Yahoo Finance MarineMax, Inc. (NYSE:HZO) Q2 2024 Earnings Call Transcript
MarineMax, Inc. (NYSE:HZO) Q2 2024 Earnings Call Transcript April 25, 2024
MarineMax, Inc. misses on earnings expectations. Reported EPS is $0.18 EPS, expectations were $0.73. HZO isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to MarineMax, Inc. Fiscal 2024 Second Quarter Conference Call. Today’s call is being recorded. At this time, all participants are in a listen-only mode. [Operator Instructions] At this time I would like to turn the call over to Scott Solomon of the company’s Investor Relations firm, Sharon Merrill Advisors. Please go ahead, sir.
Scott Solomon: Good morning, and thank you for joining us. Hosting today’s call are Brett McGill, MarineMax’s President and Chief Executive Officer; and Mike McLamb, the company’s Chief Financial Officer. Brett will begin the call by discussing MarineMax’s operating highlights. Mike will review the financial results, and then management will be happy to take your questions. The earnings release and supplemental presentation can be found at investor.marinemax.com. With that, I’ll turn the call over to Mike.
Mike McLamb: Thank you, Scott. Good morning, everyone, and thank you for joining this call. I’d like to start by reminding you that certain of our comments are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Any forward-looking statements speak only as of today. 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, global 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.
Also on today’s call, we will make comments referring to non-GAAP financial measures. We believe that the inclusion of these financial measures helps investors gaining a meaningful understanding of the changes in the company’s core operating results. These metrics can also help investors who wish to make comparisons between MarineMax and other companies on both a GAAP and a non-GAAP basis. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in today’s earnings release. With that, let me turn the call over to Brett. Brett?
Brett McGill: Thank you, Mike. Good morning everyone, and thanks for joining us. Before we get into the specifics of the quarter, let me acknowledge the dedication and commitment of our team in what continues to be a challenging period for the marine industry and indeed for the outdoor recreation market in general. Across our retail dealerships, superyacht operations, marinas and manufacturing locations, our team has worked hard to deliver on our high standards for product and service excellence, ensuring customers experience all of the terrific benefits of the boating lifestyle. Moving to our March quarter. We posted solid revenue of more than $582 million driven mainly by higher boat sales and positive contributions from the IGY portfolio and the other marinas in our network.
Our gross margin, while historically high, came in a bit below where we expected. This was primarily driven by more aggressive promotional activity designed to create consumer urgency given the economic environment and increased seasonality. From an industry perspective, demand was weaker than we had anticipated, with U.S. powerboat registrations posting year-over-year declines through the first three months of the calendar year. That being said, our strategy around premium brands, combined with our promotional initiatives and customer focus enabled us to drive positive same-store sales growth and modest unit growth in Q2. Although we were not able to close all of the revenue we had anticipated in the quarter, we performed well on the top-line in comparison with the industry as a whole.
We are continuing to receive increasing support from our manufacturing partners, both from the perspective of incentives and in moderating production levels in response to the retail environment. Our industry is cyclical, but we have a track record of emerging from these troughs even stronger than when we went into them, and I am confident that will continue to be the case. Despite the sluggishness of near-term retail demand, interest in boating is robust, as evidenced by online activity at our events and boat shows. The Miami International Boat Show in February and the West Palm Beach International Boat Show in March were both strong events for us, generating positive momentum as we move into the summer selling season. We continue to prioritize growth through the addition of strong businesses that fit our acquisition criteria.
During the quarter, we completed the acquisition of Williams Tenders USA. This grants MarineMax distribution exclusivity in the United States and the Caribbean for the world’s leading brand of rigid inflatable jet tenders for the luxury yacht market. This transaction is consistent with our strategy of investing in brands, products and services that improve the customer experience and increase our margin profile. In March, we also announced the expansion of our footprint in the Florida Keys with Native Marine, a Boston Whaler and Mercury marine dealer in Islamorada. We’re excited to provide the dealership’s customers with our broad range of products and services, including maintenance, repairs, boating accessories and events. Let me address two items that occurred since we spoke with you on our Q1 call in January.
First, as previously disclosed in March, we determined that the company had experienced a cybersecurity incident. I’m extremely proud of our technology team and the efficiency with which they handled the incident. Although the containment measures that we put in place resulted in some disruption to a portion of our business, we quickly initiated our incident response and business continuity protocols and took immediate steps to contain the incident. The training and preparedness of our team played a significant role in the effectiveness of the response. While our investigation into the incident continues to date, there has been no material long-term impact on our operations. Secondly, last week we filed an 8-K regarding what we consider to be the unlawful taking of our marina operations in Cabo San Lucas, Mexico.
The marina has been operated by a subsidiary of IGY for more than 20 years. Our IGY team was in the process of finalizing a new renewal agreement with Mexican officials when the marina was taken without notice. In light of the ongoing situation, we can’t comment beyond the information contained in the 8-K except to say that we are pursuing the appropriate remedies. The Cabo Marina accounted for less than 4% of assets and 1% of revenue in fiscal 2023. Before I conclude, let me touch on some very important operational improvement plans we are working on. While we have taken steps in recent months to reduce expenses in areas that do not directly impact our customer experience, we believe it’s prudent to take additional actions to align our cost structure with the current environment and improve our operating leverage.
