Malibu Boats, Inc. (NASDAQ:MBUU) faced a challenging second quarter in fiscal year 2024, as net sales plunged by 38% to $211.1 million and net income tumbled by 62% to $13.8 million. The company's adjusted EBITDA also saw a significant drop of 60% to $22.9 million. These declines were primarily attributed to soft retail demand and high channel inventories, which Malibu Boats expects to normalize by the end of the second calendar quarter. In response to market conditions, the company introduced lower-priced models and plans to focus on the premium segment while maintaining strong margins.
Key Takeaways
- Net sales decreased by 38% to $211.1 million.
- Net income fell by 62% to $13.8 million.
- Adjusted EBITDA dropped by 60% to $22.9 million.
- The decline was due to soft retail demand and high channel inventories.
- Malibu Boats introduced lower-priced models and plans to focus on the premium segment.
- The company expects channel inventories to normalize by the end of the second calendar quarter.
Company Outlook
- Revised fiscal 2024 outlook anticipates a decline in annual net sales and adjusted EBITDA margin.
- The company plans to reduce production to realign inventory levels with dealer expectations.
- Guidance for the remainder of the year is conservative.
- Capital deployment priorities include organic growth, share buybacks, and potential M&A opportunities, especially in the pontoon and outboard markets.
Bearish Highlights
- Sales and unit volume decreased due to lower wholesale shipments and soft retail demand.
- Gross profit and margin declined by 50.5% and 460 basis points, respectively.
- EBITDA margins decreased due to a shift from high wholesale production to low channel inventories and retail softness.
Bullish Highlights
- Operating expenses decreased by $4.2 million.
- Net income increased by 72.1% to $10.1 million.
- $12.6 million invested in CapEx, $30.0 million debt paid down, and $9.9 million of stock repurchased.
- The company remains confident in its ability to recover and grow stronger in the future.
Misses
- The company does not anticipate significant changes in the second half of the year.
- MBI impact expected to be under 100 basis points.
- Dealers expected to bear the majority of the promotional impact.
Q&A Highlights
- The company reiterated its focus on reducing production to adjust inventory levels.
- There is a conservative outlook with no expected upside for the remainder of the fiscal year.
- Brand mix is trending towards 40% for Malibu/Axis, with Cobalt gaining more brand share.
- Slightly lower EBITDA margins are expected in the third quarter compared to the second quarter.
- Despite current challenges, the company is optimistic about recapturing growth and increasing operating leverage in fiscal 2025.
InvestingPro Insights
In light of Malibu Boats, Inc.'s (MBUU) recent financial performance, the InvestingPro platform offers additional insights that could be pertinent for investors evaluating the company's prospects. With a market capitalization of $899.8 million and a Price to Earnings (P/E) ratio of 13.64, the company appears to be trading at a value that reflects its current earnings potential. However, when considering the adjusted P/E ratio for the last twelve months as of Q1 2024, which stands at 5.24, the company's stock seems even more attractively valued, especially when paired with the company's profitability over the last twelve months.
InvestingPro Tips suggest that the stock is currently in oversold territory, indicating that it may be undervalued relative to its financial performance. Additionally, the company's liquid assets surpass its short-term obligations, which points to a stable financial position in the near term. However, it's important to note that analysts have revised their earnings downwards for the upcoming period and anticipate a sales decline in the current year, which may have contributed to the stock's recent performance, as it has taken a significant hit over the last week, month, and six months.
For those considering an investment in Malibu Boats, Inc., it is important to weigh these factors alongside the company's strategic initiatives to introduce lower-priced models and focus on the premium segment. Investors may find additional value in the fact that the company has been profitable over the last year and that its cash flows can sufficiently cover interest payments, a sign of financial resilience.
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Full transcript - Malibu Boats Inc (MBUU) Q2 2024:
Operator: Good morning, everyone. And welcome to Malibu Boats Conference Call to Discuss Second Quarter Fiscal Year 2024 Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Malibu Boats. As a reminder, today's call is being recorded. On the call today from management are Mr. Jack Springer, Chief Executive Officer; Mr. Bruce Beckman, Chief Financial Officer; and Mr. Ritchie Anderson, Chief Operating Officer. I will now turn the call over to Mr. Beckman to get started. Please go ahead, sir.
Bruce Beckman: Thank you. And good morning, everyone. On the call, Jack will provide commentary on the business and I will discuss our second quarter of fiscal year 2024 financials. We will then open the call for questions. A press release covering the company's fiscal second quarter 2024 results was issued today and a copy of that press release can be found in the Investor Relations section of the company's website. I also want to remind everyone that management's remarks on this call may contain certain forward-looking statements including predictions, expectations, estimates or other information that might be considered forward-looking, and that actual results could differ materially from those projected on today's call. You should not place undue reliance on these forward-looking statements, which speak only as of today, and the company undertakes no obligation to update them for any new information or future events. Factors that might affect future results are discussed in our filings with the SEC and we encourage you to review our SEC filings for a more detailed description of these risk factors. Please also note that we will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted fully distributed net income and adjusted fully distributed net income per share. Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in our earnings release. I will now turn the call over to Jack Springer.
Jack Springer: Thank you, Bruce. And thank you all for joining the call. MBI navigated a challenging quarter, driven by continued economic uncertainty as retail remained suppressed and channel inventories were reverting to historical norms. For the second fiscal quarter, net sales decreased 38% to $211.1 million compared to the prior year. Net income decreased 62% to $13.8 million, while adjusted EBITDA fell 60% to $22.9 million. Gross margins decreased 460 basis points to approximately 18% and adjusted EBITDA margin decreased by 610 basis points to approximately 11%. We continue to experience soft retail demand as we entered our slowest time of the year. The confluence of events and coming off a pandemic retail high, channel inventories have built much quicker than anyone imagined, a return to seasonal norms and economic uncertainty due to a prolonged elevated interest rate environment that resulted in channel inventories higher than we or our dealers would like to see. It is a tough market to say the least. But it is important to keep things in perspective and level set versus historical norms. While the retail environment is compressed, the biggest factor contributing to a tough year-over-year comparison is the normalization of channel inventory. Over the last two fiscal years, we've been focused on rebuilding our channels from historically low level brought on by lingering supply chain challenges and unprecedented demand during the pandemic. Today, these dynamics have shifted and a level-setting is going on as the inventory channels have fully recovered. We're back to natural market dynamics and MBI be highly focused on recalibrating to match wholesale production to retail demand. We are very, very committed to reducing channel inventories to lower levels that set up the dealer and MBI brands to recover more quickly once retail begins growing again. We expect channel inventories to move downward as the selling season kicks in and reduce to the normal levels by the end of calendar Q2. MBI will continue to monitor the channel and take an aggressive approach with production levels as we head into the selling season. We do not shy from a downturn or a recession. We welcome the opportunities that are presented with it. Our variable cost structure and world class operational capabilities set us up extremely well to execute in driving the most profitability possible and continue to invest in the business. The investment in the business, whether it be new product and features, vertical integration or capacity, will drive market share increases and the realization of higher revenues and margins quickly once retail comes back. The investment in the Roane County, Tennessee expansion for Cobalt is a great example of this commitment. Demand for our 30-foot-and-over cruisers has consistently outpaced our production capability. And with the addition of new models over the past couple of years and more coming, this expansion positions Cobalt to be able to build to demand as we exit the downturn and see demand growth. Had we waited until after the downturn, we would be sacrificing one to two years of revenue growth as we added capacity. MBI will be well positioned to exit this downturn more quickly and be even stronger than we were when entering it for all of our brands. From the retail lens, the sense of urgency from customers to buy a boat has largely disappeared. The consumer has been very patient. They know inventory is available and they are looking for the best deal. To address this lighter retail environment, we introduced a program earlier this month, which we've been working on since early 2023 to introduce a Malibu and an Axis at entry level pricing. The Malibu LX-r is offered at $99,995, the first time that a 21 foot or larger Malibu can be purchased for under $100,000 in many years. The Axis T220-R is a 22 foot boat with a nationally advertised price of $89,995. We expect pricing on these two boats will draw customers who've been waiting for the lower prices to dealer. The goal is to have this customer exit the sidelines, go to the boat shows or dealerships and purchase. With these boats, we are also targeting smaller and less profitable jet boats for the cost conscious weight sports enthusiast. Finally, we believe this is a great opportunity for a consumer to get a Malibu or Axis at a price less than a tier two or a tier three lake brand. We also believe that we will not only sell these boats, but they will lead to further opportunities to upsell by our dealers into other models, driven by the consumers' desires for more features and options. We have already seen this occurring in the January boat shows that have taken place thus far. A customer segment that has remained strong is the premium segment – cash buyers who are looking forward to larger, feature rich premium boats. We have several new offerings targeting these consumers that we are excited about. Our brand, through boat shows, are focusing on the new M242 Malibu, the most premium boat in the Malibu line. Cobalt has introduced a new R33 surf cruiser and Pursuit will leverage the new OS 405 and DC 306, both premium boasts over 30 feet. As you see by their names, these models are targeting the important offshore and dual console segments in the saltwater outboard category for Pursuit. As always, the boat show season is very important and will be the measuring stick for the rest of fiscal year 2024. While the general consensus is that we are at or near the bottom for retail demand as sentiment shifts and as interest rate pressures are forecasted to subside, data from the selling season will be the first side of the trajectory. We were already seeing positive signs following our year-end sales event for Malibu. This event, which we've been doing for the last decade and a half, saw Malibu and Axis performing better than we had expected. This further demonstrates the strength and resiliency of our premium suite of brands. As we reported on our last call, Fort Lauderdale was a fantastic show for Pursuit, setting all-time records, and was also a very good show for Cobalt, exceeding last year. That positioned the focus of the calendar year 2024 shows that began the first week of January. The Atlanta Boat Show was the first weekend of January and it is always an important guidepost. That show, which is run by our partner OneWater, through their Singleton Marine Group, was a bright spot for Malibu and was well ahead of last year for Cobalt. Minneapolis was another good show, especially for Malibu and Axis. Last weekend, the New York boat show took place. This is both a freshwater and saltwater show. Looking back at the results of the previous five years, this was a very good show for MBI brands. All brands were at the higher end of sales compared to the previous five years, and Cobalt had an excellent show. Not only was the volume of sales for Cobalt very good, but the composition included a preponderance of the 30 foot and over cruisers that are new to the market. In summary, boat shows have been decent. They have not been record breaking shows, but they have also not been bad shows. After the first three weeks, we were on a par with unit sales for all of our brands for 2023. Miami, of course, will be the bellwether show for our saltwater brands and we are placing a lot of focus on making Miami the best show possible. Looking ahead, we are optimistic about the outlook for the marine industry. Cost increases are stabilizing, creating a more favorable pricing environment as we look at this through year 2025. Overall, this coupled with a lower interest rate environment, which is predicted to occur, will relieve pressure on the entry level buyer and help drive a recovery in margin. Despite the macroconditions we are faced with today, we remain in an optimal position to deliver results. As we have said many times and proved in the fourth quarter of 2020, we are confident that even in a 25% to 30% down revenue environment, we can maintain 15% or above EBITDA margins. While we are projecting revenue will finish down more than 30% for the year, the relationship remains intact. This is due to our highly variable cost structure that flexes in line with market conditions. In addition, we have spent the past couple of months ensuring cost efficiencies throughout our organization. Based on our forecast, despite lower-than-anticipated revenue, we maintain our conviction that we will continue to deliver operationally with our strong margin profile. Our winning strategy and durable business model are what truly differentiates us. We will continue to stay nimble, advance our innovation and product development, leverage our vertical integration footprint, capitalize on market opportunities and enhance operational excellence initiatives to ensure we remain on top as market conditions improve. I will now turn the call over to Bruce for further remarks on the quarter.
Bruce Beckman: Thanks, Jack. In the second quarter, net sales decreased 37.7% to $211.1 million and the unit volume decreased 43.7% to 1,373 units. Decrease in net sales was driven primarily by decreased unit volumes across all segments, resulting from soft retail demand and lower wholesale shipments. The volume impact was partially offset by a favorable model mix across all segments, and inflation driven year-over-year price increases. The Malibu and Axis brands represented 44.1% of unit sales or 606 boats. Saltwater fishing represented 29.5% or 405 boats, and Cobalt made up the remaining 26.4% or 362 boats. Consolidated net sales per unit increased 10.7% to $153,732 per unit, primarily driven by inflation driven year-over-year price increases and favorable model mix within our Malibu, saltwater, fishing and Cobalt segments. Gross profit decreased 50.5% to $37.5 million and gross margin decreased 460 basis points to 17.8%, driven primarily by lower volume and an increase mix of the saltwater fishing segment and increased dealer flooring program costs. Cost of sales decreased by 34% in a period where revenue decreased by 37.7%, demonstrating our operational excellence and highly variable cost structure. Selling and marketing expense decreased by 9.5% to $5.6 million. Decrease was driven primarily by lower marketing spending. As a percentage of sales, selling and marketing expense increased 90 basis points to 2.7% of sales due to lower volume. General and administrative expenses decreased 19.0% to $15.4 million. The decrease was driven primarily by lower personnel related expenses. As a percentage of sales, G&A expenses increased 170 basis points to 7.3% of sales due to lower volume. In total, Q2 operating expenses declined by $4.2 million as we made necessary adjustments to our cost structure while preserving our capacity to innovate. Net income for the quarter increased 72.1% to $10.1 million. Adjusted EBITDA for the quarter decreased 60.2% to $22.9 million. Adjusted EBITDA margin decreased to 10.9% from 17.0%. Non-GAAP adjusted fully distributed net income per share increased 69.4% to $0.57 per share. This is calculated using a normalized C Corp tax rate of 27.8% and a fully distributed weighted average share count of approximately 21.1 million shares. For a reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics, please see the tables in our earnings release. Turning our attention to the balance sheet. We invested $12.6 million in CapEx in the quarter, driven by investment in our new Roane County, Tennessee manufacturing facility. We paid down $30.0 million of debt, bringing our outstanding debt balance down to $35.0 million at quarter's end. And we repurchased 226,000 shares or $9.9 million of stock in the quarter. Even with these actions, and in a challenging operating environment, we increased our cash balance by $10.3 million in the quarter, demonstrating the strong cash generation potential of our business. As Jack mentioned earlier, the retail environment continues to be challenged by broader economic uncertainty and the prolonged interest rate environment. As a consequence, dealers are looking to bring their inventories down to pre-COVID levels or lower. While inventory started to recede in the quarter, we expect more time will be needed for channel inventories to fully normalize. We now expect the lower sales levels of wholesale shipments to persist through the end of the fiscal year. With this in mind, we are revising our fiscal 2024 outlook. We anticipate a year-over-year decline in annual net sales ranging from a mid to high 30s percentage point decrease. We expect Q3 revenues to be down mid 40s percentage points. Consolidated adjusted EBITDA margin is expected to decline 800 to 900 basis points for the year, with Q3 slightly below Q2 on a margin percentage basis. Before opening up the call for questions, I want to say how excited I am to be joining Malibu. Despite our near term challenges, I'm excited about the potential for growth of our company. We have market leading brands, the best operations team in the industry, a strong balance sheet and many avenues for growth. I look forward to partnering with Jack and the rest of the Malibu team to drive the company forward and create long term value. With that, I'd like to open up the call for questions.
Operator: [Operator Instructions]. And our first question this morning comes from Craig Kennison from Baird.
Craig Kennison: I wanted to ask about dealer inventory. Is there a way to frame, I guess, the number of excess boats you see in the channel that you'd like to see come out?
Jack Springer: Craig, we always talk about it and think about it in terms of weeks on hand of inventory, not necessarily units. Sorry to get down to that level. But from a weeks on hand basis, I think the overall industry, and we're seeing the same thing, is around five weeks too much on hand of inventory. And it's a little bit dependent upon the segment, but [indiscernible].
Craig Kennison: You had mentioned ASPs, you've got some product coming out at some sharper prices. I'm wondering if you could help us think through your ASP by segment going forward, given that lower price product and some of the promotions that you also have in place.
Jack Springer: There's a little bit of a balancing act. What is missing is a typical market that we've seen in the past, which is going to be the lower link size, less feature appointed segment. They're sitting on the sidelines. And so, that's been missing. And it's had a positive impact on our ASPs. What I will tell you is that, on that Malibu and Axis side, with the addition of that R series, the objective is to bring that consumer back in the market. I don't see a downward push from that on ASPs. What we are seeing is that premium buyer being out there and largely our ASP maintaining at about the same level, perhaps a little bit higher.
Operator: Our next question comes from Eric Wold from B. Riley Securities.
Eric Wold: Jack, you mentioned the weeks on hand about five weeks on hand too much. Is that specific to Malibu? And what are you seeing with other peers in the space that may be pressuring demand? Are you seeing other competitors kind of leaning into price a little bit further, given where their inventories are? And how is that playing into kind of your dealer actions?
Jack Springer: Yeah, we have seen that especially during the fall. I think we look across the entire landscape in marine, OEMs and their dealers have too much channel inventory on hand. So it's been a promotional environment for the dealers. They're locked into a promotional environment. And I think that's going to continue. Obviously, when you have competitors that are also trying to lower inventories, it's a hand to hand combat type of environment at the dealer level. And we have seen that and we would expect to continue to see that.
Eric Wold: Just one last question. I know it's probably a little early, but with the expectation that we could see rates come down in 2024, what are your dealers hearing from potential buyers? Are they likely willing to get ahead of the rate declines by buying for this boating season now, adjusting their loans later, or you think they're more likely to wait until actually the low rates become reality before pulling the trigger.
Jack Springer: No. I think that's what we're seeing in the boat shows, frankly. You think about the entire retail environment. It has been soft, more promotionally. I think we alluded to that. What were we're seeing today is the dealers, at least in the boat shows, are coming back, willing to buy. Our dealers I believe are doing a great job from an economic point of view of trying to get the lowest interest rate they possibly can. Numerous resources that they may have. As we look at the environment [indiscernible], depending on the banks and the various entities that you talk to, I think generally speaking, the expectation for 2024 is two to three rate decreases, 100 to 125 basis points over the course of the entire year, primarily following the second half of the calendar year. And the consumer is not waiting for rates to go back 2%. I think there's a realization they're not going to be there any time in the near future. But there's a psychological advantage to that first rate decrease. And then you have a couple more on top of that. I think that helps the market come back and it will be – come back quickly.
Operator: Our next question comes from Joseph Altobello from Raymond James.
Joseph Altobello: Couple of questions on the guidance. I guess, first, if I look at your EBITDA and revenue guidance, it implies an EBITDA margin this year of around 12%, give or take, which is below the margin that you delivered in the June 2020 quarter on a similar unit decline when production was shut down for several weeks. Why has your cost structure shifted a little bit more fixed versus variable?
Bruce Beckman: It really hasn't, John. If we did a comparison against Q4 of 2020, there was a difference there from a cost perspective and then we shut our plants down for six weeks. And so, we are going to continue to invest, we're going to continue to run the company and prepare for everything downturn. And so, we're not shutting down completely. And that's what I will tell you had a significant impact on it being different than that.
Joseph Altobello: Okay. Because I'm looking at your slide and it looks like the percentage of costs that are variable went from 82% last year to call it 77% this year, so it's about a 500 basis point decline.
Bruce Beckman: I think that's fair. But I think that's just continuing operations reality.
Joseph Altobello: Maybe in the second half, the margin decline you're looking at, how much of that is coming from higher promotions and discounting?
Jack Springer: Yeah, the promotional activity is largely at that bigger level. What we said, we don't expect it to change in the second half. The impact from an MBI perspective is under 100 basis points. So we will supplement and we'll help our dealers from a promotional aspect, but largely it falls on them. And they're coming off of a two to three year environment where the margins are extremely high, and so their pencils have sharpened.
Operator: Our next question comes from Jamie Katz from Morningstar.
Jamie Katz: I actually want to carry on with that line of questioning on the flexible cost structure because not only does the EBITDA margin look bad maybe relative to 2020, but I don't think the implied EBITDA margin has been this low in maybe over a decade. So, can you just reconcile maybe, was it the magnitude of the change? Is it the conditions declined too fast to react? Or are there other sort of one-time items, like investing in the factory, that are really leading to that adjusted EBITDA margin compression because saying that there is a flexible cost structure and then generating EBITDA margins where they're going to be is sort of in conflict a little bit.
Bruce Beckman: I think a couple of things you pointed to, Jamie, are accurate. You did see a change very, very rapidly of moving from a high wholesale production environment to the low channel inventories, left very quickly, the softness of retail occurred. But one thing – and I'll let Bruce chime in here – is that we are hyper focused. If you look at what our goals are for the rest of this year, channel inventories have to come in line. And so, we have taken production down more significantly than where probably anybody could have ascertained or predicted and we are going to get inventory levels where they need to be to support our dealers. And honestly, I think dealers appetite right now is they don't want it to be historic channel inventory. They would like to be, at least for a little while, little bit lower than channel inventory [indiscernible].
Jack Springer: Yeah. And from an EBITDA margin perspective, it's not really a complicated story. It really is fixed cost, the leverage coming down. We are still seeing, year-to-date, and expecting to see for the remainder of the year, our variable cost structure above the gross margin line to be in that 85% to 90% range that we talked about previously. So, it really is about the magnitude of the revenue guidance change that's driving up the EBITDA margin decline.
Bruce Beckman: One of the things that I'll point at to, Jamie, [indiscernible] is really important to understand. We have a long, long history of driving the margins with Malibu, and the differential between the Malibu entity, Malibu and Axis margins and Cobalt, Pursuit, MBG, there are hundreds of basis points of difference. And now you've seen a flip that Malibu is more impacted. I think we're down well under 50% now as a part of the total. And so, that impact from a margin aspect is going to be greater than if it were even across the board, if that makes sense to you.
Jamie Katz: As you think about cleaning up the inventory channel, assuming that the other OEMs are behaving rationally, does that imply – and I know this is early that, like, fiscal 2025 would go back to some sort of normal growth algorithm and it would be much easier to recapture some of that operating leverage. Or is there some transitory sort of float back to normal to get back to where we were?
Jack Springer: I think you nailed it. That's exactly right. And that's what we're positioning for. What I'm seeing is people were being very responsible with general inventories. And that's what we're hearing from our dealer. I think that will continue. But even absent that, we are positioning ourselves so that we come out of this and we can recapture that growth much quicker than anyone else if they're not being as responsible as we are. But [indiscernible] we have to get the channel inventories down.
Operator: Our next question comes from Brandon Rollé from D.A. Davidson.
Brandon Rollé: Just on your updated guidance, what gives you confidence you fully kind of reset the bar for the remainder of the year? And is there any upside being baked in for the last two quarters of the year? Or would you say this is a conservative guide?
Bruce Beckman: I would say it's a conservative guide. As you can imagine, we've had a lot of discussion on it. There is not any upside baked into the second half of the year for us. So that would be welcome certainly, but there's nothing to say [indiscernible]. We believe that this, as we say, is conservative, and that if we see some positive tailwind, that it'll be beneficial.
Operator: And our next question comes from Noah Zatzkin from KeyBanc Capital Markets.
Noah Zatzkin: Most of mine have been asked and answered, but just wondering just in terms of capital deployment, particularly in terms of maybe green fielding or acquiring a Pontoon brand. Has anything kind of changed there and just maybe any updates around that process?
Bruce Beckman: Well, I'll maybe let Jack comment on the pontoon, but from a capital allocation priority standpoint, our capital allocation priorities have changed. First, we looked upon the organic growth initiatives, such as the Roane County, Tennessee facility. We have an active share buyback program. And we're always on the lookout for M&A opportunities. And as you can understand, we are not able to dictate the timing of when those opportunities present themselves, but our strong balance sheet gives us the opportunity to move quickly when they do.
Jack Springer: Commenting on Pontoons, and I guess M&A in general, Pontoons has been something we've talked about. I've been consistent. We've been consistent on this. We would much rather make an acquisition than greenfield, but that greenfield is absolutely an option for us. Expanding it a little bit. The market, with what we're dealing with, I think that prompts potential sellers to come to the market. And I didn't want to go through this. And so, we're seeing more activity. And it's across the board. So I will tell you that, from an M&A point of view, we are paying a lot of attention not only to Pontoons, but we're paying a lot of attention to the outboards, all our outboard market, and categories like that that we're not in today that we can get into.
Operator: And our next question comes from Fred Wightman from Wolfe Research.
Fred Wightman: I just wanted to come back to the mix question. As it was pointed out, the Malibu/Axis as a percentage of mix was down almost 10 points. How do you sort of see that trending in the back half of the fiscal year, just given some of the capacity that you guys have coming online for the other brands? That'd be helpful.
Jack Springer: We see it probably pruning down a little bit more, more toward that 40-ish range for the second half of the year. I think you pointed out the things that are really going to influence that. But what I would tell you is that Cobalt has been surprisingly strong for us. And I think it will continue to be. We saw it, as I mentioned, in the New York boat show, again. And so, I think from a freshwater perspective, they're going to capture more of the brand share and then we expect saltwater to be a little bit stronger than the Malibu/Axis.
Fred Wightman: Just a clarification. There was a comment about EBITDA margins for 3Q being slightly below 2Q. Was that an absolute comment? So the actual reported EBITDA margin will be slightly lower than 2Q or was it a year-over-year comment?
Bruce Beckman: It was versus Q2, so slightly lower than Q2.
Operator: And, ladies and gentlemen, at this time, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Jack Springer for any closing remarks.
Jack Springer: Thank you very much. Despite the softened retail demand and being in our slow season, we continue to see success at our year-end sales event and the boat shows, a testament to our durability of the business and a dominant position in every market we serve. While channel inventory levels are higher than we want to see, we expect to see downward movement as we get into the selling season and normalize over the course of the next six months. We are focused on driving channel inventories to historic norms and we'll continue to adjust production up or down accordingly to make that occur. Our strategic planning, operational excellence and supply chain management continued to support our margin stability and our vertical integration has enabled us to remain resilient. Despite the challenges, we remain optimistic as we look to the back half of this year. We're positioned to grow and recover as retail demand recovers. We relish this environment. This is when we fine tune our model and we position for a strong recovery. We did it back in 2009 through 2011. Not only driving recovery, but capturing market share and exiting the downturn even stronger than before. As I always do, I want to thank you for your support and for joining us today. Have a great day.
Operator: Ladies and gentlemen, this concludes today's conference call. We thank you for participating. You may now disconnect your lines.
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