Q3 2021 BRP Inc Earnings Call
All participants please standby and conferences to begin.
Good morning, ladies and gentlemen, and welcome to the B piece Q Q3, if why 2021 earnings call I would now like to try and meeting over to Mr. <unk>. Please go ahead and finish line.
Thank you <unk>.
Good morning, and welcome VR Peace conference call for the third quarter of fiscal year two anymore.
Joining me. This morning are totally Bush <unk>, President and Chief Executive Officer, and so that's enough said Chief financial Officer.
Before and moved 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.
I invite you to read ERP is empty and they force thing of these.
Also during the call reference will be made to supporting slides and you will find the presentation and or what type of ERP Dotcom and 30 Investor Relations section, so with that I'll turn to covert your growth I.
Thank you Phil and good morning, everyone and thank you for joining us.
As you know fiscal year, two and the one that's been as that evolves dive year from.
Once the temporary shut down the list.
We're able to resume production at full capacity.
Speaking of special and measure to manage our supply chain and I've been especially if they do then about predicting or people.
Given the increased book with any of our product we feel fortunate to be where we are doing this type of international and stability.
It has been an exceptional period and it's not over yet.
I would like to start by thanking the remarkable dedication of our people.
Theaters and suppliers.
And 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 Youre aware interest and as far as sports sector remains very high and I was trying to line up continue to allow us to outpace the industry worldwide.
Although we face 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, rather products, partially upset by lower oil sales of seasonal products due to a change in timing or personal watercraft production.
Our gross profit margin came in much better than expected and 29.1 per cent.
And the continued strong consumer dumb and allow us to reduce our promotional activity and drove a richer product mix and plan.
Our normalized EBITDA and did the quarter up 30% to 349 million, resulting in a normalized earnings per share of $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 and now expected to be down from 1% to 5%.
Normalized EPS up 31, 37% to a range of $5 to $5 25.
As I mentioned earlier the demand for our products remain exceptionally strong in the quarter leading.
Leading to our North American Forest Park retail being up 16% year over year.
When excluding excluding personal and what a graph for which network inventor and he was at an all time low and 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% you need you up and.
Only yummy experience or retail declined in the quarter, which retail was down 9% due to and venturi 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 and the TV boat I'll use their industry with very strong retailer result, up about 30% and low 20% respectively.
She will have equal and the season and the strong, though which we fill up about 60%.
I remind you that this is on top of a high of 80 per cent growth in the same quarter last year.
So mobile 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 and to treat.
It was for the rest of the industry.
As I already mentioned this was due to the network and sensory being asked and all time low both in North America and in international markets at the beginning of the quarter.
We are pleased with the strength of our lineup, which continued to gain share and this is very healthy industry backdrop.
Now onto slide seven and the current trends in our industry.
Like others in the bar sport business, we are seeing continued consumer interest.
And we have delivered another quarter of robust power sports retail growth.
Mark you treat our par sports retail is up 29% when excluding personal work rough.
Following a strong retail pads and trialed the quarter.
For example, the RV industry and investment in the quarter in October in term of growth and we saw this year. The best start of the snowmobile season, we have observed in five years.
This solid growth is coming from both new and thread and return or customer well.
Who have decided to expand or extend their interest in parse force.
Based on the survey, we conducted recently, we estimate that 34% of buyer or new and threat.
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 our 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 work right 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 know our tree will have equal a rider education program daily registration is trending and 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 and far sport.
Turning to slide eight and we'd like to talk about our recent product introduction.
In 2020, our traditional lunch model for new product evolve to be exclusively virtual.
We have two global virtual and then in the third quarter, one fourq and and one for a seat.
These were both very popular.
Over 80% attendance by our dealers around the world and allow us to reach a growing consumer audience and the same time.
Q3 events will include and many of these same element to reach and even broader audience.
Regarding our product introduction.
And the side by side you see the segment would enforce our premium offering by having a very are very popular cab 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 and the industry.
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We also strength and our mud line up with the introduction of and improve 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 the button, providing and even more jobs and right.
That's force <unk> our mother your 21 lined up include industry, leading acceleration and control with a completely redesigned our XP X 300, which include the per from his inspired and good luck our system.
Which old the writer in the perfect position.
