Malibu Boats Inc (MBUU) 2020 Q1 法說會逐字稿

Good morning, and welcome to Malibu Boats conference call to discuss first quarter fiscal year 2020 results.

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

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 first quarter financials and outlook for fiscal 2020.

I will then hand the call back over to Jack for closing remarks.

We will then open the call for questions.

A press release covering the company's first quarter fiscal year 2020 results was issued today and a copy of that press release can be found in the Investor Relations section of the company's website.

I also want to remind everyone that management's remarks on this call may contain certain forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking, and that actual results could differ materially from those projected on today's call.

You should not place undue reliance on these forward-looking statements, which speak only as of today, and the company undertakes no obligation to update them for any new information or future events.

Factors that might affect future results are discussed in our filings with the SEC.

And we encourage you to review our SEC filings for a more detailed description of these risk factors.

Please also note that we will be referring to certain non-GAAP financial measures on today's call such as adjusted EBITDA, adjusted EBITDA margin, adjusted fully distributed net income and adjusted fully distributed net income per share.

Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in our earnings release.

I will now turn the call over to Jack Springer.

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

The first quarter was another exceptional quarter for Malibu as we continued to deliver strong results and exceeded expectations.

For the quarter, net sales increased 39% to $172.1 million.

Adjusted EBITDA increased 24% to $28.4 million and adjusted fully distributed earnings increased 24% to $0.83 per share.

Our industry-leading new product innovation and unwavering commitment to operational excellence continue to set us apart from the competition.

Our model year 2020 products have been incredibly well received by both our dealers and our customers and are clear -- are a clear example of the best-in-class performance and technology that we continue to bring to market through our robust product portfolio.

The agility of our business and team has enabled Malibu to mitigate some of the industry noise created by higher channel inventories and a choppy retail environment and a vertical integration strategy, strength of our supplier network has enabled us to mobilize quickly well unforeseen events like the UAW strike materialized with GM.

I personally could not be proud of our organization and our team as it continues to demonstrate the market leadership that you have come to expect from Malibu.

Moving to our results for the quarter.

As I mentioned on our last call, the Malibu and Axis brands have brought to market 4 completely new boats this model year, showcasing the innovation of the brand.

As you recall, the Malibu Wakesetter 23 MXZ, the (inaudible) mix of luxury and water sports performance was introduced in July.

While a new Malibu Wakesetter 20 VTX, the greatest selling crossover boat in water sports history and the Axis A20, an engineering marvel, which provides an impressive combination of value and performance were announced and introduced in August.

In October, we announced the release of our new flagship model the Malibu M240.

This boat was engineered with innovation throughout, starting at the bow with a new design for enhanced passenger comfort.

This model includes luxury and also includes an incredible amount of convenience features from the all-new Malibu Command Center to our patented Flip Down Swim Step.

As you know, our ability to deliver uncompromising performance to our customers is what truly differentiates our brands, which is why the M240 is powered by the new Malibu Monsoon LT4 supercharged V8 engine and contains a number of innovative performance features.

One of these features is our new Stern Turn, which allows for incredible control of the boat at the touch of a button as it provides maneuverability through tight spaces and the ability to stop quickly.

This feature integrated with a proprietary Power Wedge III allows for tighter turns and reduce the time it takes to pick up a rider by 30%, providing greater fuel efficiency and delivering more time for action on the water.

This boat truly exemplifies the innovative and iconic Malibu brand.

Cobalt also continues to perform very well.

While there has been a contraction in the overall sterndrive segment, Cobalt has continued to outperform the 23 to 30-foot segment link and remains the market share leader in the comprehensive 20 to 40-foot sterndrive segment.

In the back, we have grown our market share in every segment and in the critical 23-foot to 30-foot segment, our market share is now nearly 35%.

As we continue to work towards integrating our highly successful Malibu new product development model at Cobalt, we will bring a large number of new boats to market over the next 30 months in the focus categories of sterndrive, surfing and outboards.

To that end, we introduced the A29, the newest model in our A Series of Cobalt boats.

This boat provides a suite of advanced technology and convenience features, including a fully powered and patent-pending Splash & Stow inflatables management system that will be a huge hit with families.

Splash and Stow enables owners to readily deploy, retrieve and store their water recreation devices and is a convenient way to enjoy the latest generation of inflatable rafts, paddleboards and floating cabanas.

In addition to the A29, we will also have another new boat coming out in the second half of the year, which we will be excited to tell you about very soon.

