Shannon Devine - IR, ICR Bill McGill - Chairman, President and CEO Mike McLamb - CFO.

Sean Wagner - Wedbush Mike Swartz - SunTrust Greg McKinley - Dougherty & Company Jimmy Baker - B. Riley & Co..

Good day, everyone and welcome to today's MarineMax Incorporated Second Fiscal Quarter 2015 Earnings Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Ms. Shannon Devine at ICR. Please go ahead..

Thank you, operator. Good morning, everyone and thank you for joining this discussion of MarineMax’s 2015 fiscal second quarter results. I’m sure that you’ve all received a copy of the press release that we announced this morning. But if you have not, please call Linda Cameron at 727-531-1700 and she will then fax or email one to you right away.

I would now like to introduce the management team of MarineMax. Bill McGill, Chairman, President and Chief Executive Officer; and Mike McLamb, Chief Financial Officer of the company. Management will make some comments about the quarter and then be available for your questions. With that, let me turn the call over to Mike McLamb.

Mike?.

Thank you, Shannon. Good morning, everyone and thank you for joining this call. Before I turn the call over to Bill, I’d like to tell you that certain of our comments are forward-looking statements as defined in the Private Securities Litigation Reform Act.

These statements involve risks and uncertainties that may 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 Bill..

Thank you, Mike and good morning, everyone. With the completion of another profitable quarter, we were profitable for the first half of our fiscal year for the first time since 2006, paving the way for a successful 2015.

With that said, I'd like to thank our MarineMax team for their performance in support of our customers this quarter and for our first half.

The marine industry continues its slow, but steady improvement and based upon our 27% same-store sales growth this quarter, which is on top of 45% improvement we produced in December quarter, the evidence of the recovery is clear.

The key industry categories and segments that we operate within have shown mixed results in the recovery to-date, including negative trends in the March quarter for stern drives and yards. However, they are generally starting to be more stable and contribute more meaningfully to our results.

We also believe our growth outpaced that of the industry resulting in continued market share gains for MarineMax. During the quarter, no particular segment stood out, rather we sold products across most of the segments in almost all of our markets. As in the past quarters, Florida continues to be the leading market for us.

Our other markets also are generally improving and contributing accordingly. However, with a prolonged winter across the Midwest and Northeast, we were not able to get as many boats close as we would've preferred, which actually resulted in less total revenue than we had expected in the quarter.

Similar to a year-ago this time, we are starting the June quarter with a solid backlog, presumingly due to delayed weather closings in certain markets. As we've discussed, one of our largest supplier Sea Ray is undergoing a major product overhaul.

Accordingly, we are consciously moving out the to be replaced models with the newer models as they arrive. We have traditionally used the numerous boat shows in the March quarter as one of the best opportunities to clear out older model year products.

This year our target efforts have resulted in a cleanest and precious inventory we have had since 2006. Given the significant increase in boat sales, which carry the lowest margin of all of our products and services we offer, our planned sell-off of the to be replaced models pressured our gross margins.

However, our product margins remain near historic levels and we are not seeing any competitive pricing pressure in the marketplace that concerns us. As we have stated in the past, in innovations, and our manufacturers have ramped up R&D and brought new products to market. Generally, each new product is being very well-received.

With production ramping up, we expect to be getting these new products and will be well-positioned entering the busy summer selling season with a greater mix of new models in our showrooms than last year. We also continue to see our one price strategy resonating with customers.

This simplified approach to pricing provides our customers with the confidence that we respect their right to the best price, plus it will emanate traditional price haggling and has contributed to the increase of the number of units, which we are selling.

We also continue to leverage our e-commerce to supplement sales and broaden our geographic presence. Our approach is to utilize enhanced direct marketing efforts to both stimulate interest and sales.

Our e-commerce platform that generates leads is mobile friendly and as a result, we are seeing significant growth from mobile leads consistent with other industries. MarineMax Vacations, our charter business that launched a little over two years ago continues to grow. The month of March was our busiest booking month yet.

