Q1 2022 Marine Products Corp Earnings Call

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Good morning, and thank you for joining us for Marine products Corporation's first quarter 2022 financial earnings Conference call today's call will be hosted by Rick Hubbell, President and CEO and Ben Palmer Chief Financial Officer also also 2% its Jim Landers Vice.

Didn't of corporate services.

At this time all participants are in a listen only mode. Following the presentation, we'll be conducting a question and answer session.

<unk> 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 Jim will get US started by reading these forward looking disclaimer.

Thank you operator 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.

Like to refer you to our press release issued today, our 2021 10-K and our other SEC filings that outline. These risks all of these are available on our website at Marine products Corp Dot com.

Also in today's earnings release and conference call, we refer to EBITDA, which is a non-GAAP measure of operating performance. We use this non-GAAP measure because it allows us to compare performance consistently over various periods without regard to changes in our capital structure.

This release issued today website contain a reconciliation of this non-GAAP measure to net income which is the nearest GAAP financial measure.

Please review this disclosure if you're interested in seeing how it's calculated.

If you've not received our press release, please visit our website again at marine products.

For a copy.

We will make a few comments about the quarter and then 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 first quarter of 2022 this morning.

Palmer, our CFO will discuss the financial results in more detail in a moment now for a few highlights from the quarter.

Marine products Corporation continues to be impacted by significant supply chain challenges.

As a result, we ship.

Fewer units during the first quarter of 2022.

In the prior year.

We continue to experience the effects of ongoing supply chain challenges related to delays in receiving key components required to efficiently.

Please final assembly of many boats.

These delays coupled with driver shortages are impacting our ability to deliver boats or enrollment schedules.

Our unit sales decline was substantially offset by increases in the average selling price.

Average selling prices increased during the quarter because of price increases necessitated by raw materials and labor cost increases as well as a favorable model mix, which included larger boats.

Log of actual orders plus order indications from dealers remained at historic highs.

And dealer inventories remain low.

The updated market share statistics for the 12 months ended December 31, 2021 indeed.

Indicates it's a combination of robalo and chaparral outboards in the 18 to 36 foot category had a market share of six 3%.

With Robalo brands Holdings' third highest market share in this category.

Chaparral held a market share of 22%.

41% to 34 foot Stern drive category.

Which was the second highest in this category.

An increase in market share compare to the last reporting period.

We also announced this morning that our board of directors declared a regular quarterly dividend of <unk> 12 per share.

With that overview I'll now turn it over to our CFO Ben Polk.

Thank you Rick.

Net sales for the first quarter of 2022 were $76 6 million.

Two 2% decrease compared to the first quarter of last year.

Average selling prices increased by 23, 3% due to price increases we were forced to implement due to increases in cost of materials and components and labor as well as the continued migration and customer preferences to larger boats.

As Rick mentioned unit sales declined by 29%.

Supply chain problems impacted scheduling of production and boat deliveries, resulting in a higher than normal level of inventory at our facilities.

Every every company employees is working hard to build and deliver as many quality boats as possible during these challenging times.

Gross profit in the first quarter was $18 4 million.

4% decrease compared to the first quarter of 2021.

Gross margins during the quarter increased 24% compared to 23, 6% in the first quarter of 2021.

Gross margin as a percentage of <unk>.

Percentage of net sales improved due to a more profitable model mix comprised of larger boats. Despite the cost the cost increases that we face.

Selling general and administrative expenses were $9 2 million in the first quarter of 2022, an increase of nine 5% compared to $8 4 million in the first quarter of last year. These expenses increased because we've just raised in more boat shows in 2022 than last year and because of higher employment related.

Costs.

EBITDA in the first quarter of 2022 was $9 6 million a decrease of 985000 or eight 1% compared with the first quarter of 2021.

For the quarter ended March 31, 2002, we reported net income of $7 1 million or 12, 8% decrease compared to $8 $1 million in the first quarter of 2021.

Diluted earnings per share were <unk> 21.

<unk> 24 diluted earnings per share in the first quarter of last year.

Our effective tax rate during the first quarter was 22, 7% compared to 19, 3% last year, we project a full year 2022 effective tax rate of approximately 21%.

Our international sales accounted for five 4% of the total representing a five 9% increase compared to the first quarter of last year.

Sales to our Canadian dealers decreased.

But improved in other international markets.

Our cash balance at the end of the first quarter was $13 6.500 million decrease compared.

The cash balance at the end of the fourth quarter.

The quarter end cash balance is significantly lower than 35 million balance at the end of the first quarter of 'twenty one.

The year over year and sequential sequential declines in our cash are a direct result of higher inventories caused by delayed deliveries from suppliers of critical components.

The resulting delayed shipment subsys substantially completed boats.

Gasoline up production and boats deliveries will continue to be a focal point for us.

Dealer inventories are slightly higher than at the end of the fourth quarter of 'twenty, one, but significantly lower than at the end of the first quarter of 'twenty one.

Dealer inventories remain at historic lows demand and orders remain at historic highs with that I'll turn it back over to Rick for a few closing remarks. Thanks Bill.

Marine products Corporation continues to focus on recreational boating resurgence over the past two years is a popular American leisure activity.

This revival motivates our.

New model designs, and our continued emphasis on quality and our enduring efforts to produce and chips many boats as possible under uniquely challenging circumstances.

Optimism is supported by continued strong demand indications.

Although there were a limited number of winter boat shows because of the ongoing COVID-19 restrictions.

It shows that did take place were well attended and generated strong order volumes as we entered.

The retail selling season.

Our dealer inventories remain low and backlog remains hot.

And our dealers continue to report strong demand from their customers.

Judging by the recently published retail boat sales data. It appears that most of our industry is working through the same supply chain problems and.

And production bottlenecks that have prevented marine products from completely satisfying historically high domain.

We are tackling these problems and appreciate the dedication of our employees.

Systems for more suppliers and the continued support of our dealers and retail customers.

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

At this time, if you would like to ask a question. Please press star one on your telephone keypad again to ask a question simply press star one on your telephone keypad.

And your first question comes from the line of Fred Wightman from Wolfe Research. Your line is open. Please go ahead.

Hey, guys. Good morning could you just give a little bit more detail on where exactly you are seeing the supply chain bottlenecks, if theres a handful of components, where that is the most acute or does it just sort of rotate.

Good morning to spin.

It's a variety of different items. Unfortunately, it's not consistent.

That.

Greatly increases the complexity of trying to deal with the issue.

But there are some particular components that are unique to us that are contributing to part of the problem. Some of our innovative features like our power staff.

Again, because it's maybe not not as widely available are used on all the other models.

And also some of our.

Our ability kits on some of the larger outboard engines has been a particular problem as well. Unfortunately, these particular items or not.

Easily.

Put into the boat.

Other than that the factory. So unfortunately, we're just having to wait for these things to come in and catch up so that we can complete that construction unfortunate Fortunately in terms of materials and things like that the impact that could impact our ability to initiate.

New construction of boats has not yet impacted us in any significant way. So it's some of the other components as I've described here.

We're able to put on after proposed have worked their way through the plant, but it does take a lot of time.

It is frustrating for everybody that's involved in the process to deal with these competitions.

Makes sense and you guys had also called out the impact from some driver shortages.

Just as far as shipping some of the finished products could you just give a little bit of color.

That something that you've been dealing with and it's just more acute any signs of that improving in the second quarter.

What are you sort of seeing there.

Fred This is Jim.

Part of the issue and you see the inventory on our balance sheet.

We do have some boats, which are finished and are ready to go.

Our waiting on on transportation.

We're allowing a requesting our dealers to come get votes, if they can.

And that is getting a little bit better if those folks stay there forever, but certainly we would like to ship boats as soon as they're ready.

At any given time when you close the books Youll see.

Finished goods completely finished goods.

Our balance sheet that are awaiting awaiting transport there is some indication that that's getting better, but we can't tell you exactly when or to what degree this spend we have.

We do have.

Company drivers, we have historically outsource some of our transportation energy and to try to address this issue. We are seeking other sources of drivers and ability to shift but driver shortages.

U S economic problem, we see it in many industries and unfortunately, it is impacting us as well, but hopefully its only a timing difference hopefully things will free up a bit.

We're hopeful we're seeing some signs that.

The supply chain issues both.

<unk> parts from vendors, but also the driver shortage is hopefully we're seeing some signs is getting a little bit better. So hopefully that will ease as the year progresses and we will.

In the not too distant future might be headed back towards normalized levels.

Great and then one final one for me just you make the comment that.

Price increases and higher interest rates arent really expected to impact demand or backlogs could you just sort of give a lay of the land for how you think the marine customer looks or feels.

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Yes.

Fred It's Jim again.

There may be the marginal customer decides not to buy a boat if interest rates.

To increase if you look at the average loan term interest rates things like that.

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100 basis point increase in interest rates could increase.

The monthly cost of ownership by a little less than $100 and at some point some of the marginal buyers going to say.

$450, a month was fine, but at $5 50 or may not buy one.

But remember our backlogs are so high and dealer inventories are so low that we still believe that there are enough consumers who are waiting to buy below that.

Not going to impact our financial results at least at this time or for the foreseeable future.

I agree with that and I agree with that.

Perfect. Thanks, guys.

Thanks Rod.

Thank you and your next question comes from the line of Craig Kennison from Baird. Your line is open. Please go ahead.

Hey, good morning, Thanks for taking my question it sounds like demand is good.

Good to talk to you it sounds like demand is well ahead of supply and I guess I'm wondering what the process is for you and your dealers to make sure you capture that demand even if you can't deliver on it today and how willing are consumers to be patient versus just moved to another boat or even a used boat.

To get to take advantage of it this season.

Greg to span I think thats a good question.

Kind of relates back over my answer would relate back to what Jim said, which is you know.

We feel that demand at this point is so strong.

Thanks.

Indications are that everyone is experiencing similar type of issues.

We are we are not.

At the plant we are not accepting every order that's out there, but certainly our dealers are working hard taking deposits taking.

Indications of orders.

We are reluctant to.

Take actual orders from <unk>.

Any and every order that we could actually procure and happened at the end of the plant because of the planning that's required.

To.

Get the parts and so forth and scheduled production to be able to manufacture the boat. So we still feel there is really no indication of any demand going away. We have not heard of any of that I'm sure. There are some instances, but we feel that our.

<unk> reputation for quality and our styling.

And I think frankly, our price point, there's many boats out there that that are in high demand that are even more expensive than our boats. So we think we're well positioned hopefully.

The retail customer will remain.

Patient and hopefully the supply chain issues are going to free up here soon so that we can begin to.

Better meet that demand and.

That obviously again as I've indicated demand my remarks will make everybody happy right retail customer happier the D or after.

Certainly all of our company employees, because it's really it's a.

Frustrating.

Situations to deal with.

Thanks, and as a follow up do you have much visibility into the profile of your.

Buyer base are they new boaters are they repeat buyers.

And are you seeing any behavior change among those groups relative to what might have happened during the pandemic.

Okay.

Craig This is Jim in general since the pandemic started we're seeing that a greater percentage of buyers are first time buyers defined as people who have never owned it before.

I don't have a recent update for you but.

We know that its north of 30%, probably less than 40%, but more than 30% of the people who are buying new boats today have never owned about before.

The demographic profile at this time does not seem to have changed in terms of.

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Page.

Income professional status that sort of thing.

We have long thought that as baby boomers retire and that wave gets bigger there will be more more retiring baby boomers buying boats. The numbers don't show that right. This moment because they may in the future.

And then maybe a follow up on on the repeat buyer I don't know if you have this data, but my thesis might be that that <unk>.

Pete customer looking at a really tight bolt market may say look I'm, just going to set this out and ultimately does differ a purchase.

Is there any evidence of any sort of deferred purchases, where some of your existing customers are delaying.

By that we would give you confidence that it even as you look out a couple of years there might be some pent up repeat demand.

I think that's a great point Greg.

Actually overheard a conversation at the Miami boat show one of our customers, who was sort of debating that out loud.

The management team, we are standing around and disbursed and happen to be there and he was debating if I sell my boat.

I'm not sure what I would buy please and he was the chaparral down he said I am pleased with about a half.

Why sell it I'll just wait.

This particular model I think is going to be perfect for me and I understand on the car industry also there's a lot of delays in being able to take deliberate so.

I understand the issue.

But.

But this particular person against that we're going to wait it out. So I think you make a great point that if things were to free up.

I think there may be some existing whether theyre chaparral or other existing boat owners that have about what they may be able to flip it in the used market and be able to get them.

I think thats very likely could be a scenario where there is.

Yes, undetected demand thats out there beyond what we know right now from direct into indications consumer. So I think you make a great point I think thats another.

Another.

The opportunity for us.

That's great well. Thank you so much sure.

Again to ask a question simply press star one on your telephone keypad to ask a question. Please press star one on your telephone keypad.

Yes.

And there are no further questions at this time I would now like to hand back the call over to Jim Landers, Vice President of corporate services for any closing remarks.

Thank you operator.

Gregg Thanks for your questions and thanks to everybody else, who called in and listened.

We appreciate the interest hope everybody has a good day, we will talk to you soon.

This concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

Thank you.

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