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Edited Transcript of HZO earnings conference call or presentation 23-Jan-19 3:00pm GMT

Q1 2019 MarineMax Inc Earnings Call

Clearwater Feb 4, 2019 (Thomson StreetEvents) -- Edited Transcript of MarineMax Inc earnings conference call or presentation Wednesday, January 23, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brad D. Cohen

ICR, LLC - Managing Partner

* Michael H. McLamb

MarineMax, Inc. - Executive VP, CFO, Secretary & Director

* William Brett McGill

MarineMax, Inc. - President & CEO

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Conference Call Participants

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* David Sutherland MacGregor

Longbow Research LLC - CEO and Senior Analyst

* Frederick Charles Wightman

Citigroup Inc, Research Division - Assistant VP & Analyst

* James Lloyd Hardiman

Wedbush Securities Inc., Research Division - MD of Equity Research

* Joseph Nicholas Altobello

Raymond James & Associates, Inc., Research Division - MD & Senior Analyst

* Ronald Cunningham Bookbinder

IFS Securities, Inc., Research Division - Analyst

* Scott Lewis Stember

CL King & Associates, Inc., Research Division - Senior VP & Senior Research Analyst

* Seth Woolf

Northcoast Research Partners, LLC - VP & Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the MarineMax 2019 Fiscal First Quarter Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Brad Cohen, Investor Relations for MarineMax. Please go ahead, sir.

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Brad D. Cohen, ICR, LLC - Managing Partner [2]

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Thank you, operator. Good morning, everyone. Thank you for joining this discussion of MarineMax' 2019 Fiscal First Quarter. I'm sure you've all received the copy of the press release that went out this morning. But if not, please call Linda Cameron at (727) 531-1712, and she will email one to you right away.

I would now like to introduce the management team of MarineMax: Mr. Brett McGill, President and Chief Executive Officer; Mr. Mike McLamb, Chief Financial Officer of the company. And management will make a few comments about the quarter and then be available for your questions.

With that, let me turn the call over to Chief Financial Officer, Mr. Mike McLamb.

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [3]

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Thank you, Brad. Good morning, everyone, and thank you for joining this call. Before I turn the call over to Brett, I'd like to tell you that certain of our comments are forward-looking statements as defined by the Private Securities Litigation Reform Act. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations. These risks include, but are not limited to, the impact of seasonality and weather, general economic conditions and the level of consumer spending, the company's ability to capitalize on opportunities or grow its market share and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission.

With that in mind, I'd like to turn the call over to Brett. Brett?

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William Brett McGill, MarineMax, Inc. - President & CEO [4]

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Thank you, Mike, and good morning, everyone. We are pleased to begin fiscal 2019 with strong earnings that surpassed our prior year's first quarter record result, which makes this year our best first quarter in our over 20-year history. The results in the quarter were driven by growth in revenue and strong increases in margin. The margin expansion was supported by equal contribution across all our products and business lines. Specifically, we've produced gains in new and used boat margins while also driving good growth in our higher-margin businesses that include finance and insurance, service and parts, storage and our charter operation. The growth in the higher-margin businesses has been a long-term focus and should yield incremental increases over time. Training, process improvement and several new operating initiatives contributed to the margin gains this quarter.

Historically, we have commented that our earnings potential is much greater today at lower industry unit levels than before the financial crisis. Back-to-back record profit in our December quarter illustrate that point well as the industry units are still up by over 35%. I'm proud of our team's effort as they stayed disciplined to our pricing strategy, which helps us drive product margin expansion in the quarter. This was achieved with same-store sales that were up only slightly. It's important to note that we have had unusually strong same-store sales growth of over 80% cumulatively over the last 5 consecutive December quarters. So it's not surprising that this quarter saw modest growth.

Total revenue was up $5 million to $242 million, setting a new revenue record for the December quarter. I would add that the quarter started off very strong, including one of the best Fort Lauderdale boat shows we have ever produced. However, as the industry data has shown, December was weaker than expected and tempered the overall strength in the quarter.

The December quarter tends to have a greater percentage of revenue generated from larger boat sales due to the Fort Lauderdale show and the return of the northerners to Florida. For the most recent December quarter, revenue from larger boats continued to increase. Other strong product categories included premium outboard fishing boats and outboard runabouts. The outboard trend continues to be strong.

