This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements include
statements regarding our "expectations," "anticipations," "intentions," "plans,"
"beliefs," or "strategies" regarding the future. These forward-looking
statements include statements relating to market risks such as interest rate
risk and foreign currency exchange rate risk; economic and industry conditions
and corresponding effects on consumer behavior and operating results;
environmental conditions; inclement weather; certain specific and isolated
events; our future estimates, assumptions and judgments, including statements
regarding whether such estimates, assumptions and judgments could have a
material adverse effect on our operating results; the impact of changes in
accounting policy and standards; our plans to accelerate our growth through
acquisitions and new store openings; our belief that our existing capital
resources will be sufficient to finance our operations for at least the next 12
months, except for possible significant acquisitions; the seasonality and
cyclicality of our business and the effect of such seasonality and cyclicality
on our business, financial results and inventory levels; the scope and duration
of the COVID-19 pandemic and its impact on global economic systems, our
employees, sites, operations, customers, suppliers and supply chain; and the
Company's ability to manage growth effectively. Actual results could differ
materially from those currently anticipated as a result of a number of factors,
including those set forth under "Risk Factors" in our Annual Report on Form 10-K
for the fiscal year ended September 30, 2021.
General
In March 2020, the outbreak of COVID-19 caused by a novel strain of the
coronavirus was recognized as a pandemic by the World Health Organization, and
the outbreak is widespread throughout the United States (including Florida in
which we generated approximately 54% and 50% of our revenue during fiscal 2020
and 2021, respectively), and in other countries in which we operate. As a
result, from March 2020 through June 2020, we temporarily closed certain
departments or locations based on guidance from local government or health
officials. Currently, all of our stores are fully operational, but the effects
of COVID-19 (including the related international, federal, state, and local
governmental actions and regulations) remain unpredictable. We are following
guidelines to ensure we are safely operating as recommended. Where possible, we
are offering private personal showings as well as virtual appointments. Our
digital platform is serving as an effective solution in this environment with
robust online activity. Our experienced teams continue to engage with customers
virtually and in our stores to help customers select their boats and obtain
appropriate services.
We believe we are the largest recreational boat and yacht retailer and
superyacht services company in the world. Through our current 79 retail
locations in 21 states, we sell new and used recreational boats and related
marine products, including engines, trailers, parts, and accessories. We also
arrange related boat financing, insurance, and extended service contracts;
provide boat repair and maintenance services; offer yacht and boat brokerage
sales; and, where available, offer slip and storage accommodations. In the
British Virgin Islands we offer the charter of catamarans, through MarineMax
Vacations. We also own Fraser Yachts Group, a leading superyacht brokerage and
luxury yacht services company with operations in multiple countries. In July
2020, we acquired Northrop & Johnson, another leading superyacht brokerage and
services company with operations in multiple countries. In October 2020, we
purchased all of the outstanding equity of SkipperBud's. SkipperBud's is one of
the largest boat sales, brokerage, service and marina/storage groups in the
United States. In May 2021, we purchased all of the outstanding equity of
Cruisers Yachts. Cruisers Yachts, a wholly-owned MarineMax subsidiary,
manufactures sport yacht and yachts with sales through our select retail
dealership locations and through independent dealers, and is recognized as one
of the world's premier manufacturers of premium sport yacht and yachts. In July
2021, we acquired Nisswa Marine, a full-service dealer located in Minnesota. In
November 2021, we acquired Intrepid, a premier manufacturer of powerboats, and
Texas MasterCraft, a premier watersports dealer in Northern Texas. In April
2022, through Northrop & Johnson, we acquired Superyacht Management, S.A.R.L.,
better known as SYM, a superyacht management company based in Golfe Juan France.
MarineMax was incorporated in January 1998 (and reincorporated in Florida in
March 2015). We commenced operations with the acquisition of five independent
recreational boat dealers on March 1, 1998. Since the initial acquisitions in
March 1998, we have acquired 32 recreational boat dealers, five boat brokerage
operations, two full-service yacht repair operations, and two boat and yacht
manufacturers. As a part of our acquisition strategy, we frequently engage in
discussions with various potential acquisition targets regarding their potential
acquisition by us. Potential acquisition discussions frequently take place over
a long period of time and involve difficult business integration and other
issues, including, in some cases, management succession and related matters. As
a result of these and other factors, a number of potential acquisitions that
from time to time appear likely to occur do not result in binding legal
agreements and are not consummated. We completed three acquisitions in the
fiscal year ending September 30, 2021 and three acquisitions to date in fiscal
2022.