We also took the onboard experience to the next level with the laws 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.
These product and production were very well received by year end and media and booking was very solid.
Now, let's turn to slide nine for the year round 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 unit per news being and trends and duty flattish 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.
And into the season 21, the North American side by side industry is up low 20%.
And side by side continue gaining share, especially in the utility segment.
We said up low 30%.
Do you see the industry is also form and into its season 21, and retail is up high 20%.
And I was 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 and manufacturing facility in Mexico, having 50 per cent of side by side production capacity.
The project is progressing on plan and is expected to be ready for operations by fall 2021.
Now looking at the free will vehicle.
The North American three will industry and the season 20 on October Thirtyth.
With retail up low teens percent.
Arc and Mtwo vehicle retail was up low 20% over the same period.
Gaining share and vote, the tree will V Kool and two wheel and motorcycle industries.
This season was very successful for tree will have equal business.
One school were allowed to Wideopen, our rider education program continued to attract many potential customers and we now have over 31000 course completed with a better it and they anticipate that conversion rates to new and used unit of over 45 per cent we.
Also lunch Dick and them woman Mentorship program.
This program is designed to overcome the value or that have traditionally traditionally held woman back for experiencing the pleasure of riding through and cousy BT and education.
We already have over 6000 active highly engaged members and the program has been given significant coverage from magazines, such as Forbes and Rolling Stone.
We are pleased with the traction we have with this program and the positive feedback received from participants as well and its potential going forward.
And finally Riker had another very good season.
Over 50% of Riker customer, our new and trend compared to slightly more than 40% last year.
Were also successful and 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 and definitely been successful at attracting a younger and more diverse customer base growing our total addressable market.
These different initiative, 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 lead you to a change in products and schedule for personal and watercraft versus last year.
The lower shipment volume were partially offset by lower sales program.
Now looking at retail the North America, and personal autograph industry and the season 20 on September Thirtyth with retail up mid single digits.
He do retail was also up mid single digit percentage for the season.
With the success of the new Gtld platform. She took the number one position in their recreational segment and.
And now I'll lead every segment in the industry and North America.
She do is also off to a good start in the season and counter seasonal market, we try to 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 and Venturi at an all time low down 95% from last year.
These low level of inventory and the stronger trends and 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 America and 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 until mid January four season 21.
This is accounted for in our increased guidance.
Continuing with the look at par sport part accessories, and apparel and OEM engines.
The same for them and 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 the 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 Dave and Rude outboard engine line.
And the retail level the positive momentum continue for many do and tell the water, both delivering mid 30% and retail growth and your.
America saw a slight decline and retail due to limited product availability since during this period, we have been consolidating our operation into Saint Peters from Minnesota facility and close the EPS could that be a plan.
We are pleased with the performance of our boat brands and the progress, we are making and our strategy to transformed and 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 sit back and.
Interest and good morning, everyone. We achieved very strong results from 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 irreverent revenues reached a record level for a third quarter $1.7 billion up 2% over last year's third quarter, our gross profit margin and a 29.1 per cent, 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 or normalized EBITDA was up 30% $349 million driven by improved adjusted gross profit margin and lower operating expenses as a result, the cost saving mode.
Implemented earlier this year to mitigate the cold weather impact. This resulted in a normalized EPS of $2.13 up 41% from last year. The strong performance also translated into solid free cash flow generation of $228 million in the quarter bolstering or financing.
And flexibility as we ended the quarter with $1.3 billion of cash on the balance sheet look.
Looking more details at our revenue by product category and geography on slide 15 shows.
You mentioned, our revenue growth in the quarter was partly driven by your own products and parts accessories, and apparel and OEM engine product categories in terms of regional breakdown revenues were up 6% and Canada up 7% and the United States and down 10% and international due to having very low level of.
Net 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 favorable impact of $77 million and lower operating expenses for $18 million. These elements were partly offset by higher financing costs and normalize tax expense for 42.
A million dollars turning to slide 17 for looked at our network inventory position.
Our North American network inventory and 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 and terms of network inventory all of our products are seeing declines versus last year with the exception.
