This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Good morning and welcome to the Marine MAX Incorporated 2021 Fiscal Third Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Dawn Francfort of ICR Investor Relations for Marine MAX. Please go ahead.
spk06: Thank you, Operator. Good morning, everyone, and thank you for joining this discussion of Marine MAX's Fiscal Third Quarter 2021 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 727-531-1712, and she will email one to you right away. I now would like to introduce the management team of MarineMax. Mr. Brett McGill, President and Chief Executive Officer, and Mr. Mike McLam, Chief Financial Officer of the company. Management will make a few comments about the quarter and then be available for your questions. And with that in mind, let me turn the call over to Mike. Please go ahead, Mike.
spk05: Thank you, Dawn. Good morning, everyone, and thank you for joining this call. Before I turn the call over to Brett, I'd like to remind 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 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 the Securities and Exchange Commission. With that in mind, I'd like to turn the call over to Brett. Brett?
spk02: Thank you, Mike. Good morning, everyone, and thank you for joining the call. Our team continues to set records with their performance, and our third quarter was no exception. They produced record sales, record margins, record profits, and on top of that, record net promoter scores. Today, I'd like to share the highlights from our very productive third quarter and then discuss the results of our strategic growth plan, which will continue to create shareholder value in 2021 and beyond. Then Mike will discuss our financial results in more detail and provide color on our updated 2021 financial outlook. Let me start by touching on our third quarter performance. I'm extremely excited about our results in the quarter with both sales and earnings exceeding expectations. And I am especially proud of the MarineMax team for continuing a high level of execution on our key strategic initiatives, which continue to gain traction and resonate with customers. We have capitalized on a favorable consumer spending backdrop, along with a continued demand in consumers seeking the boating lifestyle. The record sales and earnings growth we delivered was driven by solid 6% same-store sales growth, which is on top of a robust 37% same-store sales growth a year ago. From a nine-month perspective, same-store sales growth was up 21% on top of a 22% a year ago. Our significant geographic and product diversification, along with the effective utilization of our digital platform, is driving sustained growth. Additionally, the marine industry continues to experience a significant acceleration in new customers. Given our scale and global position, we are benefiting from our growing share of the market And based on available industry data, we believe we continue to gain market share. We have meaningful revenue growth across most brands and categories of product and continue to leverage our investments in technology, which is driving leads that are being converted into sales and enhanced profitability. We built on our prior quarter's profitability and increased our operating margin to over 12%. This performance is directly attributable to our ability to execute against our strategy, focusing on higher gross margin businesses, including finance and insurance, marina, storage, parts, services, and brokerage. The gross margin strength we produced in the first half of the year accelerated in the June quarter to 30.7%. Additionally, our acquisitions have performed well and are aligned with our strategy of contributing to the margin expansion, and we expect our two most recent acquisitions, Cruisers Yachts and Nisswa Marine, to further contribute to this growth. In the quarter, gross margin expansion and good expense control led to outstanding operating leverage of over 20% and record earnings per share of $2.59. Now let me discuss the confidence we have that our strategy will continue to create sustained growth and long-term shareholder value in 2021 and beyond. We are making significant progress on our vision of creating exceptional customer experiences through best services, products, and technology. Our teams remain focused on these initiatives, resulting in strong sales and margins. We are uniquely positioned to drive this growth for years to come. We will accomplish this through our global market presence, premium brands, valuable real estate locations, exceptional customer service, technology investments, strategic acquisitions, industry-leading inventory management, and finally, a continued commitment to build on our strong company culture. Supported by one of the strongest balance sheets in the industry, we will continue to make strategic accretive acquisition in a disciplined manner. The combination of being well capitalized and having a broad global geographic presence has allowed and will allow us to grow in many ways by adding additional dealers, marinas, storage, service-related offerings, manufacturing, and asset-light businesses such as our superyacht services businesses. We continue to have strong demand-driven visibility, and we are well-positioned to serve our customers. The sheer size of our backlog continues to provide us with added confidence that we should outperform for the remainder of 2021 and well into fiscal 2022. Also, there is no question that our scale is a competitive advantage, as we leverage our deep manufacturing relationships, our nationwide shared inventory, and strong balance sheet to support the growing demand. As we will discuss later on the call, based on our third quarter results, we are again raising our full year 2021 guidance. This reflects another great quarter and the confidence we have in the business as we build our backlog and look ahead to the new product that will start to flow in the future. We believe the combination of driving operating leverage and generating significant cash flow, coupled with strong consumer demand, will result in sustained growth well into fiscal 2022 and beyond. And with that update, I'll ask Mike to provide more detailed comments on the quarter. Mike?
