Good day, everyone and welcome to the MarineMax Incorporated Second Quarter 2016 Fiscal Earnings Conference Call. Today's conference is being recorded. And now your host for today's conference, Mr. Brad Cohen with ICR. Mr. Cohen, please go ahead, sir.

Thank you, operator. Good morning, everyone and thank you for joining us for this discussion of MarineMax's 2016 fiscal second quarter results. I am sure that you've all received the copy of the press release that went out this morning. But if you have not, please call Linda Cameron at 727-531-1700 and she will email one to you right away. I would like now to introduce the management team of MarineMax, Mr. Bill McGill, Chairman, President and Chief Executive Officer; and Mr. Mike McLamb, Chief Financial Officer of the Company. Management will make some comments about the quarter and then be available for your questions. With that, let me turn the call over to Mr. Mike McLamb. Mike?

Thank you, Brad. Good morning, everyone and thank you for joining this call. Before I turn the call over to Bill, 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 may 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 Bill.

Thank you, Mike and good morning, everyone. We are very energized by the performance our team delivered for the March quarter. In our March quarter last year, we produced unusually strong same-store sales growth of 27% which is an impressive meaningfully quarter for March. As we laid our plans for fiscal 2016, we put in place actions and a strategy that would enable us to build upon that success. Our team executed this strategy to a high level and produced double digit same store sales growth of 16% for the March quarter this year. Of course, what is even more exciting is that we increased our pre-tax profit by about 10x. We were able to produce good leverage in the quarter, despite some anticipated elevated costs associated with launching the Grand Galeon, a new brand we discussing last quarter. Our 12% same-store sales growth in the first half of fiscal 2016, combined with reasonable cost leverage has propelled very strong year-to-date pre-tax earnings growth of almost 10x as well. What is also noteworthy is this first half double-digit same store sales growth was up against a very tough comparison, up 35% in the first half last year. Looking forward we have an easier comp comparison as we move through our second half of 2016. Before continuing, I'd like to thank our MarineMax team for producing such strong results and doing an outstanding job of making our customers happy. The first half of 2016 should set up a strong year of earnings and cash flow growth. Underlying our team's execution, is our strong commitment of delivering the boating dream by exceeding our customers' expectations. Beyond our own strategy, our manufacturing partners are innovating and delivering the right products that are stimulating demand. The new models for new excitement and new enthusiasm…

Thank you, Bill, and good morning again everyone. I also want to thank our team for producing a strong first half start to the year. For the March quarter, our revenue increased by 27 million to almost 200 million. Our growth was driven by strong same-store sales growth of 16% which was on top of a significant 27% increase in same quarter last year. Our growth was approximately 50-50 driven by unit growth and an increase in average unit selling price. The average unit price growth was driven by its strength and larger product. Our consolidated gross margins improved slightly. However, our new boat gross margin expanded for the fourth quarter in a row, fueled by newer products. The growth in larger product and a modest mix shift away from our higher margin businesses due to the increased boat sales otherwise stunted[ph] greater gross margin growth. As we move ahead, the opportunity for margin expansion continues as new boat margin trends develop. Selling, general and administrative expenses decreased as a percentage of revenue to 21.8%. As we anticipated, our costs were up modestly due to the Galeon brand expansion, which includes investments for such items as addition boat show displays and advertising. We are certain such costs will be leveraged in the second half of the year as deliveries of incoming products increases. Overall, our focus on expenses enabled us to effectively leverage our cost structure. Interest expense was up 329,000 year-over-year as a result of increased borrowings and inventory. For the March quarter, income tax expense increased to 1.6 million, compared to no income tax last year. As we noted last quarter, MarineMax has returned to providing an income tax provision. However, we are not expecting to pay significant dollars until we absorb about 50 million of NOLs and…