General economic conditions and consumer spending patterns can negatively impact
our operating results. Unfavorable local, regional, national or global economic
developments or uncertainties regarding future economic prospects could reduce
consumer
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spending in the markets we serve and adversely affect our business. Economic
conditions in areas in which we operate dealerships, particularly Florida in
which we generated approximately 54% and 50% of our revenue during fiscal 2020
and 2021, respectively, can have a major impact on our operations. Local
influences, such as corporate downsizing, military base closings, and inclement
weather such as hurricanes and other storms, environmental conditions, and
specific events, such as the BP oil spill in the Gulf of Mexico in 2010, also
could adversely affect, and in certain instances have adversely affected, our
operations in certain markets.
In an economic downturn, consumer discretionary spending levels generally
decline, at times resulting in disproportionately large reductions in the sale
of luxury goods. Consumer spending on luxury goods also may decline as a result
of lower consumer confidence levels, even if prevailing economic conditions are
favorable. Additionally, any change by the Federal Reserve to raise its
benchmark interest rate in the future or market expectations of such change may
result in significantly higher long-term interest rates, which may negatively
impact our customers' willingness or desire to purchase our products. As a
result, an economic downturn could impact us more than certain of our
competitors due to our strategic focus on a higher end of our market. Although
we have expanded our operations during periods of stagnant or modestly declining
industry trends, the cyclical nature of the recreational boating industry or the
lack of industry growth may adversely affect our business, financial condition,
and results of operations. Any period of adverse economic conditions or low
consumer confidence is likely to have a negative effect on our business.
Historically, in periods of lower consumer spending and depressed economic
conditions, we have, among other things, substantially reduced our acquisition
program, delayed new store openings, reduced our inventory purchases, engaged in
inventory reduction efforts, closed a number of our retail locations, reduced
our headcount, and amended and replaced our credit facility.
Although past economic conditions have adversely affected our operating results,
we believe during and after such conditions we have capitalized on our core
strengths to substantially outperform the industry, resulting in market share
gains. Our ability to capture such market share supports the alignment of our
retailing strategies with the desires of consumers. We believe the steps we have
taken to address weak market conditions in the past have yielded, and we believe
are likely to yield in the future, an increase in revenue. Acquisitions remain
an important strategy for us, and, subject to a number of conditions, including
macro-economic conditions and finding attractive acquisition targets, we plan to
explore opportunities through this strategy. We expect our core strengths and
retailing strategies including our digital platform, will position us to
capitalize on growth opportunities as they occur and will allow us to emerge
with greater earnings potential.
Effective May 2, 2021, our reportable segments changed as a result of the
Company's acquisition of Cruisers Yachts, which changed management's reporting
structure and operating activities. We now report our operations through two new
reportable segments: Retail Operations and Product Manufacturing. See Note 18 of
the Notes to Unaudited Consolidated Financial Statements.
As of March 31, 2022, the Retail Operations segment includes the activity of 79
retail locations in Alabama, California, Connecticut, Florida, Georgia,
Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey,
New York, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina, Texas,
Washington and Wisconsin, where we sell new and used recreational boats,
including pleasure and fishing boats, with a focus on premium brands in each
segment. We also sell related marine products, including engines, trailers,
parts, and accessories. In addition, we provide repair, maintenance, and slip
and storage services; we arrange related boat financing, insurance, and extended
service contracts; and we offer boat and yacht brokerage sales; and yacht
charter services. In the British Virgin Islands we offer the charter of
catamarans, through MarineMax Vacations. Fraser Yachts Group and Northrop &
Johnson, leading superyacht brokerage and luxury yacht services companies with
operations in multiple countries, are also included in this segment.
As of March 31, 2022, the Product Manufacturing segment includes activity of
Cruisers Yachts and Intrepid. Cruisers Yachts, a wholly-owned MarineMax
subsidiary, manufacturing sport yacht and yachts with sales through our select
retail dealership locations and through independent dealers. Cruisers Yachts is
recognized as one of the world's premier manufacturers of premium sport yacht
and yachts, producing models from 33' to 60' feet. Intrepid, also a wholly-owned
MarineMax subsidiary, is a producer of customized boats. Intrepid follows a
direct-to-consumer distribution model and has received many awards and accolades
for its innovations and high-quality craftsmanship that create industry leading
products in their categories.
