MarineMax, Inc. (FL)

Good morning and welcome to the MarineMax Incorporated Fiscal 2024 fourth quarter and full year conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. At this time, I would like to turn the call over to Scott Solomon of the company's Investor Relations, Sharon Merrill Advisors. Please go ahead, sir.

Good morning and thank you for joining us. Hosting today's call are Brett McGill, MarineMax's Chief Executive Officer and President, and Mike McClam, the company's Chief Financial Officer. Brett will begin the call by discussing MarineMax's operating highlights. Mike will review the financial results, and then management will be happy to take your questions. The earnings release and supplemental presentation associated with today's announcement can be With that, I'll turn the call over to Mike. 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 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 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 MarineMax and other companies on both a GAAP and a non-GAAP basis. The 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?

Thank you, Mike. Good morning, everyone. We are excited to be hosting today's call from the Fort Lauderdale International Boat Show, one of the largest international boat shows of the year. It has certainly been a challenging five weeks for the residents and communities here in Florida and across the Southeast. The damage and disruption caused by hurricanes Helene and Milton has been unprecedented. Many of our own team members have been significantly affected, but it is heartwarming to see these communities come together to begin the work of cleanup and rebuilding. Our team members have been at the forefront, ensuring we provide essential support to our customers. We are incredibly proud of their efforts and commitment during this challenging time, and our company is committed to supporting that effort with assistance throughout the journey. Although many of our Florida west coast retail locations were damaged in the recent storms, most of the affected stores have returned to essentially normal operations. This quick turnaround has been accomplished thanks in large measure to the outstanding efforts of our team, including Mid Coast Marine Group, the marine construction company we acquired about two years ago. Mid Coast is another example of the strong businesses and teams that have joined the MarineMax family over the past several years. Our Sarasota store, which sustained significant damage due to Hurricane Milton, is partially open, but the marina itself requires more work. With the support of the Mid Coast team, we are in the process of repairing and rebuilding this premier marina location. Turning to our results, as previously disclosed on October 3rd, our fourth quarter was adversely affected by the closure of the boat and yacht insurance markets in the days leading up to Hurricane Helene. Access to these insurance markets is integral to the completion of the sales process. But in a year when the recreational marine industry as a whole faced significant retail softness, coupled with elevated inventory levels, we performed well in view of those challenges. Fiscal 2024 revenue increased approximately 2% from the prior year to $2.4 billion on a 1% increase in comparable store sales, which absent Hurricane Helene was on target to be modestly higher. We believe the investments we have made in technology, training, service, and our retail locations allows us to continue outperforming the industry by an increasing margin. In addition to exclusive brands and distribution rights, we have relationships of many of the best manufacturing partners in the business who have supported us with marketing and consumer incentives. Another important point about our recent performance is that it reinforces the strategy of adding to and expanding into higher margin operations. Despite the storm's impact on our top line, we maintained a healthy gross margin of 34% in the fourth quarter, reflecting the performance of our higher margin businesses such as finance and insurance, IGY, the rest of our marina portfolio, and our super yacht division. We remain focused on enhancing operating leverage. Adjusted SG&A expenses declined by more than $5 million in the fourth quarter, partly due to the expense reduction initiatives implemented in the third quarter. These efforts are ongoing with the aim of improving our operating leverage as we move through fiscal 2025. One of our core competencies is the ability to consistently identify, acquire, and integrate successful businesses with strong leadership. During the quarter, we announced the appointment of Steve English as the CEO of IGY. Steve has done an outstanding job over his many years at IGY and continues to drive its growth. Recently, IGY was awarded another opportunity related to the Sendala Marina in the Red Sea. IGY was recently selected to operate Sendala Yacht Club. Sendala, a luxury island resort, is the first one of NEOM's Plan 10 unique island destinations. The Sendala Marina recently received the prestigious 5 Gold Anchor Accreditation by the Yacht Harbor Association. The award recognizes the marina as one of the world's premier yachting destinations. Additionally, four IGY locations in the Caribbean were also awarded the prestigious 5 Gold Anchor Accreditation, with one of those, Yacht Haven Grand St. Thomas, receiving the coveted Platinum Accreditation. In the U.S., IGY is progressing well towards completing its 100-berth Savannah Harbor Marina in Georgia. Savannah is becoming known as an ideal stopover harbor for super yachts on their way to or from the Mediterranean. During the quarter, we announced that we were acquiring the rights to the Aviyara brand through an asset exchange agreement with MasterCraft. We have been the primary retail distributor for Aviyara since its launch in 2019, making us the logical choice to assume control of the brand, and the transaction recently closed. As noted in the original announcement, we will evaluate the next steps for Aviyara as we develop a profitable strategy for the brand. Before handing the call back to Mike, I want to formally welcome our newest director, Bonnie Diumi, who joined the board at the end of August. Bonnie's more than four decades of public accounting and operational leadership experience spans a range of industries and includes an extensive corporate governance background. We look forward to benefiting from her insights. And now let me turn the call over to Mike for the financial review. Mike?

