Good morning, and welcome to the MarineMax, Inc. 2022 Fiscal Third Quarter Conference Call. Today's conference call is being recorded. At this time, I would like to turn the call over to Dawn of ICR, Investor Relations for MarineMax. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining this discussion of MarineMax's fiscal third quarter 2022 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 727-531-1712 and she will e-mail one to you right away. I now would 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 in mind, let me turn the call over to Mike. Please go ahead, Mike.

Thank you, Dawn. 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, and thank you for joining this call. I have to start by thanking the MarineMax team for their outstanding performance in our seasonally important third quarter. We are proud to have one of the finest and most tenured teams in the industry. And it's important to note that consumers are voting and the demand for the boating lifestyle is strong. Let me continue by touching on a few details on the June quarter where we generated record revenue, record gross margins of over 34% and record earnings per share of $3.17. Our diversified business model enabled us to produce robust earnings growth and cash flow. The fact that we accomplished this when inventory for large boats remains almost nonexistent is truly an achievement. While our same-store sales declined 5% for the quarter, the change was primarily related to the timing of shipments of presold customer boats, primarily large higher-end product. With the backlog of new boat orders at the highest level starting the fourth quarter, there is no question that we were impacted by the ongoing challenges of the supply chain. We were just not able to receive as many boats as anticipated. That said, excluding the Midwest, which seemed to be hampered by a delayed start to the boating season, we drove same-store new unit sales growth in excess of 8% during the quarter. Simply put, given our backlog and the desire by customers to get out on the water, if we would have had the product to deliver, it would have translated into higher revenue. I will also share that trends did seem to accelerate as we moved through the quarter. This strong demand environment is also highlighted by our customer deposits, which increased 60% to $138 million year-over-year. We are…

Thank you, Brett, and good morning again, everyone. I'd also like to start by thanking our team for their strong efforts that produced record profitability and cash flow through the first 9 months of the year. For the quarter, revenue grew to over $688 million, largely due to contributions from recent acquisitions. Our same-store sales decline of 5%, as Brett mentioned, was primarily related to the ongoing shortage of inventory in large, higher-end product. Specifically, we expected more to be delivered than we actually received. Importantly, new unit growth was fairly good in the quarter and as mentioned earlier, excluding our Midwest region was up over 8% on a same-store basis. Our gross margin rose 360 basis points to over 34%. This record third quarter gross margin was due to several factors. Among these are improving margins on boat sales, impressive service, parts and storage performance expansion in our higher-margin finance, insurance and brokerage businesses as well as our global superyacht services organizations of Northrop & Johnson and Fraser Yachts. Additionally, our manufacturing operations of Cruiser Yachts and Intrepid also performed well and helped drive the margin growth that we achieved. About 1/3 of our margin improvement in the quarter came from expansion in new and used margins. The remainder was through growth of our higher-margin businesses. Regarding SG&A, the majority of the increase was once again due to rising sales, margins and related commissions combined with the recent acquisitions. Overall, we believe SG&A is generally on track on an annual basis, but we will continue to monitor inflationary pressures carefully. Our operating leverage in the quarter was over 60%, driven by the strong gross margins. The leverage produced very strong earnings growth, setting another quarterly milestone with pretax earnings of over $94 million. Our record June quarter saw net…

Thank you, Mike. As I stated at the beginning of this call, our team's performance in the first 9 months of fiscal 2022 demonstrates excellent execution as our diversified model and exceptional customer service generate sustainable growth. The original vision for the creation of MarineMax was to create a better customer experience by building a team that is dedicated to the passion and lifestyle of the boating community. This is the basis of the success of our model, and we will continue to work hard to deliver. We remain committed to the long-term financial strength of the company and will pursue acquisitions, additional brand expansions and higher-margin businesses with a focus on recurring revenue, which will support our overall growth strategy, all with the view to create long-term shareholder value. And with that, operator, let's open up the call for some questions.

[Operator Instructions]. Our first question comes from the line of Joe Altobello with Raymond James.

I guess first question, I wanted to kind of square a few statements that you made. I guess, first, you talked about a record backlog. And then in a follow-up to that, you talked about customer deposits falling sequentially from March to June. So help us square those 2 data points. Why is the backlog at record levels, yet we're seeing deposits coming down?

Yes, I can comment and then Brett can chime in if he wants to. But the record backlog is at this point in the year starting the fourth quarter heading into next fiscal year, we've never had a backlog this big nor has our customer deposits ever been this big for this time of the year. Sequentially, when you look at the history of the marine industry, traditionally, deposits have declined from March through June. They build in the wintertime then they fall this time of year, which is why we said not surprisingly they fell. Clearly, we keep seeing strong demand out there. And when product comes in that's not otherwise deposited, it tends to lead pretty quickly. Anything else? Does that help, Joe?

