Q4 2020 Polaris Inc Earnings Call
Good morning, and welcome to the Polaris fourth quarter and full year 2020 earnings call and webcast all participants will be in a listen only mode. So if you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
And to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Richard Edwards, Vice President of Investor Relations. Please go ahead Sir.
Thank you Chuck and good morning, everyone. Thank you for joining us for our 2024th quarter and full year earnings call.
<unk> presentation is accessible on our website at IR dot players Dot com, which has additional information for this morning's call.
Michael <unk>, our interim Chief Executive Officer, and Bob <unk>, Our interim Chief Financial Officer have remarks, summarizing the quarter and the full year and our expectations for 2021, and then we'll take some questions.
During the call we will be discussing various topics, which should be considered forward looking for the purposes of the private Securities Litigation Reform Act of 1095 actual results could differ materially from those projections in the forward looking statements you can refer to our 2019 10-K for additional details regarding these risks and uncertainties all.
All references to the fourth quarter and full year 2020 actual results in 'twenty and 'twenty one guidance on a reported on an adjusted non-GAAP basis, unless otherwise noted please refer to our Reg G reconciliation schedules at the end of this presentation for the GAAP to non-GAAP adjustments.
Now I will turn it over to our interim CEO Mike's pieces, Mike. Thanks, Richard Good morning, everyone and thank you for joining us I'm pleased to be speaking with you today as players as interim CEO before we review the results for the fourth quarter and the full year 2020, Let me say a few words about my current role I first want to thank Scott wine on behalf of the board of directors on the.
Entire Polaris team for his leadership over the past 12 plus years.
Through his tenure he instilled a sense of enthusiasm and commitment to excellence across the organization that has put our company in an enviable position to drive growth and profitability going forward and I am thrilled to build on that momentum.
Our board of directors continues to work diligently through the process in the meantime, I appreciate the board's confidence in Bob Mack, our interim CFO and myself our performance in 2020 underscores the outstanding talent and dedication of our team, which will allow us to continue to win going forward.
Excited and energized to lead the best team in power sports to another successful year.
To say that 2020 was an exceptionally unusual year would be on understatement. The company started the year with very aggressive goals, both financial and operational in the first couple of months, we're trending on plan.
Then the pandemic drove an abrupt shutdown of international Commerce in March.
Shockwaves through the global economy.
In response, we quickly implemented our recession playbook and work to ensure the liquidity of the company.
Agility and dedication of our team was on full display as we navigate it incredibly uncertain times, we temporarily closed factories cut nonessential expenses and shuttered underperforming assets within a matter of weeks, our retail sales turned positive and have only accelerated from there.
I want to again, thank the Polaris team for how they stepped up and leaned in to support our dealers and customers and protect this great company during such a challenging time.
While we didnt experienced sales growth in every business. This past year, the momentum coming out of the fourth quarter was positive our fourth quarter sales increased 24% and adjusted EPS was up an astonishing 83%.
Strong retail on a corresponding revenue growth drove full year sales up 4% topping 7 billion and we leveraged this growth to adjusted earnings of 22% for the full year.
Market share gains continued for our motorcycle business and I'm proud to report that our <unk> business gained share in the fourth quarter as our production velocity improved and we leverage the competitive advantage of our scale and our retail flow management system.
While the data for boats as preliminary with a limited number of states reporting the initial read is encouraging as well.
Our manufacturing output improved substantially during the quarter, but constraints from various suppliers persisted, which impacted our ability to meet delivery plans.
<unk> will continue into the third quarter of this year and it will likely take us most of the year to improve dealer inventory levels.
And finally P. G N a aftermarket global adjacent markets and international all posted strong year over year growth in the fourth quarter, despite ongoing challenges with supply and COVID-19 related economic shutdowns.
Fourth quarter, North American retail sales were up 28% continuing the unprecedented levels of growth as consumers continue to turn to power sports as a socially distance outdoor activity.
With improved product availability, our RV business gained market share in the fourth quarter as the industry grew in the high 20% range Indian and Slingshot fourth quarter retail remains strong, finishing up nearly 40% and market share up four percentage points.
Boat retail was also strong for all brands during the quarter.
And you're tracking essentially in line with the industry for the year, which was up high teens percent.
Snowmobile sales were strong as well with retail up in the mid 20% range season to date through December ahead of overall industry growth trends.
We're confident that the growing interest in power sports along with our expansive product lineup and innovative products will continue to drive strong performance into 2021 and beyond.
Our RFS system provided us a competitive advantage as we were able to outperform the industry in terms of delivering much needed inventory to the dealers. Despite this performance dealer inventory remained at historically low levels as demand continued at unprecedented rates.
North American dealer inventory was down 58% year over year with all segments trending below ideal levels.
While inventory remains at decade low levels, we improved on our delivery metrics sequentially as we ramp production and move product around the channel to minimize customer wait times.
<unk> retail sales on filling order backlog remains front and center in this unique pandemic environment, while concurrently working to ease dealer inventory pressures as quickly as feasible.
Supplier constraints remain the bottleneck and we are working all available options to ease the supply chain strain as quickly as possible.
As we project out dealer inventory levels for 2021, we have a couple of dynamics occurring that are meaningful first given improved delivery processes enabled by our refined our vim system. We believe that our dealers can successfully operate below their historical inventory profile levels.
Secondly is supply chain constraints abate dealer inventory levels should improve through the year, but we still believe 2021 will finish below optimal levels targeted under this refined RFS system.
During the early days of the Lockdowns. It quickly became apparent that many people were seeking ways for their families to enjoy the outdoors, which positioned us quite well.
As you can see we added a considerable number of new customers. This new diverse customer base drove growth across our power sports portfolio as they increasingly invited their friends and families to the sport.
An important fact for you to consider as a historically approximately 65% of our customer growth has come from new customers.
Past year, new accounted for just over 70% of our growth representing roughly a 30% increase versus 2019.
Our existing customers grew at a mid single digit rate versus 2019, reflecting the strength of our installed base.
Our players adventures business is further evidence of this increased attraction of first time customers with adventures completing over 270000 rides in 2020, and 95% increase over 2019.
These are customers that have the potential to become Polaris owners in the coming years as we've said in the past <unk> is not unique in realizing the new customer growth, but we are taking active steps to engage and cultivate these important additions to the Polaris family.
We recently introduced Polaris Adventures select the first ever monthly subscription service for the power sports industry. This is yet another great example of how Polaris leads and innovative approaches to attracting new customers to the business.
Polaris Adventures select is a membership program that offers access to the Polaris family of vehicles, including <unk> Indian motorcycles, and slingshot through a monthly fee.
