Good morning. And welcome to the MarineMax 2019 Fiscal First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brad Cohen, Investor Relations for MarineMax. Please go ahead sir..

Thank you, operator. Good morning, everyone, and thank you for joining this discussion of MarineMax's 2019 fiscal first quarter. I'm sure you've all received the copy of the press release that went out this morning but if not, please call Linda Cameron at 727-531-1712, and she will email one to you right away.

I would now like to introduce the management team of MarineMax; Mr. Brett McGill, President and Chief Executive Officer; Mr. Mike McLamb, Chief Financial Officer of the company; and 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 Chief Financial Officer, Mr.

Mike McLamb..

Thank you, Brad. Good morning, everyone, and thank you for joining this call. Before I turn the call over to Brett, 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 of the level of consumer spending, the company's ability to capitalize on opportunities or grow it's 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 Brett.

Brett?.

Thank you, Mike, and good morning everyone. We are pleased to begin fiscal 2019 with strong earnings that surpassed our prior year's first quarter record results which makes this year our best first quarter in our over 20-year history. The results in the quarter were driven by growth in revenue and strong increases in margin.

The margin expansion was supported by equal contribution across all our products and business lines. Specifically, we've produced gains in new and used boat margin while also driving good growth in our higher margin businesses that include finance and insurance, service and part storage, and our charter operation.

The growth in the higher margin businesses has been a long-term focus and should yield incremental increases overtime. Training, process improvement, and several new operating initiatives contributed to the margin gains this quarter.

Historically, we have commented that our earnings potential is much greater today at lower industry unit levels than before the financial crisis. Back-to-back, record profit in our December quarter illustrates that point well as the industry units are still off by over 35%.

I'm proud of our team's efforts as they stayed disciplined to our pricing strategy which helped us drive product margin expansion in the quarter; this was achieved with same-store sales that were up only slightly.

It's important to note that we have had unusually strong same-store sales growth of over 80% cumulatively over the last five consecutive December quarters; so it's not surprising that this quarter saw modest growth. Total revenue was up $5 million to $242 million setting a new revenue record for the December quarter.

I would add that the quarter started off very strong, including one of the best Fort Lauderdale Boat Shows we have ever produced. However, as the industry data has shown, December was weaker than expected and tampered the overall strength in the quarter.

The December quarter tends to have a greater percentage of revenue generated from larger boats sales due to the Fort Lauderdale Show and the return of the [indiscernible] to Florida. For the most recent December quarter revenue from larger boats continued to increase.

Other strong product categories included premium outboard fishing boats and outboard run-about. The outboard trend continues to be strong. Now turning to operation; while earnings and cash flow rose, we will continue to focus on controlling costs as we move ahead.

The absolute dollar increase in SG&A is somewhat misleading as over half of it is from the combination of the Island Marine acquisition completed January last year, the opening of a new store on Miami Beach, and the ramp-up of our charter business which was virtually closed in December last year due to Hurricane Irma.

While we emphasize this point often, it remains critical that our manufacturers are continuing to innovate with both, technology and fresh design. It's been proven time and again that new models are highly sought after with very strong demand. That stays true today.

To that point, we are now in the early portion of the important boat show season and we have lots of innovative new models being highlighted. Today also marks the start of the New York Boat Show. The enthusiasm coming out at the early shows is growing.

As we enter the busiest two quarters of fiscal 2019 our overall product mix inventory are very well positioned. As we work through January, the early results from the boat shows is encouraging. While show results and attendance has been mixed relative to prior years, we're seeing improving trends and premium products seems to be growing in strength.

This dovetails well for MarineMax since that is basically the sweet spot for our business. It's also worth noting that the industry is not in a discounting mode; pricing activity that we have seen at the shows is consistent with normal boat show promotion.

Since we have our biggest quarters in front of us, it's our intention to build on the results of the December quarter. While the recent financial and global market volatility may have impacted the December selling period, we have seen more consistency as we started this new calendar year.

We understand that having the right models across all segments, continuing to provide our customers with outstanding service, and keeping our customers on the water through our getaway will help further differentiate MarineMax; and ultimately these efforts and our differentiated approach will result in the continued expansion of our share of the market.

