Q3 2022 BRP Inc Earnings Call

December 1, 2021

Yeah.

Good morning, ladies and gentlemen. Welcome to the BRP Inc FY 22 third-quarter results conference call. For participants who use the telephone line it is recommended to turn off the sound on your device. I would now like to turn the call over to Mr. Philippe Deschnes. Please go ahead, Mr. Deschnes.

Good morning, and welcome to BRP conference call for the third quarter of fiscal year '22. Joining me this morning are Jose Boisjoli, President and Chief Executive Officer, and Sebastien Martel, Chief Financial Officer.

Joining me this morning are president.

President and Chief Executive Officer, and Chief Financial Officer.

Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that actual results could differ from those implied in the statement.

The forward-looking information in today's uncertain assumptions and is subject to risks and uncertainties and I invite you to consult BRP's [NDNA] for a complete [list of these]. So during the call reference will be made in supporting slides and you can find the presentation on our website at BRP.com under Investor Relations. But with that, I'll turn the call over to Jose.

So during the call reference will be made in supporting slides and you can find the presentation on our website that DRP dot com under Investor Relations. But with that I'll turn the call over to Jose.

But with that I'll turn the call over to Jose.

Good morning, everyone and thank you for joining us. Please turn to slide four. In the third quarter, our team once again demonstrated its ability to successfully operate in a tough environment.

In the third quarter, our team once again demonstrated its ability to successfully operate in a tough environment.

Their strong execution on multiple fronts over the past nine months positions us well to deliver on our guidance for the year. During the quarter, consumer demand remains at an all-time high across all product line. Our recent product introduction, notably this Tito switch were very well received by consumers and the media has a result, we registered a record high fresh season consumer certificate. <unk> personal watercraft and pontoon and pre-sold unit for Ken on off road vehicle.

<unk> well to deliver on our guidance for the year.

During the quarter consumer demand remain at an all time high across all product line.

<unk> product introduction, notably this Tito switch were very well received by consumers and the media as a result, we registered a record high fresh season consumer certificate.

<unk> personal watercraft and pontoon and pre sold unit for Ken on off road vehicle.

Furthermore, we continue to gain market share. During the quarter, sorry. Furthermore, we continue to gain market share in the power sports industry. Although our low network inventory and global supply chain disruption limited our ability to grow our retail, we continued to outpace the industry in North America, EMEA and Asia Pacific.

During the quarter, sorry. Furthermore, we continue to gain market share in the power sports industry.

Although our low network inventory and global supply chain disruption limited our ability to grow our retail we continued to outpace the industry in North America, EMEA and Asia Pacific.

This is a testament to our strong brand and the dedication of our team. While we were impacted by supply chain pressure, the third quarter was marked by continued solid execution across the organization. As we expected, the availability of certain component was tighter in the quarter, which limited our wholesale and resulted in a higher level of unit awaiting missing component.

While we were impacted by supply chain pressure. The third quarter was marked by continued solid execution across the organization.

As we expected the availability of certain component was tighter in the quarter, which limited our wholesale and resulted in a higher level of unit awaiting missing component.

However, the situation has been improving over recent weeks. We also continued to execute on our key project. Our new product development initiative are on plan and the ramp-up of our production capacity as [inaudible] is on schedule. That said, we delivered better than expected profitability in Q3, driven by a higher product mix and tighter management of expenses.

We also continued to execute on our key project, our new product development initiative are on plan and the ramp up of our production capacity as CEO at Ace III and <unk> is on schedule.

That said with delivered better than expected profitability in Q3, driven by a higher.

Product mix and tighter management of expenses.

Given this performance and our ongoing initiative to mitigate supply chain issues, 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 dollar primarily due to the supply chain constraint.

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 dollar primarily due to the supply chain constraint.

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 is 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 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 Keith.

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 high higher than any single full year in <unk> history.

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 remain at very low levels. Therefore, our retail sales were roughly equal to our shipment of products. Overall, while our North American parts part retail sales were down 12% in the quarter. When excluding snowmobiles, which still outpaces the industry, which was down low 20%.

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 parts part retail sales were down 12% in the quarter.

