Q3 2022 BRP Inc Earnings Call

December 1, 2021

And our ongoing initiative to mitigate supply chain issue, we are raising the lower end of our normalized diluted EPS guidance by 75 cents. Narrowing the range between $9 and $9.75 per share. This represents a growth rate of 67% to 81% over last year. Let's turn to slide five for the key financial highlights of the third quarter. As expected, revenue were down 5% to $1.6 billion, primarily due to the supply chain constraints. However, our profitability was stronger than expected normalized EBITDA and normalized diluted earning per share stood at $252 million and $1.48 per share respectively down about 30% year over year.

We are raising the lower end of our normalized diluted EPS guidance by 75.

Narrowing the range between $9 and $9 75 per share.

This represents a growth rate of 67% to 81% over last year.

Let's turn to slide five for the key financial highlights of the third quarter.

As expected revenue were down 5% to $1 6 billion, primarily due to the supply chain constraints.

However, our profitability was stronger than expected normalized EBITDA and normalized diluted earning per share stood at $252 million and $1 48 per share respectively down about 30% year over year.

Turning to slide six. As you can observe, key financial metrics for Q3 year to date are all up significantly. Revenue are up 28%. Normalized EBITDA is up 52%. And normalized diluted earning per share almost doubled to $6.93 per share. These are all record results. In fact, our normalized EBITDA and normalized EPS on a year to date basis are higher than any single full year in BRP history. As a result, we are confident to achieve our annual guidance and deliver another record year in fiscal year '22.

As you can observe.

Key financial metrics for Q3 year to date are all up significantly.

Revenue are up 28% normalized EBITDA is up 52% and normalized diluted earning per share almost doubled to $6 93 per share.

These are all record result.

In fact, our normalized EBITDA and normalized EPS on a year to date basis.

Higher than any single full year in DRP is serving.

As a result, we are confident to achieve our annual guidance and deliver another record year in fiscal year 'twenty two.

Turning to slide seven for a look at our retail performance for the quarter. Our network inventory remains at very low levels. Therefore, our retail sales were roughly equal to our shipment of products. Overall, while our North American Powersport retail sales were down 12% in the quarter. When excluding snowmobile, we still outpace the industry, which was down low 20%. When compared to pre-COVID levels, retail sales were actually up 1%. We're able to achieve this despite operating with very low level of inventory in the network. We expect retail to start to grow and improve in Q4, driven by the timing of snowmobile shipments and the additional production capacity from Juarez 3 and Queretaro. Looking at the global retail picture on slide eight. Overall, we outpaced the Powersport industry in all key regions, including North America, EMEA and Asia Pacific. In North America, specifically, when compared to the industry, we did well with the side by side vehicle, ATVs and personal watercraft product lines. However, we're slightly below the industry in three-wheeled vehicle and snowmobile because of the timing of shipment due to the short stage of component.

Our network inventory remain at very low levels. Therefore, our retail sales were roughly equal to our shipment of products.

Overall, while our North American <unk> retail sales were down 12% in the quarter.

When excluding snowmobile, we're still outpace the industry, which was down low 20%.

When compared to pre Covid levels retail sales were actually up 1%.

We're able to achieve this despite operating with very low level of inventory in the network.

We expect retail to start to grow and improve in Q4, driven by the timing of snowmobile shipments and the additional production capacity from <unk> III and capital.

Looking at the global retail picture on slide eight.

Overall, we outpaced the power sports industry in all key regions, including North America, EMEA and Asia Pacific.

In North America, specifically when compared to the industry, we did well with the side by side vehicle Atvs and personal watercraft product lines.

Over were slightly below the industry and three wheeled vehicle and snowmobile because of the timing of shipment due to the short stage of component.

Turning to consumer demand on slide nine. While our retail growth in the quarter was limited by product availability, we continue to see very strong consumer demand for our product. We continue to attract a high level of new entrants with an estimated 36% year to date, well above the historical average of about 20%. Website visits remain high and well above pre-COVID-19 levels. For example, our Can-Am off-road website saw close to 60% more visits in October '21 than the same period of two years ago. The momentum with preseason consumers certificates for personal watercraft is excellent. As of last Friday, we already have four times the number of certificates versus what we had last year. And recall that we had a record level of preseason certificate last season. And the launch of ORV pre-orders has been very well received. We launched it on November 8th, and customers' orders are already trending above target. So all in all, consumer demand remained very strong and does not show signs of slowing down in near term.

While our retail growth in the quarter was limited by product availability, we continue to see very strong consumer demand for our product.

We continue to attract a high level of new entrant with an estimated 36% year to date, well above <unk> average of about 20%.

Website visits remain high and well above pre COVID-19 levels. For example, our can am off road website saw close to 60% more visits in October 21.

In the same period of two years ago.

The momentum with preseason consumers certificates for personal watercraft is excellent.

As of last Friday, we already have four times the number of certificate versus what we had last year.

And recall that we had a record level of preseason certificate last season.

And the launch of <unk>, our VP orders has been very well received with lunch at in November eight and customers' orders are already trending above target.

So all in all consumer demand remained very strong and does not show signs of slowing down in near term.

Turning to slide 10 for an update on Sea-Doo Switch. Another key highlight of the quarter was the very successful launch of the Sea-Doo Switch. Media review and consumer response to our new product were well above our expectation. The launch represent the strongest reach ever for BRP product. It generated over 2.3 billion impression and over 3 million of website visits in the first 30 days. Also, Switch as an exceptional preseason consumers certificate three time higher than we were expecting. Production is planned to start in the later part of the fourth quarter with deliveries expected to be for the next boating season. We are very pleased with the great start we are experiencing with Switch. We truly believe it will be a game changer for the boating world.

And other key highlights of the quarter was does it is successful launch of the <unk> switch.

Media review and consumer response to our new products were well above our expectation.

The launch represent the strongest <unk> ever for our <unk> product in.

It generated over $2 3 billion impression and over $3 million of website visits in the first 30 days.

Also switch as an exceptional preseason consumers certificate treat time higher than we were expecting.

Production is planned to start in the later part of the fourth quarter with deliveries expected to be for the next boating season.

We are very pleased with the great start we are experiencing with switch with truly believe it will be a game changer for the boating world.

Now, let's turn to slide 11 for year-round product. Revenue were down 8% to $736 million, mainly due to lower product shipments caused by supply chain constraints. And were partially offset by a favorable product mix and increased pricing for Side-by-Side and ATV. Three-Wheeled vehicle were most impacted by lower volume as we prioritize the allocation of component, the product line that were in the retail season.

Revenue were down 8% to $736 million, mainly due to lower product shipments caused by supply chain constraints.

And were partially offset by a favorable product mix and increased pricing for side by side any television.

Two wheel vehicle were most impacted by lower volume as we prioritize the allocation of components the product line that work in the retail season.

Now looking at Side-by-Side North American retail. In the third quarter, retail was down mid 20% in line with the industry, despite having less units in the fire at our Juarez 2 facility at the end of July. Excluding the impact of the fire, we estimate that our retailer would have improved by high teen percentage for the quarter and would have outpaced the industry. Still Can-Am Side-by-Side is very well positioned to grow in the coming years. Consumer demand for our lineup remained strong. Our new products are very well received and we continue ramping up production at our Juarez 3 facility. Given the strong demand for Side-by-Side vehicle and our ongoing market share gain, we have decided to start the Phase 2 expansion at our Juarez 3 facility, which will effectively double production capacity at that facility. Construction is expected to start at the beginning of the calendar year and the production ramp-up is forecast to start in the first quarter of fiscal year '24.

In the third quarter retail was down mid 20% in line with the industry. Despite having less units in the fire at our <unk> facility at the end of July <unk>.

Excluding the impact of the fire, we estimate that our retailer would have improved by high teen percentage for the quarter and would have outpaced the industry.

Silicon them side by side is very well positioned to grow in the coming years.

Tumor demand for our lineup remained strong our new products are very well received and we continue ramping up production at the at our review on <unk> III facility.

Given the strong demand for side by side vehicle and our ongoing market share gains we have decided to start the phase two expansion.

Are you on <unk>, III facility, which will effectively double production capacity at that facility.

Construction is expected to start at the beginning of the calendar year and the production ramp up is forecast to start in the first quarter of fiscal year 'twenty four.

Turning to ATV. For the quarter, Can-Am North American retail was down high single-digit percent, while the industry was down mid 20%. Our Can-Am ATV lineup continued to gain momentum with market share gain in the high CC category. Turning to Three-Wheeled vehicle. The North American three-wheeled vehicle industry completed its season '21 in October with retail up close to 20%. Our Can-Am Three-wheeled vehicle retail was up mid 20% over the same period gaining share in both the Three-Wheeled vehicle and two-wheel motorcycle industry and ending the season with the number one market position in Three-Wheeled and fifth in the Motorcycle industry. We had impressive results, even if we miss inventory in the back end of the quarter, which impacted our retail.