spk05: Thank you, Brett, and good morning again, everyone. I'd like to start by thanking our team for producing a fifth consecutive record quarter, which significantly topped last year's outstanding June quarter. For the quarter, revenue grew 34% to over $666 million due largely to same-store sales growth of 6%, which was on top of 37% a year ago, plus the strong results from the acquisitions we have completed namely Skipper Buds, Northrop & Johnson, and Cruisers Yachts. Overall, our growth has been demand-driven across generally all segments of products. As expected, the supply chain challenges have resulted in low industry inventory, which led to reduced overall unit sales versus our record last year. However, with greatly increased backlog visibility, Coupled with our broad product portfolio and production insight from our manufacturing partners, we were positioned to drive growth in many of our key categories. This approach resulted in a double-digit expansion of our average unit selling price. We also believe this strategy will continue to work well as we move ahead. Our gross profit dollars increased over $81 million while our gross margin rose 590 basis points to 30.7%. Our initiatives to drive margin growth over the last several years is clearly working. Margins rose with contributions from multiple segments and businesses, including new and used boats, storage, our higher margin finance, insurance, and brokerage business, as well as our global super yacht services businesses, Northrop & Johnson and Fraser Yachts. we would note that the superyacht charter business is starting to see improvement with the reopening of Europe. Assuming the reopening continues, we would expect a much improved charter season compared to August and September last year. Regarding SG&A, the majority of the increase was again due to rising sales and related commissions combined with the recent acquisitions. Generally, expense trends are on track. Our operating leverage in the quarter was over 20%. which drove very strong earnings growth, setting another quarterly record with pre-tax earnings of over $80 million. Our record June quarter saw both net income and earnings per share rise more than 60%, generating $2.59 in EPS versus $1.58 a year ago. For the first nine months of the year, I will make just a few comments. Our revenue exceeds $1.6 billion, driven by a 21% increase in comparable store sales. Gross margins exceed 30%. Our operating leverage is around 20%. Our EPS is at $5.33, and our EBITDA is over $180 million. A very impressive nine months. Moving on to our balance sheet, we continue to build cash with over $200 million at quarter ends. Our inventory at quarter end was 209 million. Excluding skipper buds and cruisers yachts, our inventory is near historically low levels on a relative basis. However, it is important to reiterate that we have reasonable visibility from our manufacturing partners. That, coupled with our backlog, allows us to direct our efforts to drive growth like we did this quarter. Looking at our liabilities, short-term borrowings decreased sharply due to lower inventory and related financing, as well as the increase in cash generation. Customer deposits almost tripled to over $86 million due to the demand we are seeing setting a new record. Our current ratio stands at 2.20, and our total liabilities to tangible net worth ratio is below 1. Both of these are very impressive balance sheet metrics. Our tangible net worth is $386 million. Our balance sheet has always been a formidable strategic advantage, and now, more than ever, it provides the capital for growth and expansion as opportunities arise. Turning to guidance for 2021, the June quarter exceeded expectations and industry trends remained strong. Industry estimates for 2021 retail unit growth is in the high single digits. We expect our annual same-store sales growth to be in the high teens. This is generally consistent with our comments last quarter. Given the strength of earnings in the June quarter and the demand-driven visibility, we are raising our estimates for earnings per share guidance to the range of $6.40 to $6.55. In summary, we do expect our pre-tax earnings to rise in the fourth quarter which gets dampened a bit by a higher tax rate of around 25% this year, as well as higher outstanding shares, which results in the EPS guidance range. Our guidance excludes the impact from any potential acquisitions that we may complete. Our updated 2021 guidance implies an EBITDA level well in excess of $200 million. Turning to current trends, July will close with positive same-store sales growth and our backlog is at record levels. As we have said, industry demand trends remain strong and we are generally outperforming these elevated levels. While we would typically not share perspective beyond the current fiscal year, I'd like to provide some additional context as we look out to fiscal 2022. With the demand side of our business remaining very strong, and with the visibility we have with our manufacturing partners and backlog, we do anticipate same-store sales growth in 2022. We will provide more color around this on our fourth quarter call. With those comments, I'll turn the call back over to Brett for some closing comments.
