Q3 2023 MarineMax Inc Earnings Call
[laughter], Brett will discuss the company's operating highlights Mike will take you through the financial results Brett will make some concluding comments and then management will be happy to take your questions.
By now you should have received a copy of the earnings release that was issued today.
Not please E mail or I R team at eight Z O and the Investor Relations Dotcom and a copy will be emailed to you.
With that I'll turn the call over to Mike.
Thank you Scott good morning, everyone and thank you for joining this call I'd like to start by reminding you that certain of her comments are forward looking statements as defined by the private Securities Litigation Reform Act of 1995.
Any forward looking statements speak only adds up today these statements and ball 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 whether.
Global economic conditions in the level of consumer spending.
Companies ability to capitalize on opportunities are 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 help investors gain a meaningful understanding of the changes in the company's core operating results. These.
These metrics could also help investors, who wished to make comparisons between marinemax and other companies on both the gap 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 right.
Thank you, Mike and good morning, everyone and thank you for joining us.
As always I would like to begin by thanking our teams around the world, whose great efforts contributed to a strong third quarter driven by revenue of more than $720 million, a new quarterly record for marine Max.
Across all of our locations, including are 59 marinas around the world. The Marinemax team consistently embodies our mission of delivering the world's best pleasure boating experience.
The secret to our success is staying close to our customers that.
The relationships in customer service reputation that we built over the past 25 years have been central to our strong operational and financial performance.
To that point, while I am proud of our financial accomplishments I'm, most proud of our team's ability to continually raise the bar and keeping our customers happy.
As evidenced by our outstanding net promoter score.
This morning, I would like to begin with three key takeaways from our queue three performance.
First we are delivering on our strategy is structurally enhanced marinemax as margin profile through acquisitions and expansion into higher margin businesses second in the short time, we've owned I G Y marinas. It has already begun to demonstrate its potential as a growth platform and is well positioned to drive growth.
And third while factors such as seasonality and economic conditions may affect our results from quarter to quarter. We are operating marinemax with a long term lands and from that perspective, we are highly confident both in our strong market position in the global trends that are fueling the world's passion for the boating likes.
Style.
Turning to the specifics of the quarter through strategic moves in marketing and other customer centric activities. We began to drive higher sales in May and June .
These were not only the two biggest revenue months of the quarter, but the strongest in our company's history.
It is becoming clear that the industry is returning to seasonality as we suggested on prior calls.
But in a trend that is favorable to our brand strategy. The premium end of the industry continues to outperform other segments.
Even with modest margin declines we had anticipated it's gratifying to see that we were able to achieve further market share gains and drive top line growth, while sustaining strong consolidated margins.
To that point Q3, mark the 11th consecutive quarter of gross margins, 30% or higher.
While I G Y is unquestionably contributed to our solid margin performance. This year. So have other areas of our lines of business, including Super Yachts services marinas manufacturing.
In service, all of which reduced the cyclicality of our business and diversify our revenue stream.
Our other revenue categories outside of both sales continue to grow as a percentage of our business.
During the third quarter, we acquired CNC boat works, a generational boat dealer, Minnesota is important white fish chain of lakes.
CMC is a great example of the type of boat dealerships, we seek to acquire.
Great family run business that understood well the importance of diversifying into storage, which is undoubtedly a big reason they were in business for over 60 years.
CNC annually stores more than 600 boats in addition to their marina capability.
This certainly helps drive higher margins and cash flows.
The industry M&A pipeline is active and we continue to be opportunistic and identifying businesses that have the potential to advance our operational and financial priorities, including our higher margin focused strategy.
With the size of number of Super yachts around the world steadily increasing our Super yachts services organizations continue to be very active.
Additionally, those organizations and I G Y are working to produce stronger synergies and benefits for our Super yacht clientele.
We are just beginning to scratch the surface of those exciting opportunities.
I G Y is not simply a collection of some of the world's best marinas, but a growth platform to that point in June I G Y announced a partnership with Neil a global waterfront development, taking shape and the Red Sea.
Why has been engaged to help develop and operate a prestigious new Super yacht Marina at <unk>, which will be this giga projects luxury Highland destination.