For the quarter, Canada, North American retail was down high single digit percent, while the industry was down mid 20%.

<unk> TV lineup continued to gain momentum with market share gain into high Cc category.

Turning to three wheeled vehicle the North American three wheeled vehicle industry completed its season 'twenty one in October reached retail with retail up close to 20%.

<unk> M. Three wheeled vehicle retail was up mid 20% over the same period gaining share in both the three wheeled vehicle and two wheel motorcycle industry and ending the season with the number one market position in <unk> and fifth in the motorcycle industry.

We had impressive results, even if we miss inventory in the back end of the quarter, which impacted our retail.

Turning to Slide 12, for an update on Three-Wheeled Vehicles Season 21. It was another very good season for Three-Wheeled. Not only did we gain market share, we made progress on our key priorities. We continue to generate strong momentum with The Rider Education Program. The total number of riding course completed since the launch of the program is now up to 44,000. The Ryker continue to attract a younger and more diverse consumer base. In fact, 55% of consumers are new entrants. Over 38% are women, a key buyer group. 70% are under the age of 55, and about half are from diverse communities. Moreover, the Women of On-Road community that we initiated last year has been very successful now accounting close to 12,000 members. All of these initiatives have helped us grow the Three-Wheeled Vehicle market. In fact, we tripled our annual retail sales in North America since the Ryker introduction in Season 2018. We are confident in our ability to continue to grow in the coming season.

It was another very good season for <unk> will not only did we gained market share we made progress on our key priorities with.

We continued to generate strong momentum with deruyter indication program.

Total number of variety of course completed since the launch of the program is now up to 44000.

The ryker continue to attract a younger and more diverse consumer base in fact, 55% of consumer are new on trend.

Over 30% are women a key buyer group.

70% are under the age of 55 and about half are from diverse communities.

Moreover, the women of on road community.

We initiated last year has been very successful now hunting close to 12000 member.

All of these initiatives have helped us grow, which we will vehicle market and.

In fact with Triple our annual retail sales in North America since the ryker introduction in season 2018.

We are confident in our ability to continue to grow in the coming season.

Turning to Seasonal Products on Slide 13. Seasonal Products revenue were down 14% to $437 million, mainly due to lower product shipment caused by supply chain constraints, and were partially offset by a richer mix of Personal Watercraft and favorable pricing. Now looking at Personal Watercraft retail. For the quarter, North American retail was up high 80%, while the industry was up mid-70% and Sea-Doo continued to gain market share. The North American industry ended its Season 21 on September 30 with Retail up mid-single digits. Sea-Doo retail was up high-teen percent over the same period ending the season with the number one market position in all segments in the industry and achieving its highest market share ever. Once again, we ended the season with a very low level of network inventory, down 70% in comparison to the same period last year. In Australia and New Zealand, early in the season, Sea-Doo is off to a good start with retail up over 90%. With low level of inventory and strong pre-season consumer certificate, we are experiencing another very strong year for Personal Watercraft business.

Seasonal product revenue were down 14% to $437 million mainly.

Mainly due to lower product shipments caused by supply chain constraints.

And were partially offset by a richer mix of personal watercraft and favorable pricing.

Now looking at personal watercraft retail.

For the quarter, North American retail was up high 80%, while the industry was up mid 70%.

<unk> continued to gain market share.

The North American industry ended its season 'twenty one on September 30, with retail up mid single digits.

CDO retail was up high teen percent over the same period.

Ending the season with the number one market position in all segments in the industry and achieving its highest market share ever.

Once again, we ended the season with a very low level of network inventory down 70% in comparison to the same period last year.

In Australia, and New Zealand early in the season is off to a good start with retail up over 90%.

With low level of inventory and strong preseason consumers certificate, we are experiencing in another very strong year for personal watercraft business.

Looking at Snowmobile. While it is currently still early in the season, during the quarter, the North American retail industry was down mid-40% and our Snowmobile sales were also down high 40%. This is mainly due to low product availability given we prioritize the allocation of component to product line that were in season during the quarter. Looking ahead, our retail is rapidly improving as we are now focused on the completion of Snowmobile that we're awaiting missing component. Given this prioritization combined with a record level of unit pre-sold to consumer, we are confident in our ability to deliver a strong fourth quarter. Continuing on Slide 14, with the look at Powersport, parts, accessories and apparel and OEM engine. Revenue were up 9% to $284 million for the quarter. This growth is driven by higher volume of replacement parts due to the increased product usage combined with strong unit retail with generated increased accessory sales. Our strategy to develop accessories in parallel to vehicle continues to pay off and the Sea-Doo Switch is another great example. With this strong success, we are well on our way to achieve our fiscal year '22 revenue guidance, which forecasts to surpass the $1 billion mark for the first time.

While it is currently still early in the season during the quarter. The North America in the retail industry was down mid 40% and our snowmobile sales were also down high 40%.

This is mainly due to low product availability given that we prioritize the allocation of component to product line that were in season during the quarter.

Looking ahead, our retail is rapidly improving as we are now focused on the completion of snowmobile that where are we thing missing component.

Given this prioritization combined with a record level of unit pre sold to consumer we are confident in our ability to deliver a strong fourth quarter.

Continuing on slide 14, with the look at Forest Park.

Part accessories, and apparel and the OEM engine.

Revenue were up 9% to $284 million for the quarter.

This growth is driven by a higher volume of replacement parts due to the increased product use eight combined with strong unit retail which generated increase accessory sales.

Our strategy to develop accessories in parallel to vehicle continued to pay off and the <unk> switch is another great example.

With this strong success, we are well on our way to achieve our fiscal year 'twenty two revenue guide them.

<unk> forecast to surpass the $1 billion Mark for the first time.

Now looking to Marine on Slide 15. Revenue were up 26% to $131 million, driven by a higher volume of boats sold and lower sales program. Looking at retail sales, for the quarter both Alumacraft and [Manitou] retail declined as sales were made earlier in the season compared to last year. However, year-to-date both brands performed well. Alumacraft was down high single-digit due to low level of inventory and Manitou was up about 10%. This said, both brands finished the boating season in North America with low inventory. As for Telwater, we are approaching the upcoming boating season in Australia, and retail is up high single-digit for the year-to-date. We are pleased with the progress we have made in our Marine business and now looking forward to launching new boat with the growth engine in each of the three brands in the second half of 2022. With that, I turn the call over to Sebastien.

Revenue were up 26% to $131 million driven by a higher volume of boats sold and lower sales program.

Looking at retail sales for the quarter, both at <unk> and many to sell a retail decline as sales were made earlier in this season compared to last year. However year to date, both brands performed well <unk> was down high single digits due to low level of inventory.

And many two was up about 10%.

This said both brands finished the boating season in North America with low inventory.

Asphalt tailwater, we are approaching the upcoming boating season in Australia, and retail is up high single digits for the year to date.

We are pleased with the progress we have made in our marine business and are looking forward to launching new boat with the growth engine in each of the three brands in the second half of 2022.

With that I turn the call over to Sebastien.

Thank you, Jose, and good morning, everyone. As previously anticipated, we managed through supply chain issues throughout the third quarter, which impacted our wholesale and retail. However, the strong demand for our premium model and the continued tight management of our expenses allowed us to deliver better than expected profitability. Looking at the numbers. We generated $411 million of gross profit, representing a margin of 25.9%, and delivered $252 million of normalized EBITDA. Our normalized income came in at $128 million, down $71 million from Q3 last year due to lower volume of unit delivery, higher production and distribution costs, and a slight increase in operating expenses, which are partly offset by better mix, lower financing costs and tax expense as well as favorable FX impact. This resulted in normalized earnings per share of $1.48 coming ahead of expectation.

However, the strong demand for our premium model and the continued tight management of our expenses.

All of us to deliver better than expected profitability.

Looking at our numbers, we generated $411 million of gross profit representing a margin of 25, 9%.

And delivered $252 million of normalized EBITDA normalized of income came in at $128 million down $71 million from Q3 last year due to lower volume of unit deliveries higher production and distribution costs and a slight increase in operating expenses.

Were partly offset by better mix lower financing costs and tax expense as well as favorable FX impact this.

This resulted in a normalized earnings per share of $1 48 coming ahead of expectations.

From a cash flow perspective, we had negative free cash flow in the quarter as we continued investing in the business, notably with $136 million in Capex to support our growth project and $485 million in working capital, given that we continued operating with the higher level of work-in-process inventory as we are managing through the supply chain constraints.

And $485 million in working capital given that we continued operating with a higher level of work in process inventory as we are managing through the supply chain constraints.