Members can tailor their program either by picking up a vehicle themselves, having it delivered directly to their home or booking experience at one of our Polaris Adventures outfit. The rollout of this unique services currently being piloted in the greater Phoenix, Arizona market.
First I want to thank our manufacturing supply chain and logistics teams around the world. They executed at levels never seen before and did so in an environment fraught with risks and challenges their effort and dedication made all the difference in Q4.
Unprecedented demand has put considerable pressure on our plants you will recall that during the peak of the pandemic, we had to bring most of our plant network down for a period of time and while our plants have been at full production for some time now we have work to do to meet both the ongoing retail demand and replenish dealer depleted dealer inventory.
We've been ramping factory output to the extent our supply chain will allow however, as we indicated earlier some of our suppliers are not yet capable of meeting the rapid demand spikes.
Just on a retail demand expectations for 2020.
And anticipated supply chain improvement plans, we are likely to be running our plants about the ideal capacity levels throughout most of 2021.
Given the anticipated continued strong retail demand for our products.
And the robustness of our future product plans, we will continue to look at all options for meeting demand and customer expectations.
We continue to make strategic investments in manufacturing sourcing distribution digital and customer engagement, but we remain a product company at heart and.
In 2020, we introduced over 120, new products across our portfolio and over 900, new accessories, and our P G&A and aftermarket segment with.
With the investments we've made in research and development over the past several years, our innovation vitality index, which is defined as the percentage of sales from products introduced within the past three years was a healthy 90% in 2020.
The cadence of new product introductions will continue to accelerate in 2021, including vehicles and technology that will make owning and using our vehicles more fun easier to use and more intuitive than ever.
Just last week, we introduced two new Ranger vehicles, the Ranger Big game and waterfowl additions three new Razor trail models, and a new sportsman ATV and trust that this is just the beginning of a full year of new product news in all categories, including a new Indian motorcycles that celebrates 100 year anniversary of the original Indian chief by launching a brand new Chi.
<unk> on February 9th with shipments beginning this spring.
I'm not going to steal Bob's Thunder, but rest assured we have the company poised forget another record financial year, and I'm very optimistic about our future.
My role is to ensure that our strategic operational and financial priorities are clearly understood across the organization.
First and foremost maintaining the health and safety of our employees is our top priority.
Delivering on our financial targets, both near term and the five year strategic goals as critical.
Third bringing dealer inventory back in line with targeted RFS profiles as quickly as possible and finally executing on our strategic initiatives, including quality supply chain transformation digital on electrification.
Can assure you that our entire executive leadership team has the experience and dedication and are fully committed to executing on these priorities I'll now turn it over to Bob Mack, who will summarize our fourth quarter on full year 2020 results and our expectations for 2021.
Thanks, Mike and good morning, everyone I'm excited to be joining Mike and leading the company and I look forward to working with all of you I also want to reiterate Mike's comments earlier that this was an unprecedented year on a number of fronts. The team remained focused and drove record performance in 2020.
The ongoing robust demand for our products has generated strong sales and earnings results. Our fourth quarter sales were up 24% on a GAAP and adjusted basis versus the prior year with all segments growing sales in most growing double digit percent.
Volume growth was the main driver with average selling price up only about 3% during the quarter.
Fourth quarter earnings per share on a GAAP basis was $3 15 adjusted.
Adjusted earnings per share was $3 34 up 83% from last year's fourth quarter benefiting from a combination of increased volume positive mix lower promotional and flooring costs, partially offset by inefficiencies from freight and rework at the factories brought on by the supply chain challenges.
Additionally, our fourth quarter operating expense leverage improved compared to last year's fourth quarter due to both continued prudent spending along with $12 million of stock compensation reversal benefit related to the CEO departure.
For the full year 2020 sales were up 4% on a GAAP and adjusted basis versus the prior year.
All segments, except RV were down for the full year 2020 due to the impact of COVID-19 in Q1 and Q2 when the country. Our business were impacted by the related economic shock in our factories dealers and <unk> stores were closed for several weeks.
Full year earnings per share on a GAAP basis was $1 99 adjusted earnings per share was $7 74, well.
Well ahead of our expectations as Mike indicated the unprecedented growth in retail sales from new customers coming into the market and existing customer repurchases exceeded our optimistic assumptions as we moved through the year.
Similar to the fourth quarter, the full year EPS benefited from a combination of increased volume positive mix lower promotional and flooring costs and operating expense containment, partly offset by inefficiencies from freight and rework at the factories driven by the supply chain challenges.
Adjusted gross profit margins increased 95 basis points for the fourth quarter, driven by favorable product mix higher average selling prices due to lower promotions flooring costs, which was somewhat offset by logistics and plant inefficiencies.
You can find more detail on gross profit margin performance for 2020 in the supplemental section of this presentation.
Turning to our segment performance.
All segments grew sales in the fourth quarter driven by a combination of continued strong retail demand new product introductions in the second half of the year and our significant order backlog at dealers.
Reported fourth quarter segment sales were as follows.
Oh, RV and snowmobile sales were up 29% motorcycle sales increased 23% global adjacent market sales were up 18%.
Aftermarket sales were up 8% and our boats segment sales increased a strong 20% on a GAAP and adjusted basis in Q4.
Average selling prices were up for all segments for the fourth quarter, except for motorcycles and boats, which are both lower due to the mix of products sold in the quarter.
On a full year basis with the exception of RV. All segment sales were down on a year over year basis due to the pandemic dynamics I described earlier.
RV sales were down in the first and second quarter, the outstanding retail demand acceleration for our vehicles worldwide complemented by our ability to quickly restart the supply chain and manufacturing plants allowed us to overcome the slow start to finish up 9% for the year.
International and <unk> sales, which were also strong our embedded within each respective segment.
International sales increased 24% in the fourth quarter, which includes approximately five percentage points of benefit from foreign currency rates.
All regions grew sales double digit percent for the quarter as vehicle supply improved.
Full year International sales were up 1% with Latin America, and Asia Pacific Realizing sales growth.
EMEA sales declined for the year due to vehicle supply constraints and sporadic COVID-19 related shutdowns in various countries throughout the year.
Our parts garments and accessories sales increased 31% during the quarter and 19% for the full year.
Turning now to 2021 guidance with the strong momentum coming out of 2020, we are anticipating a record year for 2021, our guidance for the full year 2021 is as follows.
Total company adjusted sales are expected to be up in the range of 13% to 16% versus 2020.
The 2021 sales growth includes the following assumptions.