This marina won't become an iconic destination for the world's yachting community and will be the closest ultra prime Super yacht Marina in Europe , and the Mediterranean further expanding our network of Super yacht marinas, and adding another destination for our customers.
We are excited about this new alliance doesn't capitalize on hygeia wise unique expertise to help some dollar M. Neil set the benchmark for a premium customer experience.
We're also very pleased with the progress of cruisers yachts, and Intrepid Powerboats, which are exceeding our expectations Intrepid just announced that will begin building larger boats at our Swans burn North Carolina operation.
Their new flagship model will be a 60 foot intrepid the largest model lamber, it's something the intrepid nation has been waiting for for a long time and the announcement has been greeted with tremendous enthusiasm.
Exciting times ahead for both companies and.
And with that update I'll ask Mike to provide more detailed comments on the quarter Mike.
Thank you bread I also want to thank our team for producing another record quarter with over $720 million in revenue to.
To put things in perspective, it was not that long ago, when our annual revenue was around $1 billion.
The demand for the boating lifestyle, it's clearly alive and well.
While the quarter open with the down April as we noted on our March quarter earnings call. The strategic moves Brett mentioned helped accelerate business in May and June which ended up being the two strongest revenue months in our history.
Revenue in the quarter grew about 5%, primarily reflecting the addition of I G y.
Growth in both cruisers jobs, an intrepid powerboats as well as a modest increase in same store sales and other recent acquisitions.
You're a graphically markets like the Midwest performed well, which supports the seasonal commentary not.
Not surprisingly, Florida was a bright spot a trend we expect to continue for the foreseeable future.
Our unit volume was down low double digits, given the softness in April and continued industry sluggishness in pontoon and towboat sales.
But in May and June many of our premium brands showed grow give.
Given our premium focus our average unit selling price continues to rise.
Gross profit increased to $244 million on the strength of strong revenue combined with the healthy gross margin of 33.8%.
As we indicated on our last call, we anticipated and planned for a modest decline in boat margins, partially offset by the addition of I G y.
SG&A expenses increased over $169 million, primarily due to the addition of I G Y as well as other businesses, we have acquired combined with the inflationary environment.
Like other companies, we continued to look for ways to be more efficient and reduce costs were possible, while not impacting our ability to provide outstanding service and experiences for our customers.
Interest expense increased by $13.8 million, reflecting higher interest rates the increase of long term debt related I G y and higher inventory.
And the quarter, we had floor pointing interest cost of more than $7 million compared to basically zero last year on.
The bottom line, we generated GAAP net income of over $44 million or $1.98 per diluted share compared to net income of $70 million or $3.17 per diluted share last year.
On an adjusted basis net income for the quarter was $46 million or $2.07 per diluted share compared with $71 million or $3.23 per diluted share last year.
Justin EBITDA for the quarter was $83 million compared with $105 million last year, primarily due to lower net income as well as higher floor plan interest expense.
On a year to date basis, adjusted EBITDA was $194 million compared with $241 million last year with floor plan interests, making up about $17 million of the difference.
Moving onto the balance sheet we.
We ended the quarter with cash of more than $226 million.
Inventories of quarter and increased to $739 million.
This was up 4% from March which is a bit more modest than we expected.
On the same store basis unit inventories are in the neighborhood of 35% down compared with June of 2019 levels.
While we'd like it to be lower than 2019 for some models and brands, we could use more inventory today.
Looking at liabilities are short term borrowings roads, largely due to increased inventories and the timing of payments.
Customer deposits continue to be historically very high at 98 million showing the strength of demand for the boating lifestyle.
We expect deposits to gradually decline over time as inventory modestly bills, allowing us to more quickly meet customer demand.
Our liquidity position remains strong.
Quarter and debt to EBITDA net of cash was less than one and we have additional liquidity in the form of Unlevered inventory plus available lines of credit that total $200 million or.
Additionally earlier this month, we announced we increased our four point facility by $200 million.
As part of the according feature of our credit agreement.
This increase is consistent with our historical practice of adding floorplan capacity is needed for growth.