Thank you, Mike. We are pleased to have started 2016 with a strong foundation. Our positive revenue, our margins, earnings and cash flow growth to position us for a solid year as our industry continues its recovery. We are now in full swing for the summer's boating season and are encouraged by what we are seeing. We are well positioned to capture additional market share and to expand on the progress we have produced today. Supported by the new products with innovative designs and technology, the inertia and excitement continues to grow at the customer level. Our inventory levels are in good shape for this time of year, and we have a greater percentage of new models in stock than we did a year ago. Ultimately, the new products are making boating even easy, easier and desirable with features such as joystick controlled, improved electronics, creative design and innovative materials. As I mentioned earlier, with the addition of Russo Marine in the Northeast, we have taken another step forward in strengthening our geographic presence in another important boating market. We will continue our disciplined acquisition approach in the pursuit of growth through targeting companies that have historically produced strong cash flows in sales of industry leading brands. We remain resolute in our approach of having the very best team and brands in place to serve our customers while maintaining a very healthy balance sheet to support our growth. We know we change and improve people's lives with the best form of family and friend recreation called boating. This is what drives us every day as we pursue the creation of long term value for our shareholders. We look forward to building on this in the coming years. And with that operator, we'd like to open the call up for questions.

[Operator Instructions] And for our first question, we go to James Hardiman with Wedbush Securities.

Hi, good morning. Congrats on a strong start to the year here. So I wanted to peel back the layers a little bit. Mike, I think you talked about 50-50 units in ASP, I'm assuming that was speaking specifically to the new boat sales number. What was that new boat sales growth number in the quarter? I'm assuming it was better than the 16% just given the mix commentary that you had.

The new boat, no, it wasn't better in 16%, not in terms of units. It would have been around 10%, something like that James, for the quarter. Part of the driver is some larger units that we also sold in the quarter. In my commentary, the 50-50, I apologize. My commentary in the 50-50, that's new and used units merged together. It's what makes up the 50-50 growth, new was stronger than that overall.

Okay, and so new boat sales were up approximately 10% units and then ASP would get you to what, 20% in revenues or something like that?

No, it's still close to the 16%.

Okay, got it. And then in terms of weather, it's always difficult to really say what the impact might have been. But maybe speak about some of the trends you're seeing in the different geographies in what you do business and maybe speak to the issue of pull forward, it's been a while since we've had favorable weather certainly in the March quarter. But I just want to make sure that we're not getting overly excited about the March quarter number and then get disappointed in some of the months to come.

Yes. A couple of things, geographically, so if you look at trends in the March quarter, our strongest growth regions in terms of the topline would have been like the Mid Atlantic Northeast, so New York, New Jersey kind of that area, although just about every area did decent but those two were the standout once. Florida did well, the rest of the regions did well. It's hard to really gauge pull forward. What I would tell you is if you listen to our comments on backlog and how we started the June quarter and how April's going to be, I mean I comment we have the largest backlog we've had since these recoveries begin as we started the June quarter. It would tell you that we probably had some benefit as the industry probably has in the March quarter but that they're just generally positive trends around boat sales in the industry right now.

And to that point James we did an Azimut event down at the Pompano Yacht Center, and we had entertainment there and food and demo rides, and about 400 people showed up for the event, for two-day event. And so the excitement about boating right now is very, very high. We're seeing it with our trips, our getaway events that we do that they're full, and customers are out on the water. We had a what I'd call a fabulous weekend here in the West Coast to Florida, where Mike and I live and I mean the Gulf of Mexico and the base and the lakes were packed. So boating is very, very active.

That's really helpful. And then I guess just lastly for me. Memory serves, just looking through some of my notes from last year. You had a really big April last year as well 'cause it seemed like there was a backlog. If you talked about April being up meaningfully, it sounds like this April was even better than the last April but then things slowed down for you I think in May, maybe it picked up in June. And then from a margin perspective you had a lot of trade ins in the March quarter which hurt your margin. In the June quarter as you sold a lot of those used boats and they were a bigger portion of the mix. Sort of walk us through how you think about comping against some of the idiosyncratic portions of the third quarter of last year.

