Q3 2021 BRP Inc Earnings Call
All participants please standby your conference is likely to begin good.
Good morning, ladies and gentlemen on welcome to the B piece Q on Q3, EPS why 2021 earnings call I would now like to turn meeting over to Mr. <unk>.
Please go ahead Mr. Shane.
Thank you Mike.
Good morning, and work on the Rpcs Conference call reported third quarter fiscal year 21 day.
Joining me this morning, ARX, <unk>, President and Chief Executive Officer, and Sebastian myself, Chief Financial Officer.
Before moving to the prepared remarks, I would like to remind everyone that certain forward looking statements will be made during the call that are subject to a number of risks and uncertainties.
Invite you to read your piece Mdna force thing of these.
Also during the call reference will be made to supporting slides and you will find the presentation on our website that ERP dotcom on Dirty Investor Relations section, so with that I'll turn the call Richard on that thank.
Thank you <unk> good morning, everyone and thank you for joining us.
As you know fiscal year to on the one that's been as Eddie bullet died year from us.
Once the temporary shut down the list.
We're able to resume production at full capacity.
Speaking on special measure to manage our supply chain and I'd been especially vigilant about predicting or people.
Given the increased book with any of our product we feel fortunate to be where we are doing this time of international instead of eating it.
It has been an exceptional period and it's not over yet.
I would like to start by thinking that he market bold indications our people.
Theaters on suppliers.
On to the occasion and allow us to continue to deliver incredible result, while still answering the health and safety of our team everywhere around the world.
As you are aware interest into force sports sector remains very high and I was trying to line up continue to allow us to outpace the industry worldwide.
Although we faced some production challenges, we're able to manage them and we are delivering units in line with our plan.
Let's turn to slide four for the financial highlights of this third quarter.
Our revenue for the quarter were up 2% driven by year on the products, partially offset by lower on sales of seasonal products due to a change in timing on personal watercraft production.
Our gross profit margin came in much better than expected at 29.1 per cent.
As the continued strong consumer demand allow us to reduce our promotional activity.
And drove a richer product mix than planned.
Our normalized EBITDA ended the quarter up 30% to 349 million, resulting in a normalized earnings per share on $2 Truteam up 41% over last year.
We expect this positive trend to continue over the next quarter and beyond and based on this we are increasing our year end guidance with revenue now expected to be down to 125%.
Normalized EPS up 31, 37% to a range of $5 to $5 or 25.
As I mentioned earlier the demand for our products remain exceptionally strong in the quarter, leading to our lower commodity can far sport retail being up 16% year over year.
When excluding excluding personal watercraft for which network invented he was at an all time low on the quarter of at the start of the quarter.
Our North American far sport retail was up 29 per cent compared to an industry that was up mid teen percentage.
The strength and diversity of our product portfolio also led to solid retail growth of 16% in Latin America, and 22% in his yet [laughter].
Only he gave me experience or retail declined in the quarter with retail was down 9% zoo to inventories shortage.
Looking now at North American retail by product line on slide six.
Again this quarter, we have delivered solid growth across the par sport product portfolio.
Side by side any TV, both Uh huh.
Their industry with very strong retailer result, up about 30% and low 20% respectively.
She will have equal ended the season on the strong, though which we still up about 60%.
I remind you that this is on top of the high of 80 per cent growth in the same quarter last year.
Somewhat bailey is off to a good start for the season whiskey to retail already up low 20%.
And personal watercraft was our only product that's was down in two or three.
It was for the rest of the industry.
As I already mentioned this was due to the network inventory being at an all time low both in North America and in international markets at the beginning of the quarter.
We are pleased with the friend or lined up which continued to gain share in this very healthy industry backdrop.
Now on to slide seven and the current trends in our industry.
Like others in the bars sport business, we are seeing continued consumer interest.
And we have delivered another quarter of robust power sports retail growth from.
Mark you treat our par sport retail is up 29% when excluding personal work rough.
Following a strong retail pads on trialed the quarter.
For example, the RV industry average investment in the quarter in October in term of growth and we saw this year. The best starts of the snowmobile season, we have observed in five years.
This solid growth is coming from both new entrant and return or customer.
We have decided to expand or extend their interest in par's sport.
Based on a survey we conducted the recently, we estimate that 34% on buyer or new entrants.
We are feeling optimistic that this strong level of consumer interest is something that can be sustained.
In part this is due to the continued strong consideration for product shown on line with for example, Ken I'm off road vehicle the website visits up 59% in October.
Compared to last year.
And personal watercraft free season customers certificate.
We're already up 12% at the end of October versus the entire full season October to March last year.
We also loans are two will be equal to Ryder education program Daily registration is trending twice last year level since the beginning of November so the interest does not appear to be slowing down.
With our retail and production plan aligned to this current and projected growth. We believe we are well positioned to capitalize on the growing consumer interest in far sport.
Turning to slide eight I would like to talk about our recent product introduction.
In 2020, our traditional lunch models for new products evolve to be exclusively virtual.
We have two global virtual event in the third quarter, one fourq on them and the one for a seat.
These were both very popular had over 80 per cent attendance by our dealers around the world and allow us to reach a growing consumer audience on the same time.
She was free events will include many of the same element to reach an even broader audience.
Regarding our product introduction.
In the side by side you see the segment would enforce our premium offering.
Having a very are very popular cabin with H. HVAC and the lone star package to our long box lined up with the introduction of the defender Pro limited and defend their pro Lonestar consider to be the best in the industry.
We also strength him or mud lined up with the introduction of an improved this good luck for luck.
At the TV industry best from will drive system, which provides equal power to all four wheels and the push on the button.
Providing and even more jobs right on.
Force he do our mother your 21 lined up include industry, leading acceleration and control with a completely redesigned our expenses X 300, which include the per from his inspired Ed Good luck our system.
Which old the rider in a perfect position.
We also took the onboard experience to the next level with the launch of the 7.8 inch wide full color LCD display.
The industry first app enabled Bluetooth display providing full control of music navigation weather and more.
These product introduction were very well received by year end and media.
And booking was very solid.
Now, let's turn to slide nine for the year on product highlight.
Revenue were up 11% driven by lower sales program and the richer mix.
Meanwhile, volume of units sold was slightly lower than last year due to many of the units produce being and trends. It does he planning on our international yard and venturi, despite increasing our product number a production numbers.
As mentioned during our Q2 call.
These units are expected to be sold over the coming quarters.
On the retail side.
Four months into the season 21, the North American side by side the industry is up low 20%.
Kinda them side by side continue gaining share, especially in the utility segment with retail up low 30%.
Do you see the industry is also form on into it sees on 21 and retail is up high 20 per cent.
And I'm also up high 20% over the same period.
The demand for off road lineup is very strong and we believe we could have sold additional unit had we've been able to supply more of them.
We have broken ground on the construction of our new side by side manufacturing facility in Mexico, having 50 per cent of side by side production capacity.
The project is progressing on on and is expected to be ready for operations by fall 2021.
Now looking at the free will vehicle.
The North American three will industry ended the season 20 on October Thirtyth.
With retail up low teen percentage.
Our cat Mtwo sales equal retail was up low 20% over the same period.
Gaining share in both the tree will have equal and two wheel motorcycle industries.
This season was very successful far tree will have equal business.
One school were allowed to Wideopen, a writer education program continued to attract many potential customers and we now have over 31000 course completed with a better than they anticipated conversion rates to new and used unit of over 45 per cent we.
Also lunch, they're kind of woman Mentorship program.
This program is designed to overcome the battier that have traditionally traditionally held woman back for experiencing the pleasure of riding through income CBD and education.
We already have over 6000 active highly engaged members in the program has been given significant coverage from magazines, such as Forbes and Rolling stones.
We are pleased with the traction we have with this program and the positive feedback received from participants as well as potential going forward.
And finally Riker had another very good season.
Over 50% of Riker customer, our new entrant compared to slightly more than 40% last year.
Were also successful in attracting key buyer group with over a third being woman almost three quarter of writer under the age of 55 and almost half from diverse communities compared to one third last season.
They're riker as definitively been successful at attracting a younger and more diverse customer base growing our total addressable market.
These different initiatives, we are paving the way for a new entrant to join our sport and to continue to grow the business.
Turning to seasonal product on slide 11.
So its a little product revenue were down 8% from any due to a change in production schedule for personal watercraft versus last year.
The lower shipment volume were partially offset by lower sales program now.
Now looking at retail the North American personal watercraft industry end the season 20 on September Thirtyth with retail up mid single digits.
He do retail was also up mid single digits per cent stage for the season.
With the success of the new Gtld platform.
He took the number one position in their recreational segment.
And now I'll lead every segment in the industry in North America.
She do is also off to a good start in the season in counter seasonal markets, we create scale up high 20% in Australia, and New Zealand and up mid 30% in Latin America.
Given the strong demand for these products compounded by the production shutdown.
We experienced in Q2.
We ended the season with network inventory at an all time low down 95% from last year.
These low level of inventory and the stronger trends in consumer certificate, we are expecting a strong performance for personal watercraft business next year.
Looking at snowmobile why it's still early in the season, the North American industry retail is up mid teen percentage.
You do retail is up high 20% over the same period, despite a lower level of inventory available in the network.
Given that the men force snowmobile does not appear to be diminishing we have decided to extend our production schedule on till mid January foresees on 21 day.
So as I commented before in our increased guidance.
Continuing with the look at par sport parts accessories, and apparel and OEM engines. This.
The same phenomenon, we have observed with equal likewise hold four holes for parts accessories and apparel.
Revenue were up 15% driven by a higher volume of P and they coming from strong unit retail sales.
And higher replacement parts revenue as a result of increased use age of product by consumer.
The focus we have placed on our link accessories lined up is paying off.
Looking at Marine revenue were down 25% in the quarter driven by the wind down of the even rude outboard engine line.
At the retail level the positive momentum continue for many do until the water both delivering mid 30% retail growth.
I think America saw a slight decline in retail due to limited product availability.
Since during this period, we have been consolidating our operation into sales Peters, Minnesota facility and close the EPS could that be a plant.
We are pleased with the performance of our boat brands and the progress we are making on our strategy to transform the marine industry.
We look forward to sharing with you soon more detail on our latest initiative.
With that I will turn the call over to Sebastian Thank.
Thank you Julie and good morning, everyone. We achieved very strong results first third quarter as we delivered on our production plan and benefit from benefited from the continued robust demand for products, which led to lower than it [noise].
