Malibu Boats, Inc. (NASDAQ:MBUU) Q2 2023 Earnings Call Transcript

Malibu Boats, Inc. (NASDAQ:MBUU) Q2 2023 Earnings Call Transcript February 7, 2023

Operator: Good morning, and welcome to the Malibu Boats Conference Call to discuss Second Quarter Fiscal Year 2023 Results. At this time all participants are in a listen-only mode. 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, today’s call is being recorded. On the call today from management are Mr. Jack Springer, Chief Executive Officer; and Mr. Wayne Wilson, Chief Financial Officer; and Mr. Ritchie Anderson, Chief Operating Officer. I will now turn the call over to Mr. Wilson to get it started. Please go ahead, sir.

Wayne Wilson: Thank you, and good morning, everyone. On the call, Jack will provide commentary on the business, and I will discuss our fiscal second quarter 2023 financials. We will then open the call for questions. A press release covering the company’s fiscal second quarter 2023 results was issued today, and a copy of that press release can be found in the Investor Relations section of the company’s website. I also want to remind everyone that management’s remarks on this call may contain certain forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking and that actual results could differ materially from those projected on today’s call. You should not place undue reliance on these forward-looking statements, which speak only as of today, and the company undertakes no obligation to update them for any new information or future events.

Factors that might affect future results are discussed in our filings with the SEC, and we encourage you to review our SEC filings for a more detailed description of these risk factors. Please also note that we will be referring to certain non-GAAP financial measures on today’s call such as adjusted EBITDA, adjusted EBITDA margin, adjusted fully distributed net income and adjusted fully distributed net income per share. Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in our earnings release. I will now turn the call over to Jack Springer.

Jack Springer: Thank you, Wayne, and thank you for joining the call. We delivered another great quarter as we move through the first half of our fiscal year. The retail environment remains resilient with strong demand carrying the tide for our premium boats. While we see no worsening of our expected outlook, we are paying close attention to the evolving macroeconomic conditions. During the quarter, we have seen incremental improvements in the lingering supply chain disruptions and are optimistic about our production capabilities and normalizing dealer inventories. We have a multiyear track record of strong execution during periods of uncertainty and remain confident in our ability to execute in any macro environment. Through our unmatched operational capabilities, vertical integration efforts and visionary team, we look to deliver profitable growth and long-term value for our shareholders.

For the second fiscal quarter, we posted strong net sales of $339 million, increasing nearly 28% over the prior year, with adjusted EBITDA growing approximately 20% to $58 million and net income growing 18% to $36 million. Since the beginning of COVID and all of the issues with the supply chain, labor and inflation, the MBI team and all brands have navigated the difficult never before seen environment and have continued to produce stellar results. I want to thank every team member for their focus on MBI, their diligence, their hard work, and capability and overcoming obstacles. You have been fantastic, and I commend you for it. For the second quarter, gross margin declined 180 basis points to 22.3% while adjusted EBITDA margin declined 120 basis points to 17%.

As I mentioned, inflationary pressures and supply chain disruptions have impacted availability and prices on parts and components during the quarter. Despite these challenges, we maintained a stable margin profile in line with our expectations through improved unit volumes and strong ASPs across all of our brands. While inflationary pressures have begun to lessen, as of right now, we expect that we will see a more normalized cost increase structure for FY 2024 pricing. Historically, our second fiscal quarter has been a slower season, but we are seeing positive results coming out of our recent boat shows, which bolsters are confidence in demand remaining strong. Boat show results for 2023 are up considerably over last year, which was the first year back after shows were canceled in 2021.

Cobalt and Pursuit are performing very well and shows are up in sales by over double for Cobalt; and by 39% for Pursuit when measuring unit sales. We also measure revenue dollars for Pursuit and 2023 revenue dollars are up 55% versus 2022 shows. To date, shows of note include Portland, Minneapolis, Detroit, Fort Lauderdale, Newport and Toronto, all of which had good attendance, which shows appearing to be back to historical norms. Two weeks ago, the New York show took place and it was fantastic with great crowds and sales. Cobalt saw a record sales number for that show and pursuit outpaced the New York show results for the previous five years. In all boat shows, we are also seeing a return to normal discounting. As I said a year ago and have been consistent in saying since then, Marine will and is returning to a normal environment and cadence.