You nailed it dead on. I mean we did have a good April. We're going to have a better April this year. We did have some challenges in May and the first part of June last year, but it seemed to pull the quarter together reasonably well at the end of June. We do have an easier comparison than we've had, so the June quarter is an easier comparison than either the March or the December quarter from a topline perspective. It's also an easier comparison from a gross margin perspective for the points you mentioned about used. We are not starting the June quarter with an elevated level of used as an decent shape, I wouldn't say it's down a ton but it's not elevated like it was last year. It's always hard to predict what's going to sell. But now I think we're in a better position as we head into the June quarter given everything we know today than last year.

That's perfect. Thanks for the color guys and good luck.

Thanks, James.

And for our next question we go to Brandon Rollé with Longbow Research. Brandon Rollé: Hi, this is Brandon Rollé on for David McGregor. Congratulations on a great quarter. I wanted to dig in on Galeon Yachts a little. We had heard great reception for the Galeon Yachts this quarter, and I was seeing what impact to the EPS that the Galeon Yachts had this quarter, and then to follow up on that I wanted to know what your plans were for expansion within Galeon in 2017 and what that could possibly mean to EPS? Thank you.

Yes, we haven't quantified the EPS impact in the March quarter. We did sell and deliver some boats. I guess you could argue it contributed some but when you take out the elevated marketing costs and setup of the brand, it would be negligible on the quarter. It's really more of a future opportunity for the company, and not a massive driver of EPS in 2016, more so contributor in '17 and certainly in '18. Brandon Rollé: Okay.

And an interesting point about Galeon, David, is we do not see it as being cannibalistic to our core brands of Azimut and Sea Ray, and actually what we're seeing is that the sales that we're making and the boats that are sold that are on order are really barging the competition, and so we're taking share from others that had taken it away. So it's a complimentary brand that is an addition to our stores and I mentioned in the script that it makes it a one-stop shop. So as people come in, we sort of eliminated some of the competition out there, so they are buying from MarineMax. And the products are different from Sea Ray or an Azimut and so as such they are staying with MarineMax and we are taking share as a result of it. It will show up in the market share reports as they start to come in, in the future dates. Brandon Rollé: Thanks.

Thanks, Brandon.

And for our next question we go to Jim Baker, with B. Riley & Company.

Hi, thanks. Good morning, guys. Congrats on the quarter and on the Russo acquisition.

Thank you.

Appreciate, Jim.

Can you just start may be by framing the proportion of trade-in buyers versus cash down payments you're seeing so far this year, I guess not only on that looks on a year-over-year basis, but also kind of in the context of historical norms? And then, can you just talk about the average age of trades that you are taking in right now, again comparing that to historical context?

I'll take a stab at it, may be Bill can add into it. We're taking in on trade, being a new boat deal you tend to take trades on anything that's high 20s or above 30 feet, that's true, today is true, last year, the year before it were. We're certainly bringing more new people into boating with the introduction of some of the new smaller Sea Rays, which sort of by definition someone buying a 19 or 20 foot boat, may be new to boating and we're selling a lot of those and we're taking share which is good.

And the percentage really haven't changed, I mean if you look at the larger boats, probably 75% 80% given us a trade you look at the smaller boats, it's a much smaller percentage. As far as average age is concerned of the trades, we're seeing some newer boats that are trading especially like with Sea Ray where we've got some hot new models, with the SLXs and the 40-footers and 45s and the Coastal 59s and 65s. And so it's bringing some of the people that brought boats two or three years ago, back to say hey, I like this new boat that you just come out with. So I don't think we'll have as much of the aging issue we had where people were trading 15 to 18 year old boats to us meaning that for the last 10 years they haven't been trading up until just recently. So, we're a little more encouraged than we were this time last year. And as Mike mentioned, we feel very comfortable with our used, and the quality that's there and we're in a better position than we have been historically.

Okay, that's helpful. And have you changed your margin assumptions in the guidance at all? It looks to us just back of the envelop like the uptick in EPS guidance is purely a function of the increased same-store sales and the Russo contribution.

Thanks, Jim. Good question. No, we have not changed the leverage assumptions. So we typically say we get 15% leverage down at the pre-tax line, of course that's a range of 12% to 17%, it can be higher. We're using more like the 12% range until we get to this June quarter, so no, we have not modified that at all.