Thank you, Brett, and good morning again, everyone. I also want to start by acknowledging the people and communities impacted by the hurricanes. Consistent with our October 3rd announcement, our fourth quarter results were impacted by Hurricane Helene. Coupled with the flood damage to a number of our West Coast locations, revenue was impacted by the closure of boat and yacht insurance markets in the days leading up to the storm. As a result, revenue was down in the fourth quarter to approximately $563 million, reflecting a 5% decline in same-store sales. Prior to the storm, our expectation was that our revenue would modestly exceed last year's fourth quarter revenue. Geographically, for the quarter, most markets were up in revenue except, not surprisingly, Florida. I would add that our units were only slightly down versus last year, despite the well-documented sizable unit declines in the industry. Although gross profit was down in dollars because of the revenue shortfall, our gross margin percentage remained strong at 34.3%. This is noteworthy since boat margins are at or below pre-pandemic levels and also below last year's fourth quarter, illustrating the growth we had in higher margin areas. SG&A expenses decreased over $5 million, excluding the items identified in our earnings release. During the fourth quarter, we continued to implement cost reduction actions, including the consolidation of certain retail locations. We plan to continue these steps in fiscal 2025. While our first goal is to get SG&A back in line as a percentage with fiscal year 2023, we are continuing to see higher input costs in various categories, including labor, insurance, and other items. That said, our focus remains to drive improved operating leverage. Specific to Hurricane Helene, as noted in our earnings release, we incurred a charge of $4.7 million in the fourth quarter to write off assets damaged in the storm. We are still in the process of determining the loss associated with Milton, which will be a December quarter event, but in both cases, much of the loss should be covered by insurance. For income taxes, we had a few unfavorable items that increased the fourth quarter affected rate higher than originally anticipated, namely non-cash tax expenses related to equity compensation as well as certain foreign tax matters which are expected to become favorable in the future. The impact of these items was roughly $0.07 in the quarter. Adjusted net income for the quarter was $5.5 million, or $0.24 per diluted share, compared with $15.8 million, or $0.69 per diluted share last year. On a full year basis, adjusted net income was $49.1 million, or $2.13 per diluted share. Fourth quarter adjusted EBITDA was $33.5 million, compared with $42.6 million last year. Full year adjusted EBITDA was $160.2 million, slightly ahead of the expectations outlined in our October 3rd release. Turning to the balance sheet, cash and cash equivalents were over $224 million at year end. Inventories at year end were up, partly reflecting the reduced revenue as a result of Hurricane Aline. As indicated by our floor plan lenders, our inventory aging remains meaningfully better than that of the overall industry. On a same store basis, comparable unit inventories are roughly 30% below 2019 levels. Short term barrings, which represents floor plan financing, increase as expected from the prior year, primarily due to higher inventory. Customer deposits declined year over year, given seasonality and the availability of inventory, which is generally consistent with historical patterns. At year end, our debt to EBITDA net of cash was about one times, underscoring our continued financial strength. We have further financial flexibility through our unencumbered inventory and access to approximately $200 million in available lines of credit. Turning to guidance based on current business conditions, we expect industry unit trends during our fiscal year to be about flat. This is consistent with other thinking we have heard from industry participants. However, the effects of the hurricanes on the west coast of Florida and the southeast are currently having an impact on those markets, which are important to us. Today, assuming we can make up for the business disruption we are currently feeling, we would expect our same store sales in fiscal 2025 to be essentially flat. We also expect to be able to maintain consolidated margins in the low 30s, but we recognize that boat margins are likely to be under increased pressure as we move through the winter months, given how soft the summer selling season was for many dealers. Having said that, we do see light at the end of the tunnel as industry inventory levels improve seasonally and interest rates presumably decline. We plan to continue to drive operating leverage improvements in fiscal 2025 through our cost reduction initiatives that have been benefiting the second half of 2024. As such, we expect fiscal year 2025 adjusted EBITDA in the range of $150 million to $180 million and adjusted net income in the range of $1.80 to $2.80 per diluted share. These expectations do not consider or give effect for, among other things, material acquisitions that we may complete or other unforeseen events, including weather and changes in global economic conditions. Our guidance assumes an annual expected tax rate of around .5% and a share account of $23.5 million. The wider range on EPS versus EBITDA is because our non-cash items like stock-based compensation and depreciation and amortization grow more meaningfully as a percentage. While we do not typically give quarterly guidance, directionally I would indicate that the west coast of Florida usually plays an outsized role in the December quarter. Given the two storms, I would expect the December quarter to have negative COPS versus the plus 4% from last year. It is very hard today to gauge the exact magnitude of the impact given the freshness of the storms, so I would use caution when modeling the December quarter. Lastly, I would comment that October, from a top line perspective, not surprisingly, will finish behind last year's October. Despite the storms and continued uncertainty, the interest in boating remains strong as it has all year. The consumer more than ever needs a solid reason to buy now versus waiting. Our team proved during fiscal 2024 that we can find those reasons despite the challenges and aims to do so again in 2025. With that, I will turn the call back over to Brett for closing comments.

