Brad Cohen – Investor Relations William H. McGill Jr. – Chairman, President, and CEO Michael H. McLamb – EVP, Secretary, and CFO.

Sean Wagner – Wedbush Securities Fred Wightman – Citigroup Steven Dyer - Craig-Hallum Michael Swartz – SunTrust Robinson Humphrey.

Good day and welcome to the MarineMax Inc's Third Quarter Fiscal Year 2017 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brad Cohen at ICR. Please go ahead, sir..

Thank you, operator. Good morning everyone and thank you for joining this discussion of MarineMax's 2017 fiscal third quarter results. I am sure that you have all received a copy of the press release that went out this morning, but if you have not, please call 727-531-1700 and ask for Linda Cameron and she will e-mail one to you right away.

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

Mike McLamb, Mike?.

Thank you, Brad. 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 by 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 would like to turn the call over to Bill..

Thank you Mike and good morning everyone. I am very proud of our team's effort in driving improved margins and unit sales growth. Although we did expect that we would generate even greater revenue in the quarter. Industry data show that sales of larger products were mixed but generally down during the quarter.

However we did not experience this choppiness until the later months of May and June. During the quarter media reports pointed to increased frustration of higher income individuals over the slow progress of change in Washington which has impacted their confidence in the economy for the near term. This likely contributed to the softness.

While we believe this to be temporary and expect the trend to reverse itself, it clearly pressured our results. Also while I prefer not to discuss the weather our stores across much of the Midwest and clearly the Northeast started their season very late in June, due to unseasonably wet and cool temperatures further dampening our results.

Having said this I think it is important that I give even more color on the quarter. Last year in the June quarter we call out the strength of product over 60 feet is an important component of the 44% same store sales growth. We said over half the growth was driven by an increase in average unit selling price.

By comparison when we exclude the northeast and our business over 60 feet our same store sales is about 11% and most of the regions outside of the Northeast were up in total revenues regardless of size.

Factoring in this deeper understanding of our revenue and the fact that we produced reasonably positive unit growth over last year's strong June quarter, is why we are convinced about the long-term state of the industry.

Another reason for our confidence is that the industry is still off about 40% from a unit perspective from the prior 20 year average before the financial meltdown. Pent up demand for new models by our manufacturers continues to be greater than any point in time over my 40 year career.

Plus many new boaters are joining the MarineMax family and the industry is evident by both our and the industry’s growth in smaller boats which is critical to the long-term health of the business. Further from a macro and historic perspective we are not seeing deep discounting or aggressive incentives from other dealers.

Dealers generally feel that new and used boat inventory are tighter than ideal. As an example many of our stores had less inventory than we would have liked for certain recreational day boats and we are fairly confident that our unit growth would have been measurably higher if we had this additional product in our stores.

Clearly our ability to deliver the right product combined with our customer centric approach continues to resonate well with the boating enthusiast and together it creates strong demand. Let me now recap a few additional highlights for the quarter. Our gross margins grew 290 basis points in a very material quarter which is outstanding.

Despite a decline in revenue we incrementally grew pretax earnings and we have produced almost 27 million of cash in the quarter adding more firepower to our already strong balance sheet.

Another quarterly highlight is that we've completed our first full quarter with six additional stores from the Hall Marine Group acquisition which we closed in mid January. The integration in business combination have gone very well. We continue to reap the benefits of numerous brand and segment expansions that we executed over the past several years.

They provide our customers with greater breadth of choice and ultimately the expansions have allowed us to be more diversified and better able to serve boating enthusiasts.

We believe that our team’s commitment to ensuring our customers capitalize, own, and enjoy the boating lifestyle along with a continued flow of fresh innovative products from our manufacturing partners should allow us to grow same store sales and drive improved results as we move full steam ahead.

And with that update I’ll ask Mike to provide more detailed comments on the quarter.

Mike?.

Thank you Bill and good morning again everyone. For the June quarter revenue approached 330 million. Our decline in revenues year-over-year was driven by a 10% reduction in same store sales. However from a unit perspective we had a mid single-digit increase on a comparable basis.

Our average unit selling price was down greater than our same store sales decline. This illustrates the impact of the larger boat softness. As Bill said growing units on top of the 44% growth we had last year is pretty strong. Geographically Bill gave a good color earlier when he said outside the Northeast most regions were up.

Given that Florida tends to sell more product above 60 feet in other markets, few markets were down in Florida. Despite revenue being pressured we were able to grow gross profit dollars to 85 million in the quarter. This was driven by a meaningful increase of 290 basis points to a consolidated gross margins to 25.7%.

In both the December quarter and the March quarters we commented that on a brand by brand basis we were seeing gross margins expand. In this quarter that expansion continued across most of the brands and segments we carry.

The biggest drivers of the product margin expansion are a greater mix of newer models, our improved use of market based pricing especially when new models are launched, and the stable environment we are operating within.

This coupled with our team performing well and our higher margin segments missing our revenue more favorably led to a large increase overall. As we look ahead we have the ability to incrementally improve gross margins on an annual basis for the foreseeable future. Selling, general, and administrative expenses exceeded 59 million for the quarter.

The increase in dollars over the prior year was a little over 5 million of which close to 3 million is due to the acquisitions we have completed year-over-year. Other increases were largely due to investments we made assuming our growth would be greater.

While we still feel very good about the future at our industry we have taken actions to curtail some of the investments to better align expenses with sales. Interest expense increased modestly due to an increase in borrowings to finance our inventory.

From an income tax perspective as we stated on prior calls we do not expect to pay any material taxes until we absorb our remaining NOLs and other deductions which approximated 21 million when fiscal 2017 started. Based on trends and our expectations the NOLs will be absorbed before the end of 2017 and we will pay some level in taxes.

We do provide for an income tax provision and our annual rate should be about 39% until any corporate tax reform that may happen. Let me remind you of the new accounting standard that we adopted at the close of fiscal 2016.

The new rule required that the difference between book and tax expense for equity compensation be reflected as a change in the tax provision. Previously these changes ran through equity on the balance sheet. The rule required financials to be retroactively reflect the impact of the new standard.

It reduced last year's nine months through June by 1 penny and had a similar impact on the current year. We don't plan to talk about the standard in the future since going forward it is a normal recurring item. Turning to earnings for the June quarter our diluted earnings per share was $0.57 this year compared to $0.56 last year.

Regarding our first nine months I will make only a few comments, while we would have preferred stronger results our team produced same store sales growth of 6% which is on top of 25% growth last year and 23% growth in the comparable period two years ago.

When you add back depreciation of stock based compensation we produced more than 44 million of cash and our earnings increased to $0.78 per diluted share, all healthy results. Onto our balance sheet at quarter end we had about 59 million in cash. Keep in mind we have substantial cash in the form of unlevered inventory.

Our inventory increased to 385 million. As we have previously discussed part of the planned increase in inventory is due to our expectations regarding our ability to outperform in an improving industry combined with the need to have new models in stock that we did not have last year and the addition of more stores.

Our property and equipment has increased due to the acquisitions we completed in the past 12 months as well as investments we have made to several of our Marine and ongoing normal maintenance CAPEX.

On the liabilities, our customer deposits while not a perfect indicator of the future due to the size differences of deposits and the impact from large trades continued to be substantially up year-over-year and now 24% over last year. We ended the quarter with the current ratio of 1.52 and total liabilities tangible net worth ratio of 1.06.

Both of these are very strong ratios. Our tangible net worth is now up to about 309 million or $12.30 per diluted share. We own over half of our locations which are all debt free and we have no debt other than our inventory financing. Turning to guidance we're updating our earnings per share guidance for the full fiscal year.

Based on our performance thus far in fiscal 2017 and our expectations for the balance of the year we now believe we would deliver same store sales growth for the full fiscal year of approximately 6% to 9%. This would imply low to high single-digit same store sales growth for the fourth quarter.

We now expect diluted earnings per share in the range of $0.97 to $1.02 down from a previous guidance of $1.14 to $1.24. This compares to a non-GAAP adjusted to fully taxed diluted earnings per share of $0.87 in fiscal 2016 and $0.47 in fiscal 2015.

