Marine Products Corporation Q2 FY2024 earnings call

• Industry challenges: Dealer hesitation to aggressively order boats, excess inventory, and high interest rates hamper business. - Cost and production management: Reduced production schedules to align with lower demand and undertook projects to improve plant operations. - Field inventory: Field inventory declined over 15% in the second quarter. - Dealer support: Extended promotions to support dealers and stimulate demand. - Upcoming events: Launching 2025 model year, hosting dealers at Annual Conference in August to celebrate Chaparral brand's 60th anniversary, and continuing R&D and innovation for new models.

For the second quarter of 2024 compared to the second quarter of 2023, sales were down 40% to $69.5 million, driven by a 41% decrease in boats sold, with price and mix netted to a positive 1%. Gross profit decreased 54% to $13.2 million, with a gross profit margin of 18.9% down 580 basis points versus last year. SG&A expenses were $7.4 million in the quarter, down 39% or $4.7 million compared to last year’s second quarter. Diluted EPS was $0.14 in the second quarter, down from $0.42 last year. EBITDA was $6.5 million, down from $17.1 million, with EBITDA margin decreasing 540 basis points to 9.3%. Year-to-date, operating cash flow was $20 million and free cash flow was $18 million. CapEx was $1.7 million and is expected to pick up in the second half of the year with planned solar panel installation, expected to be approximately $5 million for the full year. Revenue contribution details aren't specified for different product segments as the transcript doesn't break it down by specific product segments beyond general boat manufacturing.

• Near-term challenges: Believes challenges will continue to hamper financial results in the near term. - CapEx: CapEx expected to pick up in the second half of the year with solar panel installation, full-year CapEx预计约$5 million. - Interest rates: Encouraged by recent economic commentary suggesting nearing interest rate relief, but single Fed rate cut not expected to have dramatic impact on demand. - Dealer conference: Expecting to get more orders from dealers at the upcoming Dealer Conference as they celebrate Chaparral's 60th anniversary. - M&A: Interested in M&A but waiting for the right brand and category as M&A market has been slow with valuations adjusting to new industry reality.

• Industry-related: Dealer hesitation to order boats, excess dealer inventory in non-competing categories, and high interest rates impacting dealer carrying costs. - Market-related: Uncertainty around interest rate outlook and its impact on demand, and uncertainty in M&A market with limited suitable companies for acquisition.

Q: Can you kind of talk about the cadence of retail throughout the quarter and why maybe we saw such a big drop in June? And then maybe speak to if those trends we saw in June are carrying over into July?

A: Ben Palmer said they saw field inventory drop during the second quarter, there are reporting delays between actual sales and registration, saw strength relative to first quarter, normal pattern is sales moderate after spring and early summer selling season, and haven't seen significant unusual change in sales cadence.

Q: What are you guys hearing from dealers regarding their appetite to take on some of the new model year '25 units?

A: Ben Palmer said they follow consistent policy of working with dealers with order points to plan production, building only two firm orders from dealers, dealers would love to order more '25 model year boats but are mindful of existing inventory, working closely to balance between now and next spring selling season.

Q: In terms of promotions, is there a possibility that these could get even more aggressive or is it more just kind of extending the timeline of these offerings?

A: Ben Palmer said they will tweak programs from time to time but think current programs are appropriate and attractive, comfortable with where they are right now, focused on supporting sales of older model year boats.

Q: What data points would give you guys confidence to bring back production to a more normalized level and is that something that's even possible this year?

A: Mike Schmit said data point would be getting orders from dealers, expecting to get a lot of orders at the upcoming Dealer Conference celebrating Chaparral's 60th anniversary; Ben Palmer said third and fourth quarters are seasonally slower, it's about dealers projecting forward and working collaboratively to set production levels based on orders.

Q: In terms of capital allocation, what are you guys seeing in the M&A environment and is that something you guys would still be interested in participating in at this point in the cycle?

A: Mike Schmit said interested in M&A but there haven't been many good companies looking to sell, valuations have adjusted to new industry reality, will look for the right brand and category, still maintain strong cash balance for potential M&A