Additionally, the Aquila brand, which we contract manufacture in China for our charter business is seeing increasing interest and sales for private models in the United States and other markets around the world. For our first half of 2015, I am proud of the 34% growth in sales. Being profitable entering our selling season is a big benefit.

Having fresher inventory and many exciting new models from our manufacturing partners and obviously having a great team. Yes, I'm disappointed that we did not get better leverage on our earnings growth, but our company is better positioned for the balance of 2015 than we have ever been.

And with that perspective, I will ask Mike to provide some detailed comments on the quarter.

Mike?.

Thank you, Bill and good morning again everyone. For the March quarter, our revenue increased to over $172 million. The significant increase was driven by same-store sales growth of more than 27%.

While we acknowledge that last year's March quarter had worse winter conditions across the broader portion of the country, we would add that this year the conditions for our Midwest and Northeast stores were challenging as it relates to delivering boats. This resulted in an even larger backlog for April this year than last year.

This is noteworthy given the size of the April backlog a year ago when weather clearly pushed deals from March to April. And as far as cadence during the March quarter, we had communicated on our last call that January was strong. Likewise, February and March were good months, but March was lighter than we had expected presumably due to weather.

From a mix perspective, the strength in our same-store sales was driven mostly by unit growth with low single-digit contribution from an increase in average selling price. This is very encouraging to see that we again posted unit growth in the mid-20% range. This is the fourth quarter in a row with very strong unit growth.

For the quarter, gross profit dollars were up over $7.4 million and our gross margin ended at 24.5%, down from 25.4% last year for the reasons Bill mentioned. Our SG&A was up 4.9 million in the quarter, but fell as a percentage of revenue to 23.6%.

While we achieved leverage, a few specific reasons reduced the amount of leverage that we normally expect in the business. First, we saw a significant increase in healthcare costs of over $1.2 million in the quarter. Much of this came in the last six weeks of the quarter.

A sharp rise in healthcare costs was principally due to an unusually large number of significant claims. Being that we're self-insured with individual and aggregate stop loss limits, the impact was not anticipated. We did experience a similar spike in the March quarter two years ago, followed by several quarters in a row of more consistent costs.

We are working with our providers to ensure we're doing all we can to properly contain costs while providing a health plan that takes care of our team. As we suggested two years ago, it is prudent to model increased costs for healthcare until we see a flattening or a reduction of these costs.

Additionally, assuming that the March quarter would be similar to the last two years as it relates to weather, we did step up our marketing efforts and costs by about $1 million. While this investment reduced the March quarter's leverage and profitability, we do think it was a wise investment, especially considering the backlog for April.

We believe that over the course of the year, marketing will fall in line with historical levels. For the March quarter, we again had no income tax provision.

Our effective income tax rate will remain essentially zero for the near-term, primarily due to the availability of substantial net operating loss carry forwards, which are fully offset by valuation reserve. As more certainty unfolds for our industry through this recovery, we will record a tax provision once our valuation reserve is removed.

However, we will not pay meaningful taxes until we absorb our NOLs of around $60 million. For the quarter, we generated net income of $390,000 or $0.02 per diluted share, compared to a net loss of $2 million or $0.08 per share for the comparable quarter last year.

As for the year-to-date figures, as Bill mentioned, we produced our first profitable starting six months, since 2006 as compared to a loss last year of $5.4 million. Our same-store sales are up 35%, driven by very strong unit growth and a modest increase in our average unit selling price.

Interestingly, on a rolling 12-month basis, through March 31st, our pre-tax earnings approximate $0.70 per diluted share as compared to $0.07 per share for the comparable 12-month period of the prior year.

Turning to our balance sheet, at quarter end, we had approximately 43 million in cash, however, we have a substantial cash and liquidity in the form of unlevered inventory.

Inventories were up about 6% to $277 million, given that our sales are up 34% for the year, our turns are improving and we are comfortable as we enter the busiest part of the year. Our short-term borrowings were up slightly due to the increasing inventory.

Sequentially, customer deposits increased 36% from the December quarter and they grew 14% over the prior year. As we've said many times, this line item can be lumpy and it's tough to get a good read on our business by the percentage increase or decrease.

