Marine Products(MPX) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (Unaudited) This section presents the unaudited consolidated financial statements of Marine Products Corporation, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, recent standards, and specific financial items for the periods ended June 30, 2023, and December 31, 2022 Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity, as of June 30, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :------------------ | | Cash and cash equivalents | $66,215 | $43,171 | | Inventories | $61,496 | $73,015 | | Total current assets | $142,768 | $124,998 | | Total assets | $190,277 | $163,715 | | Total current liabilities | $28,417 | $23,590 | | Total liabilities | $46,580 | $39,334 | | Total stockholders' equity | $143,697 | $124,381 | Consolidated Statements of Operations This section details the company's financial performance, including net sales, gross profit, operating income, and net income, for the three and six months ended June 30, 2023 and 2022 Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net sales | $116,158 | $95,813 | $235,072 | $172,425 | | Gross profit | $28,656 | $22,997 | $57,678 | $41,392 | | Operating income | $16,483 | $13,114 | $30,972 | $22,269 | | Net income | $14,321 | $9,955 | $25,870 | $17,018 | | Basic EPS | $0.42 | $0.29 | $0.75 | $0.50 | | Diluted EPS | $0.42 | $0.29 | $0.75 | $0.50 | | Dividends paid per share | $0.14 | $0.12 | $0.28 | $0.24 | Consolidated Statements of Comprehensive Income This section presents the company's comprehensive income, including net income and other comprehensive income adjustments, for the three and six months ended June 30, 2023 and 2022 Consolidated Statements of Comprehensive Income (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income | $14,321 | $9,955 | $25,870 | $17,018 | | Pension adjustment | $97 | $22 | $1,983 | $44 | | Comprehensive income | $14,418 | $9,977 | $27,853 | $17,062 | Consolidated Statements of Stockholders' Equity This section details the changes in the company's stockholders' equity, including common stock, retained earnings, and accumulated other comprehensive loss, from December 31, 2022, to June 30, 2023 Changes in Stockholders' Equity (in thousands) | Metric | Balance, Dec 31, 2022 | Stock Issued (net) | Stock Purchased (net) | Net Income | Pension Adjustment | Dividends Paid | Balance, June 30, 2023 | | :-------------------------- | :-------------------- | :----------------- | :-------------------- | :--------- | :----------------- | :------------- | :--------------------- | | Common Stock Amount | $3,422 | $32 | $(7) | — | — | — | $3,447 | | Retained Earnings | $122,954 | — | $1,075 | $25,870 | — | $(9,637) | $140,262 | | Accumulated Other Comp. Loss| $(1,995) | — | — | — | $1,983 | — | $(12) | | Total Stockholders' Equity| $124,381 | $777 | $(910) | $25,870| $1,983 | $(9,637) | $143,697 | Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Consolidated Statements of Cash Flows (in thousands) | Activity | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $40,785 | $17,157 | | Net cash used for investing activities | $(7,194) | $(798) | | Net cash used for financing activities | $(10,547) | $(8,893) | | Net increase in cash and cash equivalents | $23,044 | $7,466 | | Cash and cash equivalents at end of period | $66,215 | $21,568 | Notes to Consolidated Financial Statements This section provides detailed explanations of the accounting policies, recent standards, and specific financial items supporting the consolidated financial statements 1. GENERAL This section outlines the basis of financial statement preparation and significant control over voting power - The unaudited consolidated financial statements are prepared in accordance with GAAP and Form 10-Q, and interim results are not indicative of full-year performance[17] - A group of directors, including Gary W. Rollins, Pamela R. Rollins, Amy Rollins Kreisler, and Timothy C. Rollins, controls over 50% of the Company's voting power[19] 2. RECENT ACCOUNTING STANDARDS This section discusses the adoption of recent accounting pronouncements and their impact on the financial statements - The Company adopted ASU No. 2021-08 (Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers) in Q1 2023, which had no material impact on its consolidated financial statements[20] 3. NET SALES This section details the company's revenue recognition policies and provides a breakdown of net sales by source and geography - Revenue is recognized when control of fiberglass motorized boats, accessories, and parts is transferred to independent dealers, adjusted for dealer incentives[21][22] Net Sales by Major Source (in thousands) | Source | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Boats and accessories | $114,562 | $94,266 | $232,281 | $169,671 | | Parts | $1,596 | $1,547 | $2,791 | $2,754 | | Total Net Sales | $116,158 | $95,813 | $235,072 | $172,425 | Net Sales by Geography (in thousands) | Geography | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Domestic | $108,076 | $88,041 | $219,071 | $160,541 | | International | $8,082 | $7,772 | $16,001 | $11,884 | | Total Net Sales | $116,158 | $95,813 | $235,072 | $172,425 | Deferred Revenue (in thousands) | Date | Amount | | :-------------------------- | :----- | | June 30, 2023 | $1,270 | | December 31, 2022 | $1,989 | 4. EARNINGS PER SHARE This section provides detailed earnings per share calculations for the three and six months ended June 30, 2023 and 2022 Earnings Per Share Data (in thousands, except per share) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income used in calculating EPS | $13,978 | $9,747 | $25,254 | $16,668 | | Shares used in calculating basic/diluted EPS | 33,619 | 33,448 | 33,589 | 33,428 | 5. STOCK-BASED COMPENSATION This section outlines the company's stock-based compensation plans, costs, and outstanding non-vested shares - As of June 30, 2023, approximately 777,199 shares were available for grant under the 2014 Stock Incentive Plan[30] - In Q1 2023, the Company issued time-lapse restricted shares (vesting over four years) and performance share unit awards to executive officers[31] Stock-Based Compensation Cost (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Pre-tax cost | $1,233 | $820 | $2,010 | $1,430 | | After-tax cost | $962 | $639 | $1,568 | $1,115 | - Non-vested restricted shares at June 30, 2023, totaled 839,050, with a weighted average grant-date fair value of $13.81[32] 6. WARRANTY COSTS AND OTHER CONTINGENCIES This section describes the company's product warranties, related accruals, and dealer debt guarantees - Marine Products provides a lifetime limited structural hull warranty and a transferable one-year limited warranty for its Chaparral and Robalo products[34] Warranty Accruals (in thousands) | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | | Balance at January 1 | $5,699 | $4,641 | | Payments made | $(2,091) | $(2,286) | | Provision for the period | $3,495 | $2,328 | | Changes to prior periods | $156 | $104 | | Balance at June 30 | $7,259 | $4,787 | - The Company guarantees varying amounts of dealer debt for floor plan financing, with an aggregate maximum repurchase obligation of approximately $18.3 million as of June 30, 2023[38][40] 7. BUSINESS SEGMENT INFORMATION This section clarifies that the company operates as a single reportable segment and is not reliant on any single customer or product - The Company operates as a single reportable segment, its powerboat manufacturing business, and is not significantly reliant on any single customer or product model[41] 8. INVENTORIES This section provides a detailed breakdown of the company's inventory components as of June 30, 2023, and December 31, 2022 Inventories (in thousands) | Component | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :------------------ | | Raw materials and supplies | $34,907 | $37,210 | | Work in process | $13,702 | $14,190 | | Finished goods | $12,887 | $21,615 | | Total inventories | $61,496 | $73,015 | 9. INCOME TAXES This section discusses the company's effective income tax rates and the factors influencing their changes - The effective tax rate decreased to 16.8% for Q2 2023 (from 24.0% in Q2 2022) and to 19.6% for H1 2023 (from 23.5% in H1 2022), primarily due to favorable permanent adjustments and beneficial discrete tax items[45] 10. PENSION AND RETIREMENT PLANS This section details the company's pension and retirement plan activities, including settlement charges and SERP assets and liabilities - A pre-tax, non-cash pension settlement charge of $188 thousand was recognized in Q2 2023 as part of the termination of the Retirement Income Plan[47] - The Company received approximately $482 thousand from RPC as reimbursement for settling RPC's participant liabilities in the Plan during Q2 2023[47] Supplemental Executive Retirement Plan (SERP) Assets and Liabilities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :------------------ | | SERP assets (fair value) | $10,643 | $9,881 | | SERP liabilities (fair value) | $16,514 | $14,440 | - Trading gains related to SERP assets were $425 thousand in Q2 2023 (vs. losses of $1,076 thousand in Q2 2022), and unrealized gains related to SERP liabilities were $519 thousand in Q2 2023 (vs. losses of $1,060 thousand in Q2 2022)[49][50] 11. FAIR VALUE MEASUREMENTS This section explains the company's methodology for fair value measurements, particularly for trading securities - The Company uses a three-level hierarchy for fair value measurements, with trading securities (SERP assets) primarily valued using net cash surrender values or net asset values, which approximate fair value[51][52] 12. ACCUMULATED OTHER COMPREHENSIVE LOSS This section presents the changes in accumulated other comprehensive loss and the primary drivers for the period Accumulated Other Comprehensive Loss (in thousands) | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $(1,995) | $(2,576) | | Total activity for the period | $1,983 | $44 | | Balance at end of period| $(12) | $(2,532) | - The significant change in accumulated other comprehensive loss for H1 2023 was primarily due to a pension settlement loss, net of taxes[54] 13. ACCRUED EXPENSES AND OTHER LIABILITIES This section provides a detailed breakdown of accrued expenses and other liabilities as of June 30, 2023, and December 31, 2022 Accrued Expenses and Other Liabilities (in thousands) | Component | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :------------------ | | Accrued payroll and related expenses | $4,288 | $3,753 | | Accrued sales incentives and discounts | $4,111 | $2,485 | | Accrued warranty costs | $7,259 | $5,699 | | Deferred revenue | $1,270 | $1,989 | | Income taxes payable | $1,532 | $342 | | Other | $1,392 | $1,072 | | Total | $19,852 | $15,340 | 14. NOTES PAYABLE TO BANKS This section describes the company's revolving credit facility, interest rates, and compliance with financial covenants - The Company has a $20.0 million revolving credit facility with Truist Bank, terminating November 12, 2026[56] - Interest rates transitioned from LIBOR to Term SOFR plus an applicable percentage (150-250 basis points) effective July 1, 2023[57] - As of June 30, 2023, the Company had no outstanding borrowings and was in compliance with all financial covenants[58][59] 15. SUBSEQUENT EVENT This section reports a significant event occurring after the reporting period, specifically a declared cash dividend - On July 25, 2023, the Board of Directors declared a regular quarterly cash dividend of $0.14 per share, payable September 11, 2023[61] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on Marine Products Corporation's financial performance, condition, and future outlook. It details the company's business strategies, analyzes operating results for the three and six months ended June 30, 2023, discusses liquidity and capital resources, and addresses key factors like market trends, inflation, and forward-looking statements Business Overview and Strategies This section describes Marine Products Corporation's core business as a recreational powerboat manufacturer and its strategic monitoring factors - Marine Products Corporation is a leading manufacturer of recreational fiberglass powerboats (Chaparral and Robalo) sold through independent dealers[64] - Management monitors dealer orders, inventories, production mix, consumer confidence, inflation, interest rates, and boat show activity to optimize financial returns[66] Outlook This section provides the company's forward-looking perspective on retail demand, supply chain conditions, and production strategies - Retail demand for new recreational boats is expected to moderate throughout 2023 due to normalizing consumer behavior, rising interest rates, and higher boat ownership costs[71] - Supply chain disruptions and labor problems, which hindered output in 2021-2022, began to moderate in late 2022 and early 2023, improving the ability to meet demand[74][76] - The Company has increased the average size of models produced and reduced the number of boat designs to enhance production efficiency in response to evolving retail demand[74] Results of Operations This section analyzes the company's financial performance, including net sales, gross profit, operating income, and key operating statistics for the periods presented Key Operating and Financial Statistics (in thousands, except percentages) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :---------------------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total number of boats sold | 1,243 | 1,121 | 2,521 | 2,037 | | Average gross selling price per boat | $82.2 | $74.9 | $82.3 | $74.2 | | Net sales | $116,158 | $95,813 | $235,072 | $172,425 | | Percentage of cost of goods sold to net sales | 75.3% | 76.0% | 75.5% | 76.0% | | Gross profit margin percent | 24.7% | 24.0% | 24.5% | 24.0% | | Operating income | $16,483 | $13,114 | $30,972 | $22,269 | | Warranty expense | $1,800 | $1,335 | $3,651 | $2,432 | Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 