Marine Products Corporation (NYSE:MPX) Q2 2019 Results Conference Call July 24, 2019 8:00 AM ET Company Participants Jim Landers - Vice President of Corporate Finance Rick Hubbell - President and Chief Executive Officer Ben Palmer - Chief Financial Officer Conference Call Participants Eric Wold - B. Riley FBR Ronald Bookbinder - IFS Securities Operator Good morning, and thank you for joining us for Marine Products Corporation's second-quarter 2019 financial earnings conference call. Today's call will be hos ...

Part I. Financial Information [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for Marine Products Corporation as of March 31, 2019, and for the three-month period then ended, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with accompanying notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The company's total assets increased to **$110.8 million** as of March 31, 2019, from **$100.9 million** at December 31, 2018, driven by a significant increase in cash and cash equivalents and accounts receivable, while total liabilities also rose, primarily due to higher accounts payable and accrued expenses Consolidated Balance Sheets (in thousands) | | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total current assets** | $77,644 | $64,600 | | **Total assets** | **$110,794** | **$100,880** | | **Total current liabilities** | $27,913 | $18,167 | | **Total liabilities** | $36,564 | $25,668 | | **Total stockholders' equity** | $74,230 | $75,212 | - Cash and cash equivalents nearly doubled to **$18.3 million** from **$8.7 million** at year-end 2018, while marketable securities were reduced to zero from **$7.7 million** (current and non-current combined)[8](index=8&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) For the first quarter of 2019, net sales increased by **7.1%** year-over-year to **$83.1 million**, but due to higher cost of goods sold and SG&A expenses, operating income slightly decreased by **1.8%** to **$8.9 million**, with net income and earnings per share remaining relatively flat compared to the prior year period Consolidated Statements of Operations (in thousands, except per share data) | | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | **Net sales** | $83,053 | $77,536 | | **Gross profit** | $18,699 | $17,651 | | **Operating income** | $8,868 | $9,033 | | **Net income** | **$7,469** | **$7,609** | | **Diluted EPS** | $0.22 | $0.22 | | **Dividends paid per share** | $0.12 | $0.10 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities increased significantly to **$12.0 million** in Q1 2019 from **$7.5 million** in Q1 2018, while investing activities provided **$6.6 million** mainly from marketable securities sales, and financing activities used **$9.0 million** due to higher dividend payments and stock repurchases Consolidated Statements of Cash Flows (in thousands) | | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $12,044 | $7,510 | | **Net cash provided by investing activities** | $6,571 | $1,135 | | **Net cash used for financing activities** | ($9,013) | ($6,400) | | **Net increase in cash and cash equivalents** | $9,602 | $2,245 | | **Cash and cash equivalents at end of period** | $18,347 | $9,929 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on accounting policies and financial statement line items, including the adoption of the new lease accounting standard (ASC 842), revenue recognition, stock-based compensation, warranty costs, repurchase obligations, and fair value measurements - The company adopted the new lease standard ASC 842 on January 1, 2019, recognizing a right-of-use asset and lease liabilities of approximately **$200 thousand**, with no material impact on operations or cash flows[23](index=23&type=chunk) - Revenue is primarily generated from selling fiberglass motorized boats and accessories, recognized when control transfers to the dealer; for Q1 2019, **$82.1 million** came from boats and accessories, and **$1.0 million** from parts[30](index=30&type=chunk)[31](index=31&type=chunk)[38](index=38&type=chunk) - The company has contractual repurchase agreements with floor plan lenders with an aggregate maximum repurchase obligation of approximately **$19.5 million** as of March 31, 2019[62](index=62&type=chunk) - During Q1 2019, the company changed its investment strategy and no longer held investments in marketable securities as of March 31, 2019[50](index=50&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for the first quarter of 2019, highlighting a **7.1%** increase in net sales driven by higher average selling prices, which offset a decrease in unit sales, with the outlook for 2019 remaining stable, supported by strong consumer confidence but tempered by potential economic weaknesses, also covering liquidity, capital resources, and off-balance sheet arrangements [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Net sales for Q1 2019 rose **7.1%** to **$83.1 million** compared to Q1 2018, driven by a **14.8%** increase in the average selling price per boat due to a favorable model mix, partially offset by a **6.8%** decrease in the number of boats sold, resulting in a slight **1.8%** decrease in operating income due to a **14.1%** increase in SG&A expenses Key Operating Statistics (Q1 2019 vs Q1 2018) | | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | **Total number of boats sold** | 1,382 | 1,483 | | **Average gross selling price per boat** | $52,600 | $45,800 | | **Net sales (in thousands)** | $83,053 | $77,536 | | **Gross profit margin** | 22.5% | 22.8% | | **Operating income (in thousands)** | $8,868 | $9,033 | - The increase in average selling