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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-05-03 · 59 added, 58 removed, 123 unchanged (49% of the section changed)

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As a result of these and other factors, a number of potential acquisitions that from time to time appear likely to occur do not result in binding legal agreements and are not consummated.

We completed three acquisitions in the fiscal year ending September 30, 2021 and three acquisitions to date in fiscal 2022.

We completed three acquisitions in the fiscal year ended September 30, 2021 and three acquisitions to date in fiscal 2022.

General economic conditions and consumer spending patterns can negatively impact our operating results.

Unfavorable local, regional, national or global economic developments or uncertainties regarding future economic prospects could reduce consumer

spending in the markets we serve and adversely affect our business.

Economic conditions in areas in which we operate dealerships, particularly Florida in which we generated approximately 54% and 50% of our revenue during fiscal 2020 and 2021, respectively, can have a major impact on our operations.

Unfavorable local, regional, national or global economic developments or uncertainties regarding future economic prospects could reduce consumer spending in the markets we serve and adversely affect our business.

Economic conditions in areas in which we operate locations , particularly Florida in which we generated approximately 54% and 50% of our revenue during fiscal 2020 and 2021, respectively, can have a major impact on our operations.

Local influences, such as corporate downsizing, military base closings, and inclement weather such as hurricanes and other storms, environmental conditions, and specific events, such as the BP oil spill in the Gulf of Mexico in 2010, also could adversely affect, and in certain instances have adversely affected, our operations in certain markets.

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Consumer spending on luxury goods also may decline as a result of lower consumer confidence levels, even if prevailing economic conditions are favorable.

Additionally, any change by the Federal Reserve to raise its benchmark interest rate in the future or market expectations of such change may result in significantly higher long-term interest rates, which may negatively impact our customers’ willingness or desire to purchase our products.

As a result, an economic downturn could impact us more than certain of our competitors due to our strategic focus on a higher end of our market.

Additionally, the Federal Reserve's increases of its benchmark interest rate, along with potential future increases and/or market expectations of such increases, may result in significantly higher long-term interest rates, which may negatively impact our customers’ willingness or desire to purchase our products.

As a result, an economic downturn or inflation could impact us more than certain of our competitors due to our strategic focus on a higher end of our market.

Although we have expanded our operations during periods of stagnant or modestly declining industry trends, the cyclical nature of the recreational boating industry or the lack of industry growth may adversely affect our business, financial condition, and results of operations.

Any period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business.

Any period of adverse economic conditions, low consumer confidence or inflation is likely to have a negative effect on our business.

Historically, in periods of lower consumer spending and depressed economic conditions, we have, among other things, substantially reduced our acquisition program, delayed new store openings, reduced our inventory purchases, engaged in inventory reduction efforts, closed a number of our retail locations, reduced our headcount, and amended and replaced our credit facility.

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Effective May 2, 2021, our reportable segments changed as a result of the Company’s acquisition of Cruisers Yachts, which changed management’s reporting structure and operating activities.

We now report our operations through two new reportable segments:

We now report our operations through two reportable segments:

Retail Operations and Product Manufacturing.

See Note 18 of the Notes to Unaudited Consolidated Financial Statements.

As of March 31, 2022, the Retail Operations segment includes the activity of 79 retail locations in Alabama, California, Connecticut, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina, Texas, Washington and Wisconsin, where we sell new and used recreational boats, including pleasure and fishing boats, with a focus on premium brands in each segment.

As of June 30, 2022, the Retail Operations segment includes the activity of 79 retail locations in Alabama, California, Connecticut, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina, Texas, Washington and Wisconsin, where we sell new and used recreational boats, including pleasure and fishing boats, with a focus on premium brands in each segment.

We also sell related marine products, including engines, trailers, parts, and accessories.

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Fraser Yachts Group and Northrop & Johnson, leading superyacht brokerage and luxury yacht services companies with operations in multiple countries, are also included in this segment.

As of March 31, 2022, the Product Manufacturing segment includes activity of Cruisers Yachts and Intrepid.

As of June 30, 2022, the Product Manufacturing segment includes activity of Cruisers Yachts and Intrepid.

