Q4 2022 Marine Products Corp Earnings Call

Speaker 2: issued this morning and our website contain a reconciliation of this non-GAAP financial measure to net income, which is the nearest GAAP financial measure.

Speaker 3: Please review this disclosure if you're interested in seeing how it's calculated.

Speaker 4: We'll make a few comments about the quarter and then we'll be available for your questions. I will now turn the call over to our President and CEO , Ben Palmer. Jim, thanks and thank you for everyone for joining the call this morning.

Speaker 5: Let me begin with a few highlights regarding our fourth quarter 2022 earnings press release that was issued this morning.

Speaker 6: Marine Products Corporation generated record quarterly net sales during the fourth quarter as we experienced improvement in our supply chain issues and transportation availability.

Speaker 7: This allowed us to finish a larger number of substantially completed boats that were in our inventory and deliver them to our dealers.

Speaker 8: This also led to more efficient production in our manufacturing plants, which should benefit us in future quarters.

Speaker 9: Average selling prices increase due to a favorable model mix and price increases implemented to cover increased costs including labor materials and components.

Speaker 10: Our fourth quarter unit sales were the highest of any quarter in 2022, despite the impact of two holidays.

Speaker 11: In addition, the increased unit shipments during the quarter allowed our dealers to begin building their inventory to accommodate the winter boat shows and prepare for the upcoming 2023 spring retail selling season.

Speaker 12: We also announced this morning that yesterday our Board of Directors declared a regular quarterly cash dividend of 14 cents per share.

Speaker 13: And with that overview, I would like to turn the call over to Mike Schmidt, our CFO . Thanks, Ben. I'll start with an overview of the company's fourth quarter 2022 financial results.

Speaker 14: Net sales for the fourth quarter were a record $108.5 million, a 42% increase compared to the fourth quarter last year.

Speaker 15: Unit sales increased by 29% and average selling prices of our boats increased by 12%.

Speaker 16: Gross profit in the fourth quarter was $27.3 million, a 43% increase compared to the fourth quarter of 2021.

Speaker 17: Gross margin during the fourth quarter of both 2022 and 2021 was 25 percent.

Speaker 18: Selling, general and administrative expenses were $12.5 million, an increase of 47% compared to $8.5 million in the fourth quarter of last year.

Speaker 19: This increase is due to costs that typically increase with higher sales and profitability, such as incentive compensation, sales commissions, and warranty expenses.

Speaker 20: We also recorded a 1.2 million.

Speaker 21: Defined benefit pension plan charge related to a lump sum settlement offered to plan participants during the quarter.

Speaker 22: During Q1, 2023, we expect to record a settlement charge of approximately $2.6 million associated with the final termination of this plan.

Speaker 23: We do not expect to make any cash contributions in connection with the transfer of the plan liability to a third party because of the plan's fully funded status.

Speaker 24: EBITDA in the fourth quarter was $15.3 million, an increase of $4.2 million, or 38% compared to the fourth quarter of last year.

Speaker 25: We reported a quarterly net income of $11.9 million, a 40% increase compared to $8.4 million in the fourth quarter of 2021.

Speaker 26: diluted earnings per share were 35 cents, also a quarterly record.

Speaker 27: compared to 25 cents in the fourth quarter of last year.

Speaker 28: Our full year financial results were also records.

Speaker 29: with net sales of $381 million, net income of $40.3 million, and diluted earnings per share of $1.18.

Speaker 30: Our international sales, which account for approximately 8% of our total sales, increased by 71% compared to the fourth quarter of last year.

Speaker 31: Our cash balance at the end of the year was $43.2 million.

Speaker 32: a $29.1 million increase compared to the cash balance at the end of last year.

Cash balance increased significantly during the year because of profitable operations and diligent working capital management, with a particular emphasis on the completion and shipment of substantially completed boats in our inventory towards the end of the year.