Our ability to smoothly and easily increase the facility. Despite a more challenging that market is a reflection of the strength of our balance sheet are strong underlying fundamentals and the relationships. We have built with our lending partners.
Turning to guidance based on our year to date results. We are adjusting our 2000 twenty-three guidance.
As noted on prior calls this has been a challenging year to forecast given the industry's return to seasonality combined with the fed driven macroeconomic uncertainty.
For our fiscal year. Despite the recent uptick in retail strength for the industry. We still believe the industry units will be down around double digits.
And mine are fiscal year includes the December quarter last year, which saw significant declines as did the industry. This year through April this results that our expectation that our fiscal year 2023 same store sales will be down to the mid single digit range.
As we have seen to date, our premium product concentration should continue to benefit us.
We expect margins to be consistent with our past guidance, which was a modest decline for fiscal 2022 due to product margin moderation, partially offset by I G Y and other higher margin business, but.
But still in the mid thirties.
We are also assuming interest expense is elevated due to higher year over year inventories as well as rates.
As we move through the year and have a better idea for the annual sources of pretax earnings.
We believe our 2023 tax rate will approach 27%.
Accordingly, we are raising the low end of our guidance range and leaving the top and the same we now expect our fiscal year 2023 adjusted earnings per share guidance to be in the range of $5.10.
$5.50.
This as soon as a share count of 22.4 million shares in.
In addition, we are forecasting 2023, adjusted EBITDA to be in the range of $225 million to $245 million.
Looking at current trends July is forecasted to finish with positive same store sales growth as voters are looking to enjoy the rest of the summer having.
Having said that we have much work ahead through the rest of the quarter.
With that I'll turn the call back over to Brett for closing comments.
Thanks, Mike we entered the final quarter of fiscal 2023 with positive momentum despite the more pronounced seasonality across the recreational marine industry. The fundamentals of our business remains strong.
At more than 230 billion the annual economic impact of the recreational boating industry in the U S has never been more robust and based on our interactions with customers and partners across the globe, the enjoyment and freedom of being out on the water is booming.
Our higher margin businesses provide a diversified income stream that over time reduced as exposure to the industry seasonality.
Just as important assets like I G Y put us on a competitive global footing to generate sustained long term growth.
And with that operator, please open up the line for questions.
Thank you.
We will now be conducting a question and answer session.
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One moment, please while we phone for questions.
Thank you.
First question his on screen.
<unk> from city.
Please proceed.
Good morning, Thanks for taking my call could you just give us a specific theme store failed number I can fit it in the.
<unk>.
And then I can can you hear me.
Get more specific there and then maybe break out.
A U P.
That'd be really helpful.
Yeah. Thanks, James Yes, it's Ah, but it doesn't even round to 1% so it's above above.
Above zero, so it's nice to have a little bit of growth, especially with April being.
Down like it was and we did say our units were down in the low double digits. So that positive same store sales you're gonna have it AEP growth of double digits, if you will to offset that.
So.
Some clarity the units I think we said we're.
Pontoons or some other ones, which were were sluggish in the quarter.
Okay. That's helpful. I I wasn't sure if that low double digits quarter.
Quarter.
Okay and.
And then you think about same store sales.
Thank you guys were previously assuming down high single digits.
I figured you said Malik mid single digit number.
Even though industry assumption.
Fame.
How should I, how should I take advantage of that.
That sort of event a commentary on better if he's sort of driving the revised guidance.
The bridge there it's really how are how we perform for the first nine months of the year now with with the June quarter being.
Modestly stronger stronger than we had anticipated when you look at the rest of the year and bake in the industry assumptions you you'll get to Ah Ah down mid single digit range virtuous high. So it's just it's just fine tuning the comment that we had made at the end of the March quarter.
Okay, and so if I think about that mid single digits decline.
Units are expected to be down from being filmed meaningfully more than that I think you're saying you've seen.
Meaningfully for the year, obviously you know.
Jason the first three quarters.
We will continue to be up in an art the units that we.
We've probably confuse people a little bit because we always talk about what the industry is supposed to do in the industry and our fiscal year.
Is going to be down in the in.
In the.
Double digit units, we believe in that our same store sales growth for the year is going to be mid single digits. So well, we won't be down quite as far as the industry from a unit perspective, we will continue to have growth in our average unit selling price because of our premium focus on their migration to larger product.
Got it and then lastly to the July commentary it sounds like you're expected to be up on the same basis can be favorite scene, where units actually up into July or with a friend earlier pricing.
You know what the months not over so I can't really comment specifically on on units are ADP, but destroyed nowadays forecasted to be up over over the prior year.
Got it I appreciate guys and good luck with James Yeah.
Mhm.
Thank you.
Next question is from <unk> from.
What state.
Please proceed.
Okay. Thanks, Hey, guys. Good morning my.
Can you comment on how you're looking at the inventory build across her stores over the next few quarters and if there's any deviation from the historical trend line and then maybe but you know you mentioned the partnership between I T Y and the go beyond plans for a destination that <unk>.
What does the pipeline for new Marino's look like just trying to get a sense as to what the opportunity said is here for the longer term. Thanks guys.
Yeah I can thank you drew on the on the inventory question. It's a good one, especially because the the industry's kind of trying to find the right level of inventory from a unique perspective on the premium and they're still you know I think I said with 35% down year over year, So probably the one quarter. The head an unusual trend would be the quarter, we just finished where inventories.
<unk> modestly in the June quarter, typically they fall the June quarter, if we're back to.
If you go back a couple of years ago, but inventories traditionally.
Either fall, a little bit or or maybe or a flat at the end of September I actually think inventories will modestly build at the end of September again, given where we are from the unit perspective.
When you get to December assuming more seasonality in the industry inventories always build and they build all the way into the end of March.
And it all depends on the strength of the March quarter as to how much they bill because sometimes the march quarter can be pretty significant from a retailing perspective and inventories actually begin to taper off then they drop a lot in the June quarter. So if we assume more seasonal patterns next year I would assume inventories will build from now.
Through December may be through March mm.
Fall quite a bit in the June quarter.
And drew I'll comment thanks for the question about AIG Y and the growth there yeah, we view it as a growth platform. That's part of why we did it. We also looked at it with the network effect of like you recognize they're adding synalloy's a marina in the future here another destination point for our Super yachts pretty pretty.
Getting but as it relates to the the growth platform a lot of opportunities out there it's enacted pipeline of varying.
Varying destinations and marinas.
Literally the cost of capital right now and the things that are going on in the world.
Do have an effect on on that but we are trying to be opportunistic and continue to look.
Got it cause.
Thank you to her.
Thank you next question is from Joel.
To Bellow wait.
Raymond James Please.
These procedures.
Hey, guys like a mortgage on it.
Sort of a big picnic question, maybe a little bit more color on once a thriving.
Retail trends of the past couple of months, both for yourselves and the industry. It doesn't seem like the macro backdrop has gotten much better [laughter].
More normal seasonality or is there something else, that's helping to drive that.
Yeah, Joe I think.
Clearly I think when you really go back to when we after Q1 I think we set things like.
There's some seasonality and some softness we can't tell how much of each.
We just this past quarter.
We struggled kind of getting retail go on the March quarter that is we.
We applied a lot more programs worked with our manufacturers.
Some more discounting et cetera promotional activity and we moved the needle.
Not all of it was natural meaning the demand is good out there, but it's requiring more promotional activity. So it was exciting to see that our team put the plans together and and really worked on it along with seasonality right. It's it's the boating season in the northern markets.
And so on so.
But you are right there still headwinds out their interest rates.
The cost to get a boat loan is putting pressure and that it's.
It's not just in the small boats as we reported a year ago. So it's required a little more effort to get the sales to come across the or a lot more effort to get the sales come across the board.
Got it Okay, and then I guess on that point in terms of pricing.
There's been a lot of discussion about affordability.
In this industry and others as well how do we think about pricing, Vermont like you're 24, you know I I get on a gross basis, maybe and maybe not a promotion.
When you say price and do you mean.
The inflation based pricing manufactures yeah.
Yeah.
I'd say, it's the industries.
Very close to what it historically.
Saul from an inflationary based environment for model year, 2024, low single digit increases with.