Dealers must be in boat shows because they are back. We all need to return to tried and true sales techniques and lead follow-up. Pricing could better be in line. And if a dealer does not have adequate inventory, they will lose. It is important to note that while retail demand has disproportionately affected more entry-level aluminum-based lower-length boats, our customers remain unphased. Speaking for MBI brands and for what we are generally seeing at shows the premium buyers looking to purchase and has not really been affected by economic conditions or interest rates. They are more measured in comparing models and brands because there is not the shortage of inventory that we have seen in the past 18 months. My strong conviction continues to be the household wealth creation over the past three years and the stock market continuing to be strong in sustaining our consumer.

That is why our objective of building a business on premium brands we know we can improve has served us so well and will continue to drive our €“ being the top marine company in existence. Conversely, we are hearing of weakness in the smaller foot link segments in entry-level priced boats. This consumer profile has been impacted the most by inflation and interest rates. Thankfully, that is not our model, and we remain positive on our premium business. Meeting existing demand and building channel inventories continues to be a primary focus and a major tailwind in the quarters to come. While we have seen incremental improvement with lead times decreasing and the ability to source greater quantities of parts, the current supply chain environment is still far from running like clockwork.

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Disruptions are still prevalent for our engine and windshield manufacturers as well as our electronic supplier base, generating inefficiencies in our plants. However, as these headwinds abate, we are confident in our ability to ramp up production volumes, if necessary. Charting a course through these choppy waters, we have made great progress over the quarter to mitigate these challenges. Our unit volumes continue to climb, and we see promising signs for our vertical integration efforts and our production capacity enhancements in our Maverick plant. Today, we are building more boats and more large boats out of this facility, and we expect greater output as we enter the second half of the fiscal year. As a result of these initiatives and the gradual improvement across the supply chain, we have begun to normalize channel inventory across all segments to varying degrees.

Absent a major shift in demand for our retail customers, we expect freshwater channel inventories to be near normal by the end of this fiscal year. Our saltwater brands remain a bit further behind due to pent-up demand and lower production volumes and will likely reach normalized levels in the first half of fiscal year 2024. I will now provide an update on our integration of the businesses we have acquired. As you hopefully know, Cobalt is well down the path and has performed extremely well. We acquired a fantastic brand from a magnificent family, the St. Clair’s. We have improved the brand, modernized it and it has grown tremendously in all financial metrics. The modern lineup is almost completely new in paying huge dividends. We continue to be the largest sterndrive manufacturer in the link space we compete with about 30% market share and we have grown our outboard offerings from Oblivion at 4% share to the number two player in the foot length segment we compete in around a 16% share.

Cobalt equals a home run. Pursuit has built upon success every year we have owned them. The addition of the new plant in 2020 has allowed us to expand the number of boats we build as well as the size of the boat that we build. We have driven the margin profiles higher and higher and we see significant opportunity to grow them further. Again, we have significantly expanded the introduction of new models and that will continue. An area we have not yet been able to capitalize on is the expansion of the dealer network. Our commitment is to supply existing dealers with sufficient channel inventory first and then look to expansion. As a result, we have not yet begun our distribution expansion, and it has been delayed throughout the COVID era. Currently, I expect to begin expanding distribution in fiscal year 2024 and how soon we have adequate inventory and our current dealers will determine the rapidity of the expansion.

Pursuit has equal the home run. The Maverick brands, Cobia Pathfinder, Maverick and Hewes have really come into their own this fiscal year. Integration of an acquisition is an evolution. And as you recall, we acquired MBG at the very end of 2020. Our first step was increasing throughput and efficiency and adding the additional capacity with the Plant 2 addition that allowed us to build more and larger boats. Those objectives have really matured in fiscal 2023, and we are having a fantastic year with MBG. Despite the supply chain, we are setting new production and shipping records almost every month. The new Pathfinder product is performing better than even we expected and is in high demand. We have now turned our attention to Cobia and will aggressively bring new product, which will further enhance market share and growth.

