Greetings and welcome to the MarineMax Inc. Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now pleasure to introduce your host, Brad Cohen, Investor Relations for MarineMax. Thank you, Mr. Cohen. You may begin.

Thank you, operator. Good morning everyone and thank you for joining this discussion of MarineMax’s 2020 second quarter earnings conference call. I’m sure that you’ve all received a copy of the press release that went out this morning, but if not, please call Linda Cameron at 727-521-1712 and she will e-mail one to you right away. 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. 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. I want to start by saying how proud I am of our team’s ability to evaluate the impact as quickly and implement changes and how we operate our business during this global pandemic. There are so many stories of how our team’s agility and grid to overcome the challenges we faced as the impact of the virus expanded across the country and world. It’s worth noting that we lost very few sales that we were contracted before the virus and continued to sell both after the virus set is. We had to think differently in developing a new approach to achieve these results. I am humbled and proud to be able to leave such an outstanding passionate and devoted team. We understand that we have a responsibility to both our local communities and the boating community at large, including the health and wellbeing of our team, their families, and our customers as well as the welfare of our local economy. While we are taking additional health and safety actions, we stand by our commitment to provide our customers and their family the best possible boating experience. In support of this, we are offering multiple approaches for our customers to continue to safely and comfortably enjoy their experience on the water. We have also clearly seen a very strong desire for those in warmer markets to get out on the water, enjoy time with their family safely and away from crowds. We saw very similar trends following the events of 9/11; however, that desire seems even stronger now. We believe this will be replicated in all parts of the country as warmer weather moves in. We think boating could be one of the beneficiaries from this changed new world, in which we now live.…

thank you, Brett and good morning again, everyone. Let me also thank our team for their performance in the quarter, especially during the onset of the virus. for the quarter, revenue grew to over $308 million. The growth was driven by an increase of 1% in same-store sales, which was on top of 12% last year. I would add to January and February were up considerably over the prior year; however, as the virus impact began in March with the start of government mandates, our store traffic and sales were obviously impacted. From the trend perspective, March revenue was down about 11% from the last year, which given the news and the need to close or partially close stores, speaks to the strength of our team and our customers passion for boating. Our gross margins expanded 110 basis points to 25.5%. As Brett said, the increase in margins was driven by our higher margin businesses, including the Fraser acquisition offset by reduced new and used boat gross margins as we remained incrementally more aggressive driving sales. excluding Fraser, gross margins would have been close to flat due to the growth that our other higher margin businesses. selling, general and administrative expenses increased to $69 million, primarily due to the 2019 acquisitions of Fraser and Sail & Ski. Excluding those two additions, SG&A would have declined in absolute dollars. We have taken additional actions to reduce expenses as a result of the coronavirus including furloughing team members, rent abatements and other cost reductions initiatives were appropriate. We remain proactive and we’ll make adjustments as required by industry conditions. Our pretax earnings were $6.7 million compared to $7.2 million last year. Our net income was $5.1 million with flat earnings per diluted share of $0.23. turning to our balance sheet, at quarter-end,…

Thank you, Mike. Again, I want to thank our teams for their efforts and servicing our customers as their needs continue to change in the current environment. We acted swiftly introducing new ways to reach our customers in order to solve their boating needs. As the COVID-19 pandemic is complex and evolving rapidly, we will continue to monitor ongoing development to take action to best position MarineMax for both the short and long-term. Our differentiated customer centric approach ensures MarineMax will be there to meet the needs of boating enthusiast, who now more than ever will be spending time out on the water close to home. And with that operator, let’s open up the call for questions.

[Operator Instructions] our first question comes from Eric Wold of B. Riley FBR. Sir, your line is now live.

a couple of questions. I guess, one you talk about obviously, wanting to reduce inventories from these levels with managed inventories given the uncertainty and expect inventories decline in the June quarter. how you balanced that with OEMs clearly, wanting to kind of start shipping again, after restarting the plants from the COVID shutdown, any kind of indication, kind of required purchase at this point, because of outstanding orders that need to be filled or how are you going to manage both those sides?

