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; 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, 2022.
General
We believe we are the largest recreational boat and yacht retailer and
superyacht services company in the world. Through our current 78 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, Northrop &
Johnson, another leading superyacht brokerage and services company with
operations in multiple countries, SkipperBud's, one of the largest boat sales,
brokerage, service and marina/storage groups in the United States, and Cruisers
Yachts, a manufacturer of sport yacht and yachts with sales through our select
retail dealership locations and through independent dealers. In November 2021,
we acquired Intrepid Powerboats, a manufacturer of powerboats, and Texas
MasterCraft, a 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. In August
2022, we expanded our presence in Texas by acquiring Endeavour Marina in
Seabrook. In October 2022, we completed the acquisition of IGY Marinas. In
December 2022, we acquired Midcoast Construction Enterprises, LLC ("Midcoast
Marine Group"), a leading full-service marine construction company based on
Central Florida's Gulf Coast. In January 2023, we acquired Boatzon, a boat and
marine digital retail platform, through our recently formed technology entity,
New Wave Innovations.
MarineMax was incorporated in January 1998. 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 recreational boat
dealers 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
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acquisitions that from time to time appear likely to occur do not result in
binding legal agreements and are not consummated. We completed four acquisitions
in the fiscal year ending September 30, 2022, and three acquisitions to date in
fiscal 2023.
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 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%, 50%, and 51% of our dealership
revenue during fiscal 2020, 2021, and 2022, respectively, can have a major
impact on our operations. Local influences, such as corporate downsizing,
military base closings, inclement weather such as Hurricanes Harvey and Irma in
2017 and Hurricane Ian in 2022, 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, the Federal Reserve's increases of its benchmark
interest rate, along with potential future increases and/or market expectations
of such increases, have resulted in, and may further result in significantly
higher long-term interest rates and a downturn in the overall economy, each of
which may negatively impact our customers' willingness or desire to purchase our
products. As a result, an economic downturn or inflation 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, low consumer confidence or inflation 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 report our operations through two
reportable segments: Retail Operations and Product Manufacturing. See Note 17 of
the Notes to Unaudited Condensed Consolidated Financial Statements.
As of March 31, 2023, the Retail Operations segment includes the activity of 78
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. We also
maintain a network of luxury marinas situated in yachting and sport fishing
destinations around the word through IGY Marinas.
As of March 31, 2023, the Product Manufacturing segment includes activity of
Cruisers Yachts and Intrepid Powerboats. 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
Powerboats, also a wholly-owned MarineMax subsidiary, is a producer
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of customized boats. Intrepid Powerboats 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, 2022 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, 2022.
Recent Accounting Pronouncements
See Note 3 of the Notes to Unaudited Condensed Consolidated Financial
Statements.
Consolidated Results of Operations
The following discussion compares the three and six months ended March 31, 2023,
with the three and six months ended March 31, 2022 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, 2023 Compared with Three Months Ended March 31,
2022
Revenue. Revenue decreased $39.8 million, or 6.5%, to $570.3 million for the
three months ended March 31, 2023, from $610.1 million for three months ended
March 31, 2022. The decrease is due to a $75.9 million or 13% decrease in
comparable-store sales, partially offset by a $36.1 million increase from
acquired operations, primarily IGY Marinas, that are not eligible for inclusion
in the comparable-store base as well as Intrepid & Cruisers manufacturing
revenue which are not included in comparable retail store sales. Comparable
retail store sales increased 7% for the three months ended March 31, 2022 and
45% for the three months ended March 31, 2021. The comparable-store decrease
came primarily from decreases in new boat revenue and used boat revenue due to
softer demand, more seasonal sales trends, and macroeconomic uncertainty.
Gross Profit. Gross profit decreased $4.4 million, or 2.1%, to $200.9 million
for the three months ended March 31, 2023, from $205.3 million for the three
months ended March 31, 2022. Gross profit as a percentage of revenue increased
to 35.2% for the three months ended March 31, 2023, from 33.7% for the three
months ended March 31, 2022. The increase in gross profit as a percentage of
revenue was primarily the result of the acquisition of IGY Marinas, a higher
margin business.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased $12.0 million, or 9.0% to $145.5 million for
the three months ended March 31, 2023, from $133.5 million for the three months
ended March 31, 2022. The increase in selling, general, and administrative
expenses was primarily the result of the acquisition of IGY Marinas.
Interest Expense. Interest expense increased $12.6 million, to $13.3 million for
the three months ended March 31, 2023, from $0.7 million for the three months
ended March 31, 2022. The increase in interest expense was primarily the result
of increased interest rates, increases in long-term debt related to the IGY
Marinas acquisition, and increased borrowings from increased inventory.
Income Taxes. Income tax expense decreased $5.4 million, or 30.7%, to $12.2
million for the three months ended March 31, 2023, from $17.6 million for the
three months ended March 31, 2022. The effective income tax rate for the three
months ended March 31, 2022 and 2023 was 24.8% and 29.0%, respectively. The
increase in the effective income tax rate was primarily as a result of reduced
taxable income which increases the impact of permanent tax differences, as well
as IGY Marinas' foreign operations acquired and increases in state tax rates.
Six Months Ended March 31, 2023 Compared with Six Months Ended March 31, 2022
Revenue. Revenue decreased $4.5 million, or 0.4%, to $1.078 billion for the six
months ended March 31, 2023, from $1.083 billion for six months ended March 31,
2022. The decrease is due to a $81.7 million or 8% decrease in comparable-store
sales, partially offset by a $77.2 million increase from acquired operations,
primarily from IGY Marinas, that are not eligible for inclusion in the
comparable-store base as well as Intrepid & Cruisers manufacturing revenue which
are not included in comparable retail store sales. The comparable-store decrease
came primarily from decreases in new boat revenue and used boat revenue due to
softer demand, more seasonal sales trends, and macroeconomic uncertainty.