When excluding snowmobile, which 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 a 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 you on a three and capital.

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 you on a three and capital.

Looking at our 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. However, were slightly below the industry in three-wheeled vehicle and snowmobile because of the timing of shipment due to the shortage of components.

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.

Never were slightly below the industry in three wheeled vehicle and snowmobile because of the timing of shipment due to the shortage of components.

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 and trend with an estimated 36% year to date well above the historical average of about 20%.

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 and trend 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 [inaudible] off-road website saw close to 60% more visits in October '21 than the same period two years ago. The momentum with pre-season consumer certificate for personal watercraft is excellent.

The momentum with pre season consumer certificate for personal watercraft is excellent as.

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 certificates last season. And the launch of [ORVP] orders has been very well received. We launched it 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 the near term.

And the launch of RVP 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 the 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 products were well above our expectations. The launch represents the strongest <unk> ever for BRP product.

Another key highlight of the quarter was the very successful launch of the <unk> switch.

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

The lunch represent the strongest <unk> ever for <unk> 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 times 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.

Also switch as an exceptional preseason consumers certificate three times 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.

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 in ATV. <unk> vehicle were most impacted by lower volume as we prioritize the allocation of component to product line that were in their 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.

<unk> vehicle were most impacted by lower volume as we prioritize the allocation of component to product line that were in their retail season.

Now looking at side by side North America retail. In the third quarter, retail was down mid 20% in line with the industry. Despite having less units in the fire at our [inaudible] two facility at the end of July. Excluding the impact of the fire, we estimate that our retail would have improved by high teen percent for the quarter and would have outpaced the industry.

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

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

[inaudible] 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 view on <unk> III facility. Given the strong demand for our side by side vehicle and our ongoing market share gains, we have decided to start the phase two expansion at our [inaudible] facility, which will effectively double production capacity at that facility.

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

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

Our <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 '24. Turning to ATV. For the quarter, [inaudible], North American retail was down high single-digit percent, while the industry was down mid 20%. Our Can-Am TV lineup continues to gain momentum with market share gain into high CC category.

Turning to ATV.

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

<unk> TV lineup continue 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 '21in October reached retail 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-wheel vehicle and two-wheel motorcycle industry and ending the season with the number one market position in three-wheel 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.

Our can am three wheeled vehicle retail was up mid 20% over the same period <unk>.

Gaining share in both the three wheel 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 3 wheel vehicles season '21. It was another very good season for 3 wheel not only did we gain market share we made progress on our key priorities. We continued to generate strong momentum with our rider education program. The total number of riding courses completed since the launch of the program is now up to 44000.

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

We continued to generate strong momentum with our rider education program.

The total number of riding 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 and 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 that we initiated last year has been very successful now content close to 12000 member. All of these initiatives have helped us growth, which we will vehicle market. 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.

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 that we initiated last year has been very successful now content close to 12000 member.

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

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.

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

Turning to the seasonal product on slide 13. Seasonal product revenue were down 14% to 437 million. 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.

Seasonal product revenue were down 14% to 437 million.

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% as Sea-Doo continue to gain market share. The North American industry ended its season '21 on September 30th, 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 our segment in the industry and achieving its highest market share ever.

For the quarter North American retail was up high 80%, while the industry was up mid 70% as CEO continue to gain market share.

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

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

Ending the season with the number one market position in our segment 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 is strong preseason consumers certificate, we are experiencing another very strong year for personal watercraft business.

170% in comparison to the same period last year.

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

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

Looking at the snowmobile. While it is currently still early in the season during the quarter, 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 we prioritize the allocation of component to product line that were in season during the quarter.

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 we prioritize the allocation of component to product line that we're in season during the quarter.

Looking ahead, our retail is rapidly improving as we are now focused on the completion of snowmobiles that were we think 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.

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 far as sport part accessories, and apparel and 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 increased accessory sales. Our strategy to develop accessories in parallel to vehicle continued to pay off and the Sea-Doo switch is another great example.

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 '22 revenue guidance which is forecast to surpass the $1 billion mark for the first time.