So just help me square that with, given your commentary that the outlook for more favorable age of trades and gross margins already up a little over 40 basis points, year-to-date, is there something you're seeing in your new boat backlog or otherwise that suggests endure some gross margin pressure in the back half of the year or is this just kind of conservatism on your part pre-peak season?

Jimmy, I'd say that the things we can't control in our company looking at our company, we feel pretty optimistic about this year. But there is so much external that we don't have a control over. We're in election year, you've got the noise going on with the feds, etcetera, etcetera and we just don't want to try to predict a future based upon what we're seeing and hearing from the customers because it could change pretty rapidly, depending on what happens with all the noise that's on the news and going on in the world and the economy. But all in all, we're encouraged by what we're seeing, but we understand, we only delivered a small part of the year, even though it's been very positive and we still got a lot of runaway ahead of us and we're as we mentioned, April is a bigger month than March and May it gets larger and June is our largest month, right in the peak of the season. So, we took out some time ahead of us and we got some bunch of boats to get delivered and see how it goes.

Okay, that's great. Just lastly, and I'll get back in the queue, just in terms of inventory planning going forward. Should we assume that the Russo inventory will approximate years on an inventory per location basis? And then as you -- as we further digest the inventory, should we assume that there is very little Galeon in there so far as we move through the year, your inventory position will actually may be continue to grow in excess of same-store sales as you build in some of these incremental lines?

I think ultimately when you get through the full year, our inventory should not grow in excess of same-store sales. We should be looking at it in modestly improving terms throughout the year. There is very little Galeon in our inventory today, there is some, but very little. And your commentary around Russo is accurate, that's a good way to estimate what the inventory levels are, but the elevated amount – the amount of inventory we have today, it's really driven by Sea Ray, Azimut and Whaler inventory that we strategically work for the manufacturers to have in place in time for the season. So in the back half of the year that begins to taper down as you end our fiscal year.

If you look at 2015, we needed more new product from Sea Ray and Boston Whaler. And so, when we got the ability to build a little bit of inventory, especially in some of our regions that didn't see the new inventory last year, we've taken this opportunity to do so. And so that's probably the biggest increase as to why the inventory's up is we want to give our other regions and stores an opportunity to sell some of these new product. To do that, you got to have it.

Very helpful. Thanks for the color guys.

Thanks, Jim

Thank you.

And for our next question, we go to Mike Swartz with SunTrust.

Hey, good morning guys.

Good morning.

Just on the backlog, I know Mike in your prepared comments, April backlog is I guess larger than last year's backlog at this time. Could you just give us a little more context around that? I mean are we looking at an increase in the backlog kind of similar to the same-store sales we saw this quarter? And may be in terms of brands within that backlog, where you're seeing most of the strength?

So my commentary was around the backlog when we started the June quarter, which would obviously include April, May, June. There is some sales all the way out into the future, going all the way out to January of ‘17 in there. So as a percentage it's much more meaningfully up than what our same-store sales is up, which is a very good sign and you see our customer deposits up I mean the backlog trend has been tracking higher since 2012 or may be even late 2011. And so it's definitely good to see. In terms of brands, it's really all of our brands are contributing to the backlog. I hate to be such a generalist like that, Mike, but it's – Sea Ray is doing well, we've got a lot of sold on orders Sea Ray, sold available products stuff that we have in inventory. Azimut's doing well, Alexander, Whaler, Galeon, anything that's relatively new is selling well in our backlog.

Great. And then just with kind of your operating costs or operating leverage framework that you gave us and I think you're commenting on it earlier. I mean how do we think about that both near-term and longer term with Russo coming on board? Should we see some near term cost associated with that are more one-time in nature? And then as we kind of roll out and look at it may be in fiscal year ‘17 should we start to see the leverage from just geographic coverage brands, back off costs, things like that?