Our revised guidance does not anticipate any material gross margin expansion or better leverage than what we achieved in the past two fiscal years. We will continue to update guidance as dictated by our performance. We will also plan to provide guidance for fiscal 2018 when we report our September results.

Let me comment on current trends, last year we produced 12% same store sales growth in the September quarter. As we're moving through July, our backlog is greater than last year and building. It's too early to draw conclusions for the balance of the quarter but we have started to see signs of better large boat sales.

In this quarter July and September are similar in size and August is usually the smallest as families get ready for school. We have much work ahead of us to produce the results we want for the quarter and our team is focused on working very hard. With that update I'll turn the call back over to Bill..

Thank you, Mike. We have added productive nine months from a sales, earning, and cash flow perspective with an optimistic view towards future sustained levels of growth. Our manufacturers are producing new models laced with innovative designs and technology enhancements.

With our increased depth and breadth of product along with our proven approach of delivering the boating dream, our team is ready to build on our performance. Our efforts to expand and strengthen our geographical presence in key boating markets is ongoing.

However we will remain patient and are focused on adding locations that could produce the same cash flow through a sale of industry leading brands. We're committed to building long-term value for our shareholders by consistently exceeding our teams, our customer's expectations one at a time.

And with that operator we’d like to open the call up for questions. .

[Operator Instructions]. And our first question comes from James Hardiman from Wedbush Securities. Please go ahead..

Hey, Sean Wagner on for James. Just kind of hoping you could give some kind of additional color on the big boat weakness.

I know you talked about some maybe economic uncertainty among higher end consumers, anything else you can point to that’s driving that and that you mentioned the weakness is primarily May and June? How long is that weakness expected to continue or is there any indication that things will turn around or improve in the near-term or going forward?.

Sean, we -- the consumers that we're talking to some of them are existing customers, some of them are potential new customers. We're not hearing a lot of hey, I'm going to wait. We're not hearing, I'm not going to do it until times get better.

What we are saying is they're just taking a longer time in order to bring them across the table and get the deal done. We're working bigger products and as Mike shared, we've seen an uptick in the bigger boat business in the last few weeks and we don't believe that it's something that's going to continue over a long-term.

The thing that impacts our business the most is called uncertainty and what's going on in Washington right now everything that they're trying to get done is a pushback by the Democrats and a few of the Republicans. And as such that creates uncertainty.

He is our President and this administration is going to be able to execute on the things that were promised to the people who went to the polls and voted them in and voted in the Congress. And so I think everybody is kind of a wait and see. You flip on the news and I listen to all the different news channels. In U.S.

where you are in different countries as you listen from one news channel to the next this whole thing about Russia is just blown way out of proportion in my opinion. And it just continues to be that way and so it confuses people and it makes them feel uncertain about what the heck are we going to do.

You've got people saying they're going to impeach our President. That gets people concerned and so we saw an uptick in units. The business is doing just fine, the big boat business is taking a little longer to get it done.

And when you're selling multimillion dollar boats and between one quarter and the next or a few quarters it makes a huge difference, I think that's what got us caught this quarter..

Okay and I know you pointed to the Northeastern kind of parts of Florida as the weaker regions, weather being the main concern in the Northeast and big boats obviously in Florida but is there any kind ASP or unit growth color you can give us regionally where units are up in either those regions or kind of are there any as far as like traffic, store traffic or the interest kind of metrics that you track, are those still obviously outside of the big boat weakness that are still strengthen and as far as the interest in some of the new models from here?.

Yeah, I'm pretty sure. So, our same store unit growth was in the mid single-digits, that would certainly include Florida. The Northeast I don't have the exact breakdown now but it's probably down unit wise because of weather.

I traveled up there in May and June and it was, I hate to talk about weather, but it is pretty ugly in the Northeast in May and June. No, but Bill said the demand that we are seeing for new models, we give you a number of examples but from our different manufacturing partners it is very, very strong.

Still industry seems to be very healthy probably more importantly as the boating lifestyle is very healthy. People out there on the water enjoying their boats, enjoying the lifestyle.

You couple that with our unit growth, with the unit growth the industry is seeing it tells you that fundamentally there's a lot of positives out there, it is just something that's got the maybe the wealthier side of the spectrum possibly a little bit more than they used to. .

Okay and as far as weather goes in theory you could expect to get at least some of those sales back, obviously we're pretty late into the…?.

We're very busy right now in the Northern markets that were impacted by weather in June. So, once the sun broke in late June and weather got nicer we've been slammed up there. Will we get it all back, the time ultimately will tell, that's certainly the goal, the time will tell on that. .

Okay, alright, thanks guys. .

Okay, thank you Sean..

Next question comes from Greg Badishkanian from Citi, please go ahead..

Hey, good morning. This is actually Fred Wightman on for Greg. I was just hoping you guys could maybe bridge the gap.

I mean when you reported in late April it sounded like you were expecting sales to be positive for the month and there was a decent backlog for May, could you just sort of walk through what changed between then and sort of the end of the quarter?.

Yeah, very good question Fred. When the March quarter ended we did not see softness in larger products. All of our boat shows were very strong. The month of April did finish up double-digits same store sales growth. Brunswick on their earnings call commented they saw some softness on larger boats which prompted 10 different investors to call me.

And in fact the industry data that came out in March which would have come out in late April did show softness on larger boats in March. We didn't see it, maybe it was our great execution of boat shows, maybe it was geographically how our stores are. We didn’t see it.

You go into May which is a much bigger month than April than June which is usually the biggest month of all of them and we saw some different audience in larger boats in those two months which is what’s impacted our top line. So it's really what we saw in May and June that we had not seen prior to that period on larger product..

Okay, that makes sense and then it sounds like for the gross margin outlook for the rest of the year you're still not expecting an improvement, I mean if you look at what you guys posted here in the third quarter even against the pretty tough top line, why are you -- can you sort of walk through the rationale for why you're still not expecting an improvement?.

You know when I look at the last several quarters we had -- in the December quarter we had modest improvement in gross margins. Kind of hard to see it because we had a big spike in big boats as well. March quarter we had a little bit of improvement, this quarter we've had a great improvement.

I just think it's too early to start putting that into our guidance. We may weigh that more into 2018 when we start thinking about 2018..

Great, thanks..

Thank you, Fred..

Our next question comes from Steve Dyer from Craig-Hallum. Please go ahead..

Thanks and good morning.

Your guidance implication for Q4 would suggest probably a better revenue performance than you saw kind of quarter-over-quarter last year if I am some sort of backing into using the EPS guidance and your gross margin commentary, etc am I am thinking about that right, has it become more of a down 15% to 20% quarter-over-quarter than the 35% you saw last year?.

So we had 12% same store sales growth in the September quarter last year and 44% in the June. So if you kind of do the math we were down 10% in the June quarter and what we're seeing for the September quarter is, a low to mid to high single-digit so 3% to 7.5% to 8% something like that in that range.

Part of that depends on do we end up seeing a little bit of lightness in larger boats, do we not, did the Northeast come back. But, we think we are the easier comp than we have in the March quarter or the June quarter. But we're comfortable with that range that we put out there, low to mid single-digit comp..

Okay and then as it relates to inventory, you have talked for a few quarters now about being constrained in some of the smaller boats, is there sort of a view to that loosening in the near future or is that a constraint you expect for the foreseeable future? Thanks..

You know I think when it comes to all the new models we have coming from manufacturers, the manufacturers have all the right intentions to get the new models integrated and get them in our showrooms just as fast as they can. I think reality gets in, it's been tougher to get them integrated.

So I think part of this is level setting our expectations that we probably won't get them all to the degree that we expected to have them. They still are tight in our stores today certainly impacting our unit growth that we otherwise would have seen in the June quarter. .

And Steve you heard us say that new models sell and there's a lot of new models from almost all of our manufacturers and with that comes ramp up and what the ramp up means you don't get the units as quickly as you want them or you need them.

They are selling in the stores that's part of the reason our unit sales are up so well as we have new models from a bunch of our manufacturers. And so as Mike said it will probably always be a bit of a challenge and because of the new models that they're bringing out and that is the right thing for the manufacturers to be doing.

So, we feel good about our inventory. If the question wasn’t asked but the model mix is right, the products we have in our inventory are good models. We've don’t have a lot of issues there and the aging is in very good shape. So it's a little higher than probably what our sales came out to be for the first nine months of our fiscal year.

But we've still got this quarter remaining with the active customers out on the water, our getaways, and their fans are very busy. And as such people are out boating. The waterways are packed on the weekends and the markets that were having a decent weather..

Great, thanks..

Thanks Steve..

Our next question comes from Mike Swartz from SunTrust. Please go ahead. .

Hey guys, good morning..

Good morning..

Hey, just a question on how you're I guess defining big boats and then where you saw the softness in May, June it's somewhat I guess a nebulous term so can you just give us a sense of really where you're seeing the weakness within the big boats?.

Its -- I’ll call it 60 feet and larger. It is -- and that goes all the way up into the 80s and 90s with the brand like Ocean Alexander and with Azimut. The potential customers are still there as we said Mike, it is just we are having a little more trouble getting them to pull the trigger. .

Right, right..

Mike the industry data touches a bunch of different ways. The industry data is talked about 40 to 62 also being soft. I'm sure some of that is impacting us. We tend to be able to somewhat plough through that a little bit better than the industry would show but for sure above 60 feet is what Bill called out in his prepared remarks..

And maybe the next question is I mean, let’s just take a more kind of bearish view on that end of the industry and assume maybe that persists, I mean what -- is there a way you can just give us maybe a rule of thumb, I know this probably bounces around from year-to-year but how much of your revenue, how much of your unit volume comes from boats over 60 feet?.

So units will be very low Mike. Revenue I will be guessing here on the call it’s a material number, meaning it's going to be over -- it's going to be probably around 100 millionish something like that over 60 feet. .

Around 10%.

Yeah, probably around that at the top line. It is going to be a smaller percentage of the bottom line because the margins up there shrink..

Right. .

But it’s an important part of who we are and what our business is and something that we've been very passionate about for the 20 years that we've been around and once a while you do have ebbs and flows in the business. It has been -- that specific segment has been fairly hot since the recession ended.

So this is the first time there's been somewhat of a pullback since probably 2010 or 2011 that us and others in the industry believe be short lived once things in Washington get moving in one direction or the other. It doesn't all to be rosy, it just needs to move on to wherever it is going to be and get done.

I think they will make a decision about what they're going buy. .

And it's not for the consumer having the cash or ability to finance because financing is excellent. It is just, you know, they've got to -- we believe they just need to feel a little more comfortable with really what's going on. .

Understood, thanks for the color there. And then just, I think Mike in your prepared remarks you had mentioned that looking to cut door or reduce some of the SG&A expenses I think is what you were talking about.

Maybe just give us a better sense of where the cost reduction opportunities lie?.

Honestly we are going through every line and we have done some of this already, every line, every store, every department just looking is this something we really need today, can we do without it today, is it going to help us drive revenue, take care of -- obviously anything that takes care of the customer we're not going to reduce but -- and so it is not any one specific place Mike.

There will be reductions in different places in the organization to try to better align the overall expense structure with what we're seeing from a sales perspective. .

And it is the prudent thing to do moving into the waterlines anyway to make a clean look at everything you're doing and say how do we minimize expenses without hurting the business. .

I mean, I guess is it safe to say that this isn't going to impact the marketing spending around boat shows and things of that nature?.

We evaluate what we did last year from a boat show perspective, what brands we took, what spaces we had, what boat shows we were in, what was the anticipated returns. There could be some tightening of the belt at different shows. It's one of the things that we're looking at. .

And if it is a tightening it will be a smarter way to do it than just cutting what we're doing. .

Okay, that's helpful. Thanks guys. .

Thank you Mike. .

And I'd like to turn it back to Mr. McGill for any additional or closing remarks..

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

And this does conclude our presentation. Thank you for your participation. You may disconnect..