Application of Critical Accounting Policies
See Part II, Item 7, "Application of Critical Accounting Policies" in our Annual
Report on Form 10-K for the fiscal year ended September 30, 2021. There have
been no material changes to our critical accounting policies since our Annual
Report on Form 10-K for the fiscal year ended September 30, 2021.
Recent Accounting Pronouncements
See Note 3 of the Notes to Unaudited Condensed Consolidated Financial
Statements.
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Consolidated Results of Operations
The following discussion compares the three and six months ended March 31, 2022,
with the three and six months ended March 31, 2021 and should be read in
conjunction with the Unaudited Condensed Consolidated Financial Statements,
including the related notes thereto, appearing elsewhere in this report.
Three Months Ended March 31, 2022 Compared with Three Months Ended March 31,
2021
Revenue. Revenue increased $87.0 million, or 16.6%, to $610.1 million for the
three months ended March 31, 2022, from $523.1 million for three months ended
March 31, 2021. Of this increase, $37.6 million was attributable to a 7.2%
increase in comparable-store sales and a $49.4 million net increase was related
to stores opened, including acquired, or closed that were not eligible for
inclusion in the comparable-store base, as well as Intrepid and Cruisers Yachts
manufacturing revenue which were not included in comparable retail store sales.
The increase in our comparable-store sales was primarily due to demand driven
increases in new boat revenue and growth in our higher margin finance,
insurance, brokerage, parts, service, storage services, and superyacht services
revenue.
Gross Profit. Gross profit increased $48.5 million, or 30.9%, to $205.3 million
for the three months ended March 31, 2022, from $156.8 million for the three
months ended March 31, 2021. Gross profit as a percentage of revenue increased
to 33.7% for the three months ended March 31, 2022, from 30.0% for the three
months ended March 31, 2021. The increase in gross profit as a percentage of
revenue was primarily the result of demand driven increases in boat margins and
increases in our higher margin revenue as noted above, as a percentage of sales.
The increase in gross profit dollars was primarily attributable to increased new
boat sales and our higher margin businesses.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased $29.6 million, or 28.5%, to $133.5 million for
the three months ended March 31, 2022, from $103.9 million for the three months
ended March 31, 2021. The increase in selling, general, and administrative
expenses was driven by an increase in mix to our higher margin businesses, which
typically carry a higher expense structure, increased gross profit which
increased commissions, and acquisitions.
Interest Expense. Interest expense decreased $0.4 million, or 36.4%, to $0.7
million for the three months ended March 31, 2022, from $1.1 million for the
three months ended March 31, 2021. Interest expense as a percentage of revenue
decreased to 0.1% for the three months ended March 31, 2022, from 0.2% for the
three months ended March 31, 2021. The decrease in interest expense was
primarily the result of decreased borrowings.
Income Taxes. Income tax expense increased $4.8 million, or 37.5%, to $17.6
million for the three months ended March 31, 2022, from $12.8 million for the
three months ended March 31, 2021. Our effective income tax rate remained
consistent at 24.8% for the three months ended March 31, 2022 and March 31,
2021.
Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021
Revenue. Revenue increased $148.2 million, or 15.9%, to $1.083 billion for the
six months ended March 31, 2022, from $934.6 million for six months ended March
31, 2021. Of this increase, $74.2 million was attributable to a 7.9% increase in
comparable-store sales and a $74.0 million net increase was related to stores
opened, including acquired, or closed that were not eligible for inclusion in
the comparable-store base, as well as Intrepid and Cruisers Yachts manufacturing
revenue which were not included in comparable retail store sales. The increase
in our comparable-store sales was primarily due to demand driven increases in
new boat revenue and growth in our higher margin finance, insurance, brokerage,
parts, service, storage services, and superyacht services revenue.
Gross Profit. Gross profit increased $92.3 million, or 32.9%, to $372.5 million
for the six months ended March 31, 2022, from $280.2 million for the six months
ended March 31, 2021. Gross profit as a percentage of revenue increased to 34.4%
for the six months ended March 31, 2022, from 30.0% for the six months ended
March 31, 2021. The increase in gross profit as a percentage of revenue was
primarily the result of demand driven increases in boat margins and increases in
our higher margin revenue as noted above, as a percentage of sales. The increase
in gross profit dollars was primarily attributable to increased new boat sales
and our higher margin businesses.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased $58.1 million, or 29.7%, to $253.5 million for
the six months ended March 31, 2022, from $195.4 million for the six months
ended March 31, 2021. The increase in selling, general, and administrative
expenses was driven by an increase in mix to our higher margin businesses, which
typically carry a higher expense structure, increased gross profit which
increased commissions, and acquisitions.
