Good morning, and welcome to the MarineMax Inc. 2021 Fiscal Third Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Dawn Frankfort of ITR Investor Relations for Marine Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining this discussion of MarineMax's fiscal Q3 2021 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 727-531-1712 and she will e mail 1 to you right away. I now would 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 questions. With that in mind, let me turn the call over
to Mike. Please go ahead, Mike.
Thank you, Don. Good morning, everyone, and thank you for joining this call. Before I turn the call over to Brett, I'd like to remind you that certain of our comments Our forward looking statements are 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 ks 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. Good morning, everyone, and thank you for joining the call. Our team continues to set records with their performance and our Q3 was no exception. They produced record sales, record margins, Record profit and on top of that record net promoter scores. Today, I'd like to share the highlights from our very productive third quarter and then discuss the results of our strategic growth plan, which will continue to create shareholder value in 2021 and beyond.
Then Mike will discuss our financial results in more detail and provide color on our updated 2021 financial outlook. Let me start by touching on our 3rd quarter performance. I'm extremely excited about our results in the quarter with both sales and earnings exceeding And I am especially proud of the MarineMax team for continuing a high level of execution on our key strategic initiatives, which continue to gain traction and resonate with customers. We have capitalized on a favorable consumer spending backdrop along with a continued demand in consumers seeking the boating lifestyle. The record sales and earnings growth we delivered was driven by solid 6% same store sales growth, which is on top of a robust 37% same store sales growth a year ago.
From a 9 month perspective, same store sales growth was up 21% on top of a 22% a year ago. Our significant geographic and product diversification, along with the effective utilization of our digital platform is driving sustained growth. Additionally, the marine industry continues to experience a significant acceleration in new customers. Given our scale and global position, we are benefiting from our growing share of the market and based on available industry data, We believe we continue to gain market share. We have meaningful revenue growth across most brands and categories of product and continue to leverage our investments in technology, which is driving leads that are being converted into sales and enhanced profitability.
We built on our prior quarter's profitability and increased our operating margin to over 12%. This performance is directly attributable to our ability to execute against our strategy, focusing on higher gross margin businesses, including finance Insurance,
Marina,
storage, parts, services and brokerage. The gross margin strength we produced in the first half of the year accelerated in the June quarter to 30.7%. Additionally, our acquisitions have performed well and are aligned with our In the quarter, gross margin expansion and good expense control led to outstanding operating leverage of over 20% and record earnings per share of $2.59 Now let me The confidence we have that our strategy will continue to create sustained growth and long term shareholder value in 2021 and beyond. We are making significant progress on our vision of creating exceptional customer experiences through best services, Products and Technology. Our teams remain focused on these initiatives, resulting in strong sales and margins.
We are uniquely positioned to drive this growth for years to come. We will accomplish this through our global market presence, premium brands, Valuable Real Estate Locations, exceptional customer service, technology investments, strategic acquisitions, Industry leading inventory management and finally, a continued commitment to build on our strong company culture. Supported by one of the strongest balance sheets in the industry, we will continue to make strategic accretive acquisitions in a disciplined manner. The combination of being well capitalized and having a broad global geographic presence has allowed and will allow us to grow in many ways By adding additional dealers, marinas, storage, service related offerings, manufacturing and asset light businesses such as our Superyacht Services business. We continue to have strong demand driven visibility And we are well positioned to serve our customers.
The sheer size of our backlog continues to provide us with added confidence that we should outperform for the remainder of 2021 and well into fiscal 2022. Also, there is no question that our scale is a competitive advantage as we leverage our deep manufacturing relationships, our nationwide shared inventory and strong balance sheet to support the growing demand. As we will discuss later on the call, Based on our Q3 results, we are again raising our full year 2021 guidance. This reflects another great quarter and the confidence we have in the business as we build our backlog and look ahead to the new product that will start to flow in the future. We believe the combination of driving operating leverage and generating significant cash flow coupled with strong consumer demand will result in sustained growth well into fiscal 2022 and beyond.
And with that update, I'll ask Mike to provide more detailed comments
Thank you, Brett, and good morning again, everyone. I'd like to start by thanking our team for producing a 5th Consecutive record quarter, which significantly topped last year's outstanding June quarter. For the quarter, Revenue grew 34% to over $666,000,000 due largely to same store sales growth of 6%, which was on top of 37% a year ago, plus the strong results from the acquisitions we have completed, namely Skipper Buds, Northrop and Johnson and Cruisers Yachts. Overall, our growth has been demand driven across generally all segments of products. As expected, the supply chain challenges have resulted in low industry inventory, which led to reduced overall unit sales versus our record last year.
