Q3 2024 Marine Products Corp Earnings Call

Yeah.

Speaker Change: Good morning, and thank you for joining us for Marine products Corporation's third quarter 2024 financial earnings Conference call.

Speaker Change: Today's call will be hosted by Ben Palmer, President and CEO, and Mike Schmidt Chief Financial Officer.

Speaker Change: 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 questions.

Speaker Change: We'd like to advise everyone that this conference call is being recorded I will now turn the call over to Mr. Schmidt.

Mr. Schmidt: Thank you and good morning.

Mr. Schmidt: Before we begin I want to remind you that some of the statements that will be made on this call could be forward looking in nature and reflect a number of known and unknown risks.

Mr. Schmidt: Please refer to our press release issued today, along with our 2023 10-K and other public filings that outline those risks.

Mr. Schmidt: All of which can be found at www Dot Marine product Corp Dot com.

Mr. Schmidt: In today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance and liquidity.

Mr. Schmidt: We believe these non-GAAP measures allow us to compare performance consistently over various periods.

Mr. Schmidt: Today's press release, and our website contain reconciliations of these non-GAAP measures to the most directly comparable GAAP measures.

Speaker Change: I'll now turn the call over to our President and CEO Ben Palmer.

Speaker Change: Thanks, Mike and thank you all for joining our call.

Ben Palmer: Third quarter results remained negative compared to prior year as we had signaled they would in a very difficult demand environment. We're in.

Ben Palmer: Our peers in the marine industry continue to navigate a tough period.

Ben Palmer: Energy costs and production as best we can until consumer demand picks up.

Ben Palmer: Their best minor positive developments regarding channel inventory levels and interest rates. However, dealers continue to exhibit caution with respect to new orders.

Ben Palmer: We have reduced costs as appropriate through manufacturing head count reductions and scaled back our production to allow showroom inventories to shrink.

Ben Palmer: We are taking decisive and prudent measures in the near term without sacrificing longer term opportunities, we're jeopardizing our operations.

Ben Palmer: With regard to dealer inventory levels of our products in the field has come down and we are comfortable with current levels. While we don't disclose detailed quarterly dealer inventory counts. We are pleased that both in the field are trending lower.

Ben Palmer: On a sequential basis compared to the second quarter of this year built units were down 13%.

Ben Palmer: Versus prior year were down 4%.

Ben Palmer: Just as we did last quarter, we have extended our promotional programs as we believe these are critical to supporting our dealers and incentivizing consumers.

Ben Palmer: We have also enhanced our third party floor plan financing program to include added features and more promotional capabilities.

Ben Palmer: We were also encouraged to see the first interest rate cut in several years come through in September with a 50 basis point cut by the fed.

Ben Palmer: We reiterate that while we don't believe a single fab will have a dramatic impact on demand.

Ben Palmer: We consider a first step toward reducing dealer carrying costs and lowering consumers' borrowing costs.

Ben Palmer: More rate cuts are expected and hopefully downward momentum in financing costs were lower buyers back into the market.

Ben Palmer: Our August dealer conference in South, Florida was an exciting is that as we celebrated chaparral 60, <unk> anniversary and connected with many of our dealers.

Ben Palmer: We unveiled new models colors features and options across both chaparral and robalo lineups and the dealer voice response was very positive.

Ben Palmer: We approach each model years, some new opportunity to refine our offerings and give customers products that continuously raise the high bar for quality and design.

Ben Palmer: They have come to expect from our brands.

Ben Palmer: What about patterns clearly remain a headwind, but we assure you there is no shortage of enthusiasm within our dealer network.

Speaker Change: Now Mike will provide an overview of the financial results.

Mike Schmidt: Thanks, Dan.

Mike Schmidt: For the third quarter of 2024 compared to the third quarter of 2023.

Mike Schmidt: Sales were down 36% to $49 9 million.

Mike Schmidt: Driven by a 40% decrease in the number of boats sold.

Mike Schmidt: Price and mix netted to a positive 4%.

Mike Schmidt: Gross profit decreased to $9 2 million with a gross margin of 18, 4% down.

Mike Schmidt: Down 630 basis points versus last year's strong results.

Mike Schmidt: On a sequential basis gross margin declined only slightly from 18, 9% in the second quarter.

Mike Schmidt: Significant efforts have been made to control labor expenses. However, we are also being impacted by under absorption of fixed costs.

Mike Schmidt: SG&A expenses were $5 6 million in the quarter.

Mike Schmidt: Down, 36% or $3 $1 million compared to last year's third quarter.

Mike Schmidt: These expenses decreased primarily due to costs that vary with sales and profitability such as incentive compensation sales commissions and warranty expenses.

Mike Schmidt: SG&A as a percentage of sales was 11, 3%.

Mike Schmidt: Consistent with last year's third quarter.

Diluted EPS was <unk> 10 in the third quarter.

Mike Schmidt: Down from 30 last year, when we had a <unk> <unk> per share gain from a real estate transaction related to our warehouse sale.

Mike Schmidt: EBITDA was $4 3 million down from $13 million last year, which included the $1 8 million real estate transaction gains.

Mike Schmidt: Year to date, we have generated operating cash flow of $24 9 million and free cash flow of $21 3 million.

Mike Schmidt: Capex was $3 $6 million and picked up in the third quarter with a solar panel installation project at our manufacturing facility.

Mike Schmidt: We still expect capex to be approximately $5 million for the full year.

Mike Schmidt: I'll now turn it back over to Ben for a few closing remarks. Thanks, Mike.

Ben Palmer: We know our employees dealers and investors are feeling the consequences of weak end market demand, but we remain steadfast in our commitment to manage prudently through this difficult patch.

Speaker Change: We've returned a significant amount of cash to our investors. This year through both our regular <unk> 14 per share quarterly dividends and the 70 <unk> special dividend, we paid out in the second quarter.

Speaker Change: And we still ended the third quarter with over $53 million in cash on the balance sheet Testament to our strong cash generation despite the lackluster environment.

Speaker Change: We have ample liquidity to see us through this current down cycle make investments in the business and execute on potential acquisition opportunities.

Speaker Change: However, as we noted last quarter over time, if we do not deploy substantial capital we'll look at further actions to return cash to our investors.

Speaker Change: Lastly, we're also fortunate that the highly disruptive hurricanes that pass through the southern states in recent weeks inflicted minimal damage at our Nashville, Georgia production facility.

Speaker Change: We know however, we know however that not everyone in the community fared as well and we have offered many forms of support to our community and our employees facing hardships.

We're also mindful of all our dealers who have endured severe disruptions in their local markets. We are working diligently to support them.

Speaker Change: So from what we've been told are fairing relatively well with respect to storm recovery.

Speaker Change: That said, we have some minor damage we had seen some minor ordering delays in the early weeks of the fourth quarter the status when hurricane Milton caused the most disruption.

Speaker Change: So before we turn the call over for questions I'd like to thank our employees for their contributions everyday and our vendors and dealers who continue to partner with us for mutual success.

Speaker Change: With that operator, please open the line for questions.

Speaker Change: Thank you.

Speaker Change: You have dialed in and I'd like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press Star one again.

Speaker Change: If you are called upon to ask your question and our listening via loud speaker on your device. Please pickup your handset and ensure that your phone is not on mute when asking a question.

Speaker Change: And your first question comes from the line of Griffin, Brian with D. A Davidson. Please go ahead.

Griffin, Brian: Yes, Thanks, guys, just kind of curious how the cadence on retail quite out throughout the quarter right. So we got those September retail numbers yesterday actually it seems like there's some categories that kind of improved a decent bit.

Griffin, Brian: Have you guys seen anything like this in October.

Griffin, Brian: And do you think this kind of marks the bottom or is it a bit too early to tell.

Griffin, Brian: Hey, Griffin this is Ben.

Ben Palmer: I appreciate your question.

Ben Palmer: So nothing in particular, what we look to that.

Ben Palmer: It provides.

Ben Palmer: No I guess the biggest ray of light at this point is more broadly the team has done a fantastic job.

Getting our production levels down such that we can begin to see decline in the field inventory, so that especially not looking at that impressive 13% decline in field inventory in the third quarter. Despite the fact that we were still producing but obviously more more boats were being <unk>.

Ben Palmer: Sold at retail than we were shipping to the dealers. So that's.

Ben Palmer: That's a great sign, especially given the third quarter typically is a seasonally relatively.

Ben Palmer: Weaker relatively weaker quarters. So while we were very pleased to see that.

Ben Palmer: But if thats really hard to point at any any particular.

Ben Palmer: Model or size or whatever that is.

Ben Palmer: Driving that but.

Ben Palmer: It's good to see some of those positive overall industry results.

Speaker Change: Fair enough and then you mentioned that your dealer levels are at a reasonable level. Do you think this is kind of a broader trend or something that you guys are seeing specifically and then what those reasonable levels. What are your dealers appetite to take on model year 'twenty five units at this time.

Speaker Change: Well again, yes.

If we if we could.

Speaker Change: Have our way, we would lover field inventory to be lower but we are comfortable where it is at this point given what we've been through in the last.

Speaker Change: 12, plus months, we think we've done our teams done a good job navigating through.

Speaker Change: Given this period of time, the dealers or are stepping up and helping us obviously, we want to have.

Speaker Change: As much production as we can have but we tried to reach that appropriate equilibrium, where we have some level of production.

Speaker Change: So that requires them to be.

We committed to taking 25 models.

They are stepping up.

Speaker Change: No that.

To hopefully meet whatever demand, they're going to have especially <unk>.

Speaker Change: Next spring that they need to begin to take some boats now so they're doing a great job partner partnering partnering with us.

Speaker Change: To get some reasonable order flow at this point in time in.

Speaker Change: Chapter react to west.

Speaker Change: What happens over the next few quarters now typically obviously fourth quarter is the seasonally weak period, so not expecting.

Strong.

Speaker Change: Retail environment, but everybody is now looking forward to the winter boat shows in <unk>.

Speaker Change: Next spring Thats, what were all trying to plan for it.

Speaker Change: Project project out for and like I said the team is doing a great job navigating through that working with our dealers who are who we are.

Speaker Change: <unk>.

Speaker Change: Supporting us in that regard and we really appreciate that.

Speaker Change: Got it and then on the <unk>.

Speaker Change: Promotional front.

Speaker Change: We've seen some Oems today, some pretty drastic rebates on model year 'twenty four units.

Speaker Change: Any sort of pressure on you guys and maybe just kind of talk about your philosophy for promotions in this retail environment and how it all kind of play out for the rest of the year.

Speaker Change: Okay.

Speaker Change: Well I think at this point.

Speaker Change: Demand is.

Speaker Change: It continues to be weak.

Speaker Change: Our philosophy is I would say our promotional program at this point is a little closer to what it traditionally is.

Speaker Change: We're not getting super aggressive because we think with our inventory levels that again is there reasonable compared to where we are at this point in time.

Speaker Change: We're not so certain that.

Offering really super high incentives are going to do anything other than just shake those few people that are looking for.

Speaker Change: Really really low pricing.

Speaker Change: We're trying to look at it longer term trying to manage it over over the cycle over the season.

Speaker Change: So we are not responding with again significantly elevated programs.

Speaker Change: We'd rather.

Speaker Change: Sure.

Speaker Change: Have really more normal I mean, we're certainly stepped up to support the dealers but.

Speaker Change: We don't believe.

Speaker Change: Having.

Speaker Change: The position of our inventory and where we are in with our models and demand we don't feel that we need to have.

Speaker Change: Super aggressive programs in place at this point in time.

Speaker Change: Fair enough and then we've seen one of your competitors announced that they're exiting the marine industry.

Speaker Change: Fairly expecting you guys to comment on that specifically, but maybe just kind of speak to the current M&A market within marine more broadly.

Speaker Change: Sure. This is this is Mike.

Speaker Change: Yes, we saw that and we honestly haven't had a lot of time.

Speaker Change: To look at it in detail since we've been working on our quarter end.

Speaker Change: As we've stated we've.

Speaker Change: <unk> been looking for opportunities to grow our business, possibly through M&A and.

Speaker Change: We are starting to see some deals out there.

Speaker Change: So we think that that's a positive sign.

Speaker Change: And that there will be opportunities for companies like us.

A strong balance sheet and want to grow.

Speaker Change: There's nothing specific to call out on that right now other than we are encouraged that we believe opportunities will be out there.

Speaker Change: So.

Speaker Change: Yes, we'll see how it shakes out.

Speaker Change: Hopefully.

Speaker Change: We will see some something that will be a great long term fit for us.

Speaker Change: Got it and then just last one for me.

Speaker Change: Mentioned, the first rate cut being good for floor plan interest, but not necessarily a needle mover I guess I'm curious.

Speaker Change: There is a certain point, where the cuts actually do start to make an impact on retail demand and then maybe just kind of what are you guys forecasting internally in terms of a rate cut by the kind of playing out for 2025.

Speaker Change: Well Griffin, it's a good question I wish we had that kind of prognostication again.

Speaker Change: We're not necessarily.

Speaker Change: Trying to set our production levels based on.

Speaker Change: Greg Kutz as really more of a field sort of thing getting feedback from our dealers.

Speaker Change: And.

Speaker Change: Our vendors and our salesmen, who were disbursed across the country in this market to get a feel for.

Speaker Change: Sure.

Speaker Change: Our dealer partners are and how they're feeling and what we're feeling.

Speaker Change: We're really more we're going to react probably to whatever happens more than we're trying to forecast it.

Speaker Change: We're comfortable with the production levels. We are at right now we wish they were higher but we've adjusted to a level that we can remain steady until demand does pick up and we feel that we'll be able to react to that fairly quickly. So so we're we're.

Speaker Change: More monitoring that monitoring the overall demand picture.

Speaker Change: Certainly interest rates can factor into that but it may not always so.

Speaker Change: We think certainly any any additional cuts would certainly be a positive and withheld many many different sectors.

Speaker Change: Economy or has the opportunity to help many different parts of the economy. So so we'll just continue to watch it.

Speaker Change: And.

Speaker Change: I do think some additional cuts probably necessary to achieve some improvement but we.

Speaker Change: We will just wait and see it's reasonable question, but we don't we don't try to.

Speaker Change: Predict and then set our production rates based on that but we're certainly interested in glad that there has been that initial got it.

Speaker Change: Occurred.

I'll just add we just look at it as things heading in the right direction right. Its something we are all looking for for a long time.

Speaker Change: And we're also I think as we mentioned in our press release today has been working with our vendors and our dealers are making enhancements to our floor plan financing, which will help get rates down for both are.

Speaker Change: Both our dealers and hopefully the ultimately the consumer so all those things I think are heading in the right direction that coupled with our lower.

Speaker Change: Inventory in the field seem to be positive signs so we're hopeful as.

Speaker Change: Rates continue to come down that things will keep moving in the right direction.

Speaker Change: Got it that's all from me best of luck with the rest of you guys.

Speaker Change: Thanks, Thanks Griffin.

Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad.

Speaker Change: There are no further questions at this time I will now turn the conference back over to Mr. Ben Palmer for closing remarks.

Ben Palmer: Alright, Thank you very much Griffin appreciate you.

Ben Palmer: Your questions and everybody who listened in and we appreciate it and have a good rest of the day.

Speaker Change: A recording of today's call will be available on Marine products Corp, Dot com within two hours following the completion of the call.

Speaker Change: This concludes today's call you may now disconnect.

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Speaker Change: Okay.

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