Good morning, and welcome to the MarineMax Inc. 2020 Fiscal First Quarter Conference Call. Today's conference call is being recorded. At this time, I would like to turn the call over to Brad Cohen of ICR Investor Relations for MarineMax. Please go ahead, sir..

Thank you, Dale. Good morning everyone and thank you for joining this discussion of MarineMax's fiscal first quarter 2020 conference call. I'm sure that you've all received a copy of the press release that went out this morning, but if not, please call Linda Cameron at 77-521-1712 and she will email one to you immediately.

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

Mike?.

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 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 Brett.

Brett?.

Thank you, Mike and good morning everyone. Let me start by thanking the MarineMax team for their focus and commitment which contributed to our record-setting results to start fiscal 2020.

It's great to see the benefits from the investments we have made over the past few years in new brand, new technology, the global expansion of our brokerage business, and our ongoing commitment to growing our other higher margin businesses. Additionally, we are reaping the reward of the great people and locations we have added via the acquisition.

I'm very proud to announce 24% same-store sales growth driven entirely by increased units which is attributable to our proven strategies in the highly desired brands we represent. Based on industry data our unit growth was meaningfully better, especially in the categories in which we operate more heavily.

Our growth this quarter built on the improving trends we saw as we ended our fiscal 2019. As we discussed previously, it seems that the industry has started to find stability towards the end of September quarter, and the data in the December quarter generally reflects improving trend but it still shows some choppiness.

Generally, it appears the rise in consumer confidence has been able to overcome the ongoing political uncertainty and global trade wars. Weather was also mild and not much of a factor in the December quarter. In the quarter, we saw strong growth across most brands and categories.

Last year in the December quarter, we commented that we saw strength in larger boats, and that trend continued, however units accelerated more. During the quarter we also leveraged our investments in technology.

We have been successful holding proprietary exclusive online selling events which have proven to be another good source of leads and activity with boating [indiscernible]. We also updated and relaunched the MarineMax mobile app as a better communication tool for our customers.

We continue to make investments in industry-leading customer engagement tools, as well as back-office advancements that improve our teams' efficiency and effectiveness. We have now completed our second quarter since the merger with Fraser, the premier global super yacht services company.

We could not be happier with the integration and the performance; Fraser provides brokerage, charter, charter management, yacht management and crew placement services to yacht owners around the world. With Fraser's 21 offices around the globe, we look forward to continuing to grow while expanding our resources and capabilities overtime.

This is a global high gross margin business that clearly supports our strategic plan. As we commented, the last two quarters of fiscal 2019 given softer industry conditions; inventories were higher than retail trends would require.

We said we were reducing orders and would likely experience some reasonable gross margin erosion as we work through the first few quarters of fiscal 2020. We did feel some pressure, but it was more than offset by Fraser.

Turning to SG&A; given the choppy trends last year we increased our efforts to better align costs which among other actions resulted in effectively optimizing our store footprint in September of 2019. In the December quarter, we saw great benefit from all our efforts as our flow through to operating income was about 11%.

This was great to see but even more impressively, when you consider that the Fraser and Sail & Ski acquisition seasonally produced losses in the December quarter; our flow-through absent those mergers was even higher.

As for inventory, the strategy I just mentioned allowed us to make great progress in the December quarter, especially given the dollars and number of units we deliver. We're still expecting some modest margin pressure as we move into the larger seasonal quarters as everyone in the industry seems to be rationally managing inventory to better levels.

Turning to earnings; we produced record earnings per share of $0.41 for the quarter, that was almost double our results in the prior year and was a record December quarter for MarineMax. We further strengthened our balance sheet which supports our strategic growth plan.

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 start by also thanking our team for their tremendous efforts that produced record revenue and earnings to start fiscal 2020. For the quarter revenue grew 26% to $304 million, mostly on the strength of very strong same-store sales growth of 24%.

As Brett mentioned, this was entirely driven by unit growth. The strong unit growth this quarter follows a pretty good unit trend in the September quarter which was due to the strike we saw in the month of September. Based on industry data, we believe we continue to gain share in most of our markets for the brands and segments we carry.

