Q3 2020 Earnings Call
All participants please standby your confidence says I need to begin.
Good morning, ladies and gentlemen, and welcome to the VIP Inc.'s, It's why 23rd quarter results conference call I wouldn't like to kinda, meaning or what you must have city. This same. Please go ahead and so does Shane.
Thank you mode. Good morning, and welcome to be Rps conference call for the third quarter fiscal year twin.
Joining me this morning, our show that Bush, <unk>, President and Chief Executive Officer, and sit back them up though chief financial Officer.
Before we moved to the prepared remarks, I would like to remind everyone that certain forward looking statement will be made during the cold.
And are subject to number up risk and uncertainty.
I invite you to read BR piece and then they for listing of the.
Also during the call reference will be made to supporting flights and you can find the presentation on our website that'd be RP dot com under Investor Relations section, so with that alternate Colbert your deal with it.
Thank you said it good morning, everyone and thank you for joining us.
Hi, I'm pleased to report that we continue our solid performance trend.
As with delivered a record turret water strong retail growth and financial results.
Based on these solid results and the good visibility we have on the demand for the rest of the year, we are raising the lower end of our guidance not allowing our normalized EPS range.
$3, $73 80, representing a growth of 19% to 20% versus last year.
No that go into the highlight of the quarter, starting with financial results on slide four.
Revenue reached a record levels work that order at the billion 644 million dollar representing year over year growth of 18% driven by higher wholesale of year round seasonal product.
Our gross profit margin was up 130 basis point order last year third quarter, and our normalized EBITDA was up 32%.
268 million, resulting in a normalized earnings per share of $1.51 up 45% over last year.
The highlight of the quarter is the strength of our retail momentum globally.
In North America, our parsed pork products continue to drive strong customer demand.
As we deliver or retail growth 24%.
The breadth of our product portfolio and the strength of our offer are also helping us to grow in international markets, Despite rapidly evolving geopolitical and determine in certain regions of the world.
That's an MD count was up 23%.
In the Amy we are performing well with retail up 12%, while the industry was about flat.
For a back retail was up 20%, while the industry is up mid single digit.
As you see retail momentum remains strong in all international market.
Looking at the North American retail by product line on slide six.
Again, this quarter with delivers solid growth across the parts port product line.
Side by side any TV had very strong retail result up in low thirtys and low teen percent stage respectively.
Peter will vehicle ended the season on the strong note with retail hub hi, 80%.
First on those watercraft was low.
Single digit as snowmobile is off to a good start for the season with ski do retail up high 20%.
We are happy with our parse pork retail performance and the momentum we have across our product portfolio.
Some investor are asking about the health of our industry.
As you can see on this slide all our industry are up globally, and we continue to have good momentum in all product lines.
Turning to slide seven.
In September we held our annual spend them and he to club at which we introduced our new product for the upcoming season.
We notably strengthen our utility side by side offering with the introduction of the CMM defender pro delivering industry, leading payload capacity with six foot cargo box.
And the introduction of the Kennen defender limited with a cab and aged vac, providing more cockpit comport with reduced sound level and then this exclusive.
Climate control.
We also introduced our fully redesign 10 them by their RFP addressing the most important requests for improvement by current orders.
With over 50000 Korean Spider Archi owners, we believe there is pent up demand for this new vehicle.
The other major product news was the introduction of the new C platform to their recreational segment through the lineup.
When the new high end sequel platform was introduced two years ago. It was highly successful and drove over 8% point on market share in the high end performance and touring segment.
Now we are bringing the same innovation to the recreational segment the largest in the industry.
We also took the opportunity to share some insight on our electric vehicle exploration.
As we on the IL six electric vehicle concept.
Like I've said before the electrification of our vehicle is part of our long term sustainable development plan.
And when the demand for these products will be there who sees the opportunity.
Now, let's turn to slide nine for the year on product highlights.
Revenue were up 29% for the quarter driven by a higher volume of side by side sold and the introduction of the kind of them Riker.
On the retail side four months into season 20, the North American side by side industry is up high single digit.
Got them side by side continues to drive strong consumer demand and retail is up low 30%. So far this season.
We are seeing very good traction with the new products. We introduced this summer, notably the Maverick three turbo are and the cannon defenders six bicycle.
The kind of defender pro started shipping two months ago and initial feedback is positive.
