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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2020.

Commission File Number. 1-14173

 

MARINEMAX, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Florida

59-3496957

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

 

 

2600 McCormick Drive, Suite 200

 

Clearwater, Florida

33759

(Address of Principal Executive Offices)

(ZIP Code)

727-531-1700

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.001 per share

HZO

New York Stock Exchange

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      No  

The number of outstanding shares of the registrant’s Common Stock on January 28, 2021 was 22,135,775 .

 

 

 

 


 

 

MARINEMAX, INC. AND SUBSIDIARIES

Table of Contents

 

Item No.

Page

 

 

 

 

PART I. FINANCIAL INFORMATION

 

1.   

Financial Statements (Unaudited):

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2019 and 2020

 

3

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2019 and 2020

 

4

 

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2020

 

5

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended December 31, 2019 and 2020

 

6

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2019 and 2020

 

7

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

2.   

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

3.   

Quantitative and Qualitative Disclosures About Market Risk

 

24

 

 

 

 

4.   

Controls and Procedures

 

25

 

 

 

 

PART II. OTHER INFORMATION

25

1.   

Legal Proceedings

 

25

1A.

Risk Factors

 

25

2.   

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

3.   

Defaults Upon Senior Securities

 

26

4.   

Mine Safety Disclosures

 

26

5.   

Other Information

 

26

6.   

Exhibits

 

27

SIGNATURES

 

28

 

 

 

 

EX – 31.1

 

EX – 31.2

 

EX – 32.1

 

EX – 32.2

 

EX – 101 INSTANCE DOCUMENT

 

EX – 101 SCHEMA DOCUMENT

 

EX – 101 CALCULATION LINKBASE DOCUMENT

 

EX – 101 DEFINITION LINKBASE DOCUMENT

 

EX – 101 LABEL LINKBASE DOCUMENT

 

EX – 101 PRESENTATION LINKBASE DOCUMENT

 

 

 

 

 

2


 

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

MARINEMAX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Amounts in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

 

December 31,

 

 

 

 

2019

 

 

2020

 

 

Revenue

 

$

304,172

 

 

$

411,524

 

 

Cost of sales

 

 

224,154

 

 

 

288,123

 

 

Gross profit

 

 

80,018

 

 

 

123,401

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

64,386

 

 

 

91,417

 

 

Income from operations

 

 

15,632

 

 

 

31,984

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

3,344

 

 

 

1,268

 

 

Income before income tax provision

 

 

12,288

 

 

 

30,716

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

 

3,229

 

 

 

7,116

 

 

Net income

 

$

9,059

 

 

$

23,600

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per common share

 

$

0.42

 

 

$

1.07

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per common share

 

$

0.41

 

 

$

1.04

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares used in computing

   net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

21,453,914

 

 

 

22,025,898

 

 

Diluted

 

 

21,890,065

 

 

 

22,745,125

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

3


 

 

MARINEMAX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Amounts in thousands, except share and per share data)

(Unaudited)

 

 

Three Months Ended

 

 

December 31,

 

 

2019

 

 

2020

 

Net income

$

9,059

 

 

$

23,600

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) gain, net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

606

 

 

 

1,115

 

Interest rate swap contract

 

 

 

 

(195

)

Total other comprehensive income, net of tax

 

606

 

 

 

920

 

 

 

 

 

 

 

 

 

Comprehensive income

$

9,665

 

 

$

24,520

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


 

 

MARINEMAX, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share data)

(Unaudited)

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

155,493

 

 

$

120,939

 

Accounts receivable, net

 

 

40,195

 

 

 

44,001

 

Inventories, net

 

 

298,002

 

 

 

378,863

 

Prepaid expenses and other current assets

 

 

9,637

 

 

 

14,583

 

Total current assets

 

 

503,327

 

 

 

558,386

 

Property and equipment, net of accumulated depreciation of $86,270 and $89,287

 

 

141,934

 

 

 

149,657

 

Operating lease right-of-use assets, net

 

 

37,991

 

 

 

105,633

 

Goodwill and other intangible assets, net

 

 

84,293

 

 

 

143,114

 

Other long-term assets

 

 

7,774

 

 

 

8,098

 

Total assets

 

$

775,319

 

 

$

964,888

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

37,343

 

 

