Brad Cohen - ICR Bill McGill - Chairman & CEO Brett McGill - President & COO Michael McLamb - CFO.

Eric Wold - B. Riley FBR Sean Wagner - Wedbush Securities Michael Swartz - SunTrust Ronald Bookbinder - IFS Securities David MacGregor - Longbow Research.

Ladies and gentlemen, thank you for standing by. Good day, and welcome to the MarineMax, Incorporated Fiscal Second Quarter 2018 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' 2018 fiscal second quarter results. I'm sure that you've all received the copy of the press release that went out this morning. And if not, please call Linda Cameron at (727) 531-1712, 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 and Chief Executive Officer; Mr. Brett McGill, President and Chief Operating Officer; and Michael McLamb, Chief Financial Officer of the company. The management will make a few comments about the quarter and then be available for your questions.

And with that, let me turn the call over to 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 could cause actual results to differ materially from expectations.

These risks include but are not limited to the impact of seasonality and weather, general economic conditions and the level of consumer spending, the company's ability to capitalize on opportunities or grow its market share, and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission.

With that in mind, I'd like to turn the call over to Bill..

Thank you, Mike, and good morning, everyone. Let me begin by thanking the MarineMax team for producing a very strong overall March quarter. Their focus on taking great care of our customers, while ensuring they are enjoying the boating lifestyle, combined with providing the industry's best products, propelled our growth in earnings for the quarter.

But let me stress, it all starts with our passionate team and the great customer experience that they deliver. As further evidence of the power of our strategies and team, despite more adverse weather and mixed industry registration results for the quarter, I am proud that our team drove a 16% increase in unit sales in the quarter.

And this was on top of a good quarter last year, further validating that boating with MarineMax is alive and well. It was also great to see the strong gross margin improvement in the quarter. We produced the best March quarter gross margin in our company's history.

Certainly, a combination of factors drove this, but margin expansion remains one of our core goals. Brett will provide more detail on this later, but I would like to comment that we are not in a discounting environment, and demand for new models remains at very high levels. Clearly, this allows for the opportunity of further margin expansion.

As we are moving into the summer selling season, our confidence continues to build. Our unit growth, coupled with sustained and ever-growing consumer confidence we are seeing, should support a healthy industry for the foreseeable future. What provides us with this growing confidence is our ability to execute in this environment.

To that point, for another consecutive quarter, we've produced very strong flow-through that resulted in robust cash flow and earnings.

We accomplished this as our team did a good job controlling costs in the quarter which, combined with the gross margin expansion, allowed for mid-teens flow-through even with a meaningful rise of about $500,000 in net expense due to increased health care claims in the quarter.

This implies that our flow-through, absent that increase, would have even been better.

While it's never easy to keep all the dials positioned exactly right, the team's sharp focus on maintaining a well-controlled expense structure, along with improving gross margins, has worked and should continue to result in positive operating leverage moving ahead.

New innovative models from our manufacturing partners continue to stimulate demand and interest from not only existing boaters and customers, but also those new to boating. Clearly, with the unit growth we have seen throughout this recovery, we have added many new boaters to our family and to the industry.

The new models and the new entrants, over time, should simulate a replacement cycle as they become more comfortable on the water, enjoying the lifestyle of boating and, ultimately, trading up for larger products. That's -- this is what we call food item.

This is one of the reasons MarineMax is well positioned to build on our industry-leading market share well into the future. Now let me comment on our charter business in the BVI. MarineMax Vacation is still recovering from the devastation of the 2017 hurricane season.

Yet as we expected, the BVI's remains a vacation destination in high demand for our charter fleet and is very active in creating dreams for our customers. The beaches, fishing, snorkeling, and the bars are very busy, which is great to see. On a related note, we launched and created the Aquila brand of catamaran specifically for our charter business.

As we have mentioned in the past, we have been pleased by the strong demand for the Aquila catamarans for private use in the U.S. and also internationally. Demand is very strong, and recently, the Achilles 36 received a prestigious Boat of the Year award for a multihull boat, beating out much larger boats from some of the industry-leading brands.

I am proud of what our team has built in just a very few short years. While not a major brand yet in our P&L, it should be in the future, given the demand that we are seeing worldwide. Regarding Brunswick's announcement on the intent to sell Sea Ray, one of our most important brands, we know the process is ongoing.