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Gross Profit. Gross profit increased $15.3 million, or 4.1%, to $387.8 million
for the six months ended March 31, 2023, from $372.5 million for the six months
ended March 31, 2022. Gross profit as a percentage of revenue increased to 36.0%
for the six months ended March 31, 2023, from 34.4% for the six months ended
March 31, 2022. The increase in gross profit as a percentage of revenue was
primarily the result of the acquisition of IGY Marinas, a higher margin
business.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased $42.4 million, or 16.7% to $295.9 million for
the six months ended March 31, 2023, from $253.5 million for the six months
ended March 31, 2022. The increase in selling, general, and administrative
expenses was primarily the result of the acquisition of IGY Marinas.
Interest Expense. Interest expense increased $21.5 million to $22.8 million for
the six months ended March 31, 2023, from $1.3 million for the six months ended
March 31, 2022. The increase in interest expense was primarily the result of
increased interest rates, increases in long-term debt related to the IGY Marinas
acquisition, and increased borrowings from increased inventory.
Income Taxes. Income tax expense decreased $9.0 million, or 31.9%, to $19.2
million for the six months ended March 31, 2023, from $28.2 million for the six
months ended March 31, 2022. The effective income tax rate for the six months
ended March 31, 2022 and 2023 was 24.0% and 27.8%, respectively. The increase in
the effective income tax rate was primarily as a result of reduced taxable
income which increases the impact of permanent tax differences, as well as IGY
Marinas' foreign operations acquired and increases in state tax rates.
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. We cannot predict the length of 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 New Credit Agreement (described below). Our
ability to utilize the New Credit Agreement to fund operations depends upon the
collateral levels and compliance with the covenants of the New Credit Agreement.
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 New
Credit Agreement and therefore our ability to utilize the New Credit Agreement
to fund operations. As of March 31, 2023, we were in compliance with all
covenants under the New Credit Agreement. We currently depend upon dividends and
other payments from our locations and the New Credit Agreement to fund our
current operations and meet our cash needs. As the majority owner of each of our
locations, we determine the amounts of such distributions subject to applicable
law, and currently, no agreements exist that restrict this flow of funds from
our locations.
For the six months ended March 31, 2023, cash used in operating activities was
approximately $250.5 million. For the six months ended March 31, 2022, cash
provided by operating activities was approximately $89.1 million. For the six
months ended March 31, 2023, cash used in operating activities was primarily
related to increases in inventory, increases in accounts receivable, and
increases in accrued expenses and other liabilities, partially offset by
decreases in customer deposits and our net income adjusted for non-cash expenses
and gains such as depreciation and amortization expense, deferred income tax
provision, stock-based compensation expense, and gain on acquisition of
previously held equity investment. 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, 2023 and 2022, cash used in investing
activities was approximately $524.2 million and $98.3 million, respectively. For
the six months ended March 31, 2023, cash used in investing activities was
primarily used for the acquisition of IGY Marinas and to purchase property and
equipment associated with improving existing retail facilities. 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, 2023 and 2022, cash provided by financing
activities was approximately $748.9 million and $7.1 million, respectively. For
the six months ended March 31, 2023, cash provided by financing activities was
primarily attributable to proceeds from long term debt and net increases in
short-term borrowings, partially offset by payments on long-term debt,
contingent acquisition consideration payments and payments on tax withholdings
for equity awards. 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.
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In August 2022, we entered into to a Credit Agreement with Manufacturers and
Traders Trust Company as Administrative Agent, Swingline Lender, and Issuing
Bank, Wells Fargo Commercial Distribution Finance, LLC, as Floor Plan Agent, and
the lenders party thereto (the "New Credit Agreement"). The New Credit Agreement
provides the Company a line of credit with asset based borrowing availability of
up to $750 million and establishes a revolving credit facility in the maximum
amount of $100 million (including a $20 million swingline facility and a $20
million letter of credit sublimit), a delayed draw term loan facility to finance
the acquisition of IGY Marinas in the maximum amount of $400 million, and a $100
million delayed draw mortgage loan facility. The maturity of each of the
facilities is August 2027.
The interest rate is (a) for amounts outstanding under the floor plan facility,
3.45% above the one month secured term rate as administered by the CME Group
Benchmark Administration Limited (CBA) ("SOFR"), (b) for amounts outstanding
under the revolving credit facility or the term loan facility, a range of 1.50%
to 2.0%, depending on the total net leverage ratio, above the one month, three
month, or six month term SOFR rate, and (c) for amounts outstanding under the
mortgage loan facility, 2.20% above the one month, three month, or six month
term SOFR rate. The alternate base rate with a margin is available for amounts
outstanding under the revolving credit, term, and mortgage loan facilities and
the Euro Interbank Offered Rate plus a margin is available for borrowings in
Euro or other currencies other than dollars under the revolving credit facility.
Advances under the New Credit Agreement 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 New Credit Agreement is primarily the Company's inventory
that is financed through the New Credit Agreement and related accounts
receivable. None of our real estate has been pledged for collateral for the New
Credit Agreement.
As of March 31, 2023, our indebtedness associated with our short-term borrowings
and our long-term debt totaled approximately $500.1 million and $407.3 million,
respectively. As of March 31, 2023, short-term borrowings and long-term debt
recorded on the Unaudited Condensed Consolidated Balance Sheets included
unamortized debt issuance costs of approximately $1.5 million and $1.7 million,
respectively. Refer to Note 10 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 impacts on consumer demand
of the current supply chain and inventory challenges, inflation, higher interest
rates, and potential recession, all of which are 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 and Hurricane Ian in 2022. 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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