Lack Pursuit, we have a distribution growth road map that we have not yet been able to execute, but that is coming in fiscal year 2024 as well. MBG today equals a triple, but the ball is in the corner, we are rounding third base, and we are confident we will have a home run with MBG. In summary, our integration acquisition of acquisition has gone as well as we expected, and the dividends have been better than we expected. The great thing about all of them is that we have additional at best coming to score even more. We are very, very good at acquisitions and integrating them, and we will entertain any acquisition of a premium asset that we can improve at any point in time. Overall, Malibu is again in a great position to execute as we enter the second half of the fiscal year with strong tailwinds across our business.

As supply chains continue to improve, inflationary pressure subside and labor shortages lessen, our teams are prepared to execute our strategic priorities. Our vertically-integrated business model and Operational prowess set us apart. And with the resilient nature of our customer base, strong dealerships and battle-tested teams, we are optimistic about our future. With that, I will now turn the call over to Wayne to take you through our financial performance in more detail.

Wayne Wilson: Thanks, Jack. In the second quarter, net sales increased 28.4% to a record $338.7 million. Unit volume increased 17.7% to a record 2,439 boats. The increase in net sales was driven primarily by increased unit volumes generated by resilient wholesale demand across all three segments and strong ASPs. The Malibu and Axis brands represented approximately 54% of unit sales or 1,318 boats. Saltwater Fishing represented 24.3% or 593 boats and Cobalt made up the remaining 21.7% or 528 boats. Consolidated net sales per unit increased 9.1% to approximately $138,880 per unit, primarily driven by inflation driven year-over-year price increases and favorable mix. Gross profit increased 19% to $75.7 million, and gross margin was 22.3%.

This compares to a gross margin of 24.1% in the prior year period. The decline in gross margin was driven primarily by an increase in dealer flooring program costs and increased mix of Cobalt and saltwater sales and partially offset by improved saltwater margins. Selling and marketing expense increased 9.5% or $0.5 million in the second quarter. The increase was driven primarily by promotional events as sales efforts return to normalized pre-COVID levels. As a percentage of sales, selling and marketing expenses decreased by 30 basis points over the prior year period. General and administrative expenses increased 19.2% or $3.1 million in the second quarter. The increase was driven primarily by compensation and personnel-related expenses and professional fees.

As a percentage of sales, G&A expenses, excluding amortization, decreased 50 basis points to 5.6% compared to 6.1% for the prior year period. Net income for the second fiscal quarter increased 17.5% to a record $36.4 million. Adjusted EBITDA for the quarter increased 19.7% to a record $57.6 million, and adjusted EBITDA margin decreased 120 basis points to 17%. Non-GAAP adjusted fully distributed net income per share increased 22% to $1.83 per share. This is calculated using a normalized C Corp tax rate of 24.3% and a fully distributed weighted average share count of approximately 21.3 million shares of Class A common stock. For a reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics, please see the table in our earnings release.

We continued our momentum throughout the first half of fiscal year 2023 and operated to our expectations. Market conditions have continued to be largely consistent with our expectation for the fiscal year and, varying by brand, we expect channel inventory normalization sometime in calendar 2023. We remain optimistic about our path forward as we look to the back half of the year and beyond. There’s no doubt that we continue to be the industry leader in the marine space, repeatedly exceeding expectations despite persistent headwinds from a challenging supply chain and inflationary environment. As Jack mentioned earlier, demand for premium boat buyers remains as evidenced by the performance at our recent boat shows. Overall, Malibu is in an enviable position as we continue to capitalize on this resilient demand environment and normalize our channels, all while maintaining strong growth and a stable margin profile.

Based on our current operating plan, our expectations for fiscal year 2023 remain unchanged and are as follows. We anticipate revenue to grow mid- to high-single-digit year-over-year. We expect Q3 year-over-year growth to be about flat. Consolidated adjusted EBITDA margin is expected to decline slightly year-over-year. We expect Q3 EBITDA margins of approximately 21%. In closing, Malibu continues to perform at a high level in fiscal year 2023 despite an uncertain macro environment. We believe our strategic positioning and our historically proven operational prowess, provide us with the ability to deliver a strong fiscal year 2023 performance and an attractive setup to drive long-term shareholder value. With that, I’d like to open the call up for questions.

