MarineMax(HZO) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Q4 2018 unaudited financials show revenue and net income growth, seasonal inventory build, and cash flow usage, with ASC 606 adoption Condensed Consolidated Statements of Operations Q4 2018 operations show a 2.1% revenue increase to $241.9 million, 7.1% gross profit growth, and 16.6% net income rise to $4.9 million Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2017 | Three Months Ended Dec 31, 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $236,921 | $241,937 | 2.1% | | Gross Profit | $59,249 | $63,478 | 7.1% | | Income from Operations | $9,003 | $8,986 | -0.2% | | Net Income | $4,212 | $4,910 | 16.6% | | Diluted Net Income per Share | $0.19 | $0.21 | 10.5% | Condensed Consolidated Balance Sheets As of December 31, 2018, total assets grew to $695.7 million, driven by seasonal inventory increases and higher short-term borrowings Balance Sheet Highlights (in thousands) | Account | September 30, 2018 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $48,822 | $38,581 | | Inventories, net | $377,074 | $445,465 | | Total current assets | $465,291 | $520,661 | | Total assets | $640,538 | $695,694 | | Short-term borrowings | $212,949 | $270,715 | | Total liabilities | $287,446 | $334,256 | | Total shareholders' equity | $353,092 | $361,438 | Condensed Consolidated Statements of Cash Flows Q4 2018 cash flows show $65.1 million used in operations due to inventory, $3.0 million in investing, and $57.8 million provided by financing Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Dec 31, 2017 | Three Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(56,184) | $(65,089) | | Net cash used in investing activities | $(2,477) | $(2,982) | | Net cash provided by financing activities | $52,275 | $57,830 | | Net decrease in cash | $(6,386) | $(10,241) | Notes to Condensed Consolidated Financial Statements Notes detail business operations, accounting policies including ASC 606 adoption, a $400 million financing facility, and the impact of new lease accounting standards - The company is the largest recreational boat and yacht retailer in the United States, operating through 63 retail locations in 16 states as of December 31, 2018[23] - Sales of new boats from Brunswick Corporation accounted for approximately 40% of revenue in fiscal 2018. Brunswick's decision to discontinue Sea Ray sport yacht and yacht models, which represented about 10% of MarineMax's fiscal 2018 revenue, is a notable development[24][25] - The company adopted the new revenue recognition standard (ASC 606) on October 1, 2018, using the modified retrospective approach, which resulted in a net after-tax cumulative effect adjustment to retained earnings of $399,000[38] - In October 2018, the company amended its credit facility, increasing the financing commitment to $400 million and extending the maturity to October 2021. The interest rate is set at one-month LIBOR plus 345 basis points[52][53] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q4 2018 revenue growth, improved gross margin, increased SG&A, and liquidity management via its $400 million credit facility Consolidated Results of Operations Q4 2018 revenue grew 2.1% with 0.5% comparable-store sales, gross margin expanded to 26.2%, SG&A increased, and the effective tax rate decreased to 24.1% Q1 FY2019 vs Q1 FY2018 Performance | Metric | Q1 2018 (ended Dec 31, 2017) | Q1 2019 (ended Dec 31, 2018) | Change | | :--- | :--- | :--- | :--- | | Revenue | $236.9M | $241.9M | +2.1% | | Comparable-Store Sales | N/A | N/A | +0.5% | | Gross Profit | $59.2M | $63.5M | +7.3% | | Gross Margin | 25.0% | 26.2% | +120 bps | | SG&A Expense | $50.2M | $54.5M | +8.6% | | Effective Tax Rate | 34.8% | 24.1% | -10.7 pps | Liquidity and Capital Resources Liquidity is managed via an amended $400 million credit facility, funding working capital and growth, with $60.1 million available and covenant compliance - The company amended and restated its Inventory Financing Agreement in October 2018, increasing the floor plan financing commitment to $400.0 million from $350.0 million and extending the maturity date to October 2021[52][108] - As of December 31, 2018, the company had $270.7 million in short-term borrowings and an additional $60.1 million available under its credit facility[55][111] - Financial covenants require the leverage ratio not to exceed 2.75 to 1.0 and the current ratio to be greater than 1.2 to 1.0. The company was in compliance with all covenants as of December 31, 2018[53][105][109] Impact of Seasonality and Weather on Operations The highly seasonal recreational boating industry leads to lower sales and higher inventory in Q4 and Q1, with adverse weather impacting operations - The business is highly seasonal, with significantly lower sales and higher inventories in the quarters ending December 31 and March 31, outside of Florida[113] - Adverse weather, including hurricanes, prolonged winter conditions, or droughts, can curtail customer demand and negatively affect results of operations[114] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from variable interest rates, with a 100 bps increase impacting pre-tax interest by $2.7 million, and foreign currency fluctuations - A hypothetical 100 basis point increase in the interest rate on the company's short-term debt would result in an estimated annual increase of $2.7 million in pre-tax interest expense[115] - The company faces foreign currency exchange rate risk on products purchased from European and Chinese manufacturers, which are transacted in U.S. dollars. Fluctuations can impact retail pricing and profitability. No hedging transactions are currently in place[116] Item 4. Controls and Procedures CEO and CFO concluded disclosure controls were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of the end of the period covered by the report, the company's disclosure controls and procedures were effective at the reasonable assurance level[118] - No changes in internal control over financial reporting occurred during the quarter ended December 31, 2018, that materially affected, or were reasonably likely to materially affect, internal controls[119] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal actions, which management does not expect to have a material adverse effect on financials - The company is party to various legal actions arising in the ordinary course of business but does not expect them to have a material adverse effect on its financial condition or results[124] Item 1A. Risk Factors A prolonged U.S. government shutdown is identified as a risk factor, potentially impacting customer income, financial markets, and marine industry support - A prolonged government shutdown is identified as a risk factor that could adversely affect business by impacting customer discretionary income, financial markets, and government agency support for the marine industry[125] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q4 2018, the company repurchased 13,503 shares at $16.89 per share, with 329,382 shares remaining under the repurchase program Share Repurchase Activity (Q1 FY2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2018 | - | - | | Nov 2018 | - | - | | Dec 2018 | 13,503 | $16.89 | | Total | 13,503 | $16.89 | - As of December 31, 2018, 329,382 shares were still available to be purchased under the existing share repurchase program[127] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including corporate governance documents, the amended financing agreement, and CEO/CFO certifications