$

22,379

 

Contract liabilities (customer deposits)

 

 

31,821

 

 

 

55,389

 

Accrued expenses

 

 

52,123

 

 

 

67,457

 

Short-term borrowings

 

 

144,393

 

 

 

163,394

 

Current maturities on long-term debt

 

 

 

 

 

2,704

 

Current operating lease liabilities

 

 

6,854

 

 

 

9,861

 

Total current liabilities

 

 

272,534

 

 

 

321,184

 

Long-term debt, net of current maturities

 

 

7,343

 

 

 

50,124

 

Noncurrent operating lease liabilities

 

 

33,473

 

 

 

98,220

 

Deferred tax liabilities, net

 

 

4,509

 

 

 

5,911

 

Other long-term liabilities

 

 

2,063

 

 

 

6,867

 

Total liabilities

 

 

319,922

 

 

 

482,306

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued or outstanding

   as of September 30, 2020 and December 31, 2020

 

 

 

 

 

 

Common stock, $.001 par value, 40,000,000 shares authorized, 28,130,312 and

  28,393,710 shares issued and 21,863,291 and 22,126,689 shares outstanding as of

   September 30, 2020 and December 31, 2020, respectively

 

 

28

 

 

 

28

 

Additional paid-in capital

 

 

280,436

 

 

 

283,101

 

Accumulated other comprehensive income

 

 

829

 

 

 

1,749

 

Retained earnings

 

 

277,699

 

 

 

301,299

 

Treasury stock, at cost, 6,267,021 and 6,267,021 shares held as of September 30, 2020

   and December 31, 2020, respectively

 

 

(103,595

)

 

 

(103,595

)

Total shareholders’ equity

 

 

455,397

 

 

 

482,582

 

Total liabilities and shareholders’ equity

 

$

775,319

 

 

$

964,888

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

5


 

 

MARINEMAX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(Amounts in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Treasury

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Earnings

 

 

Stock

 

 

Equity

 

BALANCE, September 30, 2020

 

 

28,130,312

 

 

$

28

 

 

$

280,436

 

 

$

829

 

 

$

277,699

 

 

$

(103,595

)

 

$

455,397

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,600

 

 

 

 

 

 

23,600

 

Shares issued pursuant to employee stock purchase plan

 

 

83,572

 

 

 

 

 

 

740

 

 

 

 

 

 

 

 

 

 

 

 

740

 

Shares issued upon vesting of equity awards, net

   of minimum tax withholding

 

 

121,303

 

 

 

 

 

 

(871

)

 

 

 

 

 

 

 

 

 

 

 

(871

)

Shares issued upon exercise of stock options

 

 

56,746

 

 

 

 

 

 

783

 

 

 

 

 

 

 

 

 

 

 

 

783

 

Stock-based compensation

 

 

1,777

 

 

 

 

 

 

2,013

 

 

 

 

 

 

 

 

 

 

 

 

2,013

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

920

 

 

 

 

 

 

 

 

 

920

 

BALANCE, December 31, 2020

 

$

28,393,710

 

 

$

28

 

 

$

283,101

 

 

$

1,749

 

 

$

301,299

 

 

$

(103,595

)

 

$

482,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Treasury

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Earnings

 

 

Stock

 

 

Equity

 

BALANCE, September 30, 2019

 

 

27,508,473

 

 

$

28

 

 

$

269,969

 

 

$

(669

)

 

$

202,455

 

 

$

(102,964

)

 

$

368,819

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,059

 

 

 

 

 

 

9,059

 

Shares issued pursuant to employee stock purchase plan

 

 

38,352

 

 

 

 

 

 

505

 

 

 

 

 

 

 

 

 

 

 

 

505

 

Shares issued upon vesting of equity awards, net

    of minimum tax withholding

 

 

123,993

 

 

 

 

 

 

(476

)

 

 

 

 

 

 

 

 

 

 

 

(476

)

Shares issued upon exercise of stock options

 

 

13,000

 

 

 

 

 

 

111

 

 

 

 

 

 

 

 

 

 

 

 

111

 

Stock-based compensation

 

 

2,946

 

 

 

 

 

 

1,513

 

 

 

 

 

 

 

 

 

 

 

 

1,513

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

606

 

 

 

 

 

 

 