The overall, North American power sports market and Polaris retail sales are expected to decline from 2020, given the strong new customer growth, we and the industry enjoyed most of last year we.
We anticipate the industry will be down high single digits for the year with share gain trends continuing for Polaris into 2021.
The pontoon industry is also expected to the sky declined slightly on a year over year basis, with our pontoon business expected to return to share gains for the full year.
While we expect full year 2021 retail to be down from the incredibly strong 2020 market.
Versus 2019 levels 2021, retail will still be up 15%, which I think gives you a good perspective on how strong our end markets remain.
We anticipate average selling prices will be slightly positive in 2021, but less than 2020, as we mix more to the mid size and value oriented vehicles and boats and.
And expect promotional spending to increase from 2020 levels as the overall power sports market begins to normalize in the back half of the year.
Adjusted earnings per share for 2021 is expected to be in the range of $8, 45% to 875% compared to the full year 2020, adjusted EPS of $7 74.
An increase of 9% to 13% however.
However, our performance is better than our guidance suggests beginning with gross profit margins.
We anticipate that gross profit margins will be up slightly on a year over year basis, driven by a number of pluses and minuses on the plus side. Our manufacturing plants are expected to have a smaller backlog of vehicles needing rework as supplier constraints begin to abate likely beginning in Q3.
On the pricing side, beginning with the RV product introductions announced two weeks ago. We are pricing for added features designed into our vehicles.
In addition savings from our supply chain initiative now in its third year are accelerating as we move into phase III of the program.
On the negative side tariffs are expected to be a larger detractor in 2021 at the rates in place today.
Our tariff costs ended 2020 at approximately $60 million, which is net of onetime exemptions and refunds received last year.
If nothing changes under the Biden administration, our total tariff costs are expected to increase by approximately $40 million, which factors in both volume increases and the lack of the exemptions and refunds received in 2020.
The bulk of these tariffs are from the China 301 list one through four with a modest amount of retaliatory tariffs included.
Also as I mentioned earlier, we anticipate the promotional environment to start to normalize as we go through 2021, which will be a gross profit margin headwinds.
In total if you were to exclude the impact of tariffs and supply chain disruptions. Our gross profit margin rate would be approximately 200 basis points higher.
We'll continue to focus on mitigating these items as the year develops and the newest administration begins to address trade policies.
Adjusted operating expenses are expected to be about flat as a percentage of revenue with 2020.
Remember during the height of the pandemic last year, we cancelled or postponed all non essential expenditures and undertook employee related cost actions to reduce expenses and conserve cash.
Given the significantly improved company performance expected in 2021, we have added back select operating expenses and certain strategic projects to remain competitive and continue to innovate in our respective market segments.
The reinstatement of the previously postponed expenses and projects equates to about half of the mid teens dollar increase in operating expenses in 2021.
Income from financial services is expected to be down given lower retail assumptions impacting our retail financing income partially offset by an increase in wholesale financing income as dealer inventory levels increase throughout the year retail financing availability remains at acceptable levels.
Interest expense is expected to decline about 20% in 2021 from lower debt levels as we modulate between debt reduction and share repurchase throughout the year I will talk more about our 2021 on capital allocation priorities shortly.
The income tax rate is expected to be in the range of 23, 5% to 24% for the full year 2021, as our rate reverts back to a more normalized level.
Share count is expected to be up 1% in 2021, which is a combination of expected dilution from compensation plans offset somewhat by the re institution of share repurchases given our strong liquidity position.
After first focusing on organic investment and returns to our investors via the dividend our capital allocation plan pivots to our share buyback program as we view our own stock as an attractive investment.
Lastly, the currency rates for both the Euro and Canadian dollar, which had the largest currency impact to our financials are assumed to be above 2020 average levels, which we anticipate will have a positive impact on results.
We expect currency will be a tailwind to pretax profit of approximately $10 million.
We have planned 2021, assuming the average euro U S dollar rate at $1 18.
And the Canadian U S dollar rate at <unk> 76, while currency rates have recently been trading above. These we are seeing a somewhat offsetting impact with the commodity markets.
Given the unique events of 2020, the quarterly sales and earnings cadence was far from normal given the pandemic impact let.
Let me give you some clarity on how we see this year playing out given those nuances.
In a normal year or first half second half results are split approximately 40% and 60% respectively.
In 2020 that split was 20% for the first half and 80% for the second given the pandemic impact on demand and production from.
For 2021, we are anticipating the first half second half split to revert back to a more normal cadence of approximately 40% 60% split.
Looking a bit deeper into the first half of 2021 I'd also add that we anticipate the cadence for EPS between Q1 and Q2 to also be more in the normal cadence range with Q1 EPS in the 40% range in Q2 about 60% of the first half of 2021 expectations.
Sales in the first half are expected to be about evenly split between the first and second quarter on a percentage change basis.
We expect sales increases in the second half will be weighted more towards the third quarter.
Now moving on to our sales guidance by segment.
We expect all segments to grow sales in 2021, as we drive to meet the ongoing strong demand and replenish dealer inventory levels.
The expectations by segment are shown on the current slide.
On a gross margin segment reporting basis, we expect all segments gross profit margins to be flat or slightly improve over 2020 on a comparable basis.
See the supplemental section of this presentation for additional details around our gross profit margin expectations.
Operating cash flow finished 2020 at 1.019 billion or 55% increase over 2019, and a new milestone for Polaris of exceeding $1 billion in operating cash flow in a given year.
We anticipate 2021 operating cash flow will be down from 2020, as we rebuild finished goods inventory to more acceptable levels.
Let me summarize our capital deployment priorities and expectations for 2021.
Capital expenditures are expected to increase from 2020 levels to approximately $250 million, which includes tooling required to support new product introductions, the supply chain transformation program and various strategic initiatives.
Dividends remain a key priority for the company with our 25 year track record of consistently increasing dividends to shareholders and we expect to continue that trend for our 26th year.
Our debt to total cash capital ratio of 56% is down from the 2020 ratio of 60% as anticipated.
Our focus in 2020 was on cash preservation and debt reduction for obvious reasons, but in 2021, given our cash position and the outlook for the year, we will pivot to a combination of debt reduction and share repurchases given market conditions.
Our long term goal is to keep the share count at least flat, but we were out of the market in 2020 for the previously noted reasons for the full year 2021. We are currently planning to spend approximately $250 million on share repurchases to help offset the dilutive impact of the stock compensation plans.
We will adjust our thinking as market conditions dictate.
With that I will now turn it back over to Mike for some final thoughts.
