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 MARCH 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 April 24, 2020 was 21,475,009.

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 and Six Months Ended March 31, 2019 and 2020	3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2019 and 2020	4
	Condensed Consolidated Balance Sheets as of September 30, 2019 and March 31, 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended March 31, 2019 and 2020	6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2019 and 2020	8
	Notes to Condensed Consolidated Financial Statements	9
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
3.	Quantitative and Qualitative Disclosures About Market Risk	25
4.	Controls and Procedures	26
PART II. OTHER INFORMATION		27
1.	Legal Proceedings	27
1A.	Risk Factors	27
2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
3.	Defaults Upon Senior Securities	27
4.	Mine Safety Disclosures	27
5.	Other Information	27
6.	Exhibits	28
SIGNATURES		29
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				Six Months Ended
	March 31,				March 31,
	2019		2020		2019		2020
Revenue	$	303,586	$	308,475	$	545,523	$	612,647
Cost of sales		229,384		229,699		407,843		453,853
Gross profit		74,202		78,776		137,680		158,794
Selling, general, and administrative expenses		63,976		69,060		118,468		133,446
Income from operations		10,226		9,716		19,212		25,348
Interest expense		3,033		3,013		5,549		6,357
Income before income tax provision		7,193		6,703		13,663		18,991
Income tax provision		1,890		1,638		3,450		4,867
Net income	$	5,303	$	5,065	$	10,213	$	14,124
Basic net income per common share	$	0.23	$	0.24	$	0.45	$	0.66
Diluted net income per common share	$	0.23	$	0.23	$	0.44	$	0.64
Weighted average number of common shares used in computing    net income per common share:
Basic		22,836,571		21,520,215		22,807,756		21,486,995
Diluted		23,417,688		21,960,285		23,408,873		21,925,105

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					Six Months Ended
	March 31,					March 31,
	2019		2020			2019		2020
Net income	$	5,303	$	5,065		$	10,213	$	14,124
Other comprehensive (loss) gain,  net of tax:
Foreign currency translation adjustments		-		(450	)		-		156
Total other comprehensive (loss) gain, net of tax		-		(450	)		-		156
Comprehensive income	$	5,303	$	4,615		$	10,213	$	14,280

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,			March 31,
	2019			2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	38,511		$	64,406
Accounts receivable, net		42,398			35,814
Inventories, net		477,468			506,887
Prepaid expenses and other current assets		10,206			9,369
Total current assets		568,583			616,476
Property and equipment, net of accumulated depreciation of $77,798 and $83,065		144,298			143,168
Operating lease right-of-use assets, net		-			40,566
Goodwill and other intangible assets, net		64,077			65,139
Other long-term assets		7,125			7,755
Total assets	$	784,083		$	873,104
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	33,674		$	15,259
Customer deposits		24,305			26,794
Accrued expenses		42,849			34,634
Current operating lease liabilities		-			6,850
Short-term borrowings		312,065			362,898
Total current liabilities		412,893			446,435
Noncurrent operating lease liabilities		-			35,639
Deferred tax liabilities, net		1,142			2,821
Other long-term liabilities		1,229			1,132
Total liabilities		415,264			486,027
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued or outstanding    as of September 30, 2019 and March 31, 2020		—			—
Common stock, $.001 par value, 40,000,000 shares authorized, 27,508,473 and    27,717,663 shares issued and 21,321,688 and 21,470,642 shares outstanding as of    September 30, 2019 and March 31, 2020, respectively		28			28
Additional paid-in capital		269,969			273,809
Accumulated other comprehensive loss		(669	)		(513	)
Retained earnings		202,455			217,189
Treasury stock, at cost, 6,186,785 and 6,247,021 shares held as of September 30, 2019    and March 31, 2020, respectively		(102,964	)		(103,436	)
Total shareholders’ equity		368,819			387,077
Total liabilities and shareholders’ equity	$	784,083		$	873,104

See accompanying notes to condensed consolidated financial statements.

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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, 2019		27,508,473	$	28	$	269,969		$	(669	)	$	202,455	$	(102,964	)	$	368,819
Net income		—		—		—			—			9,059		—			9,059
Purchase of treasury stock		—		—		—			—			—		—			-
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
Foreign currency translation adjustments,    net of tax		—		—		—			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
Net income		—		—		—			—			5,065		—			5,065
Purchase of treasury stock		—		—		—			—			—		(472	)		(472	)
Shares issued pursuant to employee stock    purchase plan		—		—		—			—			—		—			—
Shares issued upon exercise of stock options		28,167		—		414			—			—		—			414
Stock-based compensation		2,732		—		1,773			—			—		—			1,773
Foreign currency translation adjustments,    net of tax		—		—		—			(450	)		—		—			(450	)
BALANCE, March 31, 2020		27,717,663	$	28	$	273,809		$	(513	)	$	217,189	$	(103,436	)	$	387,077

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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, 2018		27,141,267	$	27	$	262,250	$	-	$	166,071	$	(75,256	)	$	353,092
Net income		—		—		—		—		4,910		—			4,910
Purchase of treasury stock		—		—		—		—		—		(229	)		(229	)
Shares issued pursuant to employee stock purchase    plan		30,650		—		507		—		—		—			507
Shares issued upon vesting of equity awards, net of minimum tax withholding		35,000		—		—		—		—		—			-
Shares issued upon exercise of stock options		108,275		—		1,311		—		—		—			1,311
Stock-based compensation		2,135		—		1,448		—		—		—			1,448
Cumulative effect of change in accounting principle - revenue recognition, net after tax		—		—		—		—		399		—			399
BALANCE, December 31, 2018		27,317,327	$	27	$	265,516	$	-	$	171,380	$	(75,485	)	$	361,438
Net income		—		—		—		—		5,303		—			5,303
Shares issued upon exercise of stock options		1,000		—		8		—		—		—			8
Stock-based compensation		2,900		—		1,740		—		—		—			1,740
BALANCE, March 31, 2019		27,321,227	$	27	$	267,264	$	-	$	176,683	$	(75,485	)	$	368,489

See accompanying notes to condensed consolidated financial statements.

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MARINEMAX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	Six Months Ended
	March 31,
	2019			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,213		$	14,124
Adjustments to reconcile net income to net cash used in operating    activities:
Depreciation and amortization		5,576			6,150
Deferred income tax provision		1,504			1,469
Loss (gain) on sale of property and equipment		42			(824	)
Proceeds from insurance settlements		475			703
Stock-based compensation expense		3,188			3,286
(Increase) decrease in —
Accounts receivable, net		(12,257	)		5,898
Inventories, net		(78,038	)		(29,419	)
Prepaid expenses and other assets		(3,109	)		(41	)
Increase (decrease) in —
Accounts payable		(11,508	)		(18,427	)
Customer deposits		16,324			2,489
Accrued expenses and other liabilities		5,389			(4,016	)
Net cash used in operating activities		(62,201	)		(18,608	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(7,931	)		(6,135	)
Proceeds from insurance settlements		280			—
Net cash used in acquisition of businesses		—			(1,400	)
Proceeds from sale of property and equipment		104			2,410
Net cash used in investing activities		(7,547	)		(5,125	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on short-term borrowings		84,581			50,833
Net proceeds from issuance of common stock under incentive compensation and    employee purchase plans		1,826			1,030
Contingent acquisition consideration payments		(129	)		(148	)
Payments on tax withholdings for equity awards		(1,525	)		(1,674	)
Purchases of treasury stock		(229	)		(472	)
Net cash provided by financing activities		84,524			49,569
Effect of exchange rate changes on cash		—			59
NET INCREASE IN CASH AND CASH EQUIVALENTS		14,776			25,895
CASH AND CASH EQUIVALENTS, beginning of period		48,822			38,511
CASH AND CASH EQUIVALENTS, end of period	$	63,598		$	64,406
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest	$	6,282		$	8,173
Income taxes		3,124			3,815
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

See accompanying notes to condensed consolidated financial statements.