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Q&A Session

Operator: Thank you. And our first question today will come from Jamie Katz with Morningstar. Please go ahead.

Jamie Katz: Hi, good morning. So, I guess it would be helpful to understand what levers do you guys see that you have available to pull to mitigate some of the expenses that you’re seeing on the inflationary side, it seems like they’re still pretty impactful?

Jack Springer: The primary levels €“ the levers that we and everybody have used in the past has been the pricing and increasing pricing. I think those days are over Jamie from what we’re seeing, and I made the comment, we’re looking at a more normalized cost environment as we started our budgeting process in the second half of this year. So, I think we’ll be back to more of a norm and largely the inflationary era that we’ve been under is starting to dissipate.

Jamie Katz: Okay. And then can you just add any additional color you might have on the floor plan financing commentary and sort of how the dealers are feeling right now and what you think the anticipated sort of commitment of that looks like over the rest of the fiscal year? Thanks.

Jack Springer: Yes. The floor plan financing €“ and I’ll lead off the floor plan financing is coming back. And I think a natural human reaction is if you’ve not had it for a couple of years, and it starts back up again. It causes you to step back and take a pause. And I think that did occur when the floor plan started kicking in for the dealers. It’s become more normalized now. I think it is that getting back to normal scenario. So, I do think the dealers are becoming more accustomed to it. But they are, certainly, like we are watching inventories very closely.

Wayne Wilson: And from a financial impact perspective, Jamie, the impact of flooring expense on our P&L was actually primarily felt in the first half of the fiscal year. There’s a much more modest impact or incremental impact that occurs in the second half. And so the implication from the guidance is that we’ll have margins relatively consistent with last year in the back half of the year. And that’s because there is some more pricing being taken and less of an impact to flooring.

Jamie Katz: Thank you.

Wayne Wilson: You are welcome.

Operator: And our next question will come from Michael Swartz with Truist Securities. Please go ahead.

Michael Swartz: Hey, guys good morning. I just wanted to touch on the saltwater business. I think obviously, the two acquisitions you’ve made there; I think at the time when you made the acquisitions, there were something 13%, 14% EBITDA margin. So maybe €“ just give us an update of maybe where we stand today? And I guess, what’s embedded in guidance and maybe think about go forward into fiscal year 2024 and beyond?

Wayne Wilson: In terms of what’s embedded in guidance, look, where we stand today, I think you’re probably being a little bit generous on a blended basis in calling it a 13% or 14%. And so I think what I would tell you is that we’ve embedded in guidance is a modest expansion from where they were at. I would tell you that Maverick’s going to be more in a neutral position, but larger and that Pursuit has expanded meaningfully, and that will have provided the uplift to the aggregate saltwater EBITDA margin. In the longer term, we think that there’s a real opportunity to continue to expand those margins as we expand distribution, expand the product portfolio and drive further efficiencies.

Michael Swartz: Okay. Great. And then on your commentary around the boat shows, you threw out some fairly large numbers for Cobalt and Pursuit. I just want to clarify that what you were saying, I think it was mostly on a volume basis and year-over-year. But I didn’t hear any commentary on the Malibu business. Maybe just provide some color on what you’re seeing there just in terms of boat show activity?

Jack Springer: Yes. I think on the Malibu side and really on the towboat side, as a whole, it’s spotty from market to market. There are some markets that have been pretty strong, and we’ve had good uplift. And there are others that have been a little bit weaker. What my observation is that there’s been more of a holding of price on the Malibu side of the equation and the competition at the boat shows. And I think that’s probably having a little bit of impact. Overall, it’s about flat with last year. If I rate them, certainly, the saltwater shows are doing better. There’s a lot of strength. There seems to be a lot of strength in saltwater shows. Cobalt is doing very well. And then on the Malibu side, it’s more flattish.

Michael Swartz: Okay, perfect. Thank you.

Operator: And our next question will come from Fred Wightman with Wolfe Research. Please go ahead.

Fred Wightman: Hey guys. I just wanted to follow-up on the comments about the market performance. I think you said it was largely in line with your plan. But has your underlying or the embedded retail outlook for the rest of the fiscal year changed? Or is that still in line with what you were thinking last quarter?

Jack Springer: Just in line with what our outlook has been. The comment that I’ll make is really more on the channel inventory side. We do think that from a Malibu, Cobalt side of the equation, it will be by the end of this model year or fiscal year, that channel inventories would be where they need to be, but it will continue to be in the fiscal year 2024 before saltwater Pursuit and Maverick get there.

Fred Wightman: And just to follow up on the inventory comment. That is targeted dealer inventory levels, right? You’re not assuming it’s back to pre-COVID type levels here, it’s a bit of a haircut to where that was previously?

Jack Springer: Yes. Fred, the way we look at it is weeks on hand of inventory. And as we know, it’s a very cyclical nature within the year. So there are points in time, it needs to be higher and other points in time, it needs to be lower. And so we’re looking at more on that, what is needed to propel the market share and propel the retail sales that we need.

Fred Wightman: Perfect. And then just lastly, the hurricane-related impacts that you guys had outlined last quarter, did those wind up, I think, it was $5 million on revenue and $1.5 million on profit. Was that where it sort of wound up for the quarter?

Jack Springer: Yes. We did recover that. What we have not seen, and I think it’s due to the insurance checks for both have been slow and coming, we do think that there’s tailwinds that are coming related to the hurricane of people that have not yet replaced our boats.

Fred Wightman: Perfect. Thank you.

Operator: And our next question will come from Craig Kennison with Baird. Please go ahead.

Craig Kennison: Hey, good morning. Thanks for taking my questions as well. I wanted to unpack guidance a little bit. When you look at your fiscal 2023 revenue guidance, what’s the embedded shipment volume assumption there? And then maybe you can comment on the embedded kind of retail assumption you need to get there?

Wayne Wilson: Yes. So the €“ we don’t give unit volume assumptions. But ultimately, you can back into the implied guide from a revenue perspective in the back half is obviously down, right? And so that’s going to probably €“ I would guess a range depending on what ASP assumption that you’re going to use is probably down 5% to down 12% in unit volumes in the back half of the year.

Craig Kennison: Got it. Thank you. And then just as we look further ahead, Jack, I think you said something about the era of pricing and getting significant price increases maybe over. I’m just wondering, what that means for ASPs as we look at fiscal 2024? Could we actually see prices come down on like-for-like units? And then just looking at the restocking opportunity in 2024. I’m assuming you still have some recycle left maybe in the first half, as you mentioned, but we won’t see the same level of restock benefit in fiscal 2024 as well.

Jack Springer: To answer the latter first. I think that’s exactly correct. It really is going back to that normal environment. And I’m going to bifurcate between wholesale and retail as we talk about the pricing dynamic. For Malibu, it becomes like it was in 2019, 2020 time frame where you look at an overall increase in the ASPs and it’s going to be about one-third price driven or one-third product driven or one-third feature driven. As it relates to that €“ the environment of pricing and prices coming down at the retail level, prices I do think will come down next year. And the rationale and the reason is because prices have been in the MSRP for two years or more, and the dealers have got to bring the pricing down. So it’s not necessarily going to be on the wholesale side, but that retail customer will see pricing degradation.

Craig Kennison: Got it. Hey, thank you.

Operator: And our next question will come from Joe Altobello with Raymond James. Please go ahead.

Joe Altobello: Thanks. Hey guys, good morning. Just want to follow up on Craig’s question regarding units. You said laying down 5% to 12% in the second half. I assume that’s mostly Malibu, right, since you’re still filling the channel to a large degree, on Saltwater Fishing and Cobalt?

Jack Springer: I would tell you that, that’s the bigger portion of our business. I don’t have it off the €“ at the tip of my fingers, but it’s got to be €“ and I was just doing that based off of the implied revenue guide and some generic ASP assumption. So €“ but I would tell you to do the math and put your ASP assumption in there to get your volume number.

Joe Altobello: Okay. And then in terms of second half margins, I think when you said you expect the second half to be roughly flat with last year. And I think you just guided to a 3Q number of 21% versus 23% in the base period. And then in the fourth quarter, you’re lapping a 21%. So it sounds like you expect EBITDA margins to improve fairly significantly in Q4. What’s driving that?

Wayne Wilson: The €“ really, it’s the timing of how that price flows in various mix elements. But the impact of flooring has a very negligible effect in Q4. It has a smaller impact in Q3, but the impact of year-over-year price increases in the Q4 period as we waited on the Malibu line is going to have more of an impact in Q4.

Joe Altobello: Okay, great. Thank you.

Operator: And our next question will come from Gerrick Johnson with BMO Capital Markets. Please go ahead.

Gerrick Johnson: Hey, good morning. A couple here. First, the impact of discounting in the quarter, the impact on gross net sales or gross margin and your outlook on discounting for the balance of the year. Also I was curious about the engine comments you made about engine constraints where you see the most limited supply. And then I’m not sure if you answered, I think it was Craig’s question about your outlook for the industry and how that’s embedded in your guidance? Thanks.

Wayne Wilson: Yes. With respect to discounting Gerrick, it really is not a meaningful factor incrementally from a boat show or year-end sales event perspective, it’s €“ you’re not seeing an incremental discount drag versus what we’ve seen historically. On a year-over-year basis, there’s probably a little bit, but we anticipated that. I’ll let €“ I’ll punk on the engine constraints to Jack here in a second. But with respect to the outlook, what we had initially said with our guidance back in the August time frame was a down high single-digit percentage for the market as a whole. And we continue to have that as our primary driver in the model. If you look at the domestic registration data for our primary segments, you’re down about 12% on a blended basis, and you’re seeing a decelerating decrease.

So kind of second derivative function, but €“ and ultimately, when you look at on a six month basis. So, we think that the current estimate that we have in terms of a high single-digit down market for the fiscal year is still as appropriate and is the embedded assumption in our guidance.

Jack Springer: Gerrick, coming back to engines. We continue to see all of the engine companies struggle to one level or another, and it’s to varying degrees. There has been improvement. I will tell you that Yamaha has improved, and they seem to be getting more product to us. They’re getting the parts that we need to us. So there is some catch-up going on. But part of the equation there is we were way behind. And so we’re not fully caught up yet, although we see improvement. On sterndrive, on the Cobalt side, on the sterndrive and also that forward-facing engine, we’ve seen improvement there as well, still not out of the woods, but we have seen improvement. So if I put it in an overall nutshell, the engines are improving, but still not where we need them to be. We don’t necessarily get all of the parts and all the engines that we need when we need them on the line, but that is improving.

Gerrick Johnson: Okay, thank you guys.

Jack Springer: Thank you.

Operator: And our next question will come from Brandon Rolle with D.A. Davidson. Please go ahead.

Brandon Rolle: Good morning. Thank you for taking my questions. First, just on the ski way category, it seems like the category was underperforming the broader industry in the last few months of the year. Could you comment on anything that might be going on specifically within your category and your outlook for the industry in calendar 2023, specifically for the ski way category?

Jack Springer: Yes. I think generally, you’ve had a better scenario of putting inventory into the channel as it relates to that ski way category. And that’s not only from us, but that would be from all competitors. But the main thing that I’ve seen, we have black pontoons, have had a very strong four, five-year period of time. And so it may be a little bit of a pause. And then the third thing I would point to is the dealers need to take pricing down.

Wayne Wilson: The other thing I would add to that is that if you look at the details of those monthly numbers that you’re talking about, you’re talking about comps that are still really, really high, if you look at them in a historical context, when you elongate the period that you’re looking at that and you look at the first half of the fiscal year performance, it’s in line with the entirety of the market. And so I don’t think it’s something that’s a symptom of a broader disease for that segment. It really is a function of a very short window of time and a really high comp in a historical context. And when you spread it out over six months, it’s very much in line with the industry.

Brandon Rolle: Okay. Great. And you had commented on dealers needing to cut prices. Is it solely on them to cut prices? Or would you guys potentially lower pricing to get pricing more in line with consumer demand?

