Marine Products Corporation (NYSE:MPX) Q4 2022 Earnings Call Transcript

Marine Products Corporation (NYSE:MPX) Q4 2022 Earnings Call Transcript January 25, 2023

Operator: Good morning, and thank you for joining us for Marine Products Corporation’s Fourth Quarter and Year End 2022 Financial Earnings Conference Call. Today’s call will be hosted by Ben 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 a listen-only mode. 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. I would like to advise everyone that today’s conference call is being recorded. Jim will get us started by recording — reading the forward-looking statement.

Jim Landers: 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 issued today, our 2021 Form 10-K and other SEC filings that outline those risks, all of which are available on our website at marineproductscorp.com. If you’ve 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-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.

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’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.

Ben Palmer: Jim, thanks, and thank you for everyone for joining the call this morning. Let me begin with a few highlights regarding our fourth quarter 2022 earnings press release that was issued this morning. Marine Products Corporation generated record quarterly net sales during the fourth quarter as we experienced improvement in our supply chain issues and transportation availability. This allowed us to finish a larger number of substantially completed boats that were in our inventory and deliver them to our dealers. This also led to more efficient production in our manufacturing plants, which should benefit us in future quarters. Average selling prices increased due to a favorable model mix and price increases implemented to cover increased costs, including labor, materials and components.

Our fourth quarter unit sales were the highest of any quarter in 2022, despite the impact of two holidays. 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. We also announced this morning that yesterday our Board of Directors declared a regular quarterly cash dividend of $0.14 per share. And with that overview, I would like to turn the call over to Mike Schmit, our CFO.

Mike Schmit: Thanks, Ben. I’ll start with an overview of the company’s fourth quarter 2022 financial results. Net sales for the fourth quarter were a record $108.5 million, a 42% increase compared to the fourth quarter last year. Unit sales increased by 29% and average selling prices of our boats increased by 12%. Gross profit in the fourth quarter was $27.3 million, a 43% increase compared to the fourth quarter of 2021. Gross margin during the fourth quarters of both 2022 and 2021 was 25%. 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. This increase is due to costs that typically increase with higher sales and profitability, such as incentive compensation, sales commissions and warranty expenses.

We also recorded a $1.2 million defined benefit pension plan charge related to a lump sum settlement offered to plan participants during the quarter. During Q1 2023, we expect to record a settlement charge of approximately $2.6 million associated with the final termination of this plan. 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. 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. We reported a quarterly net income of $11.9 million, a 40% increase compared to $8.4 million in the fourth quarter of 2021. Diluted earnings per share were $0.35, also a quarterly record, compared to $0.25 in the fourth quarter of last year.

Our full year financial results were also records, with net sales of $381 million, net income of $40.3 million and diluted earnings per share of $1.18. Our international sales, which account for approximately 8% of our total sales, increased by 71% compared to the fourth quarter of last year. Our cash balance at the end of the year was $43.2 million, a $29.1 million increase compared to the cash balance at the end of last year. Our 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 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.

Ben Palmer: Our market share remains strong. Chaparral’s sterndrive 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 Robalo 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.

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Q&A Session

Operator: And there are no questions at this time. Mr. Jim — I apologize. A line just came in from the line of Craig Kennison from Baird. Your line is open.

Craig Kennison: Hey, good morning. Thanks for taking my questions.

Ben Palmer: Absolutely, Craig. Good morning.

Craig Kennison: Yes, 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?

Ben Palmer: Craig, this is Ben. 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 (ph) 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 in here.

Craig Kennison: Yes, 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?

Ben Palmer: For our inventory?

Craig Kennison: Yeah.

Jim Landers: Dealer inventory, Craig?

Ben Palmer: For our inventory.

Craig Kennison: I’m sorry. Yes. I mean dealer inventory, your dealer inventory.

Ben Palmer: Oh, dealer inventory. 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 it. We think that’s healthy, right? We think that’s normal. Things are beginning to become a little more normalized. So that’s to be expected and not troublesome. But again, we’ll continue to monitor that.

Craig Kennison: Thanks for that. And then, I had a question on your input costs. I’m just curious, 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?

Jim Landers: Craig, this is Jim. We probably agree with what you just characterized. In other words, cost of materials has been — 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 easing has helped cost moderate a little bit. That does not count labor. Labor continues to be high. But cost of materials is moderating some.

Mike Schmit: Yes, I think it’s more — it hasn’t — the constant increases have stopped, but hasn’t come down a lot.

Jim Landers: Yes, the rate of increase has decreased.

Mike Schmit: Yes.

Jim Landers: First derivative is now negative, I guess.

Ben Palmer: 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.

Jim Landers: Yes. And to be clear, we still have surprises — negative surprises. There still may be things that are — that we have to wait on or price increases happen. But in general, it is moderating a bit better.

Ben Palmer: Yes.