With that update, I'll ask Mike to provide more detailed comments on the quarter..

Thank you, Brett, and good morning again everyone. Let me also thank our team for the positive and profitable start to fiscal 2019. For the quarter, revenue increased $5 million to $242 million. Same-store sales were up about 1% driven by large boats sales and an increase in our average unit selling price.

However, units for comparable brands were down low to mid-single digits in the quarter. Certainly, differences by brand and segment exist and premium brands were either up or flat with a few exceptions. Based on industry data, we believe we again gained market share in the quarter. Gross margins expanded over 120 basis points to 26.2%.

The growth was driven by product margin expansion and growth in our higher margin businesses. Our ability to continue to expand gross margins is encouraging. Selling, general and administrative expenses were up $4.2 million to $54.5 million.

As Brett explained, the primary reasons for the increases were related to a new store and acquisition in 2018, and the ramp up of our charter business. These expenses were coupled with a handful of other elevated items; needless to say, we are watching each expense line item carefully.

For the quarter, despite a rising rate environment, interest expense was down slightly due to increased cash and liquidity which drove down our average outstanding borrowings. Our pretax earnings rose modestly to $6.5 million which exceeded the record pretax earnings level obtained in the December quarter last year.

Our net income increased to $4.9 million and earnings per diluted share were $0.21 compared to an adjusted $0.23 last year. As for our balance sheet at year-end, we had about $39 million in cash. As a reminder, we have substantial cash in the form of unlevered inventory.

Our inventory levels at quarter-end were up slightly as expected to $445 million as we replenish inventory from the loss of Sea Ray's larger boats. We feel well positioned with the right product entering our seasonally biggest quarters.

Turning to our liabilities; our short-term borrowings were down 12% to about $271 million due to our enhanced cash and liquidity position. Customer deposits, one of the best predictor of near-term sales because they can be lumpy due to the size of deposits and whether a trade is involved or not were up 7% from last year.

Our current ratio stands at 1.56 and our total liabilities net worth ratio is 1.00, both outstanding balance sheet metrics. Our tangible net worth jumped to $334 million or $14.27 per share compared to $12.48 last year. We own about half of our locations which are all debt-free, and we have no additional long-term debt.

Before discussing guidance I want to remind you that we give annual guidance. While we are pleased to start the year off very profitably, given seasonality it is a relatively small profit as compared to our annual guidance, meaning the next three quarters are actually much greater than 75% of the year's earnings.

Turning to be guidance; we are reaffirming earnings per share guidance for fiscal 2019 of $1.85 to $1.95. Our guidance takes into account that we're up against a solid 3-year stacked same-store sales growth of about 37%. Our guidance assumes we will grow same-store sales 5% to 10% and that we will have leverage in line with the last few years.

Our guidance uses the sheer count of around 23.5 million shares; it also uses an expected 2019 tax rate of 27%, and excludes the impact from any potential acquisitions that we may complete. As for current trends, January is on-track to finish with positive same-store sales growth.

Our backlog is higher today than it was a year ago, and the shakiness that the industry seems to have felt in December quarter appears to be subsiding. We are watching boat show trends carefully and they are improving. That said, we will work to maximize our results as we deliver the best boating experience to our MarineMax customers.

Let me now turn the call back to Brett for some closing comments.

Brett?.

Thank you, Mike. Looking ahead, we seek to drive consistent improvement and performance on an annual basis. This includes execution of our digital strategy, the alignment of expenses with sales, growing our higher margin businesses and actively pursuing accretive acquisition opportunities or brand expansion.

With our energized team and positive consumer confidence, we are ready to build upon our strong start in fiscal 2018 as we continue to change people's lives by connecting them with their family and friends boating with MarineMax. With that, operator, let's open up the call for questions..

Thank you. [Operator Instructions] We will now take our first question from Greg [ph] of Citi..

It's actually Fred Wightman for Greg. I think that the commentary you had for the high-end product was pretty positive.