Yes. Hey, Eric. Yes, we’ve been talking to our manufacturer probably in some cases twice a week, just trying to coordinate with them. What it looks like since they’ve shut down, when do they think there’ll be open, what does their supply chain look like? And kind of getting dates, trying to prioritize boats that we have sold to customers that are being built and trying to get those pushed up in the front. So, it’s hard to answer exactly how that’s all going to line up until they’re fully operational and we see it coming, but we have been working on planning that in detail.

Yes. I’d tell you, Eric, they’re looking at trends as closely as we are and I mean no manufacturer wants to overproduce boats. They want to try to have a good balance with what the industry seen at retail. And like I’d say, we work very closely with our manufacturing partners to try to get to the right answer. So, it’s gone fairly well all the dialogue we’ve had with our manufacturing partners.

And you mentioned that I know it’s still uncertain whether the trends really should turn positive, April from the downturn in March. Has that been driven more by the digital virtual buying offering or is it still mostly in person traffic? And I guess maybe, just one more color and kind of what you seem to be use of a digital virtual offering in terms of, maybe, a percentage of interactions? How you want to frame and how does that impact buying behavior and time to close, those kinds of things?

Yes. I think commenting on store traffic from a walkup, so to speak, almost went to nothing. People stopped walking up to the front of our stores. now everybody’s always used digital tools to reach out and make an inquiry ahead of time. I think that’s just been highly amplified. And we’ve been working for several years now on some more advanced tools. We were able to launch those early. And so I’d say it’s both. It’s walk-in traffic almost non-existent unless it’s a private appointment under safety precautions, all of the generation of that traffic has been digital.

Okay. And then lastly, it’s on the real estate position, what are your options with that? I’m assuming you wouldn’t like most sell those outriders sale lease back, those given your desires, you kind of maintain the use of those kind of longer-term, is that more of kind of a mortgage finance option or maybe, kind of give us a sense of what you could do there if need be?

Yes. Good question here. Our desire is always to own this property. It always has been. So, sale lease back, you eventually lose control that so well, that’s an option, I don’t see its exercise and I don’t think we need to. I think, putting mortgages on the property would be potentially a smart thing to do depending on the rate, where the rates are in the right environment. I remind you; this team managed the business through 2008. and in 2008, we had something like $44 million of mortgages when Lehman collapsed and within – it seems like three or four months we paid those off, because we generated so much cash and we never needed the mortgage anymore properties back then. And we’re exploring all options as the press release says, we’re looking at different things that we could do, along the real estate line, but something like a mortgage would make the most sense.

Perfect. Thanks guys.

Thank you.

Thank you.

Thank you. Our next question comes from Joe Altobello with Raymond James. You may proceed with your question.

Thanks. Hey guys, good morning.

Hey, Joe.

Just want to follow up on Eric’s first question regarding the trends in March and April, obviously March down and 11%, April flipped to positive here, curious how that compares to the rest of the industry. I would imagine you guys are probably taking some share, given your investments in technology over the past year, but I was wondering, if the rest of the industry is off of seeing the same positive trends in April or are you guys more of an outlier? I think…

Yes. it’s hard to say. I mean, we hear about some industry activity, we do see a lot of people out on the water. A lot of people are boating. We hope that our technologies and our execution is helping us gain some share, but the boating community is out. So, I would imagine that it’s probably pretty decent for most, now weather conditions in States, it’s going to vary.

Got it. Okay. And just to follow-up on that, in terms of categories, where you’re seeing the strength, I think the March SSI data seemed to indicate that, on the aluminum side, we’re seeing a little better trends; for example, pontoon, aluminum fish versus fiberglass. Did you guys see that as well or has the strengths that you’ve seen in April or proven April been largely broad-based?

I’ll tell you Joe. If you look at the March data, where the key categories that we participate in were down, gosh, 20% was the best one. They were all the way up to like 65% down or 55% down. Obviously, we did not experience that. So, to your point on shares, I do think in the month of March, we did take a market share. I’d tell you what we’re seeing in April, which my comments are year-over-year comparisons that they’re not sequential. They’re year-over-year, which is pretty encouraging. We’re seeing pretty good trends, really across the board. It could be one week, premium center console seem a little stronger. It could be the next week, recreational rec, run about neighborhood seems stronger, but generally, there’s a pretty good desire to get out in the water right now, but as Brett said, especially more in the warmer markets.