And a richer than anticipated product mix, our revenue revenues reached a record level from third quarter of $1.7 billion up 2% over last years third quarter.
Our gross profit margin and a 29.1% representing a 220 basis point increase driven by favorable impacts from volume mix pricing and sales programs and partly offset by unfavorable foreign exchange rate variations on.
Our normalized EBITDA was up 30% to $349 million driven by improved adjusted gross profit margin and lower operating expenses <unk> as a result, the cost saving measures you have implemented earlier this year to mitigate the cold weather impact. This resulted in a normalized EPS of $2.
And 13 cents up 41% from last year. The strong performance also translated into solid free cash flow generation of $228 million in the quarter bolstering our financial flexibility as we ended the quarter with $1.3 billion of cash on the balance sheet.
Looking more details on our revenue by product category and geography on slide 15 shows.
As I mentioned, our revenue growth in the quarter was primarily driven by year on products and parts accessories, and apparel and OEM engine product categories in terms of regional breakdown revenues were up 6% in Canada up 7% in the United States and down 10% in international due to having very low level of.
Art inventory in many regions. This is why a good portion of our increase in production in the quarter was allocated to rebuilding international yard inventory.
Turning to slide 16.
Our quarterly normalized net income was up about $54 million from last year, driven by volume mix pricing and sales program for a favorable impact of $77 million and lower operating expenses for $18 million. These elements were partly offset by higher financing costs and normalized tax expense for 42.
A million dollars turning to slide 17 for a look at our network inventory position.
Both our North American network inventory in our yard inventory remained at low levels. This quarter with a year over year decline of 53, and 39% respectively driven by the continued exceptional demand for our products in terms of network inventory all of our products are seeing declines versus last year with the exception.
I have three wheel, which inventories more flat compared to last year as we already started shipping volume were 21 units for the upcoming season.
Again, we are taking the necessary actions to manage the growth on our business and meet the strong demand for our products. This is why we have decided to extend the snowmobile production schedule quite a few weeks and have increased production line speed force or V and personal watercraft.
As we already saw over the last quarter.
As most of the Oems were competing on a more equal footing in terms of network inventories, we were back to gaining market share and we are confident that as we rebuild inventory and maintain or fast pace of product introductions, we will continue outpacing our industry.
And now the guidance update on slide 18, our third quarter results came in well ahead of our expectations driven by the continued strong consumer from consumer demand for our products, which resulted in lower sales programs on a richer product mix and consequently, better than anticipated gross profit margins.
Accounting for these strong Q3 results on the expectation that we will continue benefiting from lower levels of sales program and a richer mix on the fourth quarter. We are now expecting our year end results to be significantly better than our initial guidance, which we introduced last August in terms of revenue other than the other than the elements on just mentioned our gross.
This is also impacted by the extension of the snowmobile production schedule and the continued strength and RPN a business based on these factors or revenue guidance ranges are now down to two up 2% free around products down to five per cent for seasonal products of five to seven per cent for P.A. and OEM engines and down.
25% to 30% from marine which as you remember as impacted by the wind down of the outboard engine business. This.
This results in total company revenue guidance of down 1% to 5% reviewed upward from down 5% to 9% on.
So based on the same positive elements are normalized EBITDA expectation has been significantly improved and we now expect it to grow between 20 and 24% for the year, resulting in a normalized EPS that is expected to growth, 31% to 37% to a range of five to 525.
Our guidance range remains wider than usual for this time of the year as we still face uncertainties related to the corner virus, while we have put in place strong measures to protect our employees were on on immune to the potential risk that the virus could represent on the economy, our dealers and our suppliers, which could lead to reduce the man lower production or increased costs, hence the wider range.
As you can appreciate the guidance does not reflect the impact of more comprehensive confinement measures.
Would be implemented with a second wave similar measures similar to what we saw last spring.
Finally, given the strength of our balance sheet on our positive outlook for the business. The board of directors has approved the launch of a normal course issuer bid and the reinstatement of our quarterly dividend starting in the fourth quarter. We believe these initiatives allow us to enhance the return we provide to our shareholders, while preserving the necessary financial flexibility to operate the business.
In these on certain times, while continuing to invest in our long term growth with this I will turn the call back from.
Thank you the best King.
As you recall free Cohen, our growth trajectory at the end of fiscal year 20 was very positive with retail growth in all product line up 15%.
In an industry Thats was up mid single digits.
The surgeon demand as offer a major opportunity for us to continue this space anyway.
And we are working hard to maintain it during this period.
Although we recognize the pandemic is far from over we remain positive.
Consumer interest is still growing and we are achieving a good balance between new and existing customers.
A line ups continues to gain attention and therefore gain market share globally due to our ability to introduce industry shaping innovation.
Our inventory is at an all time low and we have a strong replenishment cycle plan in the upcoming quarters.
And with our additional capacity next year will be in a good position to support this increased growth.
Given all this we feel we are well positioned to deliver our new guidance for the year and are optimistic for fiscal year 2002.
I would like to end on a personal note.
Without the incredible people, we have in each of our offices and plan around the world will not have been able to continue to maintain the demanding schedule that the covitz situation combined with higher than ever of consumer interest has.
Has the acquired from us.
So I wish to thank our employees for their resilience and their diligence to their careful and innovative and management of our operations.
A successful company is the result of many did he could dedicate to the head and and and.
And we are fortunate to have the best in the industry.
And on that note I will.
Let's turn the call over to the operator for questions.
Thank you.
Please press star one at this time.
Question, Yes, we fall.
Paul from all participants that just on for question.
Thank you for your operations.
Our first question is from Robin Farley from you.
Please go ahead.
Great. Thank you just wanted to ask a little bit about.
Check such on the after very big month in July that August and September had had sales.
Very good growth rates that you had a little bit slower than July so I'm curious about the acceleration in October after that and I guess on September you is that just October having a lower base of comparison or was it an increase in product availability just kind of trying to think about how.
And then any insight.
Insight you can give us until November.
And then if I could just your thoughts about next year.
Incredibly strong growth here, obviously, you have so much restocking that can drive your shipment growth, but is it reasonable to think that that may be that the growth rate just.
So there was some pull forward and maybe the next retail growth won't be till the year. After next how to think about that longer term Inc.
Good morning, Robin that's a loaded question.
Uh huh.
Just to go in sequence. The this is the third quarter to retail was very strong every month August September on the October September being the high I think.
October is always a transition between summer product and the winter, but overall, I mean with 20% to 29% growth.
In an industry Thats wasn't mid single digits, we are very happy with our retail for Q3.
Number is off to a very good start and the.
If we if I gave you because I know this is an interest for all investor If I give you some numbers for the first when the days of October.
Our retail worldwide is up slightly below 30%.
And that's despite last year, we had the growth.
In November of 23% for the whole month.
Then on growth worldwide is slightly below 30% and that's despite EOP me because of a lack of inventory is up only low single digit net.
I mean, nothing immediate GAAP is slightly above 35 per cent sensitivity.
Good retail in November.
Looking to next year and when you think about it.
Obviously, we don't know if it will be ready confinement on what will happen in weighted to but when you think about it.
Snowmobile season last year stuff in mid March the writing stuff from in March.
And the dealer gave us the aisle.
In mid April in the middle of the Confinements then they were somewhat conservative.
Watercraft, we run out of product by the end of July.
Because we were shutdown the factory were shut down for two months.
She will vehicle the school were shut down for three months and the retail peak after but we hope next year, two will be better or V will run out of product or product was very low in inventory and we have a new factory a.
For side by side that this plan in the fall of 2021.
And in Marine are affected he workflows for six weeks and on top and you make it is we had an additional month of closure because of the transfer from a cash flow to St. Pete.
And I believe all of us learn and when I say all of US is our dealers our suppliers and in US we are better equipped to operating to us into this new context of coated with all the the norm for silver employee.
And that's why we cannot plan for a complete shutdown of next year, but we feel that if things continue like this we are well positioned to end the quarter and for next year.
Okay, great. Thank you very much.
Thank you.
The following question is from Steve Harvey.
Capital markets. Please go ahead.
Yes, great. Thank you and good morning, Im just a couple of quick questions. Just first a sense on the cost structure looking forward on.
You made some pretty heavy cuts in the spring.
As Colin said again, just wondering how many of those costs you had to bring back in towards the.
Q3, I guess or now and how much of that kind of from an impact you think on gross margins on an apples.
Yeah. Good morning, Steve Obviously, we did benefit in Q2 and in Q3 from the cost saving measures that we put in place earlier this year.
With how the business is trending so we've decided to invest strategically in some of the initiatives and so I'm not expecting that trend of cost saving to continue in Q4 Im expecting.
Expenses to be up year over year.
And on for next year, obviously, we'll continue with on investment as you alluded to or expectations for next year are very good.
And obviously this comes with a with a well positioned investments are well, we'll continue seeing that.
[noise] spread increase but one thing I want to remind us with the shutdown of Evan rule that will bring overhead savings of about 70 to 80 million Oh on on a permanent basis. So that's obviously going to benefit our results. It's benefiting our results. This year, but also for next year as well.
Understood.
From all the cost measures. It was interesting to see that R&D wasn't cut in fact, it looks like it was up about 10% year over year on Q3, I guess looking ahead with with that investment is that likely to state your normal.
Around 4% level or might you invest more on this time to accelerate some market share opportunities.
Yeah, well as you know innovation is key to our business. It's it's what's been driving our success in terms of market share gains on the last the last several years. So that's the last thing we want to cut than we've been pretty open with investors over the last few years that if a recession were to happen. The last thing we want to do was reduced from drastic your R&D into.
Yes.
And so we've been able to protect that and you see it in the investments we're making in the third quarter and next year. Our expectation is that we'll continue to run at the historical levels in terms of percentage of revenue.
Okay. Good color. Thank you.
Q.
Thank you.
Following question is from Craig.
Craig Kennison from Baird.
Please go ahead.
Good morning. Thank you for taking my question relates to your inventory in the channel I think it's possible that the channel has never been more profitable due to the scarcity on.
Issue.
As you catch up to demand can you preserve some of that scarcity to improve the profitability of dealers on a sustained basis to me it feels like thats been an advantage for be on P. and that your dealers on particularly profitable, but I'm wondering if you can sustain it in a better way this time around.
Good morning, Craig then first for seasonal product for watercraft and and the snowmobile and that would include three wheel on this because we don't produce on a 12 month basis yet.
The it will be difficult because we're producing almost eight months seven eight months for product line and the retail season is quite short and these were producing basically to orders that the given to us in advance and.
And I think we'll probably go back to the FICO vid situation in dose product line now.
On the year on products like.
TV and side by side. This is another story.
You talked on the right the low inventory is benefiting.
The dealer and us and everyone. These that'd be about that we plan to reduce going forward by 25%.
But it will depend on how the competition will.
Also be aggressive because everyone is fighting for market share the nice thing.
Short to mid term, we'll see the on venturi lowered than be free Cove. It mid.
Mid to long term, we could go back to free Corvidae situation when everyone is fighting for market share.
Thank you and with respect to your new capacity in Mexico that production comes on line in the fall of next year when would those units actually show up in dealerships in a meaningful way.
In the following week.
When the production will be running on will be delivering right away from by the other through for next year, you will see the impact on our inventories.
Perfect. Thank you.
Thank you.
The following question is from a margin Montney from Stifel GMP. Please go ahead.
Hi, good morning, and congratulations on these impressive results.
You you seem to have gained market share at retail.
In a second it significantly in side by side during the quarter I'm, just trying to better understand what was the driver was it you know scarcity of products from with your <unk> competitors or is it really a like strong demand of your own products.
But I think the thing we were already gaining share pre corvidae, we had a very very good momentum with our line ups recorded.
And from what we see or we are able to deliver our two to run our facility.
At capacity, probably better than some of our competitor right now we are delivering on plan as.
I have to admit managing the supply chain those days is a bit bumpy there was some.
On difficulty, but our team is very good to manage and very energized to manage those situation.
But I think in Q3, it was our ability to ramp up production and run the facility at full capacity with minimal interruption.
Okay, and then turning to to watercraft you know your inventories that are at a historical low can you give us more color as what you're going to do from a production standpoint to to catch up to demand at all right.
Are you starting production earlier.
And to buy what quantum are you increasing production this year versus last year for free watercraft.
Well just to give you a sense of what they are we shut down the factory in April may.
This year in the peak of the production because we were filling up the pipeline for the retail season that is June till the end of the September then we shut down the effect on being the peak.
Third when we started Defectivity, we have you started defectivity producing some of the of your 21.
In advance to make sure that we will not create an on trend, but those does appear very quickly.
And if you look at our level of inventory, it's less than one units per dealer than the dealer are empty network is empty and we have a very solid booking for next year and we've just started production after their shut down.
As seen on July and we're running since that time at full capacity then.
Then we believe that for Watercress, we will be in good shape for next year production.
Next year retail sorry.
Okay.
Okay is there any sense of you know how much more capacity, you're adding versus last year.
Just in terms of a just to give to help you out here in terms of the inventories situation. Usually we finished the season with good years, probably 10% of next year retail 15%.
And so just that replenishment of inventory would call free 10% to 15% increase in production just to meet that the that the men.
Okay, plus plus the.
The extra demand, we're seeing right now so plus extra them and what we're seeing but again you have flexibility to enjoy to adjust our production schedule today, it's too early to call, but just on the inventories side, I'd say, 10% to 15%.
Okay perfect. Thank you.
Thank you.
Following question is from Mike Petri on.
Please go ahead.
Hi, Good morning could you just provide a bit more color and maybe a bridge on the factors pushing gross margin higher in the quarter I know you called out most of the benefit being from full price realization on lesser promotional activity, but just could.
Could you could you quantify that and any other factors I guess, including.
Mix and specifically the removal of the outboard business.
Yeah, obviously this quarter or we saw a big benefits coming from the programs and there is a timing effect on programs. When these programs are provided for for accounting rule. Some of these programs were provided for when we ship the units so back in Q1, and Q2, and obviously with the low level of inventory.
And the strong demand on these programs were not needed. So these provisions were released I prefer looking out on a full year basis on the first nine months of the year. So provide you with better comparability as to how the gross margin is performing so from a <unk>.
Oh, a nine month volume and mix and pricing is favorable 90 basis points sales programs for a full nine months is favorable about 200 basis points.
Production with the absorption of in Oh added overhead costs, because we had to shut down operations for two months is negative 130, the impact of the exit of outboard engine.
It is now.
Negative 140 basis points on the gross margin and then we have what we call a corporate costs or <unk> or restructuring or we have to pay employees as well.
So for about a 80 basis point those wells. So a good overall impact coming from programs as you see for 200 basis points and that was what was the indicated we'd like for that to continue on next year. We believe that early part of next year, we'll be able to benefit from that or lower reduction of promotional activity.
Okay. Okay. That's helpful. Thank you.
On my other question was just with regards to how the replenishment cycle in in fiscal 20 to how that's going to change the seasonality of your revenue and margin than I guess, you sort of alluded to it.
That that is going to be helpful. In the first half of next year, along with a lower sort of promotional programs.
Programs, but how how should we think about that as we think about the typical kind of seasonality of revenue and margin for.
For fiscal 2002.
This is something which I've already talked about in the Q2 results was the fact that we are pushing production more towards next year personal watercraft or is it going to be a greater percentage of the current model. Your units are going to be shipped in Q1 same thing for three we also that should bring higher profitability in the early part of next year.
Compared to what we had in our historical numbers.
Obviously in the second half of the year, we're going to be opening up the new plants. So there was going to be a bit more higher costs, but we believe that with the added volume will be able to offset these costs quite a quite rapidly.
Okay. Thanks, and just you talked about the supply chain performing pretty.
Pretty well in recent months, a and maybe leading to some of your outperformance on a retail level. So is that to say that you really havent had any material issues with regards to the supply chain. I mean, I know you guys are cautious on that I'm just in general but have you had any issues at this point or in Q3.
I mean, we had situation, where we had to airfreight parts or rescheduled to accommodate a supplier who had difficulty but.
But this is our daily life, we do that all the time and overall the team have done a very good job to manage it and that's what we foresee will continue.
But this manageable overall.
Great and sorry, just one last one on a clarification I think you said new entrants or 34% of buyers. In Q3 is that those are that's new to the industry or new to be RP.
Yeah on this I will give you more color because I know, it's a high interest for many investor and analyst.
Then here I gave you some colors.
The.
First we don't have any number to compare to last year Q3, because when you Didnt do in this survey.
Last year, but I, we've done a survey.
This Q3 on here the colors we.
We service when they 400 participant in non country.
People to purchase vehicle in July August September.
And we service them. The first 20 days of October then quite new.
And historically, we have about 20% UN trends in our industry and this time.
With this service was 34% now we're getting smarter and we dig with more question out of the 34, 20% toward new to parse sport then totally new.
To the industry and 14 was new to Casegoods does mean someone who had the watercraft and they've decided to buy in the TV.
34%, new entrant, but 66% of experienced customers.
What is even more positive for us.
Out of those 2400 participant in the survey.
70% to 72% were due to be RP.
And 28% was be RPT purchasers.
Then we feel quite confident and that's a testimony of our our ability to gain market share we feel pretty.
Pretty encouraged with those numbers, because we put a lot of in phases on new and trend and mini on wondering.
He is doing you on trend will continue post Cohen from.
First we have an indication that it will remain but the growth. We had was also a leg up because of a very loyal experienced customers and new to the brand.
Okay. That's great appreciate all the comments on the basket.
[music].
Thank you.
Following question is from.
Cash.
Morning Star.
Go ahead.
Hi, Good morning, Thanks for taking my question, So Im curious about on Europe.
Europe from what you guys are seeing from pattern or behavior. There obviously.
Airway from constraints on the inventory levels, which acted as a drag on through pipe, but are you seeing the same sort of demand you are seeing in North America.
Yes.
Thanks.
Well, if you recall or to between numbers, we had very strong demand in the in Europe were.
Were softer in Q1, because they were more confined Q2.
Confinement measures were were Oh lessened in Europe, and we saw demand pick up which obviously resulted in us being lean and yard inventory at the end of Q2 demand continues to be strong snowmobile season is off to a good start in Scandinavia.
And ER and the outlook for for the rest of the business for Q4 is as strong as well so.
We're not seeing any material differences between Europe, and North American consumers.
I think it would help and then I saw the thing I would add just the best kick on snowmobile is a.
It's an activity that is ready off from in very remote area and.
And we don't feel this will be a is perfect for distance education.
And we don't feel any slowdown there.
Excellent and then can you talk a little bit about it.
How you are perceiving the new round on lock down.
On maybe Toronto, and whether or not there are our net efforts to mitigate.
The impact on so such that it's not the same sort of magnitude as it was last go around thanks.
But even in the first logged on many dealer, we're able to operate a different way and that's why I was saying in my remark.
We've learned a lot in the first slug zone and many of you there were able to retail despite all this being creative and doing more veer tool.
And whats happening in Toronto for example, right now it's not affecting our business.
On the business like us our dealership our sales are running.
Do you have measure obviously that you need to respect, but no dealership I've been stuff.
Lately I don't think even in Europe.
Yeah, and as you can appreciate in the spring it was almost an economic lot down where manual we're plants were being closed and ER and ER and stores now we're seeing user.
So well be theaters restaurants.
But not as a comprehensive as we saw in the spring.
Thank you.
Thank you.
Thank you.
Following question from day one.
From Canaccord Genuity. Please go ahead.
Yes, hi, thanks.
Yes, I just wanted to add volume given that you commented there is already a couple loaded questions that were asked I'll follow with one.
Just given the demand increase that you've seen here.
Is there any changes to your five year plan that you laid out about a year ago, I mean could we get to that 715 EPS a year early.
Let's say that historically direct to.
To.
Restate the Mtwenty five.
When the situation will be a bit more stable we will definitively.
Restate that and presented to all of you.
Listen to your question is on the growth that we having right now in the Mtwenty five there was nothing that surge of new customers there was nothing that.
Cycle on that and then to read that I've been that is at a record low right now for all the yen.
Then we believe there is opportunity, but it's too early to tell you about the $7 EPS sooner than and 25.
Okay I appreciate that and then just in terms of of what you're seeing in terms of.
Promotional environment like it is.
Is there any discounting it all happening right now or is it really just a case of as product hits the floor. It it's kind of at the door.
Well, there's no there's a I mean theres a bit of promotion or obviously, we had some promotions for our spring units, which we are announced back in the spring. So these are still in effect.
And we always provide to support the dealers for financing et cetera, but obviously as the units fly on their door. The amounts that we spend on either wholesale or incentives or retail incentives is significantly lower than the historical so there is sometimes a bit but again, it's as you saw the impact for the.
Hundred basis points, what's on material.
Decrease versus prior years.
Okay. Thank you very much thank.
<unk>.
Thank you follow.
Following question is from.
Jimmy Johnson from.
Capital markets. Please go ahead.
All right. Good afternoon. Good morning, Thank you.
Your operating expenses on about 20% to discuss some of the puts and takes there, but one big expense. We haven't talked about was the annual club event, which did not occur from physical standpoint, how much did that contribute to the quarter in terms of savings year over year.
Well, it's it's so again, it's a material expense, but it's it's not that's not 20 million. It's on 10 million Bucks. So it's it's obviously it had an impact butter club is less than 10 million. So you can you can do the math.
And why expects a day expenses to remain a to remain low well as I said I expect Q4 to come back to where we were last year and next year, obviously, we will not.
Club events will probably be not to the same level that were historically, but obviously, we want to continue fueling the pipeline, we want to continue creating interest by dealers and consumers for a product and so some of that money will be redirected to other marketing initiatives.
Okay, well I hope you keep the analyst and Investor ride events intact.
On to other.
Another question.
Two questions on one more art than science here.
On to the big macro events, one is the U.S. selection and the other is the announcement of a of three vaccines that look highly effective so we've got a light at the end of the tunnel there.
Number one on the election.
Called speed speed here overwhelmingly from supporters here in the U.S. on the dealer side.
How are they.
Looking how are they what's the outlook how has that changed perhaps if not at all.
But if there is any change there and number two.
On being that there are there is light at the end that someone here how should that impact on your outlook for next year and beyond.
[noise] under U.S. election direct.
I mean, we've been in this business for a long time, and we've been able to work with.
Both parties and we don't see for us and the impact I mean, there will be some adjustment, but we.
We are able to to deal with with the and the U.S. administration.
We don't think there is net much impact there.
On divesting of use Lee.
Very happy that is happening, but before the vaccine will be distributed.
Massively around the world It will take some time.
The other thing is if you look at the leisure industry that is a airline hotel gambling and you know more debt than I do all those industry.
Vishal just like you are saying that it will take three years.
And more to recover then we believe that.
Maybe the surge that we had this summer will be a bit to reduce.
But we have pretty good runway in front of us and again, that's why in my remarks. This morning, I mentioned the momentum we had pre coded and for US we see this as an opportunity not as a threat.
Our job to make those new entrant lifetime customers and to continue the momentum that we had then that will be.
Maybe the growth might reduce EBIT for because of the surge on new customers, but at the end like I explain.
The mass of our customer our existing customers.
Yeah, Okay, and then on those new customers you talked about.
I think one thing a lot of people got wrong initially was.
Just thinking that these new customers are kind of like your traditional new customers that you usually get every year, but I think they're much different this time, probably more professionals, who are working from home and have some money and higher income kind of earners book, perhaps maybe less loyal to the lifestyle. The experience of the brand. So how do you think about those new customers and.
Are you sort of modeling, maybe less retention of those new customers or or perhaps more.
But just to give you a sense, we been able to attract new customer to spark when.
We introduced spark in 2014.
And see do pre Cove in the C. Spark was over 50% of the sales was to new customers.
And the Reicher last year Prequaled bid was 40% and this year is 50% than we used to deal with new customers.
With those product line and we've learned how to make them lifetime customer it's won't be perfect.
But again, they said to see this new customer surge has a threat, we see that has an opportunity and.
And we believe we are well tool to to continue the growth with them.
Okay. This spark is a fantastic example, thank you very much to say thank you.
Thank you.
The following question is from.
On <unk> from National Bank Financial Please go ahead.
Thanks, Good morning.
Just a couple of a cash flow balance sheet questions from me first.
Just on the on the working capital you had a pretty positive trend so far in fiscal 2021, I'm just wondering what it looks like for Q4, I mean is should we expect there to be a big draw on working capital I'm, just wondering what the what how the year right and as far as that use of cash.
Yeah, we are expecting to rebuild the inventory in Q4 and the arts orders are probably going to be use of cash are related to a to working GAAP. Obviously, there's yard inventory, we were able to rebuild at the end of a we were able to rebuild that on a Q3 the yard inventories in international but it's still.
So low compared to where it was a year ago. So there's no more more work to be done there and even in North America, we we.
We could work with higher levels of inventory still on.
All in all a.
Still a good cash flow generation for the full year Capex is also going to be high in the fourth quarter.
So we shouldn't consume cash from the fourth quarter.
Okay, and then just on the on the payables I mean, it was up quite a bit in Q3 sequentially are we kind of back to a more normal level. So I think it's been sort of artificially depressed first couple of quarters of the year. Yes. We are back to normal levels. We tend to trend that probably 90 days of working of a of a p. and that's where we are at the end of Q3.
Okay, Great and then just on the I guess the cash position I mean, you've got it remains very high in good position to be on I guess, but I'm sort of you can update us on your ability to I guess paid pay down debt early I mean, I think there have there are some limitations on what you can do maybe just update us on what the latest is there as far as you know it's.
