Good morning, and thank you for joining us for Marine Products Corporation's Second Quarter 2020 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 [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..

Thanks, Amy, 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 2019 10-K and other SEC filings that outline those risks, all of which are available on our Web site at marineproductscorp.com. If you've not received our press release, please visit our Web site, again, at marineproductscorp.com for a copy.

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, thanks. We issued our earnings press release for the second quarter of 2020 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.

We temporarily suspended our manufacturing operations for five weeks during the quarter as a precautionary measure to protect our employees, their families and our community during the shelter-in-place order relating to COVID-19 pandemic.

As a result, our unit sales during the second quarter declined by almost 58%, which led to lower operating and net income. We maintained profitability by reducing expenses across the board, but our second quarter net income declined significantly compared to last year's record quarterly financial results.

We resumed operations on May 6th at higher production levels than during the first quarter in response to an increase in dealer and consumer demand that we noticed in late March. Our dealers sold a great deal of their inventory during the second quarter. And at the end of June, our order backlog was the highest it has been in a number of years.

As we review our market share at the end of the second quarter, I am pleased to report that Chaparral continues to be a market share leader in its sterndrive recreational boat category. Robalo also continues to be a market share leader in the outboard category.

And the combination of Chaparral and Robalo outboard models held the highest outboard boat market share in their size categories. We announced this morning that our Board of Directors yesterday declared a regular quarterly dividend of $0.08 per share, the same as our regular quarterly dividend in the previous quarter.

With that overview, I will turn it over to our CFO, Ben Palmer..

Thank you, Rick. Net sales for the second quarter of 2020 were $40.8 million, a 54% decrease compared to the second quarter of last year. Unit sales declined by 57.9% due to the temporary suspension of production while average selling prices increased by 7.8% during the quarter because of a favorable model mix.

Gross profit in the second quarter was $7.8 million, a decrease of 61.7% compared to the record second quarter of 2019. Gross margin during the quarter was 19.2% compared to 23% in the second quarter of 2019.

Gross margin as a percentage of net sales declined due to manufacturing cost inefficiencies caused by the interruption of production in the second quarter of 2020, partially offset by the favorable model mix of larger boats sold during the quarter.

Selling, general and administrative expenses were $5.8 million in the second quarter, a decrease of $3.3 million compared with $9 million in the second quarter of last year. These expenses decreased due to costs that vary with lower sales and profitability, such as incentive compensation and warranty expenses.

In addition, these expenses declined due to lower compensation resulting from employee furloughs and other expense reductions related to the temporary operational suspension during the quarter. These expenses were 14.1% of net sales in the second quarter of 2020 compared to 10.2% of net sales in the second quarter of 2019.

For the quarter ended June 30, 2020, we reported net income of $1.7 million, a decrease of 81.8% compared to record net income of $9.4 million in the second quarter of 2019. Diluted earnings per share were $0.05 in the second quarter compared to $0.27 in the prior year. Our effective tax rates during the second quarters of 2019 and 2020 were 18.3%.

Our international sales decreased by 63.7% and accounted for 4.9% of total sales during the quarter, and international sales decreased fairly consistently across all of our international markets.

Our cash balance at the end of the second quarter was $22.6 million, an increase of $9.6 million compared to $13 million at the end of the second quarter of 2019.

As Rick mentioned, dealer inventory levels were significantly lower at the end of the second quarter of 2020 than the end of the first quarter of this year or the second quarter of last year. Our order backlog in units was higher than it has been in many years.

Because of increased demand and our lower production and boat deliveries during the second quarter, many of our dealers reported very low field inventory at the end of the quarter. And with that, I'll now turn it back over to Rick for a few closing remarks..

Thank you, Ben. Starting in late March, the dealers in most of our markets reported an extraordinary surge in demand as consumers focused on second homes and sought safe outdoor activities in response to concerns over the COVID-19 pandemic. In fact, a few of our dealers reported that they were completely sold out of our products.

So we were eager to resume our production as soon as we felt it was prudent to do so. Dealer demand remained strong during the third quarter, even though we have passed the peak of traditional retail selling season.

Last week, we received preliminary industry retail sales, and we noted for our three boat categories, June sales increased by 16% compared to June 2019. This contrasts with the year-to-date June sales, which fell by 8% for the same categories.

This is encouraging external confirmation of the increase in demand that we have experienced during the last three months. The current macro environment over the near-term remains uncertain, but we are encouraged by the enduring appeal of recreational boating to the American consumer.

Though we remain cautious in the midst of global uncertainty, we are very pleased with the selling environment for our products, and we look forward to meeting strong dealer demand based on our resumed production schedule. I'd like to thank you for joining us this morning, and we'd be happy to take any questions that you may have..

[Operator Instructions] Your first question comes from the line of Eric Wold with B. Riley..

I guess, first, I'll start with kind of a question on the kind of last comment about the preliminary data that came out that showed June numbers up for categories that had been weak prior to June.

I guess, hearing anecdotally that consumers are kind of out there looking to [Technical difficulty] maybe you talk about where [Technical difficulty] this potential shift that we saw in June -- we're seeing recently is something that is [Technical difficulty] into next year?.

Eric, this is Jim. You faded out for a part of that. Let me rephrase the question real quickly. I think you're asking if maybe, if June, how we see that continuing or what that trajectory might be beyond June? Tell me if I'm wrong, but we didn't hear everything....

Yes, exactly. Just kind of the mix that you kind of been seeing recently in terms of consumer possibly buying boats they may not have been buying before, that's something do you think is sustainable or more kind of a short-term phenomenon with the inventory that's come out there..

Well, our dealers think it's sustainable because they've done some pretty strong ordering for us and they know that the deliveries they've asked us for won't come for a number of months. But this is an awfully uncertain time. We feel good about the near term. We don't know about the future.

We don't know, there are a lot of people who want to write checks for boats right now. We don't know what that total population is. So I wish we had better answers..

Yes. Eric, this is Ben. Maybe if I'm picking up on the essence of your question as well. The dealers reported very strong sales across all categories, all boats, all ages of boats, everything.

So we'll obviously be relying on the dealers to assess the boat models, sizes, types that they see selling in the future a lot, much of what we are building and delivering today and in the coming weeks are boats that have already been sold by the dealers. So they're not going to be in their dealer inventory very long.

Longer term, in terms of which boat models and styles will be in demand, again, we'll rely on the dealers to help -- they'll make that determination in terms of what they want to place orders for to rebuild their inventory.

So reasonable question, but we deem it, and I'm sure the dealers deem this phenomenon is a great opportunity to clear out some inventory that might have otherwise or have been sitting around for a while, and it creates a great opportunity to put them in a fabulous position which -- the benefits of which will also inert us.

So we're very pleased about that..

And Eric, this is Rick. The other encouraging thing we're seeing is that there's a surge of first-time buyers that we've not seen in a while. So I think for us and for the industry, that's very encouraging..

No, I appreciate that. I think you kind of answered my next question a little bit.

I guess, can you give us a sense of how long you'll be manufacturing boats that have already been sold back to kind of manufacturing stocked inventory? And what is your sense from the dealers in terms of given what happened last year to the industry you've done how it will to be to take stocked inventory back in? Is it still going to be somewhat cautious? Or you think a lot of what we saw last year is now kind of in the past in their minds?.

Eric, this is Ben. I'll take that one. A lot of the boats that are going into current production have already been sold, at least, that's the indication from the dealers. And there is a -- certainly a relatively long fairway, long -- a lot of that -- that's already in the backlog. So, that is great.

With respect to how long this will last, we've been reflecting on 9/11 and what happened after that time period and the demand lasted for a number of years after the 9/11 event. So, we're hopeful that will be the case here.

Obviously, we won't know until the future, but we do have, again, a tremendous backlog at this point, many of which will not be delivered for many weeks. So, we'll just have to see as the winter unfolds and next spring to see where dealer inventory is and what their appetite is and how they're feeling about things.

Obviously, we've got the election coming up and the uncertainty over that. I'm hopeful that if there's any interruption at all, that too would only be temporary and we can get that behind us and continue to move forward. So, we feel pretty good about the future for the next longer than just this temporary blip.

But again, we are not able to -- from many respects, we can't ramp production to be able to fill all these orders in the typical time frame.

That wouldn't be a very smart thing for us to do from a quality and planning perspective, but we're certainly going to ramp up to what we believe is a reasonable level given the longer-term trends, we want to meet the dealer demand and the retail consumer demand, but we also want to maintain our standards and do all the things that we need to do longer-term for the health of our company..

[Operator instructions] As there are no further questions, I will turn the call back over to Jim Landers for closing remarks..

Thank you, Amy. Thanks, Eric, and for everybody else who listened in this morning. We appreciate your interest in our company. And hope everybody has a good day. Take care..

Ladies and gentlemen, as a reminder, this conference call will be available for replay on marineproductscorp.com within two hours following the completion of the call. This concludes today's conference call. On behalf of Marine Products Corporation, thank you for participating. You may now disconnect..