Yeah, I don't think in the near term it will be much of a drag. I think number one, they run a good business, we're very glad to have them on board. I think in the future you're going to see the ability to expand their topline by selling inventory that we have other places in the country, and helping even grow share further which will then leverage their cost structure more. There is certainly some synergistic cost along the way whether it's interest or insurance or things of that nature that we always have. We always focus more just on the topline growth that we think we can help them with.

But the ability to offer to the good customers and clients that they have in the Boston market, Ocean Alexander and larger Azimuts and, that's all a wonderful opportunity and it adds to their business and our business at the same time.

And just really a quick question. Did you quantify how much the cost related to the Galeon launch were in the quarter?

We did not, but it was several hundred thousand dollars. If you do a Miami Boat Show display, a West Palm Beach Boat Show display, some marketing materials...

Training.

Yes, training, stuff like that, it would be upwards of half a million dollars.

And I would assume that that doesn't repeat going forward or at least at a much lower level?

Well, you'd have sales to offset it. You'd have more leverage. And you're right, you would not have that big of a chunk repeating itself. So you have one reduction until you start having more deliveries coming in.

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

Thank you, Mike.

And for our next question we go to Seth Woolf with Northcoast Research.

Good morning guys. As we talked about the cadence of trends last year that you're going to be comping again, it's almost like a horseshoe pattern. I was wondering if you could give me a quick reminder on what contribution each month has and how it builds us the as the northern markets come online. I think in round numbers it's 20% of the quarter, 30% of the quarter in 50%. I think that's what I have in my notes, but I wanted to verify if that was how much about it.

Yes, for the June quarter I'd say those are pretty good estimates of how the June quarter falls. It may not be quite 50% anymore at June. I think May may pick up a little bit more but June's the biggest month, April would typically be the smallest, and then had a crescendo effect just before July 4.

Okay, thanks for that. And then just on acquisitions. I mean you guys made a really nice acquisition, it was recently announced. I was wondering if, a couple of things, first, could you talk about some of the ways that you could leverage your existing services and products to improve the productivity of the boxes you buy. And then can you kind of quantify this impact and talk about how long it takes to achieve this? And I guess the other thing I would have is if you come in and bring in new brands or you're able to carry more inventory at the locations and you can improve, like you have a meaningful step up in sales and profit. If there any earn outs associated with the deal, would that be, would the earn outs include the increased productivity from you guys being involved?

Yes, the earn out would include increased productivity from us being involved. They've still got to sell the product, take care of the consumer and do all that stuff with each of the opportunities that we would bring to the table.

Exactly, if you look at real synergies and the ability to access to inventory both new and used all across MarineMax for Russo is a huge synergy. We may have a 42 Boston Whaler that is available four to six months earlier than it would be as they could do as a private dealership. Obviously leveraging the brands primarily initially here the larger Azimuts and Ocean Alexander will be huge. If you look at finance and insurance, we have Newcoast Finance as well as the finance and insurance operations within our stores. And so the ability to get customer's finance, we have a real competitive advantage over almost any dealer that's out there in the marketplace today, and of course that becomes an advantage for Russo. I can tell you that they have some business practices and things that they're doing which will be an advantage to all of MarineMax. There's things that they're doing that we will learn from, and so they will be part of our team and as we get our general managers which our store managers and regional presidents together which is actually occurring in a couple of weeks. They will be part of that and one plus one equals three when you get good minds together. So there is a lot of synergistic opportunities, but we can't say it enough. I mean there is no cost or change that's needed here. They are very good people. They take excellent care of their customers. They understand that boating changes people's lives as well as our team does, and so it's a great addition to the family with almost no hiccups. We installed our computer system 'cause they were on a different computer system and that happened prior to the acquisition occurring, and we had our team in counting inventories and doing the due diligence and training in HR, et cetera, et cetera, and it was all part of the family. So we're very excited moving forward. There's others that we're in discussion with, and some more type cultures and some great markets. And when the time is right we will add them to the family as well, and we could do something almost immediately with a couple of them. But at the end of the day they're in the peak of the season too. So we don't want to disrupt business with transition and being part of MarineMax family as well. So we'll keep looking at opportunities and when it makes sense we'll deliver.

