Good morning, and welcome to the MarineMax Inc. 2020 Fiscal First Quarter Conference Call. Today's conference call is being recorded. At this time, I would like to turn the call over to Brad Cohen of ICR Investor Relations for MarineMax. Please go ahead, sir.

Thank you, Dale. Good morning everyone and thank you for joining this discussion of MarineMax's fiscal first quarter 2020 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 77-521-1712 and she will email one to you immediately. I would now 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. And with that, let me turn the call over to Mike McLamb. Mike?

Thank you, Brad. Good morning everyone and thank you for joining this call. Before I turn the call over to Brett, I'd like to tell you that certain of our comments are forward-looking statements as 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-K 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 and good morning everyone. Let me start by thanking the MarineMax team for their focus and commitment, which contributed to our record-setting results to start fiscal 2020. It's great to see the benefits from the investments we have made over the past few years in new brand, new technology, the global expansion of our brokerage business, and our ongoing commitment to growing our other higher-margin businesses. Additionally, we are reaping the rewards of the great people and locations we have added via the acquisition. I'm very proud to announce 24% same-store sales growth driven entirely by increased units, which is attributable to our proven strategies in the highly desired brands we represent. Based on industry data, our unit growth was meaningfully better, especially in the categories in which we operate more heavily. Our growth this quarter built on the improving trends we saw as we ended our fiscal 2019. As we discussed previously, it seems that the industry has started to find stability towards the end of the September quarter, and the data in the December quarter generally reflects an improving trend, but it still shows some choppiness. Generally, it appears the rise in consumer confidence has been able to overcome the ongoing political uncertainty and global trade wars. Weather was also mild and not much of a factor in the December quarter. In the quarter, we saw strong growth across most brands and categories. Last year in the December quarter, we commented that we saw strength in larger boats, and that trend continued; however, units accelerated more. During the quarter, we also leveraged our investments in technology. We have been successful holding proprietary exclusive online selling events, which have proven to be another good source of leads and activity with boating enthusiasts. We also updated and relaunched the MarineMax mobile app as a better communication tool for our customers. We continue to make investments in industry-leading customer engagement tools, as well as back-office advancements that improve our team's efficiency and effectiveness. We have now completed our second quarter since the merger with Fraser, the premier global super yacht services company. We could not be happier with the integration and the performance; Fraser provides brokerage, charter, charter management, yacht management, and crew placement services to yacht owners around the world. With Fraser's 21 offices around the globe, we look forward to continuing to grow while expanding our resources and capabilities over time. This is a global high gross margin business that clearly supports our strategic plan. As we commented, the last two quarters of fiscal 2019, given softer industry conditions; inventories were higher than retail trends would require. We said we were reducing orders and would likely experience some reasonable gross margin erosion as we work through the first few quarters of fiscal 2020. We did feel some pressure, but it was more than offset by Fraser. Turning to SG&A; given the choppy trends last year, we increased our efforts to better align costs, which among other actions resulted in effectively optimizing our store footprint in September of 2019. In the December quarter, we saw great benefit from all our efforts as our flow-through to operating income was about 11%. This was great to see, but even more impressively, when you consider that the Fraser and Sail & Ski acquisition seasonally produced losses in the December quarter; our flow-through absent those mergers was even higher. As for inventory, the strategy I just mentioned allowed us to make great progress in the December quarter, especially given the dollars and number of units we deliver. We're still expecting some modest margin pressure as we move into the larger seasonal quarters as everyone in the industry seems to be rationally managing inventory to better levels. Turning to earnings; we produced record earnings per share of $0.41 for the quarter, that was almost double our results in the prior year and was a record December quarter for MarineMax. We further strengthened our balance sheet which supports our strategic growth plan. And with that update, I'll ask Mike to provide more detailed comments on the quarter. Mike?

