Mastercraft Boat Holdings Inc (MCFT) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 Fiscal 2019 MasterCraft Boat Holdings, Inc.

Earnings Conference Call.

(Operator Instructions)

As a reminder, today's conference is being recorded.

I would now like to turn the call over the Mr. Tim Oxley, Chief Financial Officer.

Sir, please begin.

Thank you, operator, and welcome, everyone.

Today's call is being webcast live and will also be archived in our website for future listening.

Joining me on today's call is Terry McNew, MasterCraft Boat Holdings' President and Chief Executive Officer.

Our agenda includes the strategic overview by Terry, followed by my analysis of the financials, and Terry will discuss our updated expectations for fiscal 2019 followed by the Q&A session.

Before we begin, we'd like to remind participants that the information contained in this call is current only as of today, February 7, 2019.

The company assumes no obligation to update any statements, including forward-looking statements.

Statements that are not historical facts are forward-looking statements and are subject to the safe harbor disclaimer in today's press release.

Additionally, on this conference call, we would discuss non-GAAP measures that include or exclude special or onetime items not indicative of our ongoing operations.

For each non-GAAP measure, we will also provide the most directly comparable GAAP measure in our fiscal 2019 second quarter earnings release, which includes the reconciliation of these non-GAAP measures to our GAAP results.

Before turning the call over to Terry, I'd like to remind listeners that there's a slide deck summarizing our financial results in the Investor section of our website.

With that, I'll turn the call over to Terry.

Thanks, Tim.

I'd also like to thank everyone for joining us today.

As you saw from today's press release, during our fiscal second quarter, we continued our track record of delivering record-setting levels of net sales, adjusted EBITDA and adjusted net income, reflecting the successful execution of our growth strategy.

For the quarter, net sales increased 55% to $121.5 million.

Adjusted EBITDA increased 35.6% to $18.6 million and fully diluted adjusted net income per share grew 45.5% to $0.64 per share.

We couldn't be more pleased with the performance of our employees during the quarter across all of our brands, and we'd like to especially welcome and congratulate the Crest employees, whose performance during the quarter exceeded our already lofty expectations for the brand in their first quarter under our ownership.

At MasterCraft, we continue to see strong momentum in the performance of sport boat segment from a retail perspective, with internal registration up significantly year-over-year, which is driving our wholesale demand.

Our dealer inventory turns are at optimal level of entering the boat show season, and we're already seeing growth in orders from some of the early shows.

While still early, we are encouraged by what we are seeing on the retail front at MasterCraft heading into the heavy selling season.

We attribute this strong retail performance to our best-in-class product development, expanding dealer network and continued U.S. economic growth.

From a new model perspective, the introductions of our X24 and X22 have been extremely well received.

Launched in September of 2018, the X22 uses the industry's most advanced wake-making technology to surf up perfect, customizable waves for everyone on the boat.

Launched in June of 2018, the X24 utilizes a new surf-specific haul design, and when equipped with up to 4,300 pounds of ballast, and the Gen 2 Surf System, creates the industry's largest wake that is perfectly sculpted and customized through MasterCraft technology.

Through our industry-leading product design and engineering, we will continue to push the bounds of what performance sport boats can accomplish on the water.

Looking at margins, we have seen some margin degradation year-over-year at MasterCraft, given the timing impact of the new revenue recognition standard as well as our strategic decision to offset a portion of the retaliatory import tariffs impacting our Canadian and European dealers.

We believe our strategic decision to support these dealers provides us with a competitive advantage compared to other boat companies not offering support, as we're providing tariff-free inventory for dealers to sell -- consumers heading into the boat show season and heavy retail selling season.

We believe this investment in our dealers is paying off, and we're seeing strong wholesale and retail orders from Canada year-to-date.

As we have said all along, we do not anticipate these import tariffs becoming permanent, but as long as they persist, they will remain a headwind.

As we move forward throughout the balance of fiscal 2019, we expect the future financial impact of this import tariff support be significantly lower over the second half of fiscal 2019 as our strategy of having tariff-free boats on dealers showroom floors during boat show season has been successful.