If we look back historically, does that higher-end product, is that usually a good leading indicator of where the overall industry is going?.

Yes, I think in prior years it usually has been from our experience, it's also -- most everything we sell you would call him that higher-end, the premium end product. We have a couple of brands and a couple of segments that maybe aren't quite there that we were referring to, but yes, it seems to be from our perspective, Fred..

And then just for the industry, I mean it sounds like those softened a bit through the quarter, but there has been some positive signs early in January.

What do you think drove that sequential slowdown last quarter? Is that anything that you guys are concerned about or is it just sort of watchful waiting?.

Our guess would probably be the volatility in the marketplace, it certainly occurred from late November through December.

I think there is a -- the economic signals are still very strong out there, jobless claims, unemployment, consumer confidence; there are so many things that are positive but the only thing that we really watched -- if you guys probably watched also, it's just the extreme volatility in that as the quarter closed.

So perhaps that was it, maybe there was something else impacting it, but -- again, the read [ph] coming out of the early boat shows is pretty strong..

That makes sense.

And then, just one final one; I mean how much more room do you think there is to improve that F&I business -- the service business, and then the charter businesses?.

As I noted there, we're focused with some new initiatives and strategies and technologies to grow those; in fact, there is quite a bit of growth. It takes a little time, service and technicians and facilities; but we're -- I would say we've had a pretty heightened focused on those over the last year and we'll continue to grow those as well..

We will now take the next question from Scott Stember of C.L. King..

Can we maybe talk about the Sea Ray transition, how much of an impact that had in the quarter, meaning, how many boats were left of the large Sea Ray yacht sales to be sold in this quarter -- this last quarter? And, maybe just talk about how you're positioned going forward?.

I'll let Mike cover [ph] few of the numbers but just as far as our transition with our Azimut and Galeon brands; when we were able to talk to those manufacturers about additional orders and products that really fit a spot for us, it's really helped us and been able to fill them.

That's more of a general overview that our strategy of filling that revenue with those brands is working. And Mike, I don't know if you have additional comments on that..

I'd remind you; so the September quarter we had really strong same-store sales growth and that was a quarter long after the announcement of Sea Ray or rapid announcement of Sea Ray, you would assume that we had less Sea Ray revenue on bigger boats and we still we're able to produce very strong same-store sales growth.

Even this quarter we would assume we had lot less large boat Sea Ray revenue and we did produce positive same-store sales growth which is great. I think technically to answer your question, I think we started the quarter with around 20, maybe 21 uncontracted large products but we kind of look at what's available, that's not under a contract yet.

And I think we ended the quarter less than half of that; so we're going into the March quarter with a single-digit number of product that we fully expect. As we said it at quarter two ago, we'd be out of the product by the end of March..

And those 21 units, I guess what's left; the prices are holding up pretty good?.

You know, what; it's amazing that people seek the product. So, I'd say yes; the pricing is probably not as ideal as we'd like it but with Brunswick support, with ours and with the demand that consumers are seeking the product, it's -- we're working as you would expect when you're unwinding up a product category like that..

And then last question on SG&A, I don't know if you guys [indiscernible]; but up about 120 basis points year-over-year, in dollars up about $5 million. Outside of the acquisitions was there any other onetime items in there or things I've mentioned to explain the increase? Thanks..

There is not really any onetime items and there were three things that Brett mentioned; one, a new store that we had opened, the Island Marine acquisition. Then really last year our charter operation was virtually closed because of Hurricane Irma, and it's now up and operational.

Then there are some things that we purposely incurred, they could have maybe incurred in March or it could have incurred the December quarter, and the timing of it fell on the quarter; that would explain the chunk of the rest of it but we're watching it carefully.

Those three items that we mentioned; the charter, the store and the acquisition, those all have greater revenue going forward into bigger quarters like March and so forth that would bring -- helps to bring down the SG&A as a percentage of revenue number..

We will now take our next question from Joe Altobello of Raymond James..

First, I had a couple of clarifying questions.

I guess number one, I think Mike you said units in the quarter were down mid-single, is that correct?.

Yes, I said low to mid-single digit, right..