Cruisers Yachts, a wholly-owned MarineMax subsidiary, manufacturing sport yacht and yachts with sales through our select retail dealership locations and through independent dealers.

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Consolidated Results of Operations

The following discussion compares the three and six months ended March 31, 2022, with the three and six months ended March 31, 2021 and should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, including the related notes thereto, appearing elsewhere in this report.

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Revenue increased $87.0 million, or 16.6%, to $610.1 million for the three months ended March 31, 2022, from $523.1 million for three months ended March 31, 2021.

Of this increase, $37.6 million was attributable to a 7.2% increase in comparable-store sales and a $49.4 million net increase was related to stores opened, including acquired, or closed that were not eligible for inclusion in the comparable-store base, as well as Intrepid and Cruisers Yachts manufacturing revenue which were not included in comparable retail store sales.

The increase in our comparable-store sales was primarily due to demand driven increases in new boat revenue and growth in our higher margin finance, insurance, brokerage, parts, service, storage services, and superyacht services revenue.

The following discussion compares the three and nine months ended June 30, 2022, with the three and nine months ended June 30, 2021 and should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, including the related notes thereto, appearing elsewhere in this report.

Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021

Revenue increased $22.2 million, or 3.3%, to $688.5 million for the three months ended June 30, 2022, from $666.3 million for three months ended June 30, 2021.

Of this increase, $52.3 million was related to stores opened, including those acquired, that were not eligible for inclusion in the comparable-store base, as well as Intrepid and Cruisers Yachts manufacturing revenue which were not included in comparable retail store sales, partially offset by a decrease of $30.1 million or 4.6% in comparable-store sales (comparable-store sales increased 5.7% for the three months ended June 30, 3021 and 36.7% for the three months ended June 30, 2020).

The decrease in our comparable-store revenue was primarily due to leaner inventory caused by supply chain challenges.

Gross Profit.

Gross profit increased $48.5 million, or 30.9%, to $205.3 million for the three months ended March 31, 2022, from $156.8 million for the three months ended March 31, 2021.

Gross profit as a percentage of revenue increased to 33.7% for the three months ended March 31, 2022, from 30.0% for the three months ended March 31, 2021 .

The increase in gross profit as a percentage of revenue was primarily the result of demand driven increases in boat margins and increases in our higher margin revenue as noted above, as a percentage of sales.

The increase in gross profit dollars was primarily attributable to increased new boat sales and our higher margin businesses.

Gross profit increased $31.8 million, or 15.5%, to $236.5 million for the three months ended June 30, 2022, from $204.7 million for the three months ended June 30, 2021.

Gross profit as a percentage of revenue increased to 34.3% for the three months ended June 30, 2022, from 30.7% for the three months ended June 30, 2021 .

The increase in gross profit as a percentage of revenue was primarily the result of demand driven increases in boat margins and increases in our higher margin businesses as a percentage of sales.

The increase in gross profit dollars was primarily attributable to increases in our margins and recently acquired operations.

Selling, General, and Administrative Expenses.

Selling, general, and administrative expenses increased $29.6 million, or 28.5%, to $133.5 million for the three months ended March 31, 2022, from $103.9 million for the three months ended March 31, 2021.

The increase in selling, general, and administrative expenses was driven by an increase in mix to our higher margin businesses, which typically carry a higher expense structure, increased gross profit which increased commissions, and acquisitions.

Selling, general, and administrative expenses increased $17.4 million, or 14.1%, to $141.2 million for the three months ended June 30, 2022, from $123.8 million for the three months ended June 30, 2021.

Interest Expense.

Interest expense decreased $0.4 million, or 36.4%, to $0.7 million for the three months ended March 31 , 2022, from $1.1 million for the three months ended March 31 , 2021.

Interest expense as a percentage of revenue decreased to 0.1% for the three months ended March 31 , 2022, from 0.2% for the three months ended March 31 , 2021.

The decrease in interest expense was primarily the result of decreased borrowings.

Interest expense increased $0.4 million, or 66.7%, to $1.0 million for the three months ended June 30 , 2022, from $0.6 million for the three months ended June 30 , 2021.

Interest expense as a percentage of revenue remained consistent at 0.1% for the three months ended June 30, 2022, and for the three months ended June 30, 2021.