We began taking more significant actions, which cover a broad range of expense reductions. We continue to maintain a strong cash position and a healthy balance sheet, positioning our business well as industry conditions improve. And with that, I’ll turn the call over to Mike for comments on our financial performance in the quarter. Mike?
Mike McLamb: Thank you, Brett. Brett noted the overall decline in boat registrations through the first calendar quarter of 2024. We had anticipated registrations coming in flat or perhaps up slightly as noted on prior calls, given the rather easy year-over-year comparisons, which is in stark contrast to the nearly 16% decline in fiberglass boat registrations for the period. Having said that, our own data suggests that seasonality may be partly contributing to recent industry trends. As an example, in the first half of fiscal 2024, the sales mix between our Florida and non-Florida retail locations closely resembled the mix we experienced prior to 2020, indicating more seasonal patterns in northern markets. Overall revenue grew 2% to more than $582 million, primarily reflecting a 2% increase in same-store sales.
Our same-store sales growth was driven mostly by modest unit growth. Our manufacturing businesses of Cruisers Yachts and Intrepid Powerboats experienced revenue declines as they adjusted production like other manufacturers in the industry. Gross profit margin declined to 32.7%. While we did expect a decline around this magnitude, the final results were lower than expected given the discounting needed to drive sales. SG&A increased to $169 million in the quarter, excluding transaction costs, changes in contingent consideration, weather events and other nonrecurring items in both periods, SG&A increased approximately $16 million, or 11%. The increase in expenses is in a number of areas, including compensation, inventory maintenance, marketing, insurance and other factors related to the current inflationary environment.
Also, roughly $3 million of the increase was from entities we did not own last March quarter. These entities are also seasonally slowest in the winter quarters. However, as Brett noted, we’re taking more aggressive steps to offset those increases and the scope of what we are considering is broad. The goal is to improve our SG&A operating leverage and ultimately improve our operating margin. Some of our actions will be near term reductions, while others will take more time. Because we are still working through our actions, we plan to talk in more detail about these initiatives on our third quarter call. Interest expense increased to $19.4 million as a result of higher rates and increased inventory. Floor plan interest in the quarter was close to $12 million compared to $6.5 million last year.
On the bottom line, GAAP net income was $1.6 million, or $0.07 per diluted share, compared with net income of $30 million, or $1.35 per diluted share last year. Adjusted net income was $4.1 million, or $0.18 per diluted share, compared with $27.4 million, or $1.23 per diluted share last year. Adjusted EBITDA for the quarter was $29.6 million compared with $57.4 million last year, primarily reflecting lower gross margins, higher SG&A and higher floor plan interest expense. Moving on to the balance sheet. We ended the quarter with nearly $217 million in cash. Inventories of $933 million were up about 6% from calendar year end, generally in line with historical trends, but a bit higher than we expected given some revenue that we were unable to close in the quarter.
On a same-store basis unit inventories are over 26% below 2019 levels. Turning to liabilities. Our short-term borrowings, which is our floor plan financing, were up largely due to increased inventories. Customer deposits were up modestly as expected from calendar year end as we move into the seasonal selling period. Debt to EBITDA net of cash was a little over one times at quarter end as we continue to maintain a strong liquidity position. We have additional liquidity in the form of unlevered inventory and available lines of credit totaling close to $200 million. Turning to guidance. Based on our year-to-date results and expectations for the remainder of the year, we are adjusting our 2024 guidance. Our expectations are based on an incrementally improving second half of the year, with increased seasonality playing a role.
Although we are now forecasting industry volume to be down on a unit basis for our fiscal year, we expect our volume to be up modestly for the period consistent with what we’ve experienced in the first half of the fiscal year. For the year, we anticipate same-store sales growth in the low-to-mid single-digit range and gross margins remaining in the low-30s on a percentage basis. We expect SG&A expenses to be elevated above our 2023 level given our year-to-date performance, but with the year-over-year increase moderating in the back half as we implement additional cost reduction actions. Interest expense will be on a run rate basis generally consistent with the first two quarters of this fiscal year. Based on those drivers, we now expect our adjusted net income per share to be in the range of $2.20 to $3.20 for fiscal 2024, with adjusted EBITDA to be in the range of $155 million to $190 million.
We are using an annual expected tax rate of just over 27% and a share count of 23.1 million in our assumptions. The wider range on EPS versus EBITDA is because our noncash items like stock-based comp and depreciation and amortization grow more meaningfully as a percentage. Looking at current trends, we commented a few times that we did not close all the business we expected in March. That does set up for a strong April, but we have a lot of work to do to get things wrapped up and trends in general have picked up, presumably in part due to seasonality. With that, I’ll turn the call back over to Brett for closing comments. Brett?
Brett McGill: Thank you, Mike. Although our industry continues to experience near-term challenges combined with a return to seasonality, we have outperformed the market and are focused on the strategic steps necessary to maintain our historically strong margin profile and the financial flexibility to deliver on our strategic priorities. With that, Mike and I will be happy to answer your questions. Operator, please open the line for Q&A.
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