Now turning to operation. While earnings and cash flow rose, we will continue to focus on controlling costs as we move ahead. The absolute dollar increase in SG&A is somewhat misleading as over half of it is from the combination of the Island Marine acquisition completed January last year, the opening of a new store on Miami Beach and the ramp-up of our charter business, which was virtually closed in December last year due to Hurricane Irma.

While we emphasize this point often, it remains critical that our manufacturers are continuing to innovate with both technology and fresh design. It's been proven time and again that new models are highly sought after with very strong demand. That stays true today. To that point, we are now in the early portion of the important boat show season, and we have lots of innovative new models being highlighted. Today also marks the start of the New York Boat Show. The enthusiasm coming out of the early shows is growing.

As we enter the busiest 2 quarters of fiscal 2019, our overall product mix and inventory are very well positioned. As we work through January, the early results from the boat shows is encouraging. While show results and attendance have been mixed relative to prior years, we are seeing improving trends and premium product seems to be growing in strength. This dovetails well for MarineMax since that is basically the sweet spot for our business.

It's also worth noting that the industry is not in a discounting mode. Pricing activity that we have seen at the shows is consistent with normal boat show promotion. Since we have our biggest quarters in front of us, it's our intention to build on the results of the December quarter. While the recent financial and global market volatility may have impacted December selling period, we have seen more consistency as we started this new calendar year.

We understand that having the right models across all segments, continuing to provide our customers with outstanding service and keeping our customers on the water through our getaways will help further differentiate MarineMax. And ultimately, these efforts and our differentiated approach will result in the continued expansion of our share of the market.

With that update, I'll ask Mike to provide a more detailed comment on the quarter.

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [5]

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Thank you, Brett, and good morning again, everyone. Let me also thank our team for the positive and profitable start to fiscal 2019.

For the quarter, revenue increased $5 million to $242 million. Same-store sales were up about 1%, driven by large boat sales and an increase in our average unit selling price. However, units for comparable brands were down low to mid-single digits in the quarter. Certainly, differences by brand and segment exist and premium brands were either up or flat with a few exceptions. Based on industry data, we believe we again gained market share in the quarter.

Gross margins expanded over 120 basis points to 26.2%. The growth was driven by product margin expansion and growth in our higher-margin businesses. Our ability to continue to expand gross margins is encouraging.

Selling, general and administrative expenses were up $4.2 million to $54.5 million. As Brett explained, the primary reasons for the increases were related to a new store, an acquisition in 2018 and the ramp-up of our charter business. These expenses were coupled with a handful of other elevated items. Needless to say, we are watching each expense line item carefully.

For the quarter, despite a rising rate environment, interest expense was down slightly due to increased cash and liquidity, which drove down our average outstanding borrowings.

Our pretax earnings rose modestly to $6.5 million, which exceeded the record pretax earnings level obtained in the December quarter last year.

Our net income increased to $4.9 million, and earnings per diluted share were $0.21 compared to an adjusted $0.23 last year.

As for our balance sheet at year-end, we had about $39 million in cash. As a reminder, we have substantial cash in the form of unlevered inventory.

Our inventory levels at quarter end were up slightly as expected to $445 million as we replenished inventory from the loss of Sea Ray's larger boats. We feel well positioned with the right product entering our seasonally biggest quarters.

Turning to our liabilities. Our short-term borrowings were down 12% to about $271 million due to our enhanced cash and liquidity position. Customer deposits, while not the best predictor of near-term sales because they can be lumpy due to the size of deposits and whether trade is involved or not, were up 7% from last year.

Our current ratio stands at 1.56 and our total liabilities to tangible net worth ratio is 1.00, both outstanding balance sheet metrics. Our tangible net worth jumped to $334 million or $14.27 per share compared to $12.48 last year.

We own about half of our locations, which are all debt-free, and we have no additional long-term debt.

Before discussing guidance, I want to remind you that we give annual guidance. While we are pleased to start the year off very profitably, given seasonality, it is a relatively small profit as compared to our annual guidance. Meaning the next 3 quarters are actually much greater than 75% of the year's earnings.

Turning to guidance. We are reaffirming our earnings per share guidance for fiscal 2019 of $1.85 to $1.95. Our guidance takes into account that we're up against the solid 3-year stack same-store sales growth of about 37%. Our guidance assumes we will grow same-store sales 5% to 10% and that we will have leverage in line with the last few years.

Our guidance uses the share count of around 23.5 million shares. It also uses an expected 2019 tax rate of 27% and excludes the impact from any potential acquisitions that we may complete.

As for current trends, January is on track to finish with positive same-store sales growth. Our backlog is higher today than it was a year ago. And the shakiness that the industry seems to have felt in the December quarter appears to be subsiding. We are watching boat show trends carefully, and they are improving. That said, we will work to maximize our results as we deliver the best boating experience to our MarineMax customers.

Let me now turn the call back to Brett for some closing comments. Brett?

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William Brett McGill, MarineMax, Inc. - President & CEO [6]

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Thank you, Mike. Looking ahead, we seek to drive consistent improvement in performance on an annual basis. This includes execution of our digital strategy, the alignment of expenses with sales, growing our higher-margin businesses and actively pursuing accretive acquisition opportunities or brand expansion.

With our energized team and positive consumer confidence, we are ready to build upon our strong start in fiscal 2019 as we continue to change people's lives by connecting them with their family and friends, boating with MarineMax.

With that, operator, let's open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll now take our first question from Fred Badishkanian (sic) [Greg Badishkanian] of Citi.

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Frederick Charles Wightman, Citigroup Inc, Research Division - Assistant VP & Analyst [2]

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It's actually Fred Wightman on for Greg. I think that the commentary you've had for the high-end product was pretty positive. If we look back historically, does that higher-end product -- is that usually a good leading indicator for where the overall industry is going?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [3]

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Yes. I think in prior years, it usually has been, from our experience. It's also most -- everything we sell, you would call in that higher-end, a premium-end product. We have a couple of brands and a couple of segments that maybe aren't quite there that we were referring to. But yes, it seemed to be from our perspective, Fred.

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Frederick Charles Wightman, Citigroup Inc, Research Division - Assistant VP & Analyst [4]

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Okay. And then just for the industry, I mean, it sounds like those softened a bit through the quarter but there's been some positive signs early in January. What do you think drove that sequential slowdown last quarter? Is that anything that you guys are concerned about? Or is it just sort of watchful waiting?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [5]

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Our guess would probably be the volatility in the marketplace. It certainly occurred from late November through December. I think there's -- the economic signals are still very strong out there, jobless claims, unemployment, consumer confidence. There are so many things that are positive, but the only thing that we really watch that you guys probably watch also is just the extreme volatility, and that's as the quarter closed. So perhaps that was it. Maybe there's something else impacting it. But again, the read coming out of the early boat shows has been pretty strong.

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Frederick Charles Wightman, Citigroup Inc, Research Division - Assistant VP & Analyst [6]

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That makes sense. And then just one final one. I mean, how much more room do you think there is to improve that F&I business, the service business and the charter businesses?

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William Brett McGill, MarineMax, Inc. - President & CEO [7]

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Yes. As I noted there, we're focused with some new initiatives and strategies and technologies to grow those. And in fact, there's quite a bit of growth. Takes a little time, service and technicians and facilities, but we're -- I would say we've had a pretty heightened focus on those over the last year and we'll continue to grow those as well.

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Operator [8]

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We'll now take our next question from Scott Stember of CL King.

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Scott Lewis Stember, CL King & Associates, Inc., Research Division - Senior VP & Senior Research Analyst [9]

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Can we maybe talk about the Sea Ray transition, how much of an impact that had in the quarter? Meaning, how many boats were left of the large Sea Ray yacht sales to be sold in this quarter, this last quarter? And maybe just talk about how you're positioned going forward.

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William Brett McGill, MarineMax, Inc. - President & CEO [10]

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I'll let Mike comment about a few of the numbers, but I just -- as far as our transition with our Azimut and Galeon brands, when we were able to talk to those manufacturers about additional orders and products that really fit a spot for us, it's really helped us and been able to fill the -- that's more of a general overview that our strategy of filling that revenue with those brands is working. And Mike, I don't know if you have additional comments on that.

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [11]

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No, I'd remind you, so the September quarter, we had really strong same-store sales growth, and that was a quarter long after the announcement of Sea Ray or after the announcement of Sea Ray. You would assume that we had less Sea Ray revenue on bigger boats and we still were able to produce very strong same-store sales growth even this quarter. You would assume we had a lot less large boat Sea Ray revenue and we did produce positive same-store sales growth, which is great. I think, technically, to answer to your question, I think we started the quarter with around 20, maybe 21 uncontracted large products. We kind of look at what's available that's not under a contract yet. And I think we ended the quarter less than half of that. So we're going into the March quarter with a single-digit number of products that we fully expect as we said a quarter or 2 ago, we'd be out of the product by the end of March.