As an example, customer deposits may be smaller when there is a trade involved, yet, the future sale could be significant. However, it's nice to see the trends are positive. We remain well capitalized which provides us with a competitive advantage over other companies in the marine industry.

Our balance sheet is supported by increasing cash flow due to improving sales and our ability to drive profitability. We ended the quarter with a current ratio of 1.61 and total liabilities to tangible net worth ratio of 0.88. Both of these are very strong ratios. Our tangible net worth stands at almost $245 million.

We own more than half of our locations, which are all debt free and we have no other debt other than the inventory financing. As for current trends, April last year had very high same-store sales growth and was one of the largest Aprils ever given the shift of deals from March due to weather last year.

Accordingly, you would normally expect this April to be less than last year. However, as of today, we expect this April will exceed last year's April. That said, the June quarter is one where each month gets materially bigger as the quarter progresses. So we have our work cut out for us.

It is time for us to continue to execute and deliver on the rebound in the industry. Slow and steady improvement will yield consistent results that we hope to build upon in the coming quarters and years. And with that, I'll turn the call over to Bill..

Thank you, Mike. As we look ahead, we continue to be positive on the opportunity to grow our business, as customers and potential customers gain confidence in the economy and seek alternative outlets to enjoy their time with their family and friends, boating is a great solution.

Our job remains to grow our leadership position and continue to drive our sales and build upon our market share. With the strongest part of the selling season in front of us and with our lean inventory position and a positive impact from having more new models to sell, we are energized.

We are also cognizant that the arrow is not straight up, but rather it will be a gradual climb. But the good news is that we expect the overall trajectory in the coming years will be positive.

With our new products continuing to hit our floors in our one-stop solution for all of our customers’ needs, combined with our commitment to putting customers and their families on the water to positively impact their lives, we are firmly entrenched as the leading source in the marine industry.

Coming off of the boat shows across the country in the past few months, we are enthused by the excitement that the customers have and many new potential customers are expressing interest in our new products.

This combined with the ageing fleet of boats that's out in our industry, the industry is poised and beginning to experience greater demand that we have seen in years. What clearly is exciting is that of the 54 stores that we have today. 50 are the primary stores we had when we hit the peak back in 2006 and 2007.

With demand returning and our focus on operations, we have a powerful platform to draw on strong cash flows in the coming years. This does not take into account any potential acquisitions we could make or the opening of new stores.

Discussions with potential acquisitions are continuing and when the terms makes sense for us and the potential acquisitions, we will welcome them to our family. In closing, I would like to thank our team for their efforts and focus on our customers who at the end of the day drive our passion for them and for boating.

And with that, operator, we would like to open it up for questions..

Thank you. [Operator Instructions] We will go to James Hardiman with Wedbush..

This is Sean Wagner on for James.

Just first, how would you say - what would you say your same-store sales would have looked like if you adjusted for the backlog or if you were able to deliver all the boats that you have taken deposits on? And then second, how should we think about the ASP benefit for the year? What was it for all of last year and what do you expect it to be for this year? Thanks..

I will address this. Sean, thanks for the questions.

The ASP benefit year-to-date is low maybe 4%, 5%, something like that, almost all the same-store sales growth is units driven, maybe a little higher than 4%, 5%, but what’s happening is, as our primary suppliers Sea Ray is really getting back into the smaller boat business with the new 19 and 21-foot boats, we are expecting to sell a lot of those boats which is going to the denominator of the ASP calculation.

If we did have that, we’d probably have a higher contribution from ASP, but we are selling a lot of units which is great. We are taking a lot of market share which is really fantastic. As for what our same-store sales would be, I don’t have those figures in front of me. Obviously the quick answer is it would be up.

I think maybe a way to get your head around that is last year in April when we had all the - we had 20 million or so shipped from March to April and really spike our same-store sales growth in April, you would expect this year to be down.

The fact that we are going to be up, I think a good chunk of the reason why we are being up would be the sales that otherwise would have closed in March. But I can’t convert that for you quickly into what the same-store sales would have been, but up, probably still high single digit increase of what we had today..

