Brad Cohen - ICR, LLC, Managing Partner Michael McLamb - Executive VP, CFO, Secretary & Director Brett McGill - President & COO Bill McGill - Chairman of the Board & CEO.

Scott Stember - CL King. Fred Wightman - Citi Joe Altobello - Raymond James. Seth Woolf - North Coast Research. Eric Wold - B. Riley. David MacGregor - Longbow Research Ronald Bookbinder - IFS Securities. James Hardiman - Wedbush Securities Mike Swartz - SunTrust..

Good day, and welcome to the MarineMax, Inc. Fiscal Third 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 third quarter results. I'm sure that you've all received the copy of the press release that went out this morning. If not, please call Linda Cameron at 727 531-1712, and she'll get 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 Mr. Michael McLamb, Chief Financial Officer of the company. Management will make a few comments about the quarter and then be available for your questions.

And with that, let me turn the call over to Mike McLamb..

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. It is nice to see that our third quarter that our team delivered 8% same-store sales growth, which was supported by strong underlying unit growth.

The industry data during the June quarter was mixed making me proud of our unit growth, which is further evidence that our strategies are resonating with today's boating consumer.

In addition to the mixed industry trends, our team had to navigate the previously announced sale of Sea Ray, which did pressure gross margins, only to be followed late in the quarter with Brunswick's decision to retain the brand. While we anticipate a better margin improvement, the impact from the Sea Ray uncertainty was bigger than expected.

We do believe with Brunswick's decision to keep the brand and the end of the uncertainty, such pressure should subside. Our approach and proven strategies helped us to gain -- again overcome the ongoing choppiness of larger boats in the industry, yielding expected market share growth in all of our key categories.

I should stress that while our Sea Ray sales experienced the margin pressure due to the uncertainty, we are not in a discounting environment. To that point, demand for new models remains robust. Virtually every new model from our manufacturing partners remain sold out, and generally, retail activity of our -- at our stores is strong.

Let me speak a little bit more about Sea Ray. We are pleased the uncertainty has been eliminated, with the exception of sport yachts and yachts. But so far, the demand since the announcement for our remaining inventory has been impressive. We are pleased that Brunswick is committed to improving the Sea Ray portfolio.

The plans that they have shared with us -- shared will be beneficial to us over time. Given our long history and the fact that we are a major portion of Sea Ray's distribution, we certainly are feeling better with the clarity by Brunswick.

Turning to demand, as evidenced by our growing backlog, our manufacturing partners investment in new models is stimulating demand and interest from both current customers and also new boaters. The demand for new models continues to surpass levels we saw historically. We believe this wave of new models will propel growth long into the future.

As we ended the June quarter, our backlog for the September quarter is pretty strong. As noted in our release, we had a few expense items that impacted our consolidated results. Unfortunately, for the second quarter in a row, we experienced higher health insurance claims that drove our costs up by a meaningful amount.

We also had an unusual nonrecurring cost related to a former team member's separation from the company. Absent these two items, our expenses overall were reasonably in line with our expectations. Let me provide a quick update on the ongoing recovery of our charter business in the BVIs.

MarineMax Vacations is still making progress on its recovery from the devastation caused by Hurricane Irma. As a testament to the lifestyle of boating, our demand for the charter vacations has been very strong, and so much so, we are rebuilding our fleet.

Additionally, the sale of Aquila catamarans, originally designed for the charter fleet, has seen very strong demand worldwide. It is really great to see a brand that we created rising in market share. We have big expectations for the brand over time, for not only charter, but also from international and domestic retail sales.

And with that update, I'd ask Brett to make a few additional comments on the quarter.

Brett?.

Thank you, Bill, and good morning, everybody. Let me thank the entire MarineMax team for taking care of our customers and for producing another strong quarter of growth. In many markets, summer was delayed, which caused greater efforts during an already busy time. I'll now provide some additional detail on our third quarter.

As Bill mentioned, we did feel margin pressure that was caused by the Sea Ray potential sale uncertainty. However, during the quarter, we saw strength throughout almost of all of our segments, which speaks well to our broad offerings of products. In particular, many of the new models with outboard engines performed well in the quarter.

Specifically, our premium center console fishing boats continue to grow as a percentage of our business. The demand for outboard-powered product is so strong that the engine manufacturers have had some challenges keeping up with the demand. We did have some sales that were -- that we were unable to deliver in the quarter due to the lack of engines.

We also continued to make progress in the quarter with the growth in our higher-margin businesses, but this growth was not as high as our pure boat sales growth. When this happens, we get an adverse mix and impact on gross margin.

The good news is that our team understands the importance and value of these higher-margin services, and over time, it will help contribute greater to our consolidated margin. Clarity with the Sea Ray brand and staying disciplined on the execution of our pricing strategy will help us on improving margin.