Brett? Thanks, Mike. Looking ahead, we remain focused on delivering meaningfully against our long-term strategy by continuing to strengthen our portfolio, drive more efficient operations, and enhance our financial profile. Over the past five years, we have completed 20 acquisitions representing about $700 million of high-margin revenue. We have broadened our portfolio of premium brands and exclusive distribution rights and achieved strong brand recognition in the super yacht segment. We have taken several strategic steps to improve our operations and financial performance. First, we are streamlining our store network to better align with market trends. In addition, we are leveraging existing best practices and resources to realize synergies across the organization. And finally, we are developing new technology tools to boost efficiency throughout our operations. These initiatives position us well for sustainable growth and improved profitability. Despite the industry's challenges, our gross margins remain consistently above 30%. We also maintain a strong balance sheet and a healthy leverage ratio, which provides financial flexibility for the future. With that, Mike and I will be happy to take your questions, so operator, please open up the line for Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tool will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. In the interest of time, we ask that you please limit yourselves to one question and one follow-up.

Thank you. One moment while we poll for questions. Our first question comes from James Hardiman, Citi.

Hey, good morning. Thanks for taking my questions. You gave us some components of this, but maybe if you could do your best to quantify the impact of Helene on the fourth quarter from a same store sales and a bottom line perspective, if possible. Then, as I think about 2025, and I know it's even more difficult, but how to think through what you're assuming for the impact of the two hurricanes. It is the entirety of that in the first quarter. It would seem that first quarter is already seasonally pretty small. I think you made 19 cents a year ago. Maybe bottom line for us, do you expect to make money in Q1 given all those headwinds? Thanks.