Interest Expense. Interest expense decreased $1.1 million, or 45.8%, to $1.3
million for the six months ended March 31, 2022, from $2.4 million for the six
months ended March 31, 2021. Interest expense as a percentage of revenue
decreased to 0.1% for the six months ended March 31, 2022, from 0.3% for the six
months ended March 31, 2021. The decrease in interest expense was primarily the
result of decreased borrowings.
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Income Taxes. Income tax expense increased $8.2 million, or 41.0%, to $28.2
million for the six months ended March 31, 2022, from $20.0 million for the six
months ended March 31, 2021. Our effective income tax rate decreased to 24.0%
for the six months ended March 31, 2022, from 24.2% for six months ended March
31, 2021. The decrease in the effective income tax rate was not significant.
Liquidity and Capital Resources
Our cash needs are primarily for working capital to support operations,
including new and used boat and related parts inventories, off-season liquidity,
and growth through acquisitions. Acquisitions remain an important strategy for
us, and we plan to continue our growth through this strategy in appropriate
circumstances. However, we cannot predict the length of favorable economic or
financial conditions. We regularly monitor the aging of our inventories and
current market trends (including supply chain issues) to evaluate our current
and future inventory needs. We also use this evaluation in conjunction with our
review of our current and expected operating performance and expected business
levels to determine the extent of our financing needs.
These cash needs historically have been financed with cash generated from
operations and borrowings under the Credit Facility (described below). Our
ability to utilize the Credit Facility to fund operations depends upon the
collateral levels and compliance with the covenants of the Credit Facility. Any
turmoil in the credit markets and weakness in the retail markets may interfere
with our ability to remain in compliance with the covenants of the Credit
Facility and therefore our ability to utilize the Credit Facility to fund
operations. As of March 31, 2022, we were in compliance with all covenants under
the Credit Facility. We currently depend upon dividends and other payments from
our dealerships and the Credit Facility to fund our current operations and meet
our cash needs. As 100% owner of each of our dealerships, we determine the
amounts of such distributions subject to applicable law, and currently, no
agreements exist that restrict this flow of funds from our dealerships.
For the six months ended March 31, 2022 and 2021, cash provided by operating
activities was approximately $89.1 million and $146.6 million, respectively. For
the six months ended March 31, 2022, cash provided by operating activities was
primarily related to increases in contract liabilities (customer deposits),
increases in accrued expenses and other liabilities, increases in accounts
payable, and our net income adjusted for non-cash expenses such as depreciation
and amortization expense and stock-based compensation expense, partially offset
by increases in inventory and increases in accounts receivable. For the six
months ended March 31, 2021, cash provided by operating activities was primarily
related to decreases in inventory, increases in contract liabilities (customer
deposits), increases in accrued expenses and other liabilities, and our net
income adjusted for non-cash expenses such as depreciation and amortization
expense, deferred income tax provision, and stock-based compensation expense,
partially offset by increases in accounts receivable, increases in prepaid
expenses and other assets, and decreases in accounts payable.
For the six months ended March 31, 2022 and 2021, cash used in investing
activities was approximately $98.3 million and $64.3 million, respectively. For
the six months ended March 31, 2022, cash used in investing activities was
primarily used for acquisitions, to purchase property and equipment associated
with improving existing retail facilities, to purchase property and equipment
from locations formerly leased, and to purchase investments, partially offset by
proceeds from investments. For the six months ended March 31, 2021, cash used in
investing activities was primarily used for acquisitions, to purchase
investments, and to purchase property and equipment associated with improving
existing retail facilities.
For the six months ended March 31, 2022, cash provided by financing activities
was approximately $7.1 million. For the six months ended March 31, 2021, cash
used in financing activities was approximately $95.1 million. For the six months
ended March 31, 2022, cash provided by financing activities was primarily
attributable to net increases in short-term borrowings and net proceeds from
issuance of common stock under incentive compensation and employee purchase
plans, partially offset by purchase of treasury stock, payments on tax
withholdings for equity awards, and contingent acquisition consideration
payments. For the six months ended March 31, 2021, cash used in financing
activities was primarily attributable to net payments on short-term borrowings,
payments on tax withholdings for equity awards, and payments for long-term debt,
partially offset by proceeds from long-term debt and net proceeds from issuance
of common stock under incentive compensation and employee purchase plans.