Okay, we'll that's encouraging. It sounds like you've got talking to a couple of dealers, maybe more than just beyond the initial due diligence. But I guess bigger picture when it comes to the acquisitions you've been pretty consistent and that you want to maintain the methodology of paying three to six times trailing earnings. So when you look at the pace of the recovery and given the fact that with the Sea Ray models really starting to impact the business starting with the SLX, the 350. Is it safe to say that many of the independent dealers that you could potentially be talking to or just now reaching, starting to get become profitable for the first time and or say last year was the first year profitability in a while?

They're getting to be more profitable coming out of the down turn. That was a crucial thing that had to occur, to have more robust discussions with the different dealers that we're talking to. And just like our own earnings have doubled from last year and may have doubled the year before that. I mean the other dealers are seeing that as well, so when you start to put a multiple on something there's at least something you can discuss about from a payment perspective which resulted healthier discussions quite frankly. And everybody we're talking to believe the future is much brighter than the past. We all do. With the models that are coming out and what's going on in the industry. So there are different discussions are on earn out or some feature like an earn out in some of the acquisition discussions that we have going on right now.

First and foremost, Seth, the thing that we look for in an acquisition is the team, the people, and because it doesn't work that way, and if you got the right people with the right culture and it is a good market, it works. And so there's acquisitions we could go and do that would truly be a merger in the MarineMax but those can take a long time to fix. So we're going to stay true to business about long term not about short term. And so if it doesn't make sense we'll wait a little bit until it does makes sense or we look elsewhere. So we're being very careful because a bad acquisition is not good. But what we're paying it's accredited to the first year in almost every case. So we're going to keep doing our due diligence and at the end of the day it's about the people more than anything, and you saw that with, or you'll see that with Russo if you're to visit their stores or talk to some of their customers, or when Mike and I on roadshows and we're visiting Boston, almost everybody we talk to is very familiar with Russo Marine and of course now it's MarineMax Russo Marine.

All right. Well thank you very much. Congrats on the quarter and I'll hop back in the queue.

Thanks, Seth.

And for our final question we go to Steve Dyer with Craig-Hallum.

Thanks. Congratulations, guys.

Thanks, Steve.

Most of mine have been answered, may be just if you could touch on a little bit more on the kind of product cadence, the new stuff from manufacturers. I don't know if you want to use the baseball analogy kind of where are you with that? I mean not just Sea Ray but others and sort of what's the feedback's been and how do you look at it kind of going forward?

With Sea Ray, we're probably in the fourth or fifth inning may be, and as far as reprice of the product, we're little further than that, availability of that product still has some opportunities but they are coming out with it. Azimut has been giving us new product all along and they're well on track with fresh new products that are really outstanding. Boston Whaler, wow, knocked the cover off the ball and they are ramping up to hot boats and they have quite a few and coming out with new models as well. The same with Scout and Nautique on the water skier every weekend and again my boat is the old type of boat where you're out trek and bare footing and that model is being repriced this year, I haven't seen it yet, but I plus all the other competitive skiers are going to be running to it when it does come out. So it's new that sells, whether it's Sailfish or Harris or Crest. So we're getting it from pretty well all of our manufacturers and so, and very exciting times because it's really what was missing. And if you look at the downturn in 2008 and 2009, the thing that we were missing as a company from our primary supplier Brunswick was fresh new products and it hurt. If we had had fresh new product during that time, they would have sold even in the downturn. And so, if we have another one or when we have another one, having fresh product in our stores that are hot and fresh and new, who will serve as well, because people are boating and they'll continue to boat. Boating is growing. And so, we're encouraged by what's happening with the manufactures.

All right. Great. Thanks, guys.

Thanks, Steve

Thank you, Steve.

And with that ladies and gentlemen, we will turn the conference back over to Mr. McGill for any closing remarks.

Well, thank you, operator. And in closing, I'd like to thank all of you for your continued support and interest in MarineMax. Mike and I are available today, if you have any additional questions. Thank you.

And ladies and gentlemen, this does conclude today's conference. Thank you for your participation.