The increase in interest expense was primarily the result of increased interest rates and increased borrowings.

Income Taxes.

Income tax expense increased $4.8 million, or 37.5%, to $17.6 million for the three months ended March 31, 2022, from $12.8 million for the three months ended March 31 , 2021.

Our effective income tax rate remained consistent at 24.8% for the three months ended March 31, 2022 and March 31, 2021.

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021

Revenue increased $148.2 million, or 15.9%, to $1.083 billion for the six months ended March 31, 2022, from $934.6 million for six months ended March 31, 2021.

Of this increase, $74.2 million was attributable to a 7.9% increase in comparable-store sales and a $74.0 million net increase was related to stores opened, including acquired, or closed that were not eligible for inclusion in the comparable-store base, as well as Intrepid and Cruisers Yachts manufacturing revenue which were not included in comparable retail store sales.

Income tax expense increased $3.4 million, or 16.4%, to $24.1 million for the three months ended June 30, 2022, from $20.7 million for the three months ended June 30 , 2021.

Our effective income tax rate decreased to 25.6% for the nine months ended June 30 , 2022, from 25.7% for nine months ended June 30 , 2021.

The decrease in the effective income tax rate was not significant.

Nine Months Ended June 30, 2022 Compared with Nine Months Ended June 30, 2021

Revenue increased $170.4 million, or 10.6%, to $1.771 billion for the nine months ended June 30, 2022, from $1.601 billion for nine months ended June 30, 2021.

Of this increase, $126.4 million was attributable to stores opened, including those acquired, or closed that were not eligible for inclusion in the comparable-store base, as well as Intrepid and Cruisers Yachts manufacturing revenue which were not included in comparable retail store sales, and an increase of $44.0 million, or 2.8%, in comparable-store sales.

Gross Profit.

Gross profit increased $92.3 million, or 32.9%, to $372.5 million for the six months ended March 31, 2022, from $280.2 million for the six months ended March 31, 2021.

Gross profit as a percentage of revenue increased to 34.4% for the six months ended March 31, 2022, from 30.0% for the six months ended March 31, 2021 .

The increase in gross profit dollars was primarily attributable to increased new boat sales and our higher margin businesses.

Gross profit increased $124.1 million, or 25.6%, to $609.0 million for the nine months ended June 30, 2022, from $484.9 million for the nine months ended June 30, 2021.

Gross profit as a percentage of revenue increased to 34.4% for the nine months ended June 30, 2022, from 30.3% for the nine months ended June 30, 2021 .

The increase in gross profit as a percentage of revenue was primarily the result of demand driven increases in boat margins and increases in our higher margin revenue as a percentage of sales.

The increase in gross profit dollars was primarily attributable to increased new boat sales, our higher margin businesses, and recently acquired operations.

Selling, General, and Administrative Expenses.

Selling, general, and administrative expenses increased $58.1 million, or 29.7%, to $253.5 million for the six months ended March 31, 2022, from $195.4 million for the six months ended March 31, 2021.

Selling, general, and administrative expenses increased $75.6 million, or 23.7%, to $394.7 million for the nine months ended June 30, 2022, from $319.1 million for the nine months ended June 30, 2021.

Interest Expense.

Interest expense decreased $1.1 million, or 45.8%, to $1.3 million for the six months ended March 31 , 2022, from $2.4 million for the six months ended March 31 , 2021.

Interest expense as a percentage of revenue decreased to 0.1% for the six months ended March 31 , 2022, from 0.3% for the six months ended March 31 , 2021.

The decrease in interest expense was primarily the result of decreased borrowings.

Interest expense decreased $0.7 million, or 23.3%, to $2.3 million for the nine months ended June 30 , 2022, from $3.0 million for the nine months ended June 30 , 2021.

Interest expense as a percentage of revenue decreased to 0.1% for the nine months ended June 30 , 2022, from 0.2% for the nine months ended June 30 , 2021.

The decrease in interest expense was primarily the result of decreased borrowings, partially offset by increasing interest rates.

Income Taxes.

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8 million, or 2 9 .

0 %, to $ 28.2 million for the six months ended March 31, 202 2 , from $ 20.0 million for the six months ended March 31 , 202 1 .

