Jim Landers - Vice President of Corporate Finance Richard A. Hubbell - Chief Executive Officer, President, Director, Member of Executive Committee, Chief Executive Officer of RPC Inc, President of RPC Inc and Director of RPC Inc Ben M.

Palmer - Chief Financial Officer, Principal Accounting Officer, Vice President, Treasurer, Chief Financial Officer of RPC Inc, Vice President of RPC Inc and Treasurer of RPC Inc.

Jimmy Baker - B. Riley Caris, Research Division.

Good morning, and thank you for joining us for Marine Products Corporation's Third Quarter 2014 Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance.

[Operator Instructions] 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, Lauren, and good morning, everybody. Before we get started today, I'd like to remind everyone that some of the statements that we'll make on this call may be forward looking in nature and reflect a number of known and unknown risks.

I'd like to refer you to our press release issued today, our 2013 10-K and our other SEC filings which outline those risks. All of these are available on our website at www.marineproductscorp.com. If you did not receive our press release for any reason, please visit our website again at www.marineproductscorp.com for a copy.

This morning, we'll make a few comments about the quarter and then we'll be available for your questions. Now I will turn the call over to our President and CEO, Rick Hubbell..

Jim, thank you. We issued our earnings press release for the third quarter of 2014 this morning. Ben Palmer, our CFO, will discuss the financial results in more detail in a moment. This time, I will briefly discuss our operational highlights.

Our net sales decreased by approximately 10% during the third quarter due to lower unit sales and lower average selling prices. Lower unit sales among our Chaparral models was partially offset by increased unit sales of our Robalo sport fishing boats and sales of our Vortex jet boats which we introduced during the first quarter of 2014.

Gross margins as a percentage of net sales was 18.4% in the third quarter in both 2014 and 2013.

The retail selling season ended more strongly than it started, but we maintained lower production levels during the third quarter in order to keep dealer inventories low so that we can be prepared for our 2015 models, some of which I will discuss at the end of this call.

Our Chaparral sterndrive brand continues to hold the #1 market share in its category. The latest available data for the 12 months ended June 30, 2014, indicate that Chaparral had 14% of the 18- to 35-foot sterndrive market, a slight increase compared to the previous reporting period.

Robalo market share grew as well and reached 3% of the coastal offshore sport fishing boat market during this period. We continued to produce and sell Chaparral's first Vortex jet boat model during the third quarter. We are happy with our dealers' and customers' reception to this boat and are rolling out additional models in this line for 2015.

We also announced this morning that our Board of Directors yesterday voted to pay a regular quarterly dividend of $0.03 per share and a special dividend of $0.04 per share. With that overview, I will turn it over to our CFO, Ben Palmer..

Thank you, Rick. For the quarter ended September 30, 2014, we reported net income of $1.9 million, a decrease of 6% or $120,000 compared to $2 million in the third quarter of 2013. Our diluted earnings per share were $0.05 in the third quarter of this year and last year.

Unit sales decreased approximately 9% during the third quarter of 2014 compared to the prior year. Sales of our Chaparral models declined, partially offset by an increase in unit sales of our Robalo and Vortex models. Average selling prices declined slightly because of our model mix during the third quarter.

Gross profit in the third quarter was $7 million, a decrease of 9.9% compared to $7.7 million in the third quarter of '13. Gross profit declined due to lower sales. Gross margin as a percentage of net sales was 18.4% in the third quarters of both years.

Selling, general and administrative expenses decreased by 11% in the third quarter of 2014 compared to the prior year and were 11.6% of net sales. SG&A expenses were 11.8% of net sales in the third quarter of last year.

These expenses declined due to expenses that vary with sales and profitability such as incentive compensation, sales commissions and warranty expenses. U.S. domestic net sales decreased by 9.9% in the third quarter of 2014 compared to the third quarter of last year, and international sales decreased by 8.4%.

International sales comprised 13.7% of consolidated net sales in the third quarter, approximately the same as the 13.5% of net sales last year. Interest income in the third quarter was $116,000, a slight increase compared to $83,000 in the third quarter of 2013.

This slight increase was due to a higher cash and marketable securities balance, which continues to grow. Marine Products' income tax provision during the third quarter was $810,000 compared to $877,000 in the third quarter of '13. The effective tax rate was 30.1% this quarter, slightly lower than the 30.5% effective rate in the third quarter of 2013.

Our balance sheet remained strong. As I mentioned, our cash and marketable securities balance has grown and increased from $43.9 million at the end of the third quarter of 2013 to $49.8 million at the end of the third quarter this year.

Accounts receivable and inventories were lower at the end of the third quarter of '14 compared to last year due to lower net sales, coupled with improved working capital management. At September 30, 2014, our dealer inventory and order backlog had improved compared to the end of the second quarter and were comparable to levels at this time last year.

Rick mentioned at the start of this call that we have maintained lower production levels during the third quarter in order to maintain good dealer metrics, and I believe that we have accomplished that. I will now turn it back over to Rick for a few closing comments..

Thanks, Ben. We were pleased with the results of our recent annual dealer conference and are excited about the 2015 model year at Chaparral and Robalo. One of the highlights of our 2015 model year will be the new Chaparral 250 SunCoast. The 250 is targeted for use on big lakes, rivers and coastal waterways.

The 250 SunCoast is an outboard-powered boat, the first that Chaparral has produced in many years. And it will be powered by the same reliable Yamaha engines that we use at Robalo and will offer a whole design that we believe is superior to similar products on the market.

The extended running surface allows the SunCoast to have a boater-friendly swim platform. We look forward to introducing the SunCoast to retail customers during the 2015 winter boat show season.

In addition to this new Chaparral outboard, we have also put the finishing touches on our Vortex jet boat series, with the 223 and the 243 models available in the VR and the VRX configurations. At our dealer conference, we also introduced 2 new Robalos, the 246 Cayman and the new 242 center console model.

Given our favorable dealer metrics and strong dealer conference results, we are planning to increase production during the fourth quarter. This increased production will position us to meet demand for our new 2015 model year. I'd like to thank you for joining us this morning, and we'll be happy to take any questions you may have..

[Operator Instructions] Our first question comes from Jimmy Baker with B. Riley & Co..

Could you just speak a little bit about the sequential decline in production here? It's a little bit steeper than we might typically see from you. And if that was just responsive to something that you saw out of retail or that retail maybe underperformed what you had -- what you were looking for earlier in the year.

Or is this more of kind of an inventory correction, if at all, in your dealer channel? Just kind of help us understand the sequential walk..

Jimmy, this is Jim. Just going back a few months, and we all know this story, but we were responding to a long winter, a cool spring and rising gasoline prices and just a little bit of concern that the 2014 retail season was going to be weak.

As Rick said, it finished strongly, and it did, but we kept production down, reduced production a little bit because we felt like 2015 was going to be a good model year and we wanted dealer inventories to be low and ready to go. And that's really the story.

I guess maybe another part of the story is that sterndrive boat sales in general continue to languish. I'm sure you've seen the retail sales data for the 9 months ended September. So we have a -- we keep an eye on that as well. Robalo sales increased, but sterndrive is not a strong market at this point..

And Jimmy, a little more color on that. In particular, Canadian sales were particularly weak. I think, again because of the harsh winter, Canadian sales were particularly weak; and also the Northeast, which is a sort of confirmation of, I think -- or illustration of what happened to us this retail selling season.

So we did drop production during the quarter. It did align things back up, and as we said, backlog is similar to what it was at this time last year. And last year, we got off to a pretty decent start. So we're pleased with that at this point, in that we weren't able to continue to produce or have retail sales, to be able to pull through that inventory.

So we made those adjustments, and I think it lined everything up and we're happy with where we are..

That's helpful. And right, so you've talked about both the backlog and dealer inventory being in pretty good shape here. And so just maybe how should we think about production sequentially here in Q4.

And then also, can you just give us a sense for how material Vortex sales were in the quarter, either in terms of dollars or units?.

Sure. The answer to the first question is we are increasing production, but it's going to be hard to see because of Thanksgiving and Christmas and plant shutdowns. So production will increase in Robalo. It'll increase a little bit at Chaparral, but we really won't see that increase that we're gearing up for until the first quarter of 2015..

And then, well, we have the holidays and so forth in the fourth quarter. This is the time of year where we continue into put new modules into production and things like that, get prepared for next year, looking forward to the winter boat shows. And we'll respond to those once we get some more definitive feedback on those.

But again, order backlog is very similar than it was this time last year, so that's an indicator of production levels to sort of feed off of the order backlog..

Yes. And Jimmy, we don't disclose specific numbers on Vortex, but in terms of unit sales, it was more than 5% and less than 10% of unit sales in the third quarter..

Okay, got it.

And then just given some of the early-season retail sluggishness that we saw this year from weather and so forth, are your dealers -- or did your dealers battle any kind of elevated promotional activity from competitors that are, let's say, working to clear out the model year '14 products?.

That's a really good question. I'm not sure of anything....

I don't think [ph] any elevated. I mean it's always very competitive, but no, I don't think we experienced that. Our -- we were able to -- our incentive management efforts worked reasonably well and we didn't have to respond with anything specific or significant..

Okay. Then last one for me, just on the capital allocation front. Interested if we should take the special dividends to at all imply that there's maybe nothing particularly imminent in your M&A pipeline here. And maybe you could just update us more broadly on your search.

It seems like there might be an attractive brand or 2 here in complementary categories coming to market in the next year, so without naming anybody specific, maybe you could just kind of talk about that generally..

Well, Jimmy, the dividend is the third year-end dividend we've done in the past 3 years, so anyway, so just so you're aware of that. There actually are some good boat companies that are available for sale for various reasons, and we are looking at them. And there are some good complementary boat brands, so -- and we are looking at them.

We have been looking at acquisitions for a long time, and private equity typically takes them for much higher valuations than the strategic manufacturers like ourselves are willing to put forth. So that's always an issue, but we are always looking.

We are always ready to get a good complementary boat brand that has a good reputation and has strong management, and we are always looking. It's kind of the most I can say right now..

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

Okay, thank you, Lauren. Jimmy, thanks for the question. We appreciate everybody else who called in. And we hope everybody has a good day. We'll see you soon..

This does conclude today's conference. Today's conference call will be replayed on www.marineproductscorp.com within 2 hours following the completion of the call. Thank you..