Thanks, Bob 2020 is now behind us with the impact of the pandemic is far from over we expect the overall economic outlook will be tenuous as the country resets from the events of 2020, COVID-19, social unrest contentious elections, new leadership in Washington, DC and the list goes on however, the company has never been positioned better.
With innovative products, leading technologies state of the our plants and the best team in power sports to lead us through 2021.
While we anticipate the north American retail demand profile to moderate from the 25% growth realized in 2020, we expect a continued healthy retail environment, driven by new customers and the demand for our core power sports consumers.
As we've demonstrated this year and throughout our history, we have plans in place to rapidly respond to changing demand signals.
For 2021, our path is clear continue to keep our employees safe work relentlessly to improve supply chain to meet demand and replenish dealer inventory and continue to focus on our strategic priorities delivering high quality vehicles, leveraging our strategic sourcing initiative amplifying, our digital offerings and preparing for the foreseeable shift to more electrified vehicles.
With that I'll turn it over to Chuck to open the line for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two we ask that you. Please limit yourself to one question and one follow up if you have further questions you may reenter.
So the question queue.
And our first question will come from Robin Farley with UBS. Please go ahead.
Great. Thanks, obviously, great results and guidance.
Looking at the guidance for for 'twenty, one and you addressed some of this.
2020 was kind of unusual split it looks like.
My math is right.
Implied guidance is actually an acceleration in the second half growth rate versus the first half growth rate. If you compare it to 2019 like a normalized year that there's an acceleration exiting the second half.
And I guess I still would like to think about upside to so the question is.
How much potential is there if you.
Supply constraints.
We are able to be six sooner if you could sort of think about what range potentially could kenneth.
In terms of upside there.
No.
Even though your guidance already implies this acceleration on the second half how much is the $40 million of incremental tariffs is actually falling in the second half right in other words I'm wondering if your underlying guidance and support for cash.
Quick question kind of be able to see what the.
Acceleration implied in your guidance is if it weren't for the cash so just a $40 million all a second half or is it or is that spread out from your items.
Your line, maybe on the second half.
Well Robin let me, let me address the question around the acceleration.
Certainly from a production standpoint, we're doing everything we can to accelerate I mean, you can see from the chart around capacity utilization things are getting better as we go and part of that is.
We're leaving a fair amount of the starting with parts in Q2, and then really our vehicles in Q3.
That's when we anticipate leaving the bulk of the supply chain.
Constraints, and then we'll be off and running.
As you can see on the chart, we actually fall below the.
The utilization and as Bob indicated in his prepared remarks, we've got an expectation that retail is down I can tell you that for January retail is running stronger than we expected.
And so to the extent that retail holds up at a higher level, we can obviously pivot.
Later in the year to be in a position to produce the other thing I'd point out and I made this comment in my prepared remarks, even though our dealers are more capable now given our enhancements to our firm to operate at lower dealer inventory levels and say they were in 2019 or 18.
We still anticipate being short of where they need to be by the end of the year. So there's still going to be factory.
Our I'm, sorry channel fill that's going to have to happen as we get into.
2022 predicated on the forecast we have for retail so certainly if things end up playing out better from a retail standpoint, we've got a little bit of flexibility on the back half.
To work through that and enhance delivery and we're going to continue to keep an eye on that we planned.
I would say relatively conservative in terms of that back half from a retail expert expectation standpoint, just given how strong retail performance was starting in Q2.
And there's just a lot of unknowns in terms of how long will the COVID-19 shutdowns in and.
Sputtering starts go on for and so we'll keep an eye on that what I would say is from a supply chain management standpoint. The team has done an excellent job I mean, you think about the fourth quarter, we were able to gain share and we were facing a lot of the same constraints and while we weren't able to get as much inventory into the channel as the dealers would've liked.
Relative to our competitors, we did a much better job.
Bob do you want to handle the tariff question sure. So Robyn to think about tariffs the bulk of the tariff impact will happen in the first half of the year because thats. When we received a lot of the refunds in.
Exemptions from last year.
So that moderates in the second half, that's offset somewhat by promo and flooring, which kind of the opposite in the <unk>.
First half.
Promo on flooring are bit of a tailwind given the strong retail environment and then we see the power sports markets returning more to normal in the second half. So then promo becomes a <unk>.
Headwinds as you look versus 2020.
Okay, great. Thanks very much.
You.
Our next question will come from James Hardiman with Wedbush Securities. Please go ahead.
Hey, good morning.
It sounds like the CEO of stuff isn't it isn't that hard hi, Mike.
Got it.
Great quarter here.
So as I think about the guide and I know you guys know or have never given really sort of quarterly retail guidance, but just maybe order of magnitude as I think about this high single digit power sports industry decline for the year.
Can you help get us on the same page in terms of what that looks like over the course of the year, obviously in the second quarter youre going to be Comping. This move.
Monster, 60% <unk> number.
I would assume that the assumption is that we're down on it.
30, 40, 50% in the second quarter.
But maybe just maybe just corral it so that we're on the same page and we don't have any massive surprises as we work our way through the year from a retail perspective.
Yes, James I think you're I think you're thinking about it the right way I mean, if you look at the.
Slide number five we had in the deck, where we show the quarterly profile I mean retail was down 8% Q1 up 57.
I think that's probably going to be the most exaggerated year over year comps and then clearly with an assumption that we're going to be down high single digits for the year.
Comping 15, and 28%, we're going to be likely down in Q3, and Q4, but I think the more dramatic shifts.
Is Q1 would likely be up.
This year in Q2 would obviously be down probably pretty significantly just given a pretty high comp and then things will start to level out from there.
Got it and then I wanted to circle back to the the capacity utilization slide which seems to be conveyed an awful lot of information.
Just want to make sure I'm looking at this right.
I guess first off it sort of looks like the first half just eyeballing. It it looks like it's up a lot more than 30%, maybe I shouldnt be translating that into sort of sales.
But then.
Through the previous point about the fourth quarter production being.
Down year over year and sequentially.
Why would that be the case given that the fact that you still don't expect.
Inventories in the channel to be back to where you'd like them to be.
By the end of the year and I know you said you are leaving yourself some room in the back half, but I guess.
Even in this base case scenario it almost seems like you would want to improve.
Improve inventories once you get into the off season next year.
Yes, I mean, I think you hit on it James we're trying to play.
Clay this careful because.
We're going to keep a watchful eye as retail continues to play out.
Youre right I mean, when you look at the first half of the chart I mean, when you look at the additional capacity, we need to be able to meet demand in the in the spikes that we've got.
And our production we're doing everything we can and we're only as good as what we've seen in terms of.
We still continue to have a.
A number of suppliers who are behind schedule.
The port situation quite frankly is actually getting worse by the day not better and so we know that we're going to be fighting that.
And then you just have an overall backdrop.
You've probably heard this from many other companies in terms of absentee rizza absenteeism rates that hit into the 20% range, which makes it incredibly difficult from a factory management perspective, and the team is doing everything we can.
I think if retail ends up playing out a little bit better than were expecting you can certainly expect to see that fourth quarter bar moving in a in a much different direction, but.
For now we've got time to think through that and we also want to be mindful of a getting enough inventory on to the dealer channel, but we also want to not put ourselves in a position where were outpacing.
Retail in and get the dealers into a tough spot come 2022.
Okay.
It makes a lot of sense. Thanks, Mike.
<unk>.
Our next question will come from Brett and dress with Keybanc capital markets. Please go ahead.
Hey, good morning, Congrats on the.
And from rules.
Following up on on James's question.
The plan or the guidance that you laid out.
Where do you think dealer inventories.
B at the end of 2021, just to kind of frame up 2022 channel fill.
And then any more color on what.
What level.
And where retail is running at so far this month.
Yeah, so dealer inventory will be up versus where we finished 20.
We're probably right now gonna be 20% to 30% shy of the dealer inventory levels that we would like to have on the channel.
Obviously that has a lot of variables right. It's the cadence of retail it's our cadence of production. So you know that you've got to be careful with that number and certainly we'll continue to monitor that and drive to improve the level of performance.
We've seen so far with January is substantially better than we were expecting but I would just caution you January is always the smallest month we have.
We do know that.
Or have you go out and do surveys of the dealer network and we do our own survey work in the interesting point is is the January usually has a very low foot traffic time for the dealers and they've actually reported that is not the case. So I don't think it's a surprise I think people were anticipating that the current pandemic environment.
On the stay at home orders and.
And the real pivot to wanting to be outside is probably going to continue into the foreseeable future just in light of a slower than anticipated vaccine rollout in and just given the current state of the economy.
Got it Okay and then just one quick one here just how are you thinking about the new product launches. So 2020, obviously unique year 'twenty 'twenty, one probably going to be just as unique.
But do you plan to stick to the usual July lunches for LRB or has all of this caused you to maybe rethink when and how you put new products into the market.
No I think as we've demonstrated I mean, we as I mentioned in my prepared remarks, we just launched a couple of new Ranger models and the completely refreshed trail lineup, which I mean, they look great.
For the razor.
I think we've seen that having a cadence that gets information out when it's ready probably works a lot better than trying to wait to do everything in July and as I said in my prepared remarks, we've got a lot of great stuff come on and we're really excited about it.
Thank you.
Our next question will come from Scott's timber with C. L. King. Please go ahead.
Good morning, and congrats on a great quarter guys.
Thanks.
Mike maybe just to frame things out a little bit.
We're even more from a demand standpoint versus your capacity if somebody wants to walk into the Mojave deal already on that one of yours in Dubai.
Our razor or hot selling reason, what's still lead time to actually get it right now we're talking about being able to get it in a reasonable amount of time within this season.
How will that improve as the year progresses with your capacity plans.
I'll answer the second part of it is going to improve substantially but I would tell you is Steve mento and his team have done a really.
Outstanding job of working that specific issue.
And they've done it through a couple of different things one we've gotten.
I would say we've made it a core competency in terms of being able to identify inventory in different pockets and be able to move it between dealers.
To ensure that the dealer can make the sale. The other thing is is that we have increased our presale.
Pre sold vehicles, so vehicles coming out of the factory.
Essentially six fold from what we had historically been doing and so what that does is that enables the dealer to capture the sale and give the visibility to the customer of when that razor is going to show up a ranger whatever product they're looking for so.
I'd answer it generically because it's tough to just throw a number out but it's it is longer than we would like but at the same time.
I think the team is managing incredibly well and I think we're as evidenced by the fourth quarter, where we were facing a fair amount of of demand and a lot of constriction in the dealer inventory levels, we were in a better position than many of our customers.
Our competitors.
My last question.
And aftermarket obviously the stuff that's tied to your unit sales certainly, killing it but still seems to be about flattish.
I know you've been discontinuing I guess, some lower <unk>.
Margin sales there is that still going on and maybe parse things out about how things how we should look at taxes for 2021.
Yeah, I'd say a couple of things one tap got obviously severely impacted much more than our power sports business in the first half and we've seen a steady improvement over the course of the back half of the year.
The your question around exiting some of the non unprofitable parts of the business I think we're largely done with that but that certainly impacted 2000 twenty's revenue.
What I would say is on our retail side, whether that be in the E commerce channel or through our four wheel parts retail stores.
We actually saw single digit growth rate here on the back half and we're encouraged with that and we think that those.
Those levels of performance are going to continue into 2021, Craig on the team have done a lot of work to restructure that business and we feel like it's poised for.
Much better performance in 2021.
Great. That's all I have thanks, Scott Thank you.
Our next question will come from Joe Ultra Bello with Raymond James. Please go ahead.
Thanks, Hey, guys good morning.
Good morning.
I just wanted to Scott some of the efforts that you guys are making with your suppliers. Some of these constraints given that most of the issue where most of the bottleneck is really out of your control.
Yeah, we.
We've actually tried to take control, where we can I can tell you that we've had.
A couple of suppliers, where we've actually <unk>.
Jettisoned our team in either to be on site or too from a.
Virtual perspective helped manage the facility.
We've also made investments financial support where we've had suppliers that are either couldn't afford to make the investment they needed to keep up with capacity or just needed help in the near term given the substantial ramp.
And then we're doing a lot of work around prioritizing, whether that's making sure that we have people at the ports, making sure we're prioritizing as the containers come off or working with the logistics.
Providers that we have to make sure that we get prioritized I mean thankfully.
And I'll give a.
Shameless plug for the supply chain work that we've been doing thankfully we were.
About of about 35% to 40% of our way through that and the reason that's important is the familiarity we have with our customers, including our logistics provider was so much better than it was before we started that project and given everything that's gone on being able to leverage those relationships is incredibly important and I can tell you. The team has managed.
It every day.
The other way we're working around it from a manufacturing standpoint is we're producing vehicles that may be missing one or two components and then we have the teams go back in and rework that in a very careful manner and so we're finding every avenue, we can to keep the cadence and the tempo up in <unk>.
That team is executing at a level that is far beyond our expectations right now.
And just to follow up on that how are you feeling versus your competitors on you guys are able to leverage.