Plus, with all the new models coming, we are well positioned for incremental increases over time. We will also continue to invest in training and education as it is a big differentiator for MarineMax. Our training enables our team to take a proactive approach to working with our customers beyond just selling them a boat.

We are positioned to offer service that drives interest and builds enthusiasm for boating. Our getaways, which are events led by MarineMax team members, brings together boaters, new and old, to travel to the destination on their boats for days of fun in the water.

We see these as long-term investments to stimulate demand by bringing families and friends together. Regarding acquisitions, we continue to look and evaluate potential opportunities. The detailed process we follow helps to ensure that we have a great cultural fit and that we will have a smooth integration.

Let me touch briefly on Brunswick's decision to discontinue sports yachts and yacht. Obviously, we were disappointed with the decision but respect it and appreciate their refocused efforts on product below 40 feet. Since the announcement, we have seen rather solid sales of the remaining sport yacht and yacht product at good market prices.

We expect to carry some inventory into 2019 but not a significant amount. When we think about 2019 and our ability to replace the revenue, thankfully, we have diversified with premium brands like Azimut, Galeon, Ocean Alexander and Aquila.

Given some of the challenges and uncertainty we were experiencing with Sea Ray, we had already increased our orders with these manufacturers for 2019. We have been in discussions with those partners and believe that we will be in a position to replace our lost revenue and still have room for growth.

Bill commented that Aquila is gaining market share, and it's important to note that the other brands that we have partnered with, like Azimut and Galleon, are also doing very well from a market share perspective. We expect their share to only get better in the future, which is very exciting for us and our partners.

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. Let me also thank the MarineMax team for their continued efforts. For the quarter, revenue increased 10% to over $361 million. Importantly, same-store sales grew over 8%.

The same-store sales growth was driven 55% from an increase in average unit selling price, mostly due to mix since we sold more larger product than a year ago. This would imply unit growth of about 4%, which for our segments, is higher than what the industry data suggests. Geographically, we had good contributions across the country.

Gross profit, as Bill and Brett mentioned, declined to 25.1%. Most brands and models did well in the quarter from a margin standpoint, with the notable exception of Sea Ray. That pressure, combined with an incremental mix shift to larger, lower-margin boat sales and a modest mix shift away from our higher-margin businesses, led to the decline.

Selling, general and administrative expenses were $64 million for the quarter. Our healthcare cost increased over $1 million in the quarter. Absent that increase, plus the $1.2 million we noted in the press release, our expenses overall were reasonable given the growth we had.

Since we've had back-to-back quarters with sizable increases in our healthcare cost, caused by excessive claims, we are looking for areas to offset that increase, assuming it may stay at elevated levels for a while. Interest expense increased to $2.5 million, mostly due to the higher interest rate environment. Turning to income taxes.

Our annual rate should approximate 29% to 30% this year and drop to 26.5% next year. In any given quarter, certain items can impact the rate, which was about 28% in the June quarter. Pretax income was $24.1 million. Absent the two expense items I noted earlier, our pretax income would have increased about 13%.

Net income for the quarter rose to $17 million, with earnings per diluted share growing almost 38% to $0.79 when adding back the $0.04 from the $1.2 million. Let me provide a few comments about the first nine months of the year. Same-store sales were up 6%, following the 8% growth this quarter. Gross margins are up over 40 basis points.

Pretax earnings, adjusting for the $1.2 million, have grown over 23%. And earnings per diluted share, again, adjusting for the $1.2 million, has grown over 60%. Turning to our balance sheet. At quarter-end, we had approximately $62 million in cash, and we have substantial cash in the form of unlevered inventory.

Our inventory at quarter-end is in great shape at $379 million. As expected, the dollar level of inventory fell year-over-year. We are pleased to enter the final quarter of 2018 in good inventory position and with improving inventory turns.

Turning to our liabilities, our short-term borrowings were about $233 million, which as expected are down versus last year. Customer deposits are slightly ahead year-over-year.

As we've said in the past, they are not necessarily the best read on future business because they can be lumpy due to the size of deposits and whether a trade is involved or not. Our current ratio stands at 1.57, and our total liabilities to tangible net worth ratio is 1.00. These are very good balance sheet metrics.

Our tangible net worth is over $314 million or $13.55 per diluted share. 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 reaffirming our earnings per share expectations to range from $1.44 to $1.50.

Our guidance assumes same-store sales growth of 5% to 8% for the fiscal year. Our guidance does assume some lingering margin pressure on Sea Ray, even though today it seems like business is back to normal and it assumes moderately higher health care costs.

