MarineMax(HZO) - 2023 Q4 - Annual Report

Part I Business MarineMax is the world's largest recreational boat and yacht retailer, operating through Retail Operations and Product Manufacturing segments with 130 global locations Company Overview and Strategy MarineMax is the world's largest recreational boat and yacht retailer, expanding through strategic acquisitions like IGY Marinas and digital presence, with Brunswick and Azimut sales as key revenue drivers - MarineMax is the world's largest recreational boat and yacht retailer, with 130 locations worldwide, including 81 retail dealerships and 66 marina and storage locations[13] Key Manufacturer Revenue Contribution (FY 2023) | Manufacturer/Brand | Percentage of Revenue | | :--- | :--- | | Brunswick Corporation (Total) | ~24% | | Sea Ray (Brunswick) | ~11% | | Boston Whaler (Brunswick) | ~11% | | Azimut | ~11% | Recent Same-Store Sales Growth | Fiscal Year | Same-Store Sales Change | | :--- | :--- | | 2021 | +13% | | 2022 | +5% | | 2023 | -2% | - The company has made several strategic acquisitions to enhance its market position, including IGY Marinas, Fraser Yachts Group, Northrop & Johnson, Cruisers Yachts, and Intrepid Powerboats[22] Products and Services The company's revenue is primarily driven by new boat sales, accounting for 68.7% of total revenue in fiscal 2023, with an average new boat selling price of approximately $306,000 Revenue Breakdown by Source (FY 2023) | Category | Revenue (approx. in millions) | % of Total Revenue | | :--- | :--- | :--- | | New Boat Sales | $1,645.4 | 68.7% | | Used Boat Sales | $189.5 | 7.9% | | Maintenance, Repair, Rent, Storage | $228.6 | 9.5% | | Brokerage Sales Commissions | $112.7 | 4.8% | | Finance & Insurance (F&I) | $66.8 | 2.8% | | Parts & Accessories (Tangible) | $112.1 | 4.7% | | Yacht Charter Services | $39.6 | 1.6% | - The average selling price for a new boat increased to approximately $306,000 in fiscal 2023 from $256,000 in fiscal 2022, significantly higher than the industry average of $84,000 for calendar 2022[38] Operations and Human Capital MarineMax employs a decentralized operational management approach, emphasizing the boating lifestyle and digital marketing, with 3,928 employees as of September 30, 2023 - The company utilizes a decentralized management structure for its dealerships, with local general managers overseeing daily operations under the direction of regional presidents[76] - Digital marketing is a key competitive advantage, with the majority of leads originating from digital properties like MarineMax.com and social media engagement[81] Employee Distribution (as of Sep 30, 2023) | Category | Number of Employees | Percentage of Total | | :--- | :--- | :--- | | Store-level Operations | 2,671 | 68% | | Manufacturing Operations | 927 | 24% | | Corporate & Management | 330 | 8% | | Total | 3,928 | 100% | Suppliers and Inventory Management MarineMax purchases a substantial portion of its new boat inventory from manufacturers like Brunswick and Azimut, financing inventory through a $950 million credit facility and managing it centrally - Sales of new boats from Brunswick and Azimut accounted for approximately 24% and 11% of revenue, respectively, in fiscal 2023[86] - The company has a credit facility providing up to $950 million in asset-based borrowing availability to finance inventory[93] - Inventory is actively managed across retail locations to meet customer demand, and the company capitalizes on manufacturer incentives during off-seasons to improve cost and availability[89][90] Seasonality and Regulatory Environment The business is highly seasonal, with peak sales in the June and September quarters, and is subject to extensive environmental regulations from agencies like the EPA and OSHA Average Quarterly Revenue Distribution (3-Year Period ending Sep 30, 2023) | Quarter Ending | Average % of Annual Revenue | | :--- | :--- | | December 31 | ~20% | | March 31 | ~25% | | June 30 | ~31% | | September 30 | ~24% | - The business is subject to weather patterns, with adverse conditions like hurricanes, droughts, or prolonged winters potentially curtailing demand and shortening selling seasons[102][103] - Operations are subject to extensive environmental regulations from the EPA and OSHA regarding engine emissions, fuel storage tanks, and disposal of hazardous materials, which the company believes it is in compliance with[104][107] Executive Officers The executive team is led by William H. McGill Jr. as Executive Chairman and William Brett McGill as CEO and President, supported by key financial and operational leaders Executive Leadership | Name | Position | | :--- | :--- | | William H. McGill Jr. | Executive Chairman of the Board and Director | | William Brett McGill | Chief Executive Officer, President and Director | | Michael