I'll start out, James. Thanks for the questions. I think in the prepared remarks, we commented that our same store sales was expected to be up above last year for the fourth quarter. If you do the math on that, it's about a $30 million top line impact. That's what we were expecting to close. It doesn't mean all that would have closed. That's what we were expecting to close as we're heading towards the end of the quarter. If you do some flow through on that, I think you asked roughly what the bottom line impact would be, $6 million plus, something like that to the bottom line, roughly. The impact from the storms going forward for the full year is really hard to tell. The west coast of Florida, there's a lot of flooding. There's a lot of damage that needs to be repaired, a lot of infrastructure that needs to be repaired, really for the whole west coast, but then it's all the way through the panhandle. Our guidance range, you could argue maybe on the lower end, doesn't assume that everything gets recovered and that all boat sales are recovered. Maybe as you get up closer to the top range, things are getting back to normal, businesses picking up on the west coast. Just to give everybody a magnitude, the west coast of Florida is a very important market to us. Florida overall is about 50% of our revenue in any given year. Roughly the west coast is just about half of that. That's about 25% of our business, which has been impacted. Your last question was about the December quarter. Historically, I used to always say, model the December quarter as a loss. You would remember that, James. Our team's going to do everything they can, but last year we made I think 463,000 in the quarter, something like that, which was a tough quarter for the industry from a unit perspective. Trends in the industry right now aren't great. We've got these two hurricanes. I would answer your question by saying I would use a lot of caution when you're modeling the December quarter. Granted, it's a smaller overall quarter for the year. It's usually 20, 21% of the year. The west coast of Florida plays an outside role even in that quarter. I'll

add, James, the quarter, you hope to get a real good kickstart in October so that you get a little runway for November and December, which are loaded with holidays. Although those can be good months, you always want October to start out strong. We started October with the second hurricane. Just making this quarter pretty tough, as Mike said.

Got it. That's helpful. Then I wanted to talk a second about rates. Obviously, that's a catalyst that we've all been waiting for for a long time. If I take a step back, the 10-year started coming down long before the Fed funds rate was tweaked. Then the Fed finally lowered last month. The 10 years gone straight up since then. For your customers, I was wondering if you could walk us through how the average or weighted average borrowing rates have progressed over the course of this year with a particular emphasis on the last month or so.

Great question. Retail financing rates generally are priced off the 10-year. Retail financing rates are down year over year, something like 100 basis points, something like that, maybe a little more. With the recent uptick in the 10-year, the banks that are the partners that finance boat loans, they haven't adjusted their buy rates and how they go to market. They've maintained the rates where they were. For some boat shows, they maybe even lowered them a little bit. We've already seen some benefit from rates. I think everybody's expecting some additional benefit as we go through, or at least everybody was expecting additional benefit as we go through 2025. Hopefully, that answers your question, James.

It does. Thanks so much. I apologize to sneak in just one more. Did you give us units versus price for the fourth quarter same store sales?

I actually did. I said that our units were down less than what the dollars were down. If we're down 5% in dollars, units were down just a little bit, which if you look at the industry data, keep in mind when the industry headline comes out for the data, you have aluminum sales in there. Aluminum is important for the industry. It's important for a bunch of our stores, but in terms of driving dollars, it doesn't really drive dollars for us that much. If you look at fiberglass boat sales, fiberglass boat sales for each month, July, August, and September are down roughly 20%. For us to be down a little bit tells you that we're continuing to outperform the industry. I chalk it up to all the investments we've made in technology, our team, operations, brands, all the stuff that Brett talked about in the call. We're down a little bit in the quarter, James.

Got it. Thanks so much and good luck from here. Thanks. Thank you. Our next question comes from Drew Crum,

Stiefel.