<unk> sort of from the line so to speak.
Yes, I mean, I think fourth quarter speaks to it I think part of our share loss issues earlier in the year was.
We had forcefully been pushing our dealer inventory levels down on when the pandemic hit we had a number of our competitors that had bloated inventories in.
I think that they were able to bleed those off and it played to their advantage. When we were essentially trying to recover from lower inventory levels and manufacturing had been shut down the.
The fourth quarter is probably one of the best comparison points. It was kind of even level playing field and I think.
Everything from.
The competency, we havent supply chain and logistics and manufacturing to the work Steve Mento was doing with what I think is the best dealer network.
Out there to make sure that we were pulling on every lever, we could and I think the results speak for themselves.
Great. Thanks, guys appreciate it.
Our next question will come from Greg, but it's Kenny.
<unk> with Wolfe Research. Please go ahead.
Hey, guys, it's actually Fred Wightman on for Greg Mike can I just follow up on that last comment you guys are guiding to gain share for the year are we in this situation where product is really driving share in retail or is it really still whatever is on the dealer lot is what selling and.
If that is sort of the second case scenario could we see some volatility on the market share side from quarter to quarter or do you think that we'll see four quarters from market share gains here.
Yes, I mean, I guess the way I would characterize it is there's probably for the next quarter or two there there is certainly going to be in a component of availability.
But I would argue that with the innovation that we've announced and that we have coming there.
That is certainly going to drive a significant amount of demand and I think it's demand consumers are going to be willing to wait for.
I do think that relative to the competitive set.
We're in a we're in a really strong position, we're able to prioritize and get the production into the into the channel.
We're working hand in hand, with our dealers to make sure that we're we're prioritizing the products and we're very confident that we will be on a good spot it's tough to say from a market share standpoint.
I think overall, yes, we are targeting to continue to gain in motorcycles and gain in off road vehicles.
Giving a view by quarter is a tough one because we don't know what's laying in front of US you could have a supplier issue you could have certain shutdowns in certain regions.
At this point, Steve and the team are pushing to gain share I can tell you that coming out of the gates on January they've got very strong performance on that front.
And we like to play from a position of offense versus defense. So we're going to do everything we can to keep that momentum up.
Makes sense and then could you guys just touch quickly on the AG market outlook for 'twenty, one it looks like crop prices are much stronger than they happened in a long time, but can you just give us an update on where that is in terms of percentage from mix within <unk>. How exposed you feel like you guys are to that and what sort of tailwind we could be thinking about this year, yes, I think our I think our AG.
Mix is around 11% of revenue give or take strong.
Strong growth last year, we see big opportunity Steve on the team are heavily focused you know, Texas is one of our.
Largest opportunities it is our largest market for for the company and specifically around Ranger and I.
I think when you look at the product and you look at the introduction that we had this year you know that they are using those vehicles not only on their property, but theyre also using them to recreate and so when we announced things like the big the Big game and the Waterfowl addition, those are really aimed at the heart of the market and we're confident with the innovation that we've.
<unk> gotten that business that we're going to do quite well this year.
Great. Thank you.
So.
The next question will come from Craig Kennison with Baird. Please go ahead.
Hey, good morning, and thanks, and congratulations Mike and Bob on your new roles.
First question is on RF.
I'm just wondering are you setting RF on parameters in the same way you did pre pandemic or do you think you might be able to run with lower structural inventory in ways that might protect dealer profitability and make your dealer network stronger.
Yes.
Craig I'd actually made a couple of statements on my prepared remarks, because I wanted to try and get that out there. So I'm glad you asked.
Yes, we have recognized through this process.
But there are ways for us to be better.
At how we deliver and so we are targeting.
Inventory levels that are below say, where we were in 2019, and if you think relative to where we were back say in 15 or 16.
On a pretty substantial improvement because what we had targeted back in the 18 19 timeframe was much improved over.
2015 so.
It comes back to the agility, we've got in our supply chain I think a lot of the work we're doing around getting vehicles essentially pre sold so that gives you better demand identification I think the work that Steve <unk> and his team are doing we've got much better linkage in terms of.
How we're coming up with demand forecast. This feedback we're getting out of the sales force in working with the dealer I think all those pieces are coming together to put us in a position to be able to run the business and run the dealers with a leaner level of inventory all of that said as.
As we're looking at it for 2021, we're still not even going to be able to get to those levels unless some of these supplier issues abate faster.
And it also hinges on what happens with retail.
Thanks for that and then maybe a bigger picture question on inflation, just given the excess liquidity on the overall economy and the way things have played out how is your business set up to handle inflation.
It's a good question.
We've planned for what we can see I think Bob made the comment that you know.
We plan to or foreign exchange rates, a little bit conservative knowing that the typical offset as commodities and quite frankly, we're seeing that play out.
I wouldn't say perfectly but pretty pretty close.
I think from a pricing standpoint, certainly we've built in as Bob indicated.
<unk> promotional costs in the back half of the year, recognizing that we and our competitors are going to get better in terms of getting inventory into the channel and as inventory improves that puts more competitive pressure into the marketplace.
I think from a wage and labor standpoint, we as we always do we've got a pretty good process to make sure recapture that so I think we have everything in.
Tariffs is the big question Mark for US in terms of the major year over year cost increase and we're optimistic we're obviously working every angle we can.
With the new administration, recognizing that they've only had feet on the ground now for little over a week or so and.
The good news is that the USTR nominee Catherine tie us.
These tough on China, So I don't suspect we're going to see any change in stance and certainly that hasn't been the rhetoric coming out of the administration, but they are on the record, suggesting that the tariff approach hasn't been the most optimal and so you know I don't expect things to change overnight, but we're going to keep a close eye on that we're not going to wait we're obviously off advocating for ourselves as we did over the past couple of years.
But.
That would probably be the biggest area of opportunity in terms of what I look at us year over year cost increase.
Great Hey, thank you.
The next question will come from Garrick Johnson with BMO capital markets. Please go ahead.
Hey, good morning. Thank you I just wanted to take on the.
Hi, guys I just wanted to touch on the tariff on a question a little.
Furthermore, closely what what is your ability or probability to get those exemptions back or is that this year.
I think I think our general counsel would say zero because there is no process.
Obviously as we're advocating for ourselves we're pushing on every angle, we can but at this point. There is there is no process and so.
Have to sign up a very low to no probability around that.
I think we've got a really good case and so we're continuing to bleed that with the administration I think there.