I was just going to ask a question, is that mostly Florida or is that pretty spread out geographically as well?

There’s some good trends up north as well. The harder hit regions of the country clearly are going to be a little Florida to first of all get people out on the water and the lockdowns are at varying levels.

Got it. Okay. Thank you guys. Appreciate it.

Thank you, Joe.

Thank you. Our next question comes from Ryan Sigdahl with Craig-Hallum. Sir, you may proceed with your question.

Thanks guys for taking my questions. congrats on the positive trends here in April. that’s, I think shocking to many. So maybe, just that we haven’t talked much about the cost side. you mentioned you’ve done some furloughing, but any way to quantify how much operating expenses have been taken out temporarily here of the shelter and place restrictions?

We haven’t quantified it, Ryan, to state it publicly. We’ve obviously furloughed our intention is to bring as many people back as fast as we can as the storage operate and open. So, we don’t want to throw a number out there, because it’s a little bit uncertain as to long a certain store may be experiencing furloughs versus another store. But I mentioned on the call, furloughing rent abatements. We have spoken to a number of our landlords and we’re trying to be a good steward, if you will, asking for support and help, where we really needed and if we really needed and given our balance sheet strength and the business that we’re seeing, we’re being measured in that approach. I did mention on the call that if you look at the SG&A specifically in the quarter, we would be down in absolute dollars. if it wasn’t for the acquisitions we did are Fraser and Sail & Ski. So, you can kind of see the efforts we did in 2019, specifically in the summer of 2019, where we did reduce some duplicated stores and other things, long before the virus has helped. It’s paid off. So, our expense structure is lower today than it was a year ago absent the acquisitions.

And then, maybe, month today for April or over the past few weeks; however, you want to refer to it. But what have you guys seen from a promotional environment and then how have margins held up relative to kind of pre-COVID?

Yes. I think I mentioned in the script that we were – it’s still seems pretty rationale, where there’s – it seems like kind of normal discounting, demand is good. we’re putting a lot of efforts into marketing and we are looking at our inventory very strategically and placing some products right, where it needs to be to – we want to keep our inventory healthy and there is uncertainty ahead. So, moving inventory right now is good, but no excessive pressure out there that we see right now.

Ryan, it’s probably worth commenting. It wasn’t in the prepared remarks, but it’s such a different time right now than it was in 2008. I mean, most of the wholesale lenders, who finance the inventory, if not all of them have voluntarily waived curtailments for dealers in our industry and probably all industries for that matter. I mean that did not happen in 2008, and then the retail lending environment is still pretty darn healthy right now. And in 2008 that shut off for a period of time. So, there’s a couple of distinct differences between – right now between other dark days for our industry that are – it’s much different today, and I’d say much better today at least currently. So that’s – we’re not seeing the massive jump in repossessions and other things like that that we saw in 2008.

Good. one more question for me and then I’ll hop back in the queue, impressive that April can flip positive, virtually all online. Do you think given your technology investments, what you’re hearing from customers and kind of the going digital route now? do you think this will have a structural shift on the industry or an acceleration kind of to the digital online, buying a boat? And then I presume you guys are seemed relatively better positioned there going forward than others. But how do you think about that from the competition of potential market share standpoint? Thanks. Good luck guys.

Thanks. Well that’s a good question. I think everybody’s – we’ve been planning and looking at that shift. All industries are seeing that shift and we’ve been working towards that direction. If this unfortunate event has probably been a little bit of a catalyst to jumpstart that for all of us, but we’re still a relationship business, getting people face to face and really, engaging with them, but our tools and digital tools to get them further down the pipeline and more comfortable with MarineMax and our products, we feel like is a clear advantage and I think it will reshape the way the business is conducted, going forward.

That’s it from me guys. Thank you. Good luck.

Ryan, appreciate it.