Additionally, should the Canadian government decide to retroactively reimburse dealers for those import tariffs when they are removed, this would result in favorable adjustment to MasterCraft.

At NauticStar, we continue to implement significant product development and manufacturing initiatives.

And we are pleased with the results to date.

As we discussed last quarter, fiscal 2019 is an investment year for the NauticStar brand, both in new product and from an operational perspective.

Over the past 6 months, NauticStar has introduced 3 new models, the 195 Bay, the 251 Hybrid and the 32 XS Offshore, the largest model ever produced by the brand.

The market for center console boats larger than 25 feet is growing.

And with NauticStar's new 251 Hybrid and new 32 XS Offshore, NauticStar will have 5 models to attack this growing segment, with future larger models in development.

With these 3 new model introductions, we have effectively tripled the normal product development cycle for NauticStar, and now have the designers, engineers and processes in house to continue to carry innovation and product development into the future.

Similar to what we see at MasterCraft, we believe innovation is a key driver of retail demand in the outboard fiberglass segment.

And we're excited about what these new and future models will do for the brand heading forward.

In order to facilitate this new product development cadence, and especially the larger models, it was critical to undertake a major restructuring of NauticStar's manufacturing facility.

In our fiscal first quarter, we significantly pulled back production to lay out the facility in a way that was more efficient and would allow for the production of larger models.

Given this production pullback, we saw a decline in NauticStar's gross margins, principally attributable to reduced overhead absorption.

Our planned contemplated gradual gross margin increases throughout the remainder of fiscal 2019 as we ramped production back up and realize the benefits of our improved operating efficiencies as well as higher ASPs and higher margins from these larger boats.

We are pleased with the progress NauticStar made in fiscal second quarter, with gross margins 460 basis points greater than in our first fiscal quarter.

We will continue to execute on our growth strategy at NauticStar, which we believe puts us on a path to achieve consistent gross margins in the low 20% range in the future.

Regarding Crest, as I mentioned in my opening comments, we have been extremely pleased with the results from the brand in its first quarter under our ownership.

Crest contributed $25.9 million of net sales or 33% of the growth over the prior year period.

Crest continues to take market share in the pontoon segment, and early results from both shows reflect retail orders that are up year-over-year.

Crest has exceeded our expectations, but we're most excited about the operational and product development initiatives we are working on, that we believe will drive sustainable, profitable market share growth in the large and growing pontoon segment over the long term.

Lastly, we are excited to share more details on our new luxury day boat brand, Aviara.

As you may have seen in our press release a couple of days ago, we will officially debut Aviara at the Miami Boat Show next week with our first model, the AV32.

Aviara is the culmination of years of consumer and industry research, aimed at bringing to market a new and exciting brand that fills the product light space in our portfolio, the growing luxury day boat segment.

With Aviara, we are adding a complementary premium-focused brand that will keep existing MasterCraft Boat Holdings owners in the family even if their boating preferences evolve over time.

Built in our award-winning MasterCraft facility, Aviara owners can expect the same innovation, quality, performance and customer service that defines the MasterCraft brand.

Importantly, we've been able to launch completely new brand in a completely new segment for the company with a relatively minimal amount of capital.

All in, our investment in Aviara from ideas conceptions to start of production will be around $10 million.

While we do not plan to provide additional financial guidance on Aviara until a later time, we believe the incremental benefit we received from Aviara will result in a best-in-class return on investment and lead to strong shareholder returns.

As previously shared, Aviara is not a performance sport boat, and therefore, Aviara will be distributed through a separate distribution network from our core MasterCraft product.

Today, we are excited to share we have partnered with MarineMax, the nation's largest recreational boat and yacht retailer to help maximize the success of this new brand.

We believe this partnership will be successful for both parties, as MarineMax' industry leadership and reputation as a world-class retailer will be instrumental in ensuring Aviara's success from day 1, while Aviara will serve to fill a void in MarineMax' product portfolio.

The AV32 will be available for MarineMax' retailers later this year, with 2 Aviara models available, an outboard and a sterndrive.