No, it does. I appreciate that. And maybe just a follow-up on that in terms of inventory. Could you kind of frame for us what your inventory in units looks like today versus, let's call it, 3 years ago on a same-store sales basis?

Great question. I know some people in the industry are talking about declines. If we go back and look at the units we have on hand today at the end of June versus what we had on hand at the end of the June quarter of 2019, we have 15% to 20% of the units today. It's closer to 15%, to be honest with you. I know there's some data out there that shows slightly higher than that. But for us, with as fast as our team gets the product in and delivers it and with the markets that we're in, we're down around 15% of the units...

Of the normal of the level back then.

Correct. And that's like-for-like excluding acquisitions, same-store basis. But it shows you how low inventory is in the industry and how long it's going to take for some level of build in the industry. Good question, Joe.

Our next question comes from the line of Michael Swartz with Truist Securities.

This is Lucas on for Mike. Could you give any color as to the differences in demand on more premium units versus the lower-end products?

Yes, I'll comment. I think overall, demand for us is -- remained strong. Our profile of customer and really the premium level of all of our products, what we internally might call a smaller boat, it really isn't a low-end product. So I would say, once you kind of work through the entire quarter, everything had really good demand. There wasn't any real soft spot in a certain unit size. And keep in mind, the level of premium products we carry as well might factor into that.

Okay. And then just one more. On the supply chain, there's been issues industry-wide for the past 18 months. What was it this quarter that made a bigger impact for you? And just any color around that would be helpful.

Yes, I think just the general supply chain issues experienced by the manufacturers are still out there, maybe getting a little better in some areas. But for us, that just impacts how quickly the boat can leave a factory, how quickly it can actually get on a truck or a ship and get here in time. And so some of the supply chain is still related to the availability of shipping. And so I think that's where you're seeing some of the timing for us. Do you have anything, Mike, on that.

No. Just if there was -- it seemed like it was -- it impacted some of our larger product more so at least from a revenue mix perspective this quarter.

Our next question comes from the line of James Hardiman with Citi.

So maybe you've answered this, but just wanted to sort of codify and summarize here. Inventory is up. There are some sort of offsets to that, and you walked us through some of the math in terms of acquisitions. But I think even ex acquisitions, inventory is up sequentially and year-over-year, but then sales are down because of the lack of inventory. Just help us square those 2 things.

Yes, it's a good question, James. Thanks for asking it. So if you look at the increase in inventory, about half of it is Texas MasterCraft, Intrepid and then a new Cruiser Yachts facility. So those are kind of not really same-store sales, they are new items. And in the case of manufacturers, that's raw materials with things of that case, in the case of Texas MasterCraft, just the new addition from a dealer perspective. And then of the other half, if you look at the customer deposit increase year-over-year, so customer deposits have gone up like $52 million. And eventually, the customer money ends up sometimes becoming manufacturer deposits that we pay. So say of the other half, a good chunk of that, another $80 million is actually deposits that we paid. So now you get down to $30 million or so, which is the real dollar increase on a year, if you follow my math. And of that $30 million, a lot of that's sold at our stores. It may have come in, in the last 10 days in June and we just didn't get it prepped and delivered in time. And then some of it is some inventory in the Midwest region, as an example, where we did see a little bit of a weather-related softness. So overall, I think the question I was just asked a minute ago, the units that we have on hand are very, very low. And then large boat inventory is virtually nonexistent in our pipeline or if you go on our website, you can see that Hopefully, that helps. I figured that would be a good question on that. I appreciate you asking it.

It does. And then to this geographic question, obviously, everybody is trying to figure out how much of any weakness was weather-related versus macro related, I guess in an attempt to try to figure that out. This northern markets versus other markets dichotomy, now that weather has normalized, are the Northern markets back to being in line with Southern or better? Or are they still lagging? And I guess related, is there any big difference in the northern and southern markets in terms of types of customers, right, low end versus high end?

Yes, I'll comment first. Just in kind of as the quarter went along, it accelerated.

It's a good point.

So kind of that gave us confidence that things were maybe bouncing back, weather-related, whatever it might have been. But the other thing we really don't see is a big difference in the product up there, the customer up there. I just -- we're still trying to work through all that, but it appears, and I think really all others in the industry are saying the same thing, it was a delay and -- but no, we don't see anything else that would be causing it.

Okay. And then just the July, you talked about July looks like it's going to finish up in terms of same-store sales. How does that compare to sort of the exit rate coming out of the second quarter. I'm assuming -- or I'm sorry, the third quarter for you guys. I'm assuming June if the industry trends are any indication, June was better than at least May, if not April. But I'm just trying to figure out, as we sit here today, are things getting better? Are they getting worse versus the end of the quarter?

Yes, I think the industry data is a little misleading because what's causing some of that data to really move around is just the lack of inventory last year and supply chain challenges and all that type of stuff. I would say, like others in the industry, I mean, the business did seem to accelerate in the markets that we talked about, the Midwest as we closed June, and business seems pretty healthy right now. Keep in mind, largest backlog, big customer deposits for this time of the year, trends seem really pretty healthy. People are out there enjoying the boating lifestyle. So I don't know what the rate of growth is going to be, but we're going to have positive same-store sales for July as an organization. And I don't recall, you'd asked an earlier question, all markets look like they're doing better in July than even in June or most markets do.

Got it. And that positive same-store sales, I'm assuming it's units and ASP?

I don't have that broken down, but I would assume that's a safe bet.

Our next question comes from the line of Eric Wold from B. Riley.

I guess, first, Mike, wanted to clarify, obviously, on the last quarter, you're expecting total revenue growth in kind of the mid-teens. Now we're kind of saying high single digit to low to mid-teens, depending. Does that kind of lead me kind of lead to believe that the delays in shipments ability to kind of deliver the presold boats this last quarter, that's going to -- it's not going to be correct in this current quarter, it's not going to push some of those revenues into next year?

You know what, it's a great question, Eric. Thanks for asking this. So just given the supply chain challenges, we thought it was prudent to not basically be additive. So we did bring down the overall, good that you picked up on it, you caught what we were saying there, that we're still aiming to hit that mid-teens, but we did kind of lower the range to the high single digits to the mid-teens. It just all depends on what comes. And our guidance is comfortable really regardless. We feel good about the earnings. We have enough visibility. The mix of the business is such that we feel pretty good about it. But if more product comes in, we'll be even happier.

Got it. So the EPS guidance based on a high single-digit revenue growth with something in the low to mid-teens being added to that EPS?

The EPS assumption is we're comfortable in that range of high single digit. If it gets to as high as the low to the mid-teens, there could be some upside, but we're comfortable with the guidance range.

Got it. And then lastly, I know you kind of made the comment earlier, you kind of play in a higher average price point of boats that's not really considered lower end. Is there anything you're seeing out there? And as you get closer to the lower end or any kind of types of boats or price points that the industry is getting more competitive, discounting, promotional inventory build, anything in the lower end? Or does it kind of mirror what you're seeing across the board?

Yes, I'd probably answer it maybe a little differently than you're asking there because what we are seeing maybe is a year ago, frothy demand. People would be willing to put a deposit down for an order a boat that may take a long time to get. In the higher end of that product, they were willing to wait even longer. And the lower end of that, a little less. And now that probably -- that tolerance is even lower. So somebody that used to, let's say, last year would be willing to wait 6 months, maybe they're like, geez, 3 months, let me still talk about it. So it's not a demand comment. I don't want to steer you wrong there. It's just that we might be seeing that people are -- the smaller the boat, the lower the price, they're not willing to wait as long.

Our next question comes from the line of David MacGregor with Longbow Research.

This is Joe Nolan on for David. I just had a quick follow-up on the supply chain. Just can you just give a sense of how supply chain dynamics played out through the quarter? Like did you start to see any improvement as we move through the quarter? Were trends relatively steady throughout the quarter? And then maybe also just how that's playing out in July as well.

Yes, I can comment that we track each manufacturer shipments versus expectations. And if I remember right, April is probably pretty decent, pretty close to expectations. May was off and June was off. We'll track it again here when July ends. And it did seem to be skewed towards some -- I don't want to actually call it skewed because I think everybody has some challenges, but it impacted us more in the dollar value of product coming in than it did at units. And part of that kind of makes sense. It's a longer build cycle of a larger product. And there's more complexity and more things in the supply chain that could go wrong for any various builders. And it's a challenge out there. The headline of automotive news last week said supply chain challenges are here to stay, and I think it's true for our industry. I think people are learning to deal with it better, but we just got more delays recently from another manufacturer.

Yes. Once it delays, it's hard to find that window to do a quick catch-up either. It's just when it delays and then you kind of stay on a steady pace. You don't get that we haven't seen that opening window where you can get, okay, now we can get caught up.

And the good news, people who are deposited in their boats are coming. Our team has done a phenomenal job of being communicated with them. And keeping them excited about their boat. We really don't see cancellations of anything, which some of these folks have waited 9 months, maybe even longer from their original expected date. So it's amazing the passion that people have for the boating lifestyle, which we appreciate.

That's great detail. I was going to ask if you saw any uptick in cancellations as well, but I'll pass it along

[Operator Instructions]. Since there are no further questions, I would like to turn the call back to Mr. Brett McGill for closing remarks.

Well, thank you, everybody, for joining the call today. And Mike and I are available if you want to reach out, and we look forward to updating you on the next quarter. Have a good day.

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.