Our guidance uses the share count of 23 million shares and excludes the impact from any additional material acquisitions we may complete. The guidance does assume the $0.04 is added back for the unusual costs in the June quarter. As a reminder, for the September quarter, we are up against a 5% comp. Let me briefly touch on current business trends.

As Bill mentioned, our backlog for the September quarter is up, and we have seen July start well. July and September are usually the bigger months of this quarter. Our team is energized, and our goal is to finish the year strong. But as always state, we have a lot of work to do. And with that, I'll turn the call back over to Bill..

Thank you, Mike. We are in the midst of our summer push, with lots of interest from new potential customers and current customers. To further stimulate demand, we have numerous events planned this quarter to educate, service and embrace our customers to ensure they are enjoying the boating lifestyle to the fullest with their families.

As we focus on closing out another very successful year, we have the right products and the team to continue to reinvigorate margin growth and to execute on our disciplined sales and service approach. As we do each and every day, our team will continue working to ensure every boating experience is a success.

Our team's passion will reinforce MarineMax's position as the first choice for the boating community. We think our approach makes us a stand-out relative to competitors. We treat customers like family. We ensure that they're in the right product. Then we get the most out of their product and we keep them boating with the events.

We introduce them to new friends that are boaters and we make the MarineMax part of their life. Those are differentiators. At the end of the day, this is about boating lifestyle and it's about the experience and really changing people's lives.

This is even more important today as people are looking for that escape and being able to do more with their families. Ultimately, we have a proven approach at MarineMax and we continue to demonstrate that it resonates with our customers and their families.

The combination of our focused team, our strategies and our strong balance sheet, along with the enthusiasm we all have for boating, continues to set us apart and make MarineMax the industry's premier retailer of choice as we deliver the boating dream.

In closing, let me thank our team for their passion and our customers for their support as we grow long-term value for our shareholders. And with that, operator, let me open the call up for questions..

[Operator Instructions] We can now take our first question from Scott Stember from CL King. Please go ahead. .

Good morning, guys. Can you maybe just talk about the overall market again? The numbers that were coming out at retail were a little choppy throughout the quarter. I know that the data is delayed very often, the July numbers were a little off.

Maybe just talk about what you see in each of the different segment, maybe just talk -- just characterize the boat market and where you see it going?.

I can tell you, our own units, as I said; we are up 4% in the quarter, which is a lot greater than what the industry's data is showing. When we talk to manufacturers out there and we talk to other dealers, the vibe is greater what the data is showing. There's no question about it.

And I think some of you analysts also picked up on that when you were talking to different people. The only cautionary thing I'd say is that data, when you wind the clock back six, seven years ago, was not as full and as good a quality than it has been of late.

And so I think when you see those trends, you've at least got to ask the question what's going on out there. I think Brett commented, there was some outboard shortage out there that could have caused some issues perhaps in retail boats being delivered.

I don't know if there's enough to drive the needle as much as it tends to look like in the June quarter. But I think, generally, what we've been saying is that the industry is in a healthy place right now. There's pretty good trends going on. Inventory levels generally are good.

The new product that's coming out by every manufacturer is being sought after, it's a good environment..

This is Brett. We still have a lot of models that are sold out, hard to get, waiting period in times that we're not seeing any decreased demand in some of those higher sought-after models..

And what we're reading about is maybe what's going on in the industry. We're not seeing it, Scott. We absolutely had the impact of the uncertainty over the Sea Ray sale. Uncertainty impacts our customers probably more than any other single thing, wondering what's going to happen, what's it mean, et cetera.

And so having that behind us, I think it's going to really help us. But the consumers are out boating. Our getaway events are very active. And the customers are out enjoying the water -- the Store traffic is not down. The store traffic is still very strong across our -- the U.S. And so we see things as very positive.

And as we mentioned, we -- we entered the September quarter and we entered it with a good backlog and with a lot of enthusiasm. So we think this is going to be a great quarter, at least it's starting off that way.

And with the uncertainty of the Sea Ray sale behind us, with some opportunities for people to purchase one of the remaining sport yachts and yachts out there, which are great product and have one of the last larger boats from Sea Ray is, I think, going to drive some demand as well..

Okay, and just back to the comment, if I heard you correctly, it sounds that shortly thereafter or if not immediately after the announcement to retain the majority of the Sea Ray portfolio by Brunswick, that you talked about how business has gone back to normal.

Can you maybe just characterize that? And just talking about from a pricing standpoint, or a margin standpoint, if we would expect to see the margin improve in the third quarter from what we saw in the second quarter?.

I think below 40 feet, the answer is yes, we'd expect to see the margin improve as the noise about that Sea Ray brand goes away. I think what I set up in our guidance is we are anticipating, or at least factoring into the guidance some potential pressure on the larger product as we wind out of our inventory.