Moving to our network inventory situation on Slide 18. Year-over-year, our network inventory is down 44% with all product lines seeing declines despite lapping a very low level of inventory at this time last year. Well looking versus Q2, our inventory is slightly up driven by Snowmobile shipments ahead of the winter season. As you know, in order to deliver on our commitment of fulfilling all dealer orders in the context of supply chain constraints, we are shipping incomplete units to dealers for which the retrofit is simple and rapid. This approach brings the product closer to the final consumer and should lead the timing of retail once the final components are received by the dealers. These incomplete units are excluded from our reported network inventory until we ship the required components. If we were to include these units on our network inventory, our inventory level would be down only 14% year-over-year instead of the 44% decline we reported. And therefore, positioning us well to deliver on our wholesale and retail plan in Q4 as we accelerate the shipment of components to our dealers. And looking ahead, we still have a significant inventory replenishment opportunity representing roughly the equivalent of our full quarter of wholesale to get back to more normalized levels, a sizable growth driver for the quarters to come.

Year over year, our network inventory is down 44% with all product lines seeing declines despite lapping a very low level of inventory at this time last year when looking versus Q2, our inventory is slightly up driven by snowmobile shipments ahead of the winter season.

In order to deliver on our commitment of fulfilling all dealer orders in the context of supply chain constraints. We are shipping incomplete units to dealers for which the retrofit is simple and rapid.

This approach brings the product closer to the final consumer and should lead to timely or retail or once the final components are received by the dealers.

These incomplete units are excluded from our reported network inventory until we ship the required components.

If we were to include these units on our network inventory, our inventory level would be down only 14% year over year instead of the 44% decline we reported.

And therefore positioning us well to deliver on our wholesale and retail plan in Q4, as we accelerate the shipment of components for our dealers.

And looking ahead, we still have a significant inventory replenishment opportunity representing roughly the equivalent of a full quarter of wholesale to get back to more normalized levels, a sizeable growth driver for the quarters to come.

Now moving on to the updated guidance starting with a bit of context on Slide 19. With just a couple of months to go into fiscal '22, we now have better visibility on our production for the rest of the year. While we expect to continue operating through a tight supply chain environment, the actions we took throughout the year to adapt our processes to this new reality are paying off. Making the situation more manageable and allowing us to deliver increased volume in the fourth quarter. Looking at revenues, we have adjusted our year-on product guidance to reflect the impact of supply chain constraints on wholesale and the timing in Three-Wheeled production, which is now concentrated more in fiscal '23 Q1. As we prioritize production capacity and components availability for Snowmobiles in Q4. We have also adjusted upward the lower end of the guidance ranges for other product categories to reflect the increased visibility we have on our expected production output for the year. With these volume adjustments, we are increasing the lower end of our profitability metrics to reflect the expectations for a continued favorable product mix, and lower than previously anticipated operating expenses. Our guidance also accounts for increased commodity and logistics costs, which are expected to be offset by improved pricing and lower sales program.

Just a couple of months to go in fiscal 'twenty. Two we now have better visibility on our production for the rest of the year, while we expect to continue operating through a tight supply chain environment. The actions we took throughout the year to adapt our processes to this new reality are paying off making the situation more manageable.

And allowing us to deliver increased volume in the fourth quarter looking.

Looking at revenues, we have adjusted our year round products guidance to reflect the impact of supply chain constraints on wholesale and the timing and three wheel production, which is now concentrated more in fiscal 'twenty three Q1, as we prioritize production capacity and components availability for snowmobiles in Q4.

We have also adjusted upward the lower end of the guidance ranges for other product categories reflect the increased visibility we have on our expected production output for the year.

With these volume adjustments, we are increasing the lower end of our profitability metrics to reflect the expectations for continued favorable product mix and lower than previously anticipated operating expenses.

Our guidance also accounts for increased commodity and logistics costs, which are expected to be offset by improved pricing and lower sales program.

Finally, we are also increasing our Capex guidance to a range of $705 million to $730 million to reflect the opportunistic acquisition of the Juarez 2 and Queretaro facilities which we were leasing until now. This transaction is expected to close in the coming months. Looking at the numbers on Slide 20. With these adjustments, we now expect our total company revenue to grow between 25% and 30%, our normalized EBITDA to grow between 38% and 47%. And our normalized EPS is now expected to end between $9 and $9.75, representing a growth of 67% to 81%. While we are comfortable with our plan for the year, we expect to continue operating in a tight supply chain environment, which may lead to variability in the timing of reception of components from suppliers and in turn, may impact our production and shipment schedules.

Looking at the numbers on slide 20, with these adjustments we now expect our total company revenue to grow between 25%, 30%, our normalized EBITDA to grow between 38% and 47% and our normalized EPS is now expected to end between $9 $9 75, representing a growth of 67% to 81%.

Yeah.

While we are comfortable with our plan for the year, we expect to continue operating in a tight supply chain environment, which may lead to variability in the timing of reception of components from suppliers and in turn may impact our production and shipment schedules.

Given this situation, we are operating with lower visibility than we usually do. And this is why we have kept a wider than usual guidance range for this time of the year. Still, we are confident in our ability to achieve our guidance and given our expectation for a strong fourth quarter and continued solid growth in fiscal '23, the Board of Directors has approved the launch of the normal course issuer bid under which we will be allowed to repurchase up to 3.8 million shares over the next 12 months. On that, I turn the call over to Jose.

Still we are confident in our ability to achieve our guidance and given our expectation for a strong fourth quarter and continued solid growth in fiscal 'twenty three the board of directors has approved the launch of the normal course issuer bid under which we will be allowed to repurchase up to $3 8 million shares over the next 12 months.

I'll turn the call over to Jose.

Thank you, Sebastien. To conclude, we delivered record results in the first nine months of the year. Thanks to the selling execution of our team and strong consumer demand. Given this performance and our ongoing initiatives to mitigate supply chain disruption, we expect to report solid Q4 results, achieve our guidance and deliver another record year in fiscal year '22. Building on this momentum, we are well-positioned to deliver strong growth in fiscal year '23, as we expect to benefit from numerous key initiatives and trends including a sustained strong consumer interest in Powersports and Marine, the upcoming significant inventory replenishment cycle, which is expected to take place over the next 12 to 18 months, the continued robust demand for our product lineups, the first year of the Sea-Doo Switch, which is proving to be very promising, and additional products, and additional production capacity from Juarez 3 and Queretaro. In addition, we have a solid pipeline of projects to sustain our long-term growth, including continued investment in innovation, the ramp-up of additional production capacity at Juarez 3 Phase 2, our new entrant strategy, which is progressing well, new product introduction in the Marine business such as Project Ghost as well as offering electric option in each of our product line by 2026. As you can see, we are well-positioned to drive short-term and long-term growth. Finally, I would like to thank all our employees for their hard work and dedication in this very busy time, our suppliers for doing everything they possibly can to meet our orders and our dealers for their support and patience. Also a special thank you to our customers for their confidence and loyalty. On that note, I turn the call over to the operator for questions.

Given this performance and our ongoing initiatives to mitigate supply chain disruption. We expect to report solid Q4 results achieve our guidance and deliver another record year in fiscal year 'twenty two.

Building on this momentum we are well positioned to deliver strong growth in fiscal year 'twenty three as.

As we expect to benefit from numerous key initiative and trends, including <unk>.

Our sustained strong consumer interest in power sports and marine.

The upcoming significant inventory replenishment cycle, which is expected to take place over the next 12 to 18 months.

The continued robust demand for our product lineups.

This year of the <unk> switch, which is proving to be very promising.

And additional products and additional production capacity from USAA Street and <unk>.

In addition, we have a solid pipeline of projects to sustain our long term growth including continued.

Continued investment in innovation the ramp up of additional production capacity at <unk> III phase III.

Our new entrance strategy, which is progressing well.

New product introduction in the marine business such as project goes.

As well as offering electric option in each of our product line by 2026.

As you can see we are well positioned to drive short term and long term growth.

Finally. I would like to thank all our employees for their hard work and dedication in this very busy time. Our supplier for doing everything they possibly can to meet our orders. And our dealers for their support and patience. Also a special thanks to our customers for their confidence and loyalty. On that note I'll turn the call over to the operator for questions.

I would like to thank all our employees for their hard work and dedication in this very busy time.

Our supplier for doing everything they possibly can to meet our orders.

And our dealers for their support and patience.

Also a special thanks to our customers for their confidence and loyalty.

On that note I'll turn the call over to the operator for questions.

Thank you. At this time, I would like to remind everyone in order to ask a question press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Craig Kennison from Baird. Please go ahead.

The number one on your telephone keypad.

Pause for just a moment to compile the Q&A roster.

Your first question comes from Craig Kennison from Baird. Please go ahead.

Hey, good morning. Thank you for taking my question. Obviously, there are many consumers who show up at dealers that is choosing to do. Are they switching to another BRP. Craig. Good morning, I don't know if you hear us, but we don't hear you. Hello. Craig, we don't hear you. Maybe, operator, we move to another question and it would come back to Craig later on. And your next question comes from the line of Martin Landry. Please go ahead.

Choosing <unk>.

Switching to another VIP play.

Craig.

Good morning, I don't know if you hear us, but we don't hear you.

Okay.

Hello.

Good how are you.

Yes.

Hello, we move to another question that will come back to the operator.

Yes.