Okay, alright. Very helpful. Thanks guys..

Thanks, John..

Thanks, John..

We will go next to Mike Swartz with SunTrust..

Hey, good morning, guys..

Good morning..

Good morning, Mike..

Just wanted to touch on the marketing piece of the equation and understanding that you had spent some more in the quarter in the kind of revenue that you would have expected when they got pushed into the June quarter. So there is somewhat of a mismatch there.

But just in terms of the full-year plan and I guess how you are thinking about the year, I mean should we be thinking about a significant increase in marketing for the full-year or is this simply a shift and kind of your internal marketing dollars are really not changed?.

Yeah, I think on a full year basis, marketing as a percentage of revenue will come in line with our historical averages. I think when I look at the data, I think the backlog that we have going into April is evidence that the marketing investment paid off.

We’ve got the two biggest or two very big quarters in front of us as the summer selling season kicks in. The Mach quarter is always the quarter when we spend by far the most in marketing, because of all the boats shows we are in. So by definition, the amount of dollars is going to drop in the next two quarters.

And I believe it’s going to come in line with historical levels and percentages..

And, Mike, we had a lot of new products to show this year from most all of our manufacturers as well as some new brands that we really didn’t have last year and so we put a full-court press on the boat shows and we saw the results, a lot of which got - is getting shoved into this quarter..

Okay.

And then just in terms of the backlog and understanding that we have a pretty tough comp when we think about it, but could you maybe give us some more granularity as to maybe the mix of that backlog? I mean, is it more yachts, is it more cruisers, is it more of the kind of sub-30-foot dayboats versus last year?.

A lot of it is new product and because that’s being very well received and so the sport boats that are coming in from Sea Ray are doing very, very well. The new Sundecks that Sea Ray has, there is a backlog.

Whaler continues with some of their new models that they have the same things, some of which we made the sales and we couldn’t get the product in time to deliver in March.

And the rest of it was weather concerns and some of that and we didn’t expand on that, but when you’ve got unbelievable weather up north, in some cases the customer have trades and those trades are under shrink wrap in a barn and not able to get them out and do the due diligence we need to do on the trade we are taking and it differs the sale.

And some of that was going on as well. But we are feeling very comfortable with just a little high note. We just finished a series of boat show this last week, it was substantially up over the last year. We had a big Azimut event down in Pompano. I think about 200 people showed up and we had a record event as far as sales or concern of Azimut products.

And a lot of these products is 50-foot and larger.

So the signs are all there that it’s very, very positive and some of the SG&A costs that we had like health insurance and the marketing spend, we believe was the right decision, but getting our inventory right is absolutely the right thing for the long term and really puts us in a position to have an incredible 2015.

And Mike mentioned, the rolling 12 months earnings. If you go back and add the other two quarters from 2014, that’s what we are up from 2014. So, we’re feeling good about that, but as I said, we’re disappointed that we weren’t able to hit the Street’s numbers..

Right.

And then just the final question and I know you guys aren’t as FX - currency exposes a lot of the companies that we look at and track, but could you maybe talk about in terms of maybe competitive actions you’re seeing from maybe some foreign boat manufacturers and/or your kind of exposure to euros in terms of purchasing of Azimut and other European brands kind of how you think about that playing out or any changes you’re seeing in reaction to currency?.

Well, short-term, over the course of the probably the next six to nine months, there will be no impact or pressure from foreign manufacturers, because most manufacturers had hedged the dollar and so, most of the products that were in production or on the field have been hedged.

So, the euro dropping or the dollar strengthening, another way to say it is that we’re not going to see a negative impact from that.

There will be a very positive impact hopefully going forward from the Azimut brands that we sell and - but at the end of the day, if you’re doing everything right, it’s not about price as much as is about the product and the support and everything goes with it.

So, we’re going to continue to deliver this total experience, which we believe we do better than anybody and at the end of the day, if some foreign manufacturers come in with lower prices due to the euro, assuming that it will stay down, then we’ll know how to address that and we’ll have the Azimut brand to help us to do that if it’s needed..