However, I think probably said it, Brett said it, right now, the demand for the product is -- the larger product is impressive. It's outstripping what we thought it would be a couple of weeks after their announcement. So hopefully, we're wrong on that.

But I think as you're modeling the business, it's prudent to assume you'd get some margin pressure on Sea Rays above 40 feet..

If you go and look what was happening with the uncertainty of the sale, for sure, the competitive products against Sea Ray -- competitors were saying, oh my gosh, why would you want to consider a product that's -- the future ownership is uncertain and what's going to happen, warranty, et cetera, et cetera.

So there was a lot of noise that was going on there. And that's behind us now. The -- the important thing to realize, I think, Scott, is that at the end of the day, we sell at MarineMax, we sell lifestyles. We don't really sell products, and the products are vehicle to get the customers out on the water.

And so our customers, the trust that they put into us and everything that we do for our customers, is really the driving force as to whether they make a purchase or not, and it's less having to do with the brand itself. And so that continues to be one of our primary focuses.

And the brands are important, but at the end of the day, it's the experience is the reason people buy the boats. And that's what we offer.

And so it's how we service them, how we teach our customers how to use them and how we show them how to have fun with our getaway events and things that we do for our customers, which that activity is still very, very, very strong.

And if you look out on the water, like last weekend or last month, I mean, it is very, very busy with people out enjoying the lifestyle with their family..

And just last quick question, just for housekeeping.

The $1.2 million of costs that were stripped out, that was the severance or did that include the health care that you referred to as well?.

No, it does not include any health care. We just don't know if the health care is going to continue or not so we did not EPS that. It's just the costs associated with the former team member..

We can now take our next question. We will now take our next question from Gregory Badishkanian from Citi. Please go ahead.

Hey, guys. It's Fred Wightman on for Greg. Just a quick one for Sea Ray.

I understand how that would obviously, be disruptive to business but could you maybe walk through why that hit gross margins more than sales? Were you just sort of forced to discount to close sales or was there something else going on there?.

It's really just -- the June quarter is the biggest quarter of the year and is the biggest quarter since the sale announcement.

And with the uncertainty out there, actually a lot of investors were wondering when Brunswick was going to announce something on Sea Ray and analysts -- I think, the competition was just feeling that also and incrementally making it a little more challenging from a margin perspective.

It probably had some impact on sales, it was just easier to quantify the gross margin impact when it jumps out at you and most of our brands are flat or incrementally up in the quarter..

Okay, great. And then obviously tariffs and price increases from OEMs is a big focus just across leisure.

Are you seeing OEMs try to pass along price increases? When would you expect those to really hit the market? And then if you have any experience from a consumer perspective are you seeing any pushback to those price increases?.

So typically, we get a price increase every year from our manufacturers. I would say this year, it's a little bit bigger, it's not -- let's say usually it's 1.5% to 2%. Maybe this year, its 2% to 3%, give or take a little bit. Over the years, we've been able to pass that price increase on to the consumers.

Based on how July is starting out and how much we have sold on a order, of future product that's coming with price increases, it seems like the demand for the lifestyle of boating is strong enough to overcome the price increases that we've seen so far.

We haven't seen any dramatic increases as a result of like aluminum, or steel, or things of that nature, coming of our suppliers, not as of today..

And all boats will rise with the tide. And so if there's price increases, most all manufacturers will experience it, and second of all, because the -- China is probably the biggest question right now as to what's going to happen. I think we just got news, the EU is going to forgo the import tax, or tariff they were putting on U.S. products.

And there was some concern on our part, some of our manufacturers in Europe, was it going to be reciprocal and U.S. implies some tariffs or duty on imported boats. So it looks like that may be behind as, which is very good news.

Most everything in the U.S., I've looked at the list and it took quite a while, of things that have a tariff imposed 10% on and it goes anywhere from toothpaste to parts of the boats and that type of thing.

And so hopefully, it's a negotiating method of our president, which he's been known to do that, and a lot of this will get settled out over time, which we think it will. But to Mike's point and to Brett's, I mean, we're not seeing it from -- or hearing it from the consumer that there's a lot of concern going forward.

And so business is doing very well right now, and very active, and I think our biggest -- as I said before, our biggest issue we had was with the uncertainty around the Sea Ray sale. It was a distraction to our team members and kind of got their head out of the game a little bit. And at the same time, there's confusion to our customers.

And at the end of the day, everything's fine once the uncertainty goes away on the things, and we know where we are. And so we're feeling pretty good about the quarter..

We can now take your next question from Joe Altobello from Raymond James. Please go ahead. .

Hey, guys, good morning. So this first question, in terms of the quarter, you mentioned a few times the data has been fairly choppy throughout the quarter, so if you can give us a sense for the cadence of your sales.