<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 [inaudible] retail decline as sales were made earlier in this season compared to last year. However, year to date, both brands performed well. [inaudible] was down high single digits due to low level of inventory. And Manitou was up about 10%.

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 Manitou was up about 10%.

With that said, both brands finished the boating season in North America with low inventory. As for Tailwater, 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 are looking forward to launching new boat with the <unk> engine in each of the three brands in the second half of 2022. With that, I turn the call over to Sebastien.

As for Tailwater, 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 are looking forward to launching new boat with the <unk> 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 manage through supply chain issues throughout the third quarter, which impacted our wholesale and retail.

However, the strong demand for our premium models 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%.

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 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. Which were partly offset by better mix, lower financing costs and tax expense as well as favorable FX impacts.

Were partly offset by better mix lower financing costs and tax expense as well as favorable FX impacts 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 projects and $485 million in working capital given that we've continued operating with a higher level of work in process inventory. As we are managing through the supply chain constraints.

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 projects and $485 million in working capital given that we've continued operating with a higher level of work in process inventory as we are managing through.

The supply chain constraints move.

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. When 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.

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, 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 to timely 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 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.

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

If 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 represented meant 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.

And looking ahead, we still have a significant inventory represented meant 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 in 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.

Just a couple of months to go in fiscal 'twenty two.

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-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 '23 Q1, as we prioritize production capacity and components availability personal mobile 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 continued favorable product mix and lower than previously anticipated operating expenses.

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 [inaudible] facilities, which we were leasing until now. This transaction is expected to close in the coming months.

Finally, we are also increasing our capex guidance to a range of $705 million to $730 million to reflect the opportunistic acquisition of the wireless <unk> and character of facilities, which we are 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% are 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%.

1%.

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.

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 our 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'll turn the call over to Jose.

On that 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.

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 '23. As we expect to benefit from numerous key initiatives and trends including a 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. The first year of the Sea-Doo switch, which is proving to be very promising. And additional products and additional production capacity from [inaudible].

As we expect to benefit from numerous key initiative and trend 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. The first year of the <unk> switch, which is proving to be very <unk>.

And additional products and additional production capacity from <unk> III and <unk>.

In addition, we have a solid pipeline of project to sustain our long term growth including continued investment in innovation, the ramp-up of additional production capacity at [inaudible] phase II. Our new entrance strategy, which is progressing well. New product introduction in the marine business such as project [Ghost].

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 options in each of our product lines 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 thank to our customers for their confidence and loyalty. On that note, I'll turn the call over to the operator for questions.

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 official thing 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. W will pause for just a moment to compile the Q&A roster. Your first question comes from Craig Kennison from Baird. Please go ahead.

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. It is choosing to do it. Switching to another BRP product. Craig.

It is choosing to do it.

Switching to another <unk> product.

Craig.

[music].

Hello, we move to another question that will come back to our operator. Maybe, operator, we move to another question and we come back to correct later on. And your next question comes from the line of [inaudible]. Please go ahead.

Greg with Ohio.

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

Sure.

Yes.

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

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

Hi, Good morning, guys. This is about significantly outperformed on the line for Allomap. You seem to be handling the supply chain situation relative to the industry getting units in the stores. Just wondering if you can shed any light on some of the initiatives that seems to be working [inaudible] the facilities in Mexico with a flashlight. Have more labor module, or anything that would be helpful. Thanks.

You seem to be handling the supply chain situation relative.

Relative to the industry getting units in the stores.

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

It seems to be working.

Thank you.

the facilities in Mexico with a flashlight. Have more labor module, or anything that would be helpful. Thanks.

Have more labor module or anything that would be helpful.

Yes.

Hey, good morning than first because I don't know guys if you hear me well. As you know our goal is to meet all dealer and customer orders. Basically, we have and improve on our process. I hear you. A little bit of background noise. Then as you know, the goal is to meet all dealer and customer orders.

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

Basically we have and improve on our process.

Okay.

<unk> era.

Yes, I hear you.

A little.

A little bit of background on <unk>.

Thank you.

Yes.

<unk>.

Then.

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

Basically, we have improved our process over the years. The first one we allocate products to minimize secondary changed. And basically, we allocate products to dealers to make sure that we minimize the change that would come from them. And second, we have the chance to have many product lines and we have the possibility to prioritize certain products depending of the subset analysis. Then I gave an example. In Q3 with prioritized component. Although RV products and personal watercraft contra season, because the peak retail versus three-wheeled vehicle and slow because this is not the use age of the product for tubular snow in August to October is limited. In Q4, we will prioritize of RV and slope versus three-wheeler and watercraft and in Q1, all product line will be prioritized. And this gave us I believe more flexibility than some of our competitors.

The first one we allocate product we mine them to minimize secondary changed.

And basically we allocate product to dealers.

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

So can we.

Tends to be tour to have many product line and we have the possibility to prioritize certain product depending of the subset analysis than I gave an example in.

In Q3 with prioritized component.

Although RV products and personal watercraft contra season, because the we're in the peak retail versus three wheeled vehicle and slow because this is not the use age of the product for tubular Snowy Noga to October is limited.

Q4, we will prioritize of RV and slope 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 <unk>. Either we retrofit them in house or we have the dealer to retrofit them. Then when the dealer does it its more people who can do the retrofit and on top of it it's saving shipping time. And the last thing. You know that we have a high percentage of our production we made in Mexico, where we have low labor shortage versus what's going on in Canada, and in the United States. Then overall the supply chain is still challenging but with those initiatives is more manageable. Do you hear us? Operator?

Doing some <unk>.

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

And the last thing.

Know that we have a high percentage of our production with made in Mexico, where we have low labor shortage versus what's going on in Canada, and United States then overall.

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

Yes.

You hear us.

Okay.

Operator.

Yes.

Your line is open.

Okay.

Okay. Just a quick follow up. You mentioned that we will see more product introductions over the next three years than the last three years. So how should we think about how that could impact some of your expenses research and development. Is there going to be any sort of step-change or material change in how that is relative to your revenue in the coming three years?

Yes, okay.

Just a quick follow up.

You mentioned that we will see more product introductions over the next three years than the last three years. So how should we think about how that could impact some of your your expenses research and development is there going to be any sort of step change or material change in 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 innovation. Okay. Thank you. Your next question comes from Gerrick Johnson from BMO capital markets. Please go ahead.

Innovation.

Okay. Thank you.

Yes.

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. Are you backing off of that guidance? Good morning. 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 it was they alluded to them, but obviously, we have added capacity for side by side personal watercraft. The switch that goes the restocking of inventory in the network.

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

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

Good morning Derik.

No we're not backing off of that guidance, obviously, assuming the supply chain continues to improve and it remains manageable as we as we expect for Q4.

You know that we have a lot of growth opportunities for next year as it was they alluded to them, but obviously, we have added capacity for side by side personal watercraft. The switch that goes 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. Okay, great. Thank you for that.

Okay, great. Thank you for that.

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 you to the benefits. Yes, 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 were planning to do. Okay.

It should be a benefit.

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

<unk> strong consumer interest we scale back on some of the marketing spend that we were planning to do.

Okay.

Okay. One more and I'll jump back in the queue. You shipped 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. So as I 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.

Okay.

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. If you compare year over year minus 14% of total inventory, including incomplete units, obviously, it bodes well for wholesale planned for the fourth quarter. Okay, great. Thank you very much.

If you compare year over year minus 14% of total inventory, including incomplete units, obviously, it bodes well for wholesale planned for the fourth quarter.

Okay, great. Thank you very much.

Your next question comes from Kamran Jackson from National Bank Financial. Please go ahead. Thanks, very much and good morning, just to follow up on that last question. I guess that's largely especially on the snowmobile side, but largely explains 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?

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

I guess, that's largely especially on the snowmobile side, but largely explains 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.

Yes. This is yes, exactly. And as Jose mentioned as well purposefully we prioritize other product lines versus snowmobile in Q4. So that's why you'll see a heavier lift in wholesale in Q4 for snowmobile. Okay, perfect. I guess sort of related question for me just on the working capital in Q4, I guess, presumably, you will have a significant obviously, we see inventory increase sequentially in the last number of quarters I would expect. Is the 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 kind of explain that.

Okay perfect.

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

The expectation that we'll see that.

That decline in <unk> 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, 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 with positive cash generation. <unk> has increased obviously with the shipment of goods to dealers in the last period of the month. So that obviously increases overall they are.

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 with positive cash generation.

<unk> has increased obviously with the shipment of goods.

To dealers.

And the last period of the of the month.

So that obviously increases overall they are.

Okay, that's very good. I will jump back in queue, thanks very much. Your next question comes from Joe <unk>. From Raymond James. Please go ahead.

Jump back in queue, thanks very much.

Your next.

Question comes from Joe <unk>.

From Raymond James Please go ahead.

Thanks. Hey, guys. Good morning, I guess the 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 and I will say under 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 shortage, as you know, boats, container 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've put together to better manage the

The logistic is still difficult with the Christmas Hi.

Season, there is short Asia.

As you know.

Painter bodes that 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've put together to better manage.

The volatility.

I believe is as is.

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

To dealers and we have them to pre sell those products.

I don't know if they will get it.

Because we have multi product line, we have the possibility to prioritize certain product lines versus other depending of the riding season.

We decided to run our assembly line some with deal that will retrofit ear at the dealer level. Then this is another lever that expedite unit at 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.

Is helping us to better manage the high volatility of the supply chain.

Okay. That's very helpful. And then maybe thinking about fiscal 'twenty. Three you did mentioned earlier, you're still expecting double digit EPS growth your EBITDA margins this year.

I was looking around 18%, 19% I think you said they should be flattish next year. So can you help us understand sort of the puts.

Take it.

Fiscal 'twenty three in terms of margins I assume you're expecting some normalization.

Sales programs and I would think that that would be offset largely by cost savings and other drivers.

Yes.

When you 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 are expecting a headwind on mix as well this year, we've tend to favor higher margin products because.

Production was limited and so that's that's what we put on the top of the list and also commodities are going to be a headwind.

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, so less cost there, but certainly an inflationary pressure from a commodity point of view Renee 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 wanted to go back to the pre builds with your whipped up about $500 million.

What percentage of that is snow and do you expect that elevated with normalized 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 quarter, 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 we will still be at high levels higher than we would like but still very manageable.

And the expectation is in Q1 and in Q2.

Will be depleting that.

Retrofit inventory, obviously, the beauty with our businesses 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.

Okay, and then maybe for Jim.

It made commentary 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 the at the rate that the market is growing and the way we are gaining market share today, 30% is a lot more than what we thought three years ago.

And are you at a street factory was designed to be built in to phase in.

And when I look at the overall picture.

You say the peak of the off road vehicle 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 bring 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 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.

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 and complete product.

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 was that mostly com.

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 awards.

Expansion from.

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

Can you just quantify for us.

Capacity increase that 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.

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 would it Ken asked 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.

Capacity ramp up plan and the expectation is that come February.

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

The pre August 21, while the target the target.

Target is to be at 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 still target that.

Tried.

Try to understand whether you were saying that February 1st that you thought your supply chain issues would be normalized but you're not.

Not saying you are not saying that I am not saying that it's going to be obviously, it's a <unk>.

Weekly management.

Visibility improves we are better at managing yet but.

We saw a few hiccups over the last 12 months with many companies have so time will tell.

Okay, Great and then maybe just a final thing.

Mentioned, the new dealer order program that was started in November.

Do you do you have any way of sort of quantifying what.

Without having had that formal order system.

What dealer deposits.

Not not your P&L, but dealers taking deposits from from consumers waiting for product any way to quantify how that looked at the end of Q3 versus the end of Q2 kind of just sequentially.

And.

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

And I would say the most successful one was snowmobile because this is part of the story of snowmobile and customer like to reserve their special modeled 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 autograph 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 no harmony.

<unk> will receive in December January February.

And they are allowed to pre sell 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 to will we have does that start to compare but is brand new we just started on November eight but I can tell you.

Is growing very fast right now.