Beyond that, we still expect that whoever the future owner of the brand will be, they will maintain and improve upon the Sea Ray legacy. Given our long history and the fact that we are a major portion of the Sea Ray's distribution, we continue to closely monitor the process.

We are confident that the future of the brand, arguably the best legacy brand in the industry in terms of consumer build, will be bright. As we enter the heights of the boating season, we are ready to build upon the first two strong quarters of our fiscal year.

We have also fine-tuned our inventory position and have the right product and the team to execute on our disciplined sales and service approach, which is the root of our sustained success. We remain focused on delivering the highest level of service to our customers. Everything starts and ends with that philosophy.

We will continue to work to maximize each boating experience and ensure MarineMax remains the retailer of choice. And with that update, I'd ask Brett to make a few additional comments on the quarter.

Brett?.

Thank you, Bill, and good morning, everyone. Let me also provide a big thank you to the MarineMax team for producing such strong results in the first half of 2018. I want to elaborate on some of the strengths we saw in the second quarter. We drove significant unit increases in the quarter, and it came from a broad mix of products.

The diversity of our product offering, which stems from the significant brand and segment expansion we undertook in the downturn, continues to drive our growth. Specifically, the expansion to higher-end premium fishing boat, which are outboard powered, has been and will continue to be a major driver of our units and revenue.

This segment of the industry has been growing well for years and the average unit price has also grown nicely. Additionally, our expansion into pontoon boats in markets where they are very popular has helped to drive unit and revenue growth. A similar story exists with inboard ski and wake boats as well.

Additionally, we continue to train our team on the importance of our higher margin businesses like brokerage, service, F&I, parts and accessories and storage, and we have certainly had success in those areas over the years.

However, our team has incrementally stepped up their execution in these areas over the past few years, and that is now contributing to our overall gross margin improvement. Further supporting our gross margin improvement is the enhanced discipline and execution regarding our market pricing and overall proactive inventory management.

These efforts led to another consecutive quarter of incremental boat margin growth. Most of the brands we carry saw margin improvement this quarter. What is encouraging to me is that while we are doing better, we still have opportunities to drive additional margin improvement across our business over the long-term.

Critical to our ability to drive results is our manufacturers maintaining their commitment in search for innovation. Finding ways to incorporate new technology into products is important, as we have demonstrated through our sales growth the past few years. Certainly, new innovation helps to drive demand.

Like our focus on margin, we are also committed to operating efficiently. It's our intent to maintain our disciplined approach toward cost management in order to sustain a healthy total margin improvement. Clearly, we are doing a better job in this arena and believe additional opportunities exist.

We will continue to focus our training and internal process to drive improvement. Our broad array of product, our proactive approach to service, and our team's commitment to boating events for our customers should continue to stimulate demand. Now let me touch on the acquisitions we have completed over the past few years.

The integrations of each are going very well, starting with Russo in the Boston area in April of 2016; Hall Marine in the Carolinas in January of 2017; and the most recent, Island Marine in New Jersey in January of 2018, are all going better than planned.

All of the principals and management involved are contributing greatly to MarineMax by sharing their best practices and ideas, while embracing ours as well. They are all taking great advantage of the additional products and the inventory that they now have available for their customers.

We have countless stories of success in that regard, and I am confident they will continue. It's been a rewarding experience to merge with, integrate, and welcome such great businesses and teams to the MarineMax family. When cultures are aligned, success follows. And with that update, I'll ask Mike to provide more detailed comments on the quarter.

Mike?.

Thank you, Brett, and good morning again, everyone. I need to add to the praise and thank the MarineMax team for an outstanding quarter, certainly great to see and experience. For the quarter, revenue increased over 10% to nearly $271 million. The 10% growth is on top of a strong 23% improvement in the same quarter last year.

Importantly, same-store sales grew over 8%, which is strong, given that we were up against 13% growth last year. As Bill mentioned, we had 16% unit growth, which would tell you that our average unit selling price dropped about 8%. The drop is primarily due to very strong overall unit demand, which greatly increased our denominator.

At the end of the day, having a strong overall unit growth is always outstanding news. From a larger boat perspective, we are flat to slightly up. I would add that the industry data does suggest choppiness in larger boats, but generally, we did not experience that across the board. Clearly, with our 16% unit growth, we are taking market share.