It sounds like on your last call, April was up and you did have some fairly easy comparisons in May and June since that was when we started to see the larger boat softness last year.

Maybe how sales trended throughout the quarter? And then secondly, if I could, with the Sea Ray announcement, how does that impact how you guys are thinking about 2019 and your budgeting process? Thanks..

I can tell you that yes; April was a good month as we said it would be. It is the smallest of the quarters. May was -- we had some maybe weather challenges in certain markets in May where winter was prolonged, especially the Midwest, Northeast. Obviously, those markets would have come to life -- alive in June.

So generally the quarter went as you would expect, it was pretty good. Maybe June was a little lighter than what we were anticipating. And of course, now we're seeing what's going on in July with the backlog, so we feel pretty good about business in general.

I don't know if you want to comment, Brett?.

Yes Joe, this is Brett. As I mentioned, kind of in the script a little bit, with the uncertainty with Sea Ray, we've been proactively looking at some orders and how we navigated things.

And then right at that announcement, we've been meeting with our manufacturers, Galeon, Azimut and others, and feeling very comfortable about their ability to get product to us, get models to us that will fill the right holes. And even demand on that is -- we've seen going very well.

So I think our strategy of having those brands, right models from 40 to 70-plus feet and the ability of those manufacturers to get us those products, all looks very good. And we've actually started factoring that into our budgets for 2019 and beyond..

Next question comes from Seth Woolf from North Coast Research. Please go ahead. .

Hey, guys, thanks for taking my question. Just a follow-up on the last question, so it sounds like the quarter was a strong and then it slowed a little bit. Costs aside, if I think about the quarter and some of what we've heard from other outdoor leisure products companies, it sounds like April was the worst.

We maybe had some weather affecting the business and retail. And then as weather normalized, things improved.

Why do you think you weren't seeing that more so in 2Q -- or in your 3Q?.

Well if you -- specific to April, maybe it's because a lot of our markets don't deliver as much product in April as they do in May anyhow. And but our April was fine.

We did certainly hear and feel some weather pains with the prolonged winter and the cold weather in certain markets, which my memory is we kind of talked more about that in May than we did in April, and that seemed to break -- it probably wasn't until the 2nd week of June when it really broke, right?.

And that adds additional stress to the throughput at the stores, to actually, not only just sell more products, but to get all the boats delivered from the entire winter and get those on the water and get -- so it just puts an enormous amount of stress towards the end of that quarter..

And impacts the higher-margin business -- service parts..

Correct..

Okay. All right. That makes sense. And then just thinking about margins.

So if we kind of work through most of the big Sea Ray products by 2019, I just wanted to make sure that's like fiscal 2019 or is that calendar?.

No we'll carry some -- when this fiscal year ends, we will carry larger Sea Rays into next fiscal year, for sure. I think we said it would not be a significant amount, but we would carry -- we'll carry some inventory into next fiscal year, for sure. Starting October 1, in 2 months..

So maybe, like two quarters out, we should think about maybe the margin implications of having some of that. Is that fair? And then I guess, on. --.

December and March quarter is probably reasonable. It just -- when we update -- when the year ends and we update with guidance, we'll probably give more color around what's the impact that we've have and how much inventory do we have because the demand has been pretty good.

And it's sort of a moving target about how much inventory we're going to have to determine what's the margin impact for 2019..

Okay. Perfect. I guess, then on the healthcare costs. Mike, you said that your guidance now assumes, I believe you used the word, a modest increase in -- for the rest of the year.

I was just wondering, number one; could you quantify what modest means? And then I know you're not giving guidance for next year, but you did kind of allude to the fact that it might continue.

So as we think about next year, is there something that is going to be an incremental cost until you anniversary it?.

It's a good -- great question, Seth. And I would -- I guess, out of the abundance of caution, I'd probably model some elevated costs. Although this management team, myself, Brett, all of us here, are going to try to figure out how to strip out other costs. So we're working on that and we have been working on that.

I think in my assumptions, I didn't use the full $1 million but I probably used $750,000 for the fourth quarter or thereabouts. I don't think it was $1 million, but it was in that range of -- let's just see how it's going to run and put some number in there.

If you remember, the March quarter I think we quantified $0.5 million, I don't know if we quantified it, but it's about $0.5 million. June was about $1 million. September, I'd put some number in there from a modeling perspective, for sure..

But what we're seeing, Seth is that major claims just appear to be hitting us in the face more than we've ever anticipated happening. We're doing quite a bit to reduce healthcare costs for our team members and for us.

But at the end of the day, the claims -- when you get a claim that's $1 million on a cancer case, there as an example, or a kidney replacement or whatever it may happen to be with a team member or their family, we get hit with the first $250,000 of that.