However, with greatly increased backlog visibility, Coupled with our broad product portfolio and production insight from our manufacturing partners, we were positioned to drive growth in many of our key categories. This approach resulted in a double digit expansion of our average unit selling price. We also believe this strategy While our gross margin rose 5.90 basis points to 30.7%, our initiatives New and used boats, storage, our higher margin finance, insurance and brokerage business, as well as our global superyacht services businesses, Northrop and Johnson and Fraser Yachts. We would note that the superyacht charter business is starting to see improvement with the reopening of Europe. Assuming the reopening continues, we would expect a much improved charter season compared to August September last year.
Regarding SG and A, the majority of the increase was again due to rising sales and related commissions combined with the recent acquisitions. Generally, expense trends are on track. Our operating leverage in the quarter was over 20%, which drove very strong earnings growth, setting another quarterly record with pre tax earnings of over $80,000,000 Our record June quarter saw both net income And earnings per share rise more than 60%, generating $2.59 in EPS versus $1.58 a year ago. For the 1st 9 months of the year, I will make just a few comments. Our revenue exceeds 1.6 $1,000,000,000 driven by a 21% increase in comparable store sales.
Gross margins exceed 30%. Our operating leverage is around 20%. Our EPS is at $5.33 and our EBITDA is over 180,000,000 A very impressive 9 months. Moving on to our balance sheet, we continue to build cash with over $200,000,000 at quarterend. Our inventory at quarter end was $209,000,000 Excluding Skipper Buds and Cruisers Yachts, our inventory is near historically low levels on a relative basis.
However, it is important to reiterate that we have reasonable visibility from our manufacturing partners. That coupled with our backlog allows us to direct our efforts to drive growth like we did this quarter. Looking at our liabilities, Short term borrowings decreased sharply due to lower inventory and related financing as well as the increase in cash generation. Customer deposits almost tripled to over $86,000,000 due to the demand we are seeing setting a new record. Our current ratio stands at 2.20 and our total liabilities to tangible net worth ratio is below 1.
Both of these are very impressive balance sheet metrics. Our tangible net worth is 386,000,000 Our balance sheet has always been a formidable strategic advantage and now more than ever, it provides the capital for growth and expansion as opportunities arise. Turning to guidance for 2021. The June quarter exceeded expectations and industry trends remained strong. Industry estimates for 2021 retail unit growth is in the high single digits.
We expect our annual same store sales growth to be in This is generally consistent with our comments last quarter. Given the strength of earnings in the June quarter In the demand driven visibility, we are raising our estimates for earnings per share guidance to the range of $6.40 to $6.55 In summary, we do expect our pre tax earnings to rise in the 4th quarter, which gets dampened a bit by a higher tax rate of around 25% this year as well as higher outstanding shares, which results in the EPS guidance range. Our guidance excludes the impact from any potential acquisitions that we may complete. Our updated 2021 guidance implies an EBITDA level well in excess of $200,000,000 Turning to current trends, July will close with positive same store sales growth and our backlog is at record levels. As we have said, industry demand trends remain strong and we are generally outperforming these elevated levels.
While we would typically not share perspective beyond the current fiscal year, I'd like to provide some additional context as we look out to fiscal With the demand side of our business remaining very strong and with the visibility we have with our manufacturing partners and backlog, We do anticipate same store sales growth in 2022. We will provide more color around this on our Q4 call. With those comments, I'll turn the call back over to Brett for some closing comments. Brett? Thank you, Mike.
As evidenced in today's results, we are pleased to see our business continue to build momentum. Our team's performance the 1st 9 months of fiscal 20 21 continues to show excellent execution even on top of a record performance last year, which included very impressive same store sales. Much of our strategic work is still underway with the true benefit to be realized in the coming quarters years. We remain committed to creating exceptional customer experiences through our teams, services, products and technology. Record high net promoter scores show that our customer centric approach is fully aligned to drive shareholder value.
And with that, operator, let's open up the call for questions.
We will now begin the question and answer session. The first question comes from Joe Altobello with Raymond James. Please go ahead.
Great. Thanks. Hey, guys. Good morning. So very glad to hear July comp positive, and it sounds like you're expecting positive comp growth next year as well.
I guess the flip side to that is how about margins next year with promotion levels potentially normalizing and with lowering costs going higher hopefully on higher inventories.
Did you say with promotional?
Levels normalizing next year, yes, assuming they do.
Yes, I don't think anybody is expecting a different promotional environment next year than the past year. If it is, it will be very incremental. Inventory levels are very low and it's going to take a while for the industry to return to if it returns to prior levels. We see inventory continuing to be very lean through fiscal 2022. But again, with the insight we're getting from our manufacturing partners coupled with the demand, I We see a runway to same store sales growth for 2022.