Dealer inventories continue to be at lower than normalized levels, but have increased compared to the third quarter of 2022.

As the 2023 retail season approaches, demand remains strong and our dealers continue to restock inventory.

We therefore have fully allocated our scheduled production for the first quarter of 2023 to our dealers to meet this demand.

I'll now turn it back over to Ben for a few closing remarks.

Our market share remains strong. Chaparral's Stern Drive market share remains number two in its size category, and the combination of Chaparral and Robalo's outboards held the third highest market share in their size category as well.

Indications from the early winter boat shows, together with feedback from our dealers, remain positive.

We're not seeing any reason to modify our current level of production.

However, we will continue to monitor market indications for any change in retail demand, which could occur as a result of higher interest rates.

or increases in economic uncertainty or softness in dealer demand for higher levels of inventory.

A second successive quarter of record financial performance are the result of the hard work of the Chaparral and Rivalo management team.

and other dedicated employees who are continuing to confront and successfully navigate a challenging operating environment.

Thank you again for joining us this morning and we'll be happy to take any questions that you might have.

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

And again, if you would like to ask a question, please press star 1 on your telephone keypad.

And there are no questions at this time, Mr. J... Oh, I apologize. A line just came in from the line of Craig Kennison from Baird. Your line is open.

Hey, good morning. Thanks for taking my questions. Absolutely. Good morning.

Thank you so much. I'm just curious if you're seeing

Any variance on the demand side at the high end versus the low end?

Craig, this has been, I would say up to this point we really haven't seen anything significant. I think we do hear anecdotes actually that on the lower end which are, or the probability or usually those are more often financed by the consumer.

that there's probably a little bit of hesitation there, but the larger boats, there seems to be less pushback. Those continue to stay quite strong, so at this point we ourselves have not seen much change.

which is good to see and hear.

Yeah, that's great. And just on the inventory front, it sounds like you've made a lot of progress with your supply chain and are catching up. How would you say the current level of inventory compares to, let's say, 2019 or whatever the most normal?

environment was with respect to inventory.

for our inventory?

Yes, dealer inventory, Greg, for our inventory. Yes, I mean dealer inventory, your dealer inventory.

Oh, dealer. It is only recently begun to build. So there's, it's still well below 19 levels, well well below 19 levels. So it's only begun, as I said, to increase just a little bit. But clearly that's something we'll watch. And we think that's healthy, right? We think that's normal. Things are beginning to become a little.

you know.

I'm sure some input costs have lowered and some still remain high, but when you look at the total bill of materials on your typical boat, what is the trend in your inflationary pressure?

Craig, this is Jim. We probably agree with what you just characterized. In other words, cost of materials has increased a lot, but it is starting to moderate a little bit. A lot of our materials have hydrocarbon feedstocks, so that's moderated some, and just supply chain.

Supply chain easing has helped costs moderate a little bit. That does not count labor. Labor continues to be high, but cost of materials is moderating some.

Yeah, I think it's more, it hasn't, it's the constant increases have stopped, but it hasn't come down a lot. Yeah, the rate of increase has decreased. The first derivative is now negative, I guess. And more, probably more on the material side, the commodities, as Jim referred to, those have come down a bit. I think it's.

still with components, key components that have labor associated with them and there's a lot of, still there's more supply chain, tends to be more supply chain issues there. That's probably more along the lines that it's stabilized, not necessarily declined at this point. And to be clear, we still have...

surprises, negative surprises, there still may be things that we have to wait on or price increases happen, but in general it is moderated better.

Yeah, maybe lastly, I was curious, where are you still seeing supply chain surprises, if you will?

It's a great question and we talk about it often and it really varies. It's kind of maybe not day to day, but it's week to week. Sometimes it can be day to day, but it's the same old thing. Sometimes it's engines, wiring harnesses and controls, gauges.

Windchills, windchills, windchills. It's a lot of the same sort of things, but it's just not constant, which is what makes it really, really challenging. And I'm sure you've heard stories from other people as well. There's not really anything new that's come along and all the things that have been a problem from time to time.