Our production capacity expansion at Cobalt remains on track as we recently brought additional square footage online in October and continue to be on schedule with each of our capacity expansion initiatives there.

Pursuit continues to exceed our expectations.

As you will recall, one of our initial objectives was to maximize value of Pursuit in expanding the manufacturing capacity.

I am very pleased with the progress that we have made on that initiative.

Just breaking ground on our 182,000 square foot facility in August, we made tremendous progress and remain on schedule to bring the new factory online and begin producing boats by early fiscal 2021.

The will allow us to expand production and distribution by maximizing unit sold and margins.

Given the additional manufacturing capability in the expanded dealer network that our production capacity initiative will bring to Pursuit, we are rapidly moving toward implementing the new Malibu product development process at Pursuit.

This will consistently bring 3 to 4 new boats to market every year.

We know that product development is 1 of the critical pillars to our success, and we remain focused on integrating our industry-leading innovation and operational expertise at Pursuit.

As you've heard me say many times, our vertical integration strategy sets Malibu apart, allowing us to control the entire supply chain, control quality, generate synergies across our brands and drive overall growth and profitability.

In July, we brought to market our latest vertical integration initiative, which incorporates our own flooring into all of our Malibu and Axis boats.

This integration has gone incredibly well and will eventually make its way to Cobalt and Pursuit, providing further evidence of our ability to cross integrate our dynamic innovation within each of our brands.

While it is not our largest vertical integration initiative by scale, our flooring integration project provides a very attractive profitability profile and gives the customer greater optionality and flexibility.

In addition to our flooring vertical integration, our Malibu Monsoon engine initiative is also a substantially competitive differentiator for our brand and has been completely integrated into 100% of our Malibu and Axis boat since July 1. That said, the manufacturing of our Monsoon engines was recently impacted by the UAW strike, which far outlasted anyone's expectations as the longest GM related strike in 50 years.

We successfully navigated through it with no impact to our annual production plan.

As many of you know, GM supplies the engine box for our Monsoon engines.

And as a result, we moved quickly to mitigate any impact on our production capabilities.

I am pleased to say that due to our team's agility and strong supplier relationships, we were able to secure additional engines without missing a beat.

We view this as an important insurance policy to protect our company, our dealers and our employees.

As a result of our efforts, Malibu is prepared to withstand a prolonged strike.

There will be a cost to that.

The engines were sourced at a premium and we will be aggressive to work through that inventory.

Despite the cost, we believe that our ability to procure this supply demonstrates our operational prowess to protect our business for the long term.

Further, our strategic view and execution allowed us to strategically address the slightly elevated inventories we talked about last quarter.

We moved quickly in late August and early September to accelerate sales, bringing our inventories down to appropriate levels and positioning us incredibly well for model year 2020 and the upcoming boat shows.

Our prudent inventory management is also a strong tailwind for our model year 2020 product portfolios, our dealers have sold through much of their 2019 inventory and are positioned very well for the boat show season.

While we remain very well positioned to continue to execute through any changes in our environment, we are aware of the continuous noise in the market from retail choppiness to concerns of a potential cycle change.

As we have stated previously, we do not believe downturn is imminent.

We continue to believe that the 2020 election cycle plus 1 year is the next potential down cycle, depending on whether we have a pro-business environment or not.

The key economic indicators we monitor continue to support our view of the strength of the U.S. consumer today as the unemployment rate in September fell to a 50-year low of 3.5%, signifying an increasingly strong labor market.

Even more telling is that all 50 states continue to have a positive GDP with many solid marine states leading the way.

While our outlook for the marine industry and broader economy remains constructive.

I would like to reiterate our confidence in our ability to maintain our margin structure through a normal downturn scenario.

In the economic downturns we experienced prior to the Great Recession in 2008, the industry experienced a 20% to 30% unit decrease, which quickly recovered within 2 to 3 years from that decline.

In a normal downturn of a similar nature, we believe we will be able to maintain gross margins in the range of 20% to 24% and EBITDA margins in the mid-teens with a quick acceleration to above 24% gross margins and near 20% EBITDA margin upon a cycle recovery.

Additionally, our industry-leading vertical integration strategy which brings more of our manufacturing in-house that provides a competitive cost advantage drives confidence in our ability to outperform our competitors in the event of an economic slowdown.

In summary, we are confident in our ability to drive superior performance as we move through fiscal year 2020 and beyond.

Our product innovation and strong execution continues to set us apart from the pack.

We believe that we are in an excellent position to drive value for all our stakeholders.

In summary of our quarter, our first quarter was another very strong quarter for our business.

New product development and operational excellence initiatives enabled us to outperform and set us apart from the competition.

We have positioned our channel inventory at an attractive level for upcoming boat shows.

Our unparalleled vertical integration strategy continues to drive innovation and increasing competitive differentiation across all of our brands.

The agility of our team, our operational expertise and focus on superior execution will allow us to continue to further our leading positions in each markets we serve.

While an ongoing level of uncertainty remains within the macroeconomic environment, we remain bullish on the strength of the U.S. consumer today.

Malibu remains strongly positioned going forward to continue to drive growth and increasing profitability and deliver long-term value to our shareholders.

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

Thanks, Jack.

In the first quarter, net sales increased 39.4% to $172.1 million, and unit volume increased 13.9% to 1,727 boats.

The Malibu and Axis brands represented approximately 58.7% of unit sales or 1,014 boats.

Cobalt represented 33% or 570 boats and Pursuit made up remaining 143 boats.

Consolidated net sales per unit increased 22.2% to approximately $99,600, driven by the addition of Pursuit models, which carry a higher average selling price compared to our other brands as well as year-over-year price increases and an increased mix of larger boats across our Malibu and Axis brands.

Gross profit increased 31.1% to $40 million, and gross margin was 23.2%.

This compares to a gross margin of 24.7% in the prior year period.

The decrease in gross margin is primarily attributable to the inclusion of Pursuit for the quarter.

This is the last quarter where we won't have included Pursuit for the prior year period.

Next quarter, there will be an additional 2 weeks included in this fiscal year as compared to last year.

Selling and marketing expenses increased 44.8% or $1.6 million in the first quarter.

As a percentage of sales, selling and marketing expense increased by about 10 basis points.

General and administrative expenses increased to 18.9% or $1.7 million.

The increase was predominantly driven by incremental expenses attributable to the addition of Pursuit boats.

As a percentage of sales, G&A expenses, excluding amortization, decreased 110 basis points to 6.2%.

Net income for the quarter increased 38.8% to $16.7 million.

Adjusted EBITDA for the quarter increased 24% to $28.4 million, and adjusted EBITDA margin decreased 200 basis points to 16.5% attributable to the inclusion of Pursuit.

Non-GAAP adjusted fully distributed net income per share increased 23.9% to $0.83 per share.

This is calculated using a normalized C Corp tax rate of 23.5% and a fully distributed weighted-average share count of approximately 21.8 million shares.

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

In addition, we purchased approximately 383,000 shares of our stock in the quarter at an average price of about $29 per share.

This represents approximately 1.7% of our market capitalization.

Our consolidated outlook for fiscal 2020 remains unchanged and is updated with additional color as follows.

In addition to our original guidance, we expect to incur costs of up to approximately $3 million over the course of the year associated with the UAW strike.

We believe these costs will primarily impact the second fiscal quarter.

For Malibu and Cobalt, for the full year, a low single-digit percentage decrease in unit volume.

Q2 volumes will be negatively impacted by the UAW strike and be down 5% to 10% year-over-year.

With growth in the back half of the year to reach our annual target.

For Pursuit, unit volume growth should approach 40% for the fiscal year.

As expected, net sales growth in the first quarter was strong.

Consolidated net sales is still expected to grow at a mid- to high single-digit percentage for the full year.

However, Q2 will likely be down a low single-digit percentage year-over-year driven by the decreased volume to the UAW strike.

Consolidated gross margin is expected to be up slightly year-over-year, excluding the impact of UAW strike.

When adjusted, Q2 margins will likely be down slightly year-over-year and increasing in the second half of the year.

Consolidated adjusted EBITDA margin is expected to be down slightly year-over-year, excluding the impact of the UAW strike.

EBITDA margin for the second fiscal quarter will be down about the same amount as in Q1 year-over-year driven by the lighter volume and will recover well in the back half of the year.

Consolidated capital expenditures continue to be expected between $40 million and $45 million dollars and by our expansion of our facilities at Pursuit and Cobalt.

In closing, fiscal year 2020 is off to a great start as we delivered another quarter of very strong financial results.

We remain laser-focused on continuing to execute on our strategic investments to drive meaningful growth and profitability across the business.

We are confident in the strong market positions at each of our brands and are optimistic about the economy and the marine industry.

With that, I'd like to hand the call back over to Jack for some closing remarks.

Now that we had yet another strong quarter is off to a great start to the fiscal year, each of our brands are very well positioned to continue to capitalize on our exceptional model year 2020 product portfolio, and we continue to execute very well on our initiatives.

I will now open up the call for questions.

(Operator Instructions) Your first shift comes from the line of Brett Andress from KeyBanc Capital Markets.

Jack, I was hoping you could elaborate and put some numbers around your retail trends.

Obviously, the industry was coming off of a soft first half.

But I guess, how did the quarter progress for you?

And then building off that, I guess how much of the retail increase do you think was promotional driven versus pent-up demand from earlier in the year?

We had a phenomenal quarter from a retail standpoint.

We were substantially up and substantially grew our market share during that quarter.

It's really difficult Brett to ascertain where how much of that was promotional versus how much of that was new demand.

I do think there was pent-up demand just simply from what we saw in that June time frame.

But if you look at the entire quarter, beginning with July, it started right off the back, offsetting what we saw in June continued through August and September with our -- being in front of our competition and driving inventories down for our dealers certainly had an impact.

And has that continued into October?

Yes.

It has from what we're hearing.

Got it.

And then, Wayne, can you just elaborate a little more on the GM strike impact?

I mean it sounds like something impacting your second quarter.

Is it simply a gross margin impact?

Did you have any impact in the first quarter, are you back to a steady supply.

Just any -- how to really think about that going forward?

Yes.

On a going-forward basis, it did not impact the first quarter.

In terms of -- first quarter came in right on top of where we were expecting the numbers.

And it is primarily impacting the second quarter in the sense that it's -- look, it's driven by -- look, Jack said it, it's a little bit of price premium to acquire that insurance policy and our desire to make sure we move through those as quickly as possible.

And so maybe a little bit of discounting a little bit inefficiency around the factory just given the duration of the strike.

But I mean it should not impact us.

We are getting blocks now.

And so we kind of have our arms completely wrapped around it.

The things been done and we know what the impact is going to be.

And most of that will flow into Q2, there may be a little trail into Q3.

Your next question comes from the line of Michael Swartz from SunTrust.

Could you maybe give us I guess a little more detail or granularity on some of the inventory levels you're seeing out in the retail channel, maybe by brand or geography?

Just anything that stands out.

And then maybe from what you can ascertain the inventory levels of some of competitive brands out there as well, that would be very helpful.

Mike, we've been very focused on where we were at.

And what we did over, call it, a 3-week period in that August-September time frame is we focused on moving for our dealers, model year not to the inventory.

Our goal was to be very clean coming into the boat shows, having model year 2020 product, primarily for our dealers to sell.

We know that there have been other promotions that are out there.

But I can't say that I know where competitors are at.

I hope that they're down.

I don't know that.

I think you still have some segments.

And I'll speak to it on a segment level, that still are pretty heavy in inventory.

I'd point specifically what I'm hearing about pontoons, that's still a pretty heavy environment from an inventory standpoint.

My overall sense, though is that, the performance sports boat segment is better at the end of September than it was at the end of June.

And I do hope that's the case.

Okay.

Then maybe anything -- we've had some larger boat shows the last month or so.

Maybe give us a little bit of color on what you've seen, maybe high level?

And then also around maybe early orders, retail trends for some of your product coming out of those shows?

I think the best way to word it, it is surprisingly strong.

So I'll go back to Atlantic City.

Very good boat show ahead of last year.

Tampa, as you probably know, was delayed around 1 month or so, 1.5 months, was also another very strong show, especially for Pursuit, which we would expect that to be the primary carrier.

But they were substantially up in multiples of units over last year.

The most recent show, which is a huge Pursuit show and lesser for Cobalt, but they also participate in Fort Lauderdale.

And Pursuit had the best Fort Lauderdale show I believe that they've ever had, but it was substantially over last year.

It blew away what our expectations would be for pursuit.

And what is really interesting for us is that there was a lot of concentration on our new product from Pursuit as well as larger boats, which is fantastic.

On the Cobalt side, they slightly exceeded what they did at the -- excuse me, Fort Lauderdale show last year, so we consider that to be successful as well.

Your next question comes from the line of Tim Conder from Wells Fargo.

This is actually Marc Torrente on for Tim.

Just a few questions for us.

I wanted to dig into the inventory situation a little more.

It sounds like you've made some good progress, but there may still be some work to do on the Malibu side.

Could you maybe walk through some of the dynamics at play?

Shipments were up strong in the quarter, while you're still clearing inventory.

Retail also continues to be strong.

So is it really just a function of needing to clear the model year '19 product?

And I guess what does that imply for production cadence through the rest of the year?

We're not changing our production cadence.

We think that it will be the same.

We had said on our last call that the first quarter would be up slightly.

So we executed exactly what we said that we would do.

As I look at the inventories, we think we are in very good position.

I will tell you that I believe and I think we all believe that our inventories are cleaner by far than any other competitor out there.

And so they're set up to -- our dealers are set out to sell model year '20 inventory, which I would always rather have our dealer selling the current year inventory versus trying to get rid of old inventory.

So we think that we're better positioned than any other competitor out there.

Yes.

I mean, Marc, what I would say is that this has always been the plan.

We've always, over the years, managed our production schedule.

The factory is running really smoothly at the throughput that we've been running it at.

And so we made the decision as we walked into the year to continue to run it at that high efficiency.

And so the plan all along is, yes, we've had some growth, but we've had really meaningful growth in retail in Q3 or calendar Q3.

And so that has led to some of the inventory.

But given the implied guidance that we've for those wholesale shipments and where retail that -- that will just continue to keep it healthier and frankly positions up us if anything for upside.

Okay.

Okay.

Makes sense.

And then you repurchased a good amount of shares during the quarter.

You saw some availability under your authorization.

How are you thinking about deployment of that going forward?

I think we're going to continue to be opportunistic with respect to -- I think we saw a great opportunity to buy stock at $29 a share.

And so, I think we'll continue to -- look, we are focused on deploying capital in opportunities that are unique to us and that mantra has not changed, and -- but that was an incredible opportunity to invest in this company and this team that we have here.

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

So first question, I'll stay on the dealer inventory topic for a second.

I think last quarter, you guys had said that you expected to clear out whatever extra weeks of inventory were in the channel by the end of December at the latest.

And this morning, it looks like saying by fiscal year-end, was there a change there?

Or am I misreading those statements?

No.

I don't think you're misreading those statements.

The way we looked at it, we knew at the time what we were going to do in terms of trying to move that model year out of inventory.

I think as we continue to move through the rest of the first half of the fiscal year, the inventories will continue to build for boat shows, but not in an abnormal fashion.

We had -- we did better than we expected with our promotional activity in terms of moving inventory.

So I would tell you that coming into Q2, we are a cleaner than we anticipated that we would have been.

Okay.

Understood.

And then secondly, on gross margins, obviously Pursuit skewed the numbers this quarter.

And I guess this is probably the last quarter, I'll get to ask this, but what was the base Malibu, Cobalt gross margin in the quarter or at least the year-over-year change in that gross margin?

it was close to flat in the quarter.

Okay.

And just one last one, if I could.

Wayne, I'm not sure you gave us the Malibu access unit breakout.

We did not.

We did not.

I mean, look, I think we've kind of consolidated the segment reporting.

But I think for the most part, it's pretty predictable.

You guys have seen it over time, it really those are in model distinctions.

And so it's literally about a 30 -- it always ranges from 30% to 35% range, right?

So I mean, you plug it in the middle and you're going to be right about the number.

Your next question comes from the line of Eric Wold from B. Riley.

Kind of going to Pursuit.

I guess, now that you have 4 year under your belt, some of the early boat shows now from this year to kind of gauge kind of price appetite.

How should we think about where you think on a baseline average selling price for Pursuit is going to kind of trend out?

And then what's your ability to think to move that higher over the next, call it, couple of years?

I think the -- what we're seeing, Eric, is a very strong ASP average selling price is primarily being driven I think from 2 factors: one, we continue to see an appetite for larger boats; and then secondly, the features and options that are being put on the boats are driving that ASP.

I think that will continue.

We've not seen any degradation in terms of the number of features and options being taken in the early part of this year.

And I think Fort Lauderdale last week was another example of that.

In terms of continuing to drive ASP, we have in our new products that are coming out features that our competitors don't have.

And so we believe that will continue to drive ASP and then the larger boats that focus on going from a 26 footer to a 29 footer to a 32 footer and so forth.

That's not starting to slow down.

We think those are the drivers.

So I know the first quarter, your gauge was a little wonky after the acquisition, given -- or to, given kind of what they had over the last 3 quarters, just kind of range from below of $240,000 kind of on the wholesale side to high $255,000.

How much higher than that can they go as you move into -- in the larger boats?

Yes.

Look, I think that's been a strong outperformance.

That number is going to fluctuate a bit, just given the mix, because the -- with the breadth of the offering, when you start flexing mix around.