Thank you. Our next question comes from Mike Swartz with SunTrust. Please proceed with your question.

Hey guys, good morning.

Good morning.

Hey, a quick question for you, Mike. I apologize if I missed this, but did you say just the breakdown of price versus units during the quarter?

Actually, I did not. Good question. So, our units were down in the mid single digit in the quarter. So, it would be skewed towards prices, we drove the 1%. And really, it’s all because the month of March, whereas I think for our segments, you know the industry well for our segments, I mean 20% to 55% is what they were down in the month of March and we were down something like, in the mid teens, something like that in a month.

Okay. That’s great. Thanks for the color. And then just wanted to touch on the impact of West Palm beach, the decent size shows moving from March or not moving from March, I guess canceled this year. Any quantification on how that impacted the quarter, how that impacts backlogs and maybe, any costs that you had in the quarter that obviously, you won’t be able to leverage through sales?

Yes. I don’t have the cost data in front of me. We obviously, had some costs with those sales. It’s a material show though; it’s a double-digit millions of dollars worth of business now, not all of that would happen in March, probably most of it would happen after March. Some would come in the month. It clearly would have an impact on our customer deposit line. It would clearly, have an impact on our trend data. So, when we’re talking trend in April, that’s a year-over-year basis of what’s contracted and we did not have the Palm Beach Boat Show, and we commented that we’re tracking positive. And so I think it speaks to the digital tools that we’ve invested in that Brett mentioned, it also the – our team and our customers passion for being on the water right now, because it is a meaningful show as you know Mike, so that did not happen this year.

Okay. And safe to say the backlogs going into or I guess where they stand today would be down. Is that the right way to think about that?

So, our backlog is the – what I’m talking about in terms of April trends in terms of the contracts we’re writing on a year-over-year basis are tracking hire today. Now, that could change in a week, but they are tracking hire today.

Okay, great. Thank you for that. And then just with some of the steps that the floor plan lenders have taken to help out the dealers, it’s – what are you taking advantage of that right now? And then is there any way to think about the cash savings monthly, while that’s going on?

Yes, good question, Mike. It kind of ties to the same comments that I made a little while ago about being a good steward and asking people for help, where we think we need it. We have not asked to have the curtailments waived as of now. We can, we’ve talked to our lenders about it. Just given the trends that we’re seeing, given our financial statement strength, our liquidity growing in the March quarter, we’ve not asked for that. So, we will, if we think we need to, but as of today, we don’t think we need to.

Okay, great. Thanks. That’s it for me.

Thank you. Our next question comes from Scott Stember of C.L. King. Please proceed with your question.

Good morning and thanks for taking my questions.

No problem.

Mike, could you frame out, the level of business being up in April, just to give us a sense of how positive we are? Just to give an idea of obviously, the June quarter is always going to be difficult to model, just given everything that you’re hearing about the economy. But now we hear that sales are actually up or trending up in April. Just give us a sense maybe of how up they were or how up they are?

Well, I comment in general, one thing we’re able to do is with some of our tools back to some of the analytics we have, we can literally look at five-day, three-day sales trends, year-over-year, the exact same three days, seven days, 14 days. And like Mike said, end of March was harsh and it started to climb back. And as of now, we’re actually seeing some three to seven day trends that are pointing upward to positive. It’s probably best that we not disclose the actual percentages and things that we’re tracking up right now until we see a longer period of trends. I would also say, Scott.

Got it. Okay. And just following up on the non-boat sales now that you guys have effectively gone to a virtual platform, how is the non-boat sales, how are they performing now that you do not have really customers coming into the showroom? Has it been any follow-up or has it actually gone up?

Yes. I think that it’s been a – in some of it’s the time of year has lined up. Okay, meaning up north, the service activity not in every state are we putting people back in the water? So, for people coming in for service and those sorts of things, some of the P&A business that you were getting walk in or during delivery time is not there. So it definitely put a strain on the other parts of the business, I’ll call that service and parts, because not as many people are coming in and not as many people are there, but it’s – it seems to be running pretty good and it’ll continue to grow as the summer comes upon it.