Okay, super. And then just to follow that up, Have you seen an uptick in order cancellations? And if so, does someone come in that afternoon to pick up that order effectively, so it's really Not impacting the overall number.
Yes, Joe, we really haven't seen any uptick in Cancellations at all people are locked in. I think there's a dynamic out there that in the past, people boaters have always upgraded boats, right? They want a larger boat one day. And think in the past people would say, hey, next season let's go looking for boats, right? Now people are looking at it and saying, We better get our boat on order now if we want it for next season.
So there's that's creating some patience in and of itself. I think people are being more proactive about their future Purchase. And we're figuring out a way to keep them on the hook, but no order canceling at all.
No, but I do think your first part of that question was, Would sales be even higher? I think the answer to that is yes. I think every dealer would tell you that. You just look at our backlog, our customer deposits And the strength of demand today, so I think the industry trends would be even stronger if it wasn't for some of the supply chain challenges
The next question comes from Jamie Hardiman with Wedbush Securities. Please go ahead.
Hey, good morning. So I wanted to drill down a little bit on the really strong trends that you're seeing in pricing. I think you said it was double digit for the quarter. Maybe walk us through how much of that is a function of mix, right? The higher priced boats versus the lower priced boats and how much of that is like for like pricing?
Our customers are you seeing any customers balk at price increases? And then the July same store sales, I think you said, was It's going to finish positive. Should we expect a similar trend to what we saw in the 3rd quarter, meaning Some declines in units, but big growth in AUP there?
Hey, great question, James. And I would tell you in the current quarter, In terms of my comment around what drove same store sales, the overwhelming majority of it was a mix change to larger product, more expensive product. The incremental pricing on new and used product, which we are also seeing, which is helping to drive margins, It was part, but it'd be a small part of the overall increase. And The pricing environment doesn't seem to be dampening demand at all currently from that perspective. And then I think from an industry's Perspective on your July commentary, if you look at the industry, if I remember right, in April, the units for the industry were up 86%, in May, they were up 2%.
So think about that trajectory, 86% to 2%. I think when June gets published, Because of supply, there's going to be a negative print on units posted in June because of supply And probably same with July. And so we're still targeting high same store sales in the high teens, Then yes, we would still be expecting increases in the AUP in July.
Got it. And then sort of to maybe roll that question forward, really encouraged by The confidence you have in growing same store sales in 2022, I guess, let me drill down on that a little bit. Do you think that units sold can actually grow in 2022? Or is That confidence primarily a function of just the momentum with respect to AUPs.
Great question. And Based on all the feedback and insight we have from our manufacturing partners, and we'll obviously get more into this on our call next quarter, But sitting here today, it looks like that we can have unit growth next year based on our manufacturing partners. There's a lot of moving pieces in that, but
The next question comes from Eric Wold with B. Riley Securities. Please go ahead.
Thanks. Good morning, guys. Just a couple of questions kind of on the cost side, if I will. I guess one is, as we kind of Large items kind of online and not seeing in person. I guess if you get back to a normal All boat shows open, full capacity situation like we did in pre pandemic.
How would you expect your spending To look like in that environment and your involvement to look like in that versus pre pandemic, are we getting back to where it was or would you be scaled down somewhat?
I'll let Mike comment a little more detail, but I'll mention first. I think we're really working with the show promoters and the manufacturers figure out a way to get back to shows in a much different and more cost effective way. So we definitely don't want to return to the old Expense structure, that's going to take a lot of work and time, but that's just a general comment that we don't want to allow it to get back to there for a lot of reasons. And So Mike, do you
have anything to add? No, but if we start going back to shows, there would be an incremental increase in G and A and the marketing side of things, for sure. If I remember right, last year, we did have the Fort Lauderdale show in the fall, the December quarter, And really no other major shows after that, that I can remember off the top of my head. So if there is any impact, it'd probably be in the back half of the year.
And is that cost savings from the more cost effective way of going about it? Is cost savings Pocketed, so to speak, or kind of moved into a different category of spend?
Well, just like in this past year, it wasn't all just pocketed. We put it towards other marketing efforts, Just holding in house events and our getaways events are more costly now because you got to be much different and safer. So We put the money to work, but not all of it.
And the last question, obviously, The cash flow you've got down to almost no floor plan financing on the books for the quarter, a couple of $1,000,000 What is your strategy around that going forward assuming Inventory does start to catch up over the next 12 months to 18 months come back in, but obviously business would be strong. In the meantime, what is your strategy around kind of How much of inventory you'd like to finance versus what you did in prior years?
