CorMedix Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 25, 2024

There are 4 speakers on the call.

Operator

Good morning and thank you for joining us for Marine Products Corporation First Quarter 2024 Financial Earnings Conference Call. Today's call will be hosted by Ben Palmer, President and CEO and Mike Schmidt, Chief Financial Officer. At this time, all participants are in listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions.

Operator

I would like to advise everyone that this conference call is being recorded. I will now turn the call over to Mr. Schmidt.

Speaker 1

Thank you, and good morning. Before we begin, I want to remind you that some of the statements that will be made on this call could be forward looking in nature and reflect a number of known and unknown risks. Please refer to our press release issued today along with our 2023 10 ks and other public filings that outline these risks, all of which can be found at www.marineproductscorp.com. In today's earnings release and conference call, we'll be referring to several non GAAP measures of operating performance in liquidity. We believe these non GAAP measures allow us to compare performance consistently over various periods.

Speaker 1

Our press release issued today and our website contain reconciliations of these non GAAP measures to the most directly comparable GAAP measures. I will now turn the call over to our President and CEO, Ben Palmer.

Speaker 2

Thanks, Mike, and thank you all for joining our call. Before we get started, I'd like to take a moment to share some unfortunate and sad news. Our longtime Head of Investor Relations and Vice President of Corporate Services, Jim Landers, passed away a few weeks ago after a long and courageous battle with cancer. I worked closely with Jim here at Marine Products for more than 20 years, He was a tremendous contributor to the company in so many ways.

Speaker 1

And I'm

Speaker 2

sure those of you listening today who were lucky enough to work with him over the years know he was also a great friend and colleague. He will truly be missed by all of us. Shifting to our results. 1st quarter results showed signs of stability on the top line and some improvement in profitability sequentially compared to the Q4 of last year. However, year over year comparisons were very challenging, consistent with the near term expectations we signaled on our last call.

Speaker 2

Both the quarter played out generally as we anticipated, and our discussion today might feel quite similar to our last call as the key things remain very much the same. Overall, our industry is still contending with a dealer channel that is flushed with inventory and hesitant to order aggressively in the face of uncertain demand and higher floor plan carrying costs. We are being proactive in managing costs and production schedules during this soft period. As we said last quarter, we have reduced our production levels to be more in line with current demand as our dealers work through showroom inventories. This production scale back was an order of magnitude of around mid-thirty percent range below our peak production rates in the first half of twenty twenty three.

Speaker 2

Although we would certainly want our plants to be busier with more production to fill orders, we are taking advantage of this slowdown execute operational projects we were unable to undertake during our periods of surging demand from the pandemic through mid-twenty 23. Examples include projects to maintain Rivera tooling, improve consistency of lamination and other assembly processes and evaluate alternative production schedules. With regard to dealer inventory, I'll echo my comments from last quarter that we remain pretty comfortable with the level of our products in the field. But we continue to hear that high inventories are still an issue for many dealers, often in categories where we do not compete. We would note that our field inventory is solidly below pre pandemic levels.

Speaker 2

However, we may not return to those levels regardless of demand given the new normal of higher carrying costs. We continue to have attractive retail incentives in the marketplace and are encouraged to see monthly sales trends for our dealers reflecting the typical ramp up throughout Q1. There was positive reception at most of the early 2024 boat shows with customers excited about our product lineup. Consistent with recent trends since the rise in interest rates, our larger priced boats, which are often purchased by cash buyers, sold better than smaller and lower priced boats, which are often financed purchases. Speaking of borrowing costs, it is worth noting that remains a great deal of uncertainty regarding the timing and magnitude of a potential decline in interest rates.

Speaker 2

So there had been broad consensus for multiple rate cuts by the Fed during 2024, expectations have clearly moderated with mixed economic data clouding the interest rate outlook. While this is a macro factor out of our hands, we will focus on things within our control. We are navigating the current environment with a focus on cost and efficiencies, making the best of this law by executing multiple projects to improve our operations and continuing to support our dealers and maximize our partnerships. Now Mike will provide an overview of the

Speaker 1

financial results. Thanks, Ben. For the Q1 of 2024 compared to the Q1 of 2023, sales were down 42% to $69,300,000 driven by a 40% decrease in the number of those sold. Price and mix netted to negative 2%. Of note, last year's Q1 sales of $119,000,000 were the highest in company's history as we were still experiencing unprecedented post pandemic demand at that time last year.

Speaker 1

Gross profit decreased 52% to $14,000,000 with gross margin of 20.2 percent down 420 basis points versus last year. Although recall we had an outsized impact on gross margin in the Q4 from the initiation of our traditional retail incentive programs. So we were encouraged to see the sequential increase in gross margin from 19% in the Q4 of 2023 back to over the 20% mark in the Q1 of 20 24. SG and A expenses were $8,700,000 in the quarter, down 40% or $5,800,000 compared to last year's Q1. These expenses decreased due to costs that vary with sales and profitability such as incentive compensation, sales fees and warranty expenses.

Speaker 1

In addition, last year's Q1 results included a non cash pension settlement charge of $2,100,000,000 Diluted EPS was $0.13 in the 1st quarter, down from $0.34 last year. EBITDA was $5,900,000 down from $15,000,000 and EBITDA margin decreasing 4 10 basis points to 8.5%. Year over year comparisons were obviously difficult for the first quarter and they remain soft in the near term. It should become less pronounced later this year. While we don't give explicit financial guidance, directionally we believe sequential sales will be relatively stable and that our cost reductions and normalized incentives should result in stable margins as well.

Speaker 1

I'll now turn it back over to Ben for a few closing remarks on capital allocation, including the special dividend we announced this morning.

Speaker 2

Thanks, Mike. As headlines in our release this morning, our Board of Directors approved a $0.14 per share regular quarterly dividend and a $0.70 per share special dividend. In aggregate, these 2 upcoming dividends represent $29,000,000 tangible return of capital to our shareholders. While we have limited our stock repurchases in recent years due to our relatively small float, We're extremely proud of our track record for distributing cash back to our investors. For the 5 year period from 2019 to 2023, we paid $85,000,000 to our investors in dividends.

Speaker 2

Our ability to return capital to investors is a function of our financial discipline, strong cash generation and a debt free balance sheet that allows all cash flow to benefit our equity holders. We ended the Q1 with over $80,000,000 in cash and believe that even following this special dividend payment, we will have ample liquidity to pursue organic investments in the business as well as maintain the flexibility to pursue strategic acquisitions to continue actively assessing the marketplace for the right opportunity, the right valuation. Of course, over time, if we do not execute on transactions, we will look at further actions to return capital to our investors. Special dividends are naturally less consistent, but we have a track record for periodically returning excess cash to our investors. These boost the total return of our potential return of our stock, which already has an attractive dividend yield of around 5%.

Speaker 2

So before we turn the call over for questions, I'd like to thank our employees for their contributions every day, our dealers who continue to partner with us for mutual success. We're excited about entering the prime selling season and look forward to sharing results with you next quarter. With that, operator, please open up the line for questions.

Operator

We will now begin the question and answer session. Our first question will come from the line of Griffin Bryant with D. A. Davidson. Please go ahead.

Speaker 3

Yes, thanks. So I guess first off, can you just give us some color on how you're thinking about your production schedule for the rest of the year? And are there any signs of retail sales inflections you're specifically looking forward to kind of turn that spigot back on?

Speaker 1

This is Ben.

Speaker 2

Appropriate question. As we indicated, we worked diligently to set our current production level at what we believe is the correct level for us. We are hopeful and looking forward to the new model year, which will start soon. And some of our new products that will be out there, we're really excited about. We're just going to have to wait and see.

Speaker 2

What we always do is set our production levels where we believe it's appropriate. We don't try to anticipate demand. We plan based on firm orders we have in hand. So we're going to have to work with our dealers. They're monitoring their field inventory.

Speaker 2

We're watching that as well. We're hopeful that once we get through this selling season and hopefully dealer inventories begin to settle out, we hope at that point we'll be able to increase production. But at this point in time, we expect that the next change in production will be up. But we'll just have to wait and see it again an appropriate question, but we're monitoring that and we'll adjust as appropriate.

Speaker 3

Yes, fair enough. And then you mentioned field inventory overall right now is still too high. So can you just give us an idea of maybe any progress that's been made since the beginning of the year and how long it may take to get back to a more normalized level, if that even is still a thing, of just kind of at the current retail run rate that we're seeing?

Speaker 2

Well, what I would comment on is, again, when we look at our production rate and ship rate relative to retail sales and relative to our field inventory, we're comfortable where we are. Again, indication being or that again ties back to the fact that we think the next move in our production schedule will be up, but we'll have to wait and see we'll wait for the order flood. But we are encouraged by the fact that there is some acceleration or some improvement in sales as normally happens this time of the quarter heading into the spring summer. I wouldn't say it's extraordinary, but it's more normal. And so again, we are comfortable with our current production schedule and are looking forward to the opportunity to increase production hopefully sometime in the next quarter.

Speaker 3

Got it. And then with the promotions needed to incentivize the consumers, do you see these promotions continuing throughout the selling season? And do you think that you'll be able to get this pricing back sometime maybe this year, maybe that's next year? Just any color on that would be great.

Speaker 2

We very meticulously evaluate and design and manage our retail programs. We're very particular about that. We do expect that the programs will stay in place throughout the selling season. That's not abnormal. I would say the level of our incentives are attractive but not outsized compared to prior years when we've had retail incentives in place.

Speaker 2

So I would say for us things have normalized and they've normalized at this particular level of production relative to field inventory. We'll step to see how the season plays out. We're comfortable with the design and size of the incentives at this point in time, but we always have the opportunity to make adjustments to those as needed. But I do expect there will be some incentive programs in place for the next couple of quarters.

Speaker 3

Got it. And then lastly, just with some recent news surrounding problems that kind of larger dealers, can you speak to your the current health of your dealer partners and maybe what their appetite is to take on new model years once those start rolling out?

Speaker 1

Yes. Well, there has been a

Speaker 2

lot in the news about some dealers. We're glad to report that our relationships with our dealers are great. Our dealers are doing fine, but they everybody's struggling with the level of field inventory, but we're very comfortable. We're very diversified both geographically and across our dealer network. We don't have currently not aware of any concerns with any particular dealer, but we are partnering with them with these retail programs and our dealer incentive programs.

Speaker 2

And we're quite proud of them and very happy about our dealer network and the long standing relationships we have with them. They are certainly we recognize that they are key to our success. They're doing a great job managing their businesses in this environment. And we're happy and pleased and proud to be associated with each and every one of them.

Speaker 3

Appreciate it. Best of luck in next quarter.

Speaker 2

Thank you very much.

Operator

There are no further questions at this time. I will hand the call back over to Mr. Ben Palmer for closing remarks.

Speaker 2

Well, thank you everybody for listening in this morning. We appreciate it and look forward to catching up with you later. Have a good day.

Operator

Today's call will be available for replay on our website at marineproductscorp.com within 2 hours following the completion of the call. This does conclude today's conference call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
CorMedix Q1 2024
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