Jack Springer: It’s on them. They’ve been carrying MSRP for two, three years, and we’ve gone back to our normal support related to the programs that we have. But what I’ve seen in boat shows is they’re still holding pricing too high.

Brandon Rolle: Okay. And just lastly on the boat shows. How much of the year-over-year increase at retail is driven by improved inventory availability versus actual stronger consumer demand? I feel like last year, there wasn’t a lot of inventory in the channel to show or sell at these boat shows.

Jack Springer: No, I think that’s very accurate. And one of the things that we’re seeing is people are not in that hurry. They’re not being told that if you don’t place your order, you’re not going to get a boat by the beginning by Memorial Day or the beginning of summer, whenever it would be. So there is more price comparison. There’s more, what I’ll call, kicking in the towers €“ tires, excuse me. So, I think that absolutely plays into it. The decision point, I’ll put it this way, is taking longer than it did last year because people were afraid they would not get a boat. That may pay dividends as we go forward. But instead of buying at the boat show as they might have last year, it may be more of a two, three, four-week long process.

Brandon Rolle: Okay, great. Thank you.

Jack Springer: Thank you.

Operator: And our next question will come from Eric Wold with B. Riley Securities. Please go ahead.

Eric Wold: Thanks. Good morning. Two quick questions, hopefully. I guess first off, kind of thinking back to when the supply chain issue was first popping up a year and change ago, you kind of talked about how much that was keeping you from optimal efficient levels of production, 20% kind of plus from where you want to be. As you think about now where we are with inventories getting back to more normalized levels within the next year or so in the three categories where you see demand shaping up, how do you think about production versus where you’d want to be on an optimal level? Is it still the same than it was before? Or is has to come down a little bit just to get more ER .

Jack Springer: What I would tell you is that our capacity is increasing. And so the capacity €“ whereas in the past, capacity has been the issue, in terms of keeping up with demand, that is becoming less and less of an issue. But eloquently comes down to is, what are the channel inventories looking like. Quarter or the weeks on hand of inventory for our various brands and within the segments. And we’re going to be very responsible, and I can only hope our competition will be responsible and not irresponsible.

Eric Wold: Got it. And then second question, last question. You kind of went through the various successes you had with the acquisitions you completed and talked and mentioned that you definitely would be interested in something else of quality out there to acquire if the situation is right. Does that seem to indicate that that’s more a priority versus launching something greenfield internally? Or would you still consider launching another brand or another kind of extension internally?

Jack Springer: I think we have to have those options open for both at all times. It’s easier and it’s more €“ it’s quicker if you make an acquisition, but it also costs a lot more. But if you look at the acquisitions we’ve made, we’re immediately in the business. We’re immediately in a point of improving it. And so I’m not going to say that’s the desired path but it’s easier, quicker path, but we would keep the option of an acquisition or a greenfield open in the right circumstance.

Eric Wold: Got it. Thanks Jack.

Jack Springer: Thank you.

Operator: And I’m not showing any further questions at this time. I’d like to turn the call back over to Jack for any further remarks.

Jack Springer: Thank you. In summary, our first half results yet again demonstrate the inherent strength and capabilities of our brands. We remain confident in our ability to deliver value to our shareholders while maintaining our guidance for fiscal year 2023. We continue to capitalize on the resilient retail environment, particularly across our saltwater segment as evidenced by the success of our recent boat shows. While supply chain disruptions continue to impact production, we’re seeing incremental signs of improvement and have increased unit volumes year-over-year. Our channel inventories have begun to normalize across all segments to varying degrees, led by our freshwater segment, specifically Malibu and Cobalt. Our strategic planning, operational excellence and supply chain management continues to support our outperformance, and we remain confident in our ability to execute in any macro environment as we will continue to leverage the horsepower of our unmatched operational capabilities, vertical integration efforts and visionary team to deliver profitable growth.

As always, I want to thank you for your support and for joining us this morning as we look to deliver on our strategic objectives and grow our leading brands through the second half of fiscal year 2023. Have a great day.

Operator: And this concludes today’s conference call. Thank you for participating. You may now disconnect.