By region, Florida seasonally was a leader in terms of trends, but we saw generally good trends in most markets. Overall gross margins improved year-over-year, primarily due to the July merger with Fraser.

Without Fraser margins as expected would have been down in the range of 180 basis points driven roughly 60% by the mix shift to much bigger boat sales, and 40% based on expected boat margin pressure as we and the industry work to align inventory with trends.

We are focused on growing our higher margin businesses such as service, finance and insurance, parts and our marine operations, not to mention brokerage; and we did make progress this quarter. It's just tough for all of that to grow as fast as we grew boat sales. Regarding SG&A, the majority of the increase was due to Fraser.

Absent Fraser, we had a modest increase which resulted in fairly good flow through to operating income. For the quarter, interest expense increased to -- increased borrowings from additional inventory. Onto our balance sheet at quarter-end, we had $36 million in cash, but as a reminder, we have substantial cash in the form of unlevered inventory.

Our inventory levels were up 11% year-over-year but without the Sail & Ski merger, the increase was about 7%. Our rolling 12-month same-store sales growth is tracking at 6%, this would imply that in a very short period of time, we have dramatically improved our inventory.

We accomplished this by closely working with our manufacturing partners to align orders with trends, as well as the tremendous efforts of our team to drive sales. We will work to improve inventory and our turns as we move through the selling season ahead.

Our short-term borrowings were up to $334 million, which increased year-over-year due to the mergers we completed as well as the share repurchases in fiscal 2019.

Customer deposits, while not 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 are relatively flat to prior year. Briefly I will comment that this is the first quarter that the new lease accounting standard applies for MarineMax.

While there is no P&L impact, like all other retailers our balance sheet now has the right-of-use lease asset and the present value of the related lease obligations which is now a liability. Our current ratio stands at 1.39 and our total liabilities to tangible net worth ratio is 1.44; both of these are strong balance sheet metrics.

Our tangible net worth was $316 million or about $14.45 per share. We own over half of our locations which are all debt-free and we have no additional long-term debt. Our balance sheet is a formidable strategic advantage that allows us to capitalize on opportunities as they arise.

Turning to guidance; as fiscal 2020 started, it was on the heels of a pretty choppy 2019. Clearly, the December quarter was much stronger than we originally expected and we do feel better for many reasons including our improved inventory position.

However, the December quarter is also traditionally the smallest quarter; so while it does appear that the industry has taken steps towards stability and improved trends, in our view, we believe we need to be thoughtful in our approach to guidance and get more visibility before we really start feeling a lot better.

If things continue to improve, we can revisit our guidance. Thinking through the next several quarters, our March quarter is arguably the toughest comparison and we have easier comps in June and September.

Also as I said last quarter, adding in the remainder of both, Fraser and Sail & Ski, were the portions of the year that we have not owned them does not produce meaningful EPS growth as combined for those periods, there will be close to breakeven.

Given these assumptions, we now expect annual same-store sales growth to be solidly in the mid-single digits due largely to the strength of the December quarter; this is up from the low single digits we guided to start the fiscal year.

Our guidance assumes operating leverage in line with the last few years; we are raising our guidance to the range of $1.82 to $1.92 for 2020 from our earlier guidance of $1.58 to $1.68. Our guidance excludes the impact from any potential acquisitions that the company may complete.

Our guidance uses a share count of approximately 22 million shares and an effective tax rate of 27%. Turning for a moment to current trends; January will close with positive same-store sales and our backlog is higher than last year, both encouraging trends.

We continue to feel better by how the industry is positioned but we have a lot of work to do in front of us. With those comments, I'll turn the call back over to Brett for some closing comments.

Brett?.

Thank you, Mike. It was very rewarding to see many of the initiatives we have put into place for last few years contribute to our performance. Not only are we leveraging our investments in technology to reach our current and potential customers, but now we are doing this on a global basis.

We also made progress in the alignment of cost which led to nice leverage in the December quarter. We saw our asset light, higher margin businesses continue to grow and perform while we further enhance the financial strength of the company driving cash flow growth.