All right. So – and the comment that you made, just to be clear about running up in April, was that everything or was that just for boats?

We were commenting specifically on boats.

Okay. Got it. That’s all I have. Thank you.

Thank you.

Thank you. Our next question comes from James Hardiman with Wedbush Securities. Please proceed with your question.

Hey, good morning guys and congrats on getting things turned around here in April. That’s no easy feat in this environment.

Thanks, James.

Sure. So, a couple of questions from me. Brett, you’ve talked about in your prepared remarks, something about other opportunities that may arise over the course of this pandemic, seemed like that was sort of an open-ended comment, but that maybe, you wanted to get asked about, but what could that look like? Obviously, since the last downturn, you guys have both expanded your dealer base and expanded the brand that you carry, what are the opportunities this time around?

I think you kind of answered it with the open-ended piece of it. We’re looking at all those things, brands and in various markets, marina opportunities that may or may not come up in various markets. And so I’d say it’s kind of the same pattern we’ve had over the years. We’ll continue to look at that. And since our balance sheet is strong, when the timings right, of course, and things are a little more stable and there’s a little less uncertainty about what next week looks like, we’ll look to capitalize on opportunities that come up.

Makes sense. And then you touched on a little bit of this, but could you – to the extent, you feel comfortable; just talk us through some of the geography around the country? I mean, we have – it seems like we’re working with some very different restrictions in certain states. Some states, some geographies, recreational boating is essentially shut down right now. I don’t know how much that’s impacting boat sales and ultimately, your ability to deliver boats, but maybe just walk us, region-by-region or even more granular than that. How the various restrictions you think are impacting your business? And what this all looks like if we slowly opened back up again?

Yes, it’s a great question. And every day it changes. For a while there, it was changing very rapidly and we had literally a response team working on what that day held for us and looking at the local regulations. And really the lay of the land was boating was allowed to be open. And then that slowly changed in a few markets, where they restricted boating activity. And it’s actually, if you go out there and look at it, it’s only a very few set of markets, where boating itself is restricted and – but most of Florida people can get out on a boat. There’s a handful of marinas close, obviously, get closer to areas like Miami and it’s much more restrictive, Baltimore, New York, but just recently, they’ve announced, boating is open in the tri-state area up there. Some real more markets even if boating was open; it wasn’t time to go boating. But I would say more leaning towards most areas that we operate in are open for boating, with limitations on that, of course and people are boating in a responsible fashion. We’re marketing that other industry arms are marketing, safe boating and so on. So, when the – when we start opening up the other parts of the economy, I think that’ll help, but boating is somewhat open and it’ll just be more about what less restrictions are there.

Okay. And just to be clear, it sounds like there isn’t really anywhere in the U.S., where obviously, you can do a lot of the search and even the purchase, presumably online. There aren’t any places that are restricting delivery, right? That’s the final sale in any way. Is there?

There might be a couple, but it’s – a lot of like if up north you bought a boat right now, you may not be going far with that. So, I’d say, we can do a proper delivery with social distancing and all the safety requirements in place kind of one-on-one and it’s happening that way for the markets we operate in.

Okay. And then just lastly for me, I mean everything sounds pretty upbeat. I mean, obviously it’s very limited data in terms of things starting around here. So, I know you don’t want to extrapolate too much, but you feel comfortable thing that you’re going to make money in the second half of the year? First half was pretty good. You made $0.64. What are the odds that that we see a loss during the back half and then along those same lines, I don’t know, the last recession you had to track your dealer base pretty meaningfully. It doesn’t seem like we’re anywhere near being in a position, where you would have to go through those steps again?

I would use your opening statement about; we have limited data right now. I think it’s – it would be premature for us to be talking about what our profit thoughts are. Obviously, you’ve got to have heard our comments. We feel better today. We – and I’ll tie my comment into the 2008 period. Those of you follow the company back in 2008, the conference calls did not sound like this. They sounded a little more dramatic and the actions we were taking were more dramatic given what we see today from an industry perspective, I don’t think the industry is going to experience what it experienced in 2008.

Yes. But there is uncertainty. And what I will say is based on what we’ve seen, we’ve taken the right action, both on costs, marketing efforts and execution that seemed to be lined up and we’ll take further action if needed, depending on what changes or try to get back to normal sooner than later.

All right. Good stuff. Really appreciate guys.

Thank you.

Thank you very much.

Thank you. Our next question comes from David MacGregor with Longbow Research. Please proceed with your question.

Yes. Good morning, everyone. Hope you’re well.

Thank you.

You did in your prepared remarks, say that it was a still relatively rationale environment, but at the same time, you also mentioned that you’ve seen more promotional activities. So, I wonder if you could just talk about sort of where within those opposing dynamics, you think the second half of the April, the second half of the quarter is going to play out. And I have a couple of follow-ups after that.

Yes. The additional promotional activities just probably really centered around the fact that trying to generate more interest remotely or digitally than you would when you have normal walk-in traffic in the normal spring time. So, you might have to offer, do more marketing, maybe offer a few more promotional ideas to get people to raise their hands. So, it’s really more about trying to change people’s – you’re not being able to walk into stores. What can you do to create their interest?

Right. Is that essentially discounting or there are other forms of promotions that are just impactful to the gross margin line?

There’s marketing efforts there. There is some discounting, because we’re looking at the uncertainty and deciding, if inventory has some aging to it, we’re going to be much more aggressive there to try to get ahead of things. So yes, there is some of that.

Okay. Just – can you remind us again just as a mixed as it stands today between both sales and service revenues?

Yes. Boat sales, new and used, are going to be close to 80% of our total revenues than service parts, marina, brokerage, the other businesses that we have are roughly 20% of our total revenue.

Were 20%, okay, that’s helpful. And then can you talk about your ability to flex SG&A if in fact, there’s a good news that we’re seeing here in early April doesn’t extend and you end up having to deal with a more negative environment over the next couple of quarters.

Yes. generally, I can talk that about a third of our expenses are pretty fixed. About a third just for easy math are what I’d call semi-fixed. I mean, you can start cutting them into thirds that are fixed are pretty much the store operations. And then roughly, a third is not quite right is a little bit greater than that is personal. And obviously, we’ve done some furlough and taking some actions around our team members, so – but I should comment within the semi-fixed and the personal, there is some level that that’s variable like commissions and our pay plans and all of that type of stuff. Given what we’re seeing today, we don’t think there’s a whole lot of stressing that we need to do to those models now other than what we’ve already done today. And right now, we’re trying to keep our team working in our furloughs. They’re kind of related to good business sense, but also just where we’re restricted only so many people can operate in a store. So, where we had to make some furloughs, but we’re doing our best to keep our team working.

Sure. Yes, that makes sense. And then last question, I guess, I’m trying to think about, how this stands out. You’ve got, as you pointed out, very little traffic coming through the stores. Most of it’s online. How does the close rate on a store sale differ from an online sale?

I don’t think we have that data readily available this quickly, looking at the data, but it’s – generally when you get an online digital engagement, you’re taking all the same actions after. It’s just how you get the person engaged and get them comfortable with how to do it. So, I don’t know if I have that answer right now.

I’m not sure there’s going to be a whole lot different or fallout. I mean the amount of activity remotely with the customer and the discussions with the customer. It’s probably a great question for as we get into the June quarter, we’ll have better data on that, David.

Yes. I would just expect some more extrapolated sales process and to that extent though, it might be better opportunity to forecast just if you could come up with some sense of what your historically, the close rates been. But I guess there’s some history around this, so.

Right.

Yeah. Okay. All right. Well, thanks very much. Good luck.

Thank you very much.

Thank you. We have no further questions at this time. I would now like to turn the floor back over to Mr. McGill for closing remarks.

Thank you. Thank you for joining the call today, and we hope you and your families are all safe and doing well. We would also like to thank our first responders and medical professionals working to keep us all safe. And with the summer approaching, we hope you can get out on the water and enjoy some boating, and Mike and I are available today. So, please reach out if you have any additional questions and we’ll look forward to updating you on our progress on our next call. Thank you.

Ladies and gentlemen, this has concluded today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation.