Marine Products Corporation

Good morning and thank you for joining us for the Marine Products Corporation's first quarter 2025 earnings conference call. Today's call will be hosted by Ben Palmer, President and CEO, and Mike Schmidt, Chief Financial Officer. At this time all participants are in 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 your questions. I would like to advise everyone that this conference call is being recorded. I will now turn the call over to Mr. Schmidt.

Thank you and good morning. 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. Please refer to our press release issued today along with our 2024 10K and other public filings to outline those risks, all of which can be found at .marineproductscorp.com. In today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance and liquidity. We believe these non-GAAP measures allow us to compare performance consistently over various periods. Our press release issued today and our website contains reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. I will now turn the call over to our President and CEO, Ben Palmer.

Thanks Mike and thank you all for joining our call. First quarter results were down compared to prior year. However, our trends are beginning to stabilize following significant top line declines last year. For context, in 2024, our quarterly sales declines were in the low 30% to low 40% range following unprecedented post-COVID demand through the mid part of 2023. Whereas in the first quarter of 2025, sales were down 15% year over year. On a more positive note, sales were up 23% sequentially compared to the last quarter. As we said last quarter, we are seeing some signs of stabilization and we still believe we are in a position to see year over year sales growth in the second half of the year. While that trend is headed in the right direction, we are still in a challenging uncertain environment. The marine industry continues to work through elevated levels of channel inventory, an unclear interest rate environment, and now uncertainty with respect to tariff impacts. However, we are still cautiously optimistic that we have reached a trough. We are focused on managing costs and production levels as tightly as possible, maximizing cash flow, and positioning ourselves for improved demand in the future. Channel inventory has been the most pressing challenge we and our peers have faced over the past 18 months or so. A few months ago, we disclosed our field inventory units were down 15% when comparing to the end of 23 to the end of 24. And we are pleased to report that our first quarter channel inventories were down 18% versus the year-ago quarter. So we continue to make progress and are comfortable where we stand from a channel inventory perspective. This has been a collaborative effort with our dealers, balancing the need for smooth production schedules and fixed cost absorption. With the hesitation from the dealer network and taking more inventory without visible near-term demand catalysts, conservatism and prudence continue to be our approach. We know tariffs are top of mind for investors, and it's too soon to project anything definitively given the ongoing nature of negotiations to this point. From an input cost standpoint, key purchases would be engines, navigation systems, stainless steel, aluminum, and fiberglass. It's highly likely that tariffs on these items and other materials would result in model price increases. We have limited visibility on the outcome, but are doing everything possible to keep an open dialogue with our government representatives, trade associations, and vendor partners. Together, we are communicating the potential negative impacts of tariffs on our industry and hoping for as much relief as possible. Regarding interest rates, while we had originally been hoping for steady rate relief, the outlook for rates remains unclear as the Fed balances economic impacts from tariffs and trade policy on inflation and the growth outlook. It's fair to say that we hope for lower rates, but acknowledge that if rates come down, it could be in response to a deteriorating domestic economy, which would inherently be unfavorable. As we pass from the spring selling season into summer, we will be in close touch with our dealers on our model year 2026 rollout. In the current environment, we will proceed carefully, being mindful of channel inventory and dealer and consumer appetite for new boats, but still look forward to delivering new models and feature and design enhancements across both Chaparral and Ravallo brands. Regardless of market conditions, our brand reputation is still the lifeblood of our business. Constant innovations and new designs must continue, and fortunately, we have the financial strength to sustain those efforts. Now Mike will provide an overview of the financial results.

Thanks, Ben. Shifting to the first quarter, with -over-year comparisons to the first quarter of 2024, sales were down 15% to $59 million, driven by a 19% decrease in the number of boats sold. Price and mix met into a positive 4%. We know the quarterly sales decreases have been easing for the past several quarters, and as Ben mentioned, we see potential to deliver sales growth versus the prior year in the second half of 2025. Gross profit decreased to $11 million, with gross profit of $11 million, down $11 million. The decline is due to lower volumes and reduced fixed cost absorption, which more than offset the favorable price and mix effects. SG&A expenses were $8.3 million in the quarter, down 5% or $400,000 compared to last year's first quarter. These expenses decreased primarily due to costs that vary with sales and profitability, such as incentive compensation, sales commissions, and warranty expense. SG&A as a percentage of sales was 14.1%, up 150 basis points compared to the prior year's first quarter, due to fixed overhead and reduced sales. Our tax rate was .8% in the quarter, and is likely to be slightly below this level for the remainder of the year. Deluted EPS was 6 cents in the first quarter, down from 13 cents last year. EBITDA was $3.4 million, down from $5.9 million. In the quarter, we generated strong operating cash flow of $10.8 million and free cash flow of $10.7 million. CapEx was just under $100,000 of period, and while we expect lower CapEx this year compared to last, it will likely pick up in the coming quarters and track toward $3 million for the full year. We paid $4.9 million in dividends and finished the quarter with cash of $57 million in no debt. On another topic, you may have seen the company has filed an S3 registration statement with the SEC, which includes the registering of the Rollins family control group shares. The Rollins family has been a long-time shareholder with ongoing representation on our board. They have always been very supportive of the company, and we do not believe this changes that relationship. We view the registration of the control group shares as good corporate housekeeping. I'll now turn it back over to Ben for a few closing remarks. Thank you, Mike.

Recent results have been a challenge for us and the marine industry overall. However, our discipline and focus on cash generation remains intact. We are still actively seeking acquisitions to expand our business and have ample liquidity to take advantage of opportunities as they arise. We're looking at various both categories where we don't have existing products and believe we will be a buyer of choice for owners of quality assets looking for an exit. On a separate note, we'd like to welcome Steve Lewis, our board of directors, after being elected this week. Steve retired from the law firm Troutman Pepper, formerly Troutman Sanders, in 2023, where he had served in various leadership roles, including chairman and CEO. At the same time, Gary Rollins and Pam Rollins have retired from our board. We thank them for their years of contributions, leadership, and service. In closing, I want to always thank our dealers for their continued collaboration and support and our employees for their dedication and hard work. That concludes our prepared remarks. With that, operator, please open the line for any questions.

At this time, in order to ask a question, please press star, the number one on your telephone keypad. I will now turn the call back over to Ben Palmer. Please go ahead.

Thank you, operator. Appreciate you listening in on the call today and hope you have a good rest of the day and look forward to touching base soon. Take care.

Today's call will be available for replay on marineproductscorp.com within two hours following the completion of the call. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.