Q3 2023 Marine Products Corporation Earnings Call
Good morning, and thank you for joining us for Marine products Corporation's third quarter 2023 financial earnings Conference call today's call will be hosted by Penn Palmer, President and CEO and Mike Smith, Chief Financial Officer also hosting is Jim Landers, Vice President of corporate services.
At this time all participants are in listen only mode. Following the presentation. We will conduct a question and answer session and instructions will be provided at that time for you to queue up for question.
I would like to advise everyone that this conference call is being recorded Mike will get US started by reading the forward looking disclaimer. Please go ahead.
Thank you and good morning.
Before we get started today I'd like to remind everyone that some of the statements that we.
We'll make on this call maybe forward looking in nature.
And reflect a number of known and unknown risks.
Like to refer you to our press release issued today, our 2022 Form 10-K, and other SEC filings that outline those risks all of which are available on our website.
Green products Corp Dot com.
If you have not received our press release, please visit our website.
<unk> 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.
We are also required to use EBITDA to report compliance with our financial covenants under our revolving credit facility.
Our press release 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.
Please review this disclosure if you're interested in seeing how it's calculated.
We will make a few comments about this quarter and then be available for your questions.
I'll now turn the call over to our President and CEO Ben Palmer.
So Mike and thank you all for joining our call. This morning.
Again with a few highlights regarding our third quarter 2023 earnings press release that was issued this morning.
Marine products Corporation's third quarter results reflect a reduction in boat deliveries to dealers compared to the prior year.
Approximate our new production rates.
The decrease production corresponds to the normalization of retail boat demand that has occurred during 2023.
Following the significant post COVID-19 demand.
Our dealers express continued optimism optimism at our recent annual dealer conference bolstered by the launch of our new 2024 models.
They did however note some concerns about potential economic slowdown and the impact of higher interest rates.
On a positive note supply chains continue to improve from earlier this year, but certain components remain challenging.
During the quarter, our dealers continue to rebuild their inventories trending to more normalized levels and.
And we've asked them to return to a more typical ordering process to assist us in scheduling our production.
Dealer inventory of chaparral, and robalo models remains healthy and below pre pandemic levels.
We expect to manage our production to approximate retail demand over the coming quarters. So diebold dealers are able to service demand out of planned inventory.
We also announced this morning that our board of directors declared a regular quarterly cash dividend of <unk> 14 per share.
And with that overview I'll now turn it back over to Mike Smith, our CFO.
Thanks, Dan.
I'll begin with an overview of the company's third quarter 2023 financial results.
Net sales for the third quarter were 77 $8 million a.
A 22% decrease compared to the third quarter of last year.
Unit sales decreased by about 24%.
Average selling price per Boe increased by approximately 5% versus the prior year, primarily due to favorable model mix.
And to a lesser extent price increases to cover higher cost of materials and components.
Production and sales were negatively impacted by about three days during the third quarter due to Hurricane Italia.
Gross profit in the third quarter was $19 $2 million.
A 23% decrease compared to the third quarter of 2022.
The gross margin for the third quarter was 24, 7% a slight decrease over the 25% for the third quarter of last year.
Selling general and administrative expenses were $8 $8 million in the third quarter of 2023.
Third to $10 $3 million in the third quarter of last year.
These expenses decreased due to costs that vary with sales and profitability such as incentive compensation sales commissions and warranty expense.
We also recorded a net gain on disposition of assets of $2 million during the quarter, which included one 8 million.
Related to a real estate transaction.
EBITDA in the third quarter was $13 million.
14% decrease compared to $15 $2 million in the third quarter of 2022.
EBITDA as a percentage of net sales was 16, 7% in the third quarter of 2023 compared to 15, 1% in the prior year.
We generated net income of $10 4 million in the third quarter, a 9% decrease compared to $11 $5 million in the third quarter of 2022.
Diluted earnings per share were <unk> 30 in the third quarter compared to 34 in the third quarter of last year.
Our international sales, which accounted for approximately 6% of our total sales during the third quarter decreased by 12% compared to the third quarter of last year.