I think theyre going to be willing to listen to that but you know I'm I'm hopeful that maybe they'll take a different approach they've been on the record talking about the negative impact of tariffs have had on U S employment and given their mandate I think theyre going to listen to that.
Derek I think the other thing to keep in mind is that we've obviously done the team has done a great job of working hard to mitigate the tariffs as much as they can from a sourcing perspective, and obviously, we will keep that effort up as we move into 2021.
Okay, Great and then on your capacity constraints on your supplier constraints I should say is it more oriented towards a specific line or specific facility.
I would say, it's more oriented towards our off road vehicles, and that's not to say that boats and motorcycles don't have their own set of issues, but I think it's compounded with the number of parts that come together to make an offer of vehicle as well as just the diversity of the supply base and the size of that business that really crew.
Right a lot of the complexity.
Okay. So it doesn't matter, if it's Mexico or Alabama.
Given the supply constraints neither facility.
No I'd say the geographies are probably more based on the Covid dynamics, and how that's impacting absenteeism and things like that but the supply the supply issues or are pretty common amongst all.
I think the only geographic dynamic would be that the boats.
Business has a much more local supply chain than the rest of the rest of our operations. So that one is less impacted by <unk>.
Outside the U S activities.
Okay, I don't know if somebody on three questions, but I'll try anyway your confidence in motorcycles on your inventory is only down 2% the channel how it is going to be shipping again. This year. So what's your why you're so confident that you're going to grow on.
30% range.
Well I mean, I think there's a couple of things one the innovation that we've got our slingshot business is doing really well the auto manual automated manual transmission is.
A homerun.
Not to oversell it.
Got new product coming out as I teed up in my script.
Release that will start in fact, there was a teaser out on Instagram yesterday.
We're confident that's going to do well and then continued success with with challenger and the scout lineup quite frankly.
We think is going to do as well and that's been a business that really is seeing great success, we think the competitive setup.
It works well for us in terms of our major competitor, having reduced the number of models. They have they've increased the price on their entry bike and we think the setup is really good for us going into the year.
And our next question. Our next question will come from Joseph Spak with RBC capital markets. Please go ahead.
Thanks, Michael.
On on capacity and I guess, you're talking about.
<unk> retail down high single digits. If you think about exiting this year is that I guess absolute level of demand. What do you think you are properly capacities for recognizing that.
Getting the dealer inventories will still take a little bit longer but the reason I ask is because you know you mentioned you added 600000, new customers and assuming you can keep a good portion of those over the years to come.
Can you actually meet that.
Future demand with your current capacity.
Yes.
Hey, a couple of things and remember when we talk about the new customers thats across the entire company and that includes things like Polaris Adventures, which obviously doesn't put necessarily a direct demand. It obviously does because we need more vehicles in the network to support it.
It is a good question and it's why in my prepared remarks, I made the comment that we're going to continue to assess it.
Ken has an organization that is continually looking at our network and making sure that we're optimizing it.
Given the increase in demand and where we see things go on and we don't we don't think things are going to slow down into 'twenty, two and beyond we're going to continue to evaluate that and we'll probably have a better perspective come the middle of the year.
Okay, and then just second once daily and I realize this is.
Essentially the question, Mike So sorry for putting on the spot, but do you want to be CEO of the board decides that way is your hat in the ring so to speak.
Well look as I mentioned the board has got a lot of work in front of them and a big decision to make.
I Love the company I love the role.
And certainly we'd be thrilled to have that opportunity, but at the end of the day the company and the board has to make the decision.
Right for the current times.
Thank you very much.
Yep.
Our next question will come from David Mcgregor with Longbow Research. Please go ahead.
Yes, good morning, everyone and congratulations on the really strong quarter I guess I wanted to talk about gross margins and you.
On your appendix to the slide deck keep present each of the categories in motorcycles clearly stands out as the sort of the anomaly.
<unk>.
Wants to a previous question sort of walked through the individual successes that you've been able to achieve there, particularly on the automotive automatic transmission.
For Slingshot, which has been on the huge homerun. So I guess a question with regard to motorcycle gross margins is just what's realistically achievable in the way of upside here over the next one to two years and can you just talk about kind of the drivers behind that.
Okay.
Yes, so obviously motorcycles as a business we've been building for several years and a half.
Really been focusing on driving improvements in those gross margins, Mike Dougherty and the team are very focused in both launching new bikes and obviously profitability improvement.
We expect those to improve in 'twenty, one and I think long term, we see those getting closer to company average so closer to the 20% range.
But that's going to depend on how new products rollout and the cadence of that.
The cadence of that volume growth.
Is it more a function of product growth or is it product mix or just I'm, just trying to get a greater sense of just the path to those 20% kind of numbers.
Sure. It's a it's a mix of both I mean, obviously the volume helps on the leverage through the through the factories and with suppliers, but also mix challengers are positive and as that continues to build out the heavyweight segment tends to have higher margins, but also the mid sized segment grows a little faster than that.
It's a bit of a headwind right now so it's a mix of bolt on.
I'd also add.
David that we've talked about the P G&A level for the business as blow.
Many competitors are and they've we've made a lot of great inroads over the last year.
And obviously that will help out from a profitability the volume level going through the factory certainly helps and you know theres a lot of work being done around design to value.
As we look forward on the product and so it's not any one thing it's all those things coming together and I think Mike and the team have a great plan.
And understand the importance we've spent a lot of capital getting that business set up getting the products into the market gaining share setting up world class distribution now, it's about scaling that and improving profitability.
Right. Okay. Thanks for that second question is just on Polaris Adventures I guess, just how significant is this in the.
Future plans for growth in revenues and profitability.
Is this a standalone sort of profit center that you see developing or is it more just kind of a means of creating segue for consumers into your existing product offering and ownership.
Well I think it's both I mean, the priority right now, although I will tell you that adventure has actually made money this past year.
On the priority is really to.
Take advantage of the opportunity we have and if you look at the fact that we've got over 160 locations and that's growing rapidly and the number of customers that are touching our product and again these are.
Relatively new products, so theyre getting ex.
<unk> to the best that we have and we know that we are able to convert customers and we've done that with probably very minimal effort.
Do you end up buying product and as I mentioned in my prepared remarks, we've now moved that I've always characterize it as we have everything from buying we are buying a product and renting and theres a big space in between and.
Adventure select which we're piloting down in Arizona right now.
Affords kind of a little bit better model, where theyre not just going on running a product they've actually got ownership our membership in the company.
And it gives them the ability to get access to different products, depending on the time of year and they can tailor that to meet the needs that they have and you know again.
This is all about how do we bring more customers into Polaris because the one thing we know is that there's a stickiness and customers tend to trade up.