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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 March 31, 2020, we operated through 59 retail locations in 16 states, consisting of Alabama, Connecticut, Florida, Georgia, Maryland, Massachusetts, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina and Texas. Our MarineMax Vacations operation maintains a facility in Tortola, British Virgin Islands. We also own Fraser Yachts Group, a leading superyacht brokerage and luxury yacht services company with operations in multiple countries.

We are the nation’s largest retailer of Sea Ray and Boston Whaler recreational boats and yachts, which are manufactured by Brunswick Corporation (“Brunswick”). Sales of new Brunswick boats accounted for approximately 36% of our revenue in fiscal 2019.  Sales of new Sea Ray and Boston Whaler boats, both divisions of Brunswick, accounted for approximately 15% and 19%, respectively, of our revenue in fiscal 2019. Brunswick is a world leading manufacturer of marine products and marine engines.

Beginning in March 2020, we have 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. We are taking proactive steps to enhance financial flexibility including reducing orders from manufacturers, implementing operating cost savings plans, delaying or reducing capital expenditures, and furloughing team members associated with temporary closures. 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.

In June 2018, Brunswick announced it was discontinuing Sea Ray sport yacht and yacht models.  Sea Ray sport yacht and yacht models represented approximately 10% of revenue during fiscal year 2018. Our brand and product diversification actions allowed us to replace the Sea Ray sport yacht and yacht revenue.

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.

We have multi-year dealer agreements with Brunswick covering Sea Ray products that appoint us as the exclusive dealer of Sea Ray boats in our geographic markets. We are the exclusive dealer for Boston Whaler through multi-year dealer agreements for many of our geographic markets. In addition, we are the exclusive dealer for Azimut Yachts for the entire United States through a multi-year dealer agreement. Sales of new Azimut boats accounted for approximately 9% of our revenue in fiscal 2019. 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.

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, Boston Whaler, 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.

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% and 54% of our revenue during fiscal 2018 and 2019, respectively, can have a major impact on our operations.  Local influences, such as corporate downsizing, military base closings, inclement weather

9

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, as well as global influences, such as the COVID-19 pandemic, also could adversely affect, and in certain instances have adversely affected, our operations in certain markets.

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 could impact us more than certain of our competitors due to our strategic focus on a higher end of our market.  Although we have expanded our operations during periods of stagnant or modestly declining industry trends, the cyclical nature of the recreational boating industry or the lack of industry growth may adversely affect our business, financial condition, and results of operations.  Any period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business.

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 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, 2019. 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 March 31, 2020, our financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, customer deposits, and short-term borrowings. The carrying amounts of our financial instruments reported on the balance sheet as of March 31, 2020, approximated fair value due either to length to maturity or existence of variable interest rates, which approximate prevailing market rates.  The operating results for the six months ended March 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.

Unless the context otherwise requires, all references to “MarineMax” mean MarineMax, Inc. prior to its acquisition of five previously independent recreational boat dealers in March 1998 (including their related real estate companies) and all references to the “Company,” “our company,” “we,” “us,” and “our” mean, as a combined company, MarineMax, Inc. and the 29 recreational boat dealers, three boat brokerage operations, and two full-service yacht repair operations acquired as of March 31, 2020 (the “acquired dealers,” and together with the brokerage and repair operations, “operating subsidiaries” or the “acquired companies”).

In order to provide comparability between periods presented, certain amounts have been reclassified from the previously reported unaudited condensed consolidated financial statements to conform to the unaudited condensed consolidated financial statement presentation for the current period. 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.

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3.NEW ACCOUNTING PRONOUNCEMENTS:

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”).  This update requires organizations to recognize lease assets and lease liabilities on the balance sheet and also disclose key information about leasing arrangements. ASU 2016-02 was effective for annual reporting periods beginning on or after December 15, 2018, and interim periods within those annual periods. Earlier application was permitted for all entities as of the beginning of an interim or annual period. Subsequent amendments to the standard provide an additional and optional transition method that allows entities to initially apply the new standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. An entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (ASC Topic 840) if the optional transition method is elected.

We adopted ASU 2016-02 effective October 1, 2019 the first day of fiscal 2020. We elected certain practical expedients available under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification of our existing leases. Consequently, on adoption, we recognized additional operating lease liabilities of $44.0 million and right-of-use (“ROU”) assets of $42.1 million. The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and we did not recognize ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components. We recognized a net after-tax cumulative effect adjustment to retained earnings of $0.6 million as of the date of adoption. See Note 5 for additional information on our leases.

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 are currently evaluating the impact that this standard will have 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 are currently evaluating the impact that this standard will have 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. 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 March 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.

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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, since 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. Contract assets, recorded in Prepaid expenses and other current assets, totaled approximately $2.5 million and $3.6 million as of September 30, 2019 and March 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 three and six months ended March 31, 2020.

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2019			2020			2019			2020
Goods and services transferred at a point in time		92.4	%		92.1	%		90.6	%		91.5	%
Goods and services transferred over time		7.6	%		7.9	%		9.4	%		8.5	%
Total Revenue		100.0	%		100.0	%		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, 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 March 31, 2020, the weighted-average remaining lease term for our leases was approximately 10 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 six months ended March 31, 2020, operating lease expenses recorded in selling, general, and administrative expenses was approximately $6.7 million. 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 for changes in the Consumer Price Index. Payments based on a change in an index or a rate are estimated for future periods, including renewal options expected to be exercised, at the beginning of the lease in the determination of lease payments for purposes of measuring 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 ROU assets and lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term, which includes renewal options expected to be exercised.

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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 March 31, 2020, the weighted-average discount rate used was approximately 7.2%.

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

	(Amounts in thousands)
2020	$	9,923
2021		8,535
2022		6,920
2023		5,989
2024		4,072
Thereafter		28,790
Total lease payments		64,229
Less: interest		(21,740	)
Present value of lease liabilities	$	42,489

As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019, and under the previous lease accounting prior to the adoption of ASC 842, future minimum annual rental commitments for operating leases as of September 30, 2019 were as follows:

	(Amounts in thousands)
2020		9,480
2021		8,148
2022		6,906
2023		6,329
2024		5,003
Thereafter		29,111
Total	$	64,977

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

	For the Six Months Ended
	March 31,
	2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,152
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	817

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.  As of September 30, 2019 and March 31, 2020, our valuation allowance for new and used boat, motor, and trailer inventories was $2.2 million and $3.9 million, respectively. If events occur and market conditions change, causing the fair value to fall below carrying value, the valuation allowance could increase.

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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 is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is expected to generate. 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 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. Any impairment recognized in accordance with ASC 360-10-40 is permanent and may not be restored. The analysis is performed at a regional level for indicators of permanent impairment given the geographical interdependencies among our locations. ROU assets are also reviewed for impairment. Based upon our most recent analysis, we believe no impairment of long-lived assets or ROU assets existed as of March 31, 2020.

8. GOODWILL:

We account for goodwill in accordance with FASB Accounting Standards Codification 350, “Intangibles - Goodwill and Other” (“ASC 350”), which provides that the excess of cost over net assets of businesses acquired is recorded as goodwill. In July 2019, we purchased Fraser Yachts Group, a leading superyacht brokerage and the largest luxury yacht services company in the world. In April 2019, we purchased Sail & Ski Center, a privately owned boat dealer located in Texas. In February 2020, we purchased Boatyard, a mobile software developer for the marine industry. In total, current and previous acquisitions have resulted in the recording of $65.1 million in goodwill and other intangible assets as of March 31, 2020.  In accordance with ASC 350, we review 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 fourth fiscal quarter.  If the carrying amount of goodwill exceeds its fair value we would recognize an impairment loss in accordance with ASC 350. As of March 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 test.

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 differences to be recovered or settled. Due to the uncertainties caused by the COVID-19 pandemic, we cannot reliably estimate the overall annual effective tax rate in the current reporting period and as such have used the actual effective tax rate for the six months ended March 31, 2020 to account for income taxes.

  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.  As of September 30, 2019 and March 31, 2020, we had a valuation allowance on our deferred tax assets of $164,000.

During the three months ended March 31, 2019 and 2020 we recognized an income tax provision of $1.9 million and $1.6 million, respectively. During the six months ended March 31, 2019 and 2020 we recognized an income tax provision of $3.5 million and $4.9 million, respectively. The effective income tax rate for the three months ended March 31, 2019 and 2020 was 26.3% and 24.4%, respectively. The effective income tax rate for the six months ended March 31, 2019 and 2020 was 25.3% and 25.6%, respectively.

10. SHORT-TERM BORROWINGS:

In November 2019, we amended and restated our Inventory Financing Agreement (the “Amended Credit Facility”), originally entered into in June 2010, as subsequently amended, with Wells Fargo Commercial Distribution Finance LLC (formerly GE Commercial Distribution Finance Corporation). The November 2019 amendment and restatement extended the maturity date of the Credit Facility to October 2022, and the Amended Credit Facility includes two additional one-year extension periods, with lender approval. The November 2019 amendment and restatement, among other things, modified the amount of borrowing availability and maturity date of the Credit Facility. The Amended Credit Facility provides a floor plan financing commitment of up to $440.0 million, an increase from the previous limit of $400.0 million, subject to borrowing base availability resulting from the amount and aging of our inventory.

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The Amended 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 Amended Credit Facility is 345 basis points above the one-month London Inter-Bank Offering Rate (“LIBOR”). There is an unused line fee of ten basis points on the unused portion of the Amended Credit Facility.

Advances under the Amended Credit Facility are initiated by the acquisition of eligible new and used inventory or are re-advances against eligible new and used inventory that have been partially paid-off. Advances on new inventory will generally mature 1,080 days from the original invoice date. Advances on used inventory will mature 361 days from the date we acquire the used inventory. Each advance is subject to a curtailment schedule, which requires that we pay down the balance of each advance on a periodic basis starting after six months. The curtailment schedule varies based on the type and value of the inventory.  The collateral for the Amended Credit Facility is all of our personal property with certain limited exceptions. None of our real estate has been pledged for collateral for the Amended Credit Facility.

As of March 31, 2020, our indebtedness associated with financing our inventory and working capital needs totaled approximately $362.9 million. As of March 31, 2019 and 2020, the interest rate on the outstanding short-term borrowings was approximately 6.0% and 5.0%, respectively. As of March 31, 2020, our additional available borrowings under our Amended Credit Facility were approximately $26.3 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. As of March 31, 2020, we had no long-term debt. However, we rely on our Amended 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 Amended 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 Amended Credit Facility to fund our operations. Any inability to utilize our Amended 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.

Similarly, decreases in the availability of credit and increases in the cost of credit adversely affect the ability of our customers to purchase boats from us and thereby adversely affect our ability to sell our products and impact the profitability of our finance and insurance activities.

11. STOCK-BASED COMPENSATION:

We account for our stock-based compensation plans following the provisions of FASB Accounting Standards Codification 718, “Compensation — Stock Compensation” (“ASC 718”).  In accordance with ASC 718, we use the Black-Scholes valuation model for valuing all stock-based compensation and shares purchased under our 2008 Employee Stock Purchase Plan (the “Stock Purchase Plan”). We measure compensation for restricted stock awards and restricted stock units at fair value on the grant date based on the number of shares expected to vest and the quoted market price of our common stock. We recognize compensation cost for all awards in operations on a straight-line basis over the requisite service period for each separately vesting portion of the award.

During the three months ended March 31, 2019 and 2020, we recognized stock-based compensation expense of approximately $1.7 million and $1.8 million, respectively, and for the six months ended March 31, 2019 and 2020, we recognized stock-based compensation expense of approximately $3.2 million and $3.3 million, respectively, in selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations.

Cash received from option exercises under all share-based compensation arrangements and the employee stock purchase plan for the three months ended March 31, 2019 and 2020, was approximately $0.1 million and $0.4 million, respectively and for the six  months ended March 31, 2019 and 2020, was approximately $1.8 million and $1.0 million, respectively. We currently expect to satisfy share-based awards with registered shares available to be issued from the Stock Purchase Plan.

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12. THE INCENTIVE STOCK PLANS:

During February 2020, our shareholders approved a proposal to amend the 2011 Stock-Based Compensation Plan (“2011 Plan”) to increase the 3,200,456 share threshold by 1,000,000 shares to 4,200,456 shares.  During January 2011, our shareholders approved a proposal to authorize our 2011 Plan, which replaced our 2007 Incentive Compensation Plan (“2007 Plan”). Our 2011 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units, bonus stock, dividend equivalents, other stock related awards, and performance awards (collectively “awards”), that may be settled in cash, stock, or other property. Our 2011 Plan is designed to attract, motivate, retain, and reward our executives, employees, officers, directors, and independent contractors by providing such persons with annual and long-term performance incentives to expend their maximum efforts in the creation of shareholder value. Subsequent to the February 2020 amendment described above, the total number of shares of our common stock that may be subject to awards under the 2011 Plan is equal to 4,000,000 shares, plus: (i) any shares available for issuance and not subject to an award under the 2007 Plan, which was 200,456 shares at the time of approval of the 2011 Plan; (ii) the number of shares with respect to which awards granted under the 2011 Plan and the 2007 Plan terminate without the issuance of the shares or where the shares are forfeited or repurchased; (iii) with respect to awards granted under the 2011 Plan and the 2007 Plan, the number of shares that are not issued as a result of the award being settled for cash or otherwise not issued in connection with the exercise or payment of the award; and (iv) the number of shares that are surrendered or withheld in payment of the exercise price of any award or any tax withholding requirements in connection with any award granted under the 2011 Plan or the 2007 Plan. The 2011 Plan terminates in January 2021, and awards may be granted at any time during the life of the 2011 Plan. The dates on which awards vest are determined by the Board of Directors or the Plan Administrator. The Board of Directors has appointed the Compensation Committee as the Plan Administrator. The exercise prices of options are determined by the Board of Directors or the Plan Administrator and are at least equal to the fair market value of shares of common stock on the date of grant. The term of options under the 2011 Plan may not exceed ten years. The options granted have varying vesting periods. To date, we have not settled or been under any obligation to settle any awards in cash.

The following table summarizes activity from our incentive stock plans from September 30, 2019 through March 31, 2020:

	Shares Available for Grant			Options Outstanding			Aggregate Intrinsic Value (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Balance as of September 30, 2019		715,590			484,031		$	1,569	$	12.42		3.7
Shares authorized		1,000,000			-			-		-
Options granted		-			-			-		-
Options cancelled/forfeited/expired		-			-			-		-
Options exercised		-			(41,167	)		-		12.76
Restricted stock awards issued		(418,771	)		-			-		-
Restricted stock awards forfeited		7,150			-			-		-
Additional shares of stock issued		(5,678	)		-			-		-
Balance as of March 31, 2020		1,298,291			442,864		$	402	$	12.39		3.2
Exercisable as of March 31, 2020					441,197		$	402	$	12.37		3.2

No options were granted for the six months ended March 31, 2019 and 2020. The total intrinsic value of options exercised during the six months ended March 31, 2019 and 2020, was $1.3 million and $0.2 million, respectively.

We used the Black-Scholes model to estimate the fair value of options granted. The expected term of options granted is estimated based on historical experience. Volatility is based on the historical volatility of our common stock. The risk-free rate for periods within the contractual term of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

13. EMPLOYEE STOCK PURCHASE PLAN:

During February 2019, our shareholders approved a proposal to amend our 2008 Employee Stock Purchase Plan (“Stock Purchase Plan”) to increase the number of shares available under that plan by 500,000 shares. The Stock Purchase Plan as amended provides for up to 1,500,000 shares of common stock to be available for purchase by our regular employees who have completed at least one year of continuous service. In addition, there were 52,837 shares of common stock available under our 1998 Employee

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Stock Purchase Plan, which have been made available for issuance under our Stock Purchase Plan. The Stock Purchase Plan provides for implementation of annual offerings beginning on the first day of October in each of the years 2008 through 2027, with each offering terminating on September 30 of the following year. Each annual offering may be divided into two six-month offerings. For each offering, the purchase price per share will be the lower of: (i) 85% of the closing price of the common stock on the first day of the offering or (ii) 85% of the closing price of the common stock on the last day of the offering. The purchase price is paid through periodic payroll deductions not to exceed 10% of the participant’s earnings during each offering period. However, no participant may purchase more than $25,000 worth of common stock annually.

We used the Black-Scholes model to estimate the fair value of options granted to purchase shares issued pursuant to the Stock Purchase Plan. Volatility is based on the historical volatility of our common stock. The risk-free rate for periods within the contractual term of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

The following are the weighted average assumptions used for each respective period:

	Three Months Ended		Six Months Ended
	March 31,		March 31,
	2019	2020	2019	2020
Dividend yield	0.0%	0.0%	0.0%	0.0%
Risk-free interest rate	2.4%	1.8%	2.4%	1.8%
Volatility	52.2%	52.4%	52.2%	52.4%
Expected life	Six months	Six months	Six months	Six months

As of March 31, 2020, we had issued 591,663 shares of common stock under our Stock Purchase Plan.

14. RESTRICTED STOCK AWARDS:

We have granted non-vested (restricted) stock awards (“restricted stock”) and restricted stock units (“RSUs”) to employees and officers pursuant to the 2011 Plan and the 2007 Plan. The restricted stock awards and RSUs have varying vesting periods, but generally become fully vested between two and four years after the grant date, depending on the specific award, performance targets met for performance based awards granted to officers, and vesting period for time based awards. Officer performance based awards are granted at the target amount of shares that may be earned and the actual amount of the award earned generally could range from 0% to 175% of the target number of shares based on the actual specified performance target met. We accounted for the restricted stock awards granted using the measurement and recognition provisions of ASC 718. Accordingly, the fair value of the restricted stock awards, including performance based awards, is measured on the grant date and recognized in earnings over the requisite service period for each separately vesting portion of the award.

The following table summarizes restricted stock award activity from September 30, 2019 through March 31, 2020:

	Shares/ Units			Weighted Average Grant Date Fair Value
Non-vested balance as of September 30, 2019		779,627		$	18.71
Changes during the period
Awards granted		418,771		$	16.53
Awards vested		(152,625	)	$	16.35
Awards forfeited		(7,150	)	$	18.96
Non-vested balance as of March 31, 2020		1,038,623

As of March 31, 2020, we had approximately $10.4 million of total unrecognized compensation cost, assuming applicable performance conditions are met, related to non-vested restricted stock awards. We expect to recognize that cost over a weighted average period of 2.4 years.

15. NET INCOME PER SHARE:

The following table presents shares used in the calculation of basic and diluted net income per share:

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	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2019		2020		2019		2020
Weighted average common shares outstanding used in    calculating basic income per share		22,836,571		21,520,215		22,807,756		21,486,995
Effect of dilutive options and non-vested restricted stock    awards		581,117		440,070		601,117		438,110
Weighted average common and common equivalent shares    used in calculating diluted income per share		23,417,688		21,960,285		23,408,873		21,925,105

For the three months ended March 31, 2019 and 2020, there were 5,082 and 21,333 weighted average shares related to options outstanding and non-vested restricted stock awards, respectively, that were not included in the computation of diluted income per share because the options’ exercise prices or assumed proceeds per share were greater than the average market price of our common stock, and therefore, would have an anti-dilutive effect. For the six months ended March 31, 2019 and 2020, there were no weighted average shares and 21,333 weighted average shares related to options outstanding and non-vested restricted stock awards, respectively, that were not included in the computation of diluted income per share because the options’ exercise prices or assumed proceeds per share were greater than the average market price of our common stock, and therefore, would have an anti-dilutive effect.

16. COMMITMENTS AND CONTINGENCIES:

We are party to various legal actions arising in the ordinary course of business. While it is not feasible to determine the actual outcome of these actions as of March 31, 2020, we believe that these matters should not have a material adverse effect on our unaudited condensed consolidated financial condition, results of operations, or cash flows.

17. SUBSEQUENT EVENT:

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, and other countries in which we operate. As a result, beginning in March 2020, we have temporarily closed certain departments or locations based on guidance from local government or health officials. We are following guidelines to ensure we are safely operating as recommended. We are taking proactive steps to enhance financial flexibility including reducing orders from manufacturers, implementing operating cost savings plans, delaying or reducing capital expenditures, and furloughing team members associated with temporary closures. 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements include statements regarding our “expectations,” “anticipations,” “intentions,” “plans,” “beliefs,” or “strategies” regarding the future.  These forward-looking statements include statements relating to market risks such as interest rate risk and foreign currency exchange rate risk; economic and industry conditions and corresponding effects on consumer behavior and operating results; environmental conditions; inclement weather; certain specific and isolated events; our future estimates, assumptions and judgments, including statements regarding whether such estimates, assumptions and judgments would have a material adverse effect on our operating results; the impact of changes in accounting policy and standards; our plans to accelerate our growth through acquisitions and new store openings; our belief that our existing capital resources will be sufficient to finance our operations for at least the next 12 months, except for possible significant acquisitions; the seasonality and cyclicality of our business and the effect of such seasonality and cyclicality on our business, financial results and inventory levels; and the scope and duration of the COVID-19 pandemic and its impact on global economic systems, our employees, sites, operations, customers, suppliers and supply chain, managing growth effectively.  Actual results could differ materially from those currently anticipated as a result of a number of factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

General

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, and other countries in which we operate. As a result, beginning in March 2020, we have temporarily closed certain departments or locations based on guidance from local government or health officials. As of today, many of our stores are fully or partially operational. We are following guidelines to ensure we are safely operating as recommended. Where possible, we are offering private personal showings as well as virtual appointments. Our digital platform is serving as an effective solution in this environment with robust online activity. Our experienced teams continue to engage with customers virtually and in our stores to help customers select their boats, and obtain appropriate services. We are taking proactive steps to enhance financial flexibility including working to extract capital from our debt-free sizable real estate holdings, taking action to monetize our unlevered inventory, reducing orders from manufacturers, implementing operating cost savings plans, delaying or reducing capital expenditures, and furloughing team members associated with temporary closures.

We are the largest recreational boat and yacht retailer in the United States with fiscal 2019 revenue above $1.2 billion. Through our current 59 retail locations in 16 states (as of the filing of this Quarterly Report on 10-Q), we sell new and used recreational boats and related marine products, including engines, trailers, parts, and accessories. We also arrange related boat financing, insurance, and extended service contracts; provide boat repair and maintenance services; offer yacht and boat brokerage sales; and, where available, offer slip and storage accommodations, as well as the charter of power yachts in the British Virgin Islands. We also own Fraser Yachts Group, a leading superyacht brokerage and luxury yacht services company with operations in multiple countries.

MarineMax was incorporated in January 1998 (and reincorporated in Florida in March 2015).  We commenced operations with the acquisition of five independent recreational boat dealers on March 1, 1998.  Since the initial acquisitions in March 1998, we have, as of the filing of this Quarterly Report on 10-Q, acquired 29 recreational boat dealers, three boat brokerage operations, and two full-service yacht repair facilities. As a part of our acquisition strategy, we frequently engage in discussions with various recreational boat dealers regarding their potential acquisition by us.  Potential acquisition discussions frequently take place over a long period of time and involve difficult business integration and other issues, including, in some cases, management succession and related matters.  As a result of these and other factors, a number of potential acquisitions that from time to time appear likely to occur do not result in binding legal agreements and are not consummated.  We completed three acquisitions in the fiscal year ended September 30, 2018, two acquisitions in the fiscal year ended September 30, 2019, and one acquisition to date in fiscal 2020.

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% and 54% of our revenue during fiscal 2018 and 2019, respectively, can have a major impact on our operations.  Local influences, such as corporate downsizing, military base closings, and inclement weather such as hurricanes and other storms, environmental conditions, and specific events, such as the BP oil spill in the Gulf of Mexico in 2010, as well as global influences, such as the COVID-19 pandemic, also could adversely affect, and in certain instances have adversely affected, our operations in certain markets.

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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 could impact us more than certain of our competitors due to our strategic focus on a higher end of our market. Although we have expanded our operations during periods of stagnant or modestly declining industry trends, the cyclical nature of the recreational boating industry or the lack of industry growth may adversely affect our business, financial condition, and results of operations. Any period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business.

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. 

Although past economic conditions have adversely affected our operating results, we believe we have capitalized on our core strengths to substantially outperform the industry, resulting in market share gains.  Our ability to capture such market share supports the alignment of our retailing strategies with the desires of consumers.  We believe the steps we have taken to address weak market conditions in the past have yielded, and will yield in the future, an increase in revenue. 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 explore opportunities through this strategy. We expect our core strengths and retailing strategies including our digital platform, will position us to capitalize on growth opportunities as they occur and will allow us to emerge with greater earnings potential.

Application of Critical Accounting Policies

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and risks related to these policies on our business operations are discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results.

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States. We base our estimates on historical experiences and on various other assumptions (including future earnings) that we believe are reasonable under the circumstances. The results of these assumptions form the basis for making judgments about the carrying values of assets and liabilities, including contingent assets and liabilities such as contingent consideration liabilities from acquisitions, which are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

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. 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 March 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.

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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, since 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. Contract assets, recorded in Prepaid expenses and other current assets, totaled approximately $2.5 million and $3.6 million as of September 30, 2019 and March 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.

Vendor Consideration Received

We account for consideration received from our vendors in accordance with ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASC 606 requires us to 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.  Pursuant to ASC 606, amounts received by us under our co-op assistance programs from our manufacturers are netted against related advertising expenses.  Our consideration received from our vendors contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding a number of factors, including our ability to collect amounts due from vendors and the ability to meet certain criteria stipulated by our vendors.  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 vendor considerations which would result in a material effect on our operating results.

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 our lower of cost or net realizable value. Our valuation allowance contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding the amount at which the inventory will ultimately be sold which considers forecasted market trends, model changes, and new product introductions. 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, 2019 and March 31, 2020, our valuation allowance for new and used boat, motor, and trailer inventories was $2.2 million and $3.9 million, respectively. If events occur and market conditions change, causing the fair value to fall below carrying value, the valuation allowance could increase.

Goodwill

We account for goodwill in accordance with FASB Accounting Standards Codification 350, “Intangibles - Goodwill and Other” (“ASC 350”), which provides that the excess of cost over net assets of businesses acquired is recorded as goodwill. In July 2019, we purchased Fraser Yachts Group, a leading superyacht brokerage and the largest luxury yacht services company in the world. In April 2019, we purchased Sail & Ski Center, a privately owned boat dealer located in Texas. In February 2020, we purchased Boatyard, a mobile software developer for the marine industry. In total, current and previous acquisitions have resulted in the recording of $65.1 million in goodwill and other intangible assets as of March 31, 2020.  In accordance with ASC 350, we review 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 fourth fiscal quarter.  If the carrying amount of goodwill exceeds its fair value we would recognize an impairment loss in accordance with ASC 350. As of March 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 test. The qualitative assessment requires us to make judgments and assumptions regarding macroeconomic and industry conditions, our financial performance, and other factors.  We do not believe there is a reasonable likelihood that there will be a change in the judgments and assumptions used in our qualitative assessment which would result in a material effect on our operating results.

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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 is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is expected to generate. 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 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. The analysis is performed at a regional level for indicators of permanent impairment given the geographical interdependencies among our locations. Based upon our most recent analysis, we believe no impairment of long-lived assets existed as of March 31, 2020. We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions used to test for recoverability which would result in a material effect on our operating results.

Stock-Based Compensation

We account for our stock-based compensation plans following the provisions of FASB Accounting Standards Codification 718, “Compensation — Stock Compensation” (“ASC 718”).  In accordance with ASC 718, we use the Black-Scholes valuation model for valuing all stock-based compensation and shares purchased under our Employee Stock Purchase Plan.  We measure compensation for restricted stock awards and restricted stock units at fair value on the grant date based on the number of shares expected to vest and the quoted market price of our common stock.  We recognize compensation cost for all awards in operations on a straight-line basis over the requisite service period for each separately vesting portion of the award.  Our valuation models and generally accepted valuation techniques require us to make assumptions and to apply judgment to determine the fair value of our awards.  These assumptions and judgments include estimating the volatility of our stock price, expected dividend yield, employee turnover rates and employee stock option exercise behaviors.  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 stock-based compensation which would result in a material effect on our operating results.

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 differences to be recovered or settled. Due to the uncertainties caused by the COVID-19 pandemic, we cannot reliably estimate the overall annual effective tax rate in the current reporting period and as such have used the actual effective tax rate for the six months ended March 31, 2020 to account for income taxes. 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.

Pursuant to ASC 740, we must consider all positive and negative evidence regarding the realization of deferred tax assets.  ASC 740 provides for four possible sources of taxable income to realize deferred tax assets: 1) taxable income in prior carryback years, 2) reversals of existing deferred tax liabilities, 3) tax planning strategies and 4) projected future taxable income.  As of March 31, 2020, we have no available taxable income in prior carryback years, limited reversals of existing deferred tax liabilities or prudent and feasible tax planning strategies.  Therefore, the recoverability of our deferred tax assets is dependent upon generating future taxable income.

The determination of releasing valuation allowances against deferred tax assets is made, in part, pursuant to our assessment as to whether it is more likely than not that we will generate sufficient future taxable income against which benefits of the deferred tax assets may or may not be realized. Significant judgment is required in making estimates regarding our ability to generate income in future periods.

The application of income tax law is inherently complex.  Laws and regulations in this area are voluminous and are often ambiguous.  Under ASC 740, the impact of uncertain tax positions taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority.  An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained.  As such, we are required to make subjective assumptions and judgments regarding our effective tax rate and our income tax exposure.  Our effective income tax rate is affected by changes in tax law in the jurisdictions in which we currently operate, tax jurisdictions of new retail locations, our earnings, and the results of tax audits.  We believe that the judgments and estimates discussed herein are reasonable.

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Recent Accounting Pronouncements

See Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements.

Consolidated Results of Operations

The following discussion compares the three and six months ended March 31, 2020, with the three and six months ended March 31, 2019 and should be read in conjunction with the unaudited condensed consolidated financial statements, including the related notes thereto, appearing elsewhere in this report.

Three Months Ended March 31, 2020 Compared with Three Months Ended March 31, 2019

Revenue.  Revenue increased $4.9 million, or 1.6%, to $308.5 million for the three months ended March 31, 2020, from $303.6 million for the three months ended March 31, 2019. Of this increase, $4.0 million was attributable to a 1.4% increase in comparable-store sales and a $0.9 million increase was attributable to stores opened or acquired that were not eligible for inclusion in the comparable-store base. Despite the growing impact of the COVID-19 pandemic during March, the increase in our comparable-store sales was primarily due to increases in new boat revenue and our higher margin finance and insurance products, brokerage, service, parts and storage services. We began to experience the impact of the COVID-10 pandemic during March. 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. However, we believe our customers desire to spend more time out on the water close to home will remain strong.   

Gross Profit.  Gross profit increased $4.6 million, or 6.2%, to $78.8 million for the three months ended March 31, 2020, from $74.2 million for the three months ended March 31, 2019. Gross profit as a percentage of revenue increased to 25.5% for the three months ended March 31, 2020 from 24.4% for the three months ended March 31, 2019. The increase in gross profit as a percentage of revenue was primarily the result of increases in our higher margin businesses, including the addition of Fraser Yachts Group, as a percentage of sales. The increase in gross profit dollars was primarily attributable to increased new boat sales.

Selling, General, and Administrative Expenses. Selling, general, and administrative expense increased $5.1 million, or 7.9%, to $69.1 million for the three months ended March 31, 2020, from $64.0 million for the three months ended March 31, 2019. Selling, general, and administrative expenses as a percentage of revenue increased to 22.4% for the three months ended March 31, 2020 from 21.1% for the three months ended March 31, 2019. The increase in selling, general, and administrative expenses as a percentage of revenue was driven by lower than expected revenue as a result of the growing impact of the COVID-19 pandemic. The increase in dollars was primarily due to the two acquisitions completed in 2019.

Interest Expense.  Interest expense decreased $20,000, or 0.7%, to $3.01 million for the three months ended March 31, 2020 from $3.03 million for the three months ended March 31, 2019. Interest expense as a percentage of revenue remained consistent at 1.0% for the three months ended March 31, 2020 and for the three months ended March 31, 2019. The decrease in interest expense was primarily the result of lower interest rates.

Income Taxes.  Income tax expense decreased $0.3 million, or 13.3%, to $1.6 million for the three months ended March 31, 2020 from $1.9 million for the three months ended March 31, 2019. Our effective income tax rate decreased to 24.4% for the three months ended March 31, 2020 from 26.3% for the three months ended March 31, 2019 as a result of using the actual effective tax rate to account for income taxes due to the uncertainties caused by the COVID-19 pandemic.

Six Months Ended March 31, 2020 Compared with Six Months Ended March 31, 2019

Revenue.  Revenue increased $67.1 million, or 12.3%, to $612.6 million for the six months ended March 31, 2020, from $545.5 million for the six months ended March 31, 2019. Of this increase, $60.8 million was attributable to an 11.6% increase in comparable-store sales and a $6.3 million increase was attributable to stores opened or acquired that were not eligible for inclusion in the comparable-store base. The increase in our comparable-store sales was primarily due to increases in new and used boat revenue and our higher margin finance and insurance products, brokerage, and storage services.

Gross Profit.  Gross profit increased $21.1 million, or 15.3%, to $158.8 million for the six months ended March 31, 2020, from $137.7 million for the six months ended March 31, 2019.  Gross profit as a percentage of revenue increased to 25.9% for the six months ended March 31, 2020 from 25.2% for the six months ended March 31, 2019. The increase in gross profit as a percentage of revenue was primarily the result of increases in our higher margin businesses, including the addition of Fraser Yachts Group, as a percentage of sales. The increase in gross profit dollars was primarily attributable to increased new and used boat sales.

Selling, General, and Administrative Expenses. Selling, general, and administrative expense increased $15.0 million, or 12.6%, to $133.4 million for the six months ended March 31, 2020, from $118.5 million for the six months ended March 31, 2019.  Selling, general, and administrative expenses as a percentage of revenue increased to 21.8% for the six months ended March 31, 2020 from 21.7% for the six months ended March 31, 2019. The slight increase in selling, general, and administrative expenses as a percentage of

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revenue was driven by lower than expected revenue as a result of the growing impact of the COVID-19 pandemic. The increase in dollars was primarily due to the two acquisitions completed in 2019.

Interest Expense.  Interest expense increased $0.8 million, or 14.3%, to $6.4 million for the six months ended March 31, 2020 from $5.6 million for the six months ended March 31, 2019.  Interest expense as a percentage of revenue remained consistent at 1.0% for the six months ended March 31, 2020 and for the six months ended March 31, 2019.  The increase in interest expense was primarily the result of increased borrowings.

Income Taxes.  Income tax expense increased $1.4 million, or 41.1%, to $4.9 million for the six months ended March 31, 2020 from $3.5 million for the six months ended March 31, 2019. Our effective income tax rate increased to 25.6% for the six months ended March 31, 2020 from 25.3% for six months ended March 31, 2019. The increase in our effective income tax rate was mainly the result of increased tax expense from jurisdictions outside the United States as result of the acquisition of the Fraser Yachts Group in July 2019.

Liquidity and Capital Resources

Our cash needs are primarily for working capital to support operations, including new and used boat and related parts inventories, off-season liquidity, and growth through acquisitions and new store openings. Acquisitions and new store openings remain important strategies to our company, and we have recently completed certain acquisitions, and we plan to explore growth opportunities through these strategies. We regularly monitor the aging of our inventories and current market trends to evaluate our current and future inventory needs. We also use this evaluation in conjunction with our review of our current and expected operating performance and expected business levels to determine the adequacy of our financing needs.

These cash needs have historically been financed with cash generated from operations and borrowings under the Amended Credit Facility. Our ability to utilize the Amended Credit Facility to fund operations depends upon the collateral levels and compliance with the covenants of the Amended Credit Facility. Any turmoil in the credit markets and weakness in the retail markets may interfere with our ability to remain in compliance with the covenants of the Amended Credit Facility and therefore our ability to utilize the Amended Credit Facility to fund operations. As of March 31, 2020, we were in compliance with all covenants under the Amended Credit Facility. We currently depend upon dividends and other payments from our dealerships and the Amended Credit Facility to fund our current operations and meet our cash needs. As 100% owner of each of our dealerships, we determine the amounts of such distributions subject to applicable law, and currently, no agreements exist that restrict this flow of funds from our dealerships.

For the six months ended March 31, 2020 and 2019, cash used in operating activities was approximately $18.6 million and $62.2 million, respectively.  For the six months ended March 31, 2020, cash used in operating activities was primarily related to increases in inventory, decreases in accounts payable and accrued expenses, partially offset by decreases in accounts receivable, increases in customer deposits, and our net income adjusted for non-cash expenses such as depreciation and amortization expense, deferred income tax provision, and stock-based compensation expense. For the six months ended March 31, 2019, cash used in operating activities was primarily related to an increase of inventory driven by timing of boats received, increases in prepaid expenses and other assets, increases in accounts receivable, decreases in accounts payable, partially offset by increases in customer deposits, increases in accrued expenses, and our net income adjusted for non-cash expenses such as depreciation and amortization expense, deferred income tax provision, and stock-based compensation expense.

For the six months ended March 31, 2020 and 2019, cash used in investing activities was approximately $5.1 million and $7.5 million, respectively. For the six months ended March 31, 2020, cash used in investing activities was primarily used to purchase property and equipment associated with improving existing retail facilities and acquisitions, partially offset by proceeds received from the sale of property and equipment. For the six months ended March 31, 2019, cash used in investing activities was primarily used to purchase property and equipment associated with improving existing retail facilities.

For the six months ended March 31, 2020 and 2019, cash provided by financing activities was $49.6 million and $84.5 million, respectively.  For the six months ended March 31, 2020, cash provided by financing activities was primarily attributable to net short-term borrowings as a result of increased inventory levels and proceeds from the issuance of common stock from our stock based compensation plans, partially offset by payments on tax withholdings for equity awards and by the repurchase of common stock under the share repurchase program. For the six months ended March 31, 2019, cash provided by financing activities was primarily attributable to net short-term borrowings as a result of increased inventory levels and proceeds from the issuance of common stock from our stock based compensation plans, partially offset by the repurchase of common stock under the share repurchase program and payments on tax withholdings for equity awards.

In November 2019, we amended and restated our Inventory Financing Agreement (the “Amended Credit Facility”), originally entered into in June 2010, as subsequently amended, with Wells Fargo Commercial Distribution Finance LLC (formerly GE Commercial Distribution Finance Corporation). The November 2019 amendment and restatement extended the maturity date of the

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Credit Facility to October 2022, and the Amended Credit Facility includes two additional one-year extension periods, with lender approval. The November 2019 amendment and restatement, among other things, modified the amount of borrowing availability and maturity date of the Credit Facility. The Amended Credit Facility provides a floor plan financing commitment of up to $440.0 million, an increase from the previous limit of $400 million, subject to borrowing base availability resulting from the amount and aging of our inventory.

The Amended 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 Amended Credit Facility is 345 basis points above the one-month LIBOR. There is an unused line fee of ten basis points on the unused portion of the Amended Credit Facility.

Advances under the Amended Credit Facility are initiated by the acquisition of eligible new and used inventory or are re-advances against eligible new and used inventory that have been partially paid-off. Advances on new inventory will generally mature 1,080 days from the original invoice date. Advances on used inventory will mature 361 days from the date we acquire the used inventory. Each advance is subject to a curtailment schedule, which requires that we pay down the balance of each advance on a periodic basis starting after six months. The curtailment schedule varies based on the type and value of the inventory. The collateral for the Amended Credit Facility is all of our personal property with certain limited exceptions. None of our real estate has been pledged for collateral for the Amended Credit Facility.

As of March 31, 2020, our indebtedness associated with financing our inventory and working capital needs totaled approximately $362.9 million. As of March 31, 2019 and 2020, the interest rate on the outstanding short-term borrowings was approximately 6.0% and 5.0%, respectively. As of March 31, 2020, our additional available borrowings under our Amended Credit Facility were approximately $26.3 million based upon the outstanding borrowing base availability. The aging of our inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate as our inventory ages.

Except as specified in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the unaudited condensed consolidated financial statements in the “Financial Statements (Unaudited)”, we have no material commitments for capital for the next 12 months. Based on the information currently available to us, the COVID-19 pandemic’s impact on consumer demand is uncertain, we believe that the cash generated from sales and our existing capital resources will be adequate to meet our liquidity and capital requirements for at least the next 12 months, except for possible significant acquisitions.

Impact of Seasonality and Weather on Operations

Our business, as well as the entire recreational boating industry, is highly seasonal, with seasonality varying in different geographic markets. With the exception of Florida, we generally realize significantly lower sales and higher levels of inventories, and related short-term borrowings, in the quarterly periods ending December 31 and March 31. The onset of the public boat and recreation shows in January generally stimulates boat sales and typically allows us to reduce our inventory levels and related short-term borrowings throughout the remainder of the fiscal year. Our business could become substantially more seasonal if we acquire additional dealers that operate in colder regions of the United States or close retail locations in warm climates.

Our business is also subject to weather patterns, which may adversely affect our results of operations. For example, prolonged or severe winter conditions, drought conditions (or merely reduced rainfall levels) or excessive rain, may limit access to area boating locations or render boating dangerous or inconvenient, thereby curtailing customer demand for our products and services. In addition, unseasonably cool weather and prolonged or severe winter conditions may lead to a shorter selling season in certain locations. Hurricanes and other storms could result in disruptions of our operations or damage to our boat inventories and facilities, as has been the case when Florida and other markets were affected by hurricanes. Although our geographic diversity is likely to reduce the overall impact to us of adverse weather conditions in any one market area, these conditions will continue to represent potential, material adverse risks to us and our future financial performance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of March 31, 2020, all of our short-term debt bore interest at a variable rate, tied to LIBOR as a reference rate. Changes in the underlying LIBOR interest rate on our short-term debt could affect our earnings. For example, a hypothetical 100 basis point increase in the interest rate on our short-term debt would result in an increase of approximately $3.6 million in annual pre-tax interest expense. This estimated increase is based upon the outstanding balance of our short-term debt as of March 31, 2020 and assumes no mitigating changes by us to reduce the outstanding balances and no additional interest assistance that could be received from vendors due to the interest rate increase.

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Foreign Currency Exchange Rate Risk

Products purchased from European-based and Chinese-based manufacturers are transacted in U.S. dollars. Fluctuations in the U.S. dollar exchange rate may impact the retail price at which we can sell foreign products. Accordingly, fluctuations in the value of other currencies compared with the U.S. dollar may impact the price points at which we can profitably sell such foreign products, and such price points may not be competitive with other products in the United States. Thus, such fluctuations in exchange rates ultimately may impact the amount of revenue, cost of goods sold, cash flows and earnings we recognize for such foreign products. We cannot predict the effects of exchange rate fluctuations on our operating results. In certain cases, we may enter into foreign currency cash flow hedges to reduce the variability of cash flows associated with forecasted purchases of boats and yachts from European-based and Chinese-based manufacturers. We are not currently engaged in foreign currency exchange hedging transactions to manage our foreign currency exposure. If and when we do engage in foreign currency exchange hedging transactions, there can be no assurance that our strategies will adequately protect our operating results from the effects of exchange rate fluctuations.

Additionally, the Fraser Yachts Group has transactions and balances denominated in currencies other than the U.S dollar. Most of the transactions or balances for Fraser Yachts Group are denominated in euros. Net revenues recognized whose functional currency was not the U.S. dollar were less than 1% of our total revenues in fiscal 2019.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed by us in Securities Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls

During the quarter ended March 31, 2020, there were no changes in our internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Although our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the Chief Executive Officer and Chief Financial Officer, respectively. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item of this report, which you are currently reading is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are party to various legal actions arising in the ordinary course of business.  While it is not feasible to determine the actual outcome of these actions as of March 31, 2020, we do not believe that these matters will have a material adverse effect on our unaudited condensed consolidated financial condition, result of operations, or cash flows.  

ITEM 1A. RISK FACTORS

The ongoing COVID-19 pandemic may adversely affect our revenues, results of operations and financial condition

Our business could be materially adversely affected by the widespread outbreak of contagious disease, including the recent COVID-19 pandemic. COVID-19 has spread in many of the geographic areas in which we operate. National, state and local governments in affected regions have implemented and will continue to implement safety precautions, including quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures, for an indefinite time period. Other organizations and individuals are taking additional steps to avoid or reduce infection, including limiting travel and staying home from work. These measures are disrupting normal business operations both in and outside of affected areas and have had significant negative impacts on businesses and financial markets worldwide.

We continue to monitor our operations and government recommendations and have made modifications to our normal operations, including taking proactive steps to enhance financial flexibility including working to extract capital from our debt-free sizable real estate holdings, taking action to monetize our unlevered inventory, reducing orders from manufacturers, implementing operating cost savings plans, delaying or reducing capital expenditures, and furloughing team members associated with temporary closures because of the COVID-19 pandemic. The COVID-19 pandemic has caused a number of adverse impacts, including reductions in demand for our products, inefficiencies caused by team members working remotely, and certain closed departments or locations based on guidance from each local government or health officials. Disruptions in the capital markets as a result of the COVID-19 outbreak may also adversely affect us if these impacts continue for a prolonged period and we need additional liquidity. While it is not possible at this time to estimate the entirety of the impact that COVID-19 will have on our business, customers, suppliers or other business partners, depending on the severity of the COVID-19 pandemic, and the length of time of its impact, the effect of the adverse impacts identified in this paragraph may increase and additional adverse impacts may arise.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents information with respect to our repurchases of our common stock during the three months ended March 31, 2020.

Period	Total Number of  Shares Purchased (1)		Average Price Paid per share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that may be Purchased Under the Plans or Programs
January 1, 2020 - January 31, 2020		-		-		-		626,831
February 1, 2020 - February 29, 2020		-		-		-		626,831
March 1, 2020 - March 31, 2020		60,236		7.83		60,236		9,939,764
Total		60,236	$	7.83		60,236		9,939,764

(1) Under the terms of the new share repurchase program announced on March 16, 2020, the Company is authorized to purchase up to 10 million shares of its common stock through March 31, 2022.  

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

3.1	Articles of Incorporation of MarineMax, Inc., a Florida corporation. (1)
3.2	Bylaws of MarineMax, Inc., a Florida corporation. (1)
4.1	Form of Common Stock Certificate. (1)
10.1	Amended 2008 Employee Stock Purchase Plan.(2)
10.2	2011 Stock-Based Compensation Plan.(3)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

(1) Incorporated by reference to Registrant’s Form 8-K as filed March 20, 2015.

(2) Incorporated by reference to Registrant’s Form S-8 (File No. 333-236618) as filed on February 25, 2020.

(3) Incorporated by reference to Registrant’s Form S-8 (File No. 333-236617) as filed on February 25, 2020.

†    Certain information in this exhibit identified by brackets has been omitted pursuant to Item 601(b)(10) of Regulation S-K because it (i) is not material and (ii) would cause competitive harm to MarineMax if publicly disclosed.  MarineMax hereby undertakes to furnish, supplementally, copies of any omitted information upon request by the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		MARINEMAX, INC.
April 29, 2020	By:	/s/ Michael H. McLamb
		Michael H. McLamb
		Executive Vice President,
		Chief Financial Officer, Secretary, and Director
		(Principal Accounting and Financial Officer)

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