Thanks. Hey guys, good morning. Can you address what you're seeing with your business and across the industry in terms of retail inventory levels and how you see that trending over the next few quarters? It sounds like inventory may be still elevated, but just want to get some additional detail there. Then just a separate question piggybacking off of James's questions concerning interest rates. Can you tell us what is embedded in guidance as it relates to interest rate cuts over the course of fiscal 25? Thanks.

Drew, on inventories, I think Mike said it even on our last call, when the summer selling season wasn't quite ... That was when a lot of dealers, including us, should draw down inventory. That didn't happen. I think we're kind of guiding for this upcoming year. There could be pressure on margins because inventories still need to get in line, but it sure feels like manufacturers are adjusting and trying to help dealers get

to the right level. Drew, I can pick up on the guidance question. All we've baked into our guidance at this point is the actual rates that have already happened, which is the 50 basis points. Obviously we expect further rate cuts, but we don't really start baking that in until they happen. The good thing about the current cut that's in place is it's in place for our entire fiscal Whereas the future cuts will have 11 months worth of benefit or 10 months or six months or whatever they are. There's 50 basis points baked in for the full year.

Got it. Brett, just to follow up, are you anticipating the industry getting to more normalized retail levels by the beginning of the selling season, or is it going to take longer than that?

To get retail back to inventory, Drew? Did you mean inventory?

Yeah, dealer inventory.

Look, it's going to depend on retail. We saw it last year. Every quarter we kept seeing numbers coming down, numbers coming down. We sure hope we found the bottom here of kind of where we're at. There could be a couple good months, a couple bad, but it's got to be somewhere near the bottom. Until we know where that is, I think inventories are going to sit here and maybe even grow a little bit as we go into this part of the season. We do anticipate that we should enter the spring season and start bringing inventories down. That's probably an industry-wide comment, not just us. I think our orders reflect that. Incentives with manufacturers, all the things we're doing with them to help drive sales in a tough, tough environment.

Got it. Thanks, guys. Thanks, Drew. Thank you. Our next question comes from Eric Wold, VYLE Securities.

Thanks. Good morning, guys. I guess two questions. One, as you kind of start the boat show season, what is your sense of the regions and the markets you play in, the level of promotional activity you expect to see given where inventories are with some of your competitors? How much would you expect to compete with that promotional activity to maintain share? Do you want to kind of maybe distance yourself a little bit from that and have a follow-up?

Yeah, we anticipate that promotional activity will be high because people want to bring inventories down. I think that'll start to come under control, hopefully, as we get closer to the spring season, summer season. But they'll be high, and I think we guide to that direction as well.

What makes us unique is the different businesses that consolidate to make Marine Knox allows us to be a little more flexible than some other dealers. And I said in the prepared remarks, margins are at or below. You can almost take out the word at. Margin in the industry are already below pre-pandemic levels because of where the inventory is. And so I think as you, to Brett's point, you get into the springtime because manufacturers are not building a ton of boats now. So inventories should naturally start coming down with the lack of wholesale product coming into the marketplace. And

you said distance ourselves from some of that fray. I think the higher end products we carry will help kind of once you get a couple of models that have inventory challenges under control, we can distance ourselves from having to play in that game completely. And then the manufacturers we work with, the new models they have coming out, we've proven for decades that new product wins. And we've got some great manufacturers coming out with new products even in this coming year.

Thank you. And then a follow-up, I guess on Florida, obviously these hurricanes were different than anything in the past that anyone will remember, I guess. But given what you've seen in the past from hurricanes, what is your sense of kind of what it takes to get that business to start coming back? Our consumers just obviously focus right now on their homes, they're getting their lives back together, and so that's not an issue. Do they want to wait for insurance recovery? Do they want, do you need to have marinas rebuilt such that if they buy a boat they have a place to park it? What's the biggest driver that you need to get, or the biggest thing that needs to happen before you start seeing that business return?