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Scott Lewis Stember, CL King & Associates, Inc., Research Division - Senior VP & Senior Research Analyst [12]

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That's great. And those 21 units, I guess what's left, the price is holding up pretty good?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [13]

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It's amazing that people seek the product, so I'd say yes. The pricing is probably not as ideal as we'd like it, but it's -- with Brunswick's support, with ours and with the demand that consumers are seeking the product, it's working as you would expect when you're unwinding a product category like that.

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Scott Lewis Stember, CL King & Associates, Inc., Research Division - Senior VP & Senior Research Analyst [14]

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Got it. And then the last question on SG&A. I don't know if you guys are -- if you went into it, but up about 120 basis points year-over-year and in dollars up about $5 million. Outside of the acquisition, was there any other onetime items in there or things of mention to explain the increase?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [15]

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There's not really any onetime items, and there were 3 things that Brett mentioned. One, a new store that we had opened, the Island Marine acquisition, and really, last year, our charter operation was virtually closed because of Hurricane Irma, and it's now up and operational. Then there are some things that we purposely incurred that could have maybe incurred in March or could have incurred December quarter, and the timing of it fell in the quarter. That would explain a chunk of the rest of it. But we're watching it carefully. Those 3 items that we mentioned, the charter, the store, the acquisition, those all have greater revenue going forward into bigger quarters like March and so forth that would bring -- help to bring down the SG&A as a percentage of revenue number.

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Operator [16]

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We'll now take our next question from Joe Altobello of Raymond James.

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Joseph Nicholas Altobello, Raymond James & Associates, Inc., Research Division - MD & Senior Analyst [17]

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First, I just had a couple of clarifying questions. I guess, number one, I think, Mike, you said units in the quarter were down mid-single. Is that correct?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [18]

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Yes. I said low to mid-single digit, right.

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Joseph Nicholas Altobello, Raymond James & Associates, Inc., Research Division - MD & Senior Analyst [19]

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Okay. And then second, I thought you said earlier that boat show results were sort of mixed. Then I think later on, you said boat show results were strong. So I'm curious, maybe I misheard, I just wanted to get a clarification there.

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [20]

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You probably heard me answer the question when I said they're improving just a minute ago, so I think...

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William Brett McGill, MarineMax, Inc. - President & CEO [21]

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Yes. Attendance had been mixed when you see it out there, some weather related, some not. Boat show results have been slightly mixed, but we're encouraged by some improvements we're seeing.

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Joseph Nicholas Altobello, Raymond James & Associates, Inc., Research Division - MD & Senior Analyst [22]

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Okay, got it. And then lastly, last year, during the boat show season, there was a lot of chatter about Sea Ray from competing brands. I can tell you that first hand, heard a lot. I would imagine that did have some impact on sales in the March quarter. With that now behind us, are you starting to see some better sell-through at the shows than you saw last year?

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William Brett McGill, MarineMax, Inc. - President & CEO [23]

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It's probably a little back to the question you just asked before. I think when you take a sales team in, focused and not wondering about different brands, we're attacking these shows with the products that we now have and they're stable. So I think you just get a better sales team, the customer comes in without all the noise. It's clearly better. Our -- we can focus our training properly as well, too.

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Operator [24]

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We'll now take our next question from Seth Woolf of Northcoast Research.

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Seth Woolf, Northcoast Research Partners, LLC - VP & Research Analyst [25]

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I guess it just sounds like things are improving at retail early on. So 2 questions there. The first one would be why -- so there's 2 parts of it. The first one really would be, what do you think has contributed to a turning around all of a sudden if it started? Is it just the markets? Or why do you think it improved in January? And then a number of times you guys called out the premium brands. So is that -- can you maybe drill down a little bit into what you mean by that? Because I would think, often times, the premium brand buyer would be more sensitive to the market, and it sounds like you said it was pretty strong throughout all of 4Q. That's the first question.

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [26]

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So turning around all of a sudden, I'd just make a comment that the December quarter, I mean, we were down slightly on a quarter that's had 5 years of very strong same-store sales growth. So we -- while the industry data clearly is pretty choppy for the December quarter, we're not saying that we really felt all that choppiness throughout the whole quarter. Maybe a little bit in the month of December, and I think that probably does speak to the type of product that we sell, quite frankly, and our team.

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William Brett McGill, MarineMax, Inc. - President & CEO [27]

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Yes. And I think just back to a comment I made in our -- the call earlier, we started out the quarter with Fort Lauderdale boat show being a record show for us with great sales, tempered then a little as we got into December with a lot of noise and volatility. So really, overall, there were some great signs in the quarter.

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [28]

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And our show comments are -- our comments about our shows and then also we're talking to other manufacturers and other dealers, and it seems as January has progressed here that the shows are getting better. And what's causing that, it could very well be better stability right now. It seems most of the other economic factors are the same as they were before the year changed, which have been pretty good, pretty strong.

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William Brett McGill, MarineMax, Inc. - President & CEO [29]

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And the comment on premium, our customer just seems to be resilient and holding up well.

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Seth Woolf, Northcoast Research Partners, LLC - VP & Research Analyst [30]

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Okay. All right. I guess then just thinking about inventory levels, you guys have done a good job the last few quarters. Inventory has been in good shape. I guess we did get a little bit of a hiccup and I know it's a seasonally small month, but has this changed the way you're thinking about managing inventory? Maybe would you look to reduce it a little bit further? Is there no change in how you're thinking about it from 3 months ago? Or -- it doesn't sound like there's any promotions in the market. Just curious how you're thinking about that aspect of the business.

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William Brett McGill, MarineMax, Inc. - President & CEO [31]

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We look at our inventory every single day and just monitor every granular detail of what's going on, get feedback from our team. We feel good about our inventory position right now. But every day, we're looking at what we can do to sell through, take advantage of the promotions the manufacturers have out there and be strategic about our orders and when those orders arrive.

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Seth Woolf, Northcoast Research Partners, LLC - VP & Research Analyst [32]

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Okay. So I guess just to touch on a point, you brought up promotions. Are you seeing a change in promotional activity? And then I guess, more broadly speaking, with inventory, are you thinking of reducing inventory in 2019? Is there an opportunity that you see now that maybe you didn't see a couple of months ago?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [33]

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No, I think that we commented that the promotions at boat shows are normal. There's nothing that seems different than normal out there. From an inventory perspective, we talked that we expected inventory to decline as we were going through last fiscal year just given the reduction, honestly, of product from Sea Ray large boats. And then we anticipated that inventory would increase this year as we're replenishing that. So our increase this quarter is in line with what we would expect. There's a sizable reduction of how many Sea Rays above 40 feet we have in our inventory, and with things coming in from Galeon and from Azimut and other brands, you would expect it to go up. And then you dovetail with that, everything that Brett said that we watch inventory and we monitor it carefully, and if we ever see a reason to reduce it, we'd reduce it. But we feel pretty good about 2019 as we're sitting here.

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Operator [34]

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And we'll take our next question from David MacGregor of Longbow Research.

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David Sutherland MacGregor, Longbow Research LLC - CEO and Senior Analyst [35]

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Just on SG&A, what should the rate of leverage be? I mean, in a clean quarter today, where does that stand?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [36]

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I would tell you that theoretical leverage that you guys have heard me say before when you add $1 of sale, you ought to be in that 12% to 17% range, something like that. We've had some struggles getting there from time to time. But last year was pretty good, it was in that sweet spot. So that's not changed. I think what you have is you have a small seasonal quarter. You have a Northern acquisition we did last year that doesn't have as much revenue coming in. You have our charter operations, which doesn't have as much coming in. Then you have a store that we opened, which doesn't have as much coming in. So the theoretical leverage, I think, still exists in the operation.

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David Sutherland MacGregor, Longbow Research LLC - CEO and Senior Analyst [37]

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Okay. And then I know manufacturers are working right now to raise prices. So what are you seeing in terms of inflation in your invoices? And how's that going to play out in terms of the timing of the pass-through? And how are your customers accepting that?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [38]

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We -- honestly, I would say, on average, we probably have seen a little bit more of an increase this year than we typically do. And that started really at the end of last summer. And the -- our ability to pass it through is really spoken very loudly by our increase in margins of 120 basis points. And so the disciplines and the training that we've done with our team and also the excitement of the new models and the innovative -- innovations that they all have is overcoming any amount of cost creep.