Thank you, Brett and good morning again, everyone. I need to start by also thanking our team for their tremendous efforts that produced record revenue and earnings to start fiscal 2020. For the quarter, revenue grew 26% to $304 million, mostly on the strength of very strong same-store sales growth of 24%. As Brett mentioned, this was entirely driven by unit growth. The strong unit growth this quarter follows a pretty good unit trend in the September quarter, which was due to the strike we saw in the month of September. Based on industry data, we believe we continue to gain share in most of our markets for the brands and segments we carry. By region, Florida seasonally was a leader in terms of trends, but we saw generally good trends in most markets. Overall gross margins improved year-over-year, primarily due to the July merger with Fraser. Without Fraser, margins as expected would have been down in the range of 180 basis points driven roughly 60% by the mix shift to much bigger boat sales, and 40% based on expected boat margin pressure as we and the industry work to align inventory with trends. We are focused on growing our higher-margin businesses such as service, finance and insurance, parts, and our marine operations, not to mention brokerage; and we did make progress this quarter. It's just tough for all of that to grow as fast as we grew boat sales. Regarding SG&A, the majority of the increase was due to Fraser. Absent Fraser, we had a modest increase, which resulted in fairly good flow-through to operating income. For the quarter, interest expense increased due to increased borrowings from additional inventory. On to our balance sheet at quarter-end, we had $36 million in cash, but as a reminder, we have substantial cash in the form of unlevered inventory. Our inventory levels were up 11% year-over-year but without the Sail & Ski merger, the increase was about 7%. Our rolling 12-month same-store sales growth is tracking at 6%, this would imply that in a very short period of time, we have dramatically improved our inventory. We accomplished this by closely working with our manufacturing partners to align orders with trends, as well as the tremendous efforts of our team to drive sales. We will work to improve inventory and our turns as we move through the selling season ahead. Our short-term borrowings were up to $334 million, which increased year-over-year due to the mergers we completed as well as the share repurchases in fiscal 2019. Customer deposits, while not the best predictor of near-term sales because they can be lumpy due to the size of deposits and whether a trade is involved or not, are relatively flat to the prior year. Briefly, I will comment that this is the first quarter that the new lease accounting standard applies for MarineMax. While there is no P&L impact, like all other retailers, our balance sheet now has the right-of-use lease asset and the present value of the related lease obligations, which is now a liability. Our current ratio stands at 1.39 and our total liabilities to tangible net worth ratio is 1.44; both of these are strong balance sheet metrics. Our tangible net worth was $316 million or about $14.45 per share. We own over half of our locations which are all debt-free and we have no additional long-term debt. Our balance sheet is a formidable strategic advantage that allows us to capitalize on opportunities as they arise. Turning to guidance; as fiscal 2020 started, it was on the heels of a pretty choppy 2019. Clearly, the December quarter was much stronger than we originally expected and we do feel better for many reasons including our improved inventory position. However, the December quarter is also traditionally the smallest quarter; so while it does appear that the industry has taken steps toward stability and improved trends, in our view, we believe we need to be thoughtful in our approach to guidance and get more visibility before we really start feeling a lot better. If things continue to improve, we can revisit our guidance. Thinking through the next several quarters, our March quarter is arguably the toughest comparison and we have easier comps in June and September. Also, as I said last quarter, adding in the remainder of both Fraser and Sail & Ski, were the portions of the year that we have not owned them does not produce meaningful EPS growth as combined for those periods; there will be close to breakeven. Given these assumptions, we now expect annual same-store sales growth to be solidly in the mid-single digits due largely to the strength of the December quarter; this is up from the low single digits we guided to start the fiscal year. Our guidance assumes operating leverage in line with the last few years; we are raising our guidance to the range of $1.82 to $1.92 for 2020 from our earlier guidance of $1.58 to $1.68. Our guidance excludes the impact from any potential acquisitions that the company may complete. Our guidance uses a share count of approximately 22 million shares and an effective tax rate of 27%. Turning for a moment to current trends; January will close with positive same-store sales and our backlog is higher than last year, both encouraging trends. We continue to feel better about how the industry is positioned but we have a lot of work to do in front of us. With those comments, I'll turn the call back over to Brett for some closing comments. Brett?

Thank you, Mike. It was very rewarding to see many of the initiatives we have put into place for the last few years contribute to our performance. Not only are we leveraging our investments in technology to reach our current and potential customers, but now we are doing this on a global basis. We also made progress in the alignment of costs which led to nice leverage in the December quarter. We saw our asset-light, higher-margin businesses continue to grow and perform while we further enhance the financial strength of the company driving cash flow growth. Finally, we continue to connect with our customers by hosting events to keep them on the water with their family and friends, which drives future business and market share gain. We are in full swing with all the seasonal boat shows and so far early results have shown fairly positive trends, which is encouraging. The New York Boat Show opened yesterday; we hope that many of you will join us at the shows to feel how MarineMax provides a unique approach to experience the boating lifestyle. And with that, operator, let's open up the call for questions.

Thank you. Our first set of questions comes from Greg Badishkanian of Citi. Please go ahead with your question.

Good morning, everyone. This is Fred Wightman filling in for Greg. To start off, could you clarify why you aren't increasing the earnings per share guidance despite the strong earnings this quarter? I know that the comparisons are challenging, but there are easier comparisons in the second half of the fiscal year. What are you waiting for or hoping to see before you become more optimistic about the full-year outlook?

