Marine Products - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue and EPS declined year over year, but trends stabilized sequentially: net sales $47.8M (-33% YoY) and diluted EPS $0.12 (vs $0.16) with gross margin up 20 bps to 19.2% as cost controls and a favorable promo comparison offset volume deleverage.
• Management sounded cautiously optimistic: dealer field inventory ended ~15% lower YoY; near‑term sales comps expected to be “generally flat” with potential growth in 2H25; incentives broadly unchanged; production increases will remain prudent until demand improves.
• Balance sheet strong and shareholder returns intact: year-end cash $52.4M, no debt; 2024 FCF $24.9M; board declared $0.14 regular dividend payable Mar 10, 2025; total 2024 dividends $43.7M (incl. $0.70 special).
• Stock reaction catalysts: trajectory inflection signs (field inventory, gross margin stability, boat show interest), potential H2 2025 growth, steady dividends, and selective M&A optionality—balanced by still-cautious dealer ordering and mixed rate outlook.

What Went Well and What Went Wrong

• What Went Well

  • Sequential stabilization and margin discipline: gross margin 19.2% (+20 bps YoY) with EBITDA margin steady at 9.2% despite a 39% unit decline; SG&A down 28% YoY and net income margin up 120 bps aided by a solar tax credit.
  • Channel progress: field inventory ended ~15% lower YoY; dealers “expressing a hopeful sentiment,” with positive boat show attendance and interest; management expects near‑term flat comps with potential H2 2025 growth.
  • Balance sheet and cash returns: $52.4M cash, no debt; 2024 FCF $24.9M; dividend maintained at $0.14; special dividend already returned $24.3M in Q2.

• What Went Wrong

  • Volume pressure continues: net sales -33% YoY on a 39% decline in boats sold (partially offset by +6% price/mix); dealer ordering still cautious amid wider industry inventories and elevated (though easing) carrying costs.
  • Underlying demand subdued: management notes modest buying conviction despite rate cuts; promotions broadly similar to last year and not ramped meaningfully—limiting volume acceleration near-term.
  • Interest income declined: lower cash balances post special dividend and lower rates reduced Q4 interest income to $0.5M, a small headwind to EPS versus last year.

Transcript

Operator (participant)

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. 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 for questions. I would like to advise everyone that this conference call is being recorded. I will now turn the call over to Mr. Schmit.

Michael Schmit (CFO)

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, the most directly comparable GAAP measures. I'll now turn the call over to our President and CEO, Ben Palmer.

Ben Palmer (President and CEO)

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. Though 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, though 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. With higher than normal downtime, we worked on our efficiencies and streamlined some of our shop floor operations so they run more profitably, especially when production volumes increase. In addition, we completed the installation of solar panels at our Nashville, 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.

Michael Schmit (CFO)

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 a 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 to 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 netted a positive of 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 was 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 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 (President and CEO)

Thanks, Mike. Despite a 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 mid-year. 2024 saw weak in-market demand, but we managed prudently through this period and believe the worst is past. We pride ourselves on consistent and conservative financial management and emerge from 2024 with a strong balance sheet that can 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'd 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 the dedication, partnership, and support. And with that, Operator, please open up the line for questions.

Operator (participant)

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Griffin Bryan with D.A. Davidson. Your line is now open. Please go ahead.

Griffin Bryan (Associate Vice President and Research Analyst)

Hi, guys. Good morning. So we've 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?

Michael Schmit (CFO)

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

Griffin Bryan (Associate Vice President and Research Analyst)

Great. And then what have you seen from a promotional aspect at these shows so far? I'm assuming it's still competitive, but maybe just some high-level comments on what you've seen.

Ben Palmer (President and CEO)

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're trying to push. We obviously have some, but a lot of the better incentives are still trying to clear some of that back inventory that we've seen. Those are some of the stronger ones, but a lot of them, including ours, are pretty consistent to what we've seen over the last year. We've 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're 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 the incentives we saw kind of last year.

Griffin Bryan (Associate Vice President and Research Analyst)

Got it. Makes sense. And then you mentioned that you're 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?

Michael Schmit (CFO)

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're just working closely with them. We're 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'll 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'll assess further as we complete the winter boat shows and get into the spring selling season. So now's a key time to be watching their sentiment and the order flow that we expect.

Griffin Bryan (Associate Vice President and Research Analyst)

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 play in or some of the alternate ones that you don't necessarily play in?

Michael Schmit (CFO)

We've heard and observed. We don't have all that information specifically, and it is a little bit brand to brand. But in terms of obviously, we're 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 it can also be a drag. So aluminum is probably one of those areas.

Griffin Bryan (Associate Vice President and Research Analyst)

Gotcha. Last one for me. So if we can just get an update on the current M&A environment and if you're seeing any relative uptick in activity with the slightly lower rates and the new administration in office?

Ben Palmer (President and CEO)

Sure. We have started to see some opportunities pop up, but not a lot of great brands, a lot of them are in distressed situations, what we've seen. We are actively looking, but we're 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 brand. There haven't been a ton of opportunities in sort of the sweet spot we're looking for. We're 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. We are actively looking, and hopefully, we'll see some that are a better fit for us coming up this year.

Griffin Bryan (Associate Vice President and Research Analyst)

Awesome. That's all for me. Thanks, guys.

Ben Palmer (President and CEO)

Thanks, Griffin.

Michael Schmit (CFO)

Appreciate it.

Operator (participant)

Again, if you would like to ask a question, please press star one on your telephone keypad. There are no further questions at this time. That concludes our Q&A session. I will now turn the conference over to Ben.

Michael Schmit (CFO)

Okay. Thank you very much. Appreciate everyone who called in to listen. And again, apologize for the issues there on the front end, but appreciate your patience. Have a good rest of the day.

Operator (participant)

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.