Well, you may have seen, we put out a release Last week, I think it was that we did amend our facility and lengthened for another 3 years. I mean, we do see in that time period inventories beginning to build. I'm not sure in that time period, I don't think they're going to build it even back to levels they were before, but I think we wanted to have the facility in place To give us the flexibility with how we finance the business. So I would I see the overall industry and I see us kind of returning to some reasonable level. A floor plan financing facility is a very flexible, basically accounts payable, which is a very attractive financing So we like it.
So there will be some of that in the future, but there's not going to be much of it for a while. Sounds good. Okay. Thank you.
The next question comes from David MacGregor with Longbow Research. Please go ahead.
Hi. This is Joe Nolan on for David MacGregor.
Hi, Joe.
Hi. I was just wondering, could you talk about the recent acquisition of Cruiser Yachts and just the role that a vertical integration plays into the strategic direction of the company? And then also just on top of that, are you planning to acquire any other boat OEMs? Is that in your plans? And just if so, what boating segments would you be prioritizing?
A great question on cruisers. We're really proud of the cruisers joining the REMAX family. We've talked about in other releases that That was a segment of our business that went away with the Sea Rays for yachts and yachts. And when the opportunity with Cruisers came available to have a American built product here and to secure our future, just the opportunity lined up along with the fact that we could Grow the production levels in a substantial way at cruisers that had a big impact on the decision to do it. So Great acquisition with great opportunity for upward growth.
There are cruisers that and as far as other manufacturers, we will look at Opportunities that are out there, but it's not a high priority strategic pattern that you'll see from us. However, We will look at some opportunities as they come up.
Got it. Thanks for that. And then also just wondering on used boats, if we could just talk about gross margins. I understand that prices have gone up quite a bit. Just wondering How that's impacting margins in the business?
Yes. So pricing new and used both has increased and It's helping our margins. If I had to estimate it, probably a third of our margin increase is just on the product Demand side, which has increased new and used. The other increase in the margin is really the changes we've made to the business around F and I, storage, Some of these acquisitions that we've made that all add to our margin. So we are getting some benefit from the new and used margin increases.
And the next question is from James Hardiman with Wedbush Securities. Please go ahead.
Hey, it looks like I'm back on. So a couple of just modeling questions. The manufacturing business, it looks like in the Q3, it had Better overall margins than retail operations. Is that should we expect that Over the course of a full year, and how do we think about sort of gross margin versus operating margin in that business?
Great question. I think when our 10 Q gets filed, there's going to be some additional language around the segment reporting. Within the retail operations are other costs That are associated with the manufacturing segment. And so it's we'll explain that a little bit more In the queue. So manufacturers like cruisers are typically going to be in the high single digit from an EBITDA perspective.
So when you start getting that down to operating margin from a GAAP basis, it's a little lower than that. That's looking back historically when you look forward with their new Plant that's coming online with some of the growth, obviously, their plans and our plans are to grow those that earnings stream and the earnings as From a margin perspective, what happens from our business is you get We will end up getting the manufacturing margin. So when one of our stores sells cruisers, so we'll get the obviously the retail margin within stores then we'll get the manufacturing margin. So we kind of get like a doubling of the margin on the business that we do from cruisers. And so that way, it will overall it will help our overall consolidated margins.
Margins on the manufacturing side in our industry tend to be in that 25% range, which is similar to what the dealers recognize. I'm not sure if I'm answering all your questions, but I Probably hit a few of them, I think.
Yes, you did. And so should I think about this being, I guess on a full year basis, accretive to both the gross margin and the EBIT margin?
That's correct, yes.
Okay. And then similar questions as I think about NeuSois, is that how you say that? Yes. The recent dealer that you guys acquired, $35,000,000 in 2020 revenue, is that growing at a similar rate to your organic Business, and should we think about a similar seasonality and margin structure there as well?
Yes. Go ahead. Nitswod, Great dealership, good addition to our team. And I'll remind you that part of what made it really good is their storage component of their business, their Higher margin focus on things. So that's very helpful.
But they I'll let Mike comment more. But they're seeing growth like Every other dealer would see and we hope we can bring some synergies to improve finance and insurance and other pieces of the business.
Yes. Because of their storage profile, a typical dealer historically is going to be in the Low maybe to mid single digit pre tax if they were running a really good business. These guys have been in high single digit, Sometimes even probably breaking above that. They run a very good business, great team. But from your you asked about seasonality, obviously, they're in Minnesota.
So they're going to be more 60% of the year is going to be in the summertime, 40 It's going to be in the wintertime or December March quarters. They'll be more seasonal than MarineMax.
Got it. Perfect. Appreciate it, guys.
Thanks, James.
This concludes our question and answer session. I would like to turn the conference back over to Mr. McGill for any closing remarks.
Well, thank you again for joining the call today everybody. And both Mike and I are available if you have any additional questions and we look forward to updating you on our future