Our effective income tax rate decreased to 24.0 % for the six months ended March 31 , 202 2 , from 24.2 % for six months ended March 31 , 202 1 .

1 %, to $ 52.4 million for the nine months ended June 30 , 202 2 , from $ 40.6 million for the nine months ended June 30 , 202 1 .

Our effective income tax rate decreased to 24.7 % for the nine months ended June 30 , 202 2 , from 24.9 % for nine months ended June 30 , 202 1 .

The decrease in the effective income tax rate was not significant .

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Any turmoil in the credit markets and weakness in the retail markets may interfere with our ability to remain in compliance with the covenants of the Credit Facility and therefore our ability to utilize the Credit Facility to fund operations.

As of March 31, 2022, we were in compliance with all covenants under the Credit Facility.

We currently depend upon dividends and other payments from our dealerships and the Credit Facility to fund our current operations and meet our cash needs.

As 100% owner of each of our dealerships, we determine the amounts of such distributions subject to applicable law, and currently, no agreements exist that restrict this flow of funds from our dealerships.

For the six months ended March 31, 2022 and 2021, cash provided by operating activities was approximately $89.1 million and $146.6 million, respectively.

For the six months ended March 31, 2022, cash provided by operating activities was primarily related to increases in contract liabilities (customer deposits), increases in accrued expenses and other liabilities, increases in accounts payable, and our net income adjusted for non-cash expenses such as depreciation and amortization expense and stock-based compensation expense, partially offset by increases in inventory and increases in accounts receivable.

For the six months ended March 31, 2021, cash provided by operating activities was primarily related to decreases in inventory, increases in contract liabilities (customer deposits), increases in accrued expenses and other liabilities, and our net income adjusted for non-cash expenses such as depreciation and amortization expense, deferred income tax provision, and stock-based compensation expense, partially offset by increases in accounts receivable, increases in prepaid expenses and other assets, and decreases in accounts payable.

For the six months ended March 31, 2022 and 2021, cash used in investing activities was approximately $98.3 million and $64.3 million, respectively.

For the six months ended March 31, 2022, cash used in investing activities was primarily used for acquisitions, to purchase property and equipment associated with improving existing retail facilities, to purchase property and equipment from locations formerly leased, and to purchase investments, partially offset by proceeds from investments.

For the six months ended March 31, 2021, cash used in investing activities was primarily used for acquisitions, to purchase investments, and to purchase property and equipment associated with improving existing retail facilities .

For the six months ended March 31, 2022, cash provided by financing activities was approximately $7.1 million.

For the six months ended March 31, 2021, cash used in financing activities was approximately $95.1 million.

For the six months ended March 31, 2022, cash provided by financing activities was primarily attributable to net increases in short-term borrowings and net proceeds from issuance of common stock under incentive compensation and employee purchase plans, partially offset by purchase of treasury stock, payments on tax withholdings for equity awards, and contingent acquisition consideration payments.

For the six months ended March 31, 2021, cash used in financing activities was primarily attributable to net payments on short-term borrowings, payments on tax withholdings for equity awards, and payments for long-term debt, partially offset by proceeds from long-term debt and net proceeds from issuance of common stock under incentive compensation and employee purchase plans .

As of June 30, 2022, we were in compliance with all covenants under the Credit Facility.

We currently depend upon dividends and other payments from our locations and the Credit Facility to fund our current operations and meet our cash needs.

As 100% owner of each of our locations, we determine the amounts of such distributions subject to applicable law, and currently, no agreements exist that restrict this flow of funds from our locations.

For the nine months ended June 30, 2022 and 2021, cash provided by operating activities was approximately $123.0 million and $329.6 million, respectively.

For the nine months ended June 30, 2022, cash provided by operating activities was primarily related to increases in contract liabilities (customer deposits), increases in accrued expenses and other liabilities, increases in accounts payable, and our net income adjusted for non-cash expenses such as depreciation and amortization expense and stock-based compensation expense, partially offset by increases in inventory (excluding acquired operations) and increases in accounts receivable.