spk02: Brett? Thank you, Mike. As evidenced in today's results, we are pleased to see our business continue to build momentum. Our team's performance the first nine months of fiscal 2021 continues to show excellent execution, even on top of a record performance last year, which included very impressive same-store sales. Much of our strategic work is still underway with the true benefit to be realized in the coming quarters and years. We remain committed to creating exceptional customer experiences through our teams, services, products, and technology. Record high net promoter scores show that our customer-centric approach is fully aligned to drive high levels of satisfaction and repeat business. We will continue to uncover significant opportunities for brand expansions and higher margin businesses that will strengthen our overall business while staying focused on our strategy to create long-term shareholder value. And with that, operator, let's open up the call for questions.
spk07: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Joe Atabello with Raymond James. Please go ahead.
spk01: Great, thanks. Hey, guys, good morning. So very glad to hear July comp positive, and it sounds like you're expecting positive comp growth next year as well. I guess the flip side to that is how concerned are you about margins next year with promotion levels potentially normalizing and with lowering costs going higher, hopefully on higher inventories? Did you say with promotional? Levels normalizing next year, yes, assuming they do.
spk05: Yeah, I don't think anybody's expecting a different promotional environment next year than the past year. If it is, it'll be very incremental. Inventory levels are very low and it's going to take a while for the industry to return to, if it returns to, you know, prior levels. We see inventory continuing to be very lean through fiscal 2022, but again, with the insight we're getting from our manufacturing partners coupled with the demand, I mean, we see a runway to same-store sales growth for 2022.
spk01: Okay, super. And then just to follow that up, is the lack of inventory impacting sales? I mean, anecdotally, we're hearing about customers canceling orders. Have you seen an uptick in order cancellations? And if so, does someone come in that afternoon to pick up that order effectively so it's really not impacting the overall number?
spk02: Yeah, Joe, we really haven't seen any uptick in cancellations at all. People are locked in. I think there's a dynamic out there that in the past, you know, people, voters have always upgraded boats, right? They want a larger boat one day. And I think in the past, people would say, hey, next season, let's go looking for boats, right? Now people are looking at it and saying, we better get our boat on order now if we want it for next season. So that's creating some patience in and of itself. I think people are being more proactive about their future purchase. And, you know, we're figuring out a way to keep them on the hook. But no order canceling at all.
spk05: No, but I do think your first part of that question was, you know, would sales be even higher? I think the answer to that is yes. I think every dealer would tell you that. You just look at our backlog, our customer deposits, and the strength of demand today. So I think the industry trends would be even stronger if it wasn't for some of the supply chain challenges that it's seen.
spk01: Okay, great. Thank you, guys.
spk05: Thanks, Joe.
spk07: The next question comes from Jamie Hardeman with Wedbush Securities. Please go ahead.
spk03: Hey, good morning. Good morning. So I wanted to drill down a little bit on the really strong trends that you're seeing in pricing. I know you said it was double-digit for the quarter. Maybe walk us through how much of that is a function of mix, right? The higher-priced boats versus the lower-priced boats and how much of that is like-for-like pricing. Are you seeing any customers balk at price increases And then the July same-store sales, I think you said, was going to finish positive. Should we expect a similar trend to what we saw in the third quarter, meaning some declines in units but big growth in AUP there?
spk05: Hey, great question, James. And I would tell you in the current quarter, in terms of my comment around what drove same-store sales, the overwhelming majority of it was – a mixed change to larger product, more expensive product. The incremental pricing on new and used product, which we are also seeing, which is helping to drive margins, it was part, but it'd be a small part of the overall increase. And, you know, the pricing environment doesn't seem to be dampening demand at all, you know, currently from that perspective. And then I think from an industry perspective on your July commentary, You know, if you look at the industry, if I remember right, in April, the units for the industry were up 86%. In May, they were up 2%. So think about that trajectory, 86 to 2. I think when June gets published, because of supply, there's going to be a negative print on units posted in June because of supply. And probably same with July. And so if we're still targeting high same-store sales in the high teens, then, yes, we would still be expecting, you know, increases in the AUP in July.