Yeah, it's a bloated question with a lot of different answers. One is the marinas and whatnot, getting those rebuilt or coming back, some damaged heavily, some not damaged too much at all, but power requirements. We're starting to kind of see a little bit of everybody's docks at their home, access to their lifts and just being able to get their boats accessible, still probably more challenging than maybe we thought. And then you also have a lot of people from up north that are just coming back down for the season, and so that will delay them getting kind of ready to go boating. But don't underestimate everybody's need to get back out on the water. We're seeing it right now in our stores. You know, it's not, even the stores that were hit pretty hard, we have people in there, you know, politely, they want to go boating. And sure, there's a delay, but it won't be a trigger. It'll take some time for some of this to recover. This was a lot more widespread than maybe some other storms we've experienced.

Thank you both, and best of luck. Thanks, Eric. Thank you. Thank you. Our next question comes from Joe Altabello,

Raymond James.

Thanks. Hey, guys. Good morning. So I guess first question, you talked about elevated inventories and continued sluggish demand, obviously. I'm curious if you're seeing that across the board, because I would imagine that there are certain product segments that are doing better than others. So maybe kind of sort of elaborate on that and where you're seeing the healthiest demand in inventory at this point.

New

product,

right? Yeah, new models, new product coming out, kind of the same old. Same old we've said over the years. And then you've got some models that are a little more stagnant that, you know, taking a lot more incentive to get them moving. But I don't think there's a single segment in and of itself that's hot, and they're all under pressure, you know, to a general degree, right?

Yes. You know, clearly we believe in the data shows the premium end overall does better. But as Brett started saying even a year ago, summertime, the premium end also has challenges. But it does seem innovation, we're seeing it at the bushel, new models are doing, you know, continue to do well. Powerful brands continue to do better. But isn't any one real segment,

Joe? Okay, helpful. And just to follow up on that in terms of book margins, you mentioned they're still under pressure here. How are you thinking about that in fiscal 25? Are you assuming that gets better in the spring?

Great question. So what my guidance said, and it probably wasn't real clear, is we keep saying about our consolidated margins are going to be in the low 30s. They were 33% for 2024. It wouldn't surprise me if they came a little below that, not a lot below, but a little below, really because of the elevated inventory that, you know, we believe is out there for the industry going into the winter months where dealers typically don't have that much inventory in the winter months. And so we're thinking dealers are going to feel extra stress and may drive margins down a little bit further. We hope that's not the case, but we've got that baked into our guidance figures. And we think that increased pressure could probably last all the way through the January, February book shows, you know, maybe begins to subside as you get into March, given where inventory levels should be, and then, you know, should subside as you get into the June quarter with some level of what really happens at retail between now and then. Yeah, when you look at our orders and everything

we're working with our manufacturers on, we want to be able to have them upside the margins that are the heaviest part of the selling season. That's our goal.

Okay. And just one more if I could on inventory. You mentioned you expected the comps to start coming down, obviously, in the summer selling season. If the year plays out like you expect with your comps flatish, would you anticipate ending fiscal 25 with the same inventory or even higher inventory heading into next year?

Now, it's actually a great question. You know, with the price increases or basically flatish increases that we're receiving from manufacturers, we would assume that inventories will come down on a year over year basis from September to September, not go up from September to September, just based on what we're currently buying and what our forecast is today.

Okay. Super. Thank you.

Yep. Thank you. Thanks, Joe.

Thank you. Our next question comes from Fred Whiteman, Wolf Research.

Hey, guys, I just, this has come up a few times. I just want to be clear on it. So based on what you're seeing from an inventory perspective across the industry, your expectation is that the promotional environment, broadly speaking, accelerates over the next few months. And so we should see a decrease in new boat margins from here.