price was attributed to a model mix that included larger boats, such as the new 300 OSX Bowrider and larger Robalo models[110](index=110&type=chunk) - SG&A expenses increased by **14.1%** primarily due to expenses that scale with higher sales and increased research and development costs for new product development[114](index=114&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company's cash position strengthened, with cash and cash equivalents rising to **$18.3 million** at March 31, 2019, from **$8.7 million** at year-end 2018, largely due to liquidating its marketable securities portfolio, while cash from operations increased to **$12.0 million**, and the company used cash for a **20%** increase in its quarterly dividend and for share repurchases, with management believing existing liquidity is sufficient for at least the next twelve months - The company's cash and cash equivalents increased to **$18.3 million**, primarily due to a change in investment strategy to no longer hold marketable securities[117](index=117&type=chunk) - During Q1 2019, the company repurchased **263,805 shares**; as of March 31, 2019, **1,908,112 shares** remain available for repurchase under the current authorization[126](index=126&type=chunk) - Expected capital expenditures for the full year 2019 are approximately **$2.7 million**, with **$1.1 million** spent in the first quarter[125](index=125&type=chunk) [Off Balance Sheet Arrangements](index=27&type=section&id=Off%20Balance%20Sheet%20Arrangements) The company has agreements with various lenders to guarantee dealer floor plan financing, obligating Marine Products to repurchase repossessed boats in case of dealer default, with an aggregate maximum repurchase obligation of approximately **$19.5 million** as of March 31, 2019, and no material repurchases reported during the quarter - The company guarantees dealer debt on boats in inventory, with an aggregate maximum repurchase obligation of approximately **$19.5 million** as of March 31, 2019[131](index=131&type=chunk) - There were no material repurchases of inventory under these contractual agreements during the three months ended March 31, 2019 and 2018[127](index=127&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that it does not hold any derivative financial instruments that would expose it to significant market risk - Marine Products does not hold derivative financial instruments that could expose the Company to significant market risk[144](index=144&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2019, with no material changes to internal control over financial reporting identified during the quarter - Based on an evaluation as of March 31, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[148](index=148&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[149](index=149&type=chunk) Part II. Other Information [Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in litigation from time to time in the ordinary course of business but does not believe the outcome of any current litigation will have a material adverse effect on its financial position or results of operations - The company does not expect ongoing litigation to have a material adverse effect on its financial position or operational results[152](index=152&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) A key risk factor highlighted is the potential adverse effect of trade restrictions on international sales, where retaliatory tariffs imposed by countries like Canada, Mexico, and the European Union in response to U.S. tariffs could weaken international sales and impact material costs - Retaliatory tariffs from Canada, Mexico, and the European Union on U.S. manufactured products pose a risk to the company's international sales and could increase material costs[154](index=154&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's repurchase of its own equity securities during the first quarter of 2019, with a total of **343,913 shares** purchased at an average price of **$14.24 per share** Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Program | | :--- | :--- | :--- | :--- | | Jan 2019 | 116,076 | $14.76 | 35,968 | | Feb 2019 | 159,074 | $13.99 | 159,074 | | Mar 2019 | 68,763 | $13.91 | 68,763 | | **Total** | **343,913** | **$14.24** | **263,805** | - As of March 31, 2019, **1,908,112 shares** remain available for repurchase under the company's stock buyback program[155](index=155&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, CEO and CFO certifications (Sections 302 and 906), and XBRL data files - Exhibits filed include governance documents and required certifications by the CEO and CFO under the Sarbanes-Oxley Act (Sections 302 and 906)[159](index=159&type=chunk)

Financial Data and Key Metrics Changes - Net sales increased by 7.1% to $83.1 million in Q1 2019 compared to the same quarter last year [11] - Gross profit rose by 5.9% to $18.7 million, while gross margin slightly declined to 22.5% from 22.8% [12] - Net income decreased by 1.8% to $7.5 million, with diluted earnings per share remaining at $0.22 for both Q1 2019 and Q1 2018 [14] - Selling, general, and administrative (SG&A) expenses increased to $9.8 million, up from $8.6 million, leading to an increase in SG&A as a percentage of net sales to 11.8% from 11.1% [12][13] Business Line Data and Key Metrics Changes - Unit sales decreased by 6.8%, primarily due to a decline in sales of smaller boats, while parts and accessories sales increased by almost 10% [11][12] - The average selling prices increased by 14.8%, driven by strong sales of larger models [11][12] Market Data and Key Metrics Changes - International sales grew by 2.1%, representing 7.4% of net sales, down from 7.7% in the previous year [15] - Dealer inventories remained essentially unchanged compared to the prior year, with a slight decrease in unit backlog but a higher dollar backlog due to increased average selling prices [15][16] Company Strategy and Development Direction - The company is focusing on larger boats, which have shown stronger demand, and is investing in research and development for this segment [18][25] - The company is monitoring retail demand to ensure healthy dealer inventories in preparation for new models [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for the 2019 retail-selling season but acknowledged the need to monitor demand trends closely [18] - There is uncertainty in the Canadian market due to tariffs, which may continue to affect demand [22] Other Important Information - The board declared a regular quarterly dividend of $0.12 per share, consistent with the previous quarter [9] - The company repurchased 263,805 shares of common stock during the first quarter [9] Q&A Session Summary Question: Is there any improvement in demand trends in Canada? - Management indicated that there are no definitive trends or improvements, and uncertainty may persist until tariffs are resolved [22] Question: What drove the weakness in smaller boats? - Management noted that smaller boats are more susceptible to short-term trends, and adverse weather conditions in February and March may have impacted sales [24] Question: Is there a macro slowdown in smaller entry-level boats? - Management discouraged making broad economic assumptions based on three months of sales data, emphasizing that production of smaller boats continues [30] Question: What caused the increase in SG&A expenses despite higher sales? - The increase was attributed to higher labor rates and R&D spending, as well as costs related to employee retention and quality improvement [32] Question: Are higher labor costs affecting production? - Management confirmed that the manufacturing plant in Georgia is facing challenges in hiring and retaining skilled labor, impacting financials [33]

Marine Products Corporation Investor Relations Update First Quarter 2019 Presentation Forward Looking Statements This presentation contains statements that constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, including all statements that look forward in time or express management's beliefs, expectations or hopes. In particular, such statements include, without limitation: our belief that international sales will continue to be weak in 2019; statements regardin ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018 Commission File No. 1-16263 MARINE PRODUCTS CORPORATION Delaware (State of Incorporation) 58-2572419 (I.R.S. Employer Identification No.) 2801 BUFORD HIGHWAY NE, SUITE 520 ATLANTA, GEORGIA 30329 (4 ...

Financial Data and Key Metrics Changes - Net sales for Q4 2018 decreased by 5.4% to $62.1 million compared to Q4 2017, driven by an 18.1% decrease in units sold, partially offset by a 14.2% increase in average selling price per boat [10][14] - Gross profit for Q4 2018 was $13 million, a decrease of 9.4% year-over-year, with gross margin declining to 21% from 21.9% in Q4 2017 due to manufacturing cost inefficiencies [15] - Net income for Q4 2018 was $4.7 million, a decrease of 6.2% compared to $5 million in Q4 2017, with diluted earnings per share of $0.14, down from $0.15 [17] - Cash and marketable securities at the end of Q4 2018 were $16.4 million, a decrease of $4.3 million from the end of 2017, attributed to higher working capital and increased dividends [19] Business Line Data and Key Metrics Changes - The decline in unit sales was particularly concentrated in international markets, impacted by tariffs [10] - The company maintained a strong market share in its product categories, with Chaparral sterndrive products holding approximately 16.4% market share [11] Market Data and Key Metrics Changes - International sales represented only 3.2% of net sales in Q4 2018, down from 6.7% in Q4 2017, reflecting significant decreases due to trade tariffs [18] Company Strategy and Development Direction - The company is focusing on larger boats and higher selling prices, with new designs contributing positively to financial results [22] - The company plans to showcase new large boat models at upcoming Winter Boat Shows, indicating a strategy to enhance product offerings [23] Management Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges in the labor market, which has affected operational efficiencies, but expressed hope for stabilization and improvement in margins over time [30][31] - The company remains optimistic about dealer confidence, as indicated by higher backlog levels compared to the previous year [20] Other Important Information - The Board of Directors declared a quarterly dividend of $0.12 per share, a 20% increase from the previous quarter [12] Q&A Session Summary Question: Supply of outboard engines and inventory - Management confirmed improved inventory levels for outboard engines, having purchased engines ahead to protect against demand [26] Question: Status of international sales - Management indicated that international sales remain weak with no recent improvements, but noted that this segment represents a small portion of total sales [27][28] Question: Labor market and gross margin outlook - Management acknowledged the tight labor market as a challenge but is implementing programs to improve workforce quality and operational efficiency, with expectations for margin improvement over time [30][31]