Unpredictable, yes. Well, it seems like you are making progress there, which is great. I guess one more question, if I could.

Since dealers have struggled to get inventory of your boats and frankly every other brand out there, I imagine you've not been...

pursuing the addition of additional distribution.

And so I'm wondering, as your production starts to normalize, as dealers start to rebuild inventories, those core dealers become happy and they're set. Is there an opportunity for you to expand your dealer network? Is that something, maybe a dormant strategy that could reignite as production normalizes?

Well, let me answer it or provide the following that we've been very. Uh, straightforward with our dealers and our strategy has been our, our team has adopted the strategy, which I think is very, very smart.

that we have

We have not catered to particular dealers. We've said we like our dealer network, it's key to us, it's important to us. They're all important to us, in the geographic regions where they are. So we have allocated.

our production, right? We have the amount of production we're able to generate and we're working with the dealers to allocate that production out and it's very, very similar to what historical deliveries have been from a percentage basis to those dealers. So we have not...

Taken away from our.

Smaller data dealers and tried to direct significantly more production to the larger dealers. We think that's fair and appropriate. I think that. Has served as well, and I think that will serve us well into the future. Your your question is a good 1 and you're right. We have.

We are always...

you know, where necessary, where we have a dealer that bows out or whatever. We're normally prepared to, with another dealer, to insert into an open spot from a geographic perspective. So, but our dealers are loyal to us and we try to be loyal to them and...

that at this time. So right now just getting through the remaining supply chain issues, making sure their inventories are up. So that's really our main focus right now, taking care of our existing dealer network. Yeah, until... Alright guys, thanks again, thanks for joining me for another episode until...

There's until and if and until there's any

Push back from dealer saying I have enough right and if we can't redirect those to other existing dealers. So until existing dealer says no more, then we have to decide, you know, is there. Additional geographic areas, and there's not significant ones, but there may be very selected opportunities to direct.

some available production, but at this point in time our dealers are saying send me as many as you can.

Great, and I keep promising to stop, but I have one more question. Great. That's fine, Craig. Okay.

Thank you. In terms of your consumer demand, is there any...

any backlog with consumers, any pre-orders that have yet to be satisfied or has any of that.

demand, has all of that demand been fulfilled at this point?

I would say no, there still are we still have unfulfilled orders, but certainly that's moderated. Obviously an indication of that is dealer inventories building right? And that varies some by region or by dealer. But no, there still are. Orders to be fulfilled.

And like I indicated, almost virtually every dealer is saying, send me as many as you can.

A lot of our production is still retail sold, which you know the industry pre-COVID that was usually not the case.

Have you seen any changes in that presold demand? Any cancellations of previous orders?

or just any slow down there.

To this point, not a significant amount of cancellation. Certainly the orders, retail orders on hand certainly are less than they were, you know, 6 to 12 months ago. But, but it's still, you know, the demand is still quite strong. We've not yet seen.

We've not yet ourselves seen any softness there. Now, we are certainly mindful as we indicated in our comments. We're always watching and monitoring and are prepared to adjust production as necessary if demand were to weaken. But.

the dealer field inventory continues to remain low by historical standards. So even if things

softened a bit, I don't expect there's going to be any hard stop or significant decline in demand. But if demand were to weaken, we'll step back and reassess and decide if and when we need to adjust production. And we're prepared to do that. We've always.

Thanks, Craig. Good to hear from you.

And there are no further questions at this time. Mr. Jim Landers, I'll turn the call back over to you for some closing remarks.

Okay, Rob, thank you. Thanks for everybody who called in to listen and we appreciate it and hope everybody has a good day. We'll talk to you soon. Thank you.

This concludes today's conference call. Today's conference call will be replayed on MarineProductsCorp.com within two hours following the completion of the call. You may now disconnect.