Malibu Boats Inc

NASDAQ:MBUU

Earnings Call Analysis

Company Experiencing Downturn Amidst Recovery

The company faced a challenging quarter, with net sales plunging 38% to $211.1 million. Net income and adjusted EBITDA decreased by 62% to $13.8 million and 60% to $22.9 million respectively, as gross margins dropped by 460 basis points to around 18%. The normalization of channel inventory levels after pandemic highs and economic uncertainty have led to greater channel inventories than desirable. However, management expects an inventory reduction to normal levels by the end of Q2. They're introducing entry-level priced models and aim to capitalize on current demand for 30-foot and over cruisers through expansion, positioning for a post-downturn recovery.

Shifting Currents in a Challenging Market

The company navigated a complex environment, with net sales dipping to $211.1 million, a significant 37.7% drop influenced by lower retail demand and fewer wholesale shipments. This downhill was slightly mitigated by a salient model mix and price inflation. Yet, gross profits tumbled drastically by 50.5% to $37.5 million, a reflection of market adversity and strategic shifts. A telltale sign of tightened belts, capital expenditure was judicious at $12.6 million, mainly channelled into a new Tennessee manufacturing site.

Channel Inventory Surplus and Retail Caution

The company reported higher-than-desired channel inventories, a result of soft retail demand and an abrupt shift from pandemic-induced buying frenzies to a resurgence in inventory levels. Despite these surpluses and the normalization that shadows the end of an extraordinary retail cycle, emphasis was placed on recalibrating operations to align closely with market demand and prepare for quick recovery as the retail landscape regains momentum.

Slowed Consumer Urgency and Strategic Pricing

Observing a waned customer urgency to purchase boats, the company introduced a pricing strategy for its Malibu and Axis brands, targeting the entry-level segment with more accessible price points. The intent being to stir potential customers from the wings and into the showroom—a move made opportune by the debut of the Malibu LXR and Axis T22 R at aggressive price points.

Cautious Optimism and Margin Realities

Amidst the fiscal tempest, the organization remains hopeful about the marine industry's prospects, predicting that stabilizing costs will improve the pricing milieu by the fiscal year 2025. Yet, the hard truth is reflected in the figures, with net income sinking by 72.1% and a 69.4% cut in non-GAAP adjusted income per share. Notably, the variable cost structure demonstrated resilience, holding strong within the 85% to 90% range, despite the challenges faced.

Adapting Margins and Conservative Guidance

With margins tightened, gross and adjusted EBITDA margins have receded markedly. Managing expectations, the company's revisited guidance suggests a conservative stance, with no rosy embellishments for the fiscal year's remaining half. Instead, a rebalancing act is under way: aligning inventory, investment in growth, and cautious anticipations of a softening interest rate environment, suggesting potential relief ahead.

Marine Craftsmanship and the Market's Whims

Long-standing for quality and margin leadership with its Malibu rich-featured boats, the company faces a stark reversal with these premium models now bearing the brunt of the market downturn. Hints of agility surface as the company readies to pounce back to growth, outpacing others by banking on its historical nimbleness and robust margin profile, resolving to bring order to inventory levels in pursuit of a more fortified stance against market volatility.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, everyone, and welcome to Malibu Boats conference call to discuss Second Quarter Fiscal Year 2024 results. At this time, Later, we will conduct a question-and-answer session. Instructions will follow at that time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Malibu Boats.

As a reminder, today's conference call is being recorded. On the call today from management are Mr. Jack Springer, Chief Executive Officer; Mr. Bruce Beckman, Chief Financial Officer; and Mr. Ritchie Anderson, Chief Operating Officer. I'll now turn the call over to Mr. Beckman to get started. Please go ahead, sir.

[Bruce Beckman, executive]

Thank you, and good morning, everyone. On the call, Jack will provide commentary on the business, and I will discuss our second quarter of fiscal year 2024 financials. We will then open the call for questions. A press release covering the company's fiscal second quarter 2024 results was issued today, and a copy of that press release can be found in the Investor Relations section of the company's website. 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. We'd also note that we will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA and 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, executive]

Thank you, Bruce, and thank you all for joining the call. MBI navigated a challenging quarter driven by continued economic uncertainty as retail remains suppressed and channel inventories are reverting to historical norms. For the second fiscal quarter, net sales decreased 38% to $211.1 million compared to the prior year. Net income decreased 62% to $13.8 million while adjusted EBITDA fell 60% to $22.9 million.

Gross margins decreased 460 basis points to approximately 18% and adjusted EBITDA margin decreased by 610 basis points to approximately 11%. We continue to experience soft retail demand as we entered our slowest time of the year. The confluence of events in coming off of pandemic retail high channel inventories have built much quicker than anyone imagined a return to seasonal norms and economic uncertainty due to a prolonged elevated interest rate environment have resulted in channel inventories higher than we, or our dealers would like to see. It is a tough market to say the least, but it is important to keep things in perspective and level set versus historical norms.

While the retail environment is compressed, the biggest factor contributing to a tough year-over-year comparison is the normalization of channel inventory. Over the last 2 fiscal years, we have been focused on rebuilding our channels from historically low levels brought on by lingering supply chain challenges and unprecedented demand during the pandemic. Today, these dynamics have shifted and the level setting is going on as the inventory channels have fully recovered. We are back to natural market dynamics and MBI is highly focused on recalibrating to match wholesale production to retail demand. We are very, very committed to reducing channel inventories to lower levels that set up the dealer and MBI brands to recover more quickly once retail begins growing again.

We expect channel inventory to move downward as the selling season kicks in and reduce the normal levels by the end of calendar Q2. A I will continue to monitor the channel and take an aggressive approach with production levels as we head into the selling season. We do not shy from a downturn order recession. We welcome the opportunities that are presented with it. Our variable cost structure and world-class operational capabilities set us up extremely well to execute in driving the most profitability possible and continue to invest in the business. The investment in the business, whether it be new products and features, vertical integration or capacity will drive market share increases and the realization of higher revenues and margins quickly once retail comes back. The investment in the Rome County, Tennessee expansion for Cobalt is a great example of this commitment.

Demand for our 30-foot and over cruisers has consistently outpaced our production capability. And with the addition of new models over the past couple of years and more coming. This expansion positions Cobalt to being able to build to demand as we exit the downturn and fee demand growth. Had we waited until last year the downturn, we would be sacrificing 1 to 2 years of revenue growth as we added the capacity. MBI will be well positioned to exit this downturn more quickly and be even stronger than we were when entering it for all of our brands. From the retail lens, the sense of urgency from customers to buy both has largely disappeared. The consumer is being very patient. They know inventory is available, and they are looking for the best bill. To address this latter retail environment, we introduced a program earlier this month which we've been working on since early 2023 to introduce a Malibu and an access at entry-level pricing.

The Malibu LXR is offered at $99,995, the first time that a 21-foot or larger Malibu can be purchased were under $100,000 in many years. The Axis T22 R is a 22-foot boat with a nationally advertised price of $89,995. We expect pricing on these 2 boats will draw our customers who've been waiting for oil prices to dealer. The goal is to have this customer exit the sidelines, go to the boat shows or dealerships and purchase. With these boats, we are also targeting smaller and less optimal jet boats for the cost-conscious wake sports enthusiasts. Finally, we believe this is a great opportunity for a consumer to get a [ Malibu ] access at a price less than a Tier 2 or a Tier 3 Lake brand. We also believe that we will not only sell these boats, but they will lead to further opportunities to upsell our dealers into other models, driven by the consumers' desires for more features and options. We have already seen this occurring in the January boat shows that have taken place thus far. Our customer segment that has remained strong in the premium segment, cash buyers who are looking for the larger, future rich premium boat. We have several new offerings targeting these consumers that we are excited about.

Our brands through both shows are focusing on the new M 242 Malibu, the most premium boat in the Malibu line. Cobalt has introduced a new [ R33-Servecruiser ] and Pursuit will leverage the new OS 405 and BC306, both premium boats over 30 feet. As you see by their names, these models are targeting the important offshore and dual console segments in the saltwater outboard category for Pursuit. As always, the boat show season is very important and will be the measuring stick for the rest of fiscal year '24. While the general consensus is that we are at or near the bottom for retail demand, [indiscernible] shift and as interest rate pressures are forecasted to subside, data from the selling season will be the first side of the trajectory. We are already seeing positive signs following our year-end sales of informally. This event, which we've been doing for the last 1.5 decades saw Malibu Axis performing better than we had expected. This further demonstrates the strength and resiliency of our premium Sweden brands. As we reported on our last call, Fort Lauderdale was a fantastic show for [ Pursuit, ] setting all-time records and was also a very good show for Cobalt exceeding last year. That position the focus to the calendar year 2024 shows that began the first week of January.

The Atlanta boat show was the first weekend of January, and it is always an important guidepost. That show, which is run by our partner, OneWater, through their Singleton Marine Group was a bright spot for Malibu was well ahead of last year for Cobalt. Minneapolis was another good show, especially for Malibu and Axis. Last weekend, the New York boat show took place. This is both a freshwater and saltwater show. Looking back at the results over the previous 5 years, this was a very good show for MBI brands. All brands were at the higher end of sales compared to the previous 5 years, and Cobalt had an excellent show. Not only was the volume of sales for Cobalt very good, but the composition included a preponderance of the 30-foot and over cruisers that are due to the market. In summary, both shows have been decent. They have not been record-breaking shows, but they have also not been bad shows. After the first 3 weeks, we were on par with unit sales for all of our brands for 2023. Miami, of course, will be the bellwether show for our saltwater brands, and we are placing a lot of focus on making Miami the best show possible.

Looking ahead, we are optimistic about the outlook for the marine industry. Cost increases are stabilizing, creating a more favorable pricing environment as we look to fiscal year 2025. Overall, this, coupled with a lower interest rate environment, which is predicted to occur will relieve pressure on the entry-level buyer and help drive a recovery in marine. Despite the macro conditions we are faced with today, we remain in an optimal position to deliver results. As we have said many times, improved in the fourth quarter of 2020, we are confident that even in the 25% to 30% down revenue environment, we remain [indiscernible] [ 191% ] or above EBITDA margins. While we are projecting revenue will finish down more than 30% for the year, the relationship remains intact. This is due to our highly variable cost structure that flexes in line with market conditions. In addition, we have spent the past couple of months, ensuring cost efficiencies throughout our organization.

Based on our forecast, despite lower-than-anticipated revenue, we maintain our conviction that what we will continue to deliver operationally that we will continue to deliver operation with our strong margin profile. Our winning strategy and durable business model are what truly differentiates us. We will continue to stay then we'll advance our innovation and product development, leverage our vertical integration footprint, capitalize on market opportunities and enhance operational excellence initiatives to ensure we remain on top as market conditions improve. I will now turn the call over to Bruce for further remarks on the quarter.

[Bruce Beckman, executive]

Thanks, Jack. In the second quarter, net sales decreased 37.7% to $211.1 million and unit volume decreased 43.7% to 1,373 units. The decrease in net sales was driven primarily by decreased unit volumes across all segments -- resulting from soft retail demand and lower wholesale shipments. The volume impact was partially offset by a favorable model mix across all segments and inflation-driven year-over-year price increases.

The Malibu and Axis brands represented 44.1% of unit sales for 606 boats. Saltwater fishing represented 29.5% or 405 boats and cobalt made up the remaining 26.4% or 362 boats. Consolidated net sales per unit increased 10.7% and to 13,732 per unit, primarily driven by inflation driven year-over-year price increases and favorable model mix within our Malibu saltwater fishing and cobalt segments. Gross profit decreased [ 50.5% ] to $37.5 million, and gross margin decreased 460 basis points to 17.8% and driven primarily by lower volume and an increased mix of the saltwater fishing segment and increased dealer flooring program costs. Cost of sales decreased by 34% in a period when revenue decreased by 37.7%, demonstrating our operational excellence and highly variable cost structure. Selling and marketing expense decreased by 9.5% to $5.6 million. The decrease was driven primarily by the lower marketing spending.

As a percentage of sales, Selling and marketing expense increased 90 basis points to 2.7% of sales due to lower volume. General and administrative expenses decreased 19.4% and to $15.4 million. The decrease was driven primarily by lower personnel-related expenses. As a percentage of sales, G&A expenses increased 170 basis points to 7.3% of sales due to lower volume. In total, Q2 operating expenses declined by $4.2 million as we made necessary adjustments to our cost structure while preserving our capacity to innovate. Net income for the quarter decreased 72.1% to $10.1 million. Adjusted EBITDA for the quarter decreased [ 60.2% ] and to $22.9 million. Adjusted EBITDA margin decreased to 10.9% from 17.8%. Non-GAAP adjusted fully distributed net income per share decreased to 69.4% to $0.57 per share. This is calculated using a normalized C corp tax rate of 27.8% and a fully distributed weighted average share count of approximately 21.1 million shares.

For a reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics, please see the tables in our earnings release. Turning our attention to the balance sheet. We invested $12.6 million in CapEx in the quarter, driven by investment in our new Bone County, Tennessee manufacturing facility. We paid down $30.1 million of debt, bringing our outstanding net balance down to $35.0 million at quarter's end, and we repurchased [ 226,100 ] shares or $9.9 million of stock in the quarter. Even with these actions and in a challenging operating environment, we increased our cash balance by $10.3 million in the quarter. demonstrating the strong cash generation potential of our business. As Jeff mentioned earlier, the retail environment continues to be challenged by broader economic uncertainty and the prolonged interest rate environment. As a consequence, dealers are looking to bring their inventories down to pre-covid levels or lower. While inventory started to recede in the quarter, we expect more time will be needed for channel inventories to fully normalize. We now expect the lower sales levels of wholesale shipments to persist through the end of the fiscal year.

With this in mind, we are revising our fiscal 2024 outlook. We anticipate a year-over-year decline in annual net sales ranging from a mid- to high 30s percentage point decrease. We expect Q3 revenues to be down mid-40 percentage points. Consolidated adjusted EBITDA margin is expected to due decline 800 to 900 basis points for the year, with Q3 slightly but below Q2 on a margin percentage basis. Before opening up the call for questions, I want to say how excited I am to be joining Malibu, despite our near-term challenges, I'm excited about the potential for growth of our company. We have market-leading brands, the best operations team in the industry, a strong balance sheet and many avenues for growth. I look forward to partnering with Jack and the rest of the Malibu team to drive the company forward and create long-term value. With that, I'd like to open up the call for questions.

[Operator]

Ladies and gentlemen, at this time, we'll begin the question-and-answer session.

[Operator Instructions]

And our first question this morning comes from Craig Kennison from Baird.

[Craig Kennison, analyst]

I wanted to ask about dealer inventory. Is there a way to frame I guess, the number of excess boats you see in the channel that you'd like to see come out.

[Jack Springer, executive]

Craig, we always talk about it and think about it in terms of weeks on hand of inventory, not necessarily units. It's hard to get down to that level. But from a weeks on hand basis, I think the overall industry and we're seeing the same thing is around 5 weeks too much on hand to and it's a little bit dependent upon the segment, but that's a consensus we use.

[Craig Kennison, analyst]

Okay. And then you had mentioned [ ASP ] , you've got some product coming out at some sharper prices. I'm wondering if you could help us think through your ASP by segment going forward given that lower-priced product and some of the promotions that you also have in place?

[Jack Springer, executive]

There's a little bit of a balancing act. What is missing is that typical market that we've seen in the past, which is going to be the lower link size, less feature appointed segment. they're sitting on the sidelines. And so that's been missing and it's had a positive impact on our ASPs. What I would tell you is that on the [indiscernible] side with the addition of NR series, -- the objective is to bring that consumer back in the market. I don't see a downward push from that on ASPs.

What we are seeing is a premium buyer being out there. and largely our ASPs are maintaining at about the same level, perhaps a little bit higher.

[Operator]

Our next question comes from Eric Wold from B. Riley Securities.

[Eric Wold, analyst]

So Jeff, you mentioned the weeks on hand of our 5 we finance too much. Is that -- was that specific to Malibu? And then what are you seeing with other peers in the space that may be pressuring demand at your deals? Are you seeing competitors kind of leading in the price a little bit further, given where their inventories are? And how is that playing into kind of your dealer actions?

[Jack Springer, executive]

Yes. We have seen that especially during the fall. I think if we look across the internal landscape and marine OEMs and their dealers had too much channel inventory on hand. So it's been a promotional environment for either. They're locked into a promotional environment. And I think that's going to continue. Obviously, when you have competitors that are also trying to lower inventories it's a hand combat type of environment at the dealer level, and we have seen that. We would expect to continue to see that.

[Eric Wold, analyst]

And then just last question. I know it's probably a little early -- but with the expectation that we could see rates come down in '24. What are your dealers hearing from potential buyers? Are they likely willing to get ahead of the rate declines by buying for this voting season obviously adjusting their loans later? Or do you think they're more likely to wait until actually the lower rates become a reality before it points trigger?

[Jack Springer, executive]

No. I think that's what we're seeing the most of us, frankly. You think about the tier retail environment, it has been soft more promotionally things either have some success. What we're seeing today is the dealers at least in the boat show, are coming back billing to buy. Our dealers, I believe we're doing a great job from an F&I point of view of trying to get the lowest interest rate that possibly can, numerous resources they may have.

As we look at the environment [indiscernible] , depending on the banks and the various entities that you talk to, I think, generally speaking, the expectation for '24 is 2 to 3 rate decreases, 100 to 125 basis points of course of the entire year, primarily following in the second half. over the calendar year. And the consumer is not waiting for rates to go back to 2%. I think there's a realization they're not going to be there any time in the near future. But there's a psychological advantage to that first rate decrease -- and then you have a couple more on top of that. I think that helps the market come back and we come backwards.

[Operator]

Our next question comes from Joe Altobello from Raymond James.

[Joseph Altobello, analyst]

A couple of questions on the guidance. I guess, first, -- if I look at your EBITDA and revenue guidance, it implies an EBITDA margin this year of around 12%, give or take, which is below the margin that you delivered in the June 2020 quarter on a similar unit decline when production was shut down for several weeks. Why has your cost structure shifted a little bit more fixed versus variable?

[Jack Springer, executive]

It really hasn't, John. I mean if we did the comparison against Q4 of [ 2020, ] there was a difference there from a cost perspective in that we shut our plants down for 6 weeks. And so we are going to continue to invest. We're going to continue to run the company and prepare for exiting downturn. So we're not shutting down completely. And that's what I would tell you, had a significant impact on it being different than that.

[Joseph Altobello, analyst]

Okay. Because I'm looking at your slide, and it looks like the percentage of our costs that are variable went from 82% last year to, call it, 77% this year. So it's about a 500 basis point decline.

[Jack Springer, executive]

I mean I take that fair, but I think that's just continuing operations reality.

[Joseph Altobello, analyst]

And then maybe in the second half, the margin decline you're looking at, how much of that is coming from higher promotions and discounting?

[Jack Springer, executive]

Yes, the promotional activity is largely at that bigger level. What we said, we don't expect it to change in the second half. The impact from an MBI perspective is under 100 basis points. So we will supplement and will help our dealers from a promotional aspect, but largely a fall on them. And they're coming off of a 2- to 3-year environment where the margins were extremely high. And so there the pencils have sharpened.

[Operator]

Our next question comes from Jamie Katz from Morningstar.

[Jaime Katz, analyst]

I actually want to carry on with that line of questioning on the flexible cost structure because not only does the EBITDA margin look bad maybe relative to 2020, but I don't think the implied EBITDA margin has been this low in maybe over a decade. So can you just reconcile maybe was it the magnitude of the change? Is it that the conditions decline too fast to react? Or are there other sort of onetime items like investing in the factory that are really leading to that adjusted EBITDA margin compression because saying that there's a flexible cost structure and then generating EBITDA margins where they're going to be -- is sort of in complex a little bit.

[Jack Springer, executive]

Yes, I think a couple of things you pointed to, Jamie, are accurate. You did see a change very, very rapidly of moving from high wholesale production environment to a low channel inventory left very quickly. The softness of retail occurred. But one thing, and I'll let Bruce chime in here is that we are hyper focused.

I mean if you look at what our goals are for the rest of this year, channel inventories have to come in line. And so we have taken production down more significantly than were probably anybody can have ascertained or are predicted. And we are going to get inventory levels but where they need to be to support our dealers. And honestly, I think dealers appetite right now. I think they want it to be historic channel inventory. They would like to be at least for a little while, a little bit lower than general inventory historically.

[Bruce Beckman, executive]

Yes. And from an EBITDA margin perspective, it's not really a complicated story. It really is fixed cost deleverage coming down, we are still seen year-to-date and expecting to see for the remainder of the year, our variable cost structure above the gross margin line to be in that 85% to 90% range that we talked about previously. So it really is about the magnitude of the revenue guidance change that's driving the EBITDA margin decline.

[Jack Springer, executive]

Yes. One of the things that I'll point out too, Jamie, I think we make is really important to understand. We have a long, long history of driving the margins with Malibu and the differential between the Malibu entity and not the Access margins, and Cobalt, Pursuit, NBG, there are hundreds of basis points of difference. And now you've seen a flip that Malibu is more impacted. I think we're down on the well under 50% now as a part of the total. And so that impact from a margin aspect is going to be greater than if it were even across the board, if that makes sense to you.

[Jaime Katz, analyst]

Sure. That's really helpful. And then as you think about cleaning up the inventory channel, assuming that the other OEMs are behaving rationally. Does that imply -- and I know this is early that like fiscal [ 2023 ] would go back to some sort of normal growth algorithm, and it would be much easier to recapture some of that operating leverage? Or is there some transitory sort of flow back to normal to get back to where we were.

[Jack Springer, executive]

Well, I think -- thank you, Nils. That's exactly right. And that's what we're positioning for. Even what I'm saying is people were being very responsible with channel inventories, and that's what we're hearing for our dealers. I think that will continue. But even absent that, we are positioning ourselves so that we come out of this and we can recapture that growth much quicker than anyone else if they're not being as responsible as we are. But have to get the challenge is a [indiscernible]

[Operator]

Our next question comes from Brandon Rolle from D.A. Davidson.

[Brandon Rollé, analyst]

Just on your updated guidance, what gives you confidence you fully kind of reset the bar for the remainder of the year? And is there any upside being baked in for the last 2 quarters of the year? Or would you say this is a conservative guide?

[Jack Springer, executive]

I would tell you it's a conservative we've got. We had -- as you can imagine, we've had a lot of discussion on it. There is not any upside baked into the back half of the year for us. So that would be welcome certainly. But there's nothing to tell. We believe that this, as we say, is conservative in that if we see some positive tailwinds that it will be beneficial.

[Operator]

Our next question comes from Noah Zack Raskin from KeyBanc Capital Markets.

[Unknown Analyst]

Most of might have been asked and answered, but just wondering just in terms of capital deployment, particularly in terms of maybe greenfielding or acquiring a Pontoon brand? Has anything kind of changed there? And just maybe any updates around that process?

[Bruce Beckman, executive]

Well, I'll maybe let Jack comment on the moon. But from a capital allocation priority standpoint, our capital allocation priorities haven't changed. I mean first, we looked upon the organic growth initiatives such as the Ron County, Tennessee facility. We have an active share buyback program -- and we're always going to look out for M&A opportunities. And as you can understand, we are not able to dictate the timing of when those opportunities present themselves, our strong balance sheet gives us the opportunity to move quickly when they do.

[Jack Springer, executive]

Yes, Brandon, commenting on [indiscernible] , I guess, M&A in general, Ponte something we've talked about. I've been consistent. We've been consistent on this. We would much rather make an acquisition than greenfield that greenfield is absolutely an option for us. Expanding it a little bit in the market with what we're dealing with. I think that from potential sellers to come to the market. They don't want to go through this. And so we're seeing more activity and it's across the board.

So I would tell you that from an M&A point of view, we are paying a lot of attention not only to [ pontoons, ] but we're paying a lot of attention through the outboard saltwater outboard market and categories like that, that we're not in today that we could get it to.

[Operator]

And our next question comes from Fred Wightman from Wolfe Research.

[Frederick Wightman, analyst]

I just wanted to come back to the mix question. I mean, as it was pointed out, I mean, the Malibu access as a percentage of mix was down almost 10 points. How do you sort of see that trending in the back half of the fiscal year, just given some of the capacity that you guys have coming online for the other brands? That would be helpful.

[Jack Springer, executive]

We see it probably trending down a little bit or more towards that 40-ish range in the second half of the year. I think you pointed out the things that are really going to influence that. But what I would tell you that is that Cobalt has been surprisingly strong for us. I think it continues to be. We saw it, as I mentioned, in the New York boat show again. And so I think from a fresh motor perspective, they're going to continue to capture more of the brand share. And then we expect all water to be a little bit stronger than the notes.

[Frederick Wightman, analyst]

That makes sense. And then just a clarification. There was a comment about EBITDA margins for 3Q being slightly below 2Q. Was that an absolute comment of the actual reported EBITDA margin will be slightly lower than 2Q? Or was it a year-over-year comment?

[Bruce Beckman, executive]

It was versus Q2, so slightly lower than Q2.

[Operator]

And ladies and gentlemen, at this time, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Jack Springer for any closing remarks.

[Jack Springer, executive]

Thank you very much. Despite the softening retail demand and being in our slow season, we continue to see success in our year-end sales event and the boat shows a testament to our durability as a business and a dominant position in every market we serve. While that inventory levels are higher than we want to see, we expect to see downward movement as we get into the selling season and normalize over the course of the next 6 months.

We are focused on driving channel inventories to sort norms and will continue to adjust production up or down accordingly to make that occur. Our strategic planning, operational excellence and supply chain management continues to support our margin build. And our vertical integration has enabled us to remain resilient. Despite the challenges, we remain optimistic as we look at the back half of this year, and we're positioned to grow and recover as retail demand recovers. We realize this environment. This is when we fine-tune our model, and we positioned for a strong recovery. We did it back in 2009 through '11, not only driving recovery but capturing market share and exiting the downturn even stronger than before. As I always do, I want to thank you for your support and for joining us today. Have a great day.

[Operator]

Ladies and gentlemen, this concludes today's conference call. We thank you for participating. You may now disconnect your lines.