Finally, we continue to connect with our customers by hosting events to keep them on the water with their family and friends, which drives future business and market share gain. We are in full swing with all the seasonal boat shows and so far early results have shown fairly positive trends, which is encouraging.

The New York Boat Show opened yesterday, we hope that many of you will join us at the shows to feel how MarineMax provides a unique approach to experience the boating lifestyle. And with that, operator, let's open up the call for questions..

Thank you. [Operator Instructions] Our first set of questions come from the line of Greg Badishkanian of Citi. Please proceed with your question..

Hey guys, good morning. It's Fred Wightman on for Greg. Just to start off; could you help us understand -- given the strong earnings that you saw in the quarter, why aren't you flowing more of that into the EPS guide? I know the most comparisons are tough, but you do have some easier comparisons in the back half of the fiscal year.

So what are you sort of waiting for or looking for before you get more optimistic on the full-year outlook?.

Yes, you know, the December quarter is the smallest quarter of the year, traditionally; and we often get asked the question to report business forward or not and it's possible.

I think we just -- are taking more of a cautious and prudent approach to guidance we gave over 2/3 of the beat to the increase in the annual guidance, and just waiting to get more of the boat shows and see how the March quarter plays out, and if warranted, we'll revisit guidance at that time..

Okay, that's fair. And then just on the promotional side, you guys did call out some gross margin pressure there. I think it was sort of 70-ish basis points in terms of the headwind.

Do you think that this past quarter was sort of the peak for both you guys and the industry in terms of promotional activity or do you think that that's going to continue into sort of the next few quarters?.

I can speak -- I can't speak a whole lot about the industry. I believe that we've done a better job rightsizing inventory faster than the industry. We're still planning to be incrementally more aggressive that we are right now as we head into shows, just again trying to see exactly what's happening at retail.

It's possible that the margin pressure would have peaked in December quarter, what we'll have to really see how retail plays out as we work through March..

Yes. We'll have to just look and see where kind of the industry -- inventory levels end up over the next couple of months..

Okay. And then, just one quick follow-up, sorry.

When you guys are talking about getting incrementally more aggressive on the promo side, are you talking about versus the December quarter or you talking about on a year-over-year basis?.

Year-over-year basis..

Okay, perfect. Thank you..

Our next set of questions comes from the line of Joe Altobello of Raymond James. Please proceed with your question..

Thanks. Hey guys, good morning. Just one follow-up on the line of questioning regarding promotion; you mentioned that it's been pretty rational so far.

But given the market share gains, a sizeable market share gains that you guys realized in the quarter, how will you guys compared to -- some of the competitors you're seeing in the marketplace relative to the promotions?.

I can comment and Brett can add to it. I mean, no one out there is doing deep discounting or desperation type activity at all; we don't want to imply that.

I think everybody is incrementally more aggressive, I think everybody -- all the dealers at the beginning of the model year last summer ordered less product for 2020 along with the manufacturing partners to work together closely, and so everybody believes we'll work hard -- the industry will work their way through the inventory position that it was then as we get into the seasonal larger quarters, and so given that no one's having any deep discounts it's a very rational environment, it's the best way to describe it in terms of inventory discounting..

Yes, I would just agree with that. There is nothing irrational out there, nothing alarming that we're seeing, it shows and we look at pricing and our competitors, it seems decent..

And you guys are not outliers in that respect in terms of the promotion levels?.

No..

Okay. And my second question is in terms of order activity this year, you guys mentioned on the last call you were curtailing some orders for 2020. Given the strong start to the year, my sense is you may revisit that at some point if demand continues to be strong.

But I guess, you know -- is there a chance or a concern that the manufactures may not be able to keep up with that demand if you start to look to raise orders -- repeat orders?.

We are talking to manufacturers, we have been -- we are very communicative with our partners and there is certainly a product that we need, there is still some pockets of opportunities where we got to keep the pressure on to get inventory better aligned.

But clearly, if 24% same-store unit growth continues through the fiscal year, the manufacturers will be challenged to keep up with that. But we stay in tight communication on a monthly basis with them to try to make sure they see what we're seeing and adjust manufacturing accordingly..