<unk>.

What securing the consumer to make sure they get their unit in the next three months.

But we don't have any specific number but.

But that the new.

The new system that started in November is still only allowing dealers to pre sell this sort of next quarter of shipments is that exactly exactly.

Alright, thanks very much.

Your next question comes from spread Whitman from Wolfe Research. Please go ahead.

Hey, guys good morning.

14% decline on a year over year basis for the semi finished inventory can you put the 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 at.

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

This quarter, that's including the.

The complete units and also the estimate finished units total deliveries are equal.

Equal to where we were last year, obviously wholesales 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 have the highest new on trend as watercraft and COO will then because.

Is it going more in the off season in Q3 and Q4, that's why we had a slight decrease on UN <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.

Your next question comes from Jamie Katz.

Sir Please go ahead.

Hi, good morning, I'm, hoping firstly, we can dive a little bit infantry.

Vehicle performance, because I think the commentary surrounding.

Share gains for the year, but it looks like for the quarter. They were down so was there anything timewise Tc end to that or was there something else leading to that.

Sure Yes.

Yes, two things.

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 the watercraft counter season model versus snowmobile entry will.

And this is why did 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 sort of normalizes into the middle of next year when the supply chain start to scale.

Yes.

Triangle.

But the way, we prioritize as always depending of the riding season than in Q3 like I said in my remark, we will prioritize <unk> mobile because snow is here.

The three Wheeler in the watercraft RV.

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.

Figure should remain elevated through fiscal 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.

<unk> updated guidance.

Thank you.

Your next question comes from Ben <unk> from Deutsche Bank. Please go ahead.

Yes, good morning, everyone and congrats again.

With respect to the tree.

<unk> will be called sales, obviously, you triple the sales over the 2019 season, so now that you've reached.

Our initial expectation what should we expect for the segment throughout the fiscal year 'twenty five.

Good morning, Vanore, but like we said, we're very very proud of what we have accomplished with tree.

With the ryker introduction, because when jewelry apparel.

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 have took advantage of the program in the last three years.

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

Come to three wheel are women.

The ratio of customer under 55, and <unk> is very high then.

For us, we learn with spark and we learn with dry occur how to talk 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 we will have 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 that's great color and could you with respect to the.

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

Capital deployment.

Yes.

First we had 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 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 purpose built for us our intention was not to move out.

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 and through the fed they make obviously a big trend has been towards digital.

Can you talk about your ability to capitalize on the strength of your website to potentially drive E Commerce sales.

Wondering how you're progressing with this initiative.

Yes.

I believe we are doing.

Very well I mean, you saw our website visits going up 60% versus last year on the 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 that's why we using.

Loved the MF Heather.

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

You do well.

This is juan.

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

We show the customers.

<unk>.

For a ride the product were to ride the product in this.

The impressive we've done more than 90 video.

Right and then 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're building the community.

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

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.

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.

Choices would be to switch to another VIP 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 who is unable to get product today is looking to do.

Yes, good morning, Craig.

<unk> then the first call.

Yeah then.

I'll give an example, we formed the some customers purchase the <unk>.

Spring break snowmobile.

That will have about a month delay in the delivery of their unit, we offer to those customers to transferred there.

Their deposit on next year model, but most of them hold to their orders.

Then.

We here.

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

Great. Thank you.

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

Good morning, and thanks for all your comments, thus far I just wanted to ask you.

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 modulate.

Along with 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 our 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.

Hey, Dan 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.

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 the.

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 over time, 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.

If it's a mid term impact I E higher freight cost from either maritime or outbound freight for our unit.

Special 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.

Though 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 we're addressing through pricing. So I would 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.

Six months.

As we are continuing to see higher inflationary costs by Derek.

One key thing direct to complete the best answer if you go on our website you will see with displaying now for each model the MSRP.

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

But since we displayed the commodity surcharge customer are the most of the customer understand then the accepted.

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

Thank you.

And there are no further question 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 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.

Call up on March 25th Thank you again and have a good day.

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

[music].

Yes.

[music].

Okay.

The host has ended this call Goodbye Lenny matter a question.

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