Rick Hubbell - President and Chief Executive Officer Ben Palmer - Chief Financial Officer Jim Landers - Vice President, Corporate Finance.

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

Good morning and thank you for joining us for Marine Products Corporation’s Third Quarter 2018 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. 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 today.

Jim, will get us started by reading the forward-looking disclaimer..

Thank you, Anna and good morning. Before we get started today, I would like to remind everyone that some of the statements that we will make on this call maybe forward-looking in nature and reflect a number of known and unknown risks.

I would like to refer you to our press release issued today, our 2017 10-K and other SEC filings that outline those risks. All of these are available on our website at www.marineproductscorp.com. If you have not received our press release, 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, thank you. We issued our earnings press release for the third quarter of 2018 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 21.6% during the third quarter.

Net sales increased due to a 7.9% increase in units of boats sold and a 12.6% increase in the average selling price per boat.

We are especially pleased with sales increases of our sterndrive product line, which runs counter to the cyclical weakness in this recreational boat segment in sales of our new larger SSX models, which drove the increase in our average selling prices. We continue to be pleased with the market share of all of our product categories.

Our Chaparral sterndrive products continue to hold the highest market share in the category, approximately 16.8% for the 12 months ended June 30. Robalo’s market share continues to rank 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 outboard models together now hold number one 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 as well as a $0.10 per share special year end dividend, which is 100% increase compared to last year.

Also during the third quarter, we repurchased 49,194 shares of common stock in the open market. With that overview, I will now turn it over to our CFO, Ben Palmer..

Thank you, Rick. Net sales for the third quarter of 2018 were $72 million, an increase of 21.6% compared to the third quarter of 2017. Both average selling prices and unit sales increased. Unit sales in almost every product category increased and a model mix that included larger boats drove average selling prices higher.

Gross profit in third quarter was $16.2 million, an increase of 20.2% compared to the third quarter of 2017. Gross margin during the quarter declined slightly to 22.5% compared to 22.7% in the third quarter of last year.

Selling, general and administrative expenses were $7 million in the third quarter, an increase of approximately 3% compared to the third quarter of 2017 due primarily to higher incentive compensation consistent with improved operating results. SG&A expenses were 9.7% of net sales this quarter compared to 11.5% in the third quarter of last 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 September 30, 2019, we reported net income of $7.2 million. Net income increased by $2.6 million or 56.9% compared to the third quarter of last year.

Diluted earnings per share of $0.21 increased by $0.08 or 61.5% compared to the third quarter of last year. Contributing to the year-over-year improvement in net income and earnings per share were lower corporate tax rates.

International sales represented only 3.1% of net sales during the third quarter compared to 6.1% of net sales in the third quarter last year. International sales decreased primarily due to the due to the retaliatory tariffs enacted earlier this year.

Our cash and marketable securities balance at the end of the third quarter was $22.3 million, an increase of $4.8 million compared to the prior year, but a decrease of $5.5 million compared to the end of the second quarter.

Our cash and marketable securities balance decreased sequentially because of higher inventories consistent with higher production levels. Our effective tax rate during the third quarter of 2018 was 22.9% a significant decrease compared to 32.4% in the third quarter of last year.

The effective tax rate declined in the third quarter of this year primarily because of the Tax Cuts and Jobs Act enacted in the fourth quarter of last year. The lower effective tax rate for the third quarter of ‘18 due to tax reform increase diluted earnings per share by approximately $0.03 compared to the third quarter of 2017.

As of the end of the third quarter our order backlog was higher than at the same time last year and our dealer inventories were relatively unchanged reflecting the strong 2018 retail selling season and prospects for 2019. With that, I will now turn it back over to Rick for a few closing remarks..

Ben, thank you. We held our annual dealer conference in August and we are pleased with both our dealers reception towards 2019 models and their enthusiasm regarding near-term prospects for the recreational boating market. Our dealers were very enthusiastic about our new Robalo R272 center console.

At Chaparral we have introduced a 297 surf series for 2019 which is the largest surf series yet as well as smaller surf and H2O models. As we previously mentioned our third quarter results were highlighted by sales of larger boats. I am proud of the appeal of some of our larger models including the larger Chaparral SSX models.

One example of our success this quarter is the largest Chaparral SSX, the 347. The 347 is the large sterndrive bowrider with a full beam cabin and a large amount of seating and a number of other innovative features. This boat is one reason that are sterndrive sales have grown in spite of continued weakness in the overall sterndrive market.

Thank you for joining us this morning. And we would be happy to take any questions you might have..

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

Thank you. Good morning..

Hi, Eric..

Hi, two questions if I may.

I guess, one obviously a strong outlook, you noted from the dealers meeting, it seems pretty consistent kind of what we heard from our annual survey, I am just trying to get a sense of kind of below the surface, what are you hearing around maybe some anecdotal metrics typically, any increased promotional activity out there from your competition used boat inventory, any thoughts around that or are we still at attractive level not being attractive to new boat buyers?.

Eric, this is Jim. There is not, the news is good, but there is nothing in particular to call out. As you probably know, I am sure you know a lot of boat sales are used boats anyway.

So, there is nothing special about used boat inventory, no particular areas, regional areas of strength or relative lack of strength, so, just overall a pretty good environment at this point..

Perfect. And then secondly, on the – on M&A, there’s obviously been a meaningful increase in acquisition activity recent months throughout the industry. I’m assuming Marine Products has been kicking the tires on kind of all the targets that have been out there for sale.

What’s kept you – not specifically in each target, but just generally what’s kept you away that – is it the brands being offered, is it the types of boats, is it valuation, and then do you need – do you believe you need an acquisition in the coming years to drive growth or you have enough runway organically?.

Eric, this is Ben. We are interested and have been looking at some candidates. There is no particular reason at this point, we would love to have something that’s complementary to the portfolio as we’ve talked about for years. I think it just hasn’t clicked for us.

Valuations are quite high, but we will continue to diligently pursue I think relative to the need for an acquisition.

We’ve always felt that and by our results you could tell that we've been able to drive some nice growth in both our sales and earnings and we believe we’ll continue to do that within the Chaparral and Robalo brand names, but we are hoping that we can find another complementary acquisition, just haven’t been able to click for us just yet..

Sounds good. Thank you, guys very much..

Thank you..

Thanks, Eric..

Thank you. We take our next question from Ronald Bookbinder from IFS Securities. Please go ahead..

Good morning, and congratulations on a terrific quarter..

Thank you, Ron..

My first question is Nashville, Georgia with the hurricanes that have recently come through, how is everything and everyone in Nashville?.

I think we’re without power for a day or maybe little more than a day and there was not too much –.

Right. Yes, not too much damage..

Yes..

We came through it very well, tornado last year, hurricane this year, but we are unscathed..

Yes. Thanks for asking. Good question..

Yes..

That’s good to hear.

The strong sales, was there any sort of abnormal shift in sales from quarter-to-quarter that, that helped bring the upside there?.

Well, Ron, we’ve talked a few times about our model mix that included larger boats, so that would be the one thing we’d call out. We had a nice model mix this quarter with some larger boats as Rick discussed in his comments..

Are we just talking more about just timing?.

Oh, right, yes, timing of shipments on occasion can have an impact. It may have had a very slight, but not significant, not enough that we felt, that’s called out, right, we didn’t mention it, but – so nothing –.

Okay. And on the gross margin, it was down 30 basis points, still very nice gross margins.

What about higher input costs like labor and material, any impact?.

Minimal impact on the quarter. Employee retention is something that we are really focused on. So, all things being equal, there may be some uptick in employee labor costs, but we hope that’s going to come back to us in other improvement areas to really have no or minimal net impact.

In terms of other input costs at this point, we've not seen any meaningful impacts from tariffs or anything like that. It certainly as time goes on, if there aren’t any changes it may creep into the cost structure, but at this point we've been able to minimize any negative impacts..

Okay. And lastly the buildup of inventory sort of going into the off-season, inventory was up like 20%, the dealer inventories unchanged.

So, is it just that, that is the backlog up about 20% that, that you're comfortable with this inventory level?.

That’s right. And also in there that we didn't call out was we did have some favorable vendor terms that we took advantage of and bought some key components a little bit ahead of time.

So that contributed to that appearance of that additional level, but it is overall the fact that we are throughout the season we are relatively in high production levels and we feel that inventory is appropriate at this point..

International, with trade deals being done with Canada, Mexico, do you think that international revenue is going to rebound or is there going to be some lingering impact from the tariffs?.

I think it will be – at this point it’s still impacting us, it’s still out there and lingering, I guess fortunately and it maybe doesn’t present an upside that it is a relatively small percentage of our total sales.

And I think the overall increases with the decreases in international is just further testament to how well we are doing domestically, but we are hoping that will be great to get some of that resolved and I think it would provide some additional demand and sales through, but at this point, I think there is a lot of people that they are sort of in a wait-and-see attitude or position at this point in time..

Okay, great. Congratulations once again on the quarter and good luck in the rest of the year..

Thank you, Ron..

Thank you very much..

We take our next question from Louis Moser from Mayfax Investors. Please go ahead..

Yes, hi, good job on the earnings, think what your biggest concern is going forward into the next quarter and thereafter?.

Labor is one. There is a shortage of skilled labor throughout the United States in every industry, including ours. So, that’s one certainly keeping an eye on tariffs and trade wars..

And I think biggest concern I mean certainly demand, we are in a good market at good point in the cycle, dealers are excited, but watching that closely, but we are very comfortable right now with all the signs and signals we see at this point..

And I didn’t get the figures on the backorder situation, how does that compare to last year at this time?.

Backorder. Yes, we don’t give specific numbers, but they are up nicely compared to a year ago..

Moving into the next quarter you feel comfortable?.

Yes, absolutely..

Okay, that’s it. Thanks very much..

Thank you..

[Operator Instructions] It appears there are no further questions at this time. I would like to return the call to Jim Landers for any closing remarks..

Okay, thank you Anna. We appreciate everybody calling in and listening. We look forward to seeing a lot of you in the very near future. Have a good day. Take care..

The conference call will be replayed on www.marineproductscorp.com within 2 hours following the completion of the call. This concludes today’s call. Ladies and gentlemen, you may now disconnect..