And then second, I thought you said earlier that boat show results were sort of mixed; then I think later on you said boat show results were more strong. So I'm curious, maybe I misheard it; I just wanted to get a clarification there..

You've probably heard me answering a question when I said they're improving just a minute ago. So I think….

Yes, attendance [ph] has been mixed when you see it out there, some weather related, some not. Boat show results have been slightly mixed but we're encouraged by some improvements we're seeing..

And then lastly, last year during the boat show season there was a lot of chatter about Sea Ray from competing brands; I can tell you that first-hand, I heard a lot. I would imagine that did have some impact on sales in the March quarter.

With that now behind us, are you starting to see some better fell-through at the shows than you saw last year?.

It's probably a little back to the question you just asked before. I think when you take a sales team in focused and not wondering about different brands, we're attacking these shows with the products that we now have and they're stable. So I think you just got a better sales team; the customer comes in without all the noise.

It's clearly better or we -- like, we can focus our training properly as well too..

We will now take our next question from Seth Woolf of Northcoast Research..

I guess it sounds like things are improving at retail early on. So two questions there; the first one would be why -- this is two parts of it.

The first one really would be, what do you think has contributed to it turning around all of a sudden if it started -- is it just the markets or why do you think it improved in January? And then a number of times you guys called out the premium brands; so is that -- can you maybe drilldown a little bit into what you mean by that because I would think often times the premium brand buyer would be more sensitive to the market and it sounds like you said it was pretty strong throughout all of 4Q.

So that's the first question..

So turning around, Seth, I'll just make a comment that the December quarter -- I mean we were down slightly on a quarter that's had five years of very strong same-store sales growth.

So we -- while the industry data clearly is pretty choppy for the December quarter, we're not saying that we really felt all that choppiness throughout the whole quarter, maybe a little bit in the month of December. I think that probably does speak to the type of product that we sell quite frankly in our team..

And I think just back to a comment I made in the call earlier was when you started out the quarter with Fort Lauderdale Boat Show being a record show for us with great sales tempered down a little as we got into December with a lot of noise and volatility. So, really overall there was some great signs in the quarter..

And our show comments are our comments about our shows, and then also we're talking to other manufacturers and other dealers, and it seems as January has progressed here that the shows are getting better and what's causing that -- it could very well be better stability right now.

It seems most of the other economic factors are the same as they were before the year changed which has been pretty good, pretty strong. No comment on premium -- our customer just seems to be resilient and holding up well..

I guess then, just thinking about inventory levels, you guys have done a good job. For the last few quarters inventory has been in good shape.

I guess we did get a little bit of a hiccup and I know it's a seasonally small month, but has this changed the way you're thinking about managing inventory? Maybe would you look to reduce it a little bit further? Is it no change in how you're thinking about it from three months ago or it doesn't sound like there is promotion in the market? Just curious how you're thinking about that aspect of the business..

We look at our inventory every single day and you know, just to monitor every granular detail of what's going on and get feedback from our team.

We feel good about our inventory position right now, but every day we're looking at what we can do to sell-through, take advantage of the promotions the manufacturers have out there and be strategic about our orders and when those orders arrive..

So I guess just to touch on a point, you brought up promotions; are you seeing change in promotional activity? And then, I guess more broadly speaking with inventory, are you thinking of reducing inventory in 2019? Is there an opportunity that you see now that maybe you didn't see a couple of months ago?.

Yes, certainly. I think we commented that the promotions of boat shows are normal, there's nothing in that that seems different than normal out there. And from an inventory perspective, we talked and we expected inventory to decline as we were going through last fiscal year, just given the reduction, honestly, a product from Sea Ray, large boats.

And then we anticipated that inventory would increase this year as we're replenishing that; so our increase this quarter is in line with what we would expect. There is a sizeable reduction of how many Sea Ray's above 40-feet we have in our inventory, and with things coming in from Galeon and from Azimut and other brands, you would expect it to go up.

And then you dove-tail with that, everything that Brett said that we watch inventory and we monitor it carefully; and if we ever see a reason to reduce it, we'd reduce it but we feel pretty good about 2019 as we're sitting here..