spk03: Got it. And then sort of to maybe roll that question forward, really encouraged by the confidence you have in growing same-store sales in 2022. I guess let me drill down on that a little bit. Do you think that units sold can actually grow in 2022, or is that confidence primarily a function of just the momentum with respect to AUPs?
spk05: Great question. And, you know, based on all the feedback and insight we have from our manufacturing partners, and we'll obviously get more into this on our call next quarter, But sitting here today, it looks like that we can have unit growth next year based on our manufacturing partners. You know, there's a lot of moving pieces in that, but that's what it does look like, which is great news.
spk03: Really encouraging. Okay, thanks, guys. I'll hop in the queue. Thank you.
spk07: The next question comes from Eric Wold with B Riley Securities. Please go ahead.
spk04: Thanks. Good morning, guys. Just a couple questions kind of on the cost side, if I will. I guess one is we kind of approached the boat season again. Clearly, you guys did a great job kind of managing through the pandemic and kind of people's shifting ability and desire to kind of purchase large items kind of online and not actually in person. I guess if you get back to a normal – all boat shows open, full capacity situation like we did in pre-pandemic, how would you expect your spending to look like in that environment and your involvement to look like in that versus pre-pandemic? Are we getting back to where it was or would you be scaled down somewhat?
spk02: I'll let Mike comment in a little more detail, but I'll mention first, I think we're really working with, you know, the show promoters and the manufacturers to figure out a way to get back to shows in a much different and more cost-effective way. So we we definitely don't want to return to the old expense structure. That's going to take a lot of work and time, but that's just a general comment that we don't want to allow it to get back to there for a lot of reasons. So, Mike, do you have anything to add?
spk05: No, but if we start going back to shows, there would be an incremental increase in SG&A in the marketing side of things, for sure. If I remember right, last year we did have the Fort Lauderdale show in the fall, the December quarter. and really no other major shows after that that I can remember off the top of my head. So, you know, if there is any impact, it would probably be in the back half of the year.
spk04: And is cost savings from the more cost-effective way of going about it, is cost savings, you know, pocketed, so to speak, or kind of moved into a different category of spend?
spk02: Well, just like in this past year, it wasn't all just pocketed. We put it towards other marketing efforts. You know, just holding in-house events and our getaways events are more costly now because you've got to be much different and safer. So we put the money to work, but not all of it.
spk04: And the last question, obviously, with the cash flow you've gotten down to almost no, you know, floor plan financing on the books for the quarter, a couple million bucks. What is your strategy around that going forward? Assuming inventory does start to catch up over the next, you know, 12 to 18 months, come back in, but obviously, you know, business would be strong in the meantime. What is your strategy around kind of how much of inventory you'd like to finance, you know, versus what you did in prior years?
spk05: Well, you may have seen, we put out a release last week, I think it was, that we did amend our facility and lengthen it for another three years. I mean, we do see in that time period inventories beginning to build. I'm not sure in that time period, I don't think they're going to build it even back to levels they were before. But I think we wanted to have the facility in place to give us the flexibility with how we finance the business. So I see the overall industry and I see us kind of returning to some reasonable level. A floor plan financing facility is a very flexible, basically accounts payable, which is a very attractive financing facility for us. So we like it. There'll be some of that in the future, but there's not going to be much of it for a while.
spk04: Sounds good. Okay.
spk00: Thank you.
spk07: The next question comes from David McGregor with Longbow Research. Please go ahead.
spk00: Hi, this is Joe Nolan. I'm for David McGregor. Hey, Joe. Hi. Hi. I was just wondering, could you talk about the recent acquisition of Cruiser Yachts and just the role that a vertical integration plays into the strategic direction of the company? And then also, just on top of that, are you planning to acquire any other boat OEMs, if that's in your plans? And just if so, what boating segments would you be prioritizing?