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David Sutherland MacGregor, Longbow Research LLC - CEO and Senior Analyst [39]

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We've seen the different points in the line structure. There might be different sensitivities to the pricing. Is -- are the price increases tilting your mix one way or another? In other words, some customers respond to it, others don't?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [40]

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No. It's -- I mean, there's -- this year, there's been a -- I mean, there's always a price increase every year. There's a modestly higher price increase this year basically across the board on every product. And really, we've been successful on a brand-by-brand basis of passing it on. And a lot of it is the training that Brett talked about with our team. A lot of it is the differences in the product itself, it's better, that allows us to do that.

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David Sutherland MacGregor, Longbow Research LLC - CEO and Senior Analyst [41]

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And then just back to Joe's question about the units being down low to mid-single digit. Can you just open that up for us a little bit? You started off talking about strength in premium fishing and outboard runabouts and larger boats. Where did you -- where were the negatives?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [42]

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I -- we don't typically break it down by segment, but when you think about -- when we say premium, you think about all the different brands we have. You can probably assume there's a category that you -- it's still a great product, but it may be more of a price point product, which would be aluminum. But all the rest of our product has done reasonably well with a few exceptions in the quarter.

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David Sutherland MacGregor, Longbow Research LLC - CEO and Senior Analyst [43]

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Right. And what can you say about pontoon sales right now?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [44]

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Pontoon sales have been mixed of late.

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William Brett McGill, MarineMax, Inc. - President & CEO [45]

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Yes. That December quarter is a very low volume quarter for that type of product anyway.

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David Sutherland MacGregor, Longbow Research LLC - CEO and Senior Analyst [46]

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Understood. And then last question. Just on -- you talked about the boat shows, it sounds very positive at a high level. I wonder if you could just dig in a little deeper and maybe talk about 1 or 2 things specifically that you saw or took way from these boat shows which are giving you a higher level of confidence in 2019?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [47]

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It's just trends, year-over-year trends with shows.

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David Sutherland MacGregor, Longbow Research LLC - CEO and Senior Analyst [48]

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Is it order patterns? Or are you seeing certain types of customers that are typically good leading indicators?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [49]

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It's contracted units at shows. We had -- the selling -- boat shows are selling events, so you take deposits and their contract. You just look at trends and then talk to other folks in the industry and see what they're seeing as well.

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David Sutherland MacGregor, Longbow Research LLC - CEO and Senior Analyst [50]

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Okay. And it's positive, it's broadly positive, you're saying?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [51]

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It's -- yes, improving. Yes.

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Operator [52]

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We'll now take our next question from James Hardiman of Wedbush Securities.

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James Lloyd Hardiman, Wedbush Securities Inc., Research Division - MD of Equity Research [53]

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At the end of the day, it sounds like the first quarter units were maybe a little bit worse than we expected, but ASP doing really well. I wanted to maybe tie that to how we were thinking about guidance. You guys had talked about 5% to 10% same-store sales. And I think on the last call, you said that that's generally based on the notion that the industry would be up about 5% and that you would get a little bit of pricing. So I guess 3 questions on that. One, any reason to think that algorithm has changed with respect to the industry? Or do we still think 5% domestic industry growth is reasonable? Two, do we think that the ASP growth that you saw in the quarter, which was really good, do we think that is sustainable? And three, if you could maybe give us an idea, are we sort of back to that 5% to 10% run rate for January, at least the first 3 weeks of January, particularly on the unit side just because that seems to be what -- maybe wasn't quite as good in the first quarter?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [54]

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I can touch base on a couple of these. No one that we've talked to has backed off on their thoughts for 2019 in terms of the industry unit outlook of a single-digit grower or whether mid-single-digit, which can be anywhere from 4%, 5%, 6%, something like that. There's -- within that number, there's obviously various categories of product. And as you open up the categories of products, some are growing faster than others, which we're all cognizant about as are you guys. But I think overall today, we still feel good about the industry growing. We still feel good about our opportunities to have 5% to 10% same-store sales growth with the combination of the 2 of those, which would imply that we do feel like we're going to continue to get an ASP expansion. Then we can't comment specifically on January other than to tell you it's going to be up in same-store sales when it closes.

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James Lloyd Hardiman, Wedbush Securities Inc., Research Division - MD of Equity Research [55]

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Okay. And then just the last thing for me. Any -- you've talked about category level insights, but maybe geography within the first quarter, any regions that are worse than others? Trying to figure out if weather was meaningful. Obviously, weather a bigger deal as you get further up the coast and inland maybe versus Florida.

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William Brett McGill, MarineMax, Inc. - President & CEO [56]

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Yes. Commenting on -- they're just -- I think weather affected some recent boat show attendance figures that are out there. That was a contributing factor, I think, to attendance. So kind of comment on that. But generally, we're not seeing any specific geographic issues or concerns overall.

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [57]

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It's usually a quarter that is led by Florida anyhow. Northerners come back here, and you got the Fort Lauderdale boat show. So the edge will probably go to Florida in the quarter but it's sort of natural this quarter.

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Operator [58]

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(Operator Instructions) We'll take our next question from Ronald Bookbinder of IFS Securities.

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Ronald Cunningham Bookbinder, IFS Securities, Inc., Research Division - Analyst [59]

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Congratulations on great execution. The outboards in the fall were -- the supply of outboards was fairly tight. Have the manufacturers been able to catch up during the off-season? And how does that look for the new year?

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William Brett McGill, MarineMax, Inc. - President & CEO [60]

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Yes, the -- we kind of say -- in the summer, we were pretty constrained, it felt like, but it feels like things are getting more caught up and we don't -- we're not running across those issues as much as we were. So it feels caught up.

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Ronald Cunningham Bookbinder, IFS Securities, Inc., Research Division - Analyst [61]

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Okay. And with -- it seems like there might have been a little weakness in the lower-priced units. Are people moving to used boats? And how is your supply of used boats? And how's the pricing on used boats year-over-year comparing?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [62]

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Late-model trades are always highly sought after, which is what we have. We don't see any unusual trends of people moving to used boats. We see trends of people pretty interested in the new models that are coming out now from our manufacturing partners, which are really a good line-up for 2019. I think, generally, used boat pricing, because of the lack of late models, it's fairly strong.

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William Brett McGill, MarineMax, Inc. - President & CEO [63]

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It's held up. It's held up.

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [64]

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Yes.

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Ronald Cunningham Bookbinder, IFS Securities, Inc., Research Division - Analyst [65]

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And you mentioned the Galeon and Azimut boats. How are the customers -- are responding that might have been looking for a Sea Ray but want something that isn't -- that is going to be continued or something? Are they moving over to those types of boats? And are they satisfied with that? Or are they looking for something else, maybe an Aquila or moving out of the category?

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William Brett McGill, MarineMax, Inc. - President & CEO [66]

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Yes. I think some of this starts with recognizing that the Galeon and Azimut, we've been carrying these brands for quite some time. So our customers see these boats in the water. They see the quality. They see how they're holding up. So when the Sea Ray announcement came, when we had to shift people that way, this wasn't a, hey, guess what, we have a new product for you. This was -- we've been carrying this quality product. Now we have to market and train and get customers into the product. So it's -- we're still in that transition. This boat show season that we're looking at right now is that great opportunity to do some launches of the product for maybe consumers that haven't seen it. So it's not an easy task, but it sure does help when we've been successfully carrying the product for a bunch of years now.

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Ronald Cunningham Bookbinder, IFS Securities, Inc., Research Division - Analyst [67]

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Okay. And lastly, on health insurance, it had been running high the past several quarters. Has it leveled off? And is there an opportunity that it could reverse? Or should we just expect it to continue at the same level?

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Michael H. McLamb, MarineMax, Inc. - Executive VP, CFO, Secretary & Director [68]

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Well, so thankfully, I did not have to talk about health insurance as an increased expense this quarter. It has leveled off now. You remember, we gave guidance. We did not assume that it was going to drop. And so it's not dropped, it's leveled off. So we got to keep -- in theory -- I said on the calls before, the actuaries, they get it right over time. And so in theory, it's possible to get a reduction as we go through 2019. But to date, at least through the first quarter, we don't see it. But we also don't see growth. So hopefully, as we get to the March quarter and June quarter, maybe we have a nicer discussion even around health care costs. But thanks for bringing that up, though.

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Operator [69]

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It appears there are no further questions at this time. Mr. McGill, I'd like to turn the conference back to you for any additional or closing remarks.

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William Brett McGill, MarineMax, Inc. - President & CEO [70]

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All right. So thank you, everybody, for joining us today. Mike and I are available to answer your questions before we head off to the New York Boat Show a little bit later today. And thanks for joining us, and enjoy the rest of your day.

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Operator [71]

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This concludes today's call. Thank you all for your participation. You may now disconnect.