Marine Products Corporation

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 Hubble, President and CEO, and Ben Palmer, Chief Financial Officer. Also to present is Jim Landers, Vice President of Corporate Services. At this time, all participants are in a listen-only mode. Following the presentation, we will be conducting question and answer session. Instructions will be provided at that time for you to queue up for questions. I would now like to advise everyone that this conference call is being recorded. Jim will get us started by reading the 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. I'd like to refer you to our press release issue today, our 2021 10-K, and our other SEC filings that outline these risks. All of these are available on our website at marineproductscorp.com. Also, 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. Our press release issued today 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. If you've not received our press release, please visit our website and at MarineProductsCorp.com for a copy. We'll make a few comments about the quarter, and then we'll be available for your questions. Now I will turn the call over to our President and CEO, Rick Hubble. Jim, thank you. We issued our earnings press release for the first quarter of 2022 this morning. Ben Palmer, our CFO, will discuss the financial results in more detail in a moment. Now for a few highlights in the quarter. Marine Products Corporation continues to be impacted by significant supply chain challenges. As a result, we shifted fewer units during the first quarter of 2022 than in the prior year, as we continue to experience the effect of ongoing supply chain challenges related to delays in receiving key components required to efficiently complete final assembly of many boats. These delays, coupled with driver shortages, are impacting our ability to deliver boats on a normal schedule. Our unit sales decline was substantially offset by increases in the average selling prices. 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. Backlog of actual orders plus order indications from dealers remain at historic highs, and dealer inventories remain low. The updated market share statistics for the 12 months ended December 31, 2021, indicate that the combination of Ravallo and Chaparral outboards in the 18 to 36-foot category had a market share of 6.3%, with Ravallo brand holding the third highest market share in this category. Chaparral held a market share of 20.2%, in the 21 to 34-foot stern drive category, which was the second highest in this category, and an increase in market share compared to the last reporting period. We also announced this morning that our board of directors declared a regular quarterly dividend of 12 cents per share. With that overview, I will now turn it over to our CFO, Ben Palmer. Thank you, Rick. Net sales for the first quarter of 2022 were 76.6 million, a 2.2% 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 costs for materials and components and labor, as well as continued migration and customer preferences to larger boats. As Rick mentioned, unit sales declined by 20.9% as supply chain problems impacted scheduling of production and boat deliveries resulting in a higher than normal level of inventory at our facilities. Every company employee 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. 0.4% decrease compared to the first quarter of 2021. Gross margin during the quarter increased to 24% compared to 23.6% in the first quarter of 2021. Gross margin as a percentage of net sales improved due to a more profitable model mix comprised of larger boats despite the cost increases that we faced. Selling general and administrative expenses were $9.2 million in the first quarter of 2022, an increase of 9.5% compared to $8.4 million in the first quarter of last year. These expenses increased because we participated 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 $985,000, or 8.1% compared to the first quarter of 2021. For the quarter ended March 31, 2022, we reported net income of $7.1 million, a 12.8% decrease compared to $8.1 million in the first quarter of 2021. Diluted earnings per share were 21 cents. compared to $0.24 saluted 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 5.4% of the total, representing a 5.9% 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 million, a $500,000 decrease compared to the cash balance at the end of the fourth quarter. The quarter-end cash balance is significantly lower than the $35 million balance at the end of the first quarter of 2021. The year-over-year and sequential declines in our cash are a direct result of higher inventories caused by delayed deliveries from suppliers of critical components and the resulting delayed shipments of substantially completed boats. Scheduling of production and boat deliveries will continue to be a focal point for us. Dealer inventories are slightly higher than at the end of the fourth quarter of 21, but significantly lower than at the end of the first quarter of 21. 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, Ben. Marine Products Corporation continues to focus on recreational boating's resurgence over the past two years as a popular American leisure activity. This revival motivates our New model designs, our continued emphasis on quality, and our enduring efforts to produce and ship as many boats as possible under uniquely challenging circumstances. Our optimism is supported by continued strong demand indications. Although there were a limited number of winter boat shows because of the ongoing COVID restrictions, the shows that did take place were well attended and generated strong order volumes. As we enter the retail selling season, our dealer inventories remain low and backlog remains high, 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 production bottlenecks that have prevented marine products from from completely satisfying historically high demand. We are tackling these problems and appreciate the dedication of our employees, assistance from our suppliers, and the continued support of our dealers and retail customers. I'd like to 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 1 on your telephone keypad. Again, to ask a question, simply press star 1 on your telephone keypad. And your first question comes from the line of Fred Whiteman from Wolf Research. Your line is open. Please go ahead.