We will now take our next question from David MacGregor of Longbow Research..

Just on SG&A, what should the rate of leverage be? I mean in a clean quarter today, where does that stand?.

I would tell you the theoretical leverage that you guys have heard me say before when you had a dollar of sale, you ought to be in that 12% to 17% range, something like that. We've had some struggles getting there from time to time, but last year was pretty good, it was in that sweet spot.

So that's not changed, I think what you have is you have a small seasonal quarter, you have a northern acquisition we did last year that doesn't have as much revenue coming in; you have our charter operations which doesn't have as much coming in.

Then you have a store that we opened which doesn't have as much coming in, so the theoretical leverage I think still exists in the operation..

And then, I know manufacturers are working right now to raise prices.

So just -- what are you seeing in terms of inflation and your invoices; and how's that going to play out in terms of the timing of the pass-through and how are your customers accepting that?.

Honestly, I would say on average we probably have seen a little bit more of the increase this year than we typically do. And that started really at the end of last summer, and our ability to pass it through is really spoken very loudly by our increase in margins of 120 basis points.

And so the disciplines and the training that we've done with our team and also the excitement of the new models and innovations that they all have is overcoming any amount of a cost increase [ph]..

We've seen the different points in a line structure though, there might be different sensitivities to the pricing.

Are the price increases tilting your mix one way or another? In other words, some customers respond to it, others don't?.

No, it's -- I mean, there is -- this year there has been -- I mean, there is always a price increase every year, there is a modestly higher price increase this year basically across the board on every product.

And really, we've been successful on a brand-by-brand basis of passing it on and a lot of it's the training that Brett talked about with our team, a lot of it's the differences in the product itself, it's better than allows us to do that..

And then just back to Joe's question about the units being downloaded at mid-single digit; could you just open that up for us a little bit.

You started-off talking about strengths in premium fishing and upward run-abouts and larger boats, where did you -- where were the negatives?.

We don't typically break it down by segment, but when you think about -- when we say premium, you think about all the different brands we have. You could probably assume there is a category that you -- it's still a great product but it's maybe more of a price point product which would be aluminum.

But all the rest of our product has done reasonably well with a few exceptions in the quarter..

And what can you say about Pontoon sales right now?.

Pontoon sales have been mixed of late. And that December quarter, it's a very low volume quarter for a right type of product anyway..

And then last question; just on -- you talked about the boat shows, it sounds very positive at a high level.

I wondered if you could just dig in a little deeper and maybe talk about one or two things specifically that you saw or took away from these boats shows that's giving you a higher level of confidence in 2019?.

It's just trends, year-over-year trends which shows..

Is it order patterns or are you seeing certain types of customers that are typically good leading indicators?.

It's contracted units that show us. We had the selling -- boat shows are selling events and so you take deposits in their contract, you just look at trends and then talk to other folks in the industry and see what they're seeing as well..

And it's positive, it's broadly positive as you're saying?.

Yes, it's improving. Yes..

We'll now take our next question from James Hardiman of Wedbush Securities..

So at the end of the day, it sounds like the first quarter units were maybe a little bit worse than we expected but ASP doing really well; I wanted to maybe tie that to how we were thinking about guidance.

You guys had talked about 5% to 10%, same-store sales; and I think on the last call you said that that's generally based on the notion that the industry would be up about 5%, that you would get a little bit of pricing.

So I guess three questions on that; one, any reason to think that algorithm has changed with respect to the industry or do we still think 5% domestic industry growth is reasonable? Two, do we think the ASP growth that you saw in the quarter, which was really good, did we think if that's sustainable? And three, if you could maybe give us an idea, are we sort of back to that 5% to 10% run rate for January, at least the first three weeks of January, particularly on the unit side just because that seems to be what maybe wasn't quite as good in the first quarter?.

I can touch base on a couple of these. No one that we've talked to has backed-off on their thoughts for 2019 in terms of the industry unit outlook of a single-digit grower, whether it's mid-single digit which can be anywhere from 4%, 5%, 6%, something like that.

