Malibu Boats Inc (MBUU) 2018 Q3 法說會逐字稿

Good morning, and welcome to Malibu Boats Conference Call to discuss Third Quarter Fiscal Year 2018 Results.

(Operator Instructions) Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Malibu Boats.

And as a reminder, this call is being recorded.

On the call today from management are Mr. Jack Springer, Chief Executive Officer; Mr. Wayne Wilson, Chief Financial Officer; and Mr. Ritchie Anderson, Chief Operating Officer.

I will turn the call over to Mr. Wilson to get started.

Please go ahead, sir.

Thank you, and good morning, everyone.

On the call, Jack will provide commentary on the business, and I will discuss our third quarter financials and outlook for fiscal 2018.

We will then open the call for questions.

A press release covering the company's third quarter fiscal year 2018 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 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 and adjusted fully distributed net income.

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.

Thank you, Wayne, and thank you for joining the call.

Q3 was an outstanding quarter for Malibu.

We delivered the best performance in the company's history with net sales, unit volume, adjusted EBITDA and an adjusted fully distributed earnings per share exceeding our internal expectations.

Net sales increased 82% to $140.4 million, adjusted EBITDA increased $28.5 million or 70.1% and adjusted fully distributed earnings increased 81.6% to $0.89 per share.

We continue to perform well with strong results each quarter.

Malibu and Cobalt performed extremely well.

As we planned, the first half of this fiscal year had slower Malibu U.S. unit growth to keep channel inventories healthy and in the second half that unit growth is increasing.

The third fiscal quarter saw exactly that, exactly what we've been telling you would occur.

Malibu for the quarter saw a 12.6% unit growth increase over Q3 fiscal year '17, bringing the annual unit growth rate to 7.2%.

Based on boat show results, warranty registrations and dealer confidence, demand supports this growth.

I will also point out that we do not have any constraints in supplying demand for the rest of this model year or into the beginning of the new model year.

Now let me provide some color on the overall market.

The U.S. Performance Sports Boat segment continues to be very robust with more room to run.

In calendar year 2018, the market is expected to be approximately 10,000 units, which remains well below our peak volume.

Further, we anticipate retail unit volume growth in 2018 to be at similar level to the prior year.

We saw retail unit growth volumes grow at 7%.

Turning to Cobalt's addressable markets.

As we mentioned on the last call, most of Cobalt's product competes in the 21- to 23-foot range and the 24- to 29-foot range, which represent more than 60% of the total unit retail sales and grew roughly 5% in 2017.

In a competitive market, Cobalt is exceeding our expectations and took share, growing more than 8% in calendar year 2017.

We expect Cobalt to continue to outpace market growth.

April is the beginning of the prime retail selling season and there are many reasons to feel positive about our prospects.

Consumers are confident in the U.S. economy and tax reform has added a layer of optimism this year.

We have seen that positivity throughout the boat show season.

Consumers were more prevalent at boat shows and they were not lookers, they were buyers.

Our dealers are bullish and their inventories are right where we want them to be for all of our brands.

Boat show attendance has been up with strong demand in several markets.

The boat shows offer a significant opportunity to show off our competitive differentiation through our diverse product lineup and large selection of new models.

For model year 2018, we have an amazing product lineup, including the all new and the industry best-selling Malibu 23 LSV.

This boat is performing well and generating a lot of excitement with dealers and customers.

Also new for 2018 is the Axis A24.

No other boat in the entry-level space can compete with the A24 on a feature and price level, which is why we have seen demand well beyond our expectations.

Our 2 new Cobalt outboards, the 23SC and the 30SC, are entering their first retail season, and we look forward to showing off this premium product.

The new Cobalt A36 is the definition of luxury and customers clearly agree because demand has been robust.

Internationally, we are seeing pockets of improvement.

There have been small gains in Europe and Asia as economies and currencies have stabilized.

We continue to believe that Australia and Canada will benefit from currency rate stability as customers assimilate to what is the new normal for their economies.

While we are only seeing small size of improvement, we continue to believe we are well positioned for the recovery.

We are optimistic about the future of the Marine industry.

Malibu will lead the way as it has for the last 9 years.

We hold a dominant position in the U.S. Performance Sports Boat segment with a market share lead of over 1,000 basis points.

Cobalt is growing and taking share in the prime fiberglass sterndrive categories, which are growing.

This is very important to understand.