Right..

It's a high-class problem I suppose..

That's right, it is..

Okay. All right, thanks guys..

Thanks, Joe..

Your next question comes from the line of James Hardiman of Wedbush Securities. Please proceed with your question..

Good morning, thanks for taking my call. Obviously, an unbelievable quarter and congratulations on that. But a quick follow-up -- you're welcome. A quick follow-up to one of the previous questions; I mean obviously, you were warning us that the first quarter might actually see a loss that you've put up -- $0.40-plus.

So the implied guidance for the remainder of the year is down. Mike, I think you mentioned that there might at least be a possibility that you pulled forward some demand.

Is that actually grounded in anything or is that just you being conservative like you would normally be?.

You know what, James; we get asked that question a lot, every time we have a real strong same-store sales growth quarter and our data -- I comment that our backlog is up, that January looks like it's going to be a good month; so purely from the data perspective it's real hard to say, if we pulled business forward because both of those are up, if they were down and maybe you would say so but you don't know until you work more into the selling season in the fiscal year.

So I think we're trying to say, it's traditionally a small quarter. Let us get into the March quarter, see how trends are going, and the more meaningful month, particularly like March which is huge, and if trends are still going well, then we'll revisit guidance at that time..

Got it, that's helpful. And then, I wanted to dig into the inventory situation a little bit more. Obviously coming out of the fourth quarter there was a pretty big imbalance there; inventories were up 27%, sales were up -- call it mid-single digit.

Now is I think you've pointed out, inventories are up 7x the Sail & Ski and same-store sales up 6% trailing 12-months, which seems great, but maybe walk us through -- you had called out three factors last time; one was the acquisition which I think you sort of told us how to think about that, but then you had the Sea Rays situation where you've drawn down inventories but hadn't yet got into Galeon and the incremental Azimut boat.

And then the timing of inventory build ahead of the two boat shows, Tampa and Orlando.

Are we now past those latter two factors such that the only non-comparable piece is acquisitions; how should we think about all of that?.

You know, largely, I think -- and I think -- kind of -- look at breadth which you're questioning, great question; I think we still have pockets of opportunity believe it or not to get stores, Galeon product, and potentially some Azimut product although we've done a pretty darn good job working with those manufacturing partners to get the product increase.

I think largely the answer to your question is, yes. Other than acquisitions where we're starting to anniversary all those other things that we've had talked about on previous calls..

Okay, that's helpful. And then just how should we think about -- I mean, it sounds like you still want to bring inventories down to some degree during the remaining three quarters of the year.

But as I think about -- again, inventories being up 7% at the acquisition and same-store sales being up 6%; full year you're calling for mid-single digit or strong mid-single digit same-store sales.

Is it right to characterize this as -- just small tweaks here and but inventories as opposed to the real work that you had to do over the course of the first quarter?.

Yes, I would say that's exactly how I would look at it and look segment-by-segment, brand-by-brand, adjustments by model to get things lined up. So we can get the fresh new stuff coming in later in the spring here..

Okay, great. That's all for me. Thanks guys..

Our next set of questions come from the line of Mike Swartz with SunTrust Robinson Humphrey. Please proceed with your question..

Hey guys, good morning. I just wanted to follow up on some of the inventory question. I think, Mike, one of the -- your response to one the questions where there's still areas that kind of stand out as far as where you needed to clean up.

We've got a comment around regions or was that segments of product; could you just give us a little more color there?.

It's more just when you open up the inventory and if you look closely at it, we've got a couple of different pockets of opportunities to continue to right-size the brand inventory with the brand performance, we track everything down at the store level, brand level, and we have a -- nothing really, it's alarming, just trying to make sure that all -- that everything is moving in sync together has been inventory order perspective..

Okay.

But by category, there is nothing that kind of stands out as something that needs to be more aggressively managed over the next quarter or two?.

Not by category..

Not in that scale..

Okay. And then just with regards to the quarter; same-store sales up 24% and I think, Mike, you said, without the acquisitions, SG&A would have been up modestly.