spk02: A great question on cruisers. We're really proud of the cruisers joining the Marine Max family. We've talked about in other releases that You know, that was a segment of our business that went away with the C-Race for yachts and yachts. And when the opportunity with cruisers became available to have an American-built product here and to secure our future, just the opportunity lined up, along with the fact that we could, you know, grow the production levels in a substantial way at cruisers, that had a big impact on the decision to do it. So a great acquisition with great opportunity for upward growth. There are cruisers that, and as far as other manufacturers, we will look at opportunities as they're out there, but it's not a high priority strategic pattern that you'll see from us. However, we will look at some opportunities as they come up.
spk00: Got it. Thanks for that. And then also just wondering on used boats, if we could just talk about gross margins. I understand that prices have gone up quite a bit. Just wondering how that's impacting the margins in the business?
spk05: Yeah, so pricing new and used both has increased and it's helping our margins. If I had to estimate it, probably a third of our margin increase is just on the product demand side, which is increased new and used. The other increase in the margin is really the changes we've made to the business around F&I, storage, some of these acquisitions that we've made that all add to our margin. So we are getting some benefit from the new and used margin increases.
spk00: Got it. Thanks. I'll pass it along.
spk05: Thank you, Joe. Thank you.
spk07: And the next question is from James Hardiman with Wedbush Securities. Please go ahead.
spk03: Hey. It looks like I'm back on. So a couple just modeling questions. The manufacturing business, it looks like in the third quarter it had better overall margins than retail operations. Should we expect that over the course of a full year? And how do we think about sort of gross margin versus operating margin in that business?
spk05: Great question. I think when our 10-Q gets filed, there's going to be some additional language around the segment report. Within the retail operations are other costs that are associated with the manufacturing segment. We'll explain that a little bit more in the queue. Manufacturers, like cruisers, are typically going to be in the high single digit from an EBITDA perspective. So when you start getting that down to operating margin from a gap basis, it's a little lower than that. That's looking back historically when you look forward with their new plant that's coming online and with some of the growth, obviously their plans and our plans are to grow that earning stream and the earnings as a percentage of the business as well. From a margin perspective, what happens from our business is you get we will end up getting the manufacturing margin. So when one of our stores sells a cruisers, so we'll get the obviously the retail margin within our store, then we'll get the manufacturing margin. So we kind of get like a doubling of the margin on the business that we do from cruisers. And so that way will overall will help our overall consolidated margins. Margins on the manufacturing side in our industry tend to be in that, you know, 25% range, which is similar to what the dealers recognize. I'm not sure if I'm answering all your questions, but I probably hit a few of them, I think.
spk03: Yeah, you did. And so should I think about this being, I guess, on a full-year basis, accretive to both the gross margin and the EBIT margin?
spk05: That's correct, yeah.
spk03: Okay. And then similar questions as I think about – NISWA, is that how you say that? The recent dealer that you guys acquired. $35 million in 2020 revenue. Is that growing at a similar rate to your organic business? And should we think about a similar seasonality and margin structure there as well?
spk02: NISWA, great dealership, good addition to our team. And I'll remind you that the part of what made it really good is their storage component of their business, their higher margin focus on things, so that's very helpful, but they, I might comment more, but they're seeing growth like every other dealer would see, and we hope we can bring some synergies to improve finance and insurance and other pieces of the business.
spk05: Yeah, and because of their storage profile, a typical dealer You know, historically, it's going to be in that low, maybe to mid-single-digit pre-tax if they were running a really good business. These guys have been in high single-digit, you know, sometimes even probably breaking above that. They run a very good business, a great team. But you asked about seasonality. Obviously, they're in Minnesota, so they're going to be – you know, more 60% of the year is going to be in the summertime, 40% is going to be in the wintertime, you know, or December and March quarters. They'll be more seasonal than marine max.
spk03: Got it. Perfect. Appreciate it, guys.
spk05: Thanks, James.
spk07: This concludes our question and answer session. I would like to turn the conference back over to Mr. McGill for any closing remarks.
spk02: Well, thank you again for joining the call today, everybody. And both Mike and I are available if you have any additional questions. And we look forward to updating you on our future progress on the next quarterly call. Have a great day.
spk07: The conference has now concluded. Thank you for attending today's presentation.
Disclaimer