Yes, sterndrive as a whole is decreasing, but that decrease is entirely coming in the 20-foot and under and the 31-foot in overlength segments.

That is where all of the decrease is.

Cobalt's core market is the 23- to 30-foot segment, which is growing and where we dominate with what is approaching a 1/3 share of the market.

Our diverse product offering allows us to reach all types of customers.

We have boats in numerous lengths that range from entry level to ultra-premium price points.

Our product development and engineering teams are clearly ahead of the competition as evidenced by our market share, our IP that everybody copies or wants and the demand for Malibu and Cobalt product.

We are the innovators in the industry, leading the way with new features and technology to enhance the user experience.

This is an overwhelming comparative advantage for us, as we are the forerunner for new models each year, which is the key driver of demand.

We have also been applying these advantages to Cobalt and are just beginning to see the benefit of Cobalt's entry into the outboard segment.

This large and growing market provides for a growth opportunity that we are excited to capitalize going forward.

Wakesurfing is the most popular and fastest-growing sport in performance sports boats and sterndrive boats, and we believe in all of Marine.

Malibu pioneered the new generation of wakesurfing with Surf Gate in our integrated surf system.

We are the leaders with the best innovation, the best surf wakes and the most adjustable wakes capable of personal customization to the most minute detail.

Our surf IP is now licensed by 19 other companies.

Cobalt is the leader in surfing in its segment by a very large margin.

We have begun to enhance the Cobalt surfing experience even further and believe significant improvements are on the horizon.

The integration of Cobalt has gone extremely well and continues to be ahead of schedule.

Our operations team has increased throughput substantially while reducing overtime.

Cobalt no longer struggles to consistently meet shipping goals, which has allowed us to begin optimizing inventory in the channel.

The financial results of Cobalt have been better than we expected and there is still numerous opportunities to enhance performance.

I specifically want to recognize the Cobalt team, every single team member, for the acceptance of change and the hard work they have put in to making the integration a highly successful one.

From the leadership to the floor at Cobalt, thank you very much.

Vertical integration is a significant competitive advantage for Malibu.

Vertical integration allows us to build up to 15% more of the boat in-house controlling the entire supply chain, including cost for a competitive advantage.

This is directly seen in our industry-leading margins, which are consistent and no one can approach.

From towers to trailers to stainless and build-it components, vertical integration wins for Malibu and for our investors.

That capability is now in the process of being planned and extended to Cobalt, which will yield further margin growth in synergies over time.

Our vertical -- engine vertical integration is the latest initiative, and I'll provide an update on that.

You may remember we said that this initiative was an $18 million investment that will yield a 3-year payback, and we are confident in those metrics.

We expect over 100 basis points of increased EBITDA margin once we are fully operational.

The initiative has gone very well.

As we originally stated, we will be running Malibu -- marinized engines in our Malibu Boats in model year '19 with near full realization of the performance and savings in model year '20.

We remain focused on executing our core strategy to bring compelling new product to market, maintaining and growing the best dealer network and being the best operator in the marine space.

The M&A environment is robust and activity is high.

But we're committed to being disciplined and strategic with our approach to acquisitions.

Cobalt was the right fit for us, and we only consummated this transaction after looking at multiple targets over many years.

We will not stray from this philosophy.

In summary, Malibu had a monster quarter, the best quarter in company history for net sales, unit volume, adjusted EBITDA and AFDNI per share.

The domestic marine market continues to grow and show healthy growth, which we believe will continue for the foreseeable future.

U.S. dealers and consumers are confident in the economy and that has resulted in good boat show results.

Channel inventories remain very healthy for Malibu and Cobalt.

There are positive signs in some international markets, but it is too soon to say when we will see a full recovery.

Operationally, at Malibu, we continue to excel in operating at high efficiency.

That efficiency is being extended to Cobalt over time.

Our engine initiative is progressing, on schedule and on budget.

And overall, Malibu remains incredibly well positioned going forward with an arsenal of leading positions in our respective categories.

I will now turn the call over to Wayne to take you through the quarterly results in more detail.

Thanks, Jack.

As a reminder, our fiscal year 2018 consolidated financial results include our Cobalt business, an acquisition we completed in early July 2017.

In the third quarter, net sales increased 82% to $140.4 million and unit volume increased 69.4% to 1,786 boats.

The Malibu brand represented approximately 46% of unit sales or 823 boats.

Axis represented approximately 19% or 348 boats.