So I mean it hits hard, and it's kind of where the world is today, it is about the expensive drugs and it's about healthcare and the costs associated with that. And I mean, some of the things we've seen, it's just -- I mean, it's just unbelievable. A day, a night spent in a hospital and its $150,000. That kind of thing just eats us up.

So we're trying to mitigate it, but as Mike said, we're working on making reductions in other expenses to try to offset it because it's something we really can't control even though were trying to be proactive with team members to stay healthy..

So, just let me ask you on that point, Bill. I mean, it feels like a couple of years ago, these healthcare costs kind of flared up and it was a topic of conversation and you mentioned that things have been changing and the cost has gone up.

Do you still feel good about the way you guys have your healthcare plan structured or do you think it's something you would evaluate changing?.

We -- I think we're probably leading a lot of companies in the things that we're doing to encourage, health and use of supplements and being proactive with trying to manage their healthcare bills and that type of thing. But it's hard when a team member has something serious and -- takes an oncologist, says you're going to die if we don't do this.

And so it's hard to fight that. And at the end of the day, a lot of these doctors have blank checks, so that's kind of what we have to deal with. But -- so we encourage team members to exercise, to eat right and to try to reduce the stress in their life to stay healthy.

And so that's something we promote and encourage and we've got plans in place to try to reduce these costs in a big way. But it's the -- it's the outliers that get us, and that's -- happen..

Make sense, well, thank you. I guess, real quick, if I could.

Did you guys disclose what July to-date comps were running at?.

We don't typically disclose that. I think there's been a couple of comments around strong and solid and things of that nature. But we don't usually put a quantity on that..

We can now take our next question from Eric Wold from B. Riley. Please go ahead. .

Thank you, good morning, guys. I guess, the two quick questions. I guess, one, I don't want to beat the Sea Ray horse too much here but I just want to understand, it sounds like I guess, one, during the kind of uncertainty you ramped up ordering conversations with other manufacturers, Galeon, Azimut and kind of their boating supply.

What's been kind of the response from boat buyers that kind of came in or kind of previously may have looked at Sea Ray willing to look at other brands as a replacement, obviously, given that it's no longer going to be available.

And if that's going well, it sounds like this is on a sales basis, even though there should be some margin basis loss lingering into next year, but it seems like on a sales basis, Sea Ray is really an 2018 issue and not likely to be a 2019 one.

Is that fair?.

Yes, Eric. Brett here. I think we've seen a little bit of both, which is interesting. Once the announcement was made, and it's important we say uncertainty, and you say well what's been different since they announced it. I mean a lot of customers who have been tried and true Sea Ray owners and a lot of our business is repeat business.

They've come through and said, okay, good. Sea Ray, who I've trusted for a long time, even though they're not building these models, they stand behind the products and they're here for me. And as importantly, MarineMax is here for me".

So that's where we saw some increase in excitement around -- where we saw it slow during the uncertainty, the Sea Ray models crept up.

Also, we've seen people may be coming into the market going to larger boats that heard about Sea Ray and maybe they were looking at a Sea Ray that really, without a question, said well maybe I should look at an Azimut or a Galeon, and we've had success stories on that front as well.

Back to Bill's comment, we have great brands, premium brands that customers really trust. But at the end of today, they want to go boating with MarineMax, they trust in what we offer, all the way from being able to go to a BVI trip with us down in the British Virgin Islands, or take their boat on the getaways we offer locally. So we've seen both..

Perfect, and then a last question, on the outboard engine shortage, are you seeing this from -- I guess, which manufacturers are you seeing this from? Is it multiple or is it one, and is this something that you are getting a sense it's coming to a resolution on or is it something that you think is going to be lingering?.

I think it's coming out of our primary suppliers, like Yamaha and Mercury, there's been some shortage coming out of both. The Mercury product that was unveiled at the Miami boat show has seen very, very strong demand. It's a great engine.

And I think there's been some similar demand from Yamaha, which really just speaks to the condition of where the industry overall is. The demand out there is very strong, very robust. Manufacturers are having a hard time keeping up, which ultimately, is a good thing. It's just they've just got to get their production up to speed.

And I don't know for sure exactly when the day is going to come when supply is going to meet demand. We're talking to all of our suppliers and it didn't affect us materially in the quarter, it had some impact on revenue and some impact on units.

But I think as we move through the September quarter and in the December quarter, I think I'm assuming both those suppliers will begin to fulfill more of the demand..

We can now take our next question from David MacGregor from Longbow Research. Please go ahead..

Yes, good morning, everyone. I guess a multipart question.

