MPX - NYSE

Good morning and thank you for joining us for Marine Products Corporation's First Quarter 2023 Financial Earnings Conference Call. Today's call will be hosted by Ben Palmer, President and CEO; and Mike Schmit, Chief Financial Officer. Also hosting is Jim Landers, Vice President of Corporate Services. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would like to advise everyone that this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer.

Thank you, Audra, and good morning. Before we get started today, I'd like to remind everyone that some of the statements that we will make on this call may be forward-looking in nature, reflect a number of known and unknown risks. I'd like to refer you to our press release issued today, our 2022 Form 10-K, and other SEC filings that outline those risks, all of which are available on our website at marineproductscorp.com. If you've not received our press release, please visit our website. In today's earnings release and conference call, we refer to EBITDA, which is a non-GAAP measure of operating performance. We use this non-GAAP measure because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We're also required to use EBITDA to report a compliance with financial covenants under our credit facility. Our press release issued this morning and our website contain a reconciliation of this non-GAAP financial measure to net income, which is the nearest GAAP financial measure. Please review this disclosure if you're interested in seeing how it's calculated. We'll make a few comments about this quarter and then be available for your questions. I will now turn the call over to our President and CEO, Ben Palmer.

Thanks, Jim, and thank you all for joining our call this morning. I will begin with a few highlights regarding our first quarter 2023 earnings press release that was issued this morning. Marine Products Corporation once again generated record net sales during the first quarter as we experienced improvement in our supply chain issues and transportation availability relative to the prior year period. We were able to complete and ship a larger number of substantially completed boats in our inventory and deliver them to our dealers. Average selling prices increased primarily due to a favorable model mix at both Chaparral and Robalo. In addition, the increased unit shipments during the quarter allowed our dealers to begin building their inventory to prepare for the upcoming 2023 spring retail selling season. Dealer inventories are trending towards more normalized levels, however inventory remains below pre-pandemic levels. We also announced this morning that our Board of Directors declared a regular quarterly cash dividend of $0.14 per share. And with that overview, I'll now turn the call over to Mike Schmit, our CFO.

Thanks, Ben. I'll begin with an overview of the company's first quarter 2023 financial results. Net sales for the first quarter of 2023 were a record $118.9 million, a 55% increase compared to the first quarter of last year, unit sales increased by 40%, and average selling prices of our boats increased by 12%. As Ben mentioned, these increases were driven by our ability to complete ship a favorable mix of boats to satisfy both dealer and retail demand as we continue to see significant improvements in our supply chain. Gross profit in the first quarter of 2023 was $29 million, a 58% increase compared to the first quarter of last year. Gross margins for the first quarter of 2023 was 24.4% a slight improvement over the 24.0% for the first quarter of 2022, as we saw some benefits from manufacturing efficiencies. Selling, general, and administrative expenses for the first quarter of 2023 were $14.5 million, an increase of 57% compared to $9.2 million in the first quarter of last year. This increase is due to cost that typically increase with higher sales and profitability, such as incentive compensation, sales commissions, and warranty expenses. These first quarter of 2023 expenses also included a non-cash pension settlement charge of $2.1 million. Selling, general, and administrative expenses were 12% of net sales in the first quarter of both years, but they were 10% of net sales in the first quarter of this year expecting that non-cash pension settlement charge. As we complete the final termination of our pension plan, which is expected in the second quarter, we do not expect to make any cash contributions in connection with the transfer of the plan liabilities to a third-party because of the plan is fully funded status. EBITDA in the first quarter of 2023 was $15 million, an increase of $5.4 million or 56% compared to the first quarter of last year. We reported a record quarterly net income of $11.5 million in the first quarter of this year, a 64% increase compared to $7.1 million the same quarter of last year. Diluted earnings per share were $0.34 in the first quarter of this year compared to $0.21 in the first quarter of last year. Our international sales, which account for approximately 7% of our total sales increased by 89% compared to last year. Our cash balance at the end of the first quarter of 2023 was $62.6 million, a $19.4 million increase compared to the cash balance at the end of last year. This strong cash balance is the result of improvements in our logistical processes and availability of materials and components, which allow us to ship more boats than we produced during the quarter. Dealer inventories are increasing towards more normalized levels, but continue to be lower than pre-pandemic levels. These moderately higher inventories will benefit our dealers as we enter into the height of the retail selling season. The outcome of the winter boat shows was generally favorable, and our dealers continue to request both. They have already sold to retail customers as well as additional inventory for the upcoming selling season. Having said that, we continue to monitor macro indicators such as consumer confidence, slowing economic activity, and increasing interest rates, all of which could weaken demand for recreational boats. I'll now turn it back over to Ben for a few closing remarks.

Thank you, Mike. Our market share remains strong. Chaparral sterndrive market share remains number two in its size category. The combination of Chaparral and Robalo's outboards held the third highest market share in their size category. Our successive quarters of record sales are the result of the hard work of the Chaparral and Robalo management team and our other dedicated employees, as well as our strong dealer network, as well as the appeal of the quality and design of our products. I'd like to thank you for joining us this morning, and we'll be happy to take any questions that you have.

Thank you. [Operator Instructions]. We'll go first to Craig Kennison at Baird.

And congratulations on progress on your pension as well. My question was on the -- just the availability of credit. I'm wondering if there's been any change in credit availability in the wake of the recent bank collapses.

Craig, this is Ben. We -- certainly, the credit line providers to the dealers have, I would describe it, as they've not been proactive in increasing the lines, but we've been successful in coordinating with them, the service line providers to increase them as appropriate. We have not heard that there's any particular, whatever references or delays and increase in credit lines because of the issues in the market. But that's not to say that there may be some of that going on in the background, but we're not hearing that directly.

Anything on the consumer side in terms of either high -- significantly higher rates in the wake of that collapse or just not approving at the same rate on applications.

We have not with our model mix it continues to be kind of higher end boats and most of those purchasers are cash-only buyers are not as sensitive to rates. So we've not seen any significant impact on our results or any of the dealers' attitudes or reactions to any particular types of boats that they're looking to receive from us, so none that we've seen so far.

Perfect. Thank you. And then I'm curious just about inflation. I'm not sure what visibility you have on the actual retail selling price of the boats that you sell, but I know during the pandemic, dealers had an opportunity to get full MSRPs perhaps or even better. But now it's the more competitive environment. I'm just curious from a consumer perspective, what are boat prices look like in some of your models? Are you seeing inflation, I guess, fade a little bit from a consumer perspective?

I would say again this has been that the higher rates we are incurring slightly higher dealer incentives because of the floor plan program that we have in place where we share or pay for a period of time some of the interests. So that's -- that that is an impact between us and they have an impacted this yet and it's impacting our margins. That's something that we're helping the dealers with respect to rebuilding their inventories, but not really. Do you have any other detail?

Yes, I'll throw, this is Mike. Yes, obviously the rate of inflation was increasing quite rapidly during the pandemic and shortly thereafter, and some of that was driven by the material costs of making the boats and the supply chain issues as those have cleared up. Some of those are -- the rate of inflation there before our manufacturing has slowed. And so that's just passing along to the customer. So it's not, we don't anticipate the boats increasing at the same rate they had. And then as Ben mentioned, at the same time, we're seeing incentives and for the dealers and so things are getting, I guess, a little bit easier for customers to buy the boat than maybe they were. And part of that is just supply and demand, and some of that is just passing along the costs. So as our costs normalize, I think the costs and rate of increase, so boats for the end customer will normalize also.

Yes. We're saying on kind of the material side, we've seen some production in some of the costs; some of the manufacturing components aren't coming down as much or certainly nearly as fast. So ultimately, as Mike said that, that hopefully there won't be a need for large increases going forward. But I guess where I was going my earlier comment was that we have not seen any pressure to put any additional incentives in the system. And as you also refer to, we don't have direct visibility into what dealers are charging the end consumer in all cases. So we expect that there will be some moderation, there will be some more normalized discounting by dealers as we move forward. I would expect that to happen. That'll normalize. I think it in the same way field inventory will normalize.

[Operator Instructions]. We'll go next to Fred Wightman at Wolfe.

Hey guys, good morning. I wanted to follow-up the comment in the release and the prepared remarks was that the winter boat shows were generally favorable, which can -- doesn't sound great honestly. So can you just give a little bit more detail on the retail environment? How it compares to sort of what you would've expected entering the start of the calendar year or anything else maybe more recent than the winter boat shows?

Yes. Hey Fred, this is Jim. Yes, that, that comment was intentional. There were -- it was mixed. I mean we had some boat shows where we sold more boats at the show more Chaparral's and Robalo's than in the previous year. So those are very strong plus a lot of follow-up as you know, there are a lot of sales that are sort of initiated at boat shows, but not consummated. There were a few others that were not as good. And it -- there's no geographic or demographic trend to identify there. In some cases, it might have been weather, things like that. We also have noted that the spring is coming kind of late of where you live and where we live and some other places as well. And so that is delaying the impulse fire coming in. But yes, the boat show season was generally favorable. We'll repeat that, that language. And there was no geographic or demographic kind of trend, no, there.

Geographic, I think that's where I think some of the larger shows were a little bit better than some of the smaller shows. Some of the smaller shows were a little more lackluster, if you will. Not bad, but just not as strong as some of the larger.

Yes, we attended a few of them like Jim and I went to Miami and you wouldn't have thought it was me like slow down. As many people were at that show and we -- and saw it through our numbers too, with all those shows really well there. Same story here in Atlanta. The boat show here was pretty successful. Of course, it was more kind of Chaparral focused here. But we heard some of the smaller boat shows maybe weren't as strong as they weren't maybe pre-pandemic. So -- but I'd say the bigger ones at least the ones that we attended at this room seemed great so yes, mixed like Jim said.

Yes.

Really helpful. And I guess just sort of outside of shows, right sort of the normal day-to-day sort of the color you're hearing from dealers, is that in line with sort of what they were thinking, maybe a little bit softer given some of the weather issues? How would you sort of characterize the non-boat show retail demand?

I think the -- at the -- from the dealers' perspective, them just looking globally at their current orders in hand and their expectations for the spring, we have little to no pushback on the folks that we plan to shift to the dealers, right? When we're talking to the dealers about what's going to be available in the coming weeks, we've had little to no, whatever you want to call it, cancellations or deferrals on those, they're still willing to accept as many boats as we can reasonably shift to them. So I think that bodes well overall across our dealership that, that they -- the current demand seems to be good enough and they have enough confidence at this point in time as I said, continue to take doing -- do boats. Our field inventory has, it's up, but it's probably only half to two-thirds as large as it was kind of pre-pandemic. So there's still a lot of room there. We're hopeful that there'll be a lot of sell-through and those inventory levels will typically come down after you move through the selling season. So hopefully, we'll see that. And there'll still be plenty of room for them to take normal amounts of inventory past the normal retail selling season and into the end of the year. So we're still -- we still are very positive on the rest of the year, but as we mentioned in our comments, we're certainly watching very closely all of the things that we're talking about here in terms of dealer behavior, economic weakness and all of those sorts of things. But right now, we see it remaining quite strong.

Great. And then, just the last one, you guys mentioned some improvement in supply chain and improved component availability like where are the specific items that you're seeing some relief? Is it on outboard engines, windshields, sort of wire harnesses like where are you seeing the biggest improvement?

I'd say all of the above, but it's kind of two steps forward, one step back, we had significant improvement and then we'll have issues getting outboard engine for instance, but then little slow. So it's much, much better than it was the last few quarters, which is why we were able to complete and ship more boats than we manufactured. But it's still -- we're still not 100% through the woods, but it's just sort of all over the place. So it's not just one thing. It's like a game of whac-a-mole as soon as something fixed, the next thing pops up.

Yes. Yes. Also Fred, it’s Jim. Transportation is better.

Yes, that's a great point.

Yes. Without exception, transportation is better. So that's helpful.

And there are no further questions at this time. I would like to turn the conference over to Jim Landers for closing remarks.

Okay. Thank you, Audra. And we appreciate everybody you've called in and the questions. We hope everybody has a good day. We will talk to you soon.