2 AV32s will be on display at the Miami Boat Show next week located on Pier 8, slips 828 and 830.

For those of you attending the show, we invite you to join us on Thursday, February 14, at 3:30 p.m.

Eastern time in the Aviara booth for brand launching ceremony.

You'll experience, first hand, this exciting new luxury brand.

Now I'd like to turn the call back over to Tim, to go over our financials.

Thanks, Terry.

From a top line perspective, net sales for the second quarter ended December 30, 2018, rose 55% or $43.1 million to $121.5 million compared to $78.4 million for the year-ago second quarter.

The inclusion of Crest represented $25.9 million or 33% of the overall increase.

MasterCraft's net sales grew $18.2 million or 31.2%, driven by a favorable product mix, price increases and an increase in unit volume, partially due to an extra week of production in the fiscal second quarter, given the timing of the planned holiday shutdown compared to the prior year shutdown.

This increase in net sales was partially mitigated by increased retail rebate expense due to the timing impact from the new revenue recognition standard, as well as by higher sales discounts given to Canadian, European dealers impacted by the retaliatory import tariffs.

As Terry mentioned in his remarks, we made the strategic decision to partially offset the import tariffs for our Canadian and European dealers, which we believe provides us with a competitive advantage heading into the boat show season.

NauticStar's net sales decreased by 5% or $1 million due to lower wholesale units, driven by the scheduled pullback in production as NauticStar's facility is retrofitted to handle new larger boat models being introduced during -- throughout calendar year 2019, offset by an increase in average selling prices, driven by a favorable model mix and price increases.

Second quarter gross profit increased $7.1 million or 35.8% to $27.1 million compared to $19.9 million for the prior year period.

The inclusion of Crest accounted for $4.5 million of the increase, while MasterCraft contributed $3.2 million to the increase in gross profit.

NauticStar's gross profits declined $0.5 million.

On a consolidated basis, gross margin decreased to 22.3% for the fiscal second quarter compared to 25.4% for the prior year period.

The decrease was primarily due to the dilutive effect from the inclusion of Crest, higher warranty expense, the planned decline in NauticStar net sales and higher retail sales incentives due to the timing impact from the new revenue recognition standard and strategic -- and our strategic decision to offset a portion of the retaliatory import tariffs impacting our Canadian and European dealers.

The decrease was partially offset by growth in MasterCraft unit sales volume and favorable product mix and price increases at both MasterCraft and NauticStar.

On the expense front, operating expenses for the second quarter increased $2.7 million or 31.6% to $11.4 million compared to $8.6 million for the prior year period.

This increase was mainly due to the inclusion of Crest, an increase in compensation costs from added headcount to support growth initiatives and start-up costs associated with our new Aviara brand.

These were offset by MasterCraft's annual dealer meeting occurring in fiscal 2019 first quarter instead of the fiscal second quarter as it did last year.

As a percentage of net sales, operating expenses decreased from the fiscal second quarter compared to prior year period to 9.4% of net sales from 11% of net sales, respectively.

Turning to the bottom line.

Second quarter net income totaled $10.2 million versus $8 million for the year earlier period, driven by the inclusion of Crest, continued strong net sales momentum at Mastercraft and reduced tax rates from the enactment of the Tax Cuts and Jobs Act.

Adjusted net income of $12.1 million or $0.64 per share on a fully diluted weighted average share count of 18.9 million shares was computed using the company's estimated effective tax rate of approximately 22.5% versus 29% in the prior period.

This compares to adjusted net income of $8.2 million or $0.44 per fully diluted share in the prior year period.

Adjusted EBITDA was $18.6 million for the fiscal second quarter compared to $13.7 million in the prior year period.

Adjusted EBITDA margin was 15.3%, down from 17.5% in the fiscal 2018 second quarter.

Lastly, given our ability to generate strong free cash flow, we've been able to reduce our pro forma net leverage ratio to 1.6x adjusted EBITDA.

Recall that, at the time of the Crest acquisition on October 2018, we had a pro forma net leverage ratio of 2.1x adjusted EBITDA.

While we believe we have a healthy balance sheet, we will continue to emphasize the payment of debt in the near future.

Please see the non-GAAP measures section of our press release and 10-Q for reconciliation of adjusted EBITDA, adjusted EBITDA margin and adjusted net income to the most directly comparable financial measures presented in accordance with GAAP.

In summary, we are very pleased with our results for the first half of fiscal 2019 and look forward to building on this momentum for the remainder of the year.

With that, I'd like to turn it back over to Terry for our outlook

Thanks, Tim.

Looking ahead to the second half of fiscal 2019 and beyond, we continue to expect strong top line and bottom line growth along with record levels of cash flow generation.

These will be driven by the Crest acquisition, continued strong demand for our core Mastercraft products, healthy dealer inventory levels across all our segments, product development initiatives at NauticStar and the realization of operational improvement initiatives at NauticStar and Crest.

We believe we are executing our growth strategy on all fronts, and coupled with the continued strong economy, we remain well positioned to drive sustainable profitable growth going forward.

For the full fiscal year-end June 30, 2019, we are revising our previously provided guidance given expected higher contribution from our Crest brand.

On a fully consolidated basis, we expect net sales percentage growth to be up in the low 40% range.

Adjusted EBITDA margins are expected to be in the mid- to high-16% range, driven by the higher net sales contribution from Crest, which is dilutive to margins.

Adjusted EPS percentage growth is expected to be in the low-30% range.

For the fiscal third quarter ending in March, net sales percentage growth is expected to be in the low-30% range, reflecting lower growth at Mastercraft compared to our fiscal second quarter due to one less production week, given the timing of our fiscal 2019 planned holiday shutdown compared to fiscal 2018.

This will be partially offset by a higher net sales contribution margin from -- or contribution from Crest.

Adjusted EBITDA margins will be in the 16% range driven by the dilutive effect of Crest.

Adjusted EPS percentage growth is expected to be in the high-teens percentage range.

Now I'd like to turn it over to the operator for questions.

(Operator Instructions) And our first question comes from the line of Joe Altobello of Raymond James.

Just a couple of questions, and obviously I want to focus it here on the margins this quarter.

You guys noted a number of margin pressures in terms of supporting your Canadian, European dealers, the timing of revenue recognition, accounting, et cetera, which one of those, I guess, was the biggest contributor and which one of those was the most surprising to you in the quarter?

The biggest contributor is the...

Tariff support.

The tariff support, followed by revenue recognition changes standards, Joe, and then other changes that we're pointing out in our MD&A.

Okay.

And were those larger than you anticipated coming into the quarter?

Perhaps.

I know that some of the dealers took advantage of trying to get some boats on the ground by 12/31, so maybe a little bit larger than we were expecting, a lot more timing than it was anything, maybe some of it got pulled in from Q3.

But on a full year basis, not surprising.

Okay.

And I get that Crest is dilutive to margins, and I see, obviously, you raised your sales guidance this afternoon, but you lowered your EPS growth guidance.

Is there something else going on beyond the overperformance at Crest?

No Joe, actually Crest does great.

And as we said in my prepared comments, NauticStar gross margins were up 460 basis points in Q2.

As I mentioned in the last quarter's call, we expect that to increase in Q3 and in Q4.

No, as they change, and it's a pretty significant change, mixing and changing to larger products, we have yet one more product released later this fiscal year at NauticStar, but we continue to do well at MasterCraft.

So really, I think, all things are good.

Probably just a little bit less because of the additional anticipated contribution from Crest on a net sales basis.

They're performing extremely well.

And our next question comes from the line of Craig Kennison from Baird.

Just to follow up on what Joe had asked.

Again, your EPS growth guidance is just a little bit lower.

Would you say it's the tariff issue that's incremental?

And maybe an unforeseen costs as of last quarter?

We -- the tariff cost and contribution is certainly the biggest drag and headwind, as I mentioned in the prepared comments.

So I think it's small, but we've extended that a bit longer than we had anticipated, but that's probably it.

Just revenue recognition standard is known and predictable, and there's just a host of other small items.

But probably, just the incremental extension through boat shows for the Canadian and European tariffs.

And then shifting to Aviara, the MarineMax win is just a major endorsement of that product line.

Is that an exclusive relationship?

Or might you eventually distribute through other dealers?

Or could you?

Well, right now and for the foreseeable future, really, it's going to be MarineMax.

There is a possibility to look at other dealers, but I don't anticipate that anytime soon.

They are absolutely a premier dealer.

As you know, Tim and I are at Brunswick for a number of years.

We've got a long relationship with them.

And this is an [open rec tape-out], and they are absolutely the best dealer to represent us with this.

They're equally as excited about it.

And as I mentioned, it builds up white space in their portfolio, really encourage everybody to come by the slips at Pier 8 during the show to see it, the testing and it's been done by third-party riders, and some of our dealers who have seen it just been off the charts, we think it's going to be an exceptionally well-received product.

And from a modeling perspective, how would you expect shipments for that product line to ramp throughout the year?

And what would it contribute in terms of volume and revenue?

As we've mentioned before, we will not start to book revenue until July, that's at the beginning of our 2020 model year, and we're just not providing guidance on 2020 yet.

We will fill you guys in on future calls.

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

A couple of questions.

I guess, one, on the tariffs, can you give us a sense of what the year-to-date margin impacts from those tariffs have been?

It's in the $0.09 per share range on a year-to-date basis.

Okay.

And then on Aviara, what is your plan, I guess, the initial capacity -- production capacity for that?

And is there kind of a breakeven level you can point to in terms of number of units to get to for that brand?

Right.

So we've got available capacity here.

As I mentioned in the prepared remarks, and as you guys know, IndustryWeek Magazine 2 years ago recognized us as the best manufacturer in North America.

So we've got the capacity.

We've got the know-how.

Remember, we used to build Hydra-Sports here.

We've built product up to 42 feet, so we have that capability.

We will release 3 models over the course of this calendar year.

I've mentioned that before.

The first one is our 32, we offered in an outboard and a sterndrive.

So this will not impact capacity growth -- future growth for MasterCraft at all.

We've got plenty of capacity to do that.

We think it's, as I mentioned, it's about $10 million in total investment, G&A and CapEx, to do this.

The payback is going to be within the first year.

Okay.

And then lastly on Crest, now you've got under your belt for a little over a quarter, update us on where you are in terms of driving more production out of that facility and where do you think you could get it to over the next 12 months, both in terms of the increased production and possibly margin expansion?

Yes.

Great people there.

They're taking to our processes in engineering and manufacturing and working capital material control, in particular, extremely well.

Keep in mind, aluminum boats, obviously, are fabricated.

You don't need the tooling.

So they are able to change and they are changing.

They're probably 3 quarters of the way through the initiatives that we've laid out for material control, and we are putting in synchronous flow manufacturing in their assembly process, which is already showing some benefits.

That will have the effect within this second half of the year of increasing capacity and throughput and improving margins.

So very short in process time.

And that aluminum boat Company fabrication in process is probably 2.5 to 3 days, really, really quick.

So no problem.

They're going to have plenty of capacity, they're growing, they're taking market share, we're very, very positive about Crest.

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

I just wanted to touch on Aviara quickly, I don't know how much you're going to give us, Terry, before you laid out maybe your 2020 view.

But I guess, just in terms of -- could you frame the size of how big of an opportunity do you think Aviara is?

Maybe how big that actual unit -- market is in unit volume?

And maybe what you think your fair share would be there over a couple years?

Well, we've mentioned before we'll release 3 new models this calendar year, but other 2 models will be released at the Fort Lauderdale boat show, their 3 models with 2 different platforms, both outboard and sterndrive for each of the models from 30 feet to 40 feet.

It's not only going to fill light space for our MasterCraft Boat Holdings customers who tend to do consumer insight studies.

We know that they tend to leave the brand and their boating preferences change as they become empty nesters.

They will clearly stay into this brand.

We also think it's going to do well and capture market share from adjacent categories, sterndrive and outboard.

Once you see the styling of the boat, and you're able to ride it one day, the performance is exceptional.

The styling is clearly European.

We think it's a home run, so we'll give you those specific numbers and what we think the addressable market in the upcoming calls.

Okay.

And just more of a technical question with regard to how to think about Aviara in 2020 and beyond?

I mean, would you be including Aviara in the MasterCraft segment as you report it today?

Or would you be breaking out a new kind of line item for Aviara?

No.

It will be included in the MasterCraft P&L.

We will not do segment reporting.

There will not be a Brand President that will all report in to myself here at MasterCraft.

Okay, okay.

Fantastic.

And then maybe, Tim, could you just give us a sense, I know you said you had an extra, I think, production week relative to last year, which was part of the reason the core Mastercraft volumes, I think, were up like 32%, 33%.

If, One, how much of that increase does that extra week add?

And should we think about maybe that being pulled from the third quarter, is that how that would flow?

Exactly, Mike.

When I take the effect down, it's around $6 million for that extra week of production.

MasterCraft's net sales for the Q2 was still up 21% even when you take that out.

So I want to make sure you guys understand that MasterCraft's growing over, above the effect of that week.

And so yes, we have embedded that in our guidance for Q3 and moving to $6 million between quarters.

Got you, that's helpful.

And then, I guess, the other question on MasterCraft and with regard to tariffs.

I mean, was MasterCraft the only brand or the primary brand that was impacted by the funding of the tariffs, that activity you did?

I'm just kind of surprised given the 30% growth in unit volume that margins on that business weren't a little better than it were -- I mean, is there a way of looking at how much you spent during the quarter?

Or -- and again, was most of that attributable to MasterCraft?

It is de minimis at the other 2 brands, so it is almost a 100% attributable to MasterCraft and for the quarter, it's in the $0.06 per share range.

And our next question comes from the line of Brett Andress of KeyBanc Capital Markets.

This is Dan Charrow on for Brett.

So I just wanted to touch on some of the core MasterCraft demand.

It looks like the restated registrations data was up well in the double digits for the quarter.

I know that can be variable, but can you talk about how the demand has been at retail?

And which product lines have been driving that?

I want to talk about MasterCraft, first of all.

Our Q1 of this fiscal year was the highest Q1 retail in the company's history and the same thing for Q2.

So that is what is driving the improved terms at MasterCraft and the demand for Mastercraft as well is -- in our segment has been outstanding.

Yes, for Crest, it's good.

I think, I'd characterize it this way, we're holding share at all 3 brands increasing a bit at Crest.

And as Tim said, Mastercraft in Q1 and Q2 experience the highest retail sales in the company's history.

And Crest is just doing an exceptional job.

It had great 3-year double-digit growth as well.

And we're seeing NauticStar, as they shift to the larger boats, because that larger than 25-foot category center consoles is clearly growing.

Got it.

Got it.

That's helpful.

And touching on the core MasterCraft brand.

Some of the ASPs came in a bit lighter than we've seen recently.

Was some of that just due to product mix?

Can you talk about some of the dynamics within that?

Yes.

We typically see that in Q2.

This is a little bit darker.

It's a slower retail quarter of the year.

And so dealers would generally bring boats in a little lightly -- lighter contented, and we've also been helping with different packages with the dealers that they appropriately content their inventory and segregate into 3 or 4 different classifications.

So that was understood and expected.

And don't forget we booked the tariff support as a reduction in sales.

And so, I think, that's a pretty significant reason for the change of the net sales per unit also.

Got it, got it.

Okay, that's helpful.

And one more, I may have missed this earlier, but for NauticStar, it looks like we may have underappreciated the production dynamic there.

How much longer are you planning on that impacting your schedules, and should we expect a similar impact to the year-over-year unit growth going forward?

So again, as we switch to larger models, unit growth -- units will change, we'll guide you on that going forward.

So they -- and they're hitting to their internal plan.

Q2 was up 460 basis points over Q1.

Q3 will be up over Q2.

Q4 will be up over Q3.

So they will get back to expected gross margin levels by the end of this fiscal year.

And in Terry's comment, which was regarding net sales, so again -- once again, as they switch to larger product, they might see a decline in units, I'm not worried about that.

I'm most concerned about obviously, net sales.

(Operator Instructions) Our next question comes the line of Tim Conder of Wells Fargo Securities.

This is actually Marc Torrente on for Tim.

Just a few follow-up questions for us.

Last week, one of your peers called out some recent brand -- value brand weakness in aluminum fishing and pontoons.

Just wanted to hear your take on what you're seeing more recently across the industry, maybe more specifically, out of NXT and Crest?

Yes.

We saw that comment as well, but for aluminum pontoons, Crest in particular, boat show sales are up year-to-date compared to last year, same time frame year-to-date.

They're increasing market share.

Sell-through is great, we're rationalizing the portfolio.

We're actually not seeing any negative impact at Crest at all.

NXT sales are continuing to be strong, our NXT22, that is selling off the charts, and it's been, at some point, over the last year, sold out for periods of time.

Yes.

And I would point out that our NXT is not a value brand.

It's our entry-level part of the Mastercraft lineup.

It comes with the same quality and warranty and everything else.

And so that maybe one reason that we don't see that extra.

Okay, great.

And then on the tariff support, $0.09 year-to-date impact about how much are you expecting the back half of the year?

I know you said that it's going to drop off.

And then if the tariffs are lifted, is there any pent-up demand that you would expect to start coming through?

Yes, if the tariffs are lifted, yes, we could see some pent-up demand.

But the good news for us is part of our strategy of having the dealers with these tariff-free boats in their inventories, we can take advantage of the pent-up demand.

There's not enough time to produce the boats, to satisfy pent-up demand if that occurs, at least not and get it in, in this fiscal year.

Well, might I add to that, Tim.

Marc, we intentionally decided to support the Canadian-European dealers, and I'll talk about Canada in particular, to make sure they have the proper levels of inventory.

In our competitive checks that we do throughout every region of the world, but I'll talk about North America, we think we've got a competitive advantage.

We did help offset that tariff in Canada, but our dealers have proper inventory.

We don't necessarily see that everywhere else.

And so to Tim's point, we have products on the ground, we're seeing strong wholesale and retail in Canada, and we know that we will be able to fulfill that demand come the boating season and the ever important Q4 April, May and June.

If other manufacturers don't have their dealers properly stocked, they may miss that season in large part.

And in regard to the quantity in the second half, it's going to be in the $0.03 to $0.04 range.

So significantly less than what it was in the first half on a per share basis.

Correct.

Okay.

And then also in the international front, could you provide any more color on other major regions in terms of retail that you're seeing, maybe Australia, Europe?

Yes, Australia continues to be strong for us.

Europe with the 25% tariff we anticipated and put in our full year guidance and plans that there would be some reduction in wholesale volume.

It's actually a little bit less than we had planned for.

We're not fully supporting that tariff.

We are partially supporting dealer incentives to offset a portion of that tariff, but Europe is probably seeing the largest decline, but still, we think we're probably stronger, stronger than most other brands in all the areas, especially in Europe.

When I was looking at the dealer inventory at the end of December, I'm seeing turns up, not only in the U.S., but in Canada and the rest of the world, which includes Europe and Australia.

So we're very pleased with how our products positioned.

That's a great point, Tim.

Marc, I would just want to reemphasize, as you know, we watch dealer pipeline inventory every single week.

We do not push product out to our dealers, we definitely want retail demand at the end of Q2, the model year, the first half, global retail, was up in the high 20%.

Also important to note, the $0.03 per share, the $0.03 to $0.04 I mentioned earlier has been contemplated in our guidance.

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

I would now like to turn the call back to Mr. Terry McNew, Chief Executive Officer, for any closing remarks.

Thank you, operator.

And once again, thanks for everyone for joining us this afternoon.

Across the organization, we continue to be well positioned for fiscal 2019 and beyond.

We look forward to updating you on our progress and third quarter results in May.

Thank you.

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

This does conclude the program, and you may all disconnect.

Everyone, have a wonderful day.