Geographically, some of our strongest growth markets on a percentage basis were generally areas pounded by the worst of the winter weather. Specifically, the northeast, which includes the regions from New York to Massachusetts, and the Minnesota markets all performed very well. Most other markets, including Florida, held their own.

I could add that each month in the quarter was pretty solid, with the strong boost coming from very healthy March. Gross profit hit a March quarter record of 25.6%.

While Brett added a lot of color on the margin drivers, let me add that the year-over-year improvement was almost equally driven by product margin and by the expansion of our higher-margin businesses. Selling, general and administrative expenses were $58.7 million for the March quarter, up about 7%, which includes the rise of health care costs.

Our team has generally executed well on controlling costs. Interest expense rose to $2.8 million, due mostly to the higher rate environment and additional borrowings due to increased inventory. As for income taxes, our annual effective rate should approximate 30% this year and drop to about 26.5% next year.

However, at any given quarter, certain items can cause the rate to vary. In the current quarter, we are eligible for certain tax credits provided to companies and areas impacted by Hurricanes Harvey and Irma. Those credits benefited our EPS by about $0.02. The other difference in rate is due to normal recurring items that surfaced in this quarter.

Overall, we produced a very strong 84% increase in pre-tax earnings to $7.8 million; 125% increase of net income to $6.2 million; with EPS more than doubling to $0.25 per diluted share after eliminating the $0.02 for the tax credits. I will only make a few comments about the first six months.

Same-store sales are up 4% following the 8% growth this quarter. Gross margins are up over 110 basis points.

Expenses are generally in line, factoring in the acquisitions we have made, all yielding a 64% increase in pretax earnings, a 93% increase in net income to $10.4 million, and 100% increase in EPS to $0.44 per diluted share after removing the tax credit. Certainly, a great start of the year. Moving on to our balance sheet.

At quarter-end, we had approximately $57 million in cash. Additionally, we have substantial cash in the form of unlevered inventory. Our inventory at quarter-end was $424 million. As we have said in the past few quarters, we ended 2017 with elevated inventory due to the big boat choppiness.

As we work through 2018, we should see inventory fall more in line with revenue trends. Year-to-date revenue growth is about 8%, while inventory is up less at about 5%, so inventory turns are beginning to improve. Again, we will make more progress in this regard as we work through the summer selling season, while staying focused on healthy margins.

Turning to our liabilities. Our short-term borrowings were about $299 million at quarter-end, which is up primarily due to the significant share repurchase we completed at the end of the last fiscal year and increased inventories.

Customer deposits, as we have said in the past, tend to be lumpy due to the size of deposits and whether a trade is involved or not. This line item, which gets some attention as a potential read on future business, was down year-over-year. However, looking at our backlog, it is up.

Keep in mind, this line item was also down 14% after the December quarter. And we produced 8% same-store sales growth at a 16% unit growth through the March quarter, when we were up against a 13% comp from last year. We are now up against a 10% comp with an increase in backlog. And generally, trends in the industry seem healthy.

Our current ratio stands at 1.42, and our total liabilities to tangible net worth ratio is 1.27. These are all very good balance sheet metrics. Our tangible net worth is almost $292 million or $12.71 per diluted share, which is up $0.23 from December. We own about half of our locations, which are all debt-free, and we have no additional long-term debt.

Turning to fiscal 2018 annual guidance. We are raising earnings per share expectations to range from $1.44 to $1.50, up from the prior range of $1.30 to $1.40 and up from the initial range of $1.10 to $1.20 at the start of the year and prior to the tax reform. Our guidance still assumes same-store sales growth of 5% to 10% for the fiscal year.

As a reminder, we are at 4% through March, but we are up against the easier comps as compared to the first half. Despite the improvement in leverage thus far, we are generally still using leverage modestly better than the last two fiscal years.

The main reason for this is the importance of the back half of the year to EPS, given seasonality, and specifically how critical the June quarter is. Our guidance uses the share count of 23 million shares and excludes the impact from any additional material acquisitions we may complete. Let me briefly touch on our current business.

I just mentioned that our backlog is up. Keep in mind, last year, we had a good April and then experienced larger boat softness in May and June. Today, we expect that April will finish ahead of last year. Having said that, May and June are critical months of the quarter.

So while we feel good about this business, we know we have our work cut out for us during this quarter. Nonetheless, our team is up for the challenge. And with that, I'll turn the call back over to Bill..