With very few exceptions.
Is what we're hearing from most Mandy.
Manufacturers.
Which is nice relative the last Coupla years, we're definitely working with all our manufacturers to try to find a way to slow down the growth of the inflation on the newer models, they're doing what they can.
But it's clearly concern for the industry that we're working on.
Okay, great. Thank you got it.
Thanks, Joe.
Thank you.
Next question is from Henry won't.
B right. These securities. Please proceed.
Thanks, do you want a guy.
Two two questions like this one.
When he talked about.
Some of the weaknesses on.
<unk> recently around specific voting category, you can call them out.
Pontoons and Towboats that.
Mainly driven by the price quinones categories.
Some demographic target gorging somebody else you've been going on within those segments.
Segments.
Yeah I think.
You know as far as the categories go I think a year ago across all categories.
More alcohol at entry level.
Lower price both started feeling pressure quicker because of payments insurance things like that Ah quicker effect on that buyer, but when you look at some of this other segments that are down.
You know, it's not just that lower and probably you know when you say pontoons heck of a lot of the product we sell $100000 pontoon boats.
Expensive pontoon so it's somewhat segment related versus just.
Entry level or lower priced vote.
And then.
It does it does.
And then.
On the margin of error, you've talked a little about it.
Recently, just give us a better sense of the.
Gross margin Delta this quarter was last year's quarter for just the new and usable sales.
And then you kind of talking about <unk>.
Doing some new things marketing and promotions to drive drive sales and kind of the the seasonal stronger period Oriana point, where.
Right now for the new new smoking Refigured sustainable kind of incorporated review your seeing him into more normalize environment, where you can burn.
For those to decline further from here.
[noise] I can comment I made new and used margins are historically still high they are down as we expected from a.
A year ago period, but they're still pretty strong on our consolidated margins. Obviously, we have I G Y coming in there this year, which is if you do the math on <unk>, while you'll see has contributed something north of 100 basis points of the of the change year over year.
But you also have last year, where you had a quarter, where you had negative same store sales growth, which meant all the other higher margin businesses grew as a percentage and this year, we were not negative sales have grown which.
The higher margin businesses shrink just a little bit, but the as to the pricing in the margins going all the way through 2024, we haven't really sat down and developed our guidance for 2024.
I would expect probably some level of product margin moderation going through 2020 fours inventories continue to build broke what's your yeah. No I think it also trying to get back to this thinking through seasonality right right now we applied promotions.
During a hot seasonal market.
No pun on the heat out there but.
And we moved the needle, but as we go into call up the off season.
What is it going to do to drive some sales what do we need to do their on some new product will just have to see how that plays out here. This fall.
Got it. Thank you most helpful. Thanks, Sir.
Thank you next question is from Fred Reichman with both research police procedure.
Hey, guys. Thanks for the question just on the implied fourthquarter guidance it seems like a pretty big range.
Wondering why you feel like such a wide range is appropriate and maybe what the biggest swing factors would be to get to the high end versus below it.
Okay go ahead.
Start to equate I mean, some of it will just come up a few years of having massive backlogs, which never awarded the case in the industry. So every every quarter, you're kind of create new business. So some of its there might go ahead I. Just you know, we obviously you've had two quarters, where we've adjusted down guidance and there's still a lot of uncertainty out there and we.
We think we think the range is prudent given that uncertainty of given the.
What makes it difficult as you know how much of it's a return to seasonality how much of its macroeconomic events. So we just felt it was prudent to leave the range.
Why'd like that for the for queue for Fred.
Okay. That's fair and if you think about some of the promo activity that you've touched on a few different times are you seeing competitors in other dealers across the industry sort of match in mirror that and then when you look at just the level of channel inventory from peers and the overall industry.
Are you worried about that just sort of where we are in the season or do you think everybody is sort of picking up promotion will clear through the inventory as we move into the off season.
Well I think.
Worried isn't the right word concerned watching keeping an eye on things, making sure. We stay stay on our game as the competitors do inventories will probably continue to build through the industry, which could.
You know create some pressure there.
It depends on how the manufacturers that each of them deal with but you know we're watching the competitive pressures because that will have an effect for sure.