All right, great. Thanks, guys..

Thanks, Mike..

Thank you..

[Operator Instructions] We’ll go next to Greg McKinley with Dougherty & Company..

Yes, thank you. So, Bill and Mike, you’ve talked about how the April backlog sets you up positively versus a very strong April last year. Can you quantify for us how that backlog has changed and how we should think about that driving April sales? And maybe just a little more color on the mix.

So, is that April backlog mix similar from an ASP and unit standpoint than like what you indicated you’ve experienced year-to-date?.

Yeah, so, on the overall backlog, so, units are way up, up higher probably than dollars, because of these new models that are coming from a Sea Ray and some of that backlog goes further into the quarter, not just May or - not just April, they go into May and to June.

As far as April’s business, I would expect April will end up being up low-double digit, but that’s on top of a comp of the prior year that was some crazy like 50%. We had an unbelievable April last year. And April, I think, is going to be a pretty similar mix to what the quarter was in terms of small boats, big boats and so forth.

So, our contracted units is up greater than our contracted dollars, but our contracted dollars is still up to fair amount..

Okay. Okay, that’s helpful, thank you. And then, I think we understand that in the June quarter, each month and I guess similar to the March quarter, becomes progressively more important seasonally with sales concentration April being smaller and May and June being larger.

Can you help us understand maybe quantify how historically that mix has laid out? Is April a quarter of typical June’s sales or can you give us some round numbers around how we should think of the contribution from each month?.

Yeah, I think your estimate of April being a quarter of the whole quarter, it’s probably a little high. It’s probably more like 20% something like that.

April historically, now last year would be different, last year’s April was quite big and then May is usually smaller than June, but within a 15% short of what June is, they’re not usually that far apart, but June normally is the largest month of a fiscal year typically and really for our industry is typically the largest month of the year..

Okay.

Largest month of the whole year?.

Typically, it is, yeah, for the industry and for us it happens. You get all the northern markets really coming alive around that Memorial Day beginning of June time period..

And Greg, if you go to some of our northern markets, last weekend is about the first good weekend we’ve had. It’s tough when we’re trying to do spring launch and deliveries and everything else when it’s really one of the first weekends we’ve really had good weather.

So, the winter did linger this year little longer than we had hoped, but at the enthusiasm of the customers that our getaway trips are booked and we’re seeing big success there and probably the biggest indicator we saw is that our boat shows is that our customers’ enthusiasm is still very, very high.

So, we got our fingers crossed and doing everything we can to make this a great quarter..

Okay, good, thank you. And your gross margin comments, so, yeah, that makes a lot of sense in terms of boats are strong in general, so that’s dilutive to margin rate.

Within boat sales, we are moving out whatever we had from product yet about to be replaced by new models and so that pressured margins a little bit here in March and also in December, where are you - as we head into June, do we actually see, because in theory, that should flip from a headwind to a positive at least on a product margin basis, because once we get rid of those older products, you got all this fresh new product in, which should be selling almost at full price points?.

Well, Greg if you look at the margins on the new products, your point is exactly right, we were having great margins, but that was offset in this last quarter with our effort to let’s get the old out of here and so, the margin has got hit. At the end of the day, it would hurt us, but we made a lot of progress now.

In April, we still have some of that product and we're going to - but there is less of it then we've had in many, many years. And so therefore, we're in a much better position and we'll be selling more of the new products..

Is there anything you can tell us about when you think that I mean, do we actually get to a situation where margin rates reverse positively because of the mix of new products, or I mean, does that happen as soon as this quarter, or do we really need to get into late in the year, maybe even 2016, when the delivery rates from the vendors hit full scale..

I think what we had said earlier is that, we would expect it to be diminished by the March quarter, and I think we said that a couple of quarter ago, I think with our efforts just to get in such good shape for the selling season, we still saw some pressure.