I have three wheel, which inventory is 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 and our business and meet the strong demand for our products. This is why we have decided to extend the snowmobile production schedule by 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 inventory, we were back to gaining market share and we are confident that as we rebuild inventory and maintain a 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 and well ahead of our expectations driven by the continued strong consumer from consumer demand for our products, which resulted in lower sales programs and a richer product mix and consequently, better than anticipated gross profit margins.
Accounting for these strong Q3 results and the expectation that we will continue benefiting from lower levels of sales program and a richer mix and the fourth quarter. We are now expecting our yearend results to be significantly better and our initial guidance, which we introduced last August.
In terms of revenue other than the other than the elements and just mentioned our guidance is also impacted by the extension of the snowmobile production schedule and the continued strength and RPN a business based on these factors. Our revenue guidance ranges are now down to two up 2% free around products down three to five per cent for seasonal products.
A five to seven per cent for P.A., and a and OEM engines and down 25% to 30% from marine which as you remember.
Back to by the wind down of the outboard engine business.
This result, and total company revenue guidance of down 1% to 5% reviewed upward from down 5% to 9%.
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.
Guidance range remains wider and unusual 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 and 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 and or production or increased costs, hence the wider range.
As you can appreciate the guidance does not reflect the impact of more comprehensive confinement measures that could be implemented with the second wave similar measures similar to what we saw last spring.
Finally, given the strength of our balance sheet and our positive outlook for the business. The board of directors has approved the launch of a normal course issuer bid and the reinstatement over 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.
And these uncertain times, while continuing to invest and our long term growth.
With this I will turn the call backs and they.
I guess the best game.
As you recall free Cohen, our growth trajectory at the end of fiscal year 2008 was very positive.
With retail growth in all product line a 15%.
And then industry Thats was up mid single digits.
The surgeon them and as offer a major opportunity for us to continue this space and.
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.
Lineups continues to gain attention and therefore gained market share globally due to our ability to introduce industry shaping innovation.
Our inventory is up and all time low and we have a strong replenishment cycle plan in the upcoming quarters.
And with our additional capacity and 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.
And we'd like to and on a personal note.
Without the and critical 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 covance situation combined with higher than ever consumer interest.
And 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 we are fortunate to have the book and 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, if you have any.
Question, Yes.
From all participants that just have a question.
Thank you for your patience.
Our first question is from Robin Farley from you.
Please go ahead.
Great. Thank you just wanted to ask a little bit about.
Checks and showed that after very big month in July August and September had had still.
Still very good growth rates that you had a little bit slower than July so I'm curious about the acceleration and October after that and August and September.
Just October having a lower basic Paris, and or was it an increase and product availability.
And of trying to think about how October and then any.
You can give us into November and.
And then if I could.
And your thoughts about next year and whether the.
Incredibly strong growth here and obviously, you'll have so much restocking and that can drive your shipment growth that is it reasonable to think that.
Maybe that the growth rate just.
So there was some pull forward and net.
Maybe the next retail growth won't be till the year. After next how to think about that.
Yeah.
Good morning, Rob and that's a loaded question.
And then just to go and sequence. The this is the third quarter to retail was very strong.
Every month August September and October September being the high so I think.
So there is always a transition between summer product and the winter, but overall I mean with 20 and 29% growth.
And then industry that wasn't mid single digits. We are very happy with our retail for Q3 November is off to a very good start and the.
If if I gave you because I know this is an interest for all and.
This or if I give you some numbers for the first one day days of October.
Our retail worldwide is up slightly below 30%.
And that's despite last year, we had the growth in net.
Remember of 23% for the whole month.
And our growth worldwide to slightly below 30% and that's despite me because of the lack of inventory is up only low single digit net.
I mean, nothing Utica is slightly above 35% sensitivity.
Good retail in November.
Now looking to next year and when you think about it.
And obviously, we don't know if it will be or you can find then what will happen and ways to but when you think about it.
Snowmobile season last year stuff in mid March and.
The rising stuff from in March.
And the dealer gave up the aisle.
In mid April in the middle of the Confinements than they were somewhat conservative.
Watercraft, we run out of product by the end of July.
And because we were shutdown affected who are shut down for two months.
Free will vehicle the school were shut down for three months and the retail peak after but we hope next year it will be better or V will run out of product our product was very low and inventory and we have and you effectively.
For side by side that this plan in the fall of 2021.
And in Marine are affected the workflows for six weeks and a tough and you make it is we had and the additional month of closure because of the transfer from Medicare This year to St. Pete.
And I believe all of us learn and when I say all of US is our dealers our suppliers and and US we are better equipped to operate and to us into this new context of coated with all the the norm for safety of our employees.
And that's why we cannot plan for a complete shutdown 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 Harmison from.
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 and looking forward.
You made some pretty heavy cuts and the spring.
As covered and settling and 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 and an apples.
Yes, 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 and some of the initiatives and so I'm not expecting that trend of cost saving to continue in Q4 and expecting.
<unk> expenses to be up year over year and from and for next year. Obviously, we will continue with non investment as you alluded to or expectations for next year are very good.
And obviously this comes with a with a well positioned investment and so we'll continue seeing that.
Fred increase, but one thing I want to remind is with the shutdown of Evan rule that will bring overhead savings of about 70 to 80 million Oh and <unk> 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.
Net of all the cost measures, there's interest things you'd R&D wasn't cut in fact, it looks like it was up about 10% year over year and Q3, I guess looking ahead with and without investment and that likely to state your normal.
And 4% level or might you invest more and this time to accelerate some market share opportunities.
Yeah, well and you know innovation is key to our business. It's it's what's been driving our success in terms of and market share gains and 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 to address book your R&D invoice.
And and so we've been able to protect up and and you see it and the investments, we're making and the third quarter and next year. Our expectation is that we'll continue to run.
The historical levels in terms of percentage of revenue.
Okay. Good color. Thank you.
Q.
Thank you.
And question is from 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.
Issue.
Just as you catch up to demand can you preserve some of that scarcity to improve the profitability of viewers on a sustained basis to me it feels like thats been an advantage from PRP and net your dealers and particularly profitable, but I'm wondering if you can sustain it and a better way this time around.
Blood and Craig then first for seasonal product for watercraft and and the snowmobile.
And that would include tree will and this because we don't produce on a 12 month basis, yes.
The it will be difficult because we producing almost eight months seven eight months for product line and the retail season is quite short and these were producing basically two orders that the given to us and that Vince and.
And I think we'll probably go back to the FICO vid situation and dose product line.
And a year round product like.
TV and side by side. This is another story.
Totally 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 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 and venturi lowered than the free Cove it mid.
Mid to long term, we could go back to pre 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 and the fall of next year when would those units actually show up and dealerships and meaningful way and.
The following week.
When the production will be running we will be delivering right away. So by the end of Q4 next year, you'll see the impact on our inventory up.
Perfect. Thank you.
Thank you.
Following question is from March and non from Stifel. GMP. Please go ahead.
Hi, good morning, and congratulations on these impressive results.
And you you seem to have gained market share at retail and a second significant way and and side by side and 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 my thing and we were already gaining share free Corvidae, we had a very very good momentum with our line ups recorded.
And from what we see Oh, we are able to deliver our two to run our facility.
Capacity, probably better than some of our competitor right now we're delivering unplanned.
I have to admit managing the supply chain those days is a bit bumpy there was some.
And difficulty, but our team is very good to manage and very energized and then digital situation.
But I think and Q3 is 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 them and Oh.
Are you starting production earlier and.
And and to buy what quantum are you increasing production this year versus last year for from watercraft.
Well just to give you a sense, but they are we shut down the factory.
In April and May.
This year and 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 and effect of the and the peak.
Third when we started Defectivity, we have you started defectivity producing some of the year 21.
In advance to make sure that we will not create and non QM, but those does appear very quickly.
And if you look at our level of inventory, it's less than one units per dealers and the dealer are and see the network is empty and we have a very solid booking for next year and we've just started production afterwards.
After to shut down and.
Let's see in July and we're running since that time at full capacity then.
And we believed that flow watercraft, and 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 and just to give to help you out here in terms of the inventory situation and usually we finished the season with and good years, probably 10% of next year retail 15%.
And so just that replenishment of inventory would call free 10% to 15% increase and production just to meet that that them and.
Okay, and plus plus the.
Extra dumb and we're seeing right now so plus and the extra them and what we're seeing but again you have flexibility would you want to adjust our production schedule today, it's too early to call, but just on the inventory side and say 10% to 15%.