Yes, the December quarter is traditionally the smallest of the year, and we often receive inquiries about whether to report guidance for the upcoming period. We are taking a cautious approach to our guidance. We allocated over two-thirds of the positive results to the increase in our annual guidance and are waiting to see how the upcoming boat shows impact the March quarter. If necessary, we will adjust our guidance at that time.

Okay, that's fair. And then just on the promotional side, you guys did call out some gross margin pressure there. I think it was sort of 70-ish basis points in terms of the headwind. Do you think that this past quarter was sort of the peak for both you guys and for the industry in terms of promotional activity or do you think that that's going to continue into sort of the next few quarters?

I can't go into too much detail about the industry. However, I believe we have been more effective in adjusting our inventory levels quicker than others. As we approach upcoming shows, we plan to adopt a more aggressive strategy while monitoring retail conditions. There is a chance that the margin pressure reached its highest point in the December quarter, but we will need to observe how retail performs as we move through March.

Yes. We'll need to monitor where the industry's inventory levels land over the next couple of months.

Okay. And then, just one quick follow-up, sorry. When you guys are talking about getting incrementally more aggressive on the promo side, are you talking about versus the December quarter or are you talking about on a year-over-year basis?

Year-over-year basis.

Okay, perfect. Thank you.

Our next set of questions comes from the line of Joe Altobello of Raymond James. Please proceed with your question.

Thanks. Hey guys, good morning. Just one follow-up on the line of questioning regarding promotion; you mentioned that it's been pretty rational so far. But given the market share gains, sizeable market share gains that you guys realized in the quarter, how will you guys compare to some of the competitors you're seeing in the marketplace relative to the promotions?

I can provide my thoughts, and Brett can elaborate. No one is engaging in deep discounting or desperate measures; we don't want to suggest that. Everyone is becoming incrementally more aggressive. At the start of the model year last summer, all the dealers ordered less product for 2020, collaborating closely with manufacturing partners. Consequently, there is a belief that we will work hard to address the inventory levels as we move into the seasonally larger quarters. Since there are no significant discounts being offered, the environment is quite rational, which accurately reflects the situation regarding inventory discounting.

Yes, I would just agree with that. There is nothing irrational out there, nothing alarming that we're seeing. It shows and we look at pricing and our competitors, it seems decent.

And you guys are not outliers in that respect in terms of the promotion levels?

No.

Okay. My second question is about order activity this year. You mentioned in the last call that you were reducing some orders for 2020. Given the strong start to the year, it seems possible that you might reconsider that if demand remains strong. However, is there a concern that manufacturers may struggle to meet that demand if you decide to increase repeat orders?

We are in discussions with manufacturers and maintain strong communication with our partners. There is definitely a product we need, and there are still some areas where we need to apply pressure to improve inventory alignment. However, if we continue to see 24% same-store unit growth throughout the fiscal year, manufacturers may struggle to keep pace. We stay closely connected with them on a monthly basis to ensure they understand our perspective and adjust their manufacturing plans accordingly.

Right.

It's a high-class problem, I suppose.

That's right, it is.

Okay. All right, thanks guys.

Thanks, Joe.

Your next question comes from the line of James Hardiman of Wedbush Securities. Please proceed with your question.

Good morning, thanks for taking my call. Obviously, an unbelievable quarter and congratulations on that.

Thank you.

I wanted to follow up on one of the earlier questions. You indicated that the first quarter might experience a loss exceeding $0.40. This suggests that your outlook for the rest of the year is downbeat. Mike, you mentioned the possibility that some demand may have been pulled forward. Is there any basis for that, or is it just typical caution on your part?

We often receive that question, especially after a strong quarter of same-store sales growth. Our data indicates that our backlog is increasing and January is looking promising. From that perspective, it's difficult to determine if we've pulled business forward since both metrics are up. If they were down, it might suggest that, but we won't know for sure until we progress further into the selling season for the fiscal year. Traditionally, the first quarter is small, so let's see how trends develop in the March quarter, which is significant. If those trends remain positive, we can reassess our guidance at that time.

That's helpful. I wanted to explore the inventory situation further. Coming out of the fourth quarter, there was a significant imbalance; inventories rose by 27%, while sales increased by about mid-single digits. As you mentioned, inventories are now up 7% at the acquisition level, and same-store sales have risen by 6% over the past 12 months, which looks promising. However, could you elaborate? Last time, you pointed out three factors: one being the acquisition, which you clarified for us. Then there was the Sea Rays situation, where you reduced inventories but hadn't yet transitioned into Galeon and the new Azimut boat. Additionally, there was the timing of inventory buildup in preparation for the Tampa and Orlando boat shows. Are we now past those last two factors, meaning the only non-comparable aspect is acquisitions? How should we approach this?