As Ben mentioned, our dealer inventories are increasing towards more normalized levels and continue to be lower than pre pandemic levels.
These moderately higher inventories have allowed our dealers to meet current demand as well as purchase our 2024 models.
I'll now turn it back over to Ben for a few closing remarks.
Our market share remains strong.
Very pleased to report that the most recently reported data indicates the chaparral Stern drive market share was number two in that size category.
In addition, the combination of chaparral and robalo outboards hold a third highest market share in their size category.
We've received very positive feedback on our new 2024 models from our dealers. They are designed to appeal to the retail customer, while allowing us to efficiently produce high quality boats.
Our new chaparral 267, <unk> will be featured on the upcoming cover of boating magazine.
We like our dealers see additional uncertainty in the market over the coming quarters, but our field inventory remains healthy and backlogs backlog support our current production schedule into 2024.
I'd like to thank you for joining us this morning, I will be happy to take any questions you have.
Thank you if you have a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again.
Again that is star one to ask a question one moment please.
Your first question comes from the line of Brandon Rolle with D. A Davidson. Please go ahead.
Good morning. Thank you for taking my questions I guess to start from a retail perspective, what have you seen over the last 30 days as we head into the winter months and I guess, how are you thinking about retail in 2024 at this point.
Brandon This is Jim maybe I can kick off with an answer there.
The past 30 days have not been very different from.
In the past few months, probably people are a little bit concerned about interest rates.
The economic slowdown issue is always a discussion but.
It's just the seasonally slow time of the year or.
Our dealers is everybody's mentioned had been cautious they haven't canceled any orders, but they are asking us to slow down a little bit part of that as interest rates on their part their carrying costs for inventory are higher than they were so that as that order and delivery period assist extended a little bit.
So anybody else have anything to add.
No I think that's right Brandon.
This time of year, obviously, the third quarter as the norm.
<unk> seasonally slow periods, so it's a little bit difficult to gauge the future just based on that.
In the last 30 million passengers, saying that but just on the last 30 days as it relates to 2024, we feel like we're being prudent about where we are setting our production rates, we feel really good about.
The level of field inventory of our models of course, many of our dealers carry inventory of other models as well. So so theres a theres only a certain amount of capacity that dealer had have to take additional models, but again, our inventory is very healthy in terms of numbers and certainly the.
Yes.
Almost virtually in the entire field inventory is very fresh model. So there's no concern about trying to move older models.
So what we're looking forward the next point for us to really get a good idea about assessing demand is going to come with the winter boat shows that will start later this calendar year and into early early next year. So at that point in time, we will all reassess.
S demand reassess.
Look at where dealer inventory sand.
And then we'll reassess where appropriate production rates are but we feel okay about it we feel like we are we are as well positioned as possible at this point in time.
Okay great.
Just back on the inventories.
Would you be able to quantify maybe the average weeks on hand for your dealers right now and I know you had said current inventory levels are below 2019 levels both from a dollar perspective.
And taking into account, obviously higher carrying costs for these dealers do you feel like from a dollar perspective dealers are carrying more inventory than they did pre pandemic.
But we don't have complete visibility into our dealer's total inventory right.
Sure.
They don't they don't readily share that with us and certainly the floorplan providers don't either.
I would say that the average cost of boats is certainly up from pre pandemic for us that's a combination of we're building.
And dealers are.
Taking in ordering larger boats, so that tends to increase obviously the average selling price and also just do with the cost of components and so forth. It's increased in the last two or three years. So I would I would it's up to the floor plan providers to determine the level of financing there.
To provide the dealers so I don't I don't really I'm not aware of exactly what their dollar inventory levels are.
But that certainly at some level, maybe produces a little bit of headwind from the from the.
The financing companies perspective, they want to they're thinking more about dollars of course, then they are numbers of units to your point and from a unit perspective, just directionally Brandon.
We are still below where we were pre pandemic.
During.
The last few years.
Dealers were probably a little less than a third of what they were pre pandemic.
Total units now, we're probably a little bit about two thirds plus of.
Pre pandemic levels. So we probably double where we were this time last year.
