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

Eric Wold - B. Riley Ronald Bookbinder - IFS Securities Louis Moser - Mayfax Investors.

Good morning, and good day. Thank you for joining us for Marine Products Corporation's Second Quarter 2018 Financial Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer, and present, 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 this time for you to queue for questions. I would like to advise you - everyone that this conference call is being recorded today.

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 2017 10-K, and other SEC filings that outline those risks. All of which are available on our website at www.marineproductscorp.com. If you not received our press release, please visit our website at www.marineproductscorp.com for a copy.

We will 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 second quarter of 2018 this morning. Ben Palmer our CFO will discuss the financial results in more detail in a momentum. At this time, I will briefly discuss our operational highlights.

Our net sales increased by 21.7% during the second quarter, breaking our previous record set in the second quarter of 2005. Net sales increased primarily due to a 13.3% increase in units of boats sold and a 6.9% increase in the average selling price per boat. We continue to be pleased with the market share of all our product categories.

Our Chaparral stern drive products continue to hold the highest market share in their category, approximately 16.7% for the 12 months ended March 31, 2018. Robalo’s market share continues to grow as it is now ranked number three in the outboard sport fishing category.

As a testament to the success of our Chaparral Suncoast outboards, the combination of Robalo and Chaparral outboards models now holds the numbers two market share in the 16 to 30 foot fiberglass outboard boat category.

We also announced this morning that our board of directors yesterday declared a regular quarterly dividend of $0.10 per share consistent with the quarterly dividend issued last quarter. Also during the second quarter, we repurchased 13,434 shares of common stock in the open market. I will now turn over the call to our CFO, Ben Palmer..

Thank you, Rick. Net sales for the second quarter of 2018 were $87 million, an increase of 21.7% compared to the second quarter of 2017. Higher average selling prices contributed to this increase, as well as higher unit sales. Gross profit in the second quarter was $19.5 million, an increase of 19.6% compared to the second quarter of ’17.

Gross margin during the quarter declined slightly to 22.4% compared to 22.8% in the second quarter of last year.

Selling, general and administrative expenses were $8.3 million in the second quarter, an increase of approximately 10% compared to the second quarter of 2017, due to expenses that vary with higher net sales and profitability, including incentive compensation, commissions and warranty expense.

SG&A expenses were 9.6% of net sales during the second quarter of ‘18 compared to 10.6% in the second quarter prior year. SG&A as a percentage of net sales decreased due to the leverage of higher net sales over several costs that are relatively fixed during the short term. For the quarter ended June 30, 2018, we reported net income of $9 million.

Net income increased by $2.9 million or 46.9% compared to the second quarter of last year. Diluted earnings per share of $0.26 increased by $0.08 or 44.4% compared to the second quarter of last year.

Our net income and earnings per share this quarter were also records, with the previous highest net income and EPS having been recorded in the second quarter of 2005. Contributing to the year-over-year improvement in net income and earnings per share were lower corporate tax rates.

International sales represented 10.6% of total sales during the second quarter compared to 7.1% of net sales in the second quarter of last year. Sales increased in several of our international markets, including Canada. Along with everyone else and the recreational boat industry, we are closely monitoring developments in international trade.

As you probably know the U.S. imposed a 10% worldwide4 tariff on aluminum and a 25% worldwide tariff on steel in March. In retaliation several of our trading partners, including Canada, Mexico and the European Union have recently implemented retaliatory tariffs on many U.S. products, including recreational boats.

We believe that there are several potential impacts on our sales and profitability if these tariffs remain at current levels. First, worldwide aluminum prices have increased during the past several months and we use aluminum in the manufacturing of our products.

In addition, we believe that our products exported to Canada, Mexico and the European Union will be less competitive in those markets than in previous periods. To offset to this issue is the fact that we have high U.S. domestic demand and a strong order backlog.

For the six months ended June 30, 2018 approximately 7.3% of Marine Products total net sales were generated from these three trading partners.

Our cash and marketable securities balance increased to $27.9 million at the end of the second quarter of 2018, an increase of $6.2 million compared to the second quarter of last year and an increase of $6.4 million compared to the end of the prior quarter.