Maybe operator, we move to another question and it would come back to correct later on.

Yes.

And your next question comes from the line of Matthew. Please go ahead.

Hi, good morning Jose, Sebastien, Philippe. This is Tony on the line for Martin. You seem to be handling the supply chain situation quite well also in the industry, maybe units in the stores. I'm just wondering if you can shed any light on some of the initiatives, facilities and working in the facilities in Mexico [with the fact that you have no labor,] modular parts, and anything to shed will be helpful. Thanks.

You seem to be handling the supply chain situation quite strong relative to the industry getting units to new stores.

Just wondering if you can shed any light on some new initiatives.

And these pieces and royalties.

The facilities in Mexico with the fact that you have more labor.

And part two would be helpful.

Hey, good morning. First, I don't know guys if you hear me well. But as you know, our goal is to meet all dealer and customer orders. Then basically we have improved on our process. Do you hear us? Yeah. I hear you with a little bit of background noise, but I can hear you. Then, as you know the goal is to meet all dealer and customer orders. And we have, basically, we have improved our process over the years. And the first one, we allocate products to minimize sectorial changes. And basically, we allocate products to dealers to make sure that we minimize the change that will come from them. Second, we have the chance to be, to have many product line, and we have the possibility to prioritize certain products depending of their sustainability. And I give an example, in Q3, we prioritized components on ORV products and Personal Watercraft controlled season because they were in the peak retail versus Three-Wheeled vehicle and Snow because the usage of the product of Three-Wheeled and Snow in August to October is limited. Q4 we will prioritize ORV and Snow versus Three-Wheeled and Watercraft, and in Q1 our product line will be prioritized. Then this gives us, I believe more flexibility than some of our competitors.

But as you know our goal is to meet.

All dealer and customer orders and then basically we have and improve on our process.

Okay.

Uhm era.

Yes.

A little.

There is a little bit of background on completions.

Yes.

Dan.

Then.

Thanks.

As you know the goal is to meet all dealer and customer orders and.

And we have basically we have improved our process over the years.

The first one we allocate product we mine them to.

To minimize secondary changed in.

And basically we allocate product to dealers.

To make sure that we minimize the change that would come from them.

We are.

Tends to be tour to have many product line and we have the possibility to prioritize certain product depending of the subsidy and then I gave an example.

In Q3 with prioritized component.

On the RV products and personal watercraft country's season, because the award and the peak retail versus three wheeled vehicle and slow because.

This led the usage of the product for tubular and Snowy <unk> to October is limited.

Q4 will prioritize of RV and slow versus three Wheeler and watercraft in Q1, all product line will be prioritized and this gave us I believe more flexibility than some of our competitor.

The other thing is, we decided to run our assembly line doing some BOs either we retrofit them in-house or we have the dealer to retrofit them. Then when the dealer does it, it's more people who can do the retrofit. And on top of it, it's saving the shipping time. And the last thing, you know that we have a high percentage of our production with Made in Mexico, where we have no labor shortage. This is what's going on in Canada and United States. Then overall, the supply chain is still challenging, but with those initiatives is more manageable. Do you hear us? Operator? Yeah. Martin's line is open.

Doing some deals.

Either we retrofit them in house or we have the dealer to retrofit them than when the dealer do it. It's the more people who can do the retrofit and on top of it is saving of shipping time.

And the last thing.

Thus, we have a high percentage of our production was made in Mexico, where we have lower labor shortage versus what's going on in Canada, and United States than overall <unk>.

Supply chain is still challenging but with dose initiative is more manageable.

So you hear us.

Operator.

Yes.

Your line is open.

Okay.

Yeah. Okay. So just a quick follow-up on, you mentioned that we'll see more product introductions over the next three years than in the last three years. So how should we think about how that could impact some of your expenses of [research and development?] Is there going to be any sort of step-change or material change and how that is relative to your revenue in the coming three years? Well, historically we've always invested around 4% to 4.5% of R&D as a percentage of revenue and the expectation is that we continue on that trend. Innovation is part of winning in this industry and we need to continue fueling innovation. Okay. Thank you.

You mentioned that we'll see more product introductions over the next.

Three years than the last three years. So how should we think about how that could impact from year over year expenses research and development is there going to be any sort of step change or material change in how that is relative to year.

<unk> revenue in the coming three years.

Well historically, we've always invested around four to four 5% of R&D as a percentage of revenue and the expectation is that we continue on that trend.

Innovation is part of winning in this industry and we need to continue fueling.

Innovation.

Okay. Thank you.

Sure.

Your next question comes from Gerrick Johnson from BMO Capital Markets. Please go ahead. Hey, good morning guys. Last quarter, you talked about growing revenue and earnings by double-digit percent in fiscal '23. I did not hear that this time you backing off of that guidance?

Hey, good morning, guys.

And last quarter, you talked about growing revenue and earnings by double digit percent in fiscal 'twenty three.

Did not hear that this time are you backing off of that guidance.

Good morning, Gerrick. No, we're not backing off of that guidance. Obviously, assuming the supply chain continues to improve and it remains manageable as we expect for Q4. You know that we have a lot of growth opportunities for next year as Jose alluded to them, but obviously we have added capacity for Side-by-Side, Personal Watercraft, The Switch, The Ghost, the restocking of inventory in the network. And also, we will have a few surprises next year in terms of product introduction. So if you take the midpoint of the guidance range on EPS for fiscal year '22, we are confident in our ability to deliver again double-digit EPS growth for next year.

No we're not backing off of our guidance.

Yes, the assuming the supply chain continues to improve and it.

It remains manageable as we as we expect for Q4.

You know that we have a lot of growth opportunities for next year as Jose alluded to them, but obviously, we have added capacity for side by side personal watercraft the switch the goals the restocking of inventory in the network.

And also we will have a few surprises next year in terms of product introduction. So if you take the midpoint of the guidance range on EPS for fiscal year 'twenty two.

We are confident in our ability to deliver again double digit EPS growth for next year.

Okay. Great. Thank you for that. And in the quarter with revenues lower, what was the profitability surprise? Was it, I think, you said it was operating expense, what they're surprised due to the, to be a benefit? Yeah. Well, we came in lower than what we were anticipating. Obviously, with the low level of network inventory that we have in the field, continued strong consumer interest, we scale back on some of the marketing spend that we are planning to do. Okay. Favorable. Okay. I have one more and I'll jump back in the queue. If you ship an incomplete unit, when do you recognize that revenue? Very important question. We recognize revenue only when the final components are shipped to the dealer. So as I've said in my call, any retrofit units or incomplete units that we shipped to the network are actually excluded from network inventory because we haven't recognized revenue and will be recording revenue when we ship the components. So that's why now that we're sitting with, if you compare year-over-year, minus 14% of total inventory, including incomplete units, obviously it bodes well for wholesale plan for the fourth quarter.

In the quarter.

Revenue is lower.

The profitability surprise was it I think you said it was operating expense what they're surprised you.

To the.

Can be a benefit.

Yes, well, we came in lower than what we were anticipating obviously with with the lower level of network inventory that we have in the in the field.

Strong consumer interest we scaled back on some of the marketing spend that we were planning to do.

Okay. Okay.

Okay.

<unk>.

Okay.

One more and ill jump back in queue, you shipped an incomplete units.

When do you recognize that revenue.

Very very important question, we recognize revenue only when the final components are shipped to the dealer.

Said in my call any retrofit units or incomplete units that we shipped to the network are actually excluded from network inventory because we haven't recognized revenue.

And we will be recording revenue when we shipped the components. So that's why now that we're sitting with.

Patricia compare year over year minus 14% of total inventory, including incomplete unit, obviously, it bodes well for wholesale plan further fourth quarter.

Okay. Great. Thank you very much. Your next question comes from Cameron Doerksen from National Bank Financial. Please go ahead. Yeah. Thanks very much. Good morning. And just a follow-up on that last question. I guess that's largely the, especially on the Snowmobile side, that largely explains that the fairly significant implied sequential revenue growth in Seasonal Products in Q4 is the fact that you've got these units at the dealers that are basically kind of ready to ship?

Your next question comes from Kamran Jackson from National Bank Financial. Please go ahead.

Yeah. Thanks, very much good morning, just to follow up on that last question.

I guess, that's largely especially on the snowmobile side that largely explains the fairly significant implied.

<unk> revenue growth and seasonal products in Q4 is the fact that you've got these units at the dealers that are basically kind of ready to ship.

Yeah. This is, yeah, exactly. And Jose mentioned as well, purposefully we prioritize other product lines versus Snowmobiles in Q4. So that's why you'll see a heavier lift in wholesale in Q4 for Snowmobiles. Okay. Perfect. And I guess sort of related question for me, just on the working capital in Q4. I guess, presumably, you'll have a significant, obviously, we've seen inventory, I guess, increased sequentially the last number of quarters. I would, as your expectation that we'll see that decline in Q4. And I guess maybe my other question is, we saw a fairly big jump in accounts receivable in Q3. I'm just wondering what would kind of explain that. Well, if you look at the overall investment in working capital year-to-date at the end of Q3, it's about $855 million. And my expectation is that will go down in the fourth quarter, probably to the tune of $200 million to $250 million, so positive cash generation. And yes, AR has increased, obviously, with the shipment of goods to dealers in the last period of the month. So that obviously increases overall AR. Okay. That's very good. I'll jump back in queue. Thanks very much.

As I mentioned as well purposefully, we prioritize other product lines versus snowmobile in Q4, so thats why youll see.

A heavier lift in wholesale in Q4 for snowmobile.

Okay perfect.

I guess sort of a related question for me just on the working capital in Q4, I guess, presumably you will have a significant you obviously, we've seen inventory increase sequentially. The last number of quarters I would.

The expectation that we'll see that.

That decline in Q4, and I guess, maybe my other question is we saw a fairly big jump in accounts receivable in Q3, I'm, just wondering what kind of explain that.

While if you look at.

The overall investment in working capital year to date at the end of Q3, its about $855 million and my expectation is that will go down.

In the fourth quarter, probably to the tune of $200 million to $250 million will positive cash generation and yes. They are has been increased obviously with the shipment of goods.

Two.

To dealers.

And the last period of the of the month.

So that obviously increases overall they are.

Okay, Alright, that's very good I'll jump back in queue. Thanks very much.

Your next question comes from Joe Altobello from Raymond James. Please go ahead. Thanks. Hey guys, good morning. I guess, the first question on supply chain constraints. You did mention earlier, it's improving in recent weeks. I was hoping you could elaborate on that a little bit. Is it on the logistics side or components procurement or was it pretty much across the board?

Thanks, Hey, guys. Good morning, I guess first question on supply chain constraints. You did mentioned earlier, it's improving in recent weeks I was hoping you could elaborate on that a little bit is it on the logistics side or components procurement or was it pretty much across the board.

Good morning, Joe. I would say on the semiconductors, we see some improvement. We have a better visibility of what's coming. This is definitely a plus. The logistic is still difficult with the Christmas high season, there is a shortage of, as you know, of container, boats, plane and all of it. Then this is creating some disruption. That being said, and that's what I've tried to explain the way the process that we put together to better manage the volatility, I believe, is good for us then. Again, and again, I'm not sure if you heard well, but we allocate products to dealers and we have them to pre-sell those products, not what they don't know, if they will get it. We, because we have a multi-product line, we have the product, possibility prioritize certain product line versus other depending of the riding season. We decided to run our assembly line some would be that will retrofit year or at the dealer level. Then this is another lever that expedite unit that retail. And the last thing is because we have quite a high level of production in Mexico where there is no labor shortage, we feel it's helping. Then all of this is helping us to better mileage the high volatility of the supply chain.

Logistics is still difficult with the Christmas Hi.

Season, there is short Asia.

As you know container loads of playing in all of it then this is creating some disruption.

That being said and that's what I've tried to explain the way the process that we put together to better manage.

The volatility.

Believe is.

Is is good.

Good for US then again and again I am not sure if you heard well, but we allocated product.

To dealers and we have them to pre sell those products what the don't know if they will get it.

We because we have multi product line, we have the prior possibly to prioritize certain product lines versus other depending of the riding season.

We decided to run our assembly line some with deal that we will retrofit ear at the dealer level. Then this is another lever that expedite unit that retail and the last thing is because we have quite a high level of production in Mexico, where there is no labor shortage, we feel it is.

It's.

It is helping then all of this.

<unk> is helping us to better manage the high volatility of the supply chain.

Okay. That's very helpful. And then maybe thinking about fiscal '23, you did mention earlier, you're still expecting double-digit EPS growth. Your EBITDA margins this year are looking around 18% to 19%. I think you've said they should be flattish next year. So could you help us understand sort of the puts and takes in fiscal '23 in terms of margins? I assume you're expecting some normalization in sales programs and I would think that would be offset largely by cost savings and other drivers?

Looking around 18%, 19% I think you've said there could be flattish next year that could help us understand sort of the puts and takes.

Fiscal 'twenty three in terms of margins I assume youre expecting some normalization and sales programs and I would think that that would be offset largely by cost savings.

Other drivers.

Yeah. When we give you some color on the EBITDA margin for next year, what we said was expectation is that would be in line with what we had in fiscal year '21, which was a phenomenal year in terms of our profitability and EBITDA margin. Obviously, the pluses are, the volume is going to be a big plus for next year. Pricing is also going to be a plus. But the headwinds that we're seeing, obviously, we're benefiting this year from a very favorable commercial environment on the sales program. We're expecting a headwind on sales program. We're expecting a headwind on mix as well. This year we tend to favor higher margin products because production was limited. And so that's what we put on the top of the list. And also commodities are going to be a headwind. We're seeing it this year, we're expecting it to continue being high next year. Probably, less disruption in the, what we'll call it the weekly management of operations, so less cost there, but certainly an inflationary pressure from a commodity's point of view and a salary's point of view as well.

So I'm going to give you some color on the EBITDA margin for next year. What we said was the expectation is that would be in line with what we had in fiscal year 'twenty, one which was a phenomenal year in terms of profitability.

And EBITDA margin.

Obviously, the pluses are the volume is going to be a big plus for next year.

Pricing is also going to be a plus but the headwinds that we're seeing obviously, we're benefiting this year from a very favorable commercial environment on the sales program. We are expecting a headwind on sales program, we're expecting a headwind on mix as well this year, we've tend to favor higher margin products because.

Production was limited until that's what we've put on the top of the list and also commodities are going to be a headwind. We're seeing it. This year, we're expecting it to continue being high next year, probably less disruption in the we'll call. It the weekly management of operations with less cost there, but certainly an inflationary.

The pressure from a commodity point of view and a salaries point of view as well.

Got it. Great. Thank you, guys. Your next question comes from Brian Morrison from TD Securities. Please go ahead. Thank you. Good morning. So I want to go back to the pre-builds with your whip up about $500 million. What percentage of that is Snow? And do you expect that elevated whip to normalize all in Q4? Or could this be ongoing with the supply chain visibility? Well, if I look at my overall retrofit situation there, Q3 was the quarter which for us, we believe is the peak in terms of unit retrofit. We are about 2.5 times higher than where we were at the end of Q2. And our expectation is that number is going to go down in Q4 by about 25%. So we'll still be at high levels, higher than we would like, but still very manageable. And the expectation is in Q1 and in Q2, we will be depleting that retrofit inventory, obviously, the beauty with our business is that we have multiple product lines. So we can prioritize units and that provides us with a lot of flexibility and that's what we're doing.

Your next question comes from Brian Morrison from TD Securities. Please go ahead.

Thank you good morning, So I want to go back to the pre builds with your with up about $500 million.

What percentage of that is snow and do you expect that elevated whipped normalize all in Q4 or could this be ongoing with the supply chain visibility.

Well if I look at my overall ahead profit situation. There Q3 was the <unk>.

<unk>, which.

For US we believe is the peak in terms of units retrofits. We are about two five times higher than where we were at the end of Q2 and our expectation is that number is going to go down in Q4 by about 25%. So it will still be at highest level higher than we would like but still very manageable.

And the expectation is in Q1 and in Q2.

It will be depleting that.

Our retrofit inventory, obviously, the beauty with our businesses that we have multiple product lines, but we can prioritize units and that provides us with a lot of flexibility and that's what we're doing.

Okay. And then maybe for Jose. You made commentary about Phase 2 already with Juarez 3. What market share and unit volume does that imply then? By my math, it looks like you're going up to about 200,000 units of capacity and 40% market share. Is that correct? Yeah. I mean, obviously, we felt that at the rate that the market is growing and the way we gaining market share today, 30% is a lot more than what we thought three years ago. And our Juarez 3 factory was designed to be built in two phases. And when I look at the overall picture, if you take the peak of the Off-road Vehicle market in 2006, this industry, if you combine ATV and Side-by-Side was 1,350,000 units. Now it's still 85% of that volume. Obviously, Side-by-Side is growing faster than, and ATV have declined. But we still are 15% below the peak of 2006. And when we see all the new product that OEM brings in, we believe that there is still runway for the industry to grow. And again, our target is to grow at 30%, and we want up at 30. When the 30 is reached, there will be another goal. Okay. And last one. Very quickly. Just the days outstanding that your dealers you usually provide that number, I assume is still sort of in the mid-20s? Yes. That's correct. All right. Thank you all.

<unk> common share about phase two already with two or three what market share and unit volume does that imply that by my math that looks like youre going up to about 200000 units of capacity and 40% market share is that correct.

Yes.

I mean, obviously, we felt that at the rate that the market is growing and the way we're gaining market share today, 30% is up more than what we thought three years ago and are you at a three factor <unk> was designed to be built in two phases.

And when I look at the overall picture.

If you take the peak of the off road.

<unk> market in 2006 this industry, if you combine ATV and side by side there was one point.

$1 million 350000 unit.

Now, it's still 85% of that volume, obviously side by side is growing faster than the TV have decline, but we still are 15% below the peak of 2006, and when we see although new product that OEM, bringing in we believe that there is still runway. For the industry to grow and again our target this to. Go at 30% and we won't stop at 31 to 30 is reached there will be another goal. Okay and last one said very quickly just the days outstanding that your dealers you usually provide that number I assume is still sort of in the mid <unk>. Yes, that's correct. Thank you all. Sure.

For the industry to grow and again our target this to.

Go at 30% and we won't stop at 31 to 30 is reached there will be another goal.

Okay and last one said very quickly just the days outstanding that your dealers you usually provide that number I assume is still sort of in the mid <unk>.

Yes, that's correct.

Thank you all.

Sure.

Your next question comes from Robin Farley from UBS. Please go ahead. Great. Thanks. I just wanted to clarify one of your comments on the call about shipping incomplete products. Did I understand you to say that the amount at dealers is equivalent to a full quarter of shipments? And with that, is that true for Off-road or with that mostly a comment about Snow? Just one clarification. When we talked about the fourth quarter of production, I was referring to the whole inventory replenishment opportunity. As you see, inventory down sequentially significant versus last year and versus three years ago, even more. So that's the color I provided, Robin.

Great. Thanks, I just wanted to clarify.

One of your comments on the call about shipping incomplete product.

Did I understand you to say that.

Mount at dealers is it.

Equivalent to a full quarter of shipments and with that.

Is that true for off road or was that mostly.

Comment about snow.

Just one clarification when we talked about the full quarter of production was referring to the whole inventory replenishment opportunity.

As you see inventory down sequentially significantly versus last year and versus three years ago, even more so so that's the color I provided robyn.

Okay. Great. That's helpful. Thanks. And then in terms of the capacity increase that the Juarez expansion from the, not the new one you've announced, but the one that came online in August. Can you just quantify for us the capacity increase that would represent? But then, kind of where you are, the fact that, I guess the supply chain like what percent of that increase? I guess, what I'm trying to get to is, are you not able to hit because of the supply chain? So just trying to get a sense of what it's actually adding today versus what it can add when the supply chain issues are normalized? Yeah. Well, obviously, you're right. With the supply chain issues, we're not able to benefit from this full added capacity in the third quarter. But we do have an aggressive capacity ramp-up plan and the expectation is that come Feb 1st, we would be able to use that additional capacity. Now Juarez 3 Phase 1 offered an additional 50% of capacity increase versus what we had prior to opening of that facility

In terms of the capacity increase that.

To Juarez.

Spansion from.

Nothing new and you've announced that the one that came online in August.

Like can you just quantify for us.

Capacity increase that that would represent that then kind of where you are.

The fact that I guess the supply chain like what percent of that increase I guess, that's what I'm trying to get to.

Not able to hit because of the supply chain. So just trying to get a sense of what it's actually adding today versus what it what it can add when the supply chain issues are normalized.

That will obviously.

Youre right with the supply chain issues were not able to benefit from this full added capacity in the third quarter.

But we do have an aggressive.

The ramp up plan and expectation is that <unk>.

We would be able to use that additional capacity now what has three phase one offered an additional 50% of capacity increase versus what we had prior to opening of that facility.

And so, as the supply chain normalizes, the teams are working to make sure that we're able to benefit from that added capacity as soon as possible. So Feb 1st will be what percent increase off of kind of last year's, the pre-August '21? Well, the target is to be at 50%. Obviously, the supply chain needs to normalize will be, we will be there. Time will tell. We still have a few months to go, but that's the target. That's what I was going to try to understand whether you were saying that February 1st that you thought your supply chain issues would be normalized, but you're kind of not saying you're not saying that, I'm not saying that it's going to be. Obviously, it's a weekly management. Visibility improves. We are better at managing yet. But we've saw few hiccups over the last 12 months with many companies have. So time will tell.

So <unk> will be what percent increase office kind of last years.

August 20, <unk>, while the target.

We get this to be a 50% obviously the supply chain needs to normalize we will be we will be there.

Time will tell but we still have a few months ago, but that's the target.

That's right.

Try to understand whether you were saying that February 1st that you thought your supply chain issues would be normalized but you're.

I'm not saying you are not saying that.

I'd say that it's going to be obviously, it's a weekly management.

Visibility improves we are better at managing yet but.

We saw a few hiccups over the last 12 months with many companies.

So time will tell.

Okay. Great. And then maybe just a final thing. You mentioned the new dealer order program that was started in November. Do you have any way of sort of quantifying what, without having had that formal off order system? What dealer deposits, so not European all, but the dealers taking deposits from consumers waiting for products? Any way to quantify how that looked at the end of Q3 versus the end of Q2, kind of just sequentially? Then you know, Robin, we've been having those pre-order systems for Snowmobile, Watercraft and Three-Wheeled for many years. And I would say the most successful one was Snowmobile because this is part of the history of Snowmobile and customers liked it is their best special model for the upcoming season. But lately, all product lines are going with the shortage of product, all consumer, many consumers are placing more orders. Then on Snow, Watercraft and Three-Wheeled, it existed for many years. Now we introduced it on the ORV but different than some of our competitor, we said to the dealer pre-sell only the unit that has been allocated to you. Then right now, the dealer know how many off-road you will receive in December, January, February. And they are allowed to pre-sell those units, not the thing that they believe they will sell in July because we want to give to the consumer a good idea of when they would receive their unit. That's part of customer satisfaction

Do you do you have any way of quantifying what.

Without having had that formal order system.

What dealer deposits.

So not your P&L.

Dealers, taking deposits from from consumers waiting for any way to quantify how that looked at the end of Q3 versus the end of Q2 kind of just sequentially.

Ben.

Robin we've been we've been having those preorders system for snowmobile watercraft and <unk> for many years and.

And I would say the most successful one was snowmobile because this is part of the story of snowmobile and customer like to it is it is there a special model for the upcoming season.

But lately all product lines are growing with a shortage of product all consumer many consumer are placing more orders than.

On snow watercraft and fuel it exists for many years now we introduced it on the RV.

But different than some of our competitor, we said to the dealer pre sell only the unit that has been allocated to you.

And right now the dealer low harmony.

<unk> will receive in December January February.

And they are allowed to presale dose unit not the thing that they believe they will sell in July because we want to.

We want to give to the consumer a good idea of when they will receive their unit that's part of customer satisfaction.

Then, obviously, on Snow, Watercraft and Three-Wheeled, we have the data to compare, but is brand new that we just started on November 8. But I can tell you is growing very fast right now. Dealers are somewhat securing the consumer to make sure they get their unit in the next, but we don't have any specific number. But that's the new system that's started in November is still only allowing dealers to pre-sell the sort of next quarter of shipments. Is that right? Exactly. Okay. All right. Thanks very much.

It is growing very fast right now dealer or.

Somewhat securing the consumer to make sure they get their units in the next three months.

But we don't have any specific number.

But that is the.

The new system that started.

Remember is still only allowing dealers to pre sell this sort of next quarter of shipments is that exactly exactly.

Alright, thanks, Thanks very much.

Your next question comes from Fred Wightman from Wolfe Research. Please go ahead. Hey, guys good morning. The 14% decline on a year over year basis for the semi-finished inventory. Can you put that in context with where that was exiting the second quarter? As I said, the total number of retrofit units is about 2.5 times higher than when we were at the second quarter. But what's important to note is when I look at the total units shipped to dealers in this quarter, that's including the complete units and also the semi-finished units. Total deliveries are equal to where we were last year. Obviously, wholesale is impacted because we have more retrofit units than we have last year. But the good news is we're on plan in terms of production. And we're on plan on overall shipments to our dealers this quarter. It's just the mix that's a bit different versus what we had initially anticipated. Perfect. And as we think about that new entrant mix of the new customer mix, you guys quoted a year-to-date figure of 36%. I think that was in the low 40s last quarter. So is there anything to call out from a timing perspective for anything unusual going on there? I know it's still above sort of that 20% pre-COVID, but any other color? The new entrant ratio varies depending product line, the two highest products that have the highest new entrant is Watercraft and Three-Wheeled. And because it's going more in the half season in Q3 and Q4, that's why we had a slight decrease on new entrant level. But if you look at it on a 12-month basis, we're pretty well in line with what we were at last year. Great. Thank you.

Hey, guys good morning.

14% decline on a year over year basis for the semi finished inventory can you put that in context with where that was exiting the.

The second quarter.

As I said, the total number of retrofit units.

<unk> is about $2 five higher two five times higher than when we were.

Second quarter, but what's important to note is when I look at the total units shipped to dealers.

In this quarter, that's including the.

The complete unit and also the estimate finished units total deliveries are <unk>.

Equally to where we were last year, obviously, the wholesale is impacted because we have more retrofits units than we had last year.

But the good news is we're on plan in terms of production were on plan on overall shipments to our dealers. This quarter. It's just the mix that's a bit different versus what we had initially anticipated. Perfect and as we think about that new entrant mix of the new customer mix you guys quoted a year to date figure of 36% I think that was in the low $40 last quarter. So is there anything to call out from a timing perspective or anything unusual going on there I know, it's still above sort of that 20% pre COVID-19, but any other color. And the new on trend ratio of varied depending product line, the two highest product that. The highest new on trend as watercraft entry will then because. Is it going more in the off season in Q3 and Q4, that's why we had a slight decrease on <unk> level, but if you look at it on the 12 month basis. Pretty well in line with what we were last year. Great. Thank you. Okay.

Perfect and as we think about that new entrant mix of the new customer mix you guys quoted a year to date figure of 36% I think that was in the low $40 last quarter. So is there anything to call out from a timing perspective or anything unusual going on there I know, it's still above sort of that 20% pre COVID-19, but any other color.

And the new on trend ratio of varied depending product line, the two highest product that.

The highest new on trend as watercraft entry will then because.

Is it going more in the off season in Q3 and Q4, that's why we had a slight decrease on <unk> level, but if you look at it on the 12 month basis.

Pretty well in line with what we were last year.

Great. Thank you.

Okay.

Your next question comes from Jaime Katz from Morningstar. Please go ahead. Hi, good morning. I'm hoping first we could dive a little bit into Three-Wheeled vehicle performance because I think the commentary surrounded share gains for the year. But it looks like for the quarter, they were down. So was there anything time-wise to see into that or was there something else leading to that ceding share? Yeah. Two things. We had no inventory. We have almost no inventory left in the network and, obviously, level is very, very low. The lowest we never had in the Three-Wheeled vehicle business history. And second, like Sebastien explained, in Q3, we shipped, we produced some Three-Wheeled that we shipped to dealer. But we prioritized ORV and Watercraft counter season model versus Snowmobile and Three-Wheeled. And this is why the, we missed unit on the last, I would say, month and a half of the quarter because of inventory level. Does that prioritization continue then as we move into the next quarter or two by product line? And then sort of normalizes into the middle of next year when the supply chain starts to unstrangle? But the way we prioritize is always depending on the riding season. Then in Q3, like I said in my remarks, we will prioritize ORV and Snowmobile because snow is here and Three-Wheeled and Watercraft and ORV will be heavily prioritized in Q1. Okay. And then for capital expenditures next year, since there is more investment, looking like it's coming up. Should we expect that figure should remain elevated through fiscal 2023 sort of at a similar level or should that start to decelerate? You should expect it to be at a similar level as what we have this year any updated guidance. Thank you.

Sir Please go ahead.

Hi, Good morning, I'm wondering first if you could dive a little bit into three wheel vehicle performance, because I think the commentary surrounding <unk>.

Share gains for the year, but it looks like for the quarter to date, we're down so was there anything timeline.

And to that or was there something else leading to that Steve.

Sure Yes.

Yes, two things we had no inventory we have almost no inventory left in the network then obviously.

Level is very very low the lowest we never had been the three wheeled vehicle business history and second like <unk> explained.

In Q3, we shipped we produced some three wheel that we shipped to a dealer but we.

We prioritize RV and watercraft counter season model versus snowmobile entry will.

And this is why the treat we Miss unit on the last I would say month and a half of the quarter. Because of the inventory level. Does that prioritization continue then as we move into the next quarter or two. By by product line, and then uncertainty normalizes into the middle of next year, when the supply chain start to scale. Iron strangle. But then we would prioritize as always depending of the riding season. In Q3 like I said in my remark, we will prioritize of RV and snowmobile because snow. Is here. <unk> <unk> in the watercraft and RV. Will be. Heavily prioritize in Q1. Okay, and then for capital expenditures next year since there is more investment looking like its coming up should we expect that. That figure should remain elevated. 2023 sort of at a similar level or should that start to just salary. You should expect it to be at a similar level as what we have. This year on the updated guidance. Thank you.

Because of the inventory level.

Does that prioritization continue then as we move into the next quarter or two.

By by product line, and then uncertainty normalizes into the middle of next year, when the supply chain start to scale.

Iron strangle.

But then we would prioritize as always depending of the riding season.

In Q3 like I said in my remark, we will prioritize of RV and snowmobile because snow.

Is here.

<unk> <unk> in the watercraft and RV.

Will be.

Heavily prioritize in Q1.

Okay, and then for capital expenditures next year since there is more investment looking like its coming up should we expect that. That figure should remain elevated. 2023 sort of at a similar level or should that start to just salary. You should expect it to be at a similar level as what we have. This year on the updated guidance. Thank you.

That figure should remain elevated.

2023 sort of at a similar level or should that start to just salary.

You should expect it to be at a similar level as what we have.

This year on the updated guidance.

Thank you.

Your next question comes from Benoit Poirier from Desjardins. Please go ahead. Yeah. Good morning, everyone, and congrats again. With respect to the Three-Wheeled vehicle sales, obviously, you tripled the sales over the 2018 season. So, now that you've reached initial expectation. What should we expect for this segment throughout the fiscal year '25? Good morning, Benoit. Like we said, we're very, very proud of what we have accomplished with Three-Wheeled with the Ryker introduction because when [inaudible] and the team launched the Ryker, we came out with new initiative, new focus on the Rider Education Program. Like I said 44,000 people have taken advantage of the program in the last three years. I'm pleased with the ratio of new entrants at 55% women. 38% of the people who come to Three-Wheeled are women. And the ratio of customer under 55, and the minority is very high. Then for us, we learned with spark and we learn with Ryker how to talk to different customers. And now we are applying those, I would say, recipe to other product lines and we're quite optimistic about the future. Then again, we believe that Three-Wheeled has good potential to grow. When that, this morning, give you any target number for fiscal year '25, but we believe that there is more runaway on Three-Wheeled to grow going forward.

From Deutsche Bank. Please go ahead.

Yes, good morning, everyone and congrats again.

With respect to the tree.

We'll vehicle sales, obviously, you triple the sales over the 2018 season, so now that you've reached.

Initial expectation what should we expect for this segment throughout the fiscal year 'twenty five.

Good morning, but like we said, we're very very proud of what we have accomplished with <unk> with the ryker introduction because when it was a battle and the team lunch. The ryker, we came out with.

No New initiative, new focus on the rider Education program like I said 44000 people took advantage of the program in the last three years.

I'm pleased with the ratio of new entrant at 55% women, 38% of the people.

Come two three wheel are women and the ratio of customer under 55, and <unk> is very high then.

For us, we learn with spark and we learn with to ryker.

We've talked to a different customers.

And now we are applying those.

Those I would say recipe to other product line and we're quite optimistic about.

The future.

Then.

Again, we believe that <unk> has a good potential to grow.

This morning give you any target number for fiscal year 'twenty five law, but we believe that there is more runway.

Three wheel to grow going forward.

Okay. That's great color. And could you, with respect to the opportunity to purchase two manufacturing plants in Mexico, could you talk about the reasons behind this capital deployment? Yeah. Well, first, we have a right of first refusal to buy these buildings and the owner of the buildings put them on market. And so we decided to exercise that right and match the offer. There is definitely a cash flow benefit as the borrowing cost is obviously much better than the cap rate on these leases. But strategically, we're in Mexico to stay in Mexico these sites are purposefully built for us. Our intention was not to move out of these buildings when the lease term would expire. So from a long-term perspective, it was a good thing to do as it provides us with more flexibility and it's, we are continuing to invest in these sites and grow these sites. So long-term wise, it was the right move to make. Okay. And through the pandemic, obviously, a big trend has been toward digital. Could you talk about your ability to capitalize on the strength of your website to potentially drive e-commerce sales? Just wondering how you're progressing with this initiative?

Fortunately to purchase two manufacturing plants in Mexico could you talk about the reasons.

In this.

This capital deployment.

Yes.

First we had a right of first refusal to buy these buildings on the and the owner of the buildings put them on market.

And so we decided to exercise that right and match be offered there is definitely a cash flow benefit.

Barring costs.

Obviously much better than the cap rate on these leases, but strategically we're in Mexico to to stay in Mexico. These sites are purpose built for us our intention was not to move out of these.

Of these building when the lease term would expire.

So from a long term perspective, it was a good thing to do as it provides us with more flexibility in it.

We're continuing to invest in these sites and grow these sites so.

Long term wise it was the right move to make.

Okay.

Through the tender would make obviously a big trend has been towards digital could you talk about your ability to capitalize on the strength of your website to potentially drive E. Commerce sales just wondering how you're progressing with this initiative.