If we start getting a whole bunch more volume as we bring this plant online, if that mix shifts down a little bit, you could actually see a little pressure on that ASP, but you're going to be getting a lot more volume.

So I think you really -- I think, one, when you think about modeling that business, I really think you need to think about the revenue opportunity as opposed to trying to isolate that ASP because you may have some impacts of mix and don't want to disappoint folks on the ASP side, right?

The reality is, we're trying to make as much money as possible.

And if that brings down that ASP or pressures that ASP growth a little bit because there's earnings to be harvested with a little bit smaller mix than we're probably going to think about.

Okay.

That's helpful.

And then last question.

I'm assuming it's still relatively early coming out of the June call and boats you're just beginning.

But kind of where do you think kind of dealer sentiment is right now, given now they've got a few months, 4 months or so plus of better volume patterns, inventory is coming down.

Where -- is there a sentiment level from what you've heard kind of with their desire as you move into next year to hold inventory on the lots versus where you may have thought earlier this year?

No.

I'm fortunate to be able to answer that question after having our dealer meeting last week and spending the entire week with our dealers.

There has -- are in a fantastic position.

And going through that late August, early September promotional period and helping them move that 2019 inventory has put them in a very, very optimistic pattern and thought process.

So I think they're looking at the boat show season, welcoming it, believing that they have the right product from model year 2020 standpoint without a model year '19 overhang.

And so I would say, I would say -- I would typically say, rather that they are more optimistic than they have been in quite a while, just from that standpoint.

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

I'm just going to go back and clarify a few things, if you don't mind.

First, on the Q2 impact from UAW.

To be clear, you won't be seeing a slowdown to deliveries just the $3 million impact?

Or will you be shipping more slowly than you previously thought?

We indicated that -- so 5% to 10% decrease on the Cobalt Malibu combined volume for the quarter.

So that is a little bit slower than what we had anticipated.

The operations team is working hard to make that up relatively quickly.

And -- but that is -- we are saying, a little bit lower volume in Q2.

Yes.

And Gerrick, I think it's probably pretty safe to assume that, that lower volume in Q2 will be made up in Q3, but it's absolutely safe to assume and I think I said it on the call today that our production plan will be hit for the year.

Okay.

So it's not necessarily that you can't get the engines.

It's just that it caused a little bit of disruption in your process?

Exactly.

Okay.

And then getting back to Joe's question on the disconnect between your verbal comments on channel inventory, what we see on Page 6 in the marketing pack.

Maybe we need to know or maybe you can define what healthy means that might be helpful.

Yes.

So I think that there's a big disconnect, right?

The reality is that they're a little bit higher than they've been in years past.

But if you look at what we've said and been consistent about is that their wholesale shipments would be strong and get stronger in Q1.

But for Malibu and Cobalt, the answer is they'd be down low single-digit volumes year-over-year, which would imply that in Q2, Q3, Q4 that there's pressure on those volumes for the remaining portion of the year.

That in a growing market, if you have a negative year-over-year comps, the reality of the situation, and you're taking it down, the reality is you're deinventoring even more, right?

It's relatively big math.

So I think the issue is there not really a disconnect.

It's been the plan all along and the answer is I don't know -- saying, hey, look, we're going to be in a position by December.

I think the thing that's probably being misunderstood is that by December, we would be in a position to feel like that plan was going to work out.

And what Jack's comments were along the lines of, hey, look, we got that cleaned up faster than we even thought, right?

But the plan all along, if you go back and look at the call was a little bit strong in Q1 because how we're running the plant and let it naturally bleed down over the course of the year with lower shipment growth in a growing market.

So does that make sense?

Well, kind of.

It's just -- I think it's just a surprise for everyone.

Well, at least for me, I won't speak for everyone.

But for me, to see that you're expecting healthy channel inventory by the end of the fiscal year, it just seems like that's longer than we anticipated that to be.

I mean, we could have cut volumes a whole bunch and got even cleaner and then sat there and started growing more wholesale in the back half of the year and run the plant more inefficiently, but I don't think people want that.

I'm showing no further questions at this time.

I would now like to turn the conference back to Mr. Jack Springer.

Thank you.

Malibu performed very well, and we executed despite surprises like the UAW strike in the quarter.

For now, though, we expect our performance to continue as guided on our last call.

I want to thank you for your continued support of Malibu and for being on the call today.

Have a great day.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating, and have a wonderful day.

You may all disconnect.