Okay perfect. Thank you.
Thank you.
Following question is from Mike Petrie.
Please go ahead.
Hi, Good morning could you just provide a bit more color and maybe a bridge on the factors pushing growth margin higher and the quarter I know you called out most of the benefiting from a full price realization and 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 and there was a timing effect on programs. When these programs are provided for for accounting rule. Some of these programs were provided for when we shipped to you and and so back in Q1, and Q2, and obviously with the low level of inventory.
And the strong demand. These programs were not needed. So these provisions were released I prefer looking out a full year basis for the first nine months of the year. So we'll provide you with better comparability as to how the gross margin is performing so from a.
Oh, a and nine months 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 and Oh, God and overhead cost because we had to shut down operations for two months is negative 130, the impact of the exit of outboard engine.
It is.
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 as it was the indicated we'd like for that to continue one 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.
My other question was just with regards to how the replenishment cycle in and fiscal 20 to how that's going to change the seasonality of your revenue and margins and I guess, you sort of alluded to it.
That that is going to be helpful. In the first half of next year along with.
Lower sort of promotional.
Programs, but how should we think about that as we think about the typical kind of seasonality of revenue and margin.
For fiscal 2002.
Is this something which I've already talked about.
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, they're going to be shipped in Q1 same thing for three wheels, so that should bring higher profitability in the early part of next year compared to what we had.
And our historical numbers.
Obviously and 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 cost, but we believe that with the added volume will be able to offset these costs quite a quite rapidly.
Okay. Thanks, and just are you talking about the supply chain performing.
Pretty well in recent months and maybe leading to some of your outperformance and a retail level. So is that and 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 just in general but have you had any issues at this point or and in Q3.
I mean, we had situation and the where we had to airfreight parts or rescheduled to accommodate a supplier who had difficulty but.
But this is our daily life 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 a clarification and I think you said new entrants were 34% of buyers and Q3 is that those are that's new to the industry or new to be RP.
Yeah, and this I will give you more color is because I know, it's a high interest for many investor and analyst.
And here I give you some colors.
The.
First we don't have any number to compare to last year Q3, because when you Didnt do and this survey.
And last year, but I, we've done this survey.
This Q3 and here the colors we.
We service when they are 400 participant in non country.
People to purchase vehicle in July August September.
And we serve and then the first 20 days of October and quite new.
And historically, we have about 20% new and 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% and were new to parse port and totally new.
To the industry and 14 was new to Casegoods does mean someone who had the watercraft and now decided to buy and the TV.
34%, new entrant, but 66% of experience customers.
What is even more positive for us.
Out of those 2400 participant in the survey.
70% to 72% word and due to be RP.
And 28% was be RPT purchasers.
And 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 and fees. This on new and trend and many are wondering.
Is doing you and trend will continue post coven.
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 all the best guys.
Yes.
Thank you.
And question is from.
Cash.
Morningstar. Please go ahead.
Hi, Good morning, Thanks for taking my question, so Im curious about and you're.
You're up and what you guys are seeing from customer behavior. There obviously.
Airwave from constraints on the inventory levels, which after that growth drag on throughput but.
Are you seeing and the same sort of demand and you're seeing in North America.
Yes.
Thanks.
Well, if you recall or to between numbers, we had very strong demand and a in Europe.
It was softer and Q1, because they were more confined Q2.
Confinement and measures and we're we're lessened in Europe, and we saw them and pick up which obviously resulted in us being lean and yard inventory and acute to demand.
Demand continues to be strong snowmobile season is off to a good start and Scandinavia.
And the and the outlook for for the rest of the business for Q4 as strong as well so.
We're not seeing any material differences between Europe, and North American consumers.
The other thing I would add and then if I saw the thing I would add to sit by kick out and snowmobile is a.
It's and activity that is ready off from in the remote area and.
And we don't feel this will be a is perfect for dispensation.
And we don't feel and you slow down there.
Excellent and then can you talk a little bit about.
How you are perceiving, the new round and locked down and maybe.
Maybe toronto, and whether or not there are enough efforts and mitigate the.
The impacts and so such that it's not the same sort of magnitude as it was last go around thanks.