But we're not sure that dealers are going to get back to pre pandemic levels, because they're carrying cost as Ben mentioned are so much higher because of higher interest rates.
So also there has been.
Better developments on our website another boat manufacturers websites. So they may not carry multiple colors of the same model because they can kind of pull it up on screen and show them different features and things like that so we think some things may have fundamentally changed we're not sure but we think.
We're hearing that they are pretty comfortable where they are at now but like I said, it's probably just a little over two thirds, where we were pre pandemic if that helps.
No. It does thank you.
I know you said for this quarter.
Results reflected the reduction in production and delivery rates.
Looking ahead to the fourth quarter are you expecting a further reduction in production given.
Do you know where inventories are at right now exiting the third quarter or I guess, how should we think about production over the fourth quarter.
No we're not we've got it scheduled out based on dealer demand.
Yes, there is seasonality and holidays, but but we don't look to a reduced production during the next now two five months.
Okay, Great and then just finally on the annual dealer conference could you talk about where you were seeing the strongest orders.
For which products and maybe the mix of products that dealers are the area or where you were seeing the strongest orders.
We didn't really see again, what they do at the dealer meeting as checkout.
Some of our.
Existing models, but many of the newer models opposite is usually and again this year a lot of buzz around some of our new models like the $2 67 FSX.
We haven't seen a shift in the size of the boats at this point in time.
So I think that's a positive we still have.
A good momentum and trend on on dealers.
Looking at and expecting to sell strongly with the larger boats. So we're pleased about that.
No real no real major shifts at this point stern drive versus outboard or robalo versus chaparral I think it's sort of it's continuing on.
So no particular dramatic shift.
Okay. Thank you and just lastly, if I can squeeze one last one then just on the promotional support that you're providing the dealers at this point.
Can you talk about how that trended throughout the third quarter and any.
Maybe step up in the fourth quarter or incremental promotional support do you think is needed to the customer or to the dealer.
Okay.
From from the dealers perspective.
A little more support with respect to the building inventory, but not real significant from a retail perspective.
We did have.
Some small programs that we offer.
During the third quarter, but not really.
Significant we'll look at that issue and that question. It's a good question, but it's one we will look at again as we're moving into the winter boat shows right, we'll assess we'll assess inventories will assess.
Our competition.
We will assess demand and make a decision about what level and type of support and we'll design.
Appropriate incentive program that we think will help our dealers and help.
Encourage some some retail sales. So so we don't have that determined yet.
Certainly again, that's another example of.
We and the industry returning we expect returning to normal theres not theres not we have not needed to provide a lot of retail incentive support and the last obviously a couple of years, but we do expect though that we'll have some type of program and in the winter.
Okay, Great and just on the boat shows outside of the Fort Lauderdale show what other winter boat shows are you looking towards is kind of indicators of demand and allowing you to better understand what demand may look like in the upcoming years.
Okay.
Well I would say really all of that.
We attend.
Our we have a tenant we have offset our salesmen are at all at all of the boat shows and certainly all the major boat shows and our our management team and many of the major boat shows so.
And we regularly review how those sales are going and retail attitudes. So.
Operator: Good morning, and thank you for joining us for Marine Products Corp. 3rd quarter, 2023, Financial earnings conference call.
It will be each and every one off will.
That's very.
Key to us in the industry to have a good pulse on.
Operator: Today's call will be hosted by Penn Palmer, President and CEO and Mike Schmit, Chief Financial Officer. Also hosting is Jim Landers, Vice President of Corporate Services. At this time, all participants are in List and Only mode.
What's happening and where we feel demand is and certainly that influences how we design our incentive programs and how we set our production rates. So it's a great question and we're interested in all of them.
Operator: 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.
Great. Thank you.
Thanks, Brendan Brennan.
Again, ladies and gentlemen, if you have a question it is star one.
Operator: I would like to advise everyone that this conference call is being recorded.
Michael Schmit: Mike will get us started by reading the forward-looking disclaimer. Please go ahead. 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 issue today, our 2022 Form 10K and other SEC finally that outline those risks, all of which are available on our website at marineproductscorp.com.
