Marine Products(MPX) - 2019 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (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 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] Consolidated Statements of Operations 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 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 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] - 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][31][38] - 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] - During Q1 2019, the company changed its investment strategy and no longer held investments in marketable securities as of March 31, 2019[50] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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 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] - 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] Liquidity and Capital Resources 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] - 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] - Expected capital expenditures for the full year 2019 are approximately $2.7 million, with $1.1 million spent in the first quarter[125] Off Balance Sheet Arrangements 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] - There were no material repurchases of inventory under these contractual agreements during the three months ended March 31, 2019 and 2018[127] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - 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] Part II. Other Information Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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]