I believe there are still opportunities for us to acquire stores, Galeon products, and possibly some Azimut products, even though we have made significant progress with our manufacturing partners to increase production. To answer your question, yes. Aside from acquisitions, we are beginning to see the impact of the other factors we discussed in previous calls.

That's helpful. How should we consider the plan to reduce inventories to some extent over the next three quarters? I note that inventories are up 7% following the acquisition, while same-store sales are up 6%. You're projecting mid-single digit or strong mid-single digit same-store sales for the full year. Should we view this as minor adjustments to inventories rather than the significant efforts made in the first quarter?

Yes, I would say that's exactly how I would look at it and look segment-by-segment, brand-by-brand, adjustments by model to get things lined up. So we can get the fresh new stuff coming in later in the spring here.

Okay, great. That's all for me. Thanks guys.

Our next set of questions come from the line of Mike Swartz with SunTrust Robinson Humphrey. Please proceed with your question.

Good morning, everyone. I wanted to revisit some of the inventory inquiries. Mike, in response to one of the questions, you mentioned there are still areas that need attention. Could you provide more details regarding the regions or product segments involved?

It's mainly about the timing of the inventory review. When you examine it closely, we see several specific opportunities to better align our brand inventory with its performance. We monitor everything at both the store and brand levels, and there’s nothing particularly concerning. We are simply ensuring that all aspects are synchronized from an inventory ordering standpoint.

Okay. But by category, there is nothing that kind of stands out as something that needs to be more aggressively managed over the next quarter or two?

Not by category.

Not in that scale.

Okay. And then just with regards to the quarter; same-store sales up 24% and I think, Mike, you said, without the acquisitions, SG&A would have been up modestly. Can you give us a sense of maybe how much cost reduction you saw in the quarter from the closure of the eight stores that you did last year? And then, maybe how to think about those savings over the next couple of quarters as we calendarize that?

I don't have my numbers right in front of me, but the key point is the operating leverage we achieved this quarter, which is in double digits and is absent in Fraser and Sail & Ski, and is even higher than that. It's not several million dollars; it's over $1 million but under $2 million. I apologize for being vague; I just don't have the numbers at hand. However, it certainly contributed positively this quarter. Regarding our guidance, we're utilizing leverage in line with previous years. As I've explained our guidance, we are not counting on the operating flow-through from the December quarter. If we continue to improve leverage in the business, which is our aim, we can adjust guidance at that time.

Yes, I was going to address this in the next question. When you initially provided your fiscal year '20 guidance, you mentioned it did not include any cost savings or the impact of store closures. With the new guidance, are you now incorporating some of the flow-through or are you still not accounting for any potential benefits from closing those stores?

Well, we're betting it to the extent of the December quarter of what we were adding to the improvement, but for the future quarters, we're not yet.

Okay, that's helpful. I have a clarification question as well. When you mention increasing promotions gradually for the March quarter, and I recall that you increased it significantly in the last March quarter, what exactly do you mean? Are you referring to price promotions or marketing sales incentives for the sales team? I'm just trying to understand that better.

Right, it's a good question. It's kind of all of those and it's a different lever depending on which segment but sales team, promotional activity, marketing, advertising in some price strategic market pricing; it's really a little bit of all of that, and maybe one market, it's more of one than the other.

Okay, that's helpful, thanks guys.

Our next set of questions comes from the line of Ryan Sigdahl of Craig-Hallum. Please proceed with your question.

Good morning, guys, and congrats on the impressive quarter.

Thank you.

First. So are you able to break out what the same-store sales benefit was from the store consolidations last quarter and moving those stores from the prior-year comp, they are retaining much of that business at nearby stores? And then, secondly from the shift in the Tampa Boat Show?

Can you ask the first question again? I'm not sure I followed what you're asking, Ryan, sorry.

You closed down eight stores, aiming to reduce costs while keeping a significant portion of the business at nearby locations. So, in terms of same-store sales, those eight stores were excluded from last year's comp, but you managed to retain much of that business this year. I'm considering how that impacts the same-store sales perspective.

Yes, you are. You're 100% right; that's exactly right. And based on our results, you can tell, it sure looks like we did not lose a whole lot of revenue, if any, in those markets where we closed those duplicated stores. That's correct.

Anyway to quantify I guess how much same-store sales boost came from that consolidation?

You know, because they were smaller stores, generally, and many of them were Northern markets, they don't sell a lot of product this time of year; it would be single digit millions. I don't think it hit double-digit millions; it would be $4 million or $5 million, something like that if I added up all those stores, and that's an educated guess for me right now; that's not far from what the real results would have been.

Got it, that's helpful. And then from the Tampa Boat Show, any way to quantify that?

Tampa Boat Show is interesting. So we talked about how we've moved from September to October. When it did move to later on in October, the show technically had down contracted revenue on a year-over-year basis, largely because of the change in timing. A lot of the deals from the show did not close in the December quarter; some did, but as is typical with the boat show, they will close in future quarters. And in some cases from that show, they'll close next fiscal year. So the benefit of the show moving to the December quarter; net-net, there is an incremental benefit but it's not very significant relative to the success we had in the December quarter.

Great. Switching over, you mentioned strength in online leads in sales. What portion of your overall business do the online fees represent, and how quickly is that segment growing?

Yes, we have made investments in online leads and they appear to be increasing. We do track these leads, but it takes time to convert them into sales since they generate interest, lead to visits to our shows and showrooms, and may require several visits over time; we are monitoring this entire lifecycle. I would just add that our lead activity has grown significantly due to various customer engagement initiatives, including our online boat sale, which serves as a lead generator; this is increasing each month.

And then, last one for me and then I'll turn it over. But where did you see most of the unit growth either new or used to; if you can break that out? And then, how are you feeling about that break out between those in the remainder of the year?

Okay. I can tell you that new was stronger than years; that's just sort of a function of how the business is as you take trades and so you don't have as long to sell the trade in the quarter because you haven't had it for all 90 days of the quarter where most of the new product you do. But we felt pretty good about the business mix, whether it's new or used; and used was strong, used was very strong, just not at the same level that the new was. That helps?

Yes, that's it for me. Good luck. Thank you.

Thank you.

Our next set of questions comes from the line of David MacGregor of Longbow Research. Please proceed with your question.

Good morning. Colton West on here for David MacGregor. Thanks for taking my question. So I guess to start off, in terms of mix during the quarter. You said that you saw some strength in larger boats. Would you expect this to continue even as we get closer to the elections and set buyer tends to be a little bit more impacted?

Yes, I believe we are closely monitoring the choppiness and uncertainty, but we do not have a forecast regarding it beyond our careful observation.

Yes, I'll also comment on the election year. We have been public for over 20 years, which spans several election cycles. We reviewed the years leading up to elections, particularly fiscal 2020 and similar years from the past. In election years, our revenue and units have consistently grown every year, except for 2008, which had other factors influencing it. We also analyzed the December quarters during the elections, when the political activity is at its peak. Again, except for 2008, our revenue and units increased in those quarters. In December 2008, the trends were relatively flat, but overall, it doesn't appear that election years are clear indicators of softening for our business. We are certainly in unique circumstances with the current elections, but based on our historical data, there is no need to be concerned about election years.

Okay, thanks for that. And then can you provide some color on customer deposits for the quarter? I think in the call, you said they were about flat. In the math, it looks like they're down about 4% year-over-year after being positive the last three or four quarters. And what's baked into that?

Yes, I often mention that when looking at that line item on the balance sheet, which I know everyone examines, it can be somewhat variable. It really depends on the size of the deposits from different customers and whether there is a trade involved, which causes those numbers to fluctuate. A more telling point is whether January's figures will be up or down. I mentioned that January should finish on an upward note, and then we look at our backlog, which indicates how many boats are currently under contract. Rather than focusing solely on the deposit amounts, it’s more relevant to consider how many boats are contracted for future delivery, as that backlog has increased compared to last year. While the deposit line can be variable, the comments regarding backlog in the current month likely provide a clearer picture of the overall situation.

Okay. And then can you comment on the cadence of same-store sales within the quarter? Industry data would suggest that October was probably the strongest month of the year in terms of retail. Are you seeing something similar?

Yes. Brett, do you want to say something or?

No, I think we had three good months in a row. I think the industry that we saw probably similar trends, but obviously higher results.

Right.

Okay. And then I guess lastly, are you able to comment on what both segments performed better than others in terms of sales, whether...

Honestly, we saw pretty darn good strength in all segments. In order to produce that type of growth, you kind of have to have almost all of those cylinders in play, so it really was a growth across the board, which is the exciting part for us. It's traditionally not a real big quarter for aluminum for us because all of our aluminum stores are mostly in the Northeast. But we had generally good growth in just about all segments.

Okay, great. Thank you, and congrats on a good quarter.

Thank you very much.

Thank you. We have reached the end of the question-and-answer session. I will now turn the call over to Brett McGill for any closing remarks.

Well, thank you all for joining the call today. Both Mike and I are up here at the New York Boat Show today, but will be available for your call if you have any questions; and we look forward to updating you on our next call.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.