 

 

 

 

606

 

Cumulative effect of change in accounting principle - leases, net after tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

610

 

 

 

 

 

 

610

 

BALANCE, December 31, 2019

 

 

27,686,764

 

 

$

28

 

 

$

271,622

 

 

$

(63

)

 

$

212,124

 

 

$

(102,964

)

 

$

380,747

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

6


 

 

MARINEMAX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2019

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

9,059

 

 

$

23,600

 

Adjustments to reconcile net income to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,007

 

 

 

3,814

 

Deferred income tax provision

 

 

1,061

 

 

 

1,402

 

Loss on sale of property and equipment

 

 

24

 

 

 

98

 

Stock-based compensation expense

 

 

1,513

 

 

 

2,013

 

(Increase) decrease in, net of effects of acquisitions —

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

6,345

 

 

 

2,123

 

Inventories, net

 

 

(16,475

)

 

 

(38,572

)

Prepaid expenses and other assets

 

 

(1,687

)

 

 

(1,956

)

(Decrease) Increase in, net of effects of acquisitions —

 

 

 

 

 

 

 

 

Accounts payable

 

 

(15,559

)

 

 

(16,520

)

Contract liabilities (customer deposits)

 

 

(4,107

)

 

 

16,134

 

Accrued expenses and other liabilities

 

 

(2,479

)

 

 

(4,975

)

Net cash used in operating activities

 

 

(19,298

)

 

 

(12,839

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(4,398

)

 

 

(7,045

)

Cash used in acquisition of businesses, net of cash acquired

 

 

 

 

 

(48,261

)

Proceeds from sale of property and equipment

 

 

 

 

 

129

 

Net cash used in investing activities

 

 

(4,398

)

 

 

(55,177

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Net (payment) borrowings on short-term borrowings

 

 

22,020

 

 

 

(11,492

)

Proceeds from long-term debt

 

 

 

 

 

46,375

 

Payments for long-term debt

 

 

 

 

 

(377

)

Payments for debt issuance costs

 

 

 

 

 

(910

)

Net proceeds from issuance of common stock under incentive compensation and

   employee purchase plans

 

 

616

 

 

 

1,523

 

Payments on tax withholdings for equity awards

 

 

(1,674

)

 

 

(2,024

)

Net cash provided by financing activities

 

 

20,962

 

 

 

33,095

 

Effect of exchange rate changes on cash

 

 

208

 

 

 

367

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(2,526

)

 

 

(34,554

)

CASH AND CASH EQUIVALENTS, beginning of period

 

 

38,511

 

 

 

155,493

 

CASH AND CASH EQUIVALENTS, end of period

 

$

35,985

 

 

$

120,939

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

4,093

 

 

$

1,095

 

     Income taxes

 

 

161

 

 

 

2,388

 

Non-cash items:

 

 

 

 

 

 

 

 

Initial operating lease right-of-use assets for adoption of ASU 2016-02

 

 

42,070

 

 

 

 

     Initial current and noncurrent operating lease liabilities for adoption of

       ASU 2016-02

 

 

43,953

 

 

 

 

Contingent consideration liabilities from acquisitions

 

 

 

 

 

8,200

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

7


 

 

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.

COMPANY BACKGROUND:

We are the largest recreational boat and yacht retailer in the United States.  We engage primarily in the retail sale, brokerage, and service of new and used boats, motors, trailers, marine parts and accessories and offer slip and storage accommodations in certain locations.  In addition, we arrange related boat financing, insurance, and extended service contracts.  We also offer the charter of power yachts in the British Virgin Islands.  As of December 31, 2020, we operated through 77 retail locations in 21 states, consisting of 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. Our MarineMax Vacation operation maintains a facility in Tortola, British Virgin Islands. We also own Fraser Yachts Group and Northrop & Johnson, leading superyacht brokerage and luxury yacht services companies with operations in multiple countries.

We are the nation’s largest retailer of Sea Ray and Boston Whaler recreational boats which are manufactured by Brunswick Corporation (“Brunswick”). Sales of new Brunswick boats accounted for approximately 33% of our revenue in fiscal 2020.  Sales of new Sea Ray and Boston Whaler boats, both divisions of Brunswick, accounted for approximately 15% and 16%, respectively, of our revenue in fiscal 2020. Brunswick is a world leading manufacturer of marine products and marine engines.