This section compares the company's financial performance for the three months ended June 30, 2023, against the same period in 2022 - Net sales increased by $20.3 million (21.2%) to $116.2 million, driven by a 10.9% increase in unit sales and a 9.7% rise in average selling price per boat[80][81] - Operating income grew 25.7% to $16.5 million, while cost of goods sold as a percentage of net sales decreased to 75.3% due to improved operating efficiencies and a favorable model mix[68][69][82][84] - The effective tax rate decreased to 16.8% (from 24.0%) due to favorable permanent adjustments and beneficial discrete tax items[86] Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 This section compares the company's financial performance for the six months ended June 30, 2023, against the same period in 2022 - Net sales increased by $62.6 million (36.3%) to $235.1 million, with unit sales up 23.8% and average selling price per boat up 10.9%[87][88] - Operating income rose 39.1% to $31.0 million, despite a $2.3 million non-cash pension settlement loss included in SG&A expenses[92][93] - The effective tax rate decreased to 19.6% (from 23.5%) due to favorable permanent adjustments and beneficial discrete tax items[95] Liquidity and Capital Resources This section assesses the company's ability to generate and manage cash, including cash flows, financial condition, and future cash requirements - Cash and cash equivalents increased to $66.2 million at June 30, 2023, from $43.2 million at December 31, 2022[96] - The Company believes existing cash, strong capitalization, cash from operations, and its revolving credit facility will provide sufficient capital for at least the next twelve months[100] - Expected capital expenditures for 2023 are approximately $8.4 million, with $7.2 million spent through June 30, 2023[101] Cash Flows This section analyzes the company's cash flow activities from operations, investing, and financing for the six months ended June 30, 2023 and 2022 - Net cash provided by operating activities increased significantly to $40.8 million for H1 2023 (from $17.2 million in H1 2022), driven by higher net income, a pension settlement loss, and a favorable change in inventory[96] - Net cash used for investing activities increased to $7.2 million (from $0.8 million) due to higher capital expenditures for transportation equipment and warehouse space[97] - Net cash used for financing activities increased to $10.5 million (from $8.9 million) due to increased dividends paid and stock repurchases[98] Financial Condition and Liquidity This section discusses the company's overall financial health and its ability to meet short-term and long-term obligations - The Company's liquidity is supported by existing cash, cash equivalents, marketable securities, strong capitalization, and cash generated by operations[100] Cash Requirements This section outlines the company's projected capital expenditures, pension contributions, dividend plans, and stock repurchase program - Capital expenditures for 2023 are projected at approximately $8.4 million, with $7.2 million already spent by June 30, 2023[101] - The Company does not expect to make any additional contributions to the Retirement Income Plan[101] - The Company expects to continue paying regular quarterly cash dividends to common stockholders[103] - As of June 30, 2023, 1,570,428 shares remained available for repurchase under the Company's stock repurchase program[102] Off Balance Sheet Arrangements This section describes the company's off-balance sheet commitments, specifically dealer debt guarantees - The Company guarantees varying amounts of dealer debt for floor plan financing, with an aggregate maximum repurchase obligation of approximately $18.3 million as of June 30, 2023[104][106] - No material repurchases under these contractual agreements occurred during the six months ended June 30, 2023, and 2022[104] Certain Related Party Transactions This section discloses transactions with related parties, including administrative costs and pension reimbursements - RPC, Inc. charged the Company approximately $526 thousand for administrative costs for H1 2023 (vs. $473 thousand for H1 2022)[107] - The Company incurred $40 thousand in net operating costs for H1 2023 (and H1 2022) from its 50% ownership in 255 RC, LLC, which owns a corporate aircraft[110] - The Company received approximately $482 thousand from RPC during Q2 2023 as reimbursement for settling a portion of RPC's pension participant liabilities[111] Critical Accounting Policies This section confirms that there have been no significant changes to the company's critical accounting policies - There have been no significant changes in the Company's critical accounting policies since the annual report on Form 10-K for the fiscal year ended December 31, 2022[112] Impact of Recent Accounting Pronouncements This section directs readers to the notes to financial statements for details on recent accounting pronouncements - Refer to Note 2 in the accompanying Consolidated Financial Statements for a description of recent accounting pronouncements[113] Seasonality This section explains how seasonal factors and economic conditions influence the company's quarterly operating results - The Company's quarterly operating results are affected by weather and general economic conditions, with the second quarter historically recording the highest sales volume[114] Inflation This section discusses the impact of inflation on costs and pricing flexibility, and its potential effect on retail demand - Inflation led to increased raw material, component, and transportation costs in 2021-2022, prompting the Company to increase product prices[115] - Cost pressures began to ease in late 2022 and early 2023, but higher boat ownership costs and increased interest rates may now impact retail demand for smaller boats and limit future pricing flexibility[115][116] Forward-Looking Statements This section highlights that the report contains forward-looking statements and outlines the risks that could cause actual results to differ - This section contains forward-looking statements regarding future performance, market conditions, operational plans, and financial expectations, subject to various risks and uncertainties[117][120] - Actual results may differ from projections due to factors such as supply chain issues, economic conditions, interest rates, consumer confidence, competition, and regulatory changes[121] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Marine Products Corporation holds no derivative financial instruments and maintains investments primarily in money market funds, which are not subject to significant interest rate risk. The Company does not anticipate any material changes in market risk exposures or their management - The Company holds no derivative financial instruments and maintains investments primarily in money market funds, which are not subject to interest rate risk[124] - No material changes in market risk exposures or their management are expected[124] ITEM 4. CONTROLS AND PROCEDURES The Company's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of June 30, 2023, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting were identified during the quarter - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2023[125][126] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[127] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Marine Products Corporation is involved in routine litigation but does not anticipate that the outcome of such proceedings will have a material effect on its financial position, results of operations, or liquidity - The Company is involved in litigation in the ordinary course of business[130] - The outcome of such litigation is not expected to have a material effect on the Company's financial position, results of operations, or liquidity[130] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 - No material changes from the risk factors previously disclosed in the 2022 Form 10-K and Q1 2023 Form 10-Q[131] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company reports no unregistered sales of equity securities and no use of proceeds from such sales during the period - No unregistered sales of equity securities or use of proceeds occurred[132] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company reports no defaults upon senior securities during the period - No defaults upon senior securities occurred[133] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to Marine Products Corporation - This item is not applicable[134] ITEM 5. OTHER INFORMATION During the three months ended June 30, 2023, no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2023[135] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, Section 302 and 906 certifications, and Inline XBRL data files - Exhibits include corporate governance documents (Articles of Incorporation, By-laws), Section 302 and 906 certifications for CEO and CFO, and Inline XBRL documents[138] SIGNATURES The report is duly signed by the President and Chief Executive Officer, and the Vice President, Chief Financial Officer and Corporate Secretary, certifying its contents - The report was signed by Ben M. Palmer (President and CEO) and Michael L. Schmit (VP, CFO, and Corporate Secretary) on July 28, 2023[142]