The thing that gets a little tough to bake into the equation, at least where it finally gets a little tough is, this is a, it's a three-year complete revamp of our largest supplier and we're in the first year right now, the first year is kind of coming to an end at the end of June but then we got, we got a whole bunch of new models a year after that and a whole bunch the year after that.

In theory, we should start to have enough of the new stuff to offset any of the margin pressure caused by cleaning out the older stuff.

I mean that should be happening here in the near term, is it the June quarter, or September, but it’s definitely here, because the margins are - to Bill's point are good on the new models, really from any manufacturer but -.

And we're having that, we’re having great success with Scarab, now with four different models, it's starting to really light up across the country. So we should get some help with that this quarter, we saw a little help with it last quarter; it's not a big delivery in smaller boat type quarter.

So, if you take what's going on with Boston Whaler or their new products and with Scout, and with Sailfish, and Sea Ray, and Azimut, I mean, stars are starting to align here but it's not a switch, we didn't get it all cleared out this quarter but we sure made a big dent in it..

Thank you..

Thank you Greg..

Thanks Greg..

Our final question will come from Jimmy Baker with B. Riley & Co..

Hi, good morning guys, thanks for taking my questions..

Hi Jimmy..

So apologize if any of this is duplicative, just jugging a few calls this morning. So, on the inventory front, with your sales year-to-date up 34% but inventory up only 6%.

I know, you talked about working down some of the older inventory and that you would obviously like to have more of the new products that you can get your hands on, but and so much as you can be, are you confident you've got enough both new and used inventory to continue to drive the comp through the selling season..

Short answer is yes, with what we have on the ground and what's coming. With the industry experience Jimmy, was a real bad decline in inventory turns and our turns need to improve even from where they are going to conclude this year. So we're improving turns which will improve profitability, fresher product yields higher margins et cetera.

So yeah, we feel very good about our inventory and our ability to sell and deliver boats in the season..

And when do you think, we might be done, hearing on these conference calls, any pressure from aged inventory from some of the older inventory..

I think for the balance of this year, you'll see more and more progress to eliminating it all, but it’s - will it all happen this quarter, we're sure pushing to do that, but I kind of doubt it.

But I'd say, overall it will start to - less and less and less and the margins will improve better and better because that new product has a substantially higher margin than the older long-in-the-tooth product..

Okay, then just lastly at a high level maybe for both Bill and for you Mike, it seems like a lot of your calls lately, the Q&A has been focused on some month to month trends, the timing of deliveries and trades and so forth, have you considered implementing any kind of annual guidance or some multi-year targets that might shift the focus to be less quarter-to-quarter and more about the longer term opportunity you have in front of you here?.

Before Mike comment, I mean, obviously this month, it would have been nice to given some guidance because we knew we were going to focus on aged inventory and long-in-the-tooth product and we did more than we even anticipated starting them on, but we would have probably have announced that early on and not had the news that we got this morning about all the agencies, but our Board has discussed it, we've discussed it, and I'll let Mike give you his comments on that..

I mean, honest we've talked about it again this morning, so it is a topic that we're exploring and do we go back to, we gave guidance for a decade, and so we’re considering whether we should go back, is there clarity out there, is there enough uncertainty that's been removed in the industry to sort of giving guidance again, and on an annual basis, we'd probably be what it would be versus anything else.

So, it's certainly in consideration right now Jimmy, your point is right, it's been a very quarter or month-to-month, Bill and I agree and so we'll - we're discussing as we speak..

What do you think?.

I'm strongly in favor, hence my question, but I understand there is several moving parts and several considerations that you got to balance but I think it would help to draw us to a longer term opportunity here with three fingers pretty significant..

We appreciate that Jimmy..

Appreciate the feedback..

Okay, well, thanks very much for the time..

Okay, thank you..

Ladies and gentlemen that is all the time we have for questions today, I'd like to turn the conference back to Mr. McGill for any additional or closing remarks..

Thank you operator, and in closing, I'd like to thank all of you for your continued support and interest in MarineMax. Mike and I are available today, if you have any additional questions, and so thank you for your time in the call..

Ladies and gentlemen that does conclude today's conference, thank you all for joining..