We have dealership agreements with Sea Ray, Boston Whaler, Harris, and Mercury Marine, all subsidiaries or divisions of Brunswick.  We also have dealer agreements with Italy-based Azimut-Benetti Group’s product line for Azimut and Benetti yachts and mega yachts.  These agreements allow us to purchase, stock, sell, and service these manufacturers’ boats and products.  These agreements also allow us to use these manufacturers’ names, trade symbols, and intellectual properties in our operations. The agreements for Sea Ray and Boston Whaler products, respectively, appoint us as the exclusive dealer of Sea Ray and Boston Whaler boats, respectively, in our geographic markets. In addition, we are the exclusive dealer for Azimut Yachts for the entire United States. Sales of new Azimut yachts accounted for approximately 9% of our revenue in fiscal 2020.  We believe non-Brunswick brands offer a migration for our existing customer base or fill a void in our product offerings, and accordingly, do not compete with the business generated from our other prominent brands.

In October 2020, we purchased all of the outstanding equity of Skipper Marine Corp., Skipper Marine of Madison, Inc., Skipper Marine of Fox Valley, Inc., Skipper Bud’s of Illinois, Inc., Skipper Marine of Chicago-Land, Inc., Skipper Marine of Michigan, Inc., and Skipper Marine of Ohio, LLC, (collectively, “SkipperBud’s”). This acquisition significantly increased our presence in the Great Lakes region and the West Coast of the United States. SkipperBud’s is one of the largest boat sales, brokerage, service and marina/storage groups in the United States.

As is typical in the industry, we deal with most of our manufacturers, other than Sea Ray, Boston Whaler, and Azimut Yachts, under renewable annual dealer agreements, each of which gives us the right to sell various makes and models of boats within a given geographic region.  Any change or termination of these agreements, or the agreements discussed above, for any reason, or changes in competitive, regulatory or marketing practices, including rebate or incentive programs, could adversely affect our results of operations.  Although there are a limited number of manufacturers of the type of boats and products that we sell, we believe that adequate alternative sources would be available to replace any manufacturer other than Sea Ray and Azimut as a product source.  These alternative sources may not be available at the time of any interruption, and alternative products may not be available at comparable terms, which could affect operating results adversely.

From March 2020 through June 2020, we temporarily closed certain departments or locations based on guidance from local government or health officials as a result of the COVID-19 global pandemic. We are following guidelines to ensure we are safely operating as recommended. As the COVID-19 pandemic is complex and evolving rapidly with many unknowns, the Company will continue to monitor ongoing developments and respond accordingly. Management expects its business, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 pandemic on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

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 51%, 54% and 54% of our revenue during fiscal 2018, 2019, and 2020, respectively, can have a major impact on our operations.  Local influences, such as corporate downsizing, military base closings, inclement weather such as Hurricane Sandy in 2012 or Hurricanes Harvey and Irma in 2017, 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.

 

8


 

  In an economic downturn, consumer discretionary spending levels generally decline, at times resulting in disproportionately large reductions in the sale of luxury goods. Consumer spending on luxury goods also may decline as a result of lower consumer confidence levels, even if prevailing economic conditions are favorable. As a result, an economic downturn would likely 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.

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.  Acquisitions remain an important strategy for us, and, subject to a number of conditions, including macro-economic conditions and finding attractive acquisition targets, we plan to continue to explore opportunities through this strategy.

 

 

2.

BASIS OF PRESENTATION:

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles

generally accepted in the United States for interim financial information, the instructions to Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments, consisting of only normal recurring adjustments considered necessary for fair presentation, have been reflected in these unaudited condensed consolidated financial statements. As of December 31, 2020, our financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, customer deposits, short-term borrowings, long-term debt, and an interest rate swap contract. The carrying amounts of our financial instruments reported on the balance sheet as of December 31, 2020, approximated fair value due either to length to maturity or existence of variable interest rates, which approximate prevailing market rates. The interest rate swap contract is reported at fair value and is designated as a cash flow hedge with changes in fair value reported in other comprehensive income. The operating results for the three months ended December 31, 2020, are not necessarily indicative of the results that may be expected in future periods.