Yeah, I think, you know, I don't know if, you know, I'd use the word accelerate, but we think it'll continue because, you know, there's pretty heavy promotional activity. But, you know, there's that chance that margins could, you know, be under pressure to try to move during a slower time of year. Yeah, it's

just seasonally. We hear from our banking partners who fund a lot of these dealers that are out there for their inventory purchases. And granted, they're buying less product going forward. I think everybody knows that. But they're still sitting on older models. And we don't think it's going to get any better between now and the January, February boat shows because for some northern dealers, they just don't sell a lot between now and January and February. Then they get into the boat show and they sell some. So it's probably not a prudent, excuse me, it probably is a prudent expectation to think margins could be a little under pressure in the near term.

Okay, that makes sense. And there was a comment in the release about incremental cost cuts during the quarter. I know that you had talked about getting SG&A back to sort of 23 levels as a percentage of gross.

Are those,

is that still the right way to think about it? Are these cost cuts just offsetting some of that higher inflation that you also touched on in the script? Or is it actually just better performance within that percentage range?

Yeah, it's actually a really good question. So we have consolidated and closed six stores over the last couple of quarters, two in the September quarter. We have reduced our number of team members also, partly given just where the industry is. And we've looked hard at every vendor relationship and renegotiated where we can to try to bring costs down. The challenge is as we're doing all that, as I mentioned in the prepared remarks, is while inflation is getting lower, there's still elements of inflation within just about every component that you touch within the P&L. And so our goal is still very much to strive to get back to 2023 as a percentage, which is around 26%. We were 27% roughly on an adjusted basis in 2024. Do we get all the way there? That's going to be a challenge. Can we get part way there, half way there? That's what we're working on. So I'm kind of dancing around a little bit giving you any real specifics, Fred, but we're working to offset some of the inflation for sure with the cost cuts that we've done. And we're going to continue to look at opportunities within the organization to improve the operating margins of the business and the operating leverage in the business.

Understood. Thank you.

Thank you. Our next question comes from Michael Swartz, Truist Securities.

Hey, guys. Good morning. This is Adam for Mike. Just going back to the cost cutting. First, just kind of wondering, I think you've called out like 20 to 25 as like an annualized run rate from last quarter. Just wondering if that's still kind of the expectation or if there could be any more, I guess, cost effects from the lower rate cuts as far as floor plan expenses go.

Yeah, the 20 to 25 was just SG&A. It wasn't interest at all. So good question and good point. No, that's still very much where we're targeting from a dollar perspective to get out of the organization. The challenge is that you have some additional creep and other costs that come in. So the net of those is what I just referred to in my last call with Fred is some points between where our SG&A is at the percentage now versus where it was in 2023.

Okay, got it. Thank you. Thanks, Adam. Thank you. Our next question comes from Griffin Bryan, D.A. Davidson.

Yeah, thanks. Good morning. So regarding the guidance, can you square the retail assumptions assumed for both the high and low end? And then just for clarification on Haleen impacts, I think it's for the high end of the guidance, you're assuming that everything lost in Q4 and Q1 would be recovered by the end of the year. So is that like the right way to think about it?

Yeah, it's actually a good question. So it's specifically the business that's impacting us like right now because of the storms. Our guidance assumes we make up for that. And it doesn't necessarily assume at the low end that we make up for the west coast of Florida's fine for the next three quarters. It's not assuming that. It's assuming some of the disruption from right now is made up is what that meant. It probably wasn't as clear as we should have made it. And on the retail assumptions, I think we said Flatish same store sales, based on the Flatish industry in 2025, certainly the range of our guidance would imply something above Flatish to get closer to the $180 million, even along with maybe a little bit better margin assumption. Margins have a big impact on the business. And then the lower end, it's maybe we're on the low end of Flatish, slightly negative around zero and margins are down a little bit. We'll get you down to the $150 million range.

Got it. And then it seems like OEMs and other dealers we've spoken with aren't expecting much of an uplift from insurance claims on boats that were affected during the storms. Are you guys kind of assuming that the same thing or is there opportunity for upside in the effecting markets later in the year?