And this becomes an integral part of their family.
Family architecture, if you will and so Polaris adventures becomes an incredible entry point for customers, who may not be at a stage of life, where they can afford our product or have the property or or space to store it but may in the future. So.
A little bit on long weighted answer to it but a little bit of both.
Our next question will come from Jamie Katz with Morningstar. Please go ahead.
Hi, good morning.
Another way to ask that question is what do you think the total addressable market of that had net interest the language.
Offering is how many consumers.
Would you try to reach as you scale that across.
The U S.
Well I mean look it's substantial you know when we went after adventures we looked at not what it's interesting is because of these models were not just looking at the power sports market. We're now looking at travel and tourism and vacation because you are now competing with those same dollars. So you're talking tens of billions of dollars in potential.
<unk> out there to be able to draw a consumer in.
We're not gonna be outlying tens of thousands of dollars, they're going to be outlying 100 or $200 a month to have access to an incredible vehicle and so you know.
From our standpoint that becomes very attractive not only in being able to bring them in but the the future potential that they do.
Get to a point that they want to stop either renting or having a subscription and eventually own a vehicle.
Okay, and can you talk a little bit about working capital intensity. It looks like payables went up pretty significantly at the end of the year and I'm wondering if.
On the working capital demands are going to remain similar or maybe go again.
Sure. So we had we had a really good year from a working capital standpoint, as you noticed payable is where we're pretty heavy at the end of the year and Thats, primarily from the switch switch in mix of inventory from fit lower finished goods and a hyatt raw materials as we look to rebuild so as we think about 2021.
Working capital will go up as we continue to refill finished.
Finished goods inventory and build that through the course of the year.
Our next question will come from Billy Covance with Morgan Stanley. Please go ahead.
Thanks, and congrats on the strong result, as we look ahead. He can you give us your view on what levers do you have as a company to grow our revenues organically in a more steady day period post COVID-19 such as 2022.
Tories normalize I think you alluded to a few of these growth drivers in Europe in your remarks, such as toughening tapping into international looking at the customer expansion and new technologies that you could summarize it it would be very helpful. Thanks, guys.
Yes, I mean, you actually did a good job of teeing. It up I mean, I think one with the gross growth on new customers right. It opens the aperture in terms of our.
Folks that not only would be in a repurchase or an upgrade cycle, but the one thing we do know from our new customers that come in is that theyre very enthusiastic and they tend to bring.
Family and friends and and I think we've seen that playing out through the course of this year.
The other the second is around innovation.
We've.
We're known for innovating and you look at the number of products that we brought out this past year.
2021 is set up to.
To be a similar year of strong innovation and new products and continuing to hit segments that maybe we don't currently have products in so I think there's tremendous opportunity there.
I think the third is the offerings that we have outside of the vehicles. So when you look at our aftermarket and you look at our P. G&A. The number of accessories, we have and obviously, we have people who have vehicles that may only be a year or two old by the time you get to 2022, but we've got plenty of options for them to continue to customize and make those vehicles unique in and then also.
As you pointed out the geographic opportunities, we had parts of Europe that although they rebounded in the second half.
We're still down year over year, and so we do think from a geographic standpoint, and what I would say is a far more targeted international growth strategy that Mike Dougherty is put in place over the past several years I think we're poised to really take advantage of that.
Great. Thank you.
Thank you.
The next question will come from Mark Smith with Lake Street Capital markets. Please go ahead.
Hi, guys I'll, just keep it to one electrification strategy you've called it out as a big emphasis here in 2021.
And I know, it's tough to speak to it for competitive reasons, but can you just talk about do you have the organization in place that you need today and then maybe how we should be looking at the goalposts for this business.
Yeah, I'm glad you brought it up because it is a it's an important part of the strategy.
We talked I believe at the last call about we transitioned with Chris Musso, leaving the company in going back to consulting Mike.
Mike Donaghue has taken that over Mike has an incredible background, both in electrification and technology around automotive and off road vehicles.
We have an incredible team in place its one of the things. We spent the past couple of years is making sure that we had the talent.
Internally and then quite frankly, it's why we set up the partnership with zero. They have a proven track record they have powertrains that hit the sweet spot. They can help us work through a cost effective way to put those powertrains indoor offered vehicles.
As we indicated I think the biggest goalpost well I'll say theres two one how much money, we put aside and I can tell you that we're investing around 20 million Bucks. This year to further this this forward. So we're putting the money behind it and then the second is.
We're going to be essentially launching a.
New product at the end of the year and so I think that will really show the traction that we're making I'm excited about it. The team is energized and we think this is going to provide a nice alternative as well as again expand the market to customers that may not be comfortable owning a internal combustion engine today.
Great. Thank you.
Then the last question.
Yes, Sir the next question will come from Shawn Collins with Citi. Please go ahead.
Okay great.
Hey, Mike Bob Richard Good morning, It's Mike Nice to speak with you.
Good morning, good morning.
So I wanted to ask quickly.
About supply chain constraints I know it's on.
Al covered subject and I know the challenges are largely across the board and include a lot of labor tightness, but are you experiencing any particular issues with sourcing semiconductor chips. If you can comment on this.
We are I don't know that I would isolate it out.
Separately and it's like I would tell you we've got a list every day and the teams.
Knocking things off the list and things come on and they're just proactively working it.
Got you great.
Helpful. Just maybe a quick second question.
We're in the midst of winter.
Wanted to ask the boats snowmobile vertical.
For Q industry is up 15% roughly you guys were up roughly 22% can you just offer some color around your outperformance and also the industry in general on their own snow. Thanks, Yes, I would tell you that we've invested a lot of money in snow over the past several years and the new products there.
They're out on the market or will soon be out in the market.
Have met incredible reception.
Our snow check was up substantially versus where we were last year.
And the team has done as good a job as any making sure. We're overcoming some of the supply chain issues to make sure we were getting those sleds into.
Into the hands of our consumers in a timely fashion you can imagine those are are even more time sensitive than our off road vehicles right now.
And the receptivity in the marketplace has been very positive and.
Given some of the new products that we have yet to come we've got a a dealer show that will be a virtual coming up here in March and we're excited about the product that will be coming out at that show as well as later in the year.
This concludes our question and answer session I would like to turn the conference back over to Mr. Richard Edwards for any closing remarks. Please go ahead.
Yeah. Thanks, Doug I, just want to thank everyone for participating on the call. This morning, we certainly appreciate it and we look forward to talking to you again next quarter and have a good day. Thank you goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
The zone.
Okay.
[music].