And Cobalt represented approximately 34% or 615 boats.

Consolidated net sales per unit increased 7.4% to approximately $78,600.

The increase was primarily driven by year-over-year price increases, a higher mix of new and larger models and increases in optional features.

Gross profit increased 70.2% to $36.4 million, and gross margin decreased from 27.7% to 25.9% due to the acquisition and consolidation of Cobalt.

As Jack mentioned, we are making solid progress integrating Cobalt and that has led to improved year-over-year margins in excess of our expectations.

We expect favorable operational initiatives at Cobalt and vertical integration initiatives at Malibu and Axis to continue driving better margins over the next 2 years.

Selling and marketing expense increased 82.4% or $1.5 million in the third quarter.

The increase was driven by the acquisition of Cobalt.

As a percentage of sales, selling and marketing expense was flat.

General and administrative expenses, excluding amortization, increased 31% or $1.9 million.

The increase was driven by the acquisition of Cobalt, offset by reduced legal expenses.

As a percentage of sales, G&A expenses, excluding amortization, decreased about 220 basis points to 5.6%.

Net income for the quarter increased 89.9% to $16.8 million.

Adjusted EBITDA for the quarter increased 70.1% to $28.5 million, and adjusted EBITDA margin decreased about 150 basis points to 20.3%.

Non-GAAP adjusted fully distributed diluted earnings per share increased 81.6% to $0.89 per share.

This is calculated using a normalized C corp tax rate of 23.2% and a fully distributed weighted average share count of approximately 21.8 million shares.

For reconciliation of adjusted EBITDA and adjusted fully distributed net income to GAAP metrics, please see the tables in our earnings release.

We do not provide detailed earnings guidance, but our outlook for fiscal 2018 is based on the following factors: An increase in unit volume of greater than 60%.

This significant increase has been driven by strong demand in our Malibu business as well as operational improvements at Cobalt that have allowed us to better fulfill demand.

With respect to cadence, second half growth will be weighted more to Q3.

From a volume mix perspective, Cobalt is expected to represent slightly more than 1/3 of unit volume.

Consolidated net sales per unit is expected to increase in the mid-single digits for the full year, which reflects an increase from our previous outlook of low- to mid-single digit gains, which also reflects the shift in mix towards higher-priced models and continued higher optional feature selections.

Gross margin is expected to be about 24%, with year-over-year decrease from the inclusion of Cobalt to be felt pretty evenly throughout the year.

Acquisition and engine expenses are expected to be approximately $5 million to $6 million, not including purchase accounting adjustments for asset step-ups.

Adjusted EBITDA margin is expected to be greater than 18%.

Finally, regarding capital expenditures, we are currently planning about $13 million.

That includes expenditures of approximately $5 million related to our engine vertical integration initiative.

In closing, we are very pleased with our third quarter results, which exceeded our internal expectations.

Malibu is set up for a strong finish to fiscal 2018, and we are excited to build on our progress going into next year.

With that, we would like to open the call to your questions.

Operator?

(Operator Instructions) And our first question will come from the line of Brett Andress with KeyBanc Capital Markets.

Wanted to start on Cobalt.

I think your commentary there has consistently been better than originally anticipated.

So is there any update you have on that $7.5 million synergy target and the 25% accretion?

I guess, more specifically, what have you realized so far and how do you -- how much you expect to realize by the end of the year?

I'm really just trying to get a sense of how much did you -- how much of that is you guys actually just running the business better versus the hard synergies that you had in mind going into the transaction?

That's a good differentiation, Brett.

I think that if you think about it from a synergy standpoint, we've had both synergies that we have isolated and identified, and we have some synergies that probably wasn't -- were not -- we didn't recognize at the very beginning.

In terms of the synergies and the $7.5 million, I think that overall -- I think we said 4 years.

We are on schedule for that.

I think that probably is still a pretty realistic number, might be a little bit higher over that 4-year period of time.

We are ahead this year, and I think that we will probably finish up a little bit ahead over the year because we have some additional synergies to realize.

The point I will make on that is that the synergies that we have manifested to date are really around the operational and the back office side of the house.

Related to product, related to vertical integration, that has not yet kicked in, and that's what will generate up to that $7.5 million number.

The kind of under -- the discovered synergies that are referred to is the additional throughput that we have been able to put through as a result of the channel inventories.

And so that does come back to operating the company better from an operational standpoint and having the opportunity to put inventory into the channel.