The Kennen defender a limited with fab and needs Vac will start shipping in mid December .
Our side by side business is also performing well intentioned in international markets.
With our retail for the quarter up mid 20% in Latin America, mid 50% in EMEA and low 40% EMEA Asia Pacific.
As you know we had ambitious goals are side by side business and I'm very happy to see them coming through.
Also for months into the season 20, the North American the TV industry is about flat compared to last year.
For the same period cannot meet TV retail was up low teen percentage driven by market share gain in both the mid and high segments.
I am pleased with our off road vehicle performance and confident we can continue our momentum around the world.
Now looking at the three will vehicle business.
The North American three will motorcycle industry ended the 2019 season on October 31st we treat them up in the mid 30% range.
And then we will be equal to retail sales are up over 100% over the same period and we ended the season with the number one market share position in the three will contiguity and number five position the on I, we motorcycle industry.
Our marketing campaign since that can them reicher lunch was generated as generated over 2 billion impressions and 5 million. The web site visit which gave us the strong three will have equal exporter.
The launch of the Riker attracted 42% new entrants.
30% being woman and 70% under the age of 55.
Over 20000 training course have been completed so far with a conversion rate through new unit to over 20%.
Our customization strategy is also being up with average accessories dollar spend per unit, surpassing our target by 30%.
The patent added between the success of Steve to spark and pin number eicher is clear.
Not only have we invented the way we redesign but also how we market entry level product and so far reicher is driving similar trend 40 will vehicle as the spark did for personal watercraft.
Reicher is up to a very good start with three will have equal or retail sales, having more than doubled in the first year.
Turning to seasonal product on slide seven.
So those product revenue were up 13%, primarily driven by favorable product mix or snowmobile and the higher volume or personal watercraft and snowmobile sold.
Looking at retail sales.
Despite the challenges facing the marine season. This year, the North Committee can person watercraft industry ended season 19 on September Thirtyth.
With retail up mid single digit.
Peter retail was up low single digit percentage for the season slightly lower than the industry.
Our last of market share is released the regional mix.
The main highlights for the season, our we've continued to gain share with our new see two platform in the high end performance segment.
The C fish probe had a very good first here and there are plenty of opportunity to further build the market for this product and the customer.
DTC of our new platform is delivering solid results as we saw strong accessories revenue grow this season.
Our international it is the beginning of the season counter seasonal market and retail is trending positively with double digit growth in both Latin America and these young Pacific.
We are happy with our CTO business in general and with the continued growing consumer into port this industry and our solid lineup. We are optimistic about the upcoming season, especially with the recent introduction of the new platform on our GCI models, which compete in the largest segment of the.
Industry. So we are well position to continue to grow.
For snowmobile early in season 20, the North American industry is up about 30%.
Two things are driving business, whether prediction, which for the along and Pivotable the winter as well as the early snow and cold weather across the snowbelt that pipe consumer interest.
Good to resell is up mid 20% slightly lagging the industry as we have a lower proposal proportion of our pre sold unit registered compared to the competition at this point of this season.
With our strong product line up our production and shipment on track and early snow recovery in many of the key snowmobile market. We are very positive about the upcoming snowmobile season.
Continuing with our with the look at par sport pack and OEM engine on slide 12.
Revenue were up 12% in the quarter driven by continued solid momentum, our parts and accessories business, especially for side by side.
Accessories continued to be the key driver of growth for difficulty goody with revenue increasing 18% in the quarter.
This is the result of our ability to design extensive lineup of innovative accessories that improved customer experience and that are already a veeco lunch.
For example.
We already have over a 150 that history available for the canam defender.
This new vehicle represent a sizable opportunity for our sister rigs business.
This link compatible six foot cargo Buck.
It is very customizable.
We are pleased with the progress of our pack business and with the growth of our fleet. We are seeing good traction across all our product line.
Now looking at the Marines category on Slide 13.
We are admittedly disappointed with the season for this segment.
Both retail started late in the spring and although it began to recover slow the in Q3 at low period for this industry.
Our season 19 was not great for marine with revenue down 1% due to the lower volume of units sold partially offset by the additional revenue as a result of the fed water acquisition.
For the OE industry retail was up low single digit inter quarter as for even road retail was down low teen percent base for the same period.
Our boat retail after a difficult season impacted impacted by unfavorable weather condition as shown some improvement over the last few months.
Third quarter Angiomax soft retail it was about flat compared to last year.
Many to retail was up by about 50%, which was mainly the result of promotional activity.
The good news is that dealer orders for season 20 are on target.
For both brands we ended the season on the good though.
Despite this difficult season, our marine strategy is on track and we have the right 11 place the transition from an engine to both company.
On that note I will turn to call overcast divesting.
Thank you Jose and good morning, everyone. Our solid momentum continued in the third quarter as we delivered financial results that came in better than expected.
Performance was primarily driven by higher deliveries of side by sides, resulting from the sustained strong retail trends and by continued tight management of expenses.
Revenues for the quarter reached 18% grew 18% to reach $1.6 billion, representing a record for third quarter. Our gross profit margin ended at 26.9% an increase of 130 basis points from last year's third quarter.
A favorable impact coming from volume mix and pricing were partly offset by higher sales programs and production costs and unfavorable foreign exchange rate variation.
Our normalized EBITDA was up 32% to $268 million and our normalized EPS was up 45% to reach a dollar and 51 cents.
Our solid results since the beginning of the year with year to date revenue growth of 19% normalized EBITDA and EPS growth of 23% coupled with continued strong demand for products are putting us in a good position to deliver our year end guidance.
Turning to slide 16, our quarterly normalized net income was up $34 million compared to last year as it had another quarter at $137 million.
The growth was driven by a net favorable impact of $131 million coming from volume mix pricing and programs, which was partly offset by higher production and distribution costs and higher depreciation expense for totaled negative impact of $41 million.
Our operating expenses for $40 million to support our different projects such as the launch of new products continued investments in product R&D and improvement of our IP systems.
And higher financing costs normalized tax expense and FX for $16 million.
Turning to slide 17 for looked at our network inventory position our power Sports network inventory is up 14% from last year's third quarter, a much lower growth pace than for our retail which grew 24% in the quarter.
The increase in our network inventory continues to be driven by our two fastest growing businesses.
Side by side for which retail continues to see robust growth as it grew low 30 percents in the quarter.
Three wheel, primarily driven by Riker for which demand continues to be strong as we started shipping model year 2000, canam rikers for the upcoming season.
Remember that we only started shipping rikers in Q4 last year and therefore, we had no inventory at dealers last year at the same period.
Maintaining a healthy network inventory is a key priority or bars, and we continue to diligently manage it to ensure that it grows in line with retail demand.
And finally, turning to slide 18 for an update on the guidance for the year.
The year, so far has unfolded generally in line with our expectations with some upside coming from the sustained demand for off road lineup driving better than anticipated results for both our vehicle and our pack businesses.
It was offset in part by a difficult season for outboard engines due to unfavorable weather in our weaker market position, which ended up impacting retail sales for the full season.
Taking this into account coupled with.
Solid financial results, we have delivered so far this year and the good visibility we have on shipments and expenses for the rest of the year. We are confident in our ability to deliver our year end guidance with a few adjustments.
We are adjusting our guidance to reflect the continued strong momentum we have with SSV and a TV and the impact on the pack business.
The completion of the North American Pwc season, and the better visibility we have on snowmobile shipments.
The weaker than expected season for marine and the sustained strength of the U.S. dollar compared to the Canadian dollar, which has a benefit of about 1% on total company revenue.
For the year, but does not impact the bottom line given that we're naturally hedged on an annual basis for that currency.
Accounting for these elements our total company revenue guidance range now calls for growth of 12% to 14%.
And the lower end of our normalized EBITDA guidance range has been increase and we are now expecting growth of 21.5 to 23.
As a result, the lower end of our normalized EPS guidance has also been increase resulting in a range of $3.70 to $3.80, representing our growth of 19% to 23% over last year.
The solid momentum we have at the retail level and the strength of our business fundamentals has given us the confidence in our ability to deliver our year end guidance and continue to grow out of solid pace into next year with this I'll turn the call back to shortly.
Thank you asked about seeing.
We are delivering our best third quarter ever in our seventh consecutive quarter of growth.
These record results are largely due to the strength of our strategy, our manufacturing efficiency and the seamless execution in all our operation.
Extremely proud of our people and that would like to thank all be RP employees for their hard work.
Our diversification strategy is speeding up and as you can see on slide 20 for the last four years, we have delivered an impressive 12% cigar bar parse pork retail and 26% for side by side.
This is our results of our BDC to constantly innovate and creates a very competitive lighten up as well as a strong dealer value proposition, which is driving high dealer engagement globally.
After a prolonged prolong stress of capacity increase in our manufacturing plan.
We are proud to say that these improvements have been successfully completed and are showing excellent efficiency.
As you know we're nearing the end of our current strategic plan called the challenge 2020, which will be realized a year earlier than plan.
We recently introduced the outline of our upcoming five year plan mission 25 to many of you last month during our analyst and Investor meeting in Florida.
That would be more information on this subcom as we continue to deploy the various elements, but we are confident in our ability to deliver to plan, which calls for an annual growth of 10% for revenues and 15% for EM.
Finally as mentioned our strong third quarter result of allow us to raise the lower end of our guide them not only our normalized EPS range, two or $3 72 to $1.80, representing a growth of 19% to 23% versus last year.
In conclusion, our efforts are paying off and we don't intend to visa.
No I will turn the call over to the operator for questions.
Thank you.
Please press star one at this time, if you have a question.
Well first of all participants, but just a follow up question.
Thank you for your patience.
Our first question is from Robin Farley.
Please go ahead.
Great. Thanks.
Two questions one is rather than guidance. So we could you speak louder.
Hopefully you can hear me now.
Had a question about your revenue guidance being up about 79 million EBITDA guidance.
<unk> million and have just kind of looking at the midpoint.
Is that primarily is the increase in shipments coming from.
Greg or.
We are something that would be lower margin just trying to think about.
Why the corresponding change in EBITDA higher.
Yes, good morning, Robinson, obviously, we're seeing good momentum and the in the around product business and Thats a driver of the increase in revenue growth.
But one of the elements as while driving the adjustments into the overall guidance.
Is FX for which.
The U.S. dollar has been trending higher than when we initially set guidance and so we're increasing the overall revenue guidance by 1%.
Driven by currency.
However, we are naturally hedged on the U.S. dollar and so a lot about does not flow. Unfortunately, so the bottom line and Thats why were not adjusting their profitability guidance as much.
Okay, Great no. That's helpful. Thank you.
A question just on.
The timing, obviously very strong retail and.
Tire.
In.
We'd expected.
And yet the full year. So I'm just wondering if you if you just kind of ship.
Earlier in Q3 that you'd originally thought you might ship in Q4.
If we might see corresponding.
Upside potentially to Q4 here.
Yes, the production is pretty much a frozen from now through the you're obviously when we saw the strong retail, but we're having in Q3 I gave us the opportunity to ship. Some units that were initially planned for Q4 into Q3.
And so we took that opportunity and so that's what drove the better than anticipated results in the third quarter versus what we had initially expect that are anticipated.
In other words, you not necessarily planning to.
You don't work.
No we will not the will not be increasing the adjustment. We made the guidance is a reflection of the strong Q3 that we had.
But we're not.
Early increasing the overall anticipated anticipation for this year as I said production is pretty much frozen from now through the end of year.
For side by side Greg.
Great. Thank you very much.
Thank you.
Following question is from getting Johnson from BMO capital markets. Please go ahead.
Hey, good morning.
Two questions here first of all you talked about sales programs as a headwind. Some margin you did increase margin nicely, but it was a headwind so where where you see increased sales programs and why and then I also want to talk about your own inventory.
24% looks like year over year on your books was finished goods up 50%. So you can talk about.
Turning on your books. Thank you.
Yes, we we've been increasing capacity over the last few years not only on side by side, but on personal watercraft and so that obviously allows us to build some of the inventory or some of the products a bit earlier than the previous years for watercraft. When you have counter seasonal markets, which are pretty big.
And so that gave us the opportunity to build that inventory incruse reported on the water for shipments in South America in Asia, and so a lot of the increase in inventory comes from that higher flexibility that we haven't better timing for market.
And also just the growth and side by side, obviously, that's been growing as well and so as we're increasing capacity in as we're increasing output that results in higher or.
Higher levels of inventory, but when I look overall in terms of number of days and I look on a full year basis, we are actually improving or number of days of inventory.
And so one comfortable with the working capital investments we're making.
Okay and on and on the margin side, well, let you will see probably cover the programs and then we could dive into the margin.
Good morning, Eric if I, if I look thats whats going on in the promotional envision.
Like typical at this time of the year for watercraft and snowmobile that promotional activity as normal.
On the TV.
I would categorize it as normal that's except for de mid C Contiguity, Noncurrent GTV, where.
There is quite aggressive program, there and we need we need to follow on the side by side, it's a bit unique.
It's quite aggressive on the non Karen.
Model, which is normal at this time of the year, let's what is abnormal despite some of the year as some of our competitor are already.
Have programs on the current models and on our side.
We have no program right now on domestic three on the sport category and we decided to follow with the two year on key or 300 to $500.
The program for the customer on the defender and the comment. There then this is a bit earlier than typical.
But we decided.
Two.
Be more aggressive on the defender income in there could be goody.
To follow some action of the competition.
Okay. Thank you.
Thank you.
Following question is on the shelf with one of one from Desjardins capital markets. Please go ahead.
Yes, good morning, gentlemen, congrats for strong quarter.
And the presentation you Maam, you mentioned that the strong side by side growth was driven by the utopian. The sport segment I was wondering if you could provide additional cars on the penetration you're seeing in the utility market. Please.
Yes, if I give you some colors.
On the sport category.
Marquettes was up mid teen percent.
On direct you, where we compete with the come under its was minus single digit and on the utility side. The end of the industry was up.
Hi, a mid high single digits.
But our sales into you could they see side is doing well and I will just give you a sense.
And many people talk about the AG eight and we categorize seven faith in us.
Part of the seven fade out.
Out of those seven state in six states. We had the industry was the we were going quite well, except in one state and our growth for the defender into AG fate was up by more than 40% when the rest of United States was up by about 30% then.
The point I want to make is done DCB you typically segment, which is the biggest segment.
The industry.
I have grown.
High single digit.
We outperformed significantly.
The industry in all United States, and particularly in the state.
Okay, great and induced states I mean in the future, there's probably more growth opportunities to penetrate those markets right.
But for sure like we've said many times.
We never really when we started with a defender it's was a slower ramp up because our dealer were not used to sell.
Side by side to farmer and in a bit different than recreational side by side, but I would say right now with the product lineup that we have with the defend the dealer engagement. We have a very very good momentum in the biggest segment if the industry.
Okay, Great and maybe if we turn over to the writer I mean, these strategies being off more than doubling the size of the market. This year, but I was wondering should provide any color on the demand front and what you're seeing for next season. Thank you.
I mean like we've said.
The the Reicher program will take a two three years.
So far was very very happy about the first year and Thats why in my script I was making the pad as between.
What we support the spark for watercress.
2014, and what we see here for the Riker, but I think what is.
Very interesting is.
For is the reichard to Didnt have been analyze the sales of RFP and three.
We had something like and then don't mean, I remember by had but 40% up new hen trend.
20000, coarse ore training program done with the conversion rates above 20% then all of this is very good indicator, obviously, our booking for multi year 20 is good.
And that the end.
We'll take two three years to really come from that the Riker.
Done what mark have done for watercraft, but that was stiff one year weve vertical that could then that will happen.
Perfect. Thank you very much protocol.
Thank you.
Thank you all following question is from Cameron Doerksen from National Bank Financial. Please go ahead.
Yeah. Thanks. Good morning, just question on the snowmobile market I mean, obviously this season's off to a good start in your retail is strong but as you mentioned it is a little below I guess, the broader industry and it sounds like some of your competitors at different sales strategy can you just talk us through that and what do you expect that you're going to make up some ground here as.
The season progresses.
Good morning Cimarron.
We believe that we are DCM, we sell the most pre sold units to consumer.
Some dealer turned to almost 60% of their orders is pre sold the consumer and unique can make sure you don't deliver all of them in the same month, then because we have about 50% of the Marquette.
And because there is a high ratio of pre sold units sold to end consumer we need to balance the where you ship.
Equal to the theaters and nobody I think had predicted at the end of October the market to be up by 2% that is just a question the timing and we.
We are very enthusiastic with the snowmobile season, it's been a wireless since we had the start like this and we consider then that the when all the model will be shipped to the dealers, we will catch up our market share.
Okay. No. That's just that's good and just maybe a couple of questions on the cost line items, just looking at the selling and marketing line item, but.
It does is from the up quite a bit year over year in and it was above would I would've expected industry because explain why that would have been a case and maybe the same question on the general and administrative Im just wondering if these are kind of new run rates that we should expect for those two cost line items.
Yes, you should expect.
And Thats little dollars ballpark these numbers not in percentage increase but not sort of numbers. Obviously, we are we are investing in our growth business.
The marketing spend is up as well in the quarter.
Just over 20%.
Club is a big period, a year, we announced a lot of a new product comes in there. So there's a lot of marketing dollars an hour.
Touch with up as you might recall, we had a.
A busy busy club with a lot of product news to announce on the side by side on the personal watercraft, so thats driving higher marketing spend obviously, the R&D element as well, we always said that we will slow down the pace of innovation and R&D as part of that innovation the introduction.
And the other element as a NIM.
It's also up.
Almost 20% this year versus year ago.
We've talked about this a few times over some calls we are investing more money in our IP systems and our R&D backbone.
And obviously that comes with dollars and Thats being reflected on the most of it as being reflected on the in line.
Okay, well that IP spend at some point to mitigate.
All we have that for a few a few years.
One point, yes, but call it the.
Mid to long term investment that we're Megan.
No that said Thats helpful. Thanks, so much.
Thanks. Thanks.
Thank you well following question is from Tim Conder from Wells Fargo Securities. Please go ahead.
Good morning, and congratulations gentlemen.
Just a couple of follow ups here.
Just a or sub whoever wants to take this maybe a little more color on the comment about the geographic market share impact and personal watercraft.
And then also.
The analyst meeting at the end of October you mentioned about.
The likelihood that you'll be in the near future expanding capacity again needing to do that.
Just maybe a little bit more color on that also on potential timing. Thank you gentlemen.
Yes, good morning.
The on there is still going to fixed mix, we will see do we always been and again. This is cervical because of our snowmobile Irets Asia, we always had the stronger.
Dealer network in this Nobel and in the East of North America than out West and South.
Honestly assi do.
With 50% markets or is doing well, but we have higher market share in the Midwest and into ease than the south.
And.
What happened.
Mean, we shift quite quickly from fall to winter and we believe that we're disadvantaged versus some of our competitor where we are strong then it's just a question of timing.
We have no doubt that with the new platform that we introduced club.
Which is indeed GCI.
Family, which has entry level product.
We have very very competitive lined up and it's a question the timing plus the other thing as for the had.
I would be careful with the number in Q3, because in the big picture, it's not big numbers in units.
Because we are in the tail end of this season than this is the are our take on the.
You'll get epic mix for watercraft.
On the capacity like we said at the Investor and then Alizay in Florida for sure. If we continue to grow and the basically growing on the side by side.
Business.
At one point will reach our capacity limits in you updates to.
And.
We are looking at all different knutsen.
And if the growth continue you can expect will need to make a decision with see within the next 12 months.
Okay, great. Thank you.
Thank you.
Thank you all following question is from Brian Morrison from TD Securities. Please go ahead.
Hi, Good morning question on the outlook for Q4, specifically on the cost side. Some of you mentioned higher marketing team it doesn't sound like as anything other than norm Im just wondering if there's any impediments such as accelerate products investment or commodity costs, because guidance looks a little bit conservative even with the frozen production and then when we look to fiscal 2021, how should we think about the EBITDA margin.
This is there any major changes in input cost impact and improvement.
Okay. One just looking at Q4, obviously, we are expecting a slower growth rate in revenue, but nonetheless.
Growth.
There is margin improvements important margin improvement coming in the fourth quarter.
As we have a bit more volume, but we also have a very favorable mix, obviously the side by side business.
Is the is continuing to roll out we have a lot of new products the.
Yeah defender pro the defender limited with the cabin the age factor.
These are units that will start shipping in the fourth quarter. We also have the new our key that's going to be shipping and so margins are going to be are going to be healthy in the fourth quarter and thats going to be driving the strong growth than if it though that we're planning when I looked into.
Next year.
We are looking at.
Margin improvements for next year, but we'll be giving you the full download over our guidance once we published our Q4 results.
And as you know our long term objective is to grow our EPS by 15% and so thats where were going to be driving for the next few years, but when I look at next year. There's a lot of good opportunities that are going to be obviously, helping the bottom line. One the strong momentum we have with side by side in a TV. The second season of Reicher and the idea and the introduction of the art.
Yeah.
The new see do platform that we just launched a few months ago, that's going to be shipping into next year.
And pack as well is going to be growing.
As our side by side business is growing.
This is going to be growing without the parts business is going to be growing with the increased fleet.
And who knows what the R&D team is going to reserve as a surprise the club and a few months. So I'm sure. We'll have some exciting news there as well so when I look into next year.
A lot of positive elements are going to be driving the growth when I look at consensus for next year as well as the number that I feel comfortable with.
But we can deliver so.
So lot of good potential.
It's helpful. Just in terms of realization of initial cost savings from them 25, when when when should we start to see that those flow through.
Well, obviously some of the pillars of a 25 are already in place so in terms of.
Cost reduction on product design that.
A platform that we've had.
Now on for at least three four years, we're deploying fully on personal watercraft. There is also going to be some opportunities on the side by side business as we grow so that's one of the big elements.
And as we're rolling out some other new.
By the tools that we have what will be also leveraging some of the benefits of that through to increase operational efficiency.
Thank you maybe one last question Joe stay on on Marine segment ongoing headwinds as in test as anticipated now Youve digested tell water, presumably they don't face the same hurdles wondering if it's tracking with expectations and then in terms of the no new projects such as goes perhaps some insight as to what's been shared with the dealers to date the reception and how we should think about timing.
Yes first of the water is it's Mueller is very new but.
It's plant those surprise on the water I was still in the North America Bold brand new might could add new ECA had pretty good quarter in many to had a very good quarter and because of pontoon. It's a high inexpensive product we put some promotional dollar dare to held the dealer to lowered.
Inventoried the.
Side, we have good order for season 20 that will start in Q4, but.
Now lets piece was not the best season.
Our first both the both business, but that being said again like we explained to you at the Investor days, the mid to long term spread PD and all the program about the new both within the New goes program and Mento is on schedule than though no change there we keeping the Corey thanks.
Very much thank you.
Keith.
Following question is from Craig Kennison from Baird. Please go ahead.
Hey, good morning. Thank you for taking my questions I wanted to ask about the side by side market.
You had tremendous success in that channel, taking significant share I think over simplifying it's been about product innovation, but also about profitability your dealers make a good amount of money on those units have you seen any erosion and profitability in the channel of your product.
As you as you try to expand in that category.
Good morning, Craig.
For sure if you if you play back.
The history, we first we enter a lot of white space with all our products and this combined with our dealer river value proposition.
We.
This is the winning combination invest what we've been facing the industry significantly.
All the dealer value proposition is also evolving we always work every year, we were rise RPM me for the dealers.
Also we make sure that we have the right balance between promotion and between no promotion to make sure that the dealer.
Perfect as much as the cat they can their margin because we don't want to ERP dealer competing again to be our two years.
And overall that was evolution between now and the when we introduced the the program deal the overall program, but I would see.
Some slight variation, but if you took overall I think we are.
In the same ballpark than were a few years ago.
And the most of the dealer make very better margin.
With our product versus some of our competitor and we've been maybe if I add one point, we've been diligence and adding dealers what are the key differentiating elements that we have versus other Oems as the fewer number of dealers and therefore less intra dealer competition and that's a number that we're tracking very closely to make sure that were not.
Building out too many dealers, therefore, increasing dealer competition between themselves.
Thank you and then wanted to ask a question about slide 13 shows.
It shows the net impact.
The higher than that and improvement in the attachment rate.
Or having mood and alumina craft and Manitou.
I imagine there was some offset and maybe you would drop from other brands just any way to describe the net impact.
Well if you remember when we acquired the company.
It doesn't.
Teen dose to company in 2018.
Yes, and Mercury stuff.
Stuff.
Supplying engine to I'd, Mek RAF and many too.
It was more disrupting for I do Mecca because.
Those two brand, we're a big portion of our both sell.
For many to even load was already in the 40% range assessment on their pump to then as you might cut off was hit harder than.
Than many too that being said now after one full season.
We know exactly which Dieter are engaged for both of you Mecca venues and menu to individual food and now we can we believe we can grow the thats going to rate from.
From now at the good pace, but the first here.
Again was more difficult than what we had anticipated because of the reaction of our to accompany that they're in the vote in the engine if you could.
Great Hey, thank you.
Thank you.
Thank you.
My question is from Matt. Thanks.
Please go ahead.
Thanks, I just wanted to clarify that comment that production is frozen juice in the context.
So they can.
Factors capacity increase so can you.
Clarify it like we talked capacities at 25% to 50% year over year, and then why can't you shift more to meet a stronger than expected demand.
Yes. Good morning, as you know we enter most for TV side by side watercraft and the three will vehicle business, we introduced our new model, let's say in the summer between June and September .
Typically at the at the introduction of a new model year, you going to full capacity because you're supplying.
To the dealer done then.
The quarter that is more volatile side in term of.
Flying to our manufacturing us look at best these although we Q2.
Typically in our business.
We are running Q3 to four.
Almost all the time a full of our capacity.
Q1, most of the time is running full confessed in Q2 can be more versatile depending of the year in the retail and all this that's why.
The coming up sebastiani.
Because of the strong demand we have on our retail.
We were and that the good dealer order backlog that we have.
We are already we're planning to two into Fourq to run at full capacity.
Okay understood and can you share.
Any indicators or your confidence on retail momentum heading into Q4 or in Q4.
While we.
Obviously, we don't.
We looked at our retail we have good visibility what I can tell you is that we're not seeing any changes in the consumer behavior.
From what we saw in Q3 and what we saw in the previous quarters of the year.
The.
Demand is still there and the consumers still walking into the stores to buy the buy goods. So that's a good good indication.
Thanks very much.
Thank you.
Following question is from direct delayed from Canaccord Genuity. Please go ahead.
Hi, Thanks, and congrats on a strong quarter just one for me just in terms of the inventory that you've got at the dealers now that you already shipped it can you just give a comment on on on the year like is it mostly current year models that you're seeing in the inventory channel at this point.
Yes, the inventories very clean when I look at what's driving the increase a.
A bit of personal watercraft inventory increase but the main drivers are side by side and reicher as we're shipping the new model years. So the inventories very being I mean, we have.
Less than 5% of the inventory in the dealer network that is more than 18 months old so.
It's very clean inventory and nothing nothing obsolete.
Lying there.
So then from a promotional perspective, I mean, if the inventory that claim you should be pretty light on the promotions going forward are involved.
I'm not expecting a big change versus what we've seen overall in the in the last let's say 12 to 18 months.
There was always promotion happening you want to make sure that the consumers walk into the dealership and so that's that's again a big driver about.
So I'm not seeing any any slowdown or any increase in promotion.
Okay. That's great. Thank you very much.
Thank you.
Good question is from Jamie Jeff from Morningstar. Please go ahead.
Hi, Good morning have a couple of questions just on marine.
Given that the marine margins as contrasted pretty significantly this year I know you pointed to.
The promotions and manage here should we.
Fourth quarter margins will be negative again this year.
And then going forward, if you have a target and sort of run rate for the margin for that.
Just curious to hear what that might be thanks.
Yes, the margins will be tough on the marine business for the next the next few quarters.
Obviously always a is more a challenge position than the both businesses are in always the bigger part of that business. So.
So.
Im not seeing any material improvement in margin, but I'll remind you about our marine strategy as a mid to long term play.
That's why we've decided to invest in both companies and become a better integrator of engine that both within within both than that.
Improvement in our business will materialize next year, but in fiscal year 22, and in fiscal year 20, threes from its not expecting any short term improvements in that business.
Question, and then could you give us an idea.
Maybe what percentage of full year orders you think you have visibility tail for 2020, I know you guys attainable.
Pretty nice extra that.
Marine business is tracking in line with certain what your expectations are.
I don't know I can't sort of judge how much visibility you had mentioned that at this point and how much is remaining to play out given that we're only in November but.
But the waste work, we've done three dealer meeting one point, even though the two for one for many two and one for the new Mecca in August .
And that's their dose dealer meeting dealer gave us order.
From ordered for delivery until the end of Q1.
In parallel you will they will start to do both show around Christmas time, and everything for the end of season 20 is like.
Additional order we depends on the boat show.
Sales and also how the spring will evolve then that the cycle that we planning and the right now we have firm order till the end of Q1.
Excellent. Thank you so much.
Thank you we have no further questions suggest so at this time I would now like turn and meeting back over to Mr. addition.
Great. Thank you mode and thanks, everyone for joining us this morning for your interest in VR. We look forward speaking with you again for fourth quarter Conference calls scheduled for March Twentyth.
Thanks, again, everyone and I have a good that.
Thank you.
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