Marine Products(MPX) - 2022 Q4 - Annual Report

Part I - Business and Risk Factors This section provides an overview of the company's business operations, products, market position, and key risk factors Business Overview Marine Products Corporation is a leading manufacturer of fiberglass motorized recreational powerboats, operating through its Chaparral and Robalo brands. The company sells its products through a global network of independent dealers. In 2022, the company experienced strong demand, with international sales growing significantly. Despite supply chain challenges that began to ease in late 2022, the company managed to increase production and sales, shifting its model mix towards larger, higher-priced boats. Key strategies include product innovation, leveraging purchasing power through the American Boatbuilders Association (ABA), and strengthening its dealer network with nationally advertised fixed pricing Products and Market Position The company manufactures recreational fiberglass powerboats under Chaparral and Robalo brands, holding significant market shares in outboard and sterndrive categories - The company manufactures and sells recreational fiberglass powerboats under two main brands: Chaparral (sterndrive and outboard pleasure boats) and Robalo (outboard sport fishing boats)[13] Product Line Overview | Product Line | Models | Length | Approx. Retail Price Range | Description | | :--- | :--- | :--- | :--- | :--- | | Chaparral – SSi Sport Boats | 6 | 21′-23′ | $55,000 - $91,000 | Fiberglass sterndrive and outboard sport boats. | | Chaparral – SSX Sport Boats | 5 | 24′-34′ | $126,000 - $546,000 | Fiberglass sterndrive and outboard luxury bowriders. | | Chaparral – Surf Series | 5 | 21′-30′ | $75,000 - $312,000 | Multipurpose bowriders designed for wake surfing. | | Chaparral – OSX Sport Boats | 4 | 25′-30′ | $136,000 - $433,000 | Multipurpose sport boats with outboard power. | | Robalo – Center Consoles | 11 | 18′-36′ | $47,000 - $627,000 | Fiberglass outboard sport fishing boats. | | Robalo – Cayman Bay Boats | 6 | 20′-26′ | $53,000 - $198,000 | Fiberglass outboard boats for inshore/offshore fishing. | | Robalo – Dual Consoles | 2 | 20′-31′ | $59,000 - $343,000 | Multi-purpose fiberglass outboard fishing/cruising boats. | - As of September 30, 2022, Robalo was the third-largest manufacturer of outboard boats (18-36 feet) with a 4.2% market share. The combined Robalo and Chaparral outboard brands held the second-highest position with a 5.4% market share[20] Manufacturing, Supply Chain, and Sales Manufacturing is based in Nashville, Georgia, with easing supply chain issues enabling increased production and sales through a global dealer network - Manufacturing facilities are located in Nashville, Georgia. The three most significant cost components are engines, resins, and fiberglass. Supply chain shortages experienced since 2020 began to ease in the latter half of 2022, allowing for increased production[24][27] - The company sells through a network of 210 domestic and 88 international independent dealers. International net sales grew by 61.2% in 2022, representing 6.7% of total net sales[15][30][31] - The sales order backlog decreased from 2,457 boats ($166.0M) at the end of 2021 to 1,544 boats ($115.0M) at the end of 2022, reflecting improved production and shipment capabilities[36] - Approximately 58% of domestic shipments are made via third-party floor plan financing. The company has repurchase agreements with these lenders, with an aggregate maximum obligation of approximately $12.3 million as of December 31, 2022[33][34] Industry and Competition The recreational marine market saw varied sales in 2022, with the company maintaining strong market positions against key competitors Recreational Marine Market Sales by Category (2021-2022) | Category | 2022 Units | 2022 Sales ($B) | 2021 Units | 2021 Sales ($B) | | :--- | :--- | :--- | :--- | :--- | | Sterndrive Boats | 6,552 | $0.9 | 7,165 | $0.8 | | Outboard Boats | 47,099 | $3.7 | 53,471 | $3.8 | | Inboard Boats | 12,465 | $2.0 | 12,871 | $1.8 | | TOTAL | 66,116 | $6.6 | 73,507 | $6.4 | - Chaparral's market share in the sterndrive boat market (21-34 feet) was approximately 19.8% for the 12 months ended September 30, 2022, making it the second-largest manufacturer in this category[56] - The company is listed as the third-largest outboard boat manufacturer in the U.S. based on retail unit sales for the 12 months ended September 30, 2022. Key competitors include Brunswick Corporation, Sea Hunt Boats, and others[55][57] Human Capital and Other Matters Employee count increased in 2022, with sales seasonality disrupted by high demand and price increases successfully offsetting rising costs - The company's employee count increased from 880 at the end of 2021 to 935 at the end of 2022[60] - Traditional sales seasonality was disrupted in 2021 and 2022 due to high consumer demand and supply chain issues, with the highest quarterly sales volume in 2022 occurring in the fourth quarter[69] - In response to inflation and rising costs for materials and components, the company implemented price increases which successfully maintained profit margins without a discernible negative impact on sales due to strong demand[70] Risk Factors The company faces various risks, including economic downturns affecting discretionary spending, reliance on third-party dealer financing, and fluctuations in interest rates and fuel prices. Operational risks stem from its dependence on a network of independent dealers, a single manufacturing location, intense competition, and potential disruptions from key suppliers. The company is also subject to regulatory, environmental, and legal risks. A significant portion of its stock is controlled by executive officers and directors, which limits public stockholder influence and creates a "Controlled Corporation" status - Business and Economic Risks: Sales are sensitive to economic conditions, consumer confidence, credit availability, interest rates, and fuel prices, as boat purchases are discretionary[73][75] - Operational Risks: The company relies on a single manufacturing location in Nashville, Georgia, and is dependent on a few key suppliers for engines and other critical components, creating vulnerability to disruptions[80][83] - Dealer Network Risks: The business depends on a network of independent dealers. A deterioration in this network, dealer defaults, or a decline in the availability of dealer floor plan financing could adversely affect sales[74][76][78] - Ownership and Control Risks: Executive officers, directors, and their affiliates hold approximately 76% of the company's common stock, effectively controlling operations. The company is a "Controlled Corporation" under NYSE rules, exempting it from certain governance requirements[97][98] - Cybersecurity Risks: Operations are dependent on digital technologies, which are subject to cyber-attacks that could disrupt business and lead to financial loss or reputational harm[102] Properties The company's corporate offices are leased in Atlanta, Georgia. Its primary manufacturing, R&D, and warehouse facilities, totaling approximately 1,245,000 square feet, are owned and located in Nashville and Valdosta, Georgia - The company owns approximately 1,162,000 square feet of space in Nashville, Georgia, and 83,000 square feet in Valdosta, Georgia, for its manufacturing and operational needs[107] 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 condition or results of operations - Management does not expect current litigation to materially impact the company's liquidity, financial condition, or operations[108] Part II - Financial Information This section details the company's financial performance, liquidity, capital resources, and critical accounting policies, along with audited financial statements Market for Common Equity and Related Matters Marine Products' common stock trades on the NYSE under the symbol "MPX". As of February 17, 2023, there were 34,437,678 shares outstanding. The company has a stock buyback program with 1,570,428 shares remaining available for repurchase as of year-end 2022, though no shares were repurchased in 2022 or 2021 - The company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol MPX[114] - No shares were repurchased under the company's stock buyback program in 2022 or 2021. As of December 31, 2022, 1,570,428 shares remain authorized for repurchase[115] Management's Discussion and Analysis (MD&A) In 2022, net sales increased 27.8% to $381.0 million, driven by a 4.0% rise in units sold and a 23.7% increase in average selling price due to price hikes and a favorable model mix. Gross margin improved to 24.6% from 22.9%. Operating income grew 42.3% to $51.8 million. The company expects strong retail demand to continue in 2023, though potentially moderating. Liquidity improved significantly, with cash from operations reaching $49.3 million, primarily due to better working capital management as supply chain issues eased Outlook Management anticipates continued strong retail demand for recreational boats in 2023, though growth may moderate, with supply chain issues gradually easing - Management believes the strong retail demand for recreational boats that began during the COVID-19 pandemic will continue through 2023, although growth may moderate due to economic concerns and higher interest rates[126] - Supply chain disruptions and transportation shortages began to moderate in the second half of 2022, but still impact the company's ability to fully meet dealer and retail demand[129] Results of Operations Net sales increased significantly in 2022 due to higher units and average selling prices, leading to improved gross margin and operating income Financial Performance Summary (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total boats sold | 4,331 | 4,165 | 3,689 | | Avg. gross selling price per boat | $76,800 | $62,100 | $56,100 | | Net sales (in thousands) | $380,995 | $298,014 | $239,825 | | Gross profit margin | 24.6% | 22.9% | 22.4% | | Operating income (in thousands) | $51,796 | $36,392 | $24,361 | - Net sales increased by 27.8% in 2022 compared to 2021, driven by a 4.0% increase in units sold and a 23.7% increase in average gross selling price per boat[132] - Gross margin as a percentage of net sales improved to 24.6% in 2022 from 22.9% in 2021, primarily due to price increases and a favorable model mix[131][133] - Selling, general and administrative (SG&A) expenses increased by 31.5% in 2022, mainly due to higher costs that vary with sales and profitability, such as incentive compensation and warranty expense, as well as a $1.2 million pension settlement charge[134] Liquidity and Capital Resources Cash and cash equivalents significantly increased in 2022 due to improved operating cash flow from favorable working capital changes and easing supply chain issues Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $49,348 | $457 | $29,874 | | Net cash used for investing activities | ($2,500) | ($1,248) | ($2,065) | | Net cash used for financing activities | ($17,779) | ($16,680) | ($16,040) | - Cash and cash equivalents increased to $43.2 million at year-end 2022 from $14.1 million at year-end 2021. The significant increase in cash from operations was primarily due to favorable changes in working capital, including inventory, as supply chain issues improved[137] - The company has a $20 million revolving credit facility maturing in November 2026, with no outstanding borrowings as of December 31, 2022[145] - The company has off-balance sheet arrangements related to repurchase agreements with third-party floor plan lenders, with a maximum aggregate repurchase obligation of approximately $12.3 million at year-end 2022[148][151] Critical Accounting Policies and Estimates Key accounting policies involve estimates for sales incentives and warranty costs, which are critical to financial reporting - Sales Incentives: The cost of sales incentives, recorded as a reduction to net sales, was 5.6% of gross sales in 2022, down from 5.8% in 2021[155] - Warranty Costs: Estimated warranty costs, recorded in SG&A, were 1.5% of net sales in 2022, up from 1.2% in 2021[156] Financial Statements and Supplementary Data The consolidated financial statements for the year ended December 31, 2022, were audited by Grant Thornton LLP, which issued an unqualified opinion. Key figures from the statements include total assets of $163.7 million, net income of $40.3 million, and diluted EPS of $1.18. The auditor identified the warranty liability as a critical audit matter due to the estimation uncertainty involved. The notes to the financial statements provide further detail on accounting policies, revenue disaggregation, commitments, and employee benefit plans, including the ongoing termination of the defined benefit pension plan Auditor's Report and Management's Report Management affirmed effective internal controls, and the independent auditor issued an unqualified opinion, highlighting warranty liability as a critical audit matter - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2022[162] - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[164][165] - The auditor identified the warranty liability as a critical audit matter due to the high degree of estimation uncertainty related to future claims[176][177] Consolidated Financial Statements The consolidated financial statements present the company's financial position, operational results, and cash flows for the reported periods Consolidated Balance Sheet (in thousands) | As of December 31, | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets | $124,998 | $93,109 | | Total Assets | $163,715 | $132,841 | | Total Current Liabilities | $23,590 | $18,069 | | Total Liabilities | $39,334 | $34,316 | | Total Stockholders' Equity | $124,381 | $98,525 | Consolidated Statement of Operations (in thousands) | For the year ended Dec 31, | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Sales | $380,995 | $298,014 | $239,825 | | Gross Profit | $93,717 | $68,272 | $53,605 | | Operating Income | $51,796 | $36,392 | $24,361 | | Net Income | $40,347 | $29,026 | $19,444 | | Diluted EPS | $1.18 | $0.85 | $0.57 | Notes to Financial Statements Notes provide detailed information on accounting policies, international sales, pension plan termination, stock incentive plans, and related-party transactions - Net sales to international dealers were $25.6 million in 2022, a significant increase from $15.9 million in 2021 and $11.8 million in 2020[195] - The company initiated actions to terminate its defined benefit pension plan in 2021. As part of the process, a $1.2 million settlement loss was recognized in 2022. The termination is expected to be completed in early 2023[214][256] - The company has a stock incentive plan with 1,095,547 shares available for grant as of Dec 31, 2022. Total unrecognized compensation cost for non-vested shares was approximately $7.2 million, to be recognized over a weighted-average period of 3.3 years[272][280] - The company has a related-party relationship with RPC, Inc., from which it was spun off. RPC provides administrative services, and the companies co-own a corporate aircraft through a joint LLC[283][284] Controls and Procedures Based on an evaluation as of December 31, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective. Management also reported that internal control over financial reporting was effective, and no material changes to these controls occurred during the most recent fiscal quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[295] Part III - Corporate Governance and Executive Compensation This section incorporates information on the company's directors, executive officers, corporate governance, executive compensation, and security ownership by reference - Items 10 through 14 of Part III, covering directors, executive compensation, security ownership, and related party transactions, are incorporated by reference from the Company's 2023 Proxy Statement[7][301][305][310] Part IV - Exhibits and Financial Statement Schedules This section lists all exhibits filed with the report and includes required financial statement schedules - This part contains the list of all exhibits filed with the report, including management contracts and compensatory plans, and the financial statement schedule[314]