H. McLamb | Executive Vice President, Chief Financial Officer, Secretary, and Director | | Charles A. Cashman | Executive Vice President and Chief Revenue Officer | | Anthony E. Cassella, Jr | Executive Vice President Finance and Chief Accounting Officer | | Shawn Berg | Executive Vice President and Chief Digital Officer | | Kyle G. Langbehn | Executive Vice President and President of Retail Operations | Risk Factors The company faces significant risks from dependence on key manufacturers, cyclical and seasonal industry dynamics, intense competition, economic conditions, and strategic and operational challenges Competition, Economic, and Industry Risks The company's success is highly dependent on key manufacturers, faces intense competition, and is vulnerable to economic downturns, inflation, and rising interest rates due to the seasonal nature of the boating industry - The company is heavily dependent on manufacturers, with Brunswick products accounting for ~24% of revenue and Azimut products for ~11% in fiscal 2023[130] - The business is highly seasonal, with lower sales and higher inventory levels in the quarters ending December 31 and March 31[138] - Economic conditions such as inflation and rising interest rates can adversely affect business by reducing consumer discretionary spending and increasing financing costs for customers[146][150][151] Strategic Risks MarineMax's growth strategy, including acquisitions like IGY Marinas and international expansion, carries risks related to integration, synergy realization, and exposure to geopolitical and foreign currency fluctuations - The company's acquisition strategy carries risks related to successful integration, realizing synergies, and managing the operations of acquired entities[154] - The acquisition of IGY Marinas presents specific risks, including unexpected costs, failure to realize synergies, and difficulties integrating international operations[169] - International operations expose the company to risks such as foreign currency fluctuations, compliance with local laws, trade restrictions, and geopolitical instability[165][169] Operational Risks Operational risks include reliance on a credit facility for inventory financing, vulnerability to higher energy costs and supply chain disruptions, dependence on F&I products, and potential impairment of goodwill - The company relies on its Amended Credit Facility (up to $950 million) for inventory financing, where rising interest rates, inventory aging, and covenant compliance are key risks[173][174] - Higher energy costs and supply chain disruptions for raw materials, parts, and engines (from Mercury Marine, Yamaha, Volvo) can adversely affect business operations and profitability[176][177][181] - A portion of income comes from F&I products, which is dependent on the availability of customer financing and favorable terms with lenders[186][187] - The carrying value of goodwill ($559 million as of Sep 30, 2023) is subject to impairment risk if future financial performance declines[200][202] Environmental, Geographic, and Regulatory Risks The company is exposed to risks from adverse weather and environmental conditions, a significant revenue concentration in Florida, and extensive federal, state, and local environmental regulations - Adverse weather conditions like hurricanes, droughts, and unseasonable temperatures can negatively impact sales and operations[203] - A significant portion of dealership revenue is generated in Florida (53% in fiscal 2023), creating a concentration risk to regional economic and weather conditions[207] - The company is subject to extensive federal, state, and local environmental regulations, which may impact operations and result in compliance costs[208][211] Cybersecurity and Stock-Related Risks MarineMax is vulnerable to cybersecurity threats and faces stock-related risks including the absence of cash dividends, uncertainties in share repurchases, and potential activist shareholder actions - The company is vulnerable to cybersecurity threats and attacks on its technology platform, which could disrupt business, compromise data, and result in financial or reputational harm[217][218] - The company does not pay cash dividends and has no current intention to do so, retaining earnings to finance growth[223] - The company's stock repurchase plan is subject to uncertainties including stock price, market conditions, and cash availability[222] Properties The company's Retail Operations segment includes 38 owned and 49 leased properties, IGY Marinas operates a global network of luxury marinas, and Product Manufacturing has four owned facilities - The Retail Operations segment operates from 38 owned and 49 leased properties, many of which are waterfront locations in key boating markets[229] - IGY Marinas operates