But even in the first lugged down and many dealer, we're able to operate a different way and that's why I was saying and my remark.
That we've learned a lot in the first slug zone and many dealer were able to retail despite all this being creative and doing more virtual.
And whats happening in Toronto for example, right now it's not affecting our business.
And that business like us our dealership are still running.
You have measure obviously that they need to respect, but no dealership I've been stuff.
Lately and I.
I don't think even in Europe, and we're seeing and.
And as you can appreciate and the spring it was almost.
Almost and economic lot down where manual we're plants were being closed and ER and and stores now we're seeing leisure.
And so well be theaters restaurants.
But not as a comprehensive as we saw in the spring.
Thank you.
Thank you.
Thank you.
Following question is from day one.
From Canaccord Genuity. Please go ahead.
Yes, hi, thanks.
Yes, I just wanted to add value and given that yet and 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 750 and as the year early.
Let's say that it's too early to direct to.
Two.
Restate, the and 25.
When the situation will be a bit more stable we will definitely.
Restate that and and presented to all of you.
Listen to your question is the growth that we having right now in the Mtwenty five there was nothing that surge of new customers there was nothing that.
Cycle, our debt and then to read that bin that is at a record low right now for all OEM.
Then we believe there is opportunity, but it's too early to tell you about the $7 EPS.
Sooner than and 25.
Okay and I appreciate that and then just in terms of of what you're seeing in terms of.
Promotional environment like is it.
Is there any discounting it all happening right now or is it really just the case of as product hits the floor and 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 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 out the door. The amounts that we spend on either wholesale or incentives or retail incentives is significantly lower than historical.
So there is sometimes a bit but again, it's as you saw the impact for the.
And basis points, so it's a material decrease.
Decrease versus prior years, yes.
Okay. Thank you very much thank.
Thank you.
Thank you following question is from Jeff.
Jimmy Johnson.
From BMO capital markets. Please go ahead.
All right good afternoon, and good morning. Thank you.
Your operating expenses and 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 it's not 20 million and 10 million Bucks. So it's it's obviously it had an impact but at club is less than 10 million. So you can and do the math.
And why expects a day expenses to remain a and 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.
And obviously, we want to continue fueling the pipeline and we want to continue creating interest by dealers and consumers for 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.
Moving on to other.
Another question.
These are two questions and one more art than science here there.
There have been two very big macro events. One is the U.S. selection and the other is the announcement of UBS and three vaccines that look highly effective so we've got a light at the end of the tunnel there.
Number one on the election.
I mean I'll call Spade, a spade here overwhelmingly Trump supporters here in the us on the dealer side Howard.
How are they looking how are they what's the outlook how is that changed perhaps if not at all.
But if if there is any change there and and number two.
Being that there are there is light at the and the total here how should that impact and your outlook for next year and beyond.
[noise] under U.S. selection direct.
I mean, we've been and does business for a long time, and we've been able to work with both.
Both parties and we don't see for us and the impact I mean, there will be some adjustment but.
We are able to to deal with and the U.S. administration.
And we don't think there is net much impact there.
On divesting of use Lee I'm very happy that it's 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 airline hotel gambling.
Gambling and you know more debt than I do all those industry.
Specialists like you are saying that it will take three years.
And more to recover and 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 Thats why in my remarks. This morning, I mentioned the momentum we had pre coded and.
And for US we see this as an opportunity not as a threat, it's our job to make those new and trend lifetime customers and to continue the momentum that we had then there will be.
Maybe the growth might reduce EBIT for because of the surge of 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 and.
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 and probably more professionals, who are working from home and have some money and you hire and some 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 we.
Introduced spark and 2014.
And see do pre Cove and the C spark was.
Over 50% of the sales was to new customers.
And the Reicher last year pre go bid was 40% and this year is 50% than we used to deal with new customers.
And those product line and we've learned how to make them lifetime customer it wont be perfect.
But again and said to see this new customer surge has a threat, we see that has and the opportunity.
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.
Thank you.
Thank you.
And following question is from.
And.
From National Bank financial Please go ahead.
Thanks, Good morning.
Maybe just a couple of a cash flow balance sheet questions from me first.