Got it.

That's helpful.

And Jack, I know that preliminary SSI is inherently squishy in the off-season months, but can you help shed a little bit more light on the robust retail demand you called out, I guess, what is your internal point of sales data or internal registration data telling you about your 1Q retail sales and -- versus what we all see in SSI?

And then, I guess, building on that, is there any insight you can give us on the April trends?

I know weather has stolen much of the headlines there.

Sure.

Squishy is a really good word for that, Brett.

There was obviously a lot of consternation about the March SSI data.

We have repeatedly counseled that.

The most recent monthly data is not mature, is lumpy and significant belief in that data is unwarranted.

So -- hence the squishy comments you made.

So first, let's look at the quarter.

If you look at the quarter, according to the SSI data, it's up over last year about 6.2%, very close to the 7% that calendar year finished.

So through 12/31/17, we are right on target in the first quarter of '18.

Secondly, when I look internally, our warranty registrations indicate continued growth.

For the quarter, our warranty registrations are up well over 10% versus last year.

For March, our registrations were significantly higher over last year than for the quarter.

What this says is you generally will have the warranty registrations occur first and the retail registrations will occur after that, and I think that's been further identified as an issue because of the late weather that occurred in the Northeast and other parts of the country.

So we fully expect that, not only for us but for Marine in general, that retail registrations will trend up based on what we are seeing internally.

So we think that March is truly a 1-month abnormality skewed by insufficient data and magnified by the late winter season in certain parts of the country.

From an insight on April, we really do not have much at this point, it is so early on.

It's more anecdotal, which is that the lakes are clearing.

In the last 2 weeks, the Northern States, the ice has come off the lakes and so those boat deliveries are now starting to occur.

And the next question comes from the line of Michael Swartz with SunTrust.

Jack, I think you had touched on in your opening remarks just about capacity and this is something that we continue to hear from dealers that they have an inability to get product.

They will -- obviously, they will have a different take on that, but can you just maybe talk about, at current, what -- I guess, what your capacity is, what utilization is and then maybe at what point would you have to think about expending more capital to build your capacity out a little more?

I'm going to go back 3 or 4 years back.

And if you recall, we talked a lot at that point in time and even showed a number of the analysts, a 3-step phased approach to building our capacity.

And we took our capacity up by well over 1,000 boats.

And so we today -- sitting here today feel very confident that at Malibu we can manufacture 5,000 boats without an issue, and for under $1 million, they can go to 6,000 boats.

So we have no long-term capacity constraints.

We also have no long-term -- or short-term capacity constraints.

If dealers come to us for the next month and they say that they need additional boats, we'll be able to get them to them.

We are not in a situation where in the first quarter we are going to have an issue.

And I bring that back to a core competency that we have and that's our operational excellence.

If you are good from an operational standpoint, you are able to plan and you are able to build that capacity so that you can meet demand.

So we feel that we are well positioned for whatever number of orders might come to us.

Okay.

That's very helpful.

And then just maybe following up on Brett's commentary around the -- some of the synergies or cost savings expected from Cobalt, I think on the -- in your remarks, Jack, you pointed to some -- sounded like incremental verticalization opportunities in Cobalt.

I'm just wondering if that's right, are they incremental?

And then two, would that be embedded in that $7 million number that you've outlined for us?

The synergies have been embedded in the $7.5 million number.

We really have not started realizing those incremental synergies yet.

And quite frankly, over time, as we go up 3, 5, 7 years, there will probably be more synergies that come into play over time.

So we feel good about where we are at today.

We feel like we are ahead of schedule, and we think the $7.5 million is very, very realizable.

And the next question comes from the line of Tim Conder with Wells Fargo Securities.

Just a couple here to follow on.

I'll stay on with Cobalt theme first.

How do you see at this point given where things are tracking there with the integration, the throughput?

How do you see -- any change, I guess, in looking to expand the dealer network with Cobalt, number one?

I know, again, you were looking for specific areas there rather than just a mass expansion.

And then from the engine perspective, you gave us a little bit of color there.

Any opportunities -- incremental opportunities, I know you've got to walk before you run, but that you're seeing, hearing, developing over last 90 days on the engine side?

And then for Wayne -- (inaudible) question to Wayne here.

Anything related to steel and aluminum, transport cost, Wayne, any issues there, pass-through and impact to margins that you see here over the next year?