Our effective tax rate during the second quarter was 20%, a significant decrease compared to 30.3% in the second quarter of last year. The effective tax rate declined in the second quarter of 2018, primarily because of the Tax Cuts and Jobs Act enacted in the fourth quarter of last year.

The lower effective tax rate for the second quarter of 2018 due to tax reform increased diluted earnings per share by approximately $0.03. As of June 30, 2018, dealer inventories were only slightly higher compared to this time last year, as retail demand remained strong. With that, I'll turn it back over to Rick for a few closing comments..

Thanks, Ben. We are pleased to report record sales, and net income and earnings per share during the second quarter, beating our previous record set 13 years ago. Strong consumer confidence, stable real estate values and the strongest employment market in many years are catalysts for a good selling environment for our products.

We will be holding our Annual Dealer Conference in a few weeks and we look forward to introducing our new 2019 models to our dealer network, as well as hearing their assessment of consumer sentiment in their individual markets. Thank you for joining us this morning. And we'd be happy to take any questions you may have..

Thank you. [Operator Instructions] We’ll now take our first question from Eric Wold from B. Riley. Please go ahead..

Thank you. Good morning and congrats on a very strong quarter. I just think….

Hi, Eric….

Yes, I just want to dive a little bit on the tariff issue. Obviously, a little bit of a fluid issue, not everything completely known at this point. Anything you would do kind of proactively ahead of full knowledge of the tariff’s and kind of the issues, was it more kind of wait and see, what the final impact is.

And then if it does come in as expected or kind of what the current and kind of expectation is or kind of rhetoric [ph] for the tariff’s and the kind of the retribution from our tariff’s, you know what could be something you could do to help offset that risk? Would you going to take more price here in the U.S., to offset [ph] international or are you going to keep those markets as they are?.

Eric, this is Jim. You know, it’s kind of difficult to say we've looked at every angle of it, as you mentioned it's very - it's very fluid at this point. Canada is one of our largest export markets as Ben mentioned. And they just put this tariff in place on July 1st. So we do not know. We use aluminum in our products, in the manufacture of products.

It's not a huge amount though, so that's less of an issue than not being able to export or you know exporting fewer boats. But thank goodness for strong demand here in the U.S. So that's one quick answer, I'm sorry we don't have a more complete answer for you..

So can you remind us of what percentage of aluminum is or the cost of....

We don't know, we've actually worked on that. It's hard to know the aluminum content of every component of our boats. We can tell you that our fuel tanks are made of aluminum and our trailers that we buy from a third party are made of aluminum. We haven't seen an increase in those prices yet, but that doesn't mean it won't happen.

Aluminum content and other things, instrument panels, engines et cetera, we just don't know, we just haven't done that work..

And it's a reasonable – Eric, this is Ben, it’s a reasonable question. We use very, very little aluminum that we bought directly. I mean, it's really in the components that we buy from our suppliers. And so for us it's really more of a wait and see – you know, see what the impact is on them. And then we'll have those discussions when the time comes.

So reasonable question, but we don't yet know what the impact is going to be. And I expect there will be discussions with a number of suppliers in that regard and we'll work through it you know, like we do each year..

Fair enough. Thank you, guys..

Sure..

Thanks, Eric..

We will now take the next question from Ronald Bookbinder from IFS Securities..

Yes, so continuing on the taxes, what percent of the overall cost of the boat do you think that this would increase given that it's only a percentage of the aluminum?.

Ron, this is Jim. It's very small. We don't know the number, but it's very small. The largest single cost component – the larges single cost component – let me just give you a point, the largest single cost component in our boats is the engine. And there's some aluminum in that I'm sure, but very little. So it is a small cost for us.

Ben just mentioned that in the interest of just full disclosure about what we were doing there..

And lastly, the small percentage of the total cost - I think, it's only going into 7% of your sales, correct?.

That's correct. Based on six months, the last six months sales it represents only 7% of our consolidated net sales. International sales represent a little over 7%, 7% to 7.5% of our total net sales for the last six months.

We believe and kind of on the export side that I think they'll be - I think Eric mentioned this that I think its probably going to be the case, that there is going to be a lot of sort of wait and see, as it relates to international markets, particularly like Canada.

I think they probably - they taking delivery of many of the boats that they've already ordered with their boating season. So I think there's some time to let this shake out. So I think there will be a lot of sort of wait and - wait and see.

We are not at this point moving aggressively forward to try to figure out ways to - you know, ourselves to deal with tariff. We think we have a little bit of time and hopefully - hopefully it will be resolved in some manner and it will have minimal impact, but we don't know at this time.

So I think this is more wait and see and work with our dealers and partners and hopefully as Jim indicated and I indicated in my comment, hopefully U.S. demand will be strong enough to absorb some if not much of what would otherwise be impacted from these other export sales, you know, would maybe be absorb that here in the U.S..

Okay.

And the operating cost that continues to expand, what do you think is - as you continue to get manufacturing leverage, what do you think the potential for the operating margin is over the longer period of time and excluding the tariffs and outside forces?.

We talked about our record sales back in 2005, our gross margins you know in the last several years have been lower than they were back in 2005. I expect we'll continue to strive for better margins. I think with larger boats you know, we’re tending to sell larger boats with higher average selling prices.

And so I expect there are some upside to our gross margin, we’ll continue to manage our costs closely and with our workforce and always working on quality. So I think there is some opportunity to increase the margin and – but considerably at this point it's been vastly on product mix, but we are moving up to the larger boats and that's helpful..

You said there is nothing that can [indiscernible] you from getting back to the '05 levels that [indiscernible] in mix or different that -- the value that you're providing compared to '05?.

Right..

And -- all right. Well, terrific.

And lastly, as the outboards become more popular than the stern drives, are you looking at moving the mix of the Chaparrals more toward outboards? Or are you pretty much holding the brand to what it is?.

I think we'll continue to make more Chaparral with outboard, so the stern drive is - continues to be okay with us, obviously a struggle overall. But we’ll find that right balance. We think there is additional opportunity in putting outboards in some Chaparral models and we have some exciting things, we have to share with our dealers here soon.

But yeah, I see that trend continuing, that there will be more models with outboard engines at Chaparral..

Okay, great. And congratulations on the quarter and good luck in the new quarter. Thank you very much..

Thank you very much..

Thank you, Ron..

We will now take the next question from Louis Moser from Mayfax Investors..

Yeah. Hi, good morning. Just….

Morning, Louis..

Answered the overall fund [ph] sales versus U.S. sales are 7% percent versus 93% in the U.S.

or is that incorrect?.

That's right. We - in the current quarter international sales were - I think its 10.6% for the last six months it was 7.3%..

Next quarter is generally a seasonally lower quarter traditionally, is that correct?.

Third quarter, was that your question..

Yeah….

Its a natural – yes, that's a slower sales quarter. That's correct..

Okay.

Based on whatever happens with the export situation to maintain your market, can you raise your prices on retail to recoup whatever is lost on the trade situation?.

Tariffs..

The three partners that we talked about at 10%, 15% and 25%, I think that would be difficult. I'm not - certainly it would have some impact, but that - that's certainly an option that our dealer - we or our dealers could pass that along to the consumer. But I think it would definitely have an impact on demand in those particular markets.

So clearly we're concerned about that, I guess we're blessed that international sales at this point in time the international sales are not that significant of a component of our total sales, much less than it was a number of years ago.

So again, we're just hoping it gets resolved and maybe there can be some equalization of tariffs between the trading partners and maybe it will get resolved sooner rather than later..

Okay. Appreciate your answers. Very good. Thanks very much..

Sure. Thank you..

Thank you..

[Operator Instructions] As there are no further questions, I'd like to hand the call back to your host for closing remarks..

Thank you, Marian. Thank you, everybody who called in and for the questions. We hope everyone has a good day. Talk to you soon. Thanks..

The conference call will be replayed on www.marineproductscorp.com within two hours following the completion of the call. That would conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect..