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

Eric Wold - B. Riley & Co., LLC.

Good morning, and thank you for joining us for Marine Products Corporation's Third Quarter 2017 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 a 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 is being recorded. Jim will get us started by reading the forward-looking disclaimer..

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 2016 10-K, and other SEC filings that outline those risks.

All of which are available on our Web site at www.marineproductscorp.com. If you have not received our press releases, please visit our Web site again at www.marineproductscorp.com for copies. We will make a few comments about the quarter and then we’ll be available for your questions.

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

Thank you, Jim. We issued our earnings press release for the third quarter of 2017 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 6.9% during the quarter.

Net sales increased due to an improved model mix which included larger boats and sales of our Chaparral Surf Series. 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 16% for the 12 months ending June 30, 2017 compared to 14.7% for the same period last year. Our Chaparral Vortex line continues to hold the Number 2 position in the 20 to 24 foot jet boat category.

Robalo’s market share continues to grow as it is now ranked Number 4 in the outboard sport fishing category. We also announced this morning that our Board of Directors yesterday declared a regular quarterly dividend of $0.07 per share, plus a special dividend of $0.05 per share.

Also during the third quarter we repurchased 100,405 shares of common stock from the open market. With that overview, I will now turn it over to our CFO, Ben Palmer..

Thank you, Rick. For the quarter ended September 30, 2017, we reported net income of $4.6 million, an increase of 6.5% compared to $4.3 million in the third quarter of 2016. Our diluted earnings per share for the quarter were $0.13, an increase of $0.02 compared to diluted earnings per share of $0.11 in 2016.

A lower share count due primarily to our tender offer completed last year contributed approximately $0.01 to our diluted EPS this quarter. For the third quarter of 2016, income tax adjustments contributed about $0.01 per share also. Net sales for the third quarter of 2017 were $59.2 million, an increase of 6.9% compared to the third quarter of '16.

For the quarter, our unit sales were comparable to the third quarter of last year, but average selling prices increased by 5.7% due to a favorable sales mix. Gross profit in the third quarter was $13.5 million, an increase of 14.4% compared to the third quarter of last year.

Gross margin during the quarter improved to 22.7%, due to higher average selling prices compared to 21.3% in the third quarter of '16. Selling, general and administrative expenses were $6.8 million in the third quarter of '17, an increase of approximately $500,000 compared to the third quarter of '16.

SG&A expenses were 11.5% of net sales during the third quarter of '17 compared to 11.4% of net sales during the third quarter of the prior year. U.S. domestic net sales were strong, increasing 9.7% in the third quarter compared to the prior year.

However, international sales decreased by 23%, and represented only 6.1% of total sales during the third quarter of this year, a decrease compared to 8.5% of total sales during the third quarter of 2016.

Our cash and marketable securities balance decreased to $17.6 million at the end of the third quarter of '17 compared to $46.9 million at the end of the third quarter of last year. This decrease was principally due to the $34 million required to fund our tender offer completed during the fourth quarter of last year.

Interest income during the third quarter was $81,000 compared to $121,000 in the third quarter of last year. This was due to a lower marketable securities balance. Marine Product's income tax provision during the third quarter was $2.186 million compared to $1. 298 million in the third quarter of last year.

Our effective tax rate was 32.4% in the third quarter of this year, compared to only 23.3% in the third quarter of last year. Last year's third quarter results included the beneficial impact of tax planning strategies which increased last year's EPS by $0.01 that I referred to earlier.

We project that our effective tax rate for the fourth quarter of 2017 will be approximately 32%. As of September 30, 2017, dealer inventories were lower than at the end of the second quarter as our dealers continue to sell inventory through the end of the retail selling season.

Order backlog was higher than at the end of the second quarter as our dealers prepare to accept 2018 models. With that, I'll turn it back over to Rick for a few closing comments..

Thanks, Ben. The recreational boating market continues to be strong as we end the retail selling season and look ahead to 2018. In spite of the continued industry wide weakness in stern drive boat sales, our Robalo sport fishing boats and the specialized Chaparral models continue to positively drive our financial results.

Hurricane Irma, negatively impacted our third quarter sales by approximately 3% during the third quarter. Our delayed third quarter shipments were made early in the fourth quarter.

In addition to impacting our sales, the hurricane also delayed our annual dealer conference which was scheduled to take place in the Keys on the weekend that the hurricane made landfall. So this year we are going to have a smaller dealer meeting in November close to our manufacturing plant.

We are excited about our 2018 models and look forward to introducing them to our dealer network in a few weeks. I’d like to thank you for joining us this morning. And we'd be happy to take any questions you may have..

Thank you. [Operator Instructions] We will go first to Eric Wold with B. Riley..

Thank you and good morning..

Hi, Eric..

Couple of quick questions. I guess, one, can you maybe give us a sense of the competitive environment you’re seeing out there within your various boat segments in terms of, maybe pricing pressures from competition etcetera.

And then on the hurricane you noted the kind of the immediate impact of delayed shipments in the quarter that have been made up in Q4, maybe give us a sense of what do you think the impact could be positively, negatively over the next few quarters or year in terms of consumers if there is willingness to purchase, replace and demand etcetera?.

Eric, this is Jim. Well, we are in a competitive business that goes without saying, but price competition is not a real feature of our operating environment right now. Demand for boats are strong. So, we’re working with our dealers, trying to find the right market niches.

As Rick and Ben mentioned, we’ve got some products that people are demanding and that’s kind of where we are. So it's the competitive dynamic and there is not much else to say beyond that.

On the idea about hurricanes and sales, additional sales coming in, in past, hurricane environments we have not seen a whole lot of retail sales pick up in the following spring for example.

You and I discussed that at the conference last month and we just -- we are not planning for or aware of any higher retail sales in the upcoming retail selling season, because people lost boats, I mean, that’s just the best indication we have right now..

Yes. This is Ben. I think that’s right. I think all things being equal, I guess, on the positive side [technical difficulty] people lost their boats and hopefully they were insured and they will want to go out and replace them. Other people may say, I don’t want another boat to be exposed to another storm or tragedy, so they may defer their purchase.

So net-net, it's unclear what the impact will be. Certainly, we’d hope that it would be positive, but we’re not necessarily ramping up or building that into our operational plans for the coming year..

Thank you. That’s helpful..

Sure..

[Operator Instructions] And that concludes today’s presentation. As a reminder, today’s call will be available for replay at www.marineproductscorp.com within the next two hours. We thank you for your participation. You may now disconnect..