So I'll start and then turn that last question over to Wayne.

We realized at the very beginning that Cobalt had a great dealer network, very much like Malibu.

And I think at that time it was 70% of Cobalt dealers were either #1 or #2 in market share.

That said, there are always opportunities, and we've just recently engaged the sales summit and we've identified some of those opportunities.

And so we think that there are some white spaces that we can certainly develop at Cobalt that we do not have a dealer within that particular territory today.

But I think that there are some other things that we can do in terms of sales training with our dealers at Cobalt.

And also really, as you know, I'm big on exclusivity, and so that is an area that I think that we need to improve on at Cobalt and make sure that our dealers are fully devoted to Cobalt to the extent that they can be.

So I do see dealer or distribution opportunity at Cobalt.

The engine side, as I said, has gone very well.

And I wouldn't really identify anything incremental there that I would point out.

We firmly believe that the 3-year payback is going to happen.

We think that we will be delivering an extremely robust, quality-driven engine that is easier to service for our customer and ultimately, it will prove to be a competitive advantage for us.

And on the third question steel, aluminum and transportation.

Yes, we are seeing some cost pressures there.

You got the tariff talk.

You have the electronic logs on the transportation side and capacity issues, I think more broadly in that industry.

There is a little bit of pressure.

I think our market has been a very stable and rational pricing environment.

And so while there is a little bit of cost pressure, we're always dealing with some type of cost pressure.

This is just a little bit more of headline.

In terms of its overall size, in terms of our cost, infrastructure, it's not overly large.

We think that, one, we will be able to take pricing to offset it.

And frankly, we are doing all these things at Cobalt.

We're talking about synergies, we are doing the engine vertical integration initiatives and all these other things to help drive margin as well.

So I think we're consistent and have been consistent and will continue to be consistent in terms of the -- and the future margin profile of the businesses is positive.

The next question comes from the line of Gerrick Johnson with BMO Capital Markets.

I have three questions.

First, can you provide gross margin for legacy Malibu business?

What would that look like year-over-year if you exclude Cobalt?

Two, did the hurricane affected areas of Houston and Florida hurt or help in the quarter?

And lastly, the sale of Sea Ray and the uncertainty there with dealers, does that help you gain some dealer share with Cobalt?

Thanks, Gerrick.

All very, very good questions.

Wayne, do you have the first question?

Yes.

So we don't provide that specific number.

What I would tell you is, it was up -- high -- not triple digits basis points, but approaching triple digit basis points.

So call it meaningfully up.

So on the hurricane question, Houston is a smaller market being in the Gulf Coast state in the Performance Sports Boat segment.

And so I wouldn't say it was meaningfully impacting us.

I think the total market is about 50.

So if you're up 10%, that's only 5 boats.

So we saw a couple of sales through that boat show season, but nothing of a huge magnitude.

On Sea Ray, that's been a very interesting dynamic going on.

I think that there probably are some distribution opportunities a dealer network cannot help, but be at the very least concerned.

And then secondly, given that Sea Ray is a competitor with Cobalt, I think that over time that will prove to be an advantage for Cobalt.

And the next question comes from the line of Joe Altobello with Raymond James.

So first question.

I want to go back to ASPs for a second.

Just curious, how the $78,600 number compare to what you guys are expecting internally?

It was a little bit higher, Joe.

I think what we're seeing is, and I mentioned it in my remarks, that A24, that's the largest length boat in the Axis brand, has performed extremely well.

And generally speaking, when you're going to have better ASP when you are selling the larger boat.

So that A24 has driven it.

Secondly, we have seen strength in the MXZ series of Wakesetters.

As you recall, they were new last year.

And so this is their second year, but they have remained very, very strong.

And so that has been somewhat of a positive surprise for us.

Thirdly, the take rate on a lot of our new features and options have been very high, in some cases higher than what we had anticipated.

And you combine all of those factors, and that's what has driven the ASP growth.

And I would just add to Jack's commentary there in terms of the increase in the mix on the Cobalt side, it has a slightly higher ASP and that ASP also has been stronger than we anticipated.

So that layered on top of what his commentary on the Malibu side is that shift in ASP.

Got it.

And then secondly, on the gross margin, obviously, a little more constructive this morning, despite the fact it looks like Cobalt is going to be a little bit more of your unit production this year, what's driving that?

Is it more on the Malibu side or more on the Cobalt side?

Both.

Yes, it's both.

Yes, yes, it's pretty -- it's being...

Yes, and it's being driven across the board.

The Malibu business is very strong as well as Cobalt is significantly outperforming the operational initiatives that we put in place.

To Jack's point earlier, the team out there, Ritchie and the folks here working together with them has been a very powerful factor in terms of improving the margins there as well.

Okay.

Just one last one on international.

Why hasn't Canada and Australia improved as much as Europe and Asia has, you think?

Well, Europe is a longer-term market.

I mean, it's been around for a number of years.

It's still very heavily ski weighted.

So you have that wakesurfing phenomena that's just now hitting Europe and wake boarding is also pretty popular.

When you look at Australia, you have a very confined country of 25 million people.

And so the growth dynamics that can occur in Australia are not that large.

And so largely, regardless of the economies, I think that we're going to see Australia be very consistent year-over-year-over-year.

Canada, we are still dealing with currency that as of this morning was $1.28.

And we have seen some movement and some confidence and getting used to that new economy, as I put it earlier, but currency continues to be somewhat of a headwind.

On the positive side, the oil and gas prices, which are the barrel of oil price, frankly, that's going up, it's not paid any dividends yet.

So if that hold, we believe that Western Canada will see optimism be influenced in terms of additional boat sales.

And the next question will come from the line of Rommel Dionisio with Aegis.

Just a follow-up on the earlier question about ASPs.

Just from a bigger picture perspective, obviously had some successful product launches on the Malibu Boats side on the premium end that's helping drive product mix.

But do you guys get the sense that the market overall is seeing a better performance on the premium end?

For some years, it's been the entry level that had been growing so quickly.

So I wonder if you can just comment on that please.

I think it's pretty consistent across the board.

We are seeing new customers into that entry level, and I think that tax cuts have helped drive that certainly.

The general overall economy and the employment rate have driven that.

But to your point, I think that we are seeing that premium side being driven as well, but I'm going to point to a little bit different factor there, and that comes back to the length.

What we largely have seen over the last 3 or 4 years is that people are buying boats that are larger.

That in turn will kind of drive the premium concept and drive the ASP, and we think the market will continue to go larger.

And I also think that the optional feature selection, it is a meaningful number.

And really, what you're seeing is across the board, whether it be on the Axis or the Malibu side, there is more optional features being selected.

So I think that's a sign of the positive market more broadly.

And our next question comes from the line of Eric Wold with B. Riley FBR.

Just couple questions.

Following up on kind of what you're seeing kind of on underlying trends of consumers, I guess, at and kind of since the boat shows, obviously, nice move up in ASPs, both from mix and price decreases and kind of willingness to kind of move up in technology and features, how would you characterize -- outside of Malibu, how would you characterize what you're seeing in the competitive front around promotional activities?

Remaining relatively tame around the industry or are you seeing anything creep up around there?

And then the second question is, kind of what are your thoughts you're seeing on the trade-in kind of trade-up market evolving now that we're kind of, well 10 years plus the recession, any noticeable change in those trends?

Or do you think there's kind of a pent-up demand possibly as those people start to look to trade in?

I think, Eric, that ultimately demand is strong.

And so that in turn has put an environment in place in which we're not seeing any abnormalities in the promotional environment.

I think that ultimately that is good for all of Marine and certainly the competitive spaces that we deal in.

Both on the Malibu and the Cobalt side, we think that our competitors are behaving rationally at this point.

And hopefully, they don't do anything like put too much inventory into the channel.

As it relates to the trade-in and trade-up, what I would say on that is, if you think about how far it went down, 70%, and we were 2 years late -- 2 years later, I will put it that way in the trough.

So we are still in a dynamic in which that used boat inventory is significantly low and our belief is that we're going to stay in this current cycle from a used versus new inventory level until 2021, '22, '23, somewhere in that time frame before it can ever catch up.

And so to that end, we think that, that cycle of trading up into a newer boat is a very positive dynamic for us.

And I'm showing no further questions at this time.

I'd like to turn the conference back over to Mr. Jack Springer for any closing remarks.

Thank you.

Malibu had a great quarter, and we're encouraged about our continued growth for Malibu and also for the Marine industry.

We will continue to leverage our competitive advantages and operational efficiencies for premium performance.

I want to thank you for joining today's call.

Have a fantastic day.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude your program.

You may all disconnect.

Everyone, have a great day.