just renting both slips and we're just trying to maximize all of that and get our arms around it and.
And find ways to grow that platform are there are already ways to grow or just trying to maximize that that's our main focus right now.
And so I suspect that.
Both companies are right I think thats, probably possible based on the data they are seeing and I think over time there'll be a convergence of the data for both organizations to.
Understood. Thanks, guys.
Are you done.
Our next question comes from random hauling.
Davidson.
Good morning, Thank you for taking my questions.
First just on <unk>.
What youre seeing in the market right now it seem to be a little more cautious than one of your major suppliers that reported. This morning. They indicated you know youre seeing a resilient consumer and not seeing a slowdown do you feel like you guys are underperforming the broader market or you know what would change.
Change their view.
You on the market versus yours.
I can comment a breath record chime in I apologize.
My My Chuckle was only and we've been doing this this company has been around public for 25 years and in 25 years, we have outperformed the industry every single quarter.
There are certainly times every now and again, where.
There is data disconnects between us and some of our partners over time, the data always converges and.
And so I suspect that.
Both companies are right I think thats, probably possible based on the data they are seeing and I think over time there'll be a convergence of the data for both organizations to.
I think there's been commentary out there on boat shows it was higher than the last few years, there's more promotional activity on and on.
Okay, Great and then just a quick question on the used market I guess, what are you seeing there in terms of our used inventory availability and also maybe the used versus new pricing spread now that our inventories have normalized on the new side.
Yes, yes that used boat market is still strong.
Getting inventory on used boats in stock now a little bit more.
Available for the customer, but nothing dramatic used products holding strong.
From a year or two ago, the pricings kind of made some adjustments.
More normalized but nothing that's been out of the ordinary used is healthy and new is healthy just a different backdrop.
Out there right now.
Okay, great. Thank you.
Thanks, Brian .
Our next question comes from David.
David Macgregor with Longbow Research.
Hey, Good morning. This is Joe Nolan on for David.
Hey, Joe.
Hi, I just had one quick one for you just kind of on promotional environment, just wondering what youre seeing in terms of promotions in the quarter and how you see that evolving through the year.
There's been commentary out there on boat shows it was higher than the last few years, there's more promotional activity on on.
Product and we're seeing it and we're working with our manufacturers to create promotions to to move inventory in but nothing out of the <unk> extreme right now it seems to be kind of the appropriate level of promotion to get consumers to kind of create a little bit of urgency.
But not.
Hurt the credibility of the pricing of the product.
Got it and just a follow up on that how would you compare it to pre pandemic levels at this point.
The promotional level is yes.
Meaningfully lower than pre pandemic level.
Okay got it thanks, that's all I got.
Yes.
Okay.
There are no further questions at this time I would like to turn the floor back over to Mr. Mcgill for closing comments. Please go ahead.
Thank you for joining the call today and thank you for all the great questions and we'll look forward to updating you on our next report.
Have a good day.
This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.
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