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates made by us in the accompanying unaudited condensed consolidated financial statements include valuation allowances, valuation of goodwill and intangible assets, valuation of long-lived assets, and valuation of accruals. Actual results could differ from those estimates.

All references to the “Company,” “our company,” “we,” “us,” and “our” mean, as a combined company, MarineMax, Inc. and the 30 recreational boat dealers, four boat brokerage operations, and two full-service yacht repair operations acquired as of December 31, 2020 (the “acquired dealers,” and together with the brokerage and repair operations, “operating subsidiaries” or the “acquired companies”).

The unaudited condensed consolidated financial statements include our accounts and the accounts of our subsidiaries, all of which are wholly owned. All significant intercompany transactions and accounts have been eliminated.

 


 

9


 

 

 

3.NEW ACCOUNTING PRONOUNCEMENTS:

 

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The guidance amends Accounting Standards Codification (ASC) 350 to include in its scope implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350 to determine which implementation costs should be capitalized in such a cloud computing arrangement. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We adopted ASU 2018-05 effective October 1, 2020 the first day of fiscal 2020. The adoption of this standard had no impact on our consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as the credit quality. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We adopted ASU 2016-13 effective October 1, 2020 the first day of fiscal 2020. The adoption of this standard had no impact on our consolidated financial statements.

 

4.

REVENUE RECOGNITION:

The majority of our revenue is from contracts with customers for the sale of boats, motors, and trailers. We recognize revenue from boat, motor, and trailer sales upon transfer of control of the boat, motor, or trailer to the customer, which is generally upon acceptance or delivery to the customer. The transaction price is determined with the customer at time of sale. Customers may trade in boats to apply toward the purchase of a new or used boat. The trade-in is a type of noncash consideration measured at fair value, based on external and internal market data and applied as payment to the contract price for the purchased boat. At the time of acceptance or delivery, the customer is able to direct the use of, and obtain substantially all of the benefits of the boat, motor, or trailer at such time. We recognize commissions earned from a brokerage sale when the related brokerage transaction closes upon transfer of control of the boat, motor, or trailer to the customer, which is generally upon acceptance or delivery to the customer.

We do not directly finance our customers’ boat, motor, or trailer purchases. In many cases, we assist with third-party financing for boat, motor, and trailer sales. We recognize commissions earned by us for placing notes with financial institutions in connection with customer boat financing when we recognize the related boat sales. Pursuant to negotiated agreements with financial institutions, we are charged back for a portion of these fees should the customer terminate or default on the related finance contract before it is outstanding for a stipulated minimum period of time.  We base the chargeback allowance, which was not material to the unaudited condensed consolidated financial statements taken as a whole as of December 31, 2020, on our experience with repayments or defaults on the related finance contracts. We recognize variable consideration from commissions earned on extended warranty service contracts sold on behalf of third-party insurance companies at generally the later of customer acceptance of the service contract terms as evidenced by contract execution or recognition of the related boat sale. We also recognize variable consideration from marketing fees earned on insurance products sold by third-party insurance companies at the later of customer acceptance of the insurance product as evidenced by contract execution or when the related boat sale is recognized.

We recognize revenue from parts and service operations (boat maintenance and repairs) over time as services are performed. Each boat maintenance and repair service is a single performance obligation that includes both the parts and labor associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a short period of time from contract inception. We satisfy our performance obligations, transfer control, and recognize revenue over time for parts and service operations because we are creating a contract asset with no alternative use and we have an enforceable right to payment for performance completed to date. Contract assets primarily relate to our right to consideration for work in process not yet billed at the reporting date associated with maintenance and repair services. We use an input method to recognize revenue and measure progress based on labor hours expended to satisfy the performance obligation at average labor rates. We have determined labor hours expended to be the relevant measure of work performed to complete the maintenance and repair service for the customer. As a practical expedient, because repair and maintenance service contracts have an original duration of one year or less, we do not consider the time value of money, and we do not disclose estimated revenue expected to be recognized in the future for performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period or when we expect to recognize such revenue.     

 

10


 

Contract liabilities primarily consist of customer deposits. We recognize contract liabilities (customer deposits) as revenue at the time of delivery or acceptance by the customers. Contract assets, recorded in prepaid expenses and other current assets, totaled approximately $3.6 million and $4.5 million as of December 31, 2019 and December 31, 2020, respectively.