Can you give us a sense of maybe how much cost reduction you saw in the quarter from the closure of the eight stores that you did last year? And then, maybe how to think about those savings over the next couple of quarters as we calendarize that?.

Yes, it's -- I don't have my numbers right in front of me right now, Mike. But I think the most telling point is the operating leverage that we got in the quarter which is double-digit and absent in Fraser and Sail & Ski, and even actually higher than that.

I don't think it's several million dollars, it's over $1 million, less than $2 million; I hate to be vague like that, I just didn't have the numbers already in front of me. But, it certainly helped in the quarter.

And if you look to the guidance that we've put in place, we're using leverage in line with the last few years, if you listen to how I describe guidance; so we're not using the operating flow-through of the December quarter.

Obviously, if we continue, which is our goal, we continue to get improved leverage in the business, we can readjust guidance at that time as well..

Yes, and that's kind of where I was going to go with the next question, because I think when you gave your fiscal year '20 guidance initially, you said it wasn't embedding any of the cost savings or the store closures in the flow-through; and I'm just wondering now with the new guidance, are you embedding some of the flow-through or you're saying you're not -- still not embedding any of the --- maybe incremental pickup from closing some of those stores?.

Well, we're betting it to the extent of the December quarter of what we were adding to the improvement but for the future quarters were not yet..

Okay, that's helpful.

And this -- maybe just a clarification question as well; when you're talking about stepping up promotion incrementally for the March quarter, and as I recall, you had stepped it up pretty dramatically in the last March quarter, what you talking about? Are you talking about price promotion or you're talking about marketing sales incentives to the sales force; I'm just trying to understand that a little more?.

Right, it's a good question. It's kind of all of those and it's a different lever depending on which segment but sales team, promotional activity, marketing, advertising in some price strategic market pricing; it's really a little bit of all of that and maybe one market, it's more of one than the other..

Okay, that's helpful, thanks guys..

Our next set of questions comes from the line of Ryan Sigdahl of Craig-Hallum. Please proceed with your question..

Good morning, guys, and congrats on the impressive quarter..

Thank you..

First.

So are you able to breakout what the same-store sales benefit was from the store consolidations last quarter and moving those stores from the prior-year comp, they are retaining much of that business at nearby stores? And then, secondly from the shift in the Tampa Boat Show?.

Can you ask the first question again, I'm not sure I followed what you're asking Ryan, sorry..

Yes. So you closed down, I think it was eight stores basically under the assumption that you can remove some cost but to retain a lot of that business that nearby stores. So presumably in the same-store sales comp you removed those eight stores from the comp last year making -- but retained a lot of that business this year.

I don't know, I'm thinking about that right from a same-store sales perspective?.

Yes, you are. You're 100% right, that's exactly right. And based on our results you can tell, it sure looks like we did not lose a whole lot of revenue if any in those markets where we closed those duplicated storms. That's correct..

Anyway to quantify I guess how much same-store sales boost came from that consolidation?.

You know, because they were smaller stores, generally, and many of them were Northern markets, they don't sell a lot of product this time of year; it would be single digit millions, I don't it hit double-digit millions, it would be $4 million or $5 million, something like that if I added up all those stores, and that's an educated part for me right now; that's not far from what the real results would have been..

Got it, that's helpful.

And then from the Tampa Boat Show, anyway to quantify that?.

Tampa Boat Show is interesting. So we talked about how we've moved from September to October. When it did move to later on in October, the show technically had down contracted revenue on a year-over-year basis, largely because of the change in timing.

A lot of the deals from the show did not close in the December quarter, some did; but as is typical with the boat show, they will close in future quarters and in some cases from that show they'll close next fiscal year.

So the benefit of the show moving to the December quarter; net-net, there is an incremental benefit but it's not very significant relative to the success we had in the December quarter..

Great.

And then switching over, you mentioned strength in online leads in sales; what portion of your overall business is -- whether you want to talk in terms of sales or leave to kind of whatever metric is the online fees is, and how fast is that growing?.

Yes, the online fees is -- we've already made investments in that and it seems to be growing.

We -- really we don't track the sales out of those online leads because they take -- we track them but they take a while, so they generate the lead, they generate interest, they come to a show, they come to our showrooms and it might take several visits overtime; we're tracking that whole lifecycle.

But I guess I would just comment by saying our lead activity has grown tremendously because of some of these customer engagement activities including our online boat sale, which is a lead generator; so it's growing incrementally each month..

And then, last one for me and then I'll turn it over.

But where did you see most of the unit growth either new or used to; if you can break that out? And then, how are you feeling about that break out between those of the remainder of the year?.

Okay.

I can tell you that new was stronger than years, that's just sort of a function of how the business is as you take trades and so you don't have as long to sell the trade in the quarter because you haven't had it for all 90 days of the quarter where most of the new product you do, but we felt pretty good about the business mix, whether it's new used and use was strong used was very strong, just not at the same level that the new was.

That helps?.

Yes, that's it for me. Good luck. Thank you..

Thank you..

Our next set of questions comes from the line of David MacGregor of Longbow Research. Please proceed with your question..

Good morning. Colton West on here for David MacGregor. Thanks for taking my question. So I guess to start off, in terms of mix during the quarter. You said that you saw some strength in larger boats.

Would you expect this to continue even as we get closer to the elections and set buyer tends to be a little bit more impacted?.

Yes, I think we are -- when we talk about choppiness and uncertainty and we watch it closely, but we don't really have a prediction for that other than we watch it really closely..

Yes, I'll comment also just on the election year, so we've gone back. We've been public for over 20 years now, which is a number of different election cycles.

We've gone back and looked at the years leading up to the election, so as our fiscal '20 right now and similar years historically; and in election years our revenue and our units have grown every single year except for 2008 where there is other things going on in 2008 besides just the election.

We further then looked at the December quarters themselves, right in the heat of all the battle the election when the noise is probably at it's greatest.

And again in every year except for '08, our revenue and units increased -- actually I think in the December quarter of '08 [ph] the trends were flattish but it generally doesn't look like for our business that election years ended up themselves -- our telltale sign that things are going to be softer.

Now, clearly we're in unique times right now when it comes to elections but based on our own historical data, election years aren't something to be fearful of..

Okay, thanks for that. And then can you provide some color on customer deposits for the quarter.

I think in the call, you said they were about flat in the math, it looks like they're down about 4% year-over-year after being positive the last three or four quarters and of what's baked into that?.

Yes. I comment often that looking at that line item on the balance sheet, which I understand everybody does. It can be I use the word lumpy, it all depends on the size of the deposits that we take from customer A versus customer B and whether a trade is involved or not that makes those numbers move all around.

I think the more telling comment is my comment around is January going to be up or down. And I think I commented January should finish up and then what's our -- we call our backlog. So how many boats are under contract today.

So instead of looking at the deposit dollars how many boats are under contract today for future delivery in our backlog is up year-over-year. So the deposit line we get questions on it can be lumpy as I say, but generally the comments around backlog in the current-month, probably a little more indicative of what's going on..

Okay. And then can you comment on the cadence of same-store sales within the quarter industry data would suggest that October was probably the strongest month of the year in terms of retail. Are you seeing something similar..

Yes.

Brett you want to say something or?.

No, I think we had three good months in a row. I think the industry that we saw probably similar trend, but obviously higher results..

Right..

Okay. And then I guess lastly, are you able to comment on what both segments performed better than others.

In terms of sales, whether [indiscernible]?.

Honestly, we saw pretty darn good strength in all segments. In order to produce that type of growth you kind of have to have almost all of those cylinders it and so it really was a growth across the board, which is the exciting part of it for us.

It's traditionally not a real big quarter for aluminum for us because all of our aluminum stores and mostly in the Northeast. But we had generally good growth in just about all segments..

Okay, great. Thank you and congrats on a good quarter..

Thank you very much..

Thank you. We have reached the end of the question-and-answer session. I will now turn the call over to Brett McGill for any closing remarks..

Well, thank you all for joining the call today. Both Mike and I are up here at the New York boat show today, but will be available for your call if you have any questions and we look forward to updating you on our next call..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day..