MarineMax [HZO] Conference call transcript for 2023 q1
2023-04-27 15:39:04
Fiscal: 2023 q2
Operator: Good morning. and welcome to the MarineMax, Inc. Fiscal 2023 Second Quarter Conference Call. Today’s conference call is being recorded. [Operator Instructions] 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.
Scott Solomon: Thank you, and good morning, everyone. Thank you for joining us. Hosting today’s call are Brett McGill, Chief Executive Officer and President of MarineMax; and Mike McLamb, the company’s Chief Financial Officer. 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 issued today. If not, please e-mail our IR team at hboinvestorrelations.com and a copy will be e-mailed to you. With that, I will turn the call over to Mike McLamb.
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 company’s ability to capitalize on opportunities or grow its market share and numerous other factors identified in our Form 10-K and other filings with 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 MarineMax 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.
Brett McGill: Thank you, Mike. Good morning, everyone, and thank you for joining us. Let me begin by thanking our exceptional team more than 3,900 strong around the globe. We are 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, what’s abundantly clear is that the passion for being on the water has never been stronger than it is today. A 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 industry’s 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 quarter. 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 progressed, 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’s important to keep the results in context. Fiscal 2022 was a record year for MarineMax 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 is through that lens that our performance this year demonstrates the changes we have made to position MarineMax 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 through the same period this year has nearly doubled to $1.1 billion. Gross margin has climbed more than 1,000 basis points to 36% and diluted EPS has increased more than 5-fold 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. IGY Marinas, which we acquired in October, continues to perform well. IGY has a global portfolio of premium yachting destinations of 23 marinas in 12 countries. These properties 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 IGY, revenue from higher margin maintenance, repairs, storage, rental and parts and accessories in our marina locations has increased dramatically, and Mike will provide more color on this later. We are also pleased with the growth of our Manufacturing segment comprised of Intrepid power boats and cruisers yachts, both of which we acquired in 2021. We Intrepid, a premier manufacturer of power boats recently launched its new flagship model to 51 Panathea. 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 and crafted yachts 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 Boatzon platform, our innovative online digital product for the boat and marine retail marketplace. Bot on connects consumers who are looking for boats, finance, insurance and other products to a network of dealers across the country. We are 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 Boatyard, a subscription-based product that targets the service side of the market, enhancing the ownership experience. Boatyard is being well received by the dealer community furthering our reputation for service excellence. Together Boatzon and Boatyard are key components within our recently created New Wave Innovations business. We expect New Wave 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, our historically high backlog reflects the growing worldwide enthusiasm for voting as well as the demand for the high-quality products and services we are delivering to this global market. And with that update, I will ask Mike to provide more detailed comments on the quarter.
Mike McLamb: 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 IGY, which we acquired October 1. As Brett noted, the decrease in same-store sales reflected the boating industry’s 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 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 IGY as well as strong performance in many of our higher-margin businesses. Excluding IGI, gross margin in the second quarter was down slightly compared with the prior year, which does indicate that product margins, while down modestly were 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 increase 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 from maintenance, repairs, storage, rental and parts and accessories from our combined marina locations as opposed to our non-marina locations. Specific to the marina-sourced revenue, for the first half of fiscal 2023 we generated $126 million in revenue from maintenance, repair, storage, rental and parts and accessories. That represents a 120% increase from the same period last year largely due to IGY. Marina sourced revenue is considered stickier, and those figures exclude all boat sales as well as brokerage and F&I. We hope this information is incrementally beneficial as you think about the performance of our higher-margin businesses. Moving down to the income statement. SG&A expenses rose $12 million, primarily attributable to the addition of IGY 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. This means that while internal sales are eliminated at the revenue and margin line until they are retail sold, the SG&A is expensed currently. Like other companies in this environment, we are reviewing expenses for opportunities while staying focused on the long term. Additionally, consistent with the dealership model, a significant portion of our team is on performance or commission-based pay plans, which rise and fall based on the company’s performance. Interest expense increased by $12.6 million reflecting higher interest rates as well as the increase in long-term debt related to IGY Marina acquisition and higher inventory. Adjusted EBITDA for the quarter was $57 million compared with $80 million in last year’s second quarter, primarily due to lower revenue and higher floor plan interest expense this year. On a year-to-date basis, adjusted EBITDA was $110 million compared with $135 million last year with floor plan interest making up close to half of that difference. On the bottom line, we generated GAAP net income of $30 million or $1.35 per diluted share. On an adjusted net income basis, net income for the quarter was $27.4 million or $1.23 per diluted share. These amounts reflect adjustments for the change in fair value of contingent consideration and intangible asset amortization. We also removed two gains in the quarter to arrive at $1.23 per share. Moving on to the balance sheet. We ended the quarter with cash and cash equivalents of more than $204 million, down modestly from last year primarily due to the acquisition of IGY. As Brett highlighted in his remarks, supply chain constraints are easing and inventories are beginning to return to more normalized levels. Our inventory at quarter end was up 116% from last year to $711 million and up 17% from December, which is typical for historical seasonal patterns. 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. Having said that, same-store unit inventories are still well below March 2019 levels. Looking at liabilities, our short-term borrowings at March 31 rose $440 million from last year largely due to increased inventories. Although customer deposits have decreased year-over-year, sequentially, they are close to flat to December levels and remain historically very high as we enter the summer selling season. Consistent with past calls, debt-to-EBITDA net of cash was less than 1x at quarter end, and we have additional liquidity in the form of unlevered inventory plus available lines of credit that totaled $200 million. Turning to guidance. Based on our year-to-date results as well as recent trends, including March industry results, reflecting softer retail than we anticipated we believe that it is prudent to lower our 2023 guidance. Admittedly, this has been a challenging year to forecast given the industry’s rapid return to seasonality combined with the FED-driven macroeconomic uncertainty. The challenges we saw in March, despite it being ahead of last year, demonstrated to us that the macroeconomic environment may weigh more heavily on the industry than the strength of seasonality. 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. This would imply that industry units during our fiscal year will be down double digits. For our first six months, the industry is down something like 20% to 25% in units. As we have seen to-date, our premium product concentration should continue to benefit us. We expect margins to be generally consistent with our past guidance, which was a modest decline from 2022, but still in the mid-30s. We do expect product margin pressure to increase due to rising industry inventory, but such pressure should be offset by IGY. SG&A is expected to be elevated as a percentage of revenue given the same-store sales decline. We are also assuming interest expense is elevated due to higher-than-anticipated inventories given the revised sales outlook as well as rates. With declining U.S.-based pretax income, combined with generally consistent international trends, and the addition of IGY, which is exceeding expectations, our tax rate will increase to around 28% due in part to higher international tax rates. Interestingly, floor plan interest and the tax rate change account for over $1.70 of the change from last year’s earnings per share performance. On the bottom line, we now expect our full year 2023 adjusted earnings per share guidance to be in the range of $4.90 to $5.50. This assumes a share count of 22.4 million shares. In addition, we are forecasting 2023 adjusted EBITDA to be in the range of $220 million to $245 million. Looking at current trends, April same-store sales are expected to be modestly down from last year’s April, which was a good month. With that, I will turn the call back over to Brett for closing comments.
Brett McGill: Thanks, Mike. We look ahead with enthusiasm as we advance into the second half of fiscal 2023 and beyond. Strategic acquisitions such as IGY, give our business model the resilience and diversification to address the opportunities and challenges of any economic cycle. New technology offerings such as Boatzon and Boatyard are key differentiators that will help provide us with a competitive advantage and continue to grow market share. We are aligned with the best partners across our retail location and are well positioned to achieve profitable growth over the long term. At MarineMax, the customer experiences at the center of everything we do. Our world-class Net Promoter scores, which measure a customer’s likelihood to recommend our products and services speaks both to the exceptional level of service our team delivers and to the strength of our customer relationship. And with that, operator, please open up the line for questions.
Operator: [Operator Instructions] And our first question comes from Joe Altobello with Raymond James.
Operator: Our next question comes from Fred Wightman with Wolfe Research.
Operator: Our next question comes from Drew Crum with Stifel.
Operator: Our next question comes from James Hartman with Citigroup.
Operator: Our next question comes from Eric Wold with B. Riley Securities.
Operator: Our next question comes from John Healy with Northcoast Research.
Operator: Our next question comes from Brandon Rollé with D.A. Davidson.
Operator: Our next question comes from David MacGregor with Longbow Research.
Operator: 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.
Brett McGill: Well, thank you for joining the call today, and thank you for all the great questions, and we will look forward to updating you on our next report. Have a good day.
Operator: This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.