We recognize deferred revenue from service operations and slip and storage services over time on a straight-line basis over the term of the contract as our performance obligations are met. We recognize income from the rentals of chartering power yachts over time on a straight-line basis over the term of the contract as our performance obligations are met.

The following table sets forth percentages on the timing of revenue recognition for the three months ended December 31,

 

 

 

Three Months Ended

 

 

 

 

December 31,

 

 

 

 

2019

 

 

2020

 

 

Goods and services transferred at a point in time

 

 

90.8

%

 

 

90.5

%

 

Goods and services transferred over time

 

 

9.2

%

 

 

9.5

%

 

     Total Revenue

 

 

100.0

%

 

 

100.0

%

 

 

 

5.

LEASES:

 

The majority of leases that we enter into are real estate leases. We lease numerous facilities relating to our operations, including showrooms, display lots, marinas, service facilities, slips, offices, equipment and our corporate headquarters. Leases for real property have terms, including renewal options, ranging from one to in excess of twenty-five years. In addition, we lease certain charter boats for our yacht charter business. As of December 31, 2020, the weighted-average remaining lease term for our leases was approximately 13 years. All of our leases are classified as operating leases, which are included as ROU assets and operating lease liabilities in our unaudited condensed consolidated balance sheet. For the three months ended December 31, 2019 and December 31, 2020, operating lease expenses recorded in selling, general, and administrative expenses were approximately $3.3 million and $5.8 million, respectively. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We do not have any significant leases that have not yet commenced but that create significant rights and obligations for us. We have elected the practical expedient under ASC 842 to not separate lease and nonlease components.

 

Our real estate and equipment leases often require that we pay maintenance in addition to rent. Additionally, our real estate leases generally require payment of real estate taxes and insurance. Maintenance, real estate taxes, and insurance payments are generally variable and based on actual costs incurred by the lessor. Therefore, these amounts are not included in the consideration of the contract when determining the ROU asset and lease liability, but are reflected as variable lease expenses.

 

A majority of our lease agreements include fixed rental payments. Certain of our lease agreements include fixed rental payments that are adjusted periodically by a fixed rate or changes in an index. The fixed payments, including the effects of changes in the fixed rate or amount, and renewal options reasonably certain to be exercised, are included in the measurement of the related lease liability. Most of our real estate leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at our sole discretion. If it is reasonably certain that we will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of our right of use assets and lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term, which includes renewal options reasonably certain to be exercised.

 

For our incremental borrowing rate, we generally use a portfolio approach to determine the discount rate for leases with similar characteristics. We determine discount rates based upon our hypothetical credit rating, taking into consideration our short-term borrowing rates, and then adjusting as necessary for the appropriate lease term. As of December 31, 2020, the weighted-average discount rate used was approximately 5.7%.

 

 


 

11


 

 

As of December 31, 2020, maturities of lease liabilities are summarized as follows:

 

 

 

(Amounts in thousands)

 

2021

 

$

15,640

 

2022

 

 

13,876

 

2023

 

 

12,625

 

2024

 

 

10,754

 

2025

 

 

9,595

 

Thereafter

 

 

93,919

 

Total lease payments

 

 

156,409

 

Less: interest

 

 

(48,328

)

Present value of lease liabilities

 

$

108,081

 

 

 

Supplemental cash flow information related to leases was as follows (amounts in thousands):

 

Three Months Ended

 

 

December 31,

 

 

2019

 

 

2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

Operating cash flows from operating leases

$

2,588

 

 

$

4,296

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

 

Operating leases

$

560

 

 

$

70,275

 

 

 

 

6.

INVENTORIES:

Inventory costs consist of the amount paid to acquire inventory, net of vendor consideration and purchase discounts, the cost of equipment added, reconditioning costs, and transportation costs relating to acquiring inventory for sale. We state new and used boat, motor, and trailer inventories at the lower of cost, determined on a specific-identification basis, or net realizable value.  We state parts and accessories at the lower of cost, determined on an average cost basis, or net realizable value.  We utilize our historical experience, the aging of the inventories, and our consideration of current market trends as the basis for determining a lower of cost or net realizable value.  We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our valuation allowance which would result in a material effect on our operating results. As of September 30, 2020 and December 31, 2020, our valuation allowance for new and used boat, motor, and trailer inventories was $2.4 million and $2.3 million, respectively. If events occur and market conditions change, causing the fair value to fall below carrying value, the valuation allowance could increase.