For the nine months ended June 30, 2021, cash provided by operating activities was primarily related to decreases in inventory (excluding acquired operations), increases in contract liabilities (customer deposits), increases in accrued expenses and other liabilities, and our net income adjusted for non-cash expenses such as depreciation and amortization expense, stock-based compensation expense, and deferred income tax provision, partially offset by increases in accounts receivable, decreases in accounts payable, and increases in prepaid expenses and other assets.

For the nine months ended June 30, 2022 and 2021, cash used in investing activities was approximately $113.2 million and $131.1 million, respectively.

For the nine months ended June 30, 2022, cash used in investing activities was primarily used for acquisitions, to purchase property and equipment associated with improving existing retail facilities, to purchase property and equipment from locations formerly leased, and to purchase investments, partially offset by proceeds from investments.

For the nine months ended June 30, 2021, cash used in investing activities was primarily used for acquisitions, to purchase property and equipment associated with improving existing retail facilities, and to purchase investments, partially offset by proceeds from insurance settlements.

For the nine months ended June 30, 2022, cash provided by financing activities was approximately $50.9 million.

For the nine months ended June 30, 2021, cash used in financing activities was approximately $154.1 million.

For the nine months ended June 30, 2022, cash provided by financing activities was primarily attributable to net increases in short-term borrowings and net proceeds from issuance of common stock under incentive compensation and employee purchase plans, partially offset by purchase of treasury stock, payments on tax withholdings for equity awards, and contingent acquisition consideration payments.

For the nine months ended June 30, 2021, cash used in financing activities was primarily attributable to net payments for short-term borrowings, purchase of treasury stock, payments on tax withholdings for equity awards, payments for long-term debt, and contingent acquisition consideration payments, partially offset by proceeds from long-term debt and net proceeds from issuance of common stock under incentive compensation and employee purchase plans.

In May 2020, we entered into a Loan and Security Agreement, which was subsequently amended in July 2021, with Wells Fargo Commercial Distribution Finance LLC, M&T Bank, Bank of the West, and Truist Bank.

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The Credit Facility allows for the transition of the benchmark interest rate used from LIBOR to SOFR.

There is an unused line fee of ten basis points on the unused portion of the Credit Facility.

As of March 31, 2022, we were in compliance with all covenants under the Credit Facility.

There is an unused line fee of ten basis

points on the unused portion of the Credit Facility.

As of June 30 , 202 2 , we were in compliance with all covenants under the Credit Facility .

Advances under the Credit Facility are initiated by the acquisition of eligible new and used inventory or are re-advances against eligible new and used inventory that have been partially paid-off.

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None of our real estate has been pledged for collateral for the Credit Facility.

As of March 31, 2022, our indebtedness associated with our short-term borrowings and our long-term debt totaled approximately $59.1 million and $49.9 million, respectively.

As of March 31, 2022, short-term borrowings and long-term debt recorded on the Unaudited Condensed Consolidated Balance Sheets included unamortized debt issuance costs of approximately $0.2 million and $0.6 million, respectively.

As of June 30, 2022, our indebtedness associated with our short-term borrowings and our long-term debt totaled approximately $107.5 million and $49.4 million, respectively.

As of June 30, 2022, short-term borrowings and long-term debt recorded on the Unaudited Condensed Consolidated Balance Sheets included unamortized debt issuance costs of approximately $0.3 million and $0.5 million, respectively.

Refer to Note 11 of the Notes to Unaudited Condensed Consolidated Financial Statements for disclosure of borrowing availability, interest rates, and terms of our short-term borrowings and long-term debt.

Except as specified in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Unaudited Condensed Consolidated Financial Statements in the “Financial Statements (Unaudited)”, we have no material commitments for capital for the next 12 months.

Based on the information currently available to us (including the COVID-19 pandemic’s impact on consumer demand, which is uncertain), we believe that the cash generated from sales and our existing capital resources will be adequate to meet our liquidity and capital requirements for at least the next 12 months, except for possible significant acquisitions.

Based on the information currently available to us (including the impacts of the COVID-19 pandemic, current supply chain and inventory challenges and inflation on consumer demand, all of which are uncertain), we believe that the cash generated from sales and our existing capital resources will be adequate to meet our liquidity and capital requirements for at least the next 12 months, except for possible significant acquisitions.

Impact of Seasonality and Weather on Operations

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis