Q2 2024 Malibu Boats Inc Earnings Call
Good morning, everyone and welcome to Malibu boats conference call to discuss second quarter fiscal year 'twenty 'twenty four 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 conference call is being recorded.
On the call today from management are Mr. Jack Springer, Chief Executive Officer, Mr. Bruce <unk>, Chief Financial Officer, Mr. Ritchie Anderson, Chief operating officer.
I'll now turn the call over to Mr. Batten when they get started please go ahead sir.
Batten: Thank you and good morning, everyone.
Bruce: On the call Jack will provide commentary on the business and I will discuss our second quarter of fiscal year 2020 for financials.
Speaker Change: We'll then open the call for questions.
Speaker Change: The 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.
Speaker Change: 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.
Speaker Change: Courage you to review our SEC filings for a more detailed description of these risk factors.
Speaker Change: Also note that there 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.
Speaker Change: Measures are included in our earnings release.
I'll turn the call over to Jack Springer.
Jack D. Springer: Thank you Bruce and thank you all for joining the call.
<unk> navigated a challenging quarter driven by continued economic uncertainty has retail remain suppressed and channel inventories are reverting to historical norms for.
For the second fiscal quarter, net sales decreased 38% to $211 $1 million compared to the prior year.
Jack D. Springer: Net income decreased 62% to $13 $8 million, while adjusted EBITDA fell 60% just wanted to point $9 billion.
Jack D. Springer: Gross margins decreased 460 basis points to approximately 18% and adjusted EBITA margin decreased by 610 basis points to approximately 11%.
Jack D. Springer: We continue to experience soft retail demand as we entered our slowest time of the year.
A confluence of events and coming off a pandemic retail channel.
Channel inventories are built much quicker than anyone imagined a return to seasonal warm and economic uncertainty due to a prolonged elevated interest rate environment and resolve it and channel inventories higher than we or our dealers would like to see.
Jack D. Springer: It was 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 has 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 have been focused on rebuilding our channels from historically low level brought on by lingering supply chain challenges and unprecedented demand during the pandemic.
Jack D. Springer: Today these dynamics have shifted and a level setting is going on is the inventory channels have fully recovered.
Jack D. Springer: We are back to natural market dynamics, and that'd be a highly focused on recalibrating. The match wholesale production to retail demand. We are very very committed to reducing channel inventory to lower levels that set up the beeler it'd be our brands to recover more quickly once retail began growing again.
Jack D. Springer: We expect channel inventories to move downward as the selling season kicks in and reduced the normal level by the end of calendar Q2.
Jack D. Springer: And we will continue to monitor the channel and taken an aggressive approach with production levels as we head into the selling season.
We've been hot shot 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 executing and driving the most profitability profitable 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.
Jack D. Springer: Investment in the wrong 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 what was the addition of new models over the past couple of years and more coming this expansion positions cobalt being able to build to demand as we exited.
Jack D. Springer: The downturn darn and see demand growth.
And we waited until after the downturn, we would be sacrificing one to two years of revenue growth as we added the capacity.
<unk> will be well positioned to exit this downturn more quickly.
Jack D. Springer: The stronger than we were when entering yet for all of our brands.
Jack D. Springer: From the retail lands the sense of urgency from customers to buy a boat has largely disappeared.
Jack D. Springer: Consumers being very patient, but I know inventory is available and they are looking for the best deal.
To address this lot of retail environment, we introduced a program earlier this month, which we've been working on since early 2023 to introduce a malibu.
It's just that entry level pricing.
Malibu Alex are is offered at $99995. The first time that a 'twenty one for larger Malibu can be purchased were under $100000 in many years.
Jack D. Springer: The axis <unk> 220 or is it 22 football with a nationally advertised price of 89995.
Jack D. Springer: We expect routing on these two boats will draw customers who've been waiting for it or process to dealers.
Jack D. Springer: The goal is to have this customer exit the sidelines goes into the boat shows are dealerships and purchase with these boats were also targeting smaller and less optimal jet boats for the cost conscious wake sports enthusiasts.
Jack D. Springer: Finally, we believe this is a great opportunity for a consumer to get a malibu or access at a price less than a tier two or tier three white brand. We also believe that we will not only so all of these boats, but they will lead to further opportunities to upsell by our dealers and the other models driven by the consumer's desire for more features and ops.
Jack D. Springer: We have already seen this occurring in the January boat shows have taken place thus far.
A customer segment that has remained strong as the premium segment cash buyers who are looking for larger feature rich premium boats, we have several new offerings targeting these consumers and we are excited about our brand through boat shows are focusing on the new M. 242, Malibu is the most premium boat and the boundary line.
Jack D. Springer: Cobalt has introduced a new or a 33 serve cruiser and pursuit will leverage the new OSP World Bob in D. C for real sex, both premium boats over 30 P M.
Jack D. Springer: As you see by their names. These models are targeting the imported offshore and dual cosmo segments in saltwater outboard category for pursuit.
Jack D. Springer: As always the boat show season is very important and will be the measuring stick for the rest of fiscal year 'twenty for.
While the general consensus is that we are at or near the bottom for retail demand and sentiment shifts in this interest rate pressures are forecasted to subside in the front of the selling season will be the burst out of the trajectory.
Jack D. Springer: We are already seeing positive signs following our year end sales event for Malibu. This event, which would have been doing for the last decade, and a half saw Malibu axis is performing better than we had expected.
Jack D. Springer: Further demonstrates the strength and resiliency of our premium suites brands.
Jack D. Springer: As we reported on our last call Fort Lauderdale was a fantastic show for pursuit setting all time records.
Jack D. Springer: Also a very good show for cobalt exceeding last year.
Jack D. Springer: That position the focus of the calendar year 2024 shows I began the first week of January.
When a boat show was the first weekend of January and it is always an important guidepost.
Jack D. Springer: That show, which is run by our partner one water through their sales in Marine group.
Jack D. Springer: Spot for Malibu levels, well ahead of last year for cobalt.
Oh, so it was another good show, especially for Malibu and axis.
Jack D. Springer: Last weekend, the New York Boat show took lives. This is both a freshwater and saltwater show looking back at the results over the previous five years. This was a very good show Roomba all brands all brands were at the higher end themselves compared to the previous five years and cobalt had an excellent show.
Jack D. Springer: Not only was the volume of sell for cobalt very good composition included a preponderance of the 30 foot and over cruisers that are new to the market.
Jack D. Springer: In summary, both shows have been visa.
Jack D. Springer: Not been record breaking chose but they have also not been bad shows.
Jack D. Springer: After the first three weeks, we were on a par with unit sales for all of our brands.
For 'twenty two or three.
Jack D. Springer: Miami of course will be the bellwether shows where our saltwater brands and we are placing a lot of focus on making Miami the best show possible.
Jack D. Springer: Looking ahead, we are optimistic about the outlook for the marine industry cost increases are stabilizing creating more.
Favorable pricing environment, as we look to fiscal year 2025 overall.
Overall, this coupled with a lower interest rate environment, which is predicted to occur will relieve pressure on the entry level buyer and helped drive a recovery in marine.
Jack D. Springer: Despite the macro conditions, we are faced with today, we remain in an optimal position to deliver results as we have said many times improve in the fourth quarter of 40 20, we were confident that even in the 25% to 30% down revenue environment, we can make 15% maintaining 15% or above EBITDA margins.
While we are projecting revenue will finish now in 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.
We have spent the past couple of months, ensuring cost efficiencies throughout our organization.
Jack D. Springer: Based on our forecast despite lower than anticipated revenue, we maintain our conviction that we will continue to deliver operationally that we will continue to deliver operations with our strong margin profile.
Jack D. Springer: Our winning strategy and durable business model or what truly differentiates us we will continue to stay nimble with the answer I integration and product development, leveraging our vertical integration footprint capitalize on market opportunities and enhance operational excellence initiatives to ensure we remain on top as market conditions improve.
Jack D. Springer: Now I'll turn the call over to Bruce for further remarks on the quarter.
Thanks Jack.
Bruce: In the second quarter net sales decreased 37, 7%.
Bruce: $211 $1 million and unit volume decreased 43, 7% to 1373 units.
Bruce: Kris in net sales was driven primarily by decreased unit volumes across all segments, resulting from softer 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.
Bruce: Brands represented 44, 1% of unit sales for 606 votes.
Bruce: Water fishing represented 29, 5% for 405 votes, and cobalt made up the remaining 26, 4% or 362 votes Consol.
Consolidated net sales per unit increased 10, 7% to $153732 per unit, primarily driven by inflation driven.
Bruce: Price increases and favorable model mix within our Malibu saltwater fishing cobalt segments.
Gross profit decreased 55% to $37 $5 million and gross margin decreased 460 basis points to 17, 8% driven primarily by bolt on.
And an increased mix of the saltwater fishing segment and increase dealer flooring program costs.
Bruce: Cost of sales decreased by 34%.
Bruce: <unk> revenue decreased by 37, 7%, demonstrating our operational excellence and highly variable cost structure.
Selling and marketing expense decreased by nine 5% to $5 $6 million decrease was driven primarily by lower marketing spending.
Bruce: As a percentage of sales selling and marketing expense increased 90 basis points to two 7% of sales due to lower volume.
Bruce: General administrative expenses decreased 19, 1% 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 seven 3% of sales.
Sure Bob.
Bruce: In total Q2 operating expenses declined by $4 $2 million as we made the necessary adjustments to our cost structure, while preserving our capacity to innovate.
Bruce: Net income for the quarter decreased 72, 1% to $10 $1 million adjusted EBITDA for the quarter decreased 62% to $22 $9 million adjusted EBITDA margin decreased to 10, 9% from 17, 8%.
non-GAAP adjusted fully distributed net income per share decreased 69, 4% to 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 billion.
Bruce: Chairs.
A reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics. Please see the tables in our earnings release.
Bruce: Turning our attention to the balance sheet, we invested $12 $6 million of Capex in the quarter driven by investment in our newborn County, Tennessee manufacturing facility.
Bruce: We paid down $31 million of debt, bringing our outstanding debt balance down to $35 million at quarters end.
Bruce: And we purchased $226 1000 shares or $99 million of stock in the quarter.
Bruce: Even with these actions and in a challenging operating environment, we increased our cash balance by $10 $3 million quarter, demonstrating the strong cash generation potential of our business.
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.
Bruce: 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-19 levels or lower.
Operator: 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 conference call is being recorded. On the call today for management are Mr. Jack Springer, Chief Executive Officer; Mr. Bruce Beckman, Chief Financial Officer; and Mr. Ritchie Anderson, Chief Operating Officer. I'll now turn the call over to Mr. Batman to get started. Please go ahead, sir.
Bruce: Well 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 'twenty 'twenty four outlook.
Bruce: We anticipate a year over year decline in annual net sales ranging from a mid to high Thirty's percentage point decrease we expect Q3 revenues to be down mid forty's percentage points.
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 financial results. 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.
Bruce: Consolidated adjusted EBITDA margin is expected to decline 800 to 900 basis points for the year.
Bruce: Q3, slightly but 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.
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 FDC 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. The correspondence of these non-GAAP financial measures to GAAP financial measures is included in our earnings release. I will now turn the call over to Jack Springer.
Bruce: 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.
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.
Speaker Change: Ladies and gentlemen at this time well begin the question and answer session.
Speaker Change: To ask a question you May press Star and then one using a touchtone telephone. If your question has been answered or you wish to withdraw. Your question you May press star two.
Speaker Change: If you are using a speaker phone we do ask you. Please pick up the handset prior depressing the numbers to ensure the best sound quality.
But again that is star and then one to join the question queue.
Speaker Change: We'll pause momentarily to assemble the roster.
Speaker Change: And our first question. This morning comes from Craig Kennison from Baird. Please go ahead with your question.
Craig R. Kennison: Hey, good morning, Thanks for taking my question I wanted to ask about dealer inventory is there a way to frame it.
Jack D. Springer: Thank you, Bruce, and thank you all for joining the call. NBI navigated a challenging quarter driven by continued economic uncertainty as retail remains suppressed and channel inventories are 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.
Craig R. Kennison: I guess the number of excess boats you see in the channel that you'd like to see come out.
Craig R. Kennison: Youre correct, we always talk about it and think about it in terms of weeks on hand of inventory necessarily units, it's hard to get up to that level.
Craig R. Kennison: From a weeks on hand basis, I think the overall industry and we're seeing same thing is around five weeks too much on hand inventory and there's a little bit depending upon the segment with Beth.
Jack D. Springer: 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 enter our slowest time of the year. The confluence of events in 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 have 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 the 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 M and Dorian.
Craig R. Kennison: Uh huh.
Yes.
Speaker Change: Okay. Thanks, and then you had mentioned.
Hey, S. P. You've got some product coming out it had some sharper prices I'm wondering if you could help us think through.
Speaker Change: Your asps by segment going forward, given that lower price product and some of the promotions that you also have in place.
There's a little bit of a balancing act well what is missing is that typical market that we've seen in the past, which is going to be the lower.
Speaker Change: Link saw is less feature appointed segment.
Speaker Change: They're sitting on the sidelines and so that's been missing and it's having a positive impact on her as a what I would tell you is that on the Malibu axis side with the addition of that our series. The objective is to bring that consumer back in the market I don't see a downward push from that.
Jack D. Springer: Over the last two fiscal years, we have been focused on rebuilding our channels from historically low levels, 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 are back to natural market dynamics, and NBI is highly focused on recalibrating to match wholesale production to retail demand.
Speaker Change: If these what we are saying is that premium buyer being out there and largely area ASP maintaining it at about the same level, perhaps a little bit higher.
Speaker Change: Got it thank you.
Speaker Change: Our next question comes from Eric Wold from B Riley Securities. Please go ahead with your question.
Jack D. Springer: We are very, very committed to reducing channel inventories to lower levels that set up the dealer and NBI 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 normal levels by the end of calendar Q2, and I will continue to monitor the channel and take an aggressive approach with production levels as we head into the summer. We do not shy from a downturn or a recession. We welcome the opportunities that are presented with them.
Eric Wold: Thanks, Hey, good morning, both of you. So Jeff you mentioned Hum the weeks on hand about five we can hand, you might use that.
Civic to Malibu, and then what are you seeing with either.
Peers in the space that maybe pressuring.
Demand at your gears, you're seeing other competitors kind of leaning into price a little bit further I'm, given where their inventories are and how is that playing into kind of your dealer actions.
Speaker Change: Yeah, we haven't seen that especially during the fall I think if we look across the entire landscape and marine OE.
Jack D. Springer: 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 products 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 Rome County, Tennessee, expansion for Cobalt is a great example of this commitment.
And dealers and their dealers had to book travel inventory on hand.
Speaker Change: Been a promotional environment or theater, there, they're locked into a promotional environment.
Speaker Change: You know that's going to continue obviously you know when you have competitors that are also trying to lower inventories.
Speaker Change: It's a hand to hand combat type of environment at the dealer level and we have seen that we would expect some things in there.
Jack D. Springer: 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 grow. If we waited until after the downturn, we would be sacrificing one to two years of revenue growth as we added capacity. NBI 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 is being very patient.
Speaker Change: Thanks, and then just one last question.
Speaker Change: Probably a little early but.
Speaker Change: But with the expectation that we could see rates.
Come down in 'twenty four what are your dealers hearing from potential buyers and they are they will likely willing to get ahead of the rate declines by buying for the devoting seasonality adjusting.
Speaker Change: They're they're their loans later or you think they're more likely to wait until actually the low rates become a reality before pulling the trigger.
No I think that's what we're seeing in both of them frankly.
Speaker Change: Think about the entire retail environment. It has been soft more promotional way.
Jack D. Springer: They know inventory is available, and they are looking for the best deal. To address this latter retail environment, we introduced a program earlier this month that we've been working on since early 2023 to introduce a Malibu and an entry-level process. The Malibu LXR 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.
You've had some success what 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 for them and that's what I point of view of trying to get the lowest interest rates, possibly can numerous resources as they may have.
Speaker Change: As we look at the environment, depending on the buying from the various entities as you talk to I think generally speaking the expectation for 'twenty. Four is two to three rate decreases of 100 to 125 basis points over the course of.
Jack D. Springer: The Axis T220R 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 lower prices to dealers. 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 optimal jet boats for the cost-conscious wake sports enthusiasts.
Speaker Change: Prior year, primarily following in the second half of the calendar year.
The consumer is not waiting for rates to go back to 2%.
Speaker Change: There's a realization that we're not going to be there anytime in the near future.
Speaker Change: 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 they will be gone backwards.
Jack D. Springer: Finally, we believe this is a great opportunity for a consumer to get a Malibu or Axis at a price less than a Tier 2 or a Tier 3 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 consumer's desires for more features and options. We've already seen this at the January boat shows that have taken place thus far.
Speaker Change: Perfect. Thanks Jack.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Joe After Belo from Raymond James. Please go ahead with your question Hey, guys. Good morning 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 a which is below the <unk>.
Jack D. Springer: A customer segment that has remained strong is the premium segment, cash buyers who are looking for larger, feature-rich premium boats. We have several new offerings targeting these consumers that we are excited about. Our brands, through both 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 OS405 and DC306, both premium boats over 30 feet.
Speaker Change: And that you delivered in the June 2020 quarter on a similar unit decline when production was shut down for several weeks.
Speaker Change: Why has your cost structure.
Speaker Change: More fixed versus variable.
Speaker Change: It really hasn't I mean, if we did a comparison against Q4 2020. There there was the difference there from a cost perspective that we shut our plants now for six weeks and so we are going to continue to invest we're going to continue to run the company and prepare for exiting that.
Jack D. Springer: As you can 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 24. 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 sign of the trajectory. We are already seeing positive signs following our year-end sales event for Malibu. This event, which we have 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 Sweden brand.
Speaker Change: And so we're not shutting down completely.
Speaker Change: That's what I would tell you have had a significant impact on it being different than that.
Speaker Change: Okay cause I'm looking at your slide and it looks like you have the percentage of costs that are variable.
Speaker Change: 82% last year to call it 77%.
Speaker Change: This year, so it's about time it could be.
Speaker Change: At this point decline.
Speaker Change: I mean, I think that's fair, but I think that just continuing operations a reality.
Speaker Change: Okay.
Speaker Change: And then maybe you know in the second half.
The decline Youre looking at how much of that is coming from higher promotions.
Speaker Change: Discounting.
Speaker Change: Yes.
Jack D. Springer: 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 position, the focus for the calendar year 2024 shows, 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, One Water, 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 Axe.
Speaker Change: The promotional activity is largely at that level you know what we said we don't expect it to change into the second half the impact from an MBR perspective is under 100 basis points. So we will supplement and will help our dealers from a promotional aspect, but largely the fault.
They're coming off of a two to three year environment, where the margins were extremely high and so they are the person.
Speaker Change: Those have sharpened.
Speaker Change: Okay, great. Thank you.
Speaker Change: Our next question comes from Jamie Katz from Morningstar. Please go ahead with your question.
Jack D. Springer: Last weekend, the New York Boat Show took place. This is both a freshwater and saltwater show. Looking back at the results over 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 30-foot and over cruisers that are due to the market. Summary Both shows have been decent. They have not been record-breaking shows, but they have also not been bad shows.
Jaime M. Katz: Hi, Thanks, good morning actually one.
Jaime M. Katz: Carry on with that line of questioning on the flexible cross structure, because not only does the EBITDA margin.
Jaime M. Katz: That may be relative to 2020, but I don't think the implied EBIT margin.
Jaime M. Katz: Yeah.
Jaime M. Katz: Well when maybe over a decade so.
Jaime M. Katz: Q can you just reconcile and maybe what's the magnitude of the change is it not.
Jaime M. Katz: The conditions decline 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 you know, saying that there is a flexible cost structure and then.
Jack D. Springer: After the first three weeks, we were on a par with unit sales for all of our brands at 23rd Parade. 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 fiscal year 2025. Overall, this coupled with the lower interest rate environment, which is predicted to occur, will relieve pressure on the entry-level buyer and help drive a recovery in Marines. Despite the macro conditions we are faced with today, we remain in an optimal position to deliver results.
Jaime M. Katz: Generating EBITDA margins, where theyre going to be sort of in conflict.
Jaime M. Katz: Thanks.
Speaker Change: All those things you pointed to Jamie or are accurate.
Did see a change very very rapidly.
Speaker Change: Oh.
Speaker Change: Moving from.
Speaker Change: Hi, wholesale production environment to have low channel inventory.
Speaker Change: <unk> very quickly.
Speaker Change: This retail occurred.
Speaker Change: But one thing that and I'll, let Bruce chime in here is that we are hyper focused I mean, if you look at what our goals are for the rest of this year channel inventories have to come in a lot and so we have taken production down more significantly than probably anybody could have ascertained or are.
Jack D. Springer: As we have said many times and proved in the fourth quarter of 2020, we are confident that even in a 25-30% revenue decline 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.
Bruce: Predicted and we are going to get inventory levels, but where do they need to be to support our dealers and honestly I think dealers appetite right now if they don't want it to be historic channel inventory, they would like to be at least for a little while a bit lower channel inventory.
Bruce: Sure.
Bruce: And from an EBITDA margin perspective, it's not really a complicated story. It really is fixed cost deleverage 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 nine.
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. Thanks, Jack.
Per cent range that we've talked about previously so.
Bruce: It really is about.
Bruce: The magnitude.
Speaker Change: The revenue guidance change, that's driving that EBITDA EBITDA margin decline yeah, one other thing that I'll point out to Jamie Baker.
In the second quarter, net sales decreased 37.7% to $211.1 million, and the unit volume decreased 43.7% to 1,373 units. The decrease in net sales is driven primarily by decreased unit volumes across all sectors, resulting from soft-reel 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 prices. The Malibu and Access brands represented 44.1% of unit sales for 606 boats. Saltwater Fishing represented 29.5% of the vote, for 405 boats. Cobalt made up the remaining 26.4%, or 362 votes.
Jimmy Baker: Really important to understand.
Jimmy Baker: We have a long long history of driving the margins with Malibu.
Jimmy Baker: And the differential between the Malibu entity, Malibu axis margins and cobalt pursuit and BG. There are hundreds of basis points of difference in that you've seen a flip.
Malibu is more impacted I think we're well.
Jimmy Baker: Well.
Now as a part of the total and so.
So that impact from a margin aspect is going to be greater than if it were even across the board if that makes sense.
Sure. Thank you that's really helpful. And then as you think about cleaning up.
Jimmy Baker: Inventory channel assuming that the other Oems are behaving rationally.
Jimmy Baker: Does that imply and I know this is early.
Consolidated net sales per unit increased 10.7% to $153,732 per unit, primarily driven by inflation-driven year-over-year prices 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. 17.8% driven primarily by lower volume and an increased mix of the saltwater fishing segment and increased dealer flooring program costs. Costs of sales decreased by 34% in a period when 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.
Jimmy Baker: 23, as I would go back to some sort of a normal growth algorithm and it would be much easier to recapture some of that operating leverage or is there some transitory sort of back to normal.
Jimmy Baker: To get back to wherever anywhere.
Speaker Change: No I think that's.
Speaker Change: That's exactly right and that's what we're positioning for.
Speaker Change: Even.
Speaker Change: What I'm, saying is people were paying very responsible with channel inventories and that's what we're hearing from our dealers 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 we thought we would.
Speaker Change: You have to challenge yourself.
Speaker Change: Okay.
Speaker Change: Okay. Thank you.
The decrease was driven primarily by lower marketing spend. As a percentage of sales, selling and marketing expense increased 90% to 2.7% of sales due to low volume. General administrative expenses decreased 19.0% to $15.4 million.
Our next question comes from Brandon Rolle from D. A Davidson. Please go ahead with your question.
Good morning. Thank you for taking my question just on your updated guidance. So what gives you confidence you're 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.
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. Net income for the quarter decreased 72.1% to $10.1 million.
Speaker Change: I would tell you is concerned we've got we had as you can imagine we've had a lot of discussion on it.
Speaker Change: There is not any upside baked into the second half of the year.
Speaker Change: For us so that would be.
Speaker Change: Welcome I'm, certainly, but there is nothing.
Speaker Change: We believe that.
Speaker Change: As we say, it's conservative and that you know if.
Speaker Change: If we see some positive tailwind that it'll be beneficial.
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 decreased 69.4% to 57 cents 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.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Noah exactly that's getting from Keybanc capital markets. Please go ahead with your question.
Hi, Thanks for taking my question most of might have been asked and answered but just just wondering just in terms of capital deployment, particularly in terms of maybe green fielding or or acquiring a pontoon brand is anything kind of changed there and just maybe any updates.
Speaker Change: Around that process.
Speaker Change: Well I'll, maybe let Jack comment on the pontoon, but but from a capital allocation.
For a reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics, please see the tables in our earnings report. Turning our attention to the balance sheet, we invested $12.6 million in CapEx in the quarter, driven by investment in our new Roma County, Tennessee Manufacturing Facility. We paid down $38.0 million of debt, bringing our outstanding debt balance down to $35.0 million at quarter sales, and we were purchased by 226.1 thousand shares for 9.9 million dollars 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 order to, demonstrating the strong cash generation potential of our goods. As Jack mentioned earlier, the retail environment continues to be challenged by broader economic uncertainty and the prolonged interest rate environment.
Speaker Change: Priority standpoint, our capital allocation priorities have changed I mean first we look to fund organic growth initiatives, such as the Rone 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.
Speaker Change: We are not able to dictate the timing of when those opportunities present themselves but.
Speaker Change: But our strong balance sheet gives us the opportunity to move quickly when they do.
Speaker Change: Yeah, Brian in commenting on trains I guess M&A in general.
Brian: That's helpful.
Brian: We've talked about.
Brian: I think the system we've been consistent.
Brian: I would much rather than making the acquisition than Greenfield Greenfield is absolutely.
<unk> for us.
Brian: Planning is a little bit in the market with what we're dealing with I think that crops potential sellers to come to the market, but I don't want to go through the house and so we're seeing more activity and it's across the board. So I would tell you that program and M&A point of view we are paying.
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 30 percentage point decline.
Brian: A lot of attention not only to go onto it but we're bringing a lot of attention to the outboard saltwater outboard market and categories like that that we're not in today that we can get it there.
Speaker Change: Thank you.
And our next question comes from Fred Wightman from Wolfe Research. Please go ahead with your question.
Fred Wightman: Hey, guys. Good morning, I, just wanted to come back to the mix question I mean.
Operator: We expect Q3 revenues to be down mid-40s percent. 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. Ladies and gentlemen, at this time, we'll begin the question-and-answer session. To ask a question, you may press star and then 1 using a touchtone telephone. If your question has been answered or you wish to withdraw your question, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the numbers to ensure the best sound quality.
As it was pointed out I mean, the the Malibu access 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 Hum that'd be helpful.
Speaker Change: No we see it probably pruning down a little bit more towards that 40 years right through the second half of the year I think you pointed out the things that are really good inflows.
Speaker Change: I would tell you that is that cobalt has been surprisingly strong for us.
Speaker Change: I think it.
Speaker Change: Continues to be we saw and as I mentioned in the New York Boat show again, and so I think from a freshwater perspective, they're going to continue to capture more of the brand share and then we expect salt water to be a little bit stronger than the Malibu axis.
That makes sense and then just a clarification there was comments about EBITDA margins for <unk> being slightly be low two Q was that an absolute comment. So the actual reported EBITA margin won't be slightly lower than two cube, where was it a year over year comment.
Speaker Change: That was it was versus Q2, so it's slightly lower than Q2.
Craig R. Kennison: Once again, that is the star and then one to join the question queue. We'll pause momentarily to assemble the rafts. And our first question this morning comes from Craig Kennison from Baird. Please go ahead with your question. Hey, good morning.
Speaker Change: Perfect. Thank you.
Speaker Change: Yes.
Speaker Change: And ladies and gentlemen at this time, we will 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 D. Springer: Thank you very much despite the softening retail demand being in our slow season, we continue to see success entered yourselves.
Jack D. Springer: Thanks for taking my question. I wanted to ask about dealer inventory. Is there a way to frame, I guess, the number of excess votes you see on the channel that you'd like to see come out?
Jack D. Springer: And the boat shows are testament to our durability of the business and a dominant position in every market we serve.
Jack D. Springer: Well channel inventory levels are higher than we want to see we expect to see downward movement as we get into the selling season and normalized.
Craig R. Kennison: Craig, we always talk about it and think about it in terms of weeks on hand of inventory, not necessarily units. It's hard 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 that's a consensus.
Jack D. Springer: 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 in our vertical integration has enabled us to remain resilient.
Jack D. Springer: Okay, thanks. And then you mentioned ASPs, you've got some products 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 priced product and some of the promotions that you also have in place. You know, there's a little bit of a balancing act, you know; what is missing is that typical market that we've seen in the past, which is going to be the lower link size, less feature-added segment. You know, they're sitting on the sidelines, and so that's been missing, and it's had a positive impact on our ASVs.
Jack D. Springer: Despite the challenges we remain optimistic as we look at the back half of this year and we're positioned to grow and recover as retail demand recovers.
Jack D. Springer: We relish this environment. This is when we fine tuned our model and we positioned for a strong recovery. We did it back in 2009 through 11, not only driving recovery, but capturing market share in exiting the downturn even stronger than before.
As I always do I want to thank you for your support and for joining us today and have a great day.
Speaker Change: Ladies and gentlemen. This concludes today's conference call. We thank you for participating you may now disconnect your lines.
Craig R. Kennison: What I would tell you is that on the Malibu access side, with the addition of that R series, the objective is to bring that consumer back into the market. I don't see a downward push from that on ASVs. What we are seeing is that premium buyer being out there, and largely, our ASVs are maintaining at about the same level, perhaps a little bit higher.
Eric Wold: Thank you. Our next question comes from Eric Wold from B-Riley Securities. Please go ahead with your question. Thanks. And good morning, both of you. So, Jack, you mentioned the weeks on hand, about five weeks on hand, too much. Is that specific to Malibu?
Jack D. Springer: And then what are you seeing with other peers in this space that may be pressuring Malibu? You know, demand at your dealership. 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 action? Yeah, we have seen that especially during the fall.
Jack D. Springer: I think if we look across the entire land, and Rayne, OEMs and dealers had too much channel inventory on hand. So it's been a promotional environment for our dealers. You know, they're locked into a promotional environment.
Jack D. Springer: And I think, you know, 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.
Jack D. Springer: We would expect to continue to see that. Thanks. And then just one last question. I know it's probably a little early.
Jack D. Springer: But with the expectation that we could see rates come down in 24, what are your dealers hearing from potential buyers? Are they likely willing to get ahead of the rate declines by buying for this voting season, obviously adjusting their loans later, or do you think they're more likely to wait until lower rates actually become a reality before pulling the trigger?
Jack D. Springer: No, I think that's what we're seeing in the boat shows, Frankly. You know, you think about the entire retail environment; it has been soft, more promotional, and I think dealers have had some success. What we're seeing today is the dealers, at least at the boat shows, are coming back willing to buy. Our dealers, I believe, are doing a great job from an F&I point of view of trying to get the lowest interest rates they possibly can, using the numerous resources that they may have. You know, as we look at the environment, depending on the banks and the various entities that you talk to, I think, generally speaking, the expectation for 24 is two to three rate decreases, 100 to 125 basis points over the course of the entire year, primarily falling in the second half of the calendar year. And the consumer is not waiting for rates to go back to zero. I think there's a realization that they're not going to be there anytime 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.
Jack D. Springer: I think that helps the market come back, and it will come back. Perfect. Thanks, Jack. Thank you. Our next question comes from Joe Altobello from Raymond James. Please go ahead with your question. Thanks. Hey, guys. Good morning.
Joe Altobello: A couple questions on the guidance. 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? It really hasn't, Joe.
Jack D. Springer: I mean, if we did a comparison against Q4 of 2020, there would be a difference from a cost perspective in that we shut our plants down for six weeks. And so, you know, we are going to continue to invest, we're going to continue to run the company, and prepare for everything to downturn. So we're not shutting down completely, and that's what I would tell you had a significant impact on it being different than now. 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%. So, it's about 500.
Joe Altobello: I mean, I think that's fair, but I think that's just continuing operations and reality. Okay. And then maybe, you know, in the second half, you know, the margin decline you're looking at, how much of that is coming from higher promotion?
Jack D. Springer: You know, the promotional activity is largely at that bigger level. As 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 help our dealers from a promotional aspect, but largely it falls on them. And, you know, they're coming off of a two to three-year environment where the margins were extremely high. And so they're, their pencils have sharpened.
Joe Altobello: Okay, great. Thank you. Our next question comes from Jaime Katz from Morningstar. Please go ahead with your question. Hi. Thanks. Good morning.
Jaime M. Katz: I actually want to carry on with that line of questioning on the flexible cross-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 the magnitude of the change, is it that 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. Thanks. Yeah, I think a couple of things you pointed out are accurate.
Jack D. Springer: You did see a change very, very rapidly of moving from... A high wholesale production environment to a low general inventory flipped very quickly. The softness of retail occurred, but you know, 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 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 are appreciative right now because they don't want it to be historic channel inventory. They would like to be, at least for a little while, Yeah, and from even a margin perspective, it's not really a complicated story.
It really is fixed costs, the leverage coming down; we are still seeing, year to date, and expecting to see for the remainder of the year, our variable costs 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 the Euclid to March and decline. Yeah, one other thing that I'll point out too, Jamie. I think it's really important to understand.
Jack D. Springer: We have a long, long history of driving the margins with Malibu, and the differential between the Malibu entity, Malibu access margins, and Cobalt, Pursuit, MBG is 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 Thank you. That's really helpful. And then 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 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?
Jaime M. Katz: I think you nailed it. I think you nailed it. That's exactly right.
Jack D. Springer: And that's what we're positioning for. What I'm saying is people are being very responsible with channel inventories, and that's what we're hearing from our dealers. 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, you know, uh..., being as responsible as we are, but we thought we had to accept the challenge. Bye.
Thank you. Our next question comes from Brandon Roll of D.A. Davidson.
Jack D. Springer: Please go ahead with my question. Good morning. Thank you for taking my question. Just on your updated guidance, what gives you confidence that you have 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? I would tell you it's a conservative guy.
Jack D. Springer: We had, as you can imagine, we've had a lot of discussion about it. There is not any upside baked into the second half of the year for us. So that would be, you know, welcome, certainly, but there's nothing to say built in. We believe that this, as we say, is conservative and that, you know, if we see some positive tailwinds, it'll be good. All right, thank you.
Thank you. And our next question comes from Noah Zatkin from KeyBank Capital Markets. Please go ahead with your question. Hi, thanks for taking my question. Most of them might have been asked and answered already. But just wondering, just in terms of capital deployment, particularly in terms of maybe, you know, greenfielding, or acquiring a pontoon brand, has anything kind of changed there? And maybe any updates around that process?
Well, I'll maybe let Jack comment on the pontoon, but from a capital allocation priority standpoint, our capital allocation priorities haven't changed. We personally look upon organic growth initiatives such as the Rowan County, Tennessee facility. We have an active share buyback program, and we're always on the lookout for M&A opportunities. 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. Yeah, Brandon, commenting on pontoons, I guess M&A in general, you know, pontoons have been something we've talked about. I've been consistent, we've been consistent on this, we would much rather make an acquisition than a greenfield, but that greenfield is absolutely an option for us. Expanding it a little bit is, you know, the market with what we're dealing with, I think that prompt They want to go through this process.
Jack D. Springer: And so we're seeing more activity, and it's across the board. So I would tell you that from an M&A point of view, we are paying a lot of attention not only to bonding with it, but we're paying a lot of attention to the outboard, saltwater outboard market, and categories like that that we're not in today that we could get into. Thank you. And our next question comes from Fred Whiteman from Wolf Research. Please go ahead with your question.
Hey guys, good morning. I just wanted to come back to the mix question. As it was pointed out, Malibu access 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 D. Springer: You know, we see it probably trending down a little bit 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. 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, at the New York Boat Show again. And so I think from a freshwater perspective, they're going to continue to capture more of the brand share. And then we expect saltwater to be a little bit stronger than the amount of action.
Jack D. Springer: That makes sense. And then 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? No, it was versus Q2, so slightly lower than that.
Perfect, thank you. 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. Thank you very much.
Jack D. Springer: Despite the salt in retail demand and being in our slow season, we continue to see success at our year-end sales events and the boat shows, a testament to our durability as a 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 happen. Our strategic planning, operational excellence, and supply chain management continues to support our margin of stability, and our vertical integration has enabled us to remain resilient.
Jack D. Springer: Despite the challenges, we remain optimistic as we look at 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 11. Not only driving recovery, but capturing market share and exiting the downturn even stronger than before.
Operator: As I always do, I want to thank you for your support and for joining us today. Have a great day. Ladies and gentlemen, this concludes today's conference call. We thank you for participating. You may now disconnect your line.