Not the best scenario to be sitting on $1.3 billion on cash.
Yeah, obviously, we what we.
I thought the best scenario, but it's a very good position to be in especially with the uncertainty that leverage.
As I said the vaccine is a is on its way, but it will take some time before.
No one is immune to so we prefer being in the situation that being short on cash as you saw we've decided to reinstate or in CRB and the dividend as well. So obviously, there's going to be some cash that's going to be deployed towards those at those efforts.
In terms of debt reimbursement short term it is not on the agenda. We as you all know we raised an extra $600 million of debt back in May there is a 2% penalty for early repayment that comes to expiration exploration in may so until may or intention is not to have to look at.
The potential debt reimbursements.
Okay. That's helpful. Thanks very much.
Thank you.
Following question is from.
Well.
Please go ahead.
Yes, good morning, Notionals day, good morning, So best Dan Congrats for order results.
I, just just to come back on.
Gary Good question could you talk about the new and trends, whether it be our brand agnostic and maybe the potential to sell them more products. When you compare with your current customers.
[noise] yeah, good money on the West for sure right now the focus of the marketing team is when a new entrant.
It's coming in we try to expose them to other product line.
And that's why we advanced the lunch on the Unchartered Society, where you can rent.
Snowmobile that watercraft for enough road vehicles in another area just to expose them to the pleasure of writing a different experience than this again.
Two follow on what I was saying to get a few minutes ago form for many investor day.
They are afraid that those new customer from the weight.
And we see that and therefore can you share it came to unleash free and now it's our job to attract and maintain them and expose them to other product line then again we.
We see that doesn't that worked on UTI, we'd like to be positive about going forward and the working hard with the marketing team and the sales team to expose them to other product line.
Okay and said so best day, when you talk about the better mix impact on margins what was the driving wasn't driven by a lack of low entry products or driven by customer preference toward on your hand products.
Well, obviously, given the scarcity of the inventory on the <unk> the high demand for products. We are selectively produce units that we believe will bring the maximum profit to us into the room. So our mix is more richer because we've made the decision to produce higher mix a richer mix of products.
Driven by obviously the demand from the consumers okay.
Okay, and given the greater visibility through the pending make so how does it impact the RP could you accelerates on product introduction on when we think about project from project goes or may be electric vehicles, it's something that could maybe accelerate Furthermore.
We as I've shared with you we did put a pause on certain projects when they are called bid.
GAAP and obviously as we had greater visibility on the year and on next year, we turned the switch back on for these programs.
And ER and will continue we'll continue producing the products and they are the innovations that we do on a yearly basis, but for now and no significant change in plans.
Okay lap, okay, but we've been able to why we are we believe that is why we have plenty coming that two remains very competitive.
Okay, perfect and last one for me when we look at capital deployment.
Two times seems to be the optimal level in terms of leverage how should we be thinking right now I'll give him be a bigger growth. Unfortunately these depend they make do you feel comfortable maybe two to increase or may be low work given the visibility. We currently have so what about the optimal level.
In terms of are you talking about Capex Oh in terms of net debt EBITDA in terms of the leverage ratio as the best Okay, well Oh, we we when we IP on we were a three times leverage we finished the quarter a again a bit.
Below two times significantly below two times.
And we're comfortable as we've said in the past operating at two times leverage so that will be part of the discussions we're having with the board, but as I said today, we prefer sitting on a bit more cash.
And and see how things are going to turn out a we are lucky we're in a good position.
Having on cash flexibility as a huge plus in these in these on certain times.
Okay. Thank you very much focused on.
Yeah.
Thank you.
Our next question is from Greg Badishkanian from.
Wolfe Research. Please go ahead.
Hey, guys, it's actually Fred Wightman on for Greg just quickly on snowmobiles, a retail was up low twentys on the quarter I think on last quarter's call. You had talked about the early retail science were up 70% plus so can you just talk about what changed on how that fits into your decision to extend the snowmobile production period.
Oh, good morning, what happened again, you need to be careful at the beginning of a.
A a season because number sometime our small and increase the numbers our ratio can be very high but right. Now we are extremely happy with the snowmobile momentum and you just need to remind that this year at this time of the year, we had shipped more units last year than this year.
And we are hearing dealers right now when do you receive it unit the PD and deliver it to the customer than it is in and out.
Then we expect the momentum will continue.
That's a good base until Christmas and.
And we are hearing that some dealer will be out of product by Christmas then we feel very comfortable.
With the snowmobile business.
Perfect. Thank you.
Thank you.
We have no further questions.
I would now like to turn the meeting back over to Mr.
Great, Thanks, and mode and thanks, everyone for joining us this morning and for your interest from yard.
Once they get opportunity to wish you all the IP and safe holiday season, and we look forward to speaking with you again for fourth quarter earnings call in March. Thanks, again, everyone and have a good day.
Thank you.
The conference has now ended.
Disconnect your lines at this time.
And on.
Thank you.
Thanks.
This conference is no longer being recorded no interest from all does it go from homes. It does that help.
[music] I Miss out on.
On 55.
Please note that this conference call has ended please disconnect. Your line at this time. Thank you.
Okay.
Okay.
Okay.
Yeah.
[music].
I missed that.