Can you talk about aftermarket spending growth and how that may have compared -- parts, accessories and service, how it may have compared versus the 8% same-store sales? Can you talk about used boat sales growth versus new growth and any late -- any impact that may have had on the gross margins? I Understand the Sea Ray impact, you talked a lot about that, but maybe there was a used versus new mix impact there as well that was a factor.

And what late-model availability may look like. And then thirdly if you could just talk about the composition of your customer deposits and is there any granularity.

You're obviously speaking with a fairly high level of confidence about the next couple of quarters and I'm just wondering if there's something you're gleaning from the composition of your customer deposits that gives you a sense of the mix of boats or the margin trend that will be favorable..

I could start addressing; I think I got them all, David. Aftermarket spending and service, so one of the things we said is that with our 8% same-store sales growth, the other businesses typically have a hard time keeping up with that and they did.

So they would be a little bit less on that, which does pressure margins because boat sales are the lower-margin product that we sell. And so when you have a spike in boat sales, it can pressure consolidated margins, although that was a small piece of the pressure. The bigger piece was Sea Ray.

Used versus new for us, as it trends in the September quarter was fairly normal. We're a dealer, so what we take in on trade, the type of new sales that have a used trade that allows us to then sell new has been relatively consistent. So we didn't see really any unusual trends, good or bad, on used versus new.

Generally, the used marketplace is still a great environment where boat prices continue to rise; margins are rising and healthy out there. Late-model availability, I heard that one, I should address it with new models are hard to get. Anything that's new is sold out; the demand is strong from all of our manufacturers.

And that's continued really since this -- really since, by 2011 or 2012 as people come out with new models, the demand is very, very strong. And customer deposits, there's -- we look at the deposits overall, we look at dollars.

But more importantly, we look at units under contract year-over-year on the same day, which isn't necessarily a balance sheet item. But our growth in terms of what we're contracting on a day over day basis has been increasing for again, seven or eight years and it's continue to increase right here in July.

And it makes us feel pretty good about the environment we're operating in today. It's about the best data point that we have because our team is out there creating our business every day, every month, every quarter. But generally, trends seem pretty healthy around units under contract..

Does that reflect in the acceleration in that same-store sales growth pattern into the next couple of quarters?.

It's hard to go a couple of quarters. We have some visibility, but it just reflects that -- there was like a little bit of something at the end of June. We don't know what it was; I don't want to overstate that. But maybe the end of June wasn't quite as strong as we thought it would be. And now business seems fairly good, which is just one month.

We've got 3 months to go and we've got a lot business to create, but things seem reasonably good right now..

Next question comes from Ronald Bookbinder from IFS Securities. Please go ahead..

Good morning, thank you for taking my question. The ASP and the profit margin on the Galleon and Azimut, even the Aquila.

How does that compare to the Sea Ray yachts?.

Galeon is a very high margin product, a strong margin product. I think we've said that in the past. But I'd tell you, generally, it's going to be comparable, the business will be comparable to the business that's going away, it's kind of a way to think about it. Maybe perhaps some upside on it when you bake it all together..

And especially with, most recently, the Sea Ray margins were impacted by the uncertainty that was there. And it's probably worthy to say that the uncertainty going away, in other words, them deciding that 40 feet and below, they're going to focus and make it better, that's a very good positive for our business and the consumers.

The fact that they're not in this sport yacht and yacht business, the good part of that is that Brunswick supports the customer better than most any company I think we've ever dealt with, and we'll continue to do so. So there is no uncertainty about warranty claims and supporting the product that's out in the field or those which we will be selling.

So that's all very, very good news. But we're feeling good about the products we have. We're excited about Azimut an incredible product from Italy. And Galeon, which is just some of the highest-quality we've ever seen. And of course, Aquila is doing very, very, very well, both retail, as I mentioned, both here in U.S. and international.

And Ocean Alexander, a premium product that's very high-quality. So we've got some premium brands and lots of great opportunity for good margins going forward..

And from a model to model match up, when we look at -- when we lose a certain size model out of a Sea Ray, what do we have to fulfill it with, with those brands Bill mentioned, the matchup, it works very well. And also with new product coming from those manufacturers in the future..

Okay.

And the mix shift away from the higher-margin services, was that insurance and financing services? And why was there -- the under-penetration there?.

It's not really there's under-penetration; it's just the rate of growth. When you -- depending on the business the trends, when you have 8% same-store sales growth, sometimes it's hard for service to keep up or parts to keep up. FI probably kept up closer, but probably not exactly at 8%.

It's just as boat sales begin to accelerate like in the quarters where we've had 12% or 13% or 14% growth, it's real hard for those higher-margin businesses to keep up as a percentage. They all increased, just not as a percentage of our business..

And lastly, it seems like the underlying business for you guys is really doing well.