It appears there are no further questions I will turn the call back over to Mike Smith for closing remarks.
Alright, well I just want to thank everyone for joining our call today and we will now end the call. Thank you very much.
This conference call will be replayed on Marine products Corp, Dot com within two hours following the completion of the call. We thank you for joining you may now disconnect your lines.
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Michael Schmit: If you have not received our press release, please visit our website. In today's earnings release and conference call, we refer to EBITDA, which is a non-gap measure of operating performance. We use this non-gap measure because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We are also required to use EBITDA to report compliance with our financial covenant under our revolving credit facility. Our press release issued this morning and our website contained a reconciliation of this non-gap financial measure to net income, which is the nearest gap financial measure. Please review this disclosure if you're interested in seeing how it's calculated.
Okay.
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Sure.
Michael Schmit: We'll make a few comments about this quarter and then be available for your questions.
Ben Palmer: I'll now turn the call over to our president and CEO Ben Palmer. Thank you, Mike, and thank you all for joining our call this morning. I'll begin with a few highlights regarding our third quarter, 2023 earnings press release that was issued this morning. Marineproducts, corporations, third quarter results reflect a reduction in both deliveries to dealers compared to the prior year that approximate our new production rates. The decrease production corresponds to the normalization of retail boat demand that has occurred during 2023 following the significant post-coded demand.
Ben Palmer: Our dealers express continued optimism, optimism at our recent annual dealer conference, bolstered by the launch of our new 2024 models. They did, however, note some concerns about potential economic slowdown and the impact of higher interest rates. On a positive note, supply chains continue to improve from earlier this year, but certain components remain challenging. During the quarter, our dealers continue to rebuild their inventories, trending to more normalized levels, and we have asked them to return to a more typical ordering process to assist us in scheduling our products.
Ben Palmer: Dealer M. Antwery of Chaperale and Robolo Models remains healthy and below pre-pandemic levels. We expect to manage our production to approximate retail demand over the coming quarters, so dealers are able to service demand out of the planned inventory.
Michael Schmit: We also announce this morning that our Board of Directors declared a regular quarterly cash dividend of $0.14 per share, and with that I review you all now turn it back over to Mike Schmit, RCFO. Thanks, Ben. I'll begin with an overview of the company's third quarter of 2023 financial results. Net sales for the third quarter were $77.8 million. A 22% decrease compared to the third quarter of last year. Unit sales decreased by about 24%.
Michael Schmit: Average selling price per both increased by approximately 5% versus the prior year, primarily due to favorable model mix. And to a lesser extent, price increases to cover higher costs of materials and components. Production and sales were negatively impacted about three days during the third quarter due to Hurricane Idalia. Gross profit in the third quarter was $19.2 million. A 23% decrease compared to the third quarter of 2022. The gross margins of the third quarter was 24.7%.
Michael Schmit: A slight decrease over the 25% for the third quarter of last year. Selling general and administrative expenses were $8.8 million in the third quarter of 2023, compared to $10.3 million in the third quarter of last year. These expenses decrease due to cost that vary with sales and profitability, such as incentive compensation, sales commissions, and warranty expense. We also recorded a net gain on disposition of assets of $2 million in the quarter, which included $1.8 million related to a real estate transaction.
Michael Schmit: EBITDA in the third quarter was $13 million. A 14% decrease compared to $15.2 million in the third quarter of 2022. EBITDA as a percentage of net sales was less 16.7% in the third quarter of 2023, compared to 15.1% in the prior year. We generated net income of $10.4 million in the third quarter. A 9% decrease compared to $11.5 million in the third quarter of 2022. Deluted earnings per share were $0.30 in the third quarter, compared to $0.34 in the third quarter of last year.
Michael Schmit: Our international sales, which accounted for approximately 6% of our total sales during the third quarter, decreased by 12% compared to the third quarter of last year. As Ben mentioned, our dealer inventories are increasing toward more normalized levels. They continue to be lower than pre-pandemic, and Mike Levels. These moderately higher inventories have allowed our dealers to meet current demand as well as purchase our 2024 models.
Ben Palmer: I'll now turn it back over to Ben for a few closing remarks. Thanks. Our market share remains strong. I'm very pleased to report that the most recently reported data indicates that Schaffrel's Star and Drive market share was number two in its size category. In addition, the combination of Schaffrel and Wallace Outboards holds a bird-highest market share in their size category. We've received very positive feedback on our new 2024 models from our dealers.
Ben Palmer: They are designed to appeal to the retail customer while allowing us to efficiently produce high-quality boats. Our new Schaffrel 267 SSX will be featured on the upcoming cover of Fobie Magazine. We like our dealers see additional uncertainty in the market over the coming quarters, but our field inventory remains healthy and backlogs support our current production schedule into 2024.
Ben Palmer: I'd like to thank you for joining us this morning.
Operator: I'll be happy to take any questions you have. Thank you. If you have a question, please press star one on your telephone keypad to withdraw your question, simply press star one again. Again, that is star one to ask a question.
Brandon Roll: One moment, on the line of Brandon Roll with DA Davidson, please go ahead.
Brandon Roll: Good morning. Thank you for taking my questions. I guess to start from a retail perspective. What have you seen over the last 30 days as we head into the winter months? I guess how are you thinking about retail in 2024 at this point?
Jim Landers: Brandon, this is Jim. Maybe I can kick off with the answer there. The past 30 days have not been very different from the past few months. Probably people are a little bit concerned about interest rates. The economic slowdown issue is always a discussion, but it's just a seasonally slow time of the year. Our dealers, as everybody's mentioned, have been cautious. They haven't canceled any orders, but they're asking us to slow down a little bit.
Jim Landers: Part of that is interest rates on their part. They're carrying costs for inventory are higher than they were, so that is that order in delivery period is just extended a little bit. Don't you think anything to add? I think that's right, Brandon. This time of the year, obviously, the third quarter is a normal seasonally slow period. It's a little bit difficult to gauge the future just based on the last 30 days.
Jim Landers: As it relates to 2024, we feel like we're being prudent about where we're setting our production rates. We feel really good about the level of field inventory of our models. Of course, many of our dealers carry inventory of other models as well, so there's only a certain amount of capacity that dealer have to take additional models. Again, our inventory is very healthy in terms of numbers, and certainly the I'm almost virtually in the entire field inventory, it's very fresh models so there's no concern about trying to move older models.
Jim Landers: So what we're looking for at the next point for us to really get a good idea about assessing a demand is going to come with the winter boat shows that will start later this calendar year and into early next year. So at that point in time, we'll all reassess, you know, we'll reassess demand, reassess, you know, look at where dealer inventory stand and then we'll reassess what appropriate production rates are. But we feel okay about it. We feel like we are we are as well positioned as possible at this point in time.
Jim Landers: Okay, great and just back on the inventories, would you be able to quantify maybe the average weeks on hand for your dealers right now and I know you said current inventory levels are below 2019 levels, but from a dollar perspective and taking into account, obviously higher carrying costs for these dealers, do you feel like from a dollar perspective dealers are carrying more inventory than they did pre pandemic. Well, we don't have complete visibility into our dealers total inventory right.
Jim Landers: They don't they don't readily share that with us and certainly the floor plan providers don't either. I would say that you know the average cost of boats is certainly up from pre pandemic for us. That's a combination of we're building and dealers are taking and ordering larger boats. So that tends to increase obviously the average selling price and also just do with the cost of components and so forth that's increased in the last two or three years.
Jim Landers: So I would I would accept the floor plan providers to determine the level of financing they're going to provide the dealers. So I don't I don't really I'm not aware of exactly what their dollar inventory levels are, but that certainly at some level maybe produces a little bit ahead when from the from the the financing companies perspective. They want to they're they're thinking more about dollars. Of course, then they are numbers of units to your point.
Jim Landers: And from a unit perspective, just directly Brandon, you know, we are still below where we were pre pandemic during kind of the last few years. Dealers were probably a little less than a third of what they were pre pandemic and kind of total units. Now we're probably a little bit about two thirds plus of pre pandemic levels. So we probably double where we were this time last year, but we're not sure that dealers are going to get back to pre pandemic levels because their carrying costs has been much higher because higher interest rates.
Jim Landers: So also, you know, there's been better developments on our website and other boat manufacturers websites, so they may not carry multiple colors of the same model because they can kind of pull it up on screen and show them different features and things like that. So we think some things may have fundamentally changed. We're not sure, you know, but we think that we're hearing that they're pretty comfortable where they're at now, but like I said, it's probably a little over two thirds where we were pre pandemic.
Jim Landers: No, it does. Thank you. And I know you said for this quarter results kind of reflected the reduction in production delivery rates. Looking ahead to the fourth quarter, are you expecting a further reduction in production given, you know, where inventories are at right now, exiting the third quarter, or I guess, how should we think about production over the fourth quarter? No, we're not. We've got it scheduled out based on dealer demand. Yeah, we see the nullity with holidays, but, but we don't look to reduce production during the next, you know, now two and a half months. Okay, great.
Jim Landers: And then just finally, you know, on the annual dealer conference, can you talk about where you were seeing the strongest orders for which products and maybe the mix of products that dealers area where you were seeing the strongest orders? We didn't really see, again, what they do at the dealer meeting is check out, you know, some of our existing models, but many of the newer models, obviously, there's usually, and again, this year, a lot of buzz around some of our new models, like the 267 SSX, we haven't seen a shift in the size of the boats at this point in time.
Jim Landers: So I think that's a positive. We still have a good momentum and trends on dealers, you know, looking at and expecting to sell strongly with the larger boats, so we're pleased about that. No real, no real major shifts at this point, Stern Drive, versus Outboard, or Revolo, versus Shaprall, I think it's continuing on, and so no particular dramatic shift.
Brandon Roll: Okay, thank you.
Jim Landers: And just lastly, if I can squeeze on last one, and just on the promotional support that you're providing the dealers at this point, can you talk about how that trended throughout the third quarter and any maybe step up in the fourth quarter or incremental promotional support you think is needed to the customer or to the dealer? From the dealer's perspective, a little more support with respect to the building inventory, but not real significant from a retail perspective, we did have some small programs that we offered during the third quarter, but not really significant. We'll look at that issue in that question.
Jim Landers: It's a good question, but it's one we'll look at, again, as we're moving into the winter boat shows, right, we'll assess, we'll assess inventory, we'll assess, you know, our competition, we'll assess demand and make a decision about what level and type of support and will design an appropriate incentive program with that we think will help our dealers and help encourage. Some retail sales, so we don't have that determined yet. Certainly, again, that's another example of we and the industry returning, we expect returning the normal, you know, there's not there's not we have not needed to provide a lot of retail incentive support in the last couple of years, but we do expect bill, that will have some type of program in the winter. Okay, great.
Jim Landers: And just on the boat shows, outside of the Fort Lauderdale show, what other winter boat shows are you looking towards as kind of indicators of demand and allowing you to better understand what demand may look like in the upcoming year? Well, I would say really, you know, all of them we attend, you know, our, we have attend, we have off to our salesman or at all, at all of the boat shows and certainly all the major boat shows and our our management team attends many of the major boat shows.
Jim Landers: So, you know, and we regularly, you know, review how those sales are going and retail attitudes. So it'll be each and every one of will, you know, that's very key to us in the industry to, you know, have a good pulse on what's happening and where we feel demand is and certainly that that influence is how we design our incentive programs and how we set our production rates. So it's a great question and and we're interested in all. Great. Thank you. Thanks, Brandon. Again, ladies and gentlemen, if you have a question, it is star one. It appears there are no further questions.
Michael Schmit: I will turn the call back over to Mike Schmidt for closing remarks. All right.
Michael Schmit: Well, I just want to thank everyone for joining our call today and we'll now end the call. Thank you very much. This conference call will be replayed on marineproductscorp.com within two hours following the completion of the call.
Operator: We thank you for joining.
Operator: You may now disconnect your lines.