 

 

7.

IMPAIRMENT OF LONG-LIVED ASSETS:

FASB Accounting Standards Codification 360-10-40, “Property, Plant, and Equipment - Impairment or Disposal of Long-Lived Assets” (“ASC 360-10-40”), requires that long-lived assets, such as property and equipment and purchased intangibles subject to amortization, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset (or asset group) is measured by comparison of its carrying amount to undiscounted future net cash flows the asset (or asset group) is expected to generate over the remaining life of the asset (or asset group). If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset (or asset group) exceeds its fair market value. Estimates of expected future cash flows represent our best estimate based on currently available information and reasonable and supportable assumptions. Our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply judgment in order to estimate expected future cash flows.  Any impairment recognized in accordance with ASC 360-10-40 is permanent and may not be restored. Based upon our most recent analysis, we believe no impairment of long-lived assets existed as of December 31, 2020. 

 

 

8.

GOODWILL:

We account for acquisitions in accordance with FASB Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “Intangibles Goodwill and Other” (“ASC 350”).  For business combinations, the excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill. In October 2020, we purchased all of the outstanding equity of SkipperBud’s for an aggregate purchase price

 

12


 

of $55,000,000, subject to certain customary closing and post-closing adjustments, and net working capital adjustments including certain holdbacks. In addition, the former equity owners of SkipperBud’s (“Skippers Sellers”), have the opportunity to earn additional consideration as part of an earnout subject to the achievement of certain pre-tax earnings levels. The maximum amount of consideration that can be paid under the earnout is approximately $9.3 million. The fair value of $8.2 million of the contingent consideration arrangement was estimated by a third party valuation expert by applying an income valuation approach. The earnout was estimated based on forecasted pre-tax earnings as a base scenario (among other assumptions) subject to a Monte Carlo simulation. The Skippers Sellers are subject to certain customary post-closing covenants and indemnities. The acquisition of SkipperBud’s enhances our sales, brokerage, service and marina/storage presence in the Great Lakes region and West Coast of the Unites States.

The following table summarizes the consideration paid for SkipperBud’s and the preliminary allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date.

 

 

(Amounts in thousands)

 

Consideration:

 

 

 

 

Cash purchase price and net working capital adjustments, net of cash acquired of $30,615

 

$

50,261

 

Contingent consideration arrangement

 

 

8,200

 

Fair value of total consideration transferred

 

$

58,461

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

Current assets, net of cash acquired of $30,615

 

$

50,688

 

Property and equipment

 

 

4,859

 

Intangible assets

 

 

1,978

 

Current liabilities

 

 

(55,427

)

Total identifiable net assets acquired:

 

 

2,098

 

Goodwill

 

$

56,363

 

Total

 

$

58,461

 

The fair value of current assets acquired includes accounts receivable and inventory of approximately $5.4 million and $42.3 million, respectively. The fair value of current liabilities assumed includes short-term borrowings of approximately $30.5 million, accrued expenses of approximately $14.6 million, and customer deposits of approximately $7.5 million. We recorded approximately $56.4 million in goodwill and approximately $2.0 million of other identifiable intangibles (trade name and customer relationships) in connection with the SkipperBud’s acquisition, however, purchase price allocations are preliminary pending receipt of final valuation analyses of certain assets from our valuation advisor. The goodwill represents our enhanced geographic reach and brand infrastructure in the Great Lakes region and West Coast of the Unites States. The majority of the goodwill is expected to be deductible for tax purposes. The intangible assets have a weighted average useful life of approximately 3.3 years. For the three months ended December 31, 2020, SkipperBud’s revenue was approximately $40.4 million and income before taxes was approximately $1.9 million. SkipperBud’s financial information for the three months ended December 31, 2019 was not practical to obtain for comparative purposes and as such is not presented because SkipperBud’s historical monthly internal accounting and reporting processes and practices would not provide complete information sufficient for the purposes of this pro forma disclosure.

In July 2020, we purchased Northrop & Johnson, a leading superyacht brokerage and services company. In March 2020, we purchased Boatyard, a digital platform with an expansive range of on-demand services to streamline the boating experience by qualified service providers from a smartphone.

In total, current and previous acquisitions have resulted in the recording of $84.3 million and $143.1 million in goodwill and other intangible assets as of September 30, 2020 and December 31, 2020, respectively. In accordance with ASC 350, we test goodwill for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Our annual impairment test is performed during the third fiscal quarter.  If the carrying amount of a reporting unit’s goodwill exceeds its fair value we recognize an impairment loss in accordance with ASC 350. As of December 31, 2020, and based upon our most recent analysis, we determined through our qualitative assessment that it is not “more likely than not” that the fair values of our reporting units are less than their carrying values.  As a result, we were not required to perform a quantitative goodwill impairment. 

 

 

9.

INCOME TAXES:

We account for income taxes in accordance with FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). Under ASC 740, we recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect those temporary

 

13


 

differences to be recovered or settled. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized by considering all available positive and negative evidence.

 

During the three months ended December 31, 2019 and 2020 we recognized an income tax provision of $3.2 million and $7.1 million, respectively. The effective income tax rate for the three months ended December 31, 2019 and 2020 was 26.3% and 23.2%, respectively.

 

 

10.SHORT-TERM BORROWINGS AND LONG-TERM DEBT:

 

Short-term Borrowings

In May 2020, we entered into a Loan and Security Agreement (the “Credit Facility”), with Wells Fargo Commercial Distribution Finance LLC, M&T Bank, Bank of the West, and Truist Bank. The Credit Facility provides the Company a line of credit with asset based borrowing availability of up to $440 million for working capital and inventory financing, with the amount permissible pursuant to a borrowing base formula. The Credit Facility has a three-year term and expires in May 2023, subject to extension for two one-year periods, with lender approval.   

The Credit Facility has certain financial covenants as specified in the agreement. The covenants include provisions that our leverage ratio must not exceed 2.75 to 1.0 and that our current ratio must be greater than 1.2 to 1.0. The interest rate for amounts outstanding under the Credit Facility is 345 basis points plus the greater of 75 basis points or the one-month LIBOR. There is an unused line fee of ten basis points on the unused portion of the Credit Facility. As of December 31, 2020, we were in compliance with all covenants under the Credit Facility.

 

New inventory borrowing eligibility will generally mature 1,080 days from the original invoice date. Used inventory borrowing eligibility will generally mature 361 days from the date we acquire the used inventory. The collateral for the Credit Facility is all of our personal property with certain limited exceptions. None of our real estate has been pledged for collateral for the Credit Facility.

As of December 31, 2020, our indebtedness associated with financing our inventory and working capital needs totaled approximately $163.4 million. As of December 31, 2019 and 2020, the interest rate on the outstanding short-term borrowings was approximately 5.6% and 4.2%, respectively. As of December 31, 2020, our additional available borrowings under our Credit Facility were approximately $133.4 million based upon the outstanding borrowing base availability.

As is common in our industry, we receive interest assistance directly from boat manufacturers, including Brunswick. The interest assistance programs vary by manufacturer, but generally include periods of free financing or reduced interest rate programs. The interest assistance may be paid directly to us or our lender depending on the arrangements the manufacturer has established. We classify interest assistance received from manufacturers as a reduction of inventory cost and related cost of sales as opposed to netting the assistance against our interest expense incurred with our lenders.

The availability and costs of borrowed funds can adversely affect our ability to obtain adequate boat inventory and the holding costs of that inventory as well as the ability and willingness of our customers to finance boat purchases.  However, we rely on our Credit Facility to purchase our inventory of boats. The aging of our inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate as our inventory ages. Our access to funds under our Credit Facility also depends upon the ability of our lenders to meet their funding commitments, particularly if they experience shortages of capital or experience excessive volumes of borrowing requests from others during a short period of time. Unfavorable economic conditions, weak consumer spending, turmoil in the credit markets, and lender difficulties, among other potential reasons, could interfere with our ability to utilize our Credit Facility to fund our operations. Any inability to utilize our Credit Facility could require us to seek other sources of funding to repay amounts outstanding under the credit agreements or replace or supplement our credit agreements, which may not be possible at all or under commercially reasonable terms.