Earnings Transcript for MPX - Q4 Fiscal Year 2024

Operator: Good morning and thank you for joining us for Marine Products Corporation Fourth Quarter and Year End 2024 Financial Earnings Conference Call. Today’s call will be hosted by Ben Palmer, President and CEO; and Mike Schmit, Chief Financial Officer. [Operator Instructions] I would like to invite everyone that this conference call is being recorded. I will now turn the call over to Mr. Schmit.

Mike Schmit: 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 2023 10-K and other public filings that outline those risks. All of which can be found at www.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 and our website contain reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. I’ll now turn the call over to our President and CEO, Ben Palmer.

Ben Palmer: Thank you, Mike and thank you all for joining our call. I apologize for the issues we’ve had there. Fourth quarter results were negative compared to prior year. However, we are seeing early signs of stabilization and a path to turning the corner toward growth later this year. The marine industry continues to push through a lackluster period. Sentiment remains cautious, but perhaps best characterized as shifting from cautious and concerned to cautiously optimistic. During this past year, we have been laser-focused on managing costs and production levels as tightly as possible without disrupting our business and jeopardizing our ability to support our dealers when industry demand picks back up. Channel inventory has been the most acute challenge facing us and our peers in 2024. We are pleased to share that our field inventory ended the year about 15% lower than prior year. We feel we have been true partners to our dealers by conservatively managing our field inventory. While dealer inventories did increase sequentially from the end of the third quarter, it’s our normal seasonal pattern as dealers position themselves for the winter boat shows and the spring selling season. The 15% field inventory decline versus last year reflects some sell-through of older models. Bottom line, this has not been an easy journey, navigating channel inventory excesses over the last 18 months. But we are pleased where we’ve landed and with our current position, especially relative to some of our competitors and categories where we don’t compete. With respect to interest rates and dealer and consumer sentiment following the election and transition to a new presidential administration, we are encouraged by the general optimism for improved business conditions. After some interest rate reductions, there are mixed signals on the near-term direction of rates, but we believe they will likely be neutral to favorable going forward. So purely anecdotal, our dealers are expressing a hopeful sentiment for consumer demand. With the election behind us and some closure to the general political uncertainty from the second half of 2024, we hope consumers will steadily come back into the market. Feedback from winter boat shows thus far is that they are well attended by credible buyers expressing renewed interest. So, few buyers conveyed a sense of urgency. We also heard some buyers who had purchased their first boat during the pandemic were already considering upgrades to a newer and/or larger model. Cash buyers will likely be the first area of strength we see, but we also heard some feedback that entry-level buyers showed interest as well, an encouraging sign for consumers looking to finance their boat purchases. Again, these are anecdotal and directional comments, but we hope they are the precursor for improved demand as the year progresses. 2024 also marked some investments in our business. We expect to help improve operations and results this coming year. Higher than normal downtime, we worked on our efficiencies and streamlined some of our shop floor operations that they run more profitably, especially when production volumes increase. In addition, we completed the installation of solar panels at our National Georgia Manufacturing facility. We received some attractive tax incentives and expect to generate strong electricity cost savings going forward from this investment. We are also proud of the environmental benefits this project will deliver. And now Mike will provide an overview of the financial results.

Mike Schmit: Thanks, Ben. I’ll start with a few quick financial highlights for the year and then go into some more detail on the fourth quarter. For the full year 2024, sales were $237 million, down 38% versus last year. Diluted EPS was $0.50 compared to $1.21 and EBITDA was down from $52 million to $21 million. We generated strong operating cash flow of $30 million and free cash flow of $25 million. CapEx was $5 million and included the investment in our solar panel project. For the year, we paid $44 million in dividends, including $24 million in the form of special dividend, and we finished 2024 with cash of $52 million and no debt. Additionally, our Board of Directors declared a regular quarterly dividend of $0.14 per share this week, which will be payable in March. Shifting to the fourth quarter with year-over-year comparisons for the fourth quarter of 2023, sales were down 33% to $47.8 million, driven by a 39% decrease in the number of boats sold, price and mix net deposit 6%. We noted that quarterly sales decreases eased throughout the year. We would expect year-over-year comparisons to be fairly muted in the first half of 2025 with potential to deliver sales growth versus prior year in the second half of 2025. Gross profit decreased to $9.2 million with a gross profit margin of 19.2%, up 20 basis points. Part of the gross margin percentage increase with a favorable comparison on promotional expenses incurred versus last year’s fourth quarter when we resumed incentive programs. SG&A expenses were $5.6 million in the quarter, down 28% or $2.2 million compared to last year’s fourth quarter. These expenses decreased primarily due to costs that vary with sales and profitability, such as incentive compensation, sales commissions and warranty expenses. SG&A as a percentage of sales was 11.6%, up 70 basis points compared to the prior year’s fourth quarter. Of note, we generated a tax benefit of $71,000 in the fourth quarter despite having positive pre-tax income. We received a tax credit for our solar panel installation project, which more than offset which – what would have been our normal tax provision. Diluted EPS was $0.12 in the fourth quarter, down from $0.16 last year. EBITDA was $4.4 million down from $6.5 million. I’ll now turn it back over to Ben for a few closing remarks.

Ben Palmer: Thanks Mike. By the challenging year, we are proud of our ability to remain solidly profitable, generate robust cash flow and provide significant cash returns to our investors through our regular quarterly and our special dividend midyear. 2024 saw a weak end market demand, but we managed prudently through this period and believe the worst has passed. We pride ourselves on consistent and conservative financial management and emerge from 2024 with a strong balance sheet that could support investments in the business and continued dividends to our investors. Over time, if we do not deploy substantial capital, we will look at further actions to return cash to our investors. As we wrap up the call, I would also like to highlight two milestones. Coming up this summer, in August, we will mark the 25th anniversary of Marine Products becoming a public company. Also this past year, we marked the 60th anniversary of the Chaparral brand, celebrating with our dealers at our annual dealer conference in the Florida Keys. We have many employees and dealers that have been with us for multiple decades. And on this occasion, I just want to thank everyone involved in our long-term success for their dedication, partnership and support. And with that, operator, please open up the line for questions.

Operator: [Operator Instructions] Your first question comes from the line of Griffin Bryan with D.A. Davidson. Your line is now open. Please go ahead.

Griffin Bryan: Hi guys. Good morning. So, we have heard some mixed results from dealers and OEMs this morning about performance at boat shows. Can you kind of speak to your relative strength versus maybe some of your peers and then kind of like do you guys have any expectations for the upcoming Miami Show?

Ben Palmer: In general, yes, I mean it’s been mixed. But again, I think overall, there is positive under time. I think everybody is feeling some of that optimism. I think there is still trying to find some strength and build a foundation going forward. We are hopeful that things will continue to improve into the spring selling season as – regarding any upcoming shows, including Miami, we will be there full force, well represented by dealers and our management team. So, we are hopeful. We know it will probably be a slow improvement in demand, but we are looking forward to it. And we feel like we are well positioned once things do – demand does pick up.

Griffin Bryan: Great. And then what have you seen from a promotional aspect at these shows so far, assuming it’s still competitive, but maybe just some high-level comments on what you have seen.

Mike Schmit: Sure. A lot of the incentives are similar to what we saw last year. I think we don’t have a lot of older units that we are trying to push. We obviously have some, but a lot of the – but better incentives are still trying to clear some of that back inventory that we have seen. Those are some of the stronger ones. But a lot of them, including ours, are pretty consistent to what we have seen over the last year. We have also seen some dealers and larger dealer groups starting to provide some incentives as well, but we started seeing that last year. So, the best incentives are obviously those where they are trying to get rid of some old inventory, but overall, we don’t see anything really slowing, but I didn’t see any material differences from some of those incentives we saw kind of last year.

Griffin Bryan: Got it. Makes sense. And then you mentioned that you are pleased with your level of destocking. Does that imply that you guys are at optimal levels for your brands, or is there more destocking that will be needed as we get into this New Year?

Ben Palmer: It’s a good question. I mean the fact that we think field inventories are closer to normal levels. Dealers are still, I don’t want to say reluctant to order, but certainly are being very thoughtful about it. So, we are just working closely with them. We are trying to meet that right equilibrium between – we are just trying to create the right equilibrium with incentives helping our dealers and providing some support to them by helping with retail incentives as well. So, we will just have to let it play out. But again, we feel good where we stand and are pleased that our dealers are feeling some degree of optimism. We will assess further as we complete the winter boat shows and get into the spring selling season. So, now is a key time to be watching their sentiment and the order flow that we expect.

Griffin Bryan: Got it. So, are there any categories specifically that are a little bit more bloated right now as compared to maybe the ones that you guys plan or some of the alternate ones that you don’t necessarily plan?

Ben Palmer: We have heard and observed. We don’t have all that information specifically and it is a little bit brand-to-brand. But in terms, obviously we are in the fiberglass market, some of the aluminum market, I think has had some more inventory than they would desire. And of course, any oversupply in those categories don’t directly impact us, but certainly is – it can also be a drag. So, aluminum is probably one of those areas.

Griffin Bryan: Got it. Last one for me, so if we can just get an update on the current M&A environment and if you are seeing any relative uptick in activity with a slightly lower rate than the new administration in office?

Mike Schmit: Sure. We have started to see some opportunities pop up, but not a lot of great brands that – a lot of them are in distressed situations what we have seen. So, we are actively looking, but we are more focused on finding a brand that would be a good fit for us and a good fit for our existing dealers and wouldn’t be a direct competitor necessarily with our current brands. So, there hasn’t been a ton of opportunities in sort of the sweet spot we are looking for. And – but we are hopeful that as things are now stabilizing, and as you mentioned, interest rates have come down a little. And as they come down a little more, perhaps there will be opportunities, but we are actively looking and hopefully, we will see some that are a better fit for us coming up this year.

Griffin Bryan: Awesome. That’s all for me. Thanks guys.

Mike Schmit: Thanks Griffin.

Ben Palmer: Appreciate it.

Operator: [Operator Instructions] There are no further questions at this time. That concludes our Q&A session. I will now turn the conference over to Ben.

Ben Palmer: Thank you very much. I appreciate everyone who called in to listen and again, apologize for the issues there on the front end. I appreciate your patience. Have a good rest of the day.

Operator: Ladies and gentlemen, that concludes today’s call. We thank you for joining and we apologize for the technical issues earlier. Please be reminded that the conference call will be replayed on marineproductscorp.com within two hours following the completion of the call. You may now disconnect.