In May 2020, we entered into a Loan and Security Agreement, which was
subsequently amended in July 2021, with Wells Fargo Commercial Distribution
Finance LLC, M&T Bank, Bank of the West, and Truist Bank. The Credit Facility
provides the Company a line of credit with asset based borrowing availability of
up to $500.0 million for working capital and inventory financing, with the
amount permissible pursuant to a borrowing base formula. The Credit Facility
expires in July 2024, subject to extension for two one-year periods, with lender
approval.
The Credit Facility has certain financial covenants as specified in the
agreement. The covenants include provisions that our leverage ratio must not
exceed 2.75 to 1.0 and that our current ratio must be greater than 1.2 to 1.0.
The interest rate for amounts outstanding under the Credit Facility is 345 basis
points plus the greater of 75 basis points or the one-month LIBOR. The Credit
Facility allows for the transition of the benchmark interest rate used from
LIBOR to SOFR. There is an unused line fee of ten basis points on the unused
portion of the Credit Facility. As of March 31, 2022, we were in compliance with
all covenants under the Credit Facility.
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Advances under the Credit Facility are initiated by the acquisition of eligible
new and used inventory or are re-advances against eligible new and used
inventory that have been partially paid-off. Advances on new inventory will
generally mature 1,080 days from the original invoice date. Advances on used
inventory will mature 361 days from the date we acquire the used inventory. Each
advance is subject to a curtailment schedule, which requires that we pay down
the balance of each advance on a periodic basis starting after six months. The
curtailment schedule varies based on the type and value of the inventory. The
collateral for the Credit Facility is primarily the Company's inventory that is
financed through the Credit Facility and related accounts receivable. None of
our real estate has been pledged for collateral for the Credit Facility.
As of March 31, 2022, our indebtedness associated with our short-term borrowings
and our long-term debt totaled approximately $59.1 million and $49.9 million,
respectively. As of March 31, 2022, short-term borrowings and long-term debt
recorded on the Unaudited Condensed Consolidated Balance Sheets included
unamortized debt issuance costs of approximately $0.2 million and $0.6 million,
respectively. Refer to Note 11 of the Notes to Unaudited Condensed Consolidated
Financial Statements for disclosure of borrowing availability, interest rates,
and terms of our short-term borrowings and long-term debt.
Except as specified in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in the Unaudited Condensed Consolidated
Financial Statements in the "Financial Statements (Unaudited)", we have no
material commitments for capital for the next 12 months. Based on the
information currently available to us (including the COVID-19 pandemic's impact
on consumer demand, which is uncertain), we believe that the cash generated from
sales and our existing capital resources will be adequate to meet our liquidity
and capital requirements for at least the next 12 months, except for possible
significant acquisitions.
Impact of Seasonality and Weather on Operations
Our business, as well as the entire recreational boating industry, is highly
seasonal, with seasonality varying in different geographic markets. With the
exception of Florida, we generally realize significantly lower sales, higher
levels of inventories, and related short-term borrowings, in the quarterly
periods ending December 31 and March 31. The onset of the public boat and
recreation shows in January generally stimulates boat sales and typically allows
us to reduce our inventory levels and related short-term borrowings throughout
the remainder of the fiscal year. Our expansion into boat storage may act to
reduce our seasonality and cyclicality.
Our business is also subject to weather patterns, which may adversely affect our
results of operations. For example, prolonged winter conditions, drought
conditions (or merely reduced rainfall levels) or excessive rain, may limit
access to area boating locations or render boating dangerous or inconvenient,
thereby curtailing customer demand for our products. In addition, unseasonably
cool weather and prolonged winter conditions may lead to a shorter selling
season in certain locations. Hurricanes and other storms could result in
disruptions of our operations or damage to our boat inventories and facilities,
as has been the case when Florida and other markets were affected by hurricanes,
such as Hurricanes Harvey and Irma in 2017. Although our geographic diversity is
likely to reduce the overall impact to us of adverse weather conditions in any
one market area, these conditions will continue to represent potential, material
adverse risks to us and our future financial performance.
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