So if it had not been for these health insurance costs rising, would you have raised guidance?.

Good question. So if wasn't for health insurance, we would have been above where the Street was. And we would have had a more profitable June quarter overall. Remember we give annual guidance. We would have -- it's possible that we would have raised guidance some if it wasn't for health care.

Remember you also have the overhang for Sea Ray also that's out there..

We can now take our next question from James Hardiman from Wedbush Securities. Please go ahead. .

Hi, good morning. Maybe a clarification, if you've already answered this, I apologize. But just help us size that Sea Ray 40-plus foot exposure that you had? How much of a hole are you looking to plug there? And then I guess, maybe just talk more generally about the big boat business.

It seems like bigger boat maybe outperformed smaller boats in the quarter, judging by some of the margin commentary. And yet, Sea Ray couldn't seem to figure out how to make any money on that business.

I guess, why do you think that was? Was there just a lack of interest in that Sea Ray brand? And ultimately, given that they're getting out of that business that probably says something.

Why are you optimistic that, that segment will be a growth segment for you going forward?.

James, the larger product segment is doing very well, and we're having good success with Azimut, we're having it with Galeon, we're having it with Aquila, we're having it with Ocean Alexander. And what was really going on with Sea Ray, I think, at the end of the day, it comes back to people. And that's the business that we're in.

When we have a store that's struggling, it's usually people more than it is the brands and the market. And that I would say that's probably what was going on. And as such, that had to be fixed if they were going to fix it.

We were disappointed that it's getting out of that segment, sport yachts and yachts, but we're encouraged that we have premium product to replace it with incredible brands and incredible support for manufacturers that we think the future is going to be bright there. But the large segment, James, is still doing very, very well.

And there's been a lot of industry data that big boats are being damaged and hurt in the industry, and we're not seeing it other than what we had put up with and experience with the uncertainty of the sale of Sea Ray.

So -- and as I said before, it wasn't just the uncertainty with our customers, it also had an impact on our team, and that's now behind us.

And our team is excited for their future and said okay, we know where we are, were moving on, so now let's go ahead and make hay while the sun shines and the sun is shining right now on the industry as we see it..

Just so I'm clear here, the Sea Ray issue you think was more an issue of just a lack of experience with the personnel there or, obviously, it's a touchy subject for a company that reports in 7 minutes here, but just want to clarify that. And then I don't know if you've sized sort of the Sea Ray exposure that you need to plug.

What's the size on that?.

On your first question, yes, yes, and I can't really comment on it. And on the size of the hole we need to plug--..

What we said James is when they announced the news, we had a press release go out that said that it was a little bit less than 10% of our overall business, which would put it a little bit north of $100 million, about, and has been declining, so.

And when you look at the orders we had already placed and the orders that we are placing, we feel pretty good about the ability to replace that revenue in 2019..

Last question comes from Mike Swartz from SunTrust. Please go ahead. .

Hey, good morning, guys. Just wanted to touch on fourth quarter specifically, understanding the backlog, it's looking pretty good here.

But how should we think about the -- maybe the timing of the Tampa show? Does that have a real impact year-over-year, just given it was moved last year I think because of Hurricane Irma into October? Help us think through what that could mean for revenue, backlog and maybe leverage in the fourth quarter..

Man, you've got a great memory. It's a good point, good question, the show is moving to early September this year, if I remember right. It was moved out to October last year. So in theory, it could have some incremental benefit to the September quarter, subject to what gets delivered post that show.

If it's a boat that's purchased on order that delivers out in four months, then it's going to impact a different quarter.

It's sort of hard to tell but I'd say maybe on the increment, it's a net positive, right?.

As I recall from last year, I think you said going into the show and obviously having it abruptly postponed is, you took a lot of the cost that you normally see at the show but you didn't have the revenue benefit.

I would assume that first of all, is that true? Am I recalling that correctly? And then I would assume that, that bodes well incrementally for profit or operating leverage in the fourth quarter this year if you have a little bit of revenue on that cost base..

So your memory is right, we did say that. Although we did not -- I don't think we actually moved in but we had incurred some cost for the show. I think they stopped people from moving in because of our -- so there were some costs associated with it. So there's -- again it could be an incremental.

I think, honestly, the business we're doing in July and August and the rest of September overall is going to be more important. I think your point is right. On the incremental margin, it's a net positive to have the show into the -- move back in the September for us. And obviously it's a big deal for the west coast of Florida but it's a net positive.

You're right..

There are no further questions in the queue at this time. I would now like to turn the call back to Bill McGill for closing remarks. Thank you..

Yes. 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..

That concludes today's conference. Thank you for your participation. Ladies and gentlemen, you may now disconnect..