a global network of luxury marinas through a mix of ownership, leases, joint ventures, and management/marketing agreements[235][236] - The Product Manufacturing segment has four owned manufacturing properties in Wisconsin and Florida[238] Legal Proceedings The company is involved in various legal actions arising in the ordinary course of business, which management does not expect to have a material adverse effect on its financial condition or results - 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[240] Part II Market for Common Equity, Stockholder Matters, and Issuer Purchases MarineMax's common stock trades on the NYSE under 'HZO', the company has never paid a cash dividend, and repurchased 80,344 shares in Q4 FY2023 primarily for employee tax withholding - The company's common stock is listed on the NYSE under the symbol 'HZO'[244] - No cash dividends have ever been paid, and the company intends to retain earnings for future growth[246] Issuer Purchases of Equity Securities (Q4 FY2023) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Plan | Max Shares Remaining Under Plan | | :--- | :--- | :--- | :--- | :--- | | Jul 2023 | — | $ — | — | 8,919,764 | | Aug 2023 | — | $ — | — | 8,919,764 | | Sep 2023 | 80,344 | $ 32.82 | — | 8,919,764 | | Total | 80,344 | $ 32.82 | — | 8,919,764 | - The 80,344 shares repurchased in September 2023 were tendered by employees to cover withholding taxes on vested stock awards and were not part of the public repurchase program[248] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In fiscal 2023, revenue grew 3.8% to $2.395 billion driven by acquisitions, but net income fell to $109.3 million due to increased SG&A and a surge in interest expense Results of Operations (FY 2023 vs. FY 2022) For fiscal 2023, revenue increased by 3.8% to $2.395 billion due to acquisitions, while gross profit margin remained flat, but net income decreased significantly to $109.3 million due to higher SG&A and a surge in interest expense - Revenue increased 3.8% to $2.395 billion in FY2023, driven by a $125.1 million net increase from acquisitions, which offset a $38.5 million (1.7%) decrease in comparable-store sales[277] - Gross profit margin was flat at 34.9% year-over-year, as the benefit from the higher-margin IGY Marinas acquisition offset other pressures[278] - SG&A expenses rose 17.4% to $634.5 million, attributed to acquisitions and a mix shift towards higher-margin businesses that have a higher expense structure[279] - Interest expense surged to $53.4 million from $3.3 million in the prior year, a result of rising interest rates, increased inventory, and higher long-term debt[280] Consolidated Statement of Operations Summary (FY2023 vs FY2022) | Metric | FY 2023 (in millions) | FY 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $2,394.7 | $2,308.1 | 3.8% | | Gross Profit | $835.3 | $805.8 | 3.7% | | Income from Operations | $200.8 | $265.2 | -24.3% | | Net Income Attributable to MarineMax | $109.3 | $198.0 | -44.8% | Liquidity and Capital Resources In fiscal 2023, cash used in operating activities was $222.2 million due to increased inventory, while financing activities provided $770.4 million, supported by an Amended Credit Facility of up to $950 million for floor plan financing Cash Flow Summary (in millions) | Cash Flow Activity | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $(222.2) | $76.6 | $373.9 | | Net Cash from Investing Activities | $(576.4) | $(140.5) | $(161.1) | | Net Cash from Financing Activities | $770.4 | $73.1 | $(145.8) | - The company is party to an Amended Credit Facility that provides a line of credit up to $950 million for floor plan financing, a $100 million revolving credit facility, a $400 million term loan facility (for IGY acquisition), and a $100 million mortgage loan facility[290] Debt Summary (as of Sep 30, 2023) | Debt Category | Amount (in millions) | | :--- | :--- | | Short-term borrowings (Floor Plan) | $538.7 | | Long-term debt | $391.1 | Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from interest rate fluctuations, where a 100 basis point increase would raise annual pre-tax interest expense by approximately $9.2 million, and foreign currency exchange rates impacting product costs and profitability - A hypothetical 100 basis point increase in interest rates would result in an approximate $9.2 million increase in annual pre-tax interest expense[296] - The company faces foreign currency exchange risk from purchasing products in U.S. dollars from foreign manufacturers and from the operations of its international subsidiaries, whose transactions are often in other currencies like the euro[297][298] Controls and Procedures Management concluded the company's disclosure controls were effective as of September 30, 2023, with the assessment of internal control over financial reporting excluding the recently acquired IGY Marinas, which represented 12% of total assets and 5% of total revenues - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[302] - Management's assessment of internal control over financial reporting excluded the recently acquired IGY Marinas, which represented approximately 12% of total assets and 5% of total revenues for fiscal 2023[307] - The independent auditor, KPMG LLP, provided an unqualified opinion on the effectiveness of internal control over financial reporting as of September 30, 2023, also excluding IGY Marinas from its evaluation[310][312] Part III Directors, Executive Officers and Corporate Governance Information regarding directors and corporate governance is incorporated by reference from the 2024 Annual Meeting of Shareholders proxy statement, with executive officer details provided in Part I of this report - Required information for this item is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Shareholders[321] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2024 Annual Meeting of Shareholders proxy statement - Required information for this item is incorporated by reference from the 2024 Proxy Statement[323] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of principal shareholders, directors, and officers is incorporated by reference from the company's 2024 Annual Meeting of Shareholders proxy statement - Required information for this item is incorporated by reference from the 2024 Proxy Statement[324] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2024 Annual Meeting of Shareholders proxy statement - Required information for this item is incorporated by reference from the 2024 Proxy Statement[325] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 Annual Meeting of Shareholders proxy statement - Required information for this item is incorporated by reference from the 2024 Proxy Statement[326] Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on MarineMax's consolidated financial statements, identifying critical audit matters related to the fair value assessment of trade-in used boats, and the fair value measurement of marina properties and contingent consideration from the IGY acquisition - The auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements[341] - Critical Audit Matters identified were: 1) Fair value of trade-in used boats, 2) Fair value measurement of marina properties acquired (IGY), and 3) Fair value measurement of contingent consideration liability (IGY)[345][347][350][353] Consolidated Financial Statements For FY2023, MarineMax reported total assets of $2.42 billion and total liabilities of $1.50 billion, with revenue at $2.39 billion, but net income decreased to $109.5 million, resulting in diluted EPS of $4.87 Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,123,176 | $753,997 | | Total Assets | $2,421,305 | $1,352,771 | | Total Current Liabilities | $847,049 | $412,772 | | Total Liabilities | $1,502,888 | $570,105 | | Total Shareholders' Equity | $918,417 | $782,666 | Consolidated Statement of Operations Highlights (in thousands, except per share data) | Account | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Revenue | $2,394,706 | $2,308,098 | $2,063,257 | | Gross Profit | $835,329 | $805,754 | $659,433 | | Income from Operations | $200,802 | $265,204 | $209,459 | | Net Income Attributable to MarineMax | $109,282 | $197,989 | $154,979 | | Diluted EPS | $4.87 | $8.84 | $6.78 | Notes to Consolidated Financial Statements The notes detail accounting policies, the $480 million IGY Marinas acquisition, the $950 million Amended Credit Facility for debt, and segment performance, with Retail Operations generating $2.29 billion and Product Manufacturing $222.3 million in FY2023 revenue - The acquisition of IGY Marinas in October 2022 had a purchase price of $480 million plus a contingent consideration arrangement with a fair value of $67.7 million, adding $293.5 million in goodwill[442][445] - The company's debt is primarily managed through an Amended Credit Facility that provides up to $950 million for floor plan financing, a $100 million revolving credit facility, and a $400 million term loan; as of Sep 30, 2023, outstanding short-term borrowings were $538.7 million and long-term debt was $424.9 million[459][464][472] Segment Revenue and Operating Income (FY 2023, in thousands) | Segment | Revenue (before eliminations) | Income from Operations | | :--- | :--- | :--- | | Retail Operations | $2,294,362 | $192,487 | | Product Manufacturing | $222,289 | $23,420 | | Intersegment Adjustments/Eliminations | $(121,945) | $(15,105) | | Total | $2,394,706 | $200,802 | - As of September 30, 2023, the company had approximately 8.9 million shares remaining available for repurchase under its share repurchase program[484]