Jim Landers - VP, Corporate Finance Rick Hubbell - President & CEO Ben Palmer - CFO.

Jimmy Baker - B. Riley & Company.

Good morning and thank you for joining us for Marine Products Corporation's Fourth Quarter 2016 Financial 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.

At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be given at that time for you to queue up for questions. I would like to advise everyone that this conference is being recorded. Jim will get us started by reading the forward-looking disclaimer..

Thank you 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 and reflect a number of known and unknown risks. I'd like to refer you to our press release issued today, our 2015 10-K, and other SEC filings that outline those risks.

All these are available on our website at www.marineproductscorp.com. If you have not received the press release and would like one, please visit our website again at www.marineproductscorp.com for a copy. We will make a few comments about the quarter and then we will be available for your questions.

Now, I will turn the call over to our President and CEO, Rick Hubbell..

Jim, Thanks. We issued our earnings press release for the fourth quarter of 2016 this morning. Ben Palmer, our CFO will discuss the financial results in more detail in a moment. At this time, I will briefly discuss our operational highlights. Our net sales increased by 14.7% during the fourth quarter.

Net sales improved due to higher unit sales of Chaparral's value priced H2O series and our Robalo outboard sport fishing boats. This quarter represented a continued overall improvement in the recreational boat market and a favorable end to 2016. We continue to be pleased with the market share of all of our product categories.

Our Chaparral's stern drive product continued to hold the highest market share in its category, approximately 14.7% for the 12 months ended September 30, 2016. Our Chaparral Vortex is holding the number of three positions in the jet boat category and Robalo is the top five manufacturers in the outboard sport fishing category.

This morning, we announced that our Board of Directors voted yesterday to pay a quarterly dividend of $0.07 per share, an increase of $0.01 per share compared to the previous quarter. In addition during the fourth quarter, we completed the partial tender offer which we initiated in August of last year.

We are pleased with the ultimate results of the offer, which offered liquidity to large shareholders and was an efficient method of continuing the share repurchase program that we have had in place during our time as a public company. With that overview, I will turn it over to our CFO, Ben Palmer..

Thank you, Rick. For the quarter ended December 31, we reported net income of $3.7 million, a decrease of 3.2% compared to $3.8 million in the fourth quarter of 2015. Our diluted earnings per share for the quarter were $0.10, equaled earnings per share of $0.10 in 2015.

Net sales for the fourth quarter of '16 were $57.2 million, an increase of 14.7% compared to fourth quarter of 2015. Our unit sales increased by 13.6% and our parts and accessory sales increased as well.

These increases were partially offset by a decrease in average selling price per boat, a decrease that was due to the mix of model sales during the quarter. Gross profit in the fourth quarter was $12.2 million, an increase of 9.8% compared to the fourth quarter of 2015.

Gross margin during the quarter was 21.3%, compared to 22.3% in the fourth quarter of 2015. Selling general and administrative expenses were $7 million in the fourth quarter, an increase of $1.3 million, compared to the fourth quarter of 2015.

SG&A expenses were 12.2% of net sales during the fourth quarter and 11.4% of net sales during the fourth quarter of the prior year. We increased our warranty accrual during the fourth quarter of 2016 based on our updated estimate of the ultimate cost of current and future warranty clients.

This adjustment in 2016 significantly impacted our year-over-year SG&A variances, thus in the fourth quarter of last year, we recorded a favorable adjustment in this expense category. U.S. domestic net sales were strong, increasing by 17.7% in the fourth quarter compared to the fourth quarter of last year.

International sales represented only 5.7% of total sales during the fourth quarter of '16, a decrease compared to 8% of total sales during the fourth quarter of 2015. During the fourth quarter of this year, we liquidated a portion of our marketable securities portfolio in order to fund the partial tender offer.

Accordingly, interest income was reduced by realized losses on the sale of marketable securities which resulted in net interest expense of $9,000 for the quarter. This net expense compares to $95,000 of interest income in the fourth quarter of last year.

Marine Product's income tax provision during the fourth quarter was $1.503 million compared to $1.670 million in the fourth quarter of 2015. Our effective tax rate was 28.8% in the fourth quarter, compared to 30.3% in the fourth quarter of 2015.

Even after completion of our partial tender offer totaling approximately $34 million or 3.5 million shares, our balance sheet remains strong. Our cash and marketable securities balance decreased to $11.9 million at the end of the fourth quarter, compared to $42.9 million at the end of the fourth quarter last year.

We believe that this marketable securities balance provides ample liquidity to support our current operations. We also believe that the company will continue to generate strong cash flow in 2017.

As of the end of 2016, dealer inventories and order backlog were higher than the prior year, reflecting our dealers' optimism for the upcoming retail selling season. We share our dealer's optimism and our production going into the first quarter is higher than at this time last year.

With that, I'll turn it back over to Rick for a few closing comments..

Thank you, Ben. As the 2017 selling season gets under way, we are offering some exciting new models to the recreational boating market. Foremost among them is our new Surf series, which takes six models of our Chaparral SSI, SSX and semester [ph] stern-drives and transforms them into stylish wakesurfing boats using a specially-designed hole.

The boat will tend a forward-drive in the Malibu Surf Gate technology. These multi used boats at this far generate a lot of interest among our dealers and customers. Another new boat that are generating attention is the Chaparral 287 SSX. The 287 SSX is a large open-cockpit bow rider with many updated design features and strong performance.

Among the Robalo outboard sport fishing boats, the Robalo 302 Walkaround, which is the largest boat in the fleet is generating enthusiasm this season as well. The winter boat season is in full swing and indications from the show thus far this year have been favorable.

Attendance of boat shows have been higher this year than last year and our dealers report serious interest from informed buyers who are making purchases at the shows. The economy is strong and consumer confidence is growing along with it. So we believe that we will benefit from this strong retail season in 2017.

Thank you for joining us this morning and we'd be happy to take any questions you may have..

Thank you. [Operator instructions] And we will take our first question from Jimmy Baker with B. Riley and Company..

Hi, good morning. Thanks for taking my questions..

Hey, Jimmy..

Maybe this is for Ben, but just hoping if you could expand a little bit on the warranty expense.

Have your warranty terms changed at all or anything notable to call out there? And then I guess as we look at the gross margin level, any color you can provide in terms of framing the opportunity for gross margin expansion in '17?.

Let me answer the second one first. Yes, we think the margin at this point, we do believe with high production volumes, there is some opportunity to expand that margin a bit and from the model mix and that has been approving some in recent quarters.

And some of the boats that Rick talked about are some of the larger boats that recently come out that we haven't yet produced many sales in those, so we are hoping that would produce some positive impact on the gross margin line. As it relates to the warranty accrual, we have not changed our terms.

There are a lot of things that go into impacting what ultimate warranty claim cost are. I think that in this situation, we see something we've been looking at very closely for quite a while. Warranty expense was a little bit high last quarter as well. This quarter, we think this now is all behind us.

We think it's been taken care of the manufacturing process and quality is something that's always been very important to us, but it's something that we've been particularly focused on in the last nine to 12 months.

I'm sure you understand that there's often times lags between when if you have a quality issue, if you have a warranty issue, it takes some period of time for that to be identified and then for those warranty claims impacts have become known after they're filed.

So there's a little bit of delay, but we're comfortable that we've been focusing on the issue and focusing on what we think the exposure is and we believe at this point that it's behind us..

Sure, understood. Appreciate the updated comments on surf gator, your surf models. I think you mentioned that's generating a lot of attention.

I guess how should we think about that in terms of sales, your orders? Is there any commentary that you could provide on the take rate along those models that you're offering it?.

Jimmy, this is Jim. There's been a lot of interest. It's really hard to say at this point what sales are going to be in 2017. We just introduced the boat in August or September and are taking orders now. We'll have to get back to you on that one maybe in the first quarter..

Okay.

Just lastly, I was interested if you have any updated thoughts about the M&A environment here that you could share? Are you actively in discussions on anything? And just how should we think about balancing uses of cash going both forward here?.

Jimmy, as you know, we're always looking and always interested in talking to people who have a good company to sell. So we're going to continue with that and of course, we're looking for something that is complementary to what we do.

Complementary, but still a recreational boat manufacturer, and those opportunities will be out there, nothing serious at this point. We do believe we have adequate capital to consummate a transaction. As Ben mentioned, we have some liquidity on our balance sheet. We can borrow money and we can always get the sellers interested.

Issue stock is consideration for the transaction, which is a good tax answer many times for [indiscernible] companies. So we are still looking and have the capability to do something..

Okay, understood. Thanks very much for the time..

Sure. Thanks, Jimmy..

Thank you, Jimmy..

[Operator instructions] And we have no further questions in the queue. I will turn the call back to Jim Landers for closing remarks..

Okay. Thank you, Jimmy. Thanks for your question and thanks for everybody else who called-in to listen. Have a good day. We'll talk to you soon..

That concludes today's conference. As a reminder, this conference will be available for replay at www.marineproductscorp.com within two hours following the completion of the call. Thank you for your participation. You may now disconnect..