Makes sense. Thanks, a lot thanks for Ya.
Thank you.
Next question is from my account with.
With tourists Securities. Please proceed.
Hey, guys. Good morning, this is Lucas I'm from Mike.
I was just wondering if you could talk about your plans to market and invest in both chosen into your head and anything changing.
Changing from previous years. Thank you.
Yeah. Good question, it's it's been a wild ride with both shows right pre pandemic you know and then you go into the pandemic with almost no shows in some cases and then.
For reasons of you couldn't attend and then when shows started coming back we've been very careful which ones. We've attended we're going to still take a disciplined approach Ah.
But with inventories and competitive pressures is probably going to be more shows which will require.
Additional attendance cost et cetera, so it just.
We're measuring it and being careful but I would say, we're going to return to probably more shows and even last year, but but carefully maybe not back to historical levels, but we'll see how that plays out.
Awesome. Thank you.
Lucas.
Thank you next question is from Brandon Rolling with D. A Davidson. Please proceed.
Good morning, and congratulations on the strong quarter.
Thank you all right.
So I just had a quick question on the used market right now could you talk about what you're seeing in terms of used inventory availability and pricing within the market.
And then I have a quick follow up as well.
R. R R.
A real visibility used is obviously the trades we take in the late model trades continue to be highly sought after pricing on them and you know our margins on them are pretty darn good.
Our view of the industry overall, it's kind of similar to that you know.
Doesn't seem to be any real big issues out there on on use product. It's Ah Ah you know late late models are always highly sought after really from an industry perspective, and keep in mind ours or just the traits were taken.
Okay. Okay, Great and then just you know on the promotional activity could you talk about you know what you're seeing.
Oh, yeah, and promotional support versus you know maybe incremental promotional support you're providing to maybe help retail.
Yeah.
Yeah, Yeah, Great question, Brandon that I think that was kind of the magic in the quarter forces Gatwick all of our manufacturers market by market what's needed how can they help how can we help partnering together to a tea with every manufacturer and saying what do we need to do to selectively market promote.
And you know maybe discount discount obviously, the right models to move through so that was a good partnership share shared costs, so to speak and that seemed to work.
Great. Thank you.
Yeah.
Thank you next question is from John Healey with North Coast Research. Please proceed.
Thank you and I. Appreciate you taking my question just kind of wanted to ask.
Question outside of the operations of the business I think it was in late May there was a 13 day filed and I know there hasn't been a ton of disclosure on the topic, but the degree you can I understand there's probably elements confidentiality have to think of but like can you help us think about kind of maybe the you know the dialogue their openness to.
You know you know.
Either reviewing kind of <unk>.
Capital structure, or M&A strategy or or maybe with some of the topics might be there that you guys are kind of thinking through and how we might kind of think about getting updates on kind of that dialogue. Thank you.
I'll make a comment the obviously you can read the 13 filing our conversations and discussions with.
That investor are really.
Core drill are no different than conversations and discussions we have with any any other investors. So.
Other than the filing.
There's really no difference in the interaction with them and they are <unk>.
Questions and then what we have with everybody else's, but all I can really sad.
And I appreciate that and just wanted to ask us any any way you could give us some color on just in terms of the magnitude how how difficult April was in and maybe the magnitude of the bounce back in.
And May and June .
Yes, I did comment on the call.
In April that April is going to be down, which it was and I don't I don't have it in front of me right now or recall exactly how far down it was but it was.
Ah negative and keep in mind last year, our same store sales for the quarter were negative and I don't really remember a year over year, but just assume we were negative on top of the negative or something like that so I've got to tell you the magnitude and then.
Now were flat for the quarters of May and June were pretty good months and you can see the industry data, which I think generally reflects you know.
Improving industry during that time period also okay.
Great. Thank you get.
Thank you.
Thank you.
As there are no further questions at this time I would like to turn the floor back or what you Mister Brett Mcdonald.
Those increments.
Oh, great. Thank you for everybody for joining us today and all the great questions have a great day, and we'll talk to you on the next next call.
This concludes today's conference. Thank you for your participation you may now disconnect your lines.
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