It's a good question. Normally by now the insurance carriers have come out with some type of kind of data point around the number of boats destroyed. We have not seen that data point yet. It's usually the destroyed boats that then get replaced over time. There certainly is a large number of destroyed. I just don't know what it is. There's certainly a lot of service work that it's unfortunate for the customers, but it is a lot of service work, which is good earnings and good revenue for all of our stores that we'll be working on and already are working on. But in past storms there's always been some level of replacement cycle. The timing of the replacement cycle is real hard to gauge. It always seems to drag over a longer period of time than we expect it to.

Got it. Thanks guys. Thank you. Our next question comes from John Healy, North Coast

Research.

Thanks for taking my question. Just one question for me. I just wanted to ask about kind of capital allocation going forward and how you're thinking about M&A. Any sort of, I don't know, color you can give us on what the pipeline looks like now that maybe you feel like the business is, from an industry standpoint, at least kind of leveling out a little bit. Your leverage is pretty low. You've got a lower rate environment. Just thinking about how actionable or active you guys may be on the M&A front and does it kind of, do you lean into kind of historical stores? Do you lean more into marinas? Do you lean more into kind of the manufacturing side? Just trying to think about what you might do there.

Yeah. So, you know, looking at a lot of different opportunities, keeping the pipeline full, there are some, you know, could be some real opportunistic type of things that could come available. We do continue to have a pipeline and look at the, you know, acquisitions for IGY marinas and continuing to enhance that portfolio. So, you know, dealership business, it's a tough environment out there. So we'll look for opportunities. And on the super yacht flesh, IGY side, you know, it's active and there's a lot of international opportunities available as well. So that'll probably be what we focus here in the

near term. Great. Thank you. Thank you. Our next question comes from David McGregor,

Longbow Research.

Yeah. Good morning, everyone. Thanks for taking the question. I guess I just wanted to ask about the service side of the business. And clearly this quarter gross margin is 34% with the bulk margins down. The service side seems to be performing well. You alluded in your response to an earlier question that, you know, the service outlook would be good just given the reconstruction and everything that goes on there. Just wondering how you're thinking about, you know, that within your view on 2025. And I guess on a higher level, I mean, given the portfolio transformation that's been underway here at MarineMax for a while now, you know, you're slightly less dependent on boat sales. I guess, you know, if we don't get back to a 200,000 unit annual rate or above that, and we just kind of bump along the bottom here for the next few years on boat sales, I mean, heaven forbid, but let's say that scenario develops. What's your opportunity to grow that organically grow that service offering and both in terms of revenues and margins? Thanks.

Thanks for the question. We actually feel like the moves we've made strategically over the last, you know, many years here to diversify with these related businesses set us up structurally for to do exactly what you're saying. You know, what if the industry is down? We've moved up to the higher network consumer, a higher price point of boat. Our service offerings, you know, range from, you know, better services at our facilities to service boats to the marinas. Now the super yacht businesses and IGY, but even within the super yacht businesses, you know, customers that maybe aren't, you know, part of our offerings in the super yacht side is to broker a boat if somebody wants to sell it. But we also do yacht management, you know, maintain their yacht for them, keep it compliant and service, and we also charter it. And so when somebody might not be in the mood to buy a new super yacht, they might go do two or three charters over the season. So that's a resilient business kind of within itself. So we have a great, you know, set up for, you know, if the industry levels are down, we're playing in the right part of it. That was kind of the strategic move we made and we'll continue to enhance it. You know, on the just the straight boat servicing side, there is upside there and opportunity, but, you know, you're constrained by some of the facilities that we can do all that work at. But there is upside there.

Hope that's helpful. Thank you very much. Thanks, David. Thank you.

I would now like to turn the call back to Mr. McGill for closing remarks.

Well, thanks everybody for joining us. We're having great traffic here at the Fort Lauderdale Boat Show. It looks to be a good show and we'll look forward to updating you on our next call. Thanks

for joining us.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines

at this time.