Just on the the working capital you had a pretty positive trend so far and fiscal 2021 I'm just wondering what it looks like for Q4, I mean is should we expect there to be a big draw and 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 and Q4 and the arts orders are probably going to be use of cash related to to working GAAP.
Obviously, there's yard inventory, we were able to rebuild at the end of a we were able to rebuild and a Q3 the yard inventory and international but it's still low compared to where it was a year ago. So there's no more more work to be done there and and even and North America. We are.
We could work with fire and levels of inventory so.
All in all a.
Still a good cash flow generation for the full year Capex is also going to be high and the fourth quarter.
So, we should and consume cash and the fourth quarter.
Okay, and then just on the payables mean and it was up quite a bit and Q3 sequentially are we kind of back to a more normal level exciting 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 b and Thats, where we are at the end of Q3.
Okay, Great and then just on the I guess, the cash position and then you've got to it it remains very high and good position to be and I guess, but.
And if you can update us on your ability to I guess paid pay down debt early and I think there have there are some limitations on what you can do maybe just update us and what the latest is there as far as.
It's probably not the best scenario to be sitting on $1.3 billion and cash.
Yeah, obviously, we what we.
I thought the best scenario, but it's a very good position to be and especially with the uncertainty.
And as I said the vaccine is a is on its way, but it will take some time before.
Everyone is immune and.
So we prefer being in this situation than being short on cash as you saw we've decided to reinstate are and see IB and.
The dividend as well, so obviously, there's going to be some cash that's going to be deployed towards those.
Those at those efforts.
In terms of debt reimbursement short term and is not on the agenda. We as you all know we raise and extra 600 million and also debt back and maybe there is a 2% penalty for early repayment that comes to expiration and expiring in may So until may our intention is not to a total book.
Potential debt reimbursements.
Okay. That's helpful. Thanks very much.
Thank you.
The following question is from.
Well.
Please go ahead.
Yes, good morning, good morning, and congrats for order results.
And just just to come back on.
Gary Good question could you talk about the new and trends.
Thank you our brand agnostic and maybe the potential to sell them more products when you compare with your current customers.
Yes, good morning, and one 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 of the Unchartered Society, where you can rent a.
Snowmobile and watercraft for enough from vehicles and in other area just to expose them to the pleasure of writing a different experience and this again.
To follow and what I was saying to get a few minutes ago form for many investor day.
Afraid that those new customer from the weight and.
And we see that and therefore can CD came to unleash free and now it's hard to track and maintained and expose them to other product line and again we.
We see that as an opportunity we 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 sebesta and when you talk about the better mix and pack on margins what was the driving wasn't driven by a lack of low and true products or driven by customer preference toward our your hand products.
Well, obviously, given the scarcity of the inventory and then the high demand for products. We are selectively produce units that we believe will bring the maximum profit to us and to the dealers. 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 that impact the RP could you accelerate some product introduction and when we think about project and project goals 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 the coal 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 and will continue producing the products and they are the innovations that we do on a yearly basis, but for now and no significant change and plans.
Okay and last okay.
Okay, but we've been it doesn't flow we are we believe and 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 given the bigger growth a fortunate. 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 or you're talking about Capex Oh in terms of net debt EBITDA in terms of the leverage ratio as the best and okay, well Oh, we we when we IPO and we were at three times leverage we finished the quarter a again.
Below two times significantly below two times.
And we're comfortable as we've said and the pass 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 and a good position.
Having that cash flexibility as a huge plus and these and these uncertain times.
Okay. Thank you very much from <unk>.
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 retail was up low twentys and the quarter I think on last quarter's call. You had talked about the early retail science were up 70% loss. So can you just talk about what changed and 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 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 we had shipped more units last year than this year.
And we're hearing dealers right now when do you receive and unit BPCI and deliver it to their customers and it's in and out.
And we expect the momentum will continue.
That's a good base until Christmas.
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 from the just.
I would now like to turn and meeting back over to Mr.
Great, Thanks, and mode and thanks, everyone for joining us this morning and for your interest and VR.
Want to take the 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.
Thank you for your participation.
This conference is no longer being recorded.
No. This is pretty modest coffeehouse it that day.
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Uh huh.
Please note that this conference call has ended please disconnect. Your line at this time. Thank you.
Yes.
Okay.
Okay and with funding.
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