Yeah. I believe we're doing very well. I mean you saw our website visits growing up 60% versus last year on off-road. But more and more, we have great ambassador that we, that promote our brand. And we've learned that this has a lot more benefit when an ambassador talks about our product versus us. Then that's why we're using a lot of the ambassador to promote our products. And on our side, we try to guide them well that they do well. This is one. The other thing we do well is the, how to reveal where we showed the customers how to ride the product, where to ride the product. And this is impressive. We've done more than 90 videos how to ride and use the product. Obviously, we promote more and more the experience. And we have right now 58 rental operators in the US doing unchartered society. And we're building the community, building strong community. And the Women of On-Road community with 12,000 members after one year is very impressive. Then I believe there was definitely a trend there. And we are very happy with all those initiatives and the results. Okay. That's it. Thank you very much.

I believe we are doing.

Very well I mean, you saw website visits going up 60% versus last here on off road, but more and more we have great ambassador.

That we that promote our brand and we've learned that this has a lot more benefit when an ambassador.

Talk about our product versus US then thats why we using.

I Love the ambassador.

To promote our products and on our side and we try to guide them well that we.

We do well.

This is juan.

The other thing that we do well is the how to video.

We show the customers.

<unk>.

To ride the product were to ride the product and this.

Impressive we've done more than 90 video.

<unk> right and use the product.

Yes.

We promote more and more experience.

And we have right now 58% rental operator in the U S.

Doing on charters Society.

And we are building the community.

Building strong community in women of off road on road <unk> with 12000 member after one year is very impressive and I believe.

There was definitely a trend there.

We are very happy with the all those initiative in the result.

Okay. That's it thank you very much.

Thank you.

Your next question comes from Craig Kennison from Baird. Please go ahead. Hey, thanks for coming back to me. Hopefully, this connection is better. But I was going to ask just a follow-up to Robin's question on product availability at the dealer level. Consumers are showing up the product isn't there. Do you have any data on what that consumer is choosing to do? I mean their choices would be to switch to another BRP product, to buy another brand, to buy used, to buy a production slot now or just walking away? Do you have any sense of what that consumer who is unable to get product today is looking to do?

Hey, Thanks for coming back to me hopefully this connection is better but I was going to ask just a follow up to Robin's question.

And product availability at the dealer level consumers are showing up the product isn't there do.

Do you have any data on what that consumer is choosing to do I mean, there are choices would be to switch to another VIP product.

To buy another brand to buy used to buy a production slot now origins.

Or just walking away do you have any sense of what that.

Consumer who is who is unable to get product today is looking to do.

Yeah. Good morning, Craig. A lot clear than the first call. Yeah. Then, I give an example, we informed that some customers who had purchased the spring break Snowmobile that will have about a month delay on the delivery of their unit. We offered to those customers to transfer their deposit on next year model, but most of them hold to their orders. Then we hear few customers decided to move to next year to wait, but most of them so far what we hearing are holding to their orders, waiting for the product.

Clearer than the first call.

Yeah.

I'll give an example, we formed the some customer will purchase the spring break snowmobile.

We'll have about a month delay on the delivery of their unit, we offer to those customers to transferred there.

There are deposits on next year model, but most of them.

<unk> to their orders.

Then.

We here.

Few customer decided to move to next year to wait but most of them. So far what we are hearing are holding their orders waiting for the product.

Great. Thank you. Your next question comes from Mark Petrie from CIBC. Please go ahead. Yeah. Good morning. Thanks for your comments thus far. I just wanted to ask, Seb, you highlighted how you adjusted your marketing spend and approach in Q3, and I think we had heard that earlier this year as well. So just wanted to ask about how you're thinking about marketing plans for fiscal '23? Does that sort of key, do you think that looks a lot like fiscal '22? Or is it more like sort of pre-pandemic? Certainly, not pre-pandemic. Obviously, we'll modulate along with our inventory availability and our retail forecast. But for sure, we want to make sure that we stay relevant in the minds of the consumers. And so, investments in marketing and brand awareness and product awareness are required. And we'll certainly continue investing. And so that's why, when I look at my overall operating expense next year as a percentage of sales should remain in line with what we saw this year. So like, by a good percentage of investment probably in around the range of 6% to 6.5% of overall marketing spend would be a fair estimate. Okay. I appreciate it. Thank you.

Your next question comes from Mark Petrie from CIBC. Please go ahead.

Yes. Good morning, Thanks for all your comments, thus far I just wanted to ask you highlighted how you adjusted your marketing spend and approach in Q through Q3, and I think we had heard that earlier this year as well. So just wanted to ask about how youre thinking about marketing plans for fiscal 'twenty three does that sort of do you think that looks.

A lot like fiscal 'twenty, two or is it more like.

Sort of pre pandemic.

Absolutely not a pre pandemic, obviously will more modulate.

Along with our.

Our inventory availability of our retail forecast, but for sure we want to make sure that we stay relevant in the minds of the consumers and so investments in marketing and brand awareness and product awareness are required and we will certainly continue investing and so that's why when I look at my overall.

Operating expense next year as a percentage of sales should remain in line with with what we saw this year.

So.

A good percentage of investment property and around the range of six to six 5% of overall marketing spend.

Would be a fair estimate.

Okay I appreciate it thank you.

Again, if you'd like to ask a question press star then the number one on your telephone keypad. And your next question comes from Gerrick Johnson from BMO Capital Markets. Please go ahead. Great. Thanks. I'm curious about price increases and the MSRP. What was the average price increase if you take your entire portfolio the average price increase implemented? And how does that break out between increase in MSRP and additional freight surcharges?

And your next question comes from Gerrick Johnson from BMO capital markets. Please go ahead.

Hey, great. Thanks.

I'm curious about price increases and the MSRP.

Our U R.

What was the average price increase if you take your entire portfolio. The average price increase implemented and how does that breakout between an increase in MSRP and additional freight surcharges.

Well, when we look at how we approach pricing obviously in this environment, we look at it in three ways. One, the short-term disruptions that we're seeing from production, i.e., we need to pay overtime, we need to pay special freight. These are costs that we have decided to absorb as a company because, obviously, we don't want to be knee-jerking with pricing. If it's a mid-term impact, i.e., higher freight costs from either Maritime or outbound freight for our unit, special price increases that we're getting from suppliers because they are incurring higher costs and they say, well, it's going to be for three, four months. So these mid-term inflationary pressures we're seeing we're addressing it through surcharges and that's where the majority of the price increases are happening. And then the latter which are longer-term inflationary trends that we're seeing, that word rising through pricing. So I'd say probably two-thirds of the pricing increase that we've done have been done through surcharges. A third have been done through permanent pricing increase. We've announced some pricing increase in the middle of the summer, about 1.7% overall increase in pricing surcharges, and an additional 1% coming from pricing. And we'll be announcing more in the next month as we are continuing to see higher inflationary costs, Gerrick.

How we approach pricing obviously in this environment, we look at it in three ways. One the short term disruptions that we're seeing from production I E. We need to pay overtime, we need to pay special freight. These are costs that we've decided to absorb as a company because obviously, we don't want to be knee jerking with pricing if it's.

Mid term impact I E higher freight costs from either maritime or.

Bound freight for our unit.

<unk> price increases that we're getting from from suppliers because.

They are incurring higher costs, and they say well, it's going to be for three four months.

So these midterm inflationary pressures, we're seeing we're addressing it through surcharges and Thats, where the majority of the price increases are happening.

And then the latter which are more longer term inflationary trends that we're seeing that word rights through pricing. So I'd say, probably two thirds of the pricing increase that we've done have been done through surcharges, a third have been done through permanent pricing increase.

We've announced some pricing increase in the <unk>.

Middle of the summer about one 7% overall increase.

And pricing surcharges, and an additional 1% coming from pricing and we'll be announcing more in the next.

Next month.

As we are continuing to see higher inflationary costs garik.

One key thing, Gerrick to complete Sebastien's answer. If you go on our website, you will see we're displaying now for each model, the MSRP and the commodity surcharge. And the dealer knows that it could go up or down depending on the cost. But since we displayed the commodity surcharge, most of the customers understand and accept it. Yeah. Noticed that. I think that's a great idea. Thank you very much. Thank you.

And commodities surcharge and the dealer and know that it could go up or down depending of the cost.

But since we displayed the commodities surcharge custom.

Customer are the most of the customer understand and they exited.

Notice that I think that's a great idea. Thank you very much. Thank.

Thank you.

And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks. Thank you, Julie and thanks, everyone for joining us this morning and for your interest in BRP. We wanted to take the opportunity to wish you all a happy and safe holiday season. And we look forward to speaking with you again for our fourth-quarter conference call up on March 25th. Thank you again and have a good day. This concludes today's conference call. You may now disconnect.

Thank you Julie and thanks, everyone for joining us this morning and for your interest in VIP, we wanted to take the opportunity to wish you all the IP and safe holiday season, and we look forward speaking with you again for a FERC order from France call up on March 25th. Thank you again and have a good day.

This concludes today's conference call you may now disconnect.

Okay, Samantha Delek task.

Okay.

Yeah.

Sure.

Yeah.

Thank you.

Yes.

Okay.

Yes.

Sure.

Okay.

Sure.

Yes.

[music].

Okay.

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