Yes. Thank you, Mike. As Mike mentioned, we're now in the busy summer selling season in virtually all of our markets. We have hundreds of events planned each month as we look to educate service and embrace our customers to ensure they're enjoying the boating lifestyle with their families to the fullest.

As I said at the start of the call, it is that simple strategy that's working well for MarineMax combined with the best team in the industry. I am very proud of what we have accomplished in this, our 20th year anniversary as a public company.

Certainly, we've had our share of challenges over the years, but because of our team, our strategies and our strong balance sheet, we have remained a premier retailer in the marine market for a very long time. It's great to see our presence and positions growing stronger every day. It's really great to see. As we look ahead, the industry is healthy.

Our acquisition pipeline is robust, but as always, we will only execute when the culture, the team, the valuation, and the market, are all aligned. While acquisitions will always be a part of our growth strategy, we continue to see expansion of the brands and segments we have today as the largest near-term driver of our growth.

In many cases, we have very large markets with our brands, allowing for a considerable expansion over time. In closing, the MarineMax team is ready to deliver the boating dream as we move forward. We thank our team and we thank our customers as we focus on building long-term value for our shareholders.

And with that, operator, let me open the call up for the questions..

Thank you. [Operator Instructions]. And we'll take our first question from Eric Wold with B. Riley FBR..

Thank you. Appreciate it. Good morning. I guess, first question and obviously, great quarter and great push-through in terms of what was some concerns that there are on weather and whatnot, especially in Florida. I guess the March industry data created a lot of noise out there.

Any sense from your end kind of what drove weaker results to the outside of your operations? And kind of how -- more importantly, kind of how you pushed through? Any impressions there might have been in the quarter?.

Yes, as I'd say, probably the biggest reason that we're contrarian to what was going on in the industry is our focus on our customer. We do Net Promoter Score to measure customer satisfaction as an example. And we could be in the book, probably the ultimate question, which was done by the buying company.

And so it's how we take care of our customers and the events that we do with our customers. We invite them to the BVIs for getaway trips. We -- we're taking them to the Keys, we're taking them to the Bahamas, we're taking them to the various islands, we're doing winter events.

Even though in some cases, it's not boating in Minnesota, we're doing things when there are customers during the winter time. And those are differentiators. At the end of the day, this is about a boating lifestyle and it's about the experience and really changing people's lives as much as anything.

And I think that's probably -- it's even more important today as people are looking for their -- that escape and being able to do more with their family. And so that's the reason I would give..

Thank you. And then you mentioned obviously larger boats were flat to slightly up. So obviously, a greater mix of, I guess, non-large boats flowing through in the quarter, which definitely helped them on the margin side.

Maybe give us a sense of how kind of your inventory kind of backlog looks heading into the peak seasons, with a mix of boats and how you're positioned around this..

I did not study that, Eric, coming into the call. But it's healthy. I mean it's -- when we had the 16% growth that we had, it was fairly broad-based and our backlog is similar, is fairly broad-based right now. No concerns, no real concerns around big boats other than the industry data shows it's choppy.

But again, we did well in the quarter in that category as well and are playing into the June quarter as well..

All right. And just final question. You obviously talked about the acquisition environment somewhat.

What's a typical seller's mentality heading into kind of expectation for a strong season to like to kind of hold on and kind of benefit from that and kind of look to maybe kind of cash out once you get through it? Are dialogues still probably constructive during the peak season? And what is your outlook for kind of how attractive the environment could be right now?.

I think its, Eric, it's more of a -- they look good. They look at it as more of a long-term type of approach, taking care of their team, taking care of their customers. In some cases, an exit strategy could be there. But most of the time, it's -- if times are good, that's probably a time to be selling.

And so we don't see it as, "Hey, we've got our vacay and run," because that's not the strategy that people to join our family. It's called joining a family and when does it make sense, and rise all the ships as they rise as the tide comes up. And so our strategy is not to buy for the sake of buying dealers.

It's not -- our strategy is not for adding to our portfolio to try to improve our revenues and get a bump from the acquisition. Ours is, let's find team members that can help deliver the experience even better to our customers, and the cultures need to be aligned..

[Operator Instructions]. And moving on, we'll go to James Hardiman with Wedbush Securities..

Hi, this is Sean, on for James. Just on Sea Ray real quick.