There is -- within that number there is obviously various categories of product and as you open up the categories of products, some are growing faster than others which we're all cognizant of that as are you guys.

But I think overall today, we still feel good about the industry growing, we still feel good about our opportunities to have 5% to 10% same-store sales growth with a combination of the two of those which would imply that we do feel like we're going to continue to get ASP expansion that we can't comment specifically on January other than to tell you it's going to be up in same-store sales when it closes..

And then just the last thing for me, any -- you've talked about category level insights, but maybe geography within the first quarter; any region is better or worse than others? I'm trying to figure out if weather -- it was meaningful obviously, weather a bigger deal as you get further up the coast in inland, maybe versus Florida?.

Yes, I was commenting on, they're just -- I think weather affected some recent boat show attendance figures that are out there, that was a contributing factor, I think the attendance; so kind of comment on that. But generally, we're not seeing any specific geographic issues or concerns overall..

It's usually a quarter that is led by Florida. Anyhow as northerners [ph] come back here and you've got the Fort Lauderdale Boat Show. So you know, the edge would probably go to Florida in the quarter but sort of natural this quarter..

[Operator Instructions] We'll take our next question from Ronald Bookbinder of IFS Securities..

Good morning and congratulations on great execution.

The outboard in the fall were -- the supply outboard [ph] was fairly tight, have the manufacturers been able to catch-up during the off season and how does it look for the New Year?.

We kind of explained in the summer we were pretty constrained, it felt like -- but it feels like things are getting more caught up and we don't -- we're not running across those issues as much as we were, so if deals caught up [ph]..

And it seems like there might've been a little weakness in the lower priced units.

Are people moving to use boats and how is your supply of used boats, and how's the pricing on used boats year-over-year comparing?.

Late model trades are always highly sought after and which is what we have. We don't see any unusual trends of people moving to use boats. We see trends of people pretty interested in the new models that are coming out now from our manufacturing partners which are really a good lineup for 2019.

I think generally used boat pricing because of the lack of late models it's fairly struggling [indiscernible]..

And you mentioned the Galeon and Azimut boats; how are the customers responding that might've been looking for a Sea Ray but one -- something that isn't -- that is going to be continued or something? Are they moving over to those types of boats and are they satisfied with that or are they looking for something else? You know, maybe in Angola or moving out of a category?.

Yes, I think some of this starts with recognizing that the Galeon and Azimut, we've been carrying these brands for quite some times. Our customers see these boats in the water, they see the quality, they see how they're holding up.

So when the Sea Ray announcement came, when we had to shift people that way, this wasn't, "Hey, guess what, we have a new product for you." This was, we've been carrying this quality product, now we have to market and train and get customers into the product.

So we're still in that transition; this boat show season that we're looking at right now is that great opportunity to do some launches of the product for maybe consumers that haven't seen it. So it's not an easy task, but it sure does help when we've been successfully carrying the product for a bunch of years now..

And lastly on health insurance, it had been running high the past several quarters; has it leveled-off and is there an opportunity that it could be verse or should we just expect it to continue at the same level?.

Well, so thankfully I did not have to talk about health insurance as an increased expense this quarter, it is leveled off now.

If you remember we gave guidance, we did not assume that it was going to drop and it's -- so it's not dropped, it's leveled off, so we've got to keep -- in theory, like I said on the calls before, the actuary is that they get it right overtime.

And so in theory, it's possible to get a reduction as we go through 2019, but today, at least in the first quarter we don't see it but we also don't see growth. So hopefully, as we get into the March quarter and June quarter, maybe we have a nicer discussion even around healthcare costs. Thanks for bringing that up though..

Okay, great. And thank you for taking my questions and good luck as we move into the season..

It appears there are no further questions at this time. Mr.McGill, I'd like to turn the conference back to you for any additional or closing remarks..

All right, so thank you everybody for joining us today. Mike and I are available to answer your questions before we head off to the New York Boat Show a little bit later today. And thanks for joining us, and enjoy the rest of your day..

This concludes today's call. Thank you all for your participation. You may now disconnect..