I guess do you have any assurances that the new buyer won't meaningfully kind of shrink the product offering? Or do you have a backup plan in place for that offering? Have you spoken to any other manufacturers?.

Well, our portfolio is not -- the majority is not Sea Ray. And so it's not the big percentage it used to be a bunch of years ago. We've got assurances that Brunswick understands the importance of the legacy and the fact that the Sea Ray brand is not one to really be broken up because it could destroy the Sea Ray brand.

To take or draw our customers from 19 feet through 65 feet is still the right strategy for the brand. And so we are confident that Brunswick will do the right thing for the brand and take care of us and the other independent dealers as well..

Okay.

And I guess on whether -- do you have any color as to why maybe some of the worst, hardest-hit regions and states performed the best for you guys and the industry as well?.

Yes, Sean, this is Brett. Yes, I think we entered each boat show in some of those northern markets, with some of the newer hotter products, with a great innovation and had a strategy, and I think some of the sales results that those show paid off. People want to get a boat, buy a boat, have it ready for delivery when the spring opens.

So it's -- I think it's a -- I think it was a good executed with some marketing. And then also, the boats show result..

Okay, great.

And then, just lastly, any color you can give on kind of the insurance claims paying out from last fall? Has that kind of gone as expected, or slower, faster, however you want think about it?.

We don't specifically track it. We do hear people coming in with insurance checks. We certainly have seen increases in our -- at least it looks like. We have in our service businesses in the markets that were impacted. It's really hard to tie it directly back to an event because sometimes, it takes so long.

But generally, just given the unit growth we've seen, the trends we're seeing, I think -- fundamentally, I think the underlying strength of the industry is a bigger driver than the -- what might be happening through a replacement cycle on the insurance side of things in the impacted markets..

But Sean, it still needs to be said that if you take the Keys in Southern Florida, and there's still infrastructure being rebuilt in people's docks and that type of thing that -- so that -- return back to the new product is a little bit slower in those markets. And so it just takes a while, but that business is still very active.

And that's probably the most important thing, Sean, is that this attraction to boating and the passion that our customers have for boating, I mean, it takes a lot to move a lot of it.

And so it's -- I've seen it over the 45 years I've been in the business, whether it would be Arabs cutting off the oil back in the 1970s, or whether it was luxury tax or whatever it is.

I mean, our customers are resilient, and this thing called family recreation continues to be very, very important to most -- all the families that have their water genie bottle..

And moving on, we'll go to Michael Swartz with SunTrust..

Just wanted to touch on operating leverage, and specifically, the SG&A line here. And I think Brett went through some of the drivers for gross margin. But maybe you can give us a little sense of where we're seeing some of the improvements in SG&A. You're getting a lot of leverage there.

And just wondering, I mean, if some of the changes or some of the efficiencies you're seeing there are more structural in nature, why should we expect the incremental leverage to slow in the back half of the year, per your guidance?.

I can take part of this, and Brett can chime in. But we do a zero-based budget, spent a lot of time on it this year working through each of the major line items, like we always do, and just getting our teams very involved, reviewing it weekly, monthly, quarterly with the teams.

And honestly, we're just executing well around our cost -- budget areas and cost containment areas. And where we see something that begins to maybe creep up or creep in the wrong direction, we -- we're jumping on it quickly, working with the teams, figuring out how to manage the business and the expenses fundamentally in a pretty healthy way.

And I -- so I do think the potential is there for that to continue and really, into the future, continue.

But I think just given the importance of the size of this June quarter and the abundance of caution and just to footnote some prudent guidance numbers out there, we stayed more probably at the conservative end of where the guidance range could be.

Obviously, we're going to try to continue to execute, just like I said all the way through this quarter, the rest of this fiscal year. But if you look back at the last couple of fiscal years, we were a little more challenged maybe at executing versus the way we are now..

So I also think that this past quarter here, we took a very strategic and specific approach to our boat shows and bringing the right models and keeping our expenses at areas that are very expensive to do these shows. They're very effective.

But you can -- if you have a very strategic approach and keep the cost contained in those, and our team was very successful at that. But as Mike said, we have a lot of volume that's going to be -- this weather affects us, that compresses the time and how quickly people want to deliver boats, so our staffing levels and everything.

It's a lot of work this upcoming quarter when everybody's out boating..

Okay, that's helpful. And then just touching on Sea Ray.

I'm just trying to get a sense, obviously, with kind of that brand in limbo right now, with the sales process going on, have you seen any pushback, any angst from consumers around that brand?.

We -- in the -- especially in the larger products, we've seen some delay. That is the way I would state it -- the people.

If you're going to buy a boat for $1 million, 2 million, or $3 million dollars, and the company is up for sale, and it hasn't been in out to who the owner's going to be and there's uncertainty around it, it can cause some angst, to use your words. And so we expanded in the larger products. We're not seeing it in the smaller Sea Rays.

But for sure, once this thing gets announced and we're heading down a good path with it, I think that the customers will go ahead and pull the trigger. But there -- it has definitely impacted our larger Sea Ray boat business..

Okay. That's helpful. Then just one follow-up, just housekeeping.

Mike, guidance, the new EPS guidance range, does that include or exclude the kind of nonrecurring or one-time tax items we've had in the first two quarters of the year?.

So it technically includes it, the way the math was all done. It's not -- it's only $0.02, it was not that big of a deal one way or another. It's, I guess, how I'd answer it, Mike. But we did it and included it..

And next, we'll go to Ronald Bookbinder with IFS Securities..

Good morning and congratulations on the great start to the year..

Thanks, Ron..

Thank you, Ron..

I was wondering, on replenishment, what have you seen so far? Are the people -- are they just replacing what they had? Or are they actually trading up?.

Ronald, this is Brett. It's hard to tell. It's been a slow pace out there and kind of to be able to track some of that directly with people trading up or just replacement, it -- we're seeing a little bit of both. We're seeing some higher demand in our service departments on boats being repaired.

But I think it's just such a slow trickle, it's hard to measure it specifically..

Okay. And in your prepared remarks, you mentioned how you own half of your locations.

And with real estate on the rise again, how does the market value of your real estate compare to your book value?.

We haven't gone out and done appraisals on anything once we've bought it.

But we have some fantastic properties and, really across, the country, and many of which came on board in 1998, back when the old accounting rules allowed you to do a pooling of interest transaction, which means the historical book value of whoever we merged with at the time, the example I gave is Bill's store here in Clearwater, Florida, came over into our books on like a $700,000 basis.

And a bunch of you who have a boat have probably seen it. I mean, it's clearly a $5 million or $6 million piece of property today. So we have a bunch of examples like that. And then we think we've made some smart purchases over the years of great real estate. And so the value is definitely above book value.

I'd be guessing as to what it is, but it'd be clearly above book value..

It would be substantially up, and there's no debt on any of it..

Right..

Okay.

And what is driving the trend towards outboards? And is it just more of an entry boat that these people will eventually trade up as they become part of the MarineMax family?.

Yes, I think that just -- probably a little bit of it started with the 4-stroke outboards that they came out, much quieter, it didn't have the smoke. And so it just became a lot more pleasurable to have that outboard on the back.

And then I think just as those trends started to take off, the boats became less about a outboard boat that's for fishing and maybe more of family. So there's better seating, there's more places to get shade and just the boats have really evolved in their innovation and things that appeal more to a broader audience..

And the reason for the stern drive market being down, as there's been a lot of discussion around the stern drive market being down. But at the end of the day, it's going to shift to outboards. And I think that's what you're recognizing, Ron.

And so it's been a shift and in we're -- as people have perceived boating, and to Brett's point, they look at it and say, wow an outboard works today and it didn't work previously as well..

Bill's talking about stern drive. So four years ago, I don't believe Sea Ray had a single boat that was engineered for an outboard. And today, everything that's already beaten down already has outboards on it. And certainly, in our marketplaces, they're being well received.

And so the business has just shifted right over from stern drive to outboard for us and very well received..

Okay.

And lastly, the health care cost, is that going to be going forward? Or was this a onetime event? How many basis points was it in the quarter?.

It was $500,000 that was the increase net in incremental claims in one quarter. And it's so hard to say, is it going to go forward or not. When you look at what the actuaries do, it should not have happened. And this is some of those -- some of the folks who have followed us for a while have heard this before. It's kind of up from time to time.

And then usually, it subsides. And then it comes back up again in two or three years from now. But I think it was 2015, the last time it popped up. It's an anomaly. It shouldn't be happening, but it does. And we're self-insured, like most companies our size, to stop loss limits. And when you get a bunch of claims, it can hurt you.

So it -- we thought it was just noteworthy of mentioning just because as we're looking to continue to improve leverage in the business, the leverage wouldn't even look better if it wasn't for expecting clients..

And Ron, I'd add that if we weren't doing some very innovative things with our health care coverage, it would have been a lot more than $0.5 million.

And so we are, I'd say, we're ahead of what most companies are doing with their health plans and have embraced a lot of other things to save our team members' money and are being self-insured also with the company. So we're pleased it wasn't a lot more.

But the important thing, and Mike said this, there's a couple of big claims that happened, one with a child and the other was an adult with some very large claims, which we're on the hook for the exposure on the first I think it's $0.25 million of coverage..

Okay, great. Thank you very much and good luck as we head into the prime season..

Thanks, Ron..

Thank you..

And our final question will come from David MacGregor with Longbow Research..

There's been some talk about just kind of drivers behind the strength. You kind of addressed the replacement demand in Texas and Florida.

But could you talk about tax reform and the extent to which may that's starting to come through?.

I'll chime in and say, I got to believe, it's healthy. I mean, consumer confidence is at an all-time high. Small business sentiment, I know, is very high. People feel good about business out there today. The people doing small businesses tend to be a lot of our customer base, especially driving the larger revenue. So it's got to be helping.

I doubt that people are coming in and say, "Hey, my taxes this year are going to be lower, so I'm going to buy a bigger boat." Brett [indiscernible]..

I think it's just that sentiment and good feeling by our consumers, who a lot of them are small business owners, and they just want to get out in the water with their family and feel like it's a good time up to upgrade. Some of them have waited a while to upgrade their boat so....

And some of that is probably the unit growth that we saw that is driven by the -- people are feeling better about the economy, they're happy about the tax cuts, and that middle class America and business owner is coming out and will probably continue to do so..

That's encouraging. And just secondly, just on raw materials, yours is more of a sales business model.

But what are you hearing from manufacturers as they seek to recover their inflation and their costs in terms of -- what they're talking to you about possible pass-through?.

I'd say they're being consistent with what they always do. There's always some level of a price increase each year, depending on the manufacturer, it may be close to flat to 1% or 2%. There's been no change in that really for a long time, David. It's consistent. There's no spike, no drop.

So they're passing on and we're able to pass it on from our perspective..

But given that the inflation markets are all inflecting upwards here, some of them parabolically, do you expect that sometime later in this year, you're going to hear more pronounced pricing that you're going to have to pass through? Just trying to get a sense of how you're -- what you're hearing back anecdotally from your suppliers.

And then I guess, secondly, what kind of elasticity do you think might exist in terms of boat demand around that?.

We're not hearing from any of our suppliers that were looking at any major changes in prices. Based on what they know today and based on all the inputs that they know today, certainly, things could change. In other times, where we've been in higher inflation environments over our 20 years, we've been successful at continuing to grow.

And it all starts with what Bill said, taking care of our customers, keeping up there on the water boating. So we believe in any environment, we're going to be the winner out there from a share perspective no matter what..

Okay. And the last question for me is just regarding used boats and just the quality of the trade-ins you're getting on boats. Are you -- are people trading in recent model boats for new boats? Or are you getting more at that 6 to 8-year tranche coming in? Just help me understand what the dynamic is around used boat availability right now..

Let's say that some of our -- what we see on trade-ins is reflective of what we're selling new. I mean, some of our more premium products we sell tend to lend to customers that are trading in, like you said, newer fresher boats. So we don't see a lot of real old products. But somewhat, by the nature of what we're selling, it's new.

Used boats are in demand. They're hard to get. In some cases, we're seeing maybe less trade in certain markets than we have historically, but nothing really specific..

Just one of the drivers that's been discussed around, the strength of the new boat sales is that there's just a shortage of available good recent model year boats. And so I guess that's why I asked the question..

Pricing moved up in the marketplace, which allows -- makes it easier to trade boating per share..

Just reflecting the scarcity of recent model year used?.

Yes. The same thing happened in the auto industry a couple of years ago..

And used boat gross margins for you this quarter, how did they compare versus a year ago?.

They were incrementally up. Most of our product margins were..

And I'll turn it back to Mr. McGill for closing comments..

Thank you, Operator. And in closing, I'd like to thank all of you for your continued support and your interest in MarineMax. We're available today if you have any additional questions. Thank you..

Thank you..

That does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect..