Q4 2021 Polaris Inc Earnings Call

Good day, and welcome to the Polaris fourth quarter and full year earnings call and webcast. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing Star then zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two.

Please note this event is being recorded.

And I'd like to turn the conference over to Richard Edwards Head of Investor Relations. Please go ahead Sir.

Thank you, Matt and good morning, everyone. Thank you for joining us for 2021 fourth quarter and full year earnings call. A slide presentation is accessible at our website at IR Dot players Dot com, which has additional information for this morning's call.

Mike speeds are our Chief Executive Officer, and Bob <unk>, Our Chief Financial Officer have remarks, summarizing the quarter and the full year and our expectations for 2022, then we'll take some questions.

During the call we will be discussing various topics, which should be considered forward looking for the purpose of the private Securities Litigation Reform Act of 1995 actual results could differ materially from those projections in the forward looking statements you can refer to our 2020 10-K and an additional four additional details regarding these risks and uncertainties.

All references to the fourth quarter and the full year 2021 and actual actual results and the 'twenty to 'twenty two guidance are reported on an adjusted non-GAAP basis, unless otherwise noted please refer to our Reg G. Reconciliation schedules at the end of this presentation for the GAAP to non-GAAP adjustments now I will turn it over to Mike, Sweden, our CEO .

Mike Thanks, Richard Good morning, everyone and thank you for joining us before we get started I wanted to acknowledge that this will be Richards last earnings call.

Richard has been at the helm of Polaris as Investor Relations for 20 years, and I've had the privilege to work with him for almost seven of those years.

It goes without saying that Richard has had an incredible and lasting impact on the company you all will have the opportunity to see you and talk to Richard at our Investor Day later in February with Richard retirement, we welcomed J C. Weigelt to the team JC brings a wealth of experience and were working alongside Richard for the next several months to ensure a smooth transition.

So welcome Casey and thank you Richard for all that you've done for this company and me you'll be greatly missed.

From the start of my tenure as CEO My mantra for Polaris has been focused execution in 12 months and I am proud to say that the team forged the path with dedication and ingenuity.

While the supply chain disruptions dominated the headlines in 2021, we finished the year at record levels for both sales and earnings and I couldn't be more appreciative of the effort. The Polaris team made to achieve these results.

And as Bob will discuss our record performance is anticipated to continue into 2022.

That coupled with a refined and focused strategy hasn't been incredibly optimistic about the future of this great company, but before I go too far with the future, let's look back at the performance in 2021.

2021, soft Polaris achieved several meaningful performance milestones, we delivered record level financial performance, despite considerable supply chain headwinds, which impacted costs and our ability to deliver products are.

Our strong performance enabled us to return over $600 million to shareholders through our dividend and share repurchase.

Despite the supply chain headwinds, our RV business gained share with our strong brand innovation and the ability to deliver on continued strong consumer demand.

R. P. G N E businesses, which includes power aftermarket exceed.

Exceeded $1 5 billion in sales the first time ever that's a 24% increase in 2021 and we've more than doubled the size of our P. G and a business over the last five years our.

Our international business exceeded one the 1 billion, Mark which was an increase of 34%.

Lastly, our efforts to drive customer growth continues to pay dividends as evidenced by our customers expanding 16% on a two year basis, representing a strong new customer growth with more new customers added in 2021, and 2020 and I'd also add that existing customers repurchases remained solid.

We introduced industry, leading customer and dealer driven innovation and launch category defining vehicles.

We introduced over 30, new vehicles, and nearly 500, new accessories in 2021.

We didn't just incrementally.

We created and launched a category defining vehicles, reflecting our continued commitment to industry leading innovation.

The razor pro-war and turbo or reclaimed our leadership position in the wide open side by side category delivering unprecedented performance straight from the factory.

The razor Pro-war leads the way in power with the industry's first two liter factory engine, coupled with unmatched control all new dynamics D V, which is our dual valve automatic adjusting suspension system.

We push the industry forward with the introduction of our all electric Ranger X P. Kinetics. The hardest working smooth is writing and quietest U T V ever built it is safe to say, we're just getting started and I can't wait for you to see what we have in store for 2022.

Our innovation doesn't end with our products, we introduced our industry, leading pre sold water program, which has been highly successful in attracting and maintaining customers and the supply chain constraint environment.

The North star reward dealer incentive program.

Dealer are rewarded when they successfully apply the six critical activities of market performance customer experience education P. G and a service and dealer financial results has driven improved dealer performance and profitability.

[noise] playoffs adventures business has grown tremendously and then 2021 completed over 400000 rides the roughly 200 outfitter locations.

And our subscription service players adventure select is launched in four states with plans to add several more in 2022.

And finally during 2021, we added capacity and for product quality and rationalized our portfolio we.

We added production capacity in Monterrey, Mexico for RV.

And Syracuse, Indiana for Bennington, and Hurricane in Wilmington, Ohio for P J and a distribution.

All of these reflect our commitment to organically invest in the business to support growth.

As I speak were starting up production of midsize Indian motorcycles in Vietnam to accommodate anticipated growth in the Asian and Australian markets.

Our focus on quality drove improvements have resulted in higher customer and dealer quality ratings, while reducing costs and during the quarter. We completed the divestiture of Jim and Taylor Dunn businesses as we continue to strategically review our portfolio with a goal of businesses.

And this mix optimized for future growth and profitability.

As a result of these divestitures, we are realigning our segments in 2022, and eliminating the global Georgia, Jason market segment. The remaining businesses that were in that segment will be aligned to other segments. Bob will give you further detail shortly.

2021 was truly an all round great year for Polaris through focused execution, we delivered industry, leading performance and continue to improve the fundamentals of the business.

Building from those highlights let me start by addressing demand overall consumer demand remains robust with new customers entering the space at a steady rate and existing customers exhibiting strong repurchase intent. Unfortunately supply chain impacts on product availability, not just for Polaris, but across the broader industry negatively impacted retail in North America.

Our full year retail sales for North America finished down 13% for 2021, driven by the supply chain disruptions that impacted product availability, a retail did end the year up 9% versus 2019, which further reinforces the point around continued strong interest in the category and lastly, fourth quarter retail was down mid 20, percents and down.

Mid single digits to 2019.

Despite the headwinds I couldnt be more pleased with our market share performance or be gained 120 basis points of share with side by sides up about a point of share for the year and atvs up over a point and a half. It was a similar result for pulse, which with our boat business increasing market share in North America, and our motorcycle business finished about flat.

Last year.

You'll notice that we've added an international to the page is a global company, it's tough to talk market share without looking beyond North America.

Given our strong book.

Retail performance, we gained over 100 basis points in orbit and motorcycles and about 60 basis points in snowmobiles.

Continued interest in power sports along with our expansive product lineup puts us in an enviable position to drive continued strong performance into 2022.

Dealer inventory levels ended the quarter down 30% on a year over year basis, and down 70% compared to levels in Q4 of 2019 sequentially total dealer inventory levels improved by approximately 5000 units in North America that said the majority of those vehicles shipped in the final days of the year, we're already spoken for under our pre sold waterproof.

Our current view of the dealer inventory levels remain below optimal levels for all of 2022.

With modest improvements in the second half the.

The improvements come from slightly.

By chain and delivery as we anticipate demand will remain robust.

Last quarter I highlighted several modifications, we made to our highly successful dealer pre sold the order process, we implemented a new online order tracker for dealers and customers and improve the transparency of order status, a new reservation program for high demand premium products and we added limitations on the number of pre salt orders for certain products to mid.

I'm always delays from long shipping lead times.

These changes have been favorably received by both dealers and consumers as we continue to manage through supply chain impacts to production and delivery.

As we made progress on accelerating vehicle production and shipments during the fourth quarter pre sold orders declined slightly from the third quarter, we anticipate that the dealer pre sold orders will remain elevated through the first half of 2022 with an opportunity to reduce that level beginning in the back half of the year as we see modest supply.

Materials.

The pressure points from component shortages have not changed significantly from my last update we continue to experience parts variability for various components such as shocks displayed certain plastics seats in semiconductors among others.

The reasons for these supply disruptions.

Continue to be tied to logistics delays labor shortages and commodities not unlike many other industries.

We've developed a sophisticated process to manage through these pressure points, including forward buying for some long lead components, giving suppliers improved visibility of our production forecast, establishing second and third sources for critical components were available and assisting suppliers with accelerated payments in labor as needed.

Predicting when the supply chain pressures ease remains.

At our most current view is that modest improvements should start to materialize sometime in the third quarter of 2022.

Regardless of the supply chain remains a top priority and I continue to be impressed with our team's ability to learn adapt and execute just created a clear competitive advantage for Polaris.

Earlier I highlighted highlighted the launch of several category defining vehicles razor pro our turbo power and the all new electric Ranger XP kinetic we're calling these vehicle category defining because we believe theres nothing like them in the market today and while the initial production runs will be limited interest around these products was phenomenal.

Stats speak for themselves $450 million, plus impressions and $2 9 million video views for the razors and for the Ranger XP kinetic two times the press impressions compared to our entire model year 'twenty two launched last year.

280000 video views both product allocation limits were read shortly after their respective launches and this is just the beginning stay tuned for more exciting news to come in 2022.

With that I'll turn it over to Bob Mack, who will summarize our fourth quarter full year 2021 performance and our expectations for 2022.

Thanks, Mike and good morning, everyone.

Summarize the year earlier, so my comments will be brief regarding the fourth quarter and full year and we'll provide more details on our thinking around 2022 guidance.

Our fourth quarter results.

Fourth quarter sales were up 1% on a GAAP and adjusted basis versus the prior year RV snow sales were down 2% given the supply chain constraints and the difficult comparison of a nearly 30% increase you know RV in the fourth quarter of 2020.

Motorcycles and global adjacent markets and boats all increased sales during the quarter aftermarket was down 2% again due to supply chain disruptions.

Fourth quarter earnings per share on a GAAP basis was $1 40, which includes a loss on the sale of the gym and Taylor Dunn businesses adjusted earnings per share was $2 16 down 35% from last year's strong performance and negatively impacted by the increased supply chain pressures in 2021.

For the full year 2021 sales were up 17% on a GAAP and adjusted basis versus the prior year.

All segments were up for the full year 2021, driven by pricing and volume.

Full year earnings per share on a GAAP basis was $7 88.

Adjusted earnings per share was $9 13 ahead of our expectations in spite of the supply chain challenges and driven by a positive product mix and increased pricing along with nearly 100 basis points of operating expense leverage.

Turning to our segment performance.

Oh, RV snowmobile and aftermarket segment sales declined during the quarter compared to 2020 as the supply chain shortages constrained our ability to ship to demand.

Cam boats and motorcycle segments increased sales in the fourth quarter, primarily driven by product mix and pricing.

Why chain put pressure on all of our segments ability to significantly grow sales.

However, our adjacent market businesses did grow the number of units sold primarily driven by the appeal and Exxon in Europe .

Reported fourth quarter segment sales were as follows.

Oh, RV snowmobile sales decreased 2% motorcycle.

Motorcycle sales increased 2% global adjacent market sales were up 23%.

Aftermarket sales were down 2% and our boat segment sales increased 12%.

As I indicated average selling prices were up for all segments for the fourth quarter, driven by price increases and the mix of products produced on.

A full year basis, all segment sales were up on a year over year basis for both sales and units sold given the continued strong demand for our products.

International and P G&A sales.

Which were also strong our embedded within each respective segment.

International sales increased 4% in the fourth quarter and 30%, 34% for the full year 2021 over 2020 all.

All segments and categories grew sales for the full year 2021.

Our parts garments and accessories sales increased 13% during the quarter, a 24% for the full year.

The supply chain constraints with the theme you heard throughout my presentations in 2021, and unfortunately, you'll hear that theme again in 2022.

However, we will realize increasing benefit from the price increases in 2022 that we implemented throughout the back half of 2021, along with some anticipated slight improvement in the supply chain sometime in the back half of the year, which we expect to drive another record year of sales and earnings for 2022.

Turning now to 2022 guidance.

Total company sales are expected to be up in the range of 12% to 15% versus 2021.

2022 sales growth includes the following assumptions.

While consumer demand for power sports products is expected to remain robust in 2022, we expect the overall north American power sports market and Polaris retail sales to be relatively flat versus 2021, driven entirely from the ongoing supply chain constraints expected for much of the year.

We anticipate share gain trends continuing for Polaris in 2022.

The pontoon industry is expected to be flat to up slightly on a year over year basis without pontoon business expected to continue its share gain for the full year.

We anticipate average selling prices will again be positive in 2022 as the price increases we implemented throughout 2021 provide a tailwind into 'twenty two.

We are prepared to continue to increase prices to match any further supply chain cost pressures, but anticipate that these talks have peaked and will begin to moderate in late 2022.

Adjusted earnings per share for 2022 is expected to be in a range of $10 10 to $10 40 compared to the full year 2021, adjusted EPS of $9.13, an increase of 11% to 14%.

We anticipate that adjusted gross profit margins will be down 80 to 100 basis points for the year with the first quarter. Realizing the most margin pressure as we have a sizable backlog of pre sold orders that we purposely did not increase vehicle pricing on given previous communications to customers along with purchase raw materials at the peak of commodity price.

<unk> working their way through our factory inventory.

Yeah.

Operating expenses are expected to improve as a percentage of sales down 90 to 120 basis points for 2022, primarily as a result of our ability to leverage our general and administrative infrastructure as the company grows revenue.

Mike talked about the number of new products introduced in 2021, and we expect another wave of innovative product introductions in 2022.

Operating expenses as a percentage of sales is improving we are not backing off our commitment to being a leader in product innovation as a research and development investments are increasing on a year over year basis.

The income tax rate is expected to be in the range of 23% to 23, 5% for the full year 2022, as a rate reverts back to a more normalized level.

Share count is expected to be down approximately 2% in 2022, which is a combination of expected dilution from compensation plans more than offset by the continuation of share repurchases given our strong liquidity position.

I will talk more about our capital allocation priorities in a moment.

In 2022, we are introducing a new metric that we'll be tracking and reporting on each quarter going forward, which is familiar to all of you listening today and that is earnings before interest taxes depreciation and amortization.

Historically, we have been giving you guidance on net income and adjusted earnings per share and we will continue to do so in 2022, but we believe reporting EBITDA quarterly will give investors the greater appreciation of the baseline profitability opportunity at the company.

Moving to non operating impacts you need to Polaris for.

For 2022, EBITDA is expected to be approximately 12% of sales similar to 2021 and up 12% to 15% on an absolute basis.

Given the unique events of 'twenty, 'twenty and 2021 the quarterly sales and earnings cadence to which we are accustomed has significantly changed.

The first quarter is our lowest quarter in both sales and earnings with the second third and fourth quarter being relatively equal in both sales and earnings per share.

That said the past two years have varied significantly from our historical cadence.

2022 is following a similar pattern driven by ongoing supply chain issues and the fact that ship and retail are so closely aligned.

While the timing and magnitude of supply chain improvements remains challenging to forecast I will give you our view on how we currently see the year playing out.

The supply chain bottlenecks accelerated in the back half of 2021 as both costs and disruptions escalated.

We believe that many of those costs have peaked but they will take time to work through our raw material inventory and we expect them to slightly improve on a sequential basis throughout 2022.

Therefore, the first half of 2022 is expected to look a lot like the second half of 2021 in terms of earnings per share.

Sales for the first half of 2022 are expected to be up in the high single digits percent to low double digits percent range, both sequentially and when compared to the first half of 2021 .

Earnings per share for the first half of 2022 are expected to be up slightly sequentially in the second half of 2021, although they will be down when compared to the strong first half of 2021 somewhere in the mid teens percent range.

Second half of 2022 is expected to be very strong on both a sequential basis from the first half of 'twenty two when comparing to the second half of 'twenty 'twenty. One is pricing is fully implemented and the cost premiums realized in our P&L begin to ease.

Before I provide our expectations for sales by segment, let me explain some changes we are making in our reporting segments beginning in 2022.

As a result of the sale of Gem and Taylor Dunn and to better leverage the activities occurring in each segment, we are eliminating the global adjacent market segment and moving the remaining businesses into other established segments in our portfolio.

Actually I mean, who appeal will move into our motorcycle segment and the combined segment will be renamed on road.

Government and defense and our commercial U T V businesses will be included in our RV snowmobile segment and that reconstituted segment will be renamed off road.

Polaris adventures will be allocated into the respective segments based on the vehicles utilized.

Our boat segment remains unchanged, but is being renamed marine to both better describe the current portfolio as well as broaden the segment should future products or services, both organic and inorganic be added to the marine portfolio and finally, our aftermarket segment remains unchanged.

Speaker 1: And finally, our aftermarket segment remains on Jane.

We believe these revised segments will provide better focus and leverage resources for future growth and profitability improvement.

Speaker 1: We believe these revised segments will provide better focus and leverage resources for future growth and profitability improve.

They will also create a simplified reporting structure under our new strategic framework that Mike will cover shortly.

We will provide some historical sales data under the new segment reporting structure for modeling purposes on our website later today.

Speaker 1: We will provide some historical sales data under the new segment reporting structure for modeling purposes on our website later today.

Now moving to our sales guidance by segment.

We expect all segments to grow sales in 2020 two as.

Speaker 1: We expect all segments to grow sales in 2022 as we drive to meet the ongoing strong demand and the supply chain volatility begins to slowly stabilize. The expectations by segment are...

As we drive to meet the ongoing strong demand and the supply chain volatility begins to slowly stabilize.

The expectations by segment are shown on the current slide.

Operating cash flow finished 2021 at $294 million 71 per cent decrease over 2020, given the increase in inventory due to the supply chain disruptions and our deliberate decision to forward buy components to minimize the impact on our plant operations.

Speaker 1: Operating cash flow finished 2021 at $294 million, a 71% decrease over 2020, given the increase in inventory due to the supply chain disruptions, and our deliberate decision to forward buy components to minimize the impact on plant operation.

Speaker 1: We anticipate 2022 operating cash flow will improve from 2021 in line with improved results and less cash needed for working capital.

We anticipate 2022 operating cash flow will improve from 2021 in line with improved results in less cash needed for working capital.

Speaker 1: Let me summarize our capital deployment priorities and expectations for 2022.

Let me summarize our capital deployment priorities and expectations for 2022.

Our first priority is organic investments, which includes capital expenditures of approximately $350 million for 2022, a 17% increase over 2021.

Speaker 1: Our first priority is organic investments, which includes capital expenditures of approximately $350 million for 2022, a 17% increase over 2021.

Approximately one third of the $350 million is earmarked towards capacity expansion in 2022, including an expansion of the distribution center in Wilmington, Ohio, The completion of our Monterrey, Mexico facility expansion and a variety of other capacity and capability improvements.

Speaker 1: Approximately one third of the 350 million is earmarked towards capacity expansion in 2022, including an expansion of the distribution center in Wilmington, Ohio, the completion of our Monterey Mexico facility expansion and a variety of other capacity and capability improvements.

These capacity investments along with increased investments in research and development and tooling will support new products and customer centric innovation, including digital electrification and further demand creation.

Speaker 1: These capacity investments, along with increased investments in research and development and tooling, will support new products and customer-centric innovation, including digital electrification and further demand creation.

Our second priority is dividends, we obtained dividend aristocrat status two years ago, which is defined as 25 years of consecutive dividend increases, which we are very proud of.

Speaker 1: Our second priority is dividends. We obtained dividend aristocat status two years ago, which is defined as 25 years of consecutive dividend increases, which we are very proud of.

Speaker 1: We believe dividends are a critical part of the attractiveness of Polaris back to our shareholders.

We believe dividends are a critical part of the attractiveness of Polaris stock to our shareholders.

Speaker 1: Later this week, we are asking our board to approve the 27th consecutive annual dividend increase. We will announce any increase subsequent to board approval.

Later this week, we are asking our board to approve the 27th consecutive annual dividend increase we will announce any increased subsequent to board approval.

And third share repurchases and M&A in that order.

Speaker 1: And third, share repurchases in M&A in that order.

Speaker 1: We currently have $840 million remaining on the recent $1 billion dollar authorization approved from the board last year. As Mike noted earlier, we have returned over $600 million to shareholders in 2021 via the dividend and share repurchases. We expect to return at least an additional $500 million in 2022 for a two-year total in excess of $1.1 billion in returns to shareholders.

Currently have $840 million remaining on the recent $1 billion authorization approval from the board last year as Mike noted earlier, we have returned over 600 million to shareholders in 2021 via the dividend and share repurchases and we expect to return at least an additional $500 million in 2022 for a two year total in excess of $1 1 billion.

And returns to shareholders.

While we have no current plans for any acquisitions, we will consider small tuck in transactions in our core segments, if financially and strategically attractive.

Speaker 1: While we have no parent plans for any acquisitions, we will consider small tuck-in transactions in our core segments if financially and strategically attractive. With that, I will now turn it back over.

That I will now turn it back over to Mike for some final thoughts.

Speaker 1: Thanks, Bob. During 2021, the management team and boards spent considerable time evaluating the business as well as looking forward in terms of what Clari should strive to over the long term. There were three critical questions we asked ourselves, what can we be best in the world at? What are we deeply passionate about? And what drives our economic interests?

Thanks, Bob during 2021, and the management team and board spent considerable time evaluating the business as well as looking forward in terms of fourth quarter should strive to become over the long term.

There were three critical questions. We asked ourselves what can we be best in the world at what are we deeply passionate about and what drives our economic engine.

Speaker 1: As a result, going forward and in line with our mantra of focus execution, we're refining our strategic framework to refocus our investments in the core, both organic and inorganic, improving productivity and expanding margins, and growing our leadership position in power sports. Along with this, we will embrace a balanced and strategic capital deployment strategy that provides for organic investment, portfolio alignment, and return of capital to shareholders.

As a result going forward and in line with our mantra focused execution, we're refining our strategic framework and refocus our investments in the core both organic and inorganic.

Proving productivity and expanding margins and growing our leadership position in power sports.

Along with this we will embrace a balanced and strategic capital deployment strategy that provides for organic investment portfolio alignment and return of capital to shareholders.

Speaker 1: To drive this strategy, we've identified six strategic pillars for the business. Best customer experience, inspirational brands, writer-driven innovation, agile and efficient operations, best team, best culture, and safety and ethics always. We believe these six pillars executed effectively will drive significant IE creation.

To drive this strategy, we've identified six strategic pillars for the business best customer experience inspirational brands rider driven innovation agile and efficient operations best team best culture, and safety and ethics always we believe these six pillars executed effectively will drive significant value creation.

Best customer experience for first providing our current and future customers with the best possible overall experience, including dealer interactions for service and delivery. The most desirable most satisfying and trusted products and services in the industry.

Speaker 1: Best customer experience refers to providing our current and future customers with the best possible overall experience, including dealer interactions for service and delivery, the most desirable, most satisfying and trusted products and services in the industry.

Speaker 2: and providing a business model that encourages more diverse groups of people to experience the outdoors.

And providing a business model that encourages more diverse groups of people to experience the outdoors.

By inspirational brands I'm, referring to brands our owners are not only proud to be associated with what are excited to showcase and share with friends.

Speaker 2: By inspirational brands, I'm referring to brands our owners are not only proud to be associated with, but are excited to showcase and share with friends and family.

Brands that continue to be viewed as authentic unique engaging in just fun to experience and support our think outside tagline.

Speaker 2: Brands that continue to be viewed as authentic, unique, engaging, and just fun to experience. And support our Think Outside Tag.

Speaker 2: Rider-driven innovation means exploring new products, services, and experiences that matter to our customers. Electrification, Connections, Adventures, Adventure Select, and Ride Command are just a few recent examples of the opportunity we have here.

Ryder driven innovation means exploring new products services and experiences that matter to our customers electrification connected.

Adventures adventure select and ride command are just a few recent examples of the opportunity we have here.

Agile and efficient operations takes lean operations a step further.

Speaker 2: Agile and efficient operations takes lean operations a step further.

By aligning processes tools and people to deliver the most responsive customer centric service levels and power sports, while leveraging our scale to drive industry leading productivity.

Speaker 2: by aligning processes, tools, and people to deliver the most responsive, customer-centric service levels in power sports while leveraging our scale to drive industry-leading productivity.

Speaker 2: And all of this is only possible by having the best team and best culture in the industry. We strive to hire, develop, and retain the best, constantly challenge them with new opportunities and high expectations, and reward those who achieve and exceed those expectations. And finally, and by no means last, safety and ethics always, which is core to our belief system and reflects our strong bias to protect our teams and resources while driving our stewardship of the industry for our riders and the outdoors through our Geared for Good program.

And all of this is only possible by having the best team and best culture in the industry, we strive to hire develop and retain the best constantly challenged them with new opportunities and high expectations and reward those who achieve and exceed those expectations and finally and by no means last safety and ethics always which is core to our belief system and reflects our strong bias to.

Our teams and resources, while driving our stewardship of the industry for our writers in the outdoors through are geared for good program.

Speaker 2: I couldn't be more excited about the prospects of this great company. With Focus, we can grow our global leadership in power sports and drive tremendous value creation for all of our stakeholders, customers, employees, and shareholders.

It couldn't be more excited about the prospects of this great company with focus we can grow our global leadership in power sports and drive tremendous value creation for all of our stakeholders customers employees and shareholders we will provide.

Speaker 2: We'll provide more details around these six key areas at our upcoming investor meeting in Las Vegas on February 24th, including a quantification of the financial opportunity we believe is possible over the next five years.

More details around these six key areas at our upcoming Investor meeting in Las Vegas on February 24th, including a quantification of the financial opportunity. We believe is possible over the next five years.

Speaker 2: Let me wrap this up. 2022 is expected to be another record year for Polaris, with revenues growing 12 to 15 percent and net income increasing at similar levels. That, coupled with our new and more focused strategy, provides incredible opportunities for growth and value creation.

Let me wrap this up 2022 is expected to be another record year for Polaris with revenues growing 12% to 15%.

Net income increasing at similar levels that coupled with our new and more focused strategy provides incredible opportunities for growth and value creation, we anticipate demand to remain robust as customer interest in the category remains strong.

Speaker 2: We anticipate demand to remain robust as customer interest in the category remains strong. That said, the supply chain will remain constrained at least through the first half, and any improvements after that are anticipated to be modest.

The supply chain will remain constrained at least through the first half and any improvements after that are anticipated to be modest.

Speaker 2: Let me close by saying thank you again to the Polaris team for all that they've done and all that they will do as we forge ahead as the global leader in power sports. With that, I'll turn it over to Matt.

Let me close by saying, Thank you again to the Polaris team for all that they've done.

And although they will do as we forge ahead as the global leader in power sports with that I'll turn it over to Matt to open the lineup for questions.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone cellphone.

Speaker 3: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster.

If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question. That's been addressed and you would like to withdraw your question. Please press Star then two.

In the interest of time, please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.

Okay.

I think we're good to go math.

Thank you our first question will come from Robin Farley with UBS. Please go ahead.

Speaker 4: Thank you. Our first question will come from Robin Farley with UBS. Please go ahead. Great. Thank you for taking the question. And Richard, I just want to say best wishes. It's been great work with you. I'm glad we'll get to see you at the…

Great. Thank you for taking the question and Richard I, just wanted to say best wishes. It's been great working with you and Scott will get to see what the our Investor day in a few weeks.

So for us from a question on the retail commentary, you're kind of expecting the industry and players to be flat in retail.

Speaker 4: For my question on the retail commentary kind of expecting the industry and

Because of supply constraints, given what you expect to ship how much inventory rebuild at dealers.

Speaker 4: Given what you expect to ship, how much inventory rebuild at dealers, will that get you sort of halfway there in terms of where dealer inventory needs to go?

Will that get you sort of halfway there in terms of where dealer inventory needs to be or kind of how does that shake out given the constraints and the it.

It sounds like you know what demand would be higher than flat if it werent for those constraints.

Speaker 2: Yeah, you know, our expectation is, pardon me.

Yeah.

Our expectation is pardon.

Pardon me as I mentioned in my prepared remarks, we really don't anticipate dealer inventory.

Speaker 2: As I mentioned in my prepared remarks, you know, we really don't anticipate dealer inventory moving up substantially. There will be some improvement. It'll be relatively modest. I mean.

Moving up substantially there will be some improvement a it'll be a relatively modest I mean.

Speaker 2: You know, at this point, as we look forward, as we talked about, we think the supply chain issues that we saw in the second half are obviously, you know, kind of carrying forward as we go to the first half. And then there's going to be some items that are going to continue to govern our ability as well as the rest of the industry and frankly, into automotive and electronics and it's around semiconductors. Semiconductors continue.

At this point as we look forward as we talked about we think the supply chain issues that we saw in the second half or obviously, you know kind of carrying forward as we go through the first half and then theres going to be some items that are going to continue to govern our.

Our ability as well as the rest of the industry and frankly in the automotive and electronics and it's around semiconductors.

Semiconductors continue to be a significant issue and it feels like every time the industry takes a step forward do they take a step back by having a typhoon that hits and floods are sourced factories and things like that so we.

Speaker 2: significant issue. It feels like every time the industry takes a step forward.

Speaker 2: They take a step back by having a typhoon that hits and floods source factories and things like that. So we just anticipate that there's going to be some aspects that are going to continue to limit our ability to ramp up. Now, the minute we see improvements in the supply chain, we can react very quickly. As I mentioned in my comments,

We anticipate that there's going to be some aspects that are you know we're going to continue to limit our ability to ramp up now the minute, we see improvements in the supply chain. We can react very quickly as I mentioned in my comments you know our team has continued to outperform and I'm confident that if we start to see green shoots that are.

Speaker 2: You know, our team has continued to outperform, and I'm confident that, you know, if we start to see green shoots that are better than we expect, we'll be able to leverage that into better.

Better than we expect we will be able to leverage that into better performance I suspect. They will given the strong demand that we expect and are seeing from consumers that most of what would happen in terms of improvement will just improve retail not necessarily improve dealer inventory.

Speaker 2: I suspect though given the strong demand that we expect and are seeing from consumers.

Speaker 2: that most of what would happen in terms of improvement would just improve retail, not necessarily improve dealer inventory.

Okay, Great and then my follow up question was going to be about the supply chain disruption.

Speaker 4: be about the supply chain disruption. You just mentioned a little bit about it with maybe not having great visibility.

<unk> mentioned, a little bit about it with maybe not having great visibility on semiconductors. My question was going to be how much of this sort of improvement in second half is actual visibility and like you said, it's already getting better and it just is it the prices the expenses that have to run through you know in your inventory versus.

Speaker 4: My question was going to be how much of this sort of improvement in second half is actual visibility and like you said it's already getting better and it just is the prices, the expenses that have to run through in your inventory versus you know.

That you are sort of hoping it will be better than six months, but you don't necessarily have visibility just trying it yeah. I mean, it it's tough to have visibility that far ahead, but I will say that we've learned a lot over the past call. It six to seven months.

Speaker 2: Yeah, I mean, it's tough to have visibility that far ahead. But I will say that, you know, we've we've learned a lot over the past, you know, call it six to seven months. I think our ability to navigate the current industry dynamics

I think our ability to navigate the.

The current industry dynamics.

Speaker 2: are better and we do anticipate that things like logistics and some of the labor shortages and things like that are going to start to improve because the industry simply has the time to deal with it versus this kind of happened pretty quickly in 2021.

Or better and we do anticipate that things like logistics and some of the you know the labor shortages and things like that are going to start to improve.

Because the industry simply has the time to deal with it versus this kind of happened pretty quickly in 2021.

Speaker 2: So we, you know, we think there's definitely opportunities there. So we're basing it on markers that we're seeing today, but I'll keep reemphasizing it. We're not expecting a substantial uplift. You know, when we look at our off-road vehicle business, we're not expecting a substantial improvement in year-over-year shipments, for example. So, you know, it is an improvement. It tends to manifest itself in a lot of our other businesses, like boats, for example.

So we think there's there's definitely opportunities there. So we're basing it on markers that we're seeing today, but I'll keep re emphasizing it we're not expecting a substantial uplift when we look at our offered vehicle business, we're not expecting a substantial improvement in year over year shipments. For example, so you know it is an improvement it tends to manifest itself.

And a lot of our other businesses like boats for example.

Speaker 1: But at this stage, you know, that's the level of visibility that we have. Bob, anything that you would add? Yeah. I think you brought up a good point, Robin.

But at this stage that's the level of visibility that we have Bob anything that you would yeah I think he brought up a good point Robyn.

Speaker 1: You know, when you think about supply chain improving, you kind of have to take it into two pieces. One is cost, one is actual availability of components, and as Mike said, the availability of components side, you know, we don't see meaningful, you know, we'll see slight improvement, we think, through the year, and the visibility there is not as nice as we'd like it to be. On the cost side, you know, a big part of the cost is commodities, and there is a little better visibility into that, and, you know, we do see that improving as we get, you know, through the inventory we purchased in Q4.

And when you think about that supply chain, improving you kind of have to take it into two pieces. One is cost one is actual availability of components and as Mike said the availability of components side, we don't see meaningful.

We'll see slight improvement, we think through the year and the visibility there is not as nice as we'd like it to be on the cost side, you know a big part of the cost is commodities and there is a little better visibility into that and we do see that improving as we get through the inventory we purchased in Q4.

And.

Speaker 1: and burn through that and then start buying commodities at lower prices in the back half of the year.

Burnt through that and then start buying commodities that lower prices in the back half of the year.

Okay, great. Thank you.

Next question.

Our next question will come from Craig Kennison with Baird. Please go ahead.

Speaker 3: Our next question will come from Craig Kenison with Baird. Please go ahead.

Hey, good morning, Thanks for taking my question and Richard and JC, Congratulations to you both Mike.

Speaker 5: Hey, good morning. Thanks for taking my question and Richard and J.C., congratulations to you both. Mike, this is a bigger picture question for you ahead of your analyst day in February . I'm sure you're saving the numerical goals for that time, but I'm wondering if you could look back.

Mike. This is a bigger picture question for you ahead of your analyst day in February I'm sure you're saving the numerical goals for that time, but I'm wondering if you could look back at.

At the last several years when you look at that EBITDA as a percentage of sales percentage. It was I think youre, saying, 12% ish in 2022, but that was 18% years ago. If you could diagnose what happened between then and now is at.

Speaker 5: at the last several years. When you look at that EBITDA as a percentage of sales percentage, it was I think you're saying 12%-ish in 2022, but that was 18% years ago. If you could diagnose what happened between then and now, at least to frame what the opportunities might be, that might be helpful.

At least to frame what the opportunities might be that might be helpful.

Speaker 2: Yeah, I mean, you know, Craig, you kind of nailed it. I mean, you know, Bob and I spent a lot of time, both internally and externally kind of work through the dynamics of

Yeah, I mean, yeah, Craig you you kind of nailed it I mean, you know Bob and I spent a lot of time.

Both internally and externally kind of work through the dynamics of what happened from the past.

Speaker 2: happened from the past. And, you know, it's not one particular thing. And we've talked in the past about, you know, you have an onset of things like tariffs or certain aspects of our portfolio that the profits really ends up being dramatically lower than was originally expected.

It's not one particular thing.

And we've talked in the past about you know you have an onset of things like tariffs or.

Certain aspects of our portfolio that the profits really ends up being dramatically lower than was originally expected.

Theres just a series of different things, but I will tell you is that we're surgically going after it.

We talked a little bit about it in my prepared remarks, we're obviously looking at the portfolio and we'll continue to work that aspect and that doesn't necessarily mean, you jettison things out. It also means that you're focusing on the areas that arent demonstrating the level of profitability that they should or that they need to and you work. Those now if we get to a point where they can't.

Speaker 2: We're obviously looking at the portfolio, and we'll continue to work that aspect. That doesn't necessarily mean you jettison things out. It also means that you focus in on the areas that aren't demonstrating the level of profitability that they should or that they need to, and you work those. Now, if we get to a point where they can't get to the levels we need, we'll make a different decision at that time.

Get to the levels, we need we'll make a different decision at that time.

Speaker 2: But there's a significant amount of focus, you know, the supply chain transformation work that we've been working on in earnest for the past several years, you know, we're starting to see pretty substantial savings come through that helps us deal with whether the tariffs or the supply

But there's a significant amount of focus you know the supply chain transformation work that we've been working on in earnest for the past several years, we're starting to see a pretty substantial savings come through that helps us deal with whether it's tariffs or the supply chain costs.

Speaker 2: And then just the pricing actions we've taken to help us at least be in a position to counter those But as we look forward

And then just the pricing actions, we've taken to help us at least be in a position to counter those but as we look forward.

Speaker 2: We hope that those pricing moves that we've made will be able to retain a portion of them because if you remember, we didn't go after big price moves. We tried to do it in bite-sized chunks so that we weren't pushing consumers out of the market. And at the same time, we know we're starting to see things like commodities come down. We know that over time, the logistics costs and some of the other expedite fees that we're paying are going to come down, and to the extent we can continue to hold on to the pricing, I think we'll be in a good spot. So it's going to be the levers inside the business. It's going to be dealing with

We hope that those pricing moves that we've made will be able to retain a portion of them. Because if you remember we didn't go after big price moves we tried to do it in bite sized chunks, so that we werent pushing consumers out of the market and at the same time, we know we're starting to see things like the commodities come down we know that over time, the logistics costs and some of the other expedite.

We're paying are going to come down and to the extent, we can continue to hold onto the pricing I think we'll be in a good spot. So it's it's going to be the levers inside the business is going to be dealing with.

Speaker 2: the portfolio, and then, quite frankly, just driving growth in the business and being very focused on the success we've seen over the past several years in being able to drive the customer growth. What we'll talk about in Las Vegas is that combination of we need to get our margins up, that's our internal mandate, while continuing to grow our return on invested capital, and we think that's going to create a pretty compelling investment opportunity.

The portfolio.

And then quite frankly, just driving growth in the business and being very focused on the success, we've seen over the past several years and being able to drive the customer growth and so we'll talk about in Las Vegas is that combination of we need to get our margins up that's our internal mandate.

While continuing to grow our return on invested capital and we think that's going to create a pretty compelling investment opportunity.

Perfect. Thank you Mike.

Thanks, Greg.

Speaker 3: Our next question. Our next question will come from Brett Andrus with KeyBank. Please go ahead.

Our next question.

Our next question will come from Brett interest with Keybanc. Please go ahead.

Oh, Hey, good morning, guys is there any way to frame up pricing a little more I guess, how much price did you.

Speaker 6: Hey, good morning guys. Is there any way to frame up pricing a little more? I guess how much price did you end up passing on in 2021 in ORV and then how much do you expect to take in 2022?

Ended up passing on in 2021 R V and then how much do you expect to take in 2022.

Sure.

It's Bob.

Speaker 1: So the way you have to think about pricing, our goal, as Mike said, we have been trying to drive price.

I think the way you have to think about pricing and our goal is my club we have been trying to drive price to cover the increased cost in the supply chain a lot of our if you look at 2021 prices it cost for US escalated through you know from the first half through the second half so our pricing actions lagged that a little bit.

Speaker 1: cover the increased costs in the supply chain. A lot of our, you know, if you look at 2021 prices, costs for us escalated through, you know, from the first half through the second half. So our pricing actions lagged out a little bit. And then obviously, as I said in my remarks, the pre-solds, we haven't gone back and raised price on pre-solds. There's a bit of a lag. So our last price increases came in November 1st. Those are starting, you'll start to see that fully implemented in,

And then obviously as I said in my remarks, the pre salt, who haven't gone back and raised price on pre sold so there's a bit of a lag. So our last price increases came in November 1st those are starting you'll start to see that fully implemented in.

Early 2022 in Q1 will work through the pre salt in Q1 and so.

Speaker 1: in early 2022 in Q1. We'll work through the pre-sold in Q1. And so, you know, the price-cost dynamic starts to get better as you go through the year. But I mean, basically...

Price cost dynamic starts to get better as you go through the year, but I mean basically you know.

Speaker 1: You know, we're pricing to cover our costs. We'll get a little bit more than that, but we're not getting the margin, and that's really where you see the hit to the GPA.

We're pricing to cover our costs, we will get a little bit more than that but.

But we're not getting the margin and that's really where you see the hit to the to the GP.

Speaker 6: Got it. Okay. Um, and then I guess, uh, I think last quarter you called out, I think it was over 300 million. Maybe that number was closer to 400 million of a supply chain input cost pressure that you expected in 2021. Do you, do you have an updated number for 2022? Uh, as you think about the guy.

Got it okay.

And then I guess, Oh, I think last quarter, you called out I think it was over $300 million maybe.

Maybe that number was closer to $400 million of our supply chain input cost pressure that you expected in 2021 do you do you have an updated number for.

For 2022.

As you think about the guide.

So for 'twenty for for full year, it's close to 500 million versus 2020, if you look.

Speaker 1: So for 20, for full year, it's close to 500 million versus 2020 if you look at 22. So it continues to get go up in 22 versus 21. And we see that starting to moderate as we get towards the end of the year as we can start bringing in commodities at the new lower prices that you're starting to see in the futures curves in the market. And we think with some of the logistics stuff, costs will start to abate as well.

22, so it gets continues to get go up in 'twenty two versus 21.

We see that starting to moderate as we get towards the end of the year as we can start bringing in commodities at the new lower prices that you're starting to see in the futures curves in the market and we think with some of the logistics staff costs will start to abate as well.

Got it thanks guys.

No.

Our next question will come from Fred Wightman with Wolfe Research. Please go ahead.

Speaker 3: Our next question will come from Fred Whiteman with Wolf Research. Please go ahead.

Speaker 2: Hey, guys, good morning, and thanks for the question. I was hoping you could just sort of juxtapose or rationalize the comments that show up a few places in the release in the slides just about, you know, particularly on the pre-sold percentage, talking about an improvement in component availability towards year-end, and then, you know, this notion that we won't really see a big uptick on the supply chain side until 3Q. So was there something specific in 4Q, and then why sort of this six-month lag until that really shows up on the earnings side?

Hey, guys. Good morning, and thanks for the question I was hoping you could just sort of juxtapose or rationalize the comments that show up a few places from the release and the slides just about particularly on the pre old pre salt percentage talking about unemployment and component availability towards year end and then you know this notion that we won't really.

See a big uptick on the supply chain side until three Qs. So was there something specific in four Q and then why sort of this six month lag until that really shows up on the earnings side.

Yeah.

Well I mean, what we'd characterize Fred was that we expect the first half of 'twenty two to look an awful lot like the second half.

Speaker 2: Well, I mean, what we characterized, Fred, was that we expect the first half of 22 to look an awful lot like the second half.

Speaker 2: There were certain dynamics that happened in the fourth quarter, some relate to our snow business, so obviously that's a very seasonal business and you're not going to see that repeat after we get through the month of, you know, February , March timeframe, but, you know, it's, we're, we're taking each one of these.

There were certain dynamics that happened in the fourth quarter.

Some relate to our snow business. So obviously, that's a very seasonal business and you're not going to see that repeat after we get through the month of February March time frame.

But we're taking each one of these a component at a time and you know as I said in my prepared remarks. It tends to move around you know, we'll get a good couple of weeks on shocks and then we'll start to have some issues and we will have to pivot and refocus to get those caught up.

Speaker 2: a component at a time and you know as I said in my prepared remarks

Speaker 2: it tends to move around, you know, we'll get a good couple of weeks on shocks and then we'll start to have some issues and we'll have to pivot and refocus to get those caught up.

And then go work other areas like plastics et cetera. So you know, it's not one particular item.

Speaker 2: And then go work other areas like plastics, etc. So, you know, it's not one particular item, you know, and our suppliers are contending with all the same things we are in terms of the logistics and labor challenges and all the different things that

And our suppliers are continuing with all the same things we are in terms of the logistics and labor challenges and all the different things that ultimately impact our ability to deliver so you know I think our view is that it's just you know this isn't going to get fixed overnight. This supply chain issue on set over a period of time and so it's going to take some time to.

Speaker 2: you know, ultimately impact our ability to deliver. So, you know, I think our view is that it's just, you know, this isn't going to get fixed overnight, you know, this supply chain issue onset over a period of time. And so it's going to take some time to.

To work itself through the system. So you know there isn't one thing in particular other than what I would say its semiconductors, which will continue to be a governing supply on the company as it is with just about every industry right now, but aside from that most of the other issues, we're able to work constructively through with our supply base.

Speaker 2: to work itself through the system. So, you know, there isn't one thing in particular, other than what I would say is semiconductors, which will continue to be a governing supply on the company as it is with just about every industry right now. But aside from that, most of the other issues we're able to work constructively through with our supply base.

Great you sort of touched on the follow up I think the pricing outlook for the year, but could you guys just give an update on sort of the promo and then the mix tailwind on the margin side.

Speaker 5: Great. You sort of touched on, Bob, I think, the pricing outlook for the year. But could you guys just give an update on sort of the promo and then the mixed tailwinds on the margin side?

Yeah sure so mix similar to a lot of industries mix is positive just because consumers are gravitating towards and dealers dealers are ordering and consumers are ordering higher end products given the scarcity of product availability. So that helps on the on the mix side and promo.

Speaker 1: Yeah, sure. So MIX, similar to a lot of industries, MIX is positive just because consumers are gravitating towards, and dealers are ordering, and consumers are ordering higher-end products given the scarcity of product availability. So that helps on the MIX side. And promo, we don't anticipate significant promo, but we have factored in small amounts of promo returning in the back half of the year should...

We don't anticipate significant come out, but we have factored in.

Small amounts of promo returning in the back half of the year should.

We start to see the competitive environment change or supply chain improve but right now we think that'll be pretty minor.

Speaker 1: you know we start to see the competitive environment change or or supply chain you know improve uh... but right now we think that'll be pretty minor

Great. Thank you.

Our next question will come from Joe <unk> with Raymond James. Please go ahead.

Speaker 7: Our next question will come from Joe Altobello with Raymond James. Please go ahead. Thanks. Hey, guys. Good morning. Just wanted to go back quickly to Robin's line of questioning earlier, and I know it's a tough question to answer at this point in early 2022, but would you expect dealer inventory levels to normalize sometime next year, or does the refill opportunity extend possibly into 2024? Thank you.

Thanks, Hey, guys. Good morning, just wanted to go back quickly to Robin's line of questioning earlier and I know, it's a tough question to answer at this point in early 'twenty, two but would you expect dealer inventory levels to normalize sometimes next year.

Or what is it retail opportunity extend possibly into 2024.

Speaker 2: You know, tough to say, you know, because there's a lot of variables in there, you know, our view based on what we've seen through this whole thing is, you know, the consumer demand is going to remain.

Tough to say.

Because there's a lot of variables in there our view based on what we've seen through this whole thing is consumer demand is going to remain.

Speaker 2: solid. And so, against that backdrop...

Solid and so against that backdrop.

Speaker 2: You know, I would suggest it's probably going to be sometime in the 23 before we're going to see the inventory levels get up. You know, we're not going to target getting inventory back to the levels. We were before all this started when cobit initially onset, and we found ways to run the business more efficiently. So we're going to target inventory levels at the dealerships that will be below historic, but it's probably going to take us well into 2023 to get ourselves there.

Would suggest it's probably going to be sometime into 'twenty three before we're going to see the inventory levels get up we're not going to target getting inventory back to the levels. We were before all this started when COVID-19 . Initially onset we've found ways to run the business more efficiently. So we're gonna target.

Inventory levels at the dealerships that will be below historic but it's probably going to take us well into 2023 to get ourselves there and you know.

Speaker 2: You know, it's early days, so it's tough to make a call at 23 or 24 at this.

It's early days, so it's tough to make a call on 23 or 24 at this stage.

Speaker 7: Understood. And just to follow up on that, it looks like, obviously, gross margin pressures this year being offset by pretty nice operating leverage. It looks like most of that or all of that really coming from G&A. Where are the reductions in G&A coming?

Understood and just a follow up on that it looks like obviously gross margin pressures this year being offset by.

Pretty nice operating leverage it looks like most of that or all of that really coming from a G&A.

Where are the reductions in G&A coming from.

And so it's a mix I mean, we've obviously going through Covid you know, we we looked hard at our cost structure in 2020, and and made various staffing and spending reductions and then just the you know the growth we've kept really those investments pretty flat and have been able to leverage that you know we've done a lot of work into it.

Speaker 1: It's a it's a mix. I mean, we've obviously going through COVID, you know, we we looked hard at our cost structure in 2020 and, and made, you know, various staffing and spending reductions. And then just the, you know, the growth, we've kept really those investments pretty flat, and have been able to leverage that, you know, we've, we've done a lot of work to get the

The the centralized central structure in the company to the right level and I'm really pushed a lot more out into the Gpus and we benefited from that.

Speaker 1: the centralized central structure in the company to the right level and uh... really pushed a lot more out into the gbus and uh... we benefited from that

Speaker 2: You know, Joe, I think it allows us to do the things we've talked about, which is, you know, I'd rather spend

Joe I think it allows us.

Do.

Pardon me the things that we've talked about which is you know I'd rather spend the money.

Speaker 2: on new investment and R&D programs for the growth of the company, and so that's given us the ability through efficiency to be able to put ourselves in that position. I think just the simple move of what we're doing with the segments speaks to that, because every time you have a business, you've got infrastructure that has to support that. I think to the extent we can keep things as lean and clean and as straightforward, it's going to make the cost structure lean, it's going to make our decision-making faster and our performance better.

Our new investment in R&D programs that further growth of the company and so that's given us the ability through efficiency.

To be able to put ourselves in that position and I think just the simple move of what we're doing with the segments speaks to that you know because every time you have a business you've got infrastructure that has to support that and I think to the extent, we can keep things as lean and clean and straightforward, it's going to make the cost structure Lance can make our decision, making faster and our performance better.

Got it okay. Thanks, guys. Thank.

Thank you.

Speaker 3: Our next question will come from Garrick Johnson with BMO. Please go ahead.

Our next question will come from Garrick Johnson with BMO. Please go ahead.

Good morning, and thank you wanted.

Speaker 8: Good morning. Thank you. I want to talk about Monterey and the expansion there. I think in the past you mentioned it could expand RAISR in general output by 35 percent by the end of 22. Is that still the target and how is the ability to staff and supply that expansion?

Wanted to talk about Monterrey, and the expansion there I think in the past you mentioned it could expand razor in general.

Output by 35% by the end of 'twenty two is that still the target and how has the ability to staff and supply that that expansion.

Speaker 2: Yeah, we were actually, Ken Grussell and Steve Manetto and I were down there a couple of months back and

We we were actually Kim herself and Steven and I were down there a couple months back and essentially they were already running the first prototypes through the line. So the lines in good shape. The labor shed is very healthy there.

Speaker 2: you know, essentially they were already running the first prototypes through the line. So the line's in good shape. The labor shed is very healthy there.

Speaker 2: Our Monterey facility is an excellent factory, great workforce there. So essentially, it's attached to the same campus, so we're going to benefit from the great leadership that we have down there. So it's on track, and there's going to be some really good products coming out of there. Obviously, the Pro-R and Turbo-R will be coming out of that factory, but there's other products that have yet to be announced that will be coming out.

Our Monterey facility has an excellent factory great workforce there so.

It's attached to the same campus. So we're going to benefit from the great leadership that we have down there so.

It's on track and you know there's going to be some really good products coming out of there obviously, the pro <unk> and <unk> will be coming out of that factory, but there's other products that have yet to be announced that will be coming out of there as well.

Okay, great. Thanks, and then on the off road dealer inventory are you still shipping incomplete units and if so.

Speaker 8: Okay, great. Thanks. And then on off-road dealer inventory, are you still shipping incomplete units? And if so, what would the field inventory look like if those incomplete units actually had all the components in them?

What would the field inventory looked like if those incomplete units actually had all the components in them.

Yeah, we actually did very few our snow business.

Speaker 2: Yeah, we actually did very few. Um, our snow business probably saw the most, maybe just over 1000 units, uh, where we had some.

<unk> probably saw the most maybe just over 1000 units.

Where we had some strikes.

Stripe and ride command modules that were coming in late and we wanted to at least get the vehicles to the dealership.

Speaker 2: strut and ride command modules that were coming in late, wanted to at least get the vehicles to the dealership.

And we obviously hold back the revenue recognition on that because we're not going to <unk>.

<unk> recognized when the unit is not capable.

And we did have some atvs that went out without a front upfront brush guard, but again it was a very very small population, we've actually and we've had this discussion with our board a number of different times.

Speaker 2: We're here on the side of holding the inventory in our own hands so that we can affect the rework we think that that's a

Error on the side of holding the inventory in our own hands. So that we can affect the rework we think that that's a.

Speaker 2: Uh, better thing from a quality standpoint, frankly, puts less burden on the dealer. Uh, and then we've got the ability to move those vehicles very quickly like we did in the fourth quarter. Make sure we get them in the hands of the dealer.

Better thing from a quality standpoint, and frankly puts less burden on the dealer and then we've got the ability to move those vehicles very quickly like we did in the fourth quarter to make sure we get them in the hands of the dealer and use the presale process to make sure. We keep the customer orders and track I don't know, Bob if you'd add anything to that yeah. I mean, that's to Mike's point I mean, we focused on on the quality.

Speaker 2: and use the pre-sold process to make sure we keep the customer orders in track. I don't know, Bob, if you'd add anything to that.

Speaker 1: Yeah, I mean, to Mike's point, I mean, we've focused on the quality, making sure that the dealers are getting inventory they can sell immediately.

Sure that the dealers are getting inventory they can sell immediately because.

Speaker 1: because it's, in our view, not beneficial to have inventory sitting at the dealer that, you know, the customer can see their product, but they can't take it because it's waiting on the dealers, and the dealers are busy, and they're struggling with labor, too. So, you know, we're trying to make it as easy on them as we can. Okay. Thank you very much.

Because it's in our view not beneficial to have inventory sitting at the dealer that you have.

Customers could see their product, but they can't take it because it's waiting on a waiting to the dealers and the dealers are busy and they're struggling with labor too. So we're trying to make it easy on them as we can.

Okay. Thank you very much thanks Garrett.

Our next question will come from Jamie Katz with Morningstar. Please go ahead.

Speaker 3: Our next question will come from Jamie Cax with Morningstar. Please go ahead.

Hey, good morning, and congratulations on your retirement.

Speaker 9: I'm hoping you can help us size the opportunity you see for some of the new innovative products that are out there like the Pro-R and the Pro-R.

And I'm, hoping you can help help us size the opportunity you see for some of the new innovative products that are out there I like the pro are and E. V that just went out and I know on the docket.

Speaker 9: the EV that just went out, and I know on the deck it says, you know, it was limited edition and they sold out in a really short period of time, but is there some metrics you might be able to offer us to help us think about what the opportunity for either the high performance or the electric market is from your perspective?

It was limited edition and they sold out in a really short period of time, but is there. Some metrics you might be able to offer to help us think about what the opportunity for either the high performance of the electric market is from your perspective.

Well, we're going to talk a little bit more about it at the Investor Day, you know I think on the high performance.

Speaker 2: Well, you know, we're going to talk a little bit more about it at the investor day, you know, I think on the high performance, you know, I think the category is, you know, it's relatively well designed, I think the key is

I think the category as you know it's relatively well designed I think the key is is that we're now back.

Speaker 2: You know, we're now back with what we believe is the best product in the market, certainly the most powerful, largest machine, most capable. And, you know, it tends to be a little bit more of a halo product, quite frankly, but I think it's important in terms of the established reputation of Polaris as the industry leader and the REC side by side, for example.

With what we believe is the best product in the market certainly the most powerful largest machine most capable hand.

And you know it tends to be a little bit more of a halo product quite frankly, but I think it's important in terms of the established reputation of Polaris as the industry leader in the Rec side by side for example, but.

Speaker 2: But I think it's indicative of the innovation that's yet to come throughout not only the rest of the recreation But some of the you know potential

But I think it is indicative of the innovation, that's yet to come throughout not only the rest of the recreation, but some of the potential.

Speaker 2: uh categories that spin off of that uh and so i think it just speaks to the things we're doing uh internally and as i

Categories that the spin off of that and so I think it just speaks to the things we're doing internally and as I teased in my opening remarks, we have a lot more products coming in 2022, So I think that'll be.

Speaker 2: Teased in my opening remarks, we have a lot more products coming in 2022. So I think that'll be.

Industry defining in a pretty good insight into how we're thinking about it as far as the electric goes you know, it's tough and we've talked a lot about our focus and we believe that there's a huge opportunity within the utility segment.

Speaker 2: industry defining and a pretty good insight into how we're thinking about it. As far as the electric goes, you know, it's tough and, you know, we've talked a lot about

Speaker 2: Our focus, and we believe that there's a huge opportunity within the utility segment, because the use case and the dynamics around that vehicle support an electric vehicle where there needs to be charging readily available, the use case in terms of the torque and the power that the vehicle has, a quiet vehicle, you know, whether it's someone working around a ranch or in a hunt environment.

Because the use case and the dynamics around that vehicle support an electric vehicle, where there needs to be charging readily available. They use case in terms of the torque and the power of the vehicle has a quite a vehicle whether it's someone working around a ranch or environment.

Speaker 2: And essentially, as we went out and put those vehicles on market, we sold out within a couple of hours, and the camo package actually sold out first. So it really played to the desire from the hunt community, that there's a real desire for speed. And a large portion of the folks who bought, and these weren't dealers, these were customer orders coming through the dealers.

Essentially you know as we went out and put those vehicles on market, we sold out within a couple of hours and the camo package actually sold out first so it really played to the desire from the hunk community.

You know that there's a real desire.

And a large portion of the folks who bought and these dealers these with customer orders coming through the dealers.

Speaker 2: a large portion of those who bought were actually new to Polaris. And so, you know, I think it demonstrates that there is demand there. We've got more work to do as we do, and the way we're approaching it is, we're not just going to develop something because we can. We're going after what the specific customer needs are. So our teams are spending a lot of time talking to consumers, trying to find out what the issues are that they're trying to solve for, and then we'll create products around that.

A large portion of those who bought were actually new to Polaris and so you know I think it demonstrates that there is demand there we've got more work to do as we do and the way. We're approaching it is we're not just going to develop something because we can we're going after with a specific customer needs are so our teams are spending a lot of time talking to consumers trying to find out what the issues are that they're trying to solve for.

And then we will create products around that.

Yeah, I think the other thing Jamie to think about as you know we're not we're not sort of following the automotive preorder process, where you can put a deposit on a vehicle and likely not get it for two or three plus years.

Speaker 1: Yeah, I think the other thing, Jamie, to think about is, you know, we're not we're not sort of following the automotive preorder process where you can put a deposit on a vehicle and likely not get it for two or three plus years.

Speaker 1: which I think is proving to be frustrating to consumers. And we've limited these pre-orders intentionally.

I think it's proving to be frustrating to consumers you know we've limited these preorders intentionally.

Speaker 1: as we look at our production capability, and more importantly, the supplier capacity.

As we look at our production capability and more importantly, a supplier capacity and as.

Speaker 1: You know, as we see, get through the first stage of production, you know, we'll continue to add to it. But we're trying not to frustrate consumers by having them wait for, you know, extended periods of time for something they actually.

As we see get through the first stage of production will continue to add to it.

But we're trying not to frustrate consumers by having them right for extended periods of time for something they actually put it partner.

Okay, and then as a follow up I think financial services income is slated to be down in 2022, but retail sales are expected to be flat and I would usually maybe expect them to trend a little bit more closely together and so there was some maybe part of the market that you're not participating in that.

Speaker 9: As a follow-up, I think financial services income is slated to be down a bit in 2022, but retail sales are expected to be flat. I would usually maybe expect them to trend a little bit more closely together. Is there some maybe part of the market that you're not participating in there or has something changed or can you just help us reconcile that?

There or has something changed or can you just help us reconcile that thanks.

Speaker 1: Sure, what we've seen all year, through 21 and even in late 20, as consumers are waiting longer for their vehicles, they're taking the time to go out and shop the credit unions and other local sources, so the pen rates of our national programs has come down.

Sure.

We've seen all year through 'twenty, one and even in late 'twenty.

You know as consumers are waiting longer for their for their vehicles, they're taking the time to go out and shop for credit unions and other other local sources. So are sort of a pen rates of our national programs has come down. So you know it's tough to say what that will look like in 'twenty two given.

Speaker 1: So it's tough to say what that'll look like in 22, given what inventory availability will look like, but we're expecting it to continue to be down a little. But we think as inventory normalizes, we offer really competitive programs. We have our new partner from Octane, and we think that we'll see those pen rates go back up as the market normalizes.

You know what inventory availability will look like but we still we're expecting it to be continued to be down a little but we think as inventory normalizes, we offer really competitive programs, we have our new partner from octane and we think that there you know we're gonna you'll see those pen rates go back up as the market normalizes.

Thanks, so much.

Jamie.

Our next question will come from Scott Stemper with C. L. King. Please go ahead.

Speaker 3: Our next question will come from Scott Stember with CL King. Please go ahead. Good morning.

Good morning, and thanks for taking my questions.

Thanks.

With regards to your expectations for <unk>.

Speaker 1: With regards to your expectations for the power sports industry and Polaris from a retail perspective for next year or this year, how are you thinking about interest rates as they go up and the impact on the consumer? What are you baking in?

The power sports industry.

Polaris from a retail perspective for next year or for this year, how are you thinking about interest rates.

As they go up and the impact on the consumer what are you baking in.

Speaker 2: Yeah, I mean, you know, we're anticipating the Fed's going to move. I mean, I think everybody, the market's been all over the place the last few days, just anticipating what comes out here this week.

Yeah, I mean, we're anticipating the fed is going to move I mean, I think everybody the market's been all over the place. The last few days just anticipating what comes out here this week.

But again I'm, just going to reemphasize I mean, the consumer impact is minimal when you look at the interest rates are at historical low and when you start doing the math on moving interest rates a quarter point or a half a point you're talking a matter of 10 to $15 on a payment.

Speaker 2: But again, I'm just going to re-emphasize, the consumer impact is minimal. When you look at the ... I mean, interest rates are a historical low, and we start doing the math on moving interest rates a quarter point or a half a point, you're talking a matter of $10, $15 on a payment. And frankly, what we've seen over the past several years is, one, people are shopping to get better financing offers and all that stuff, but we're also seeing a lot more consumers just buying with cash. And I think that's a good thing.

And frankly, what we've seen over the past several years as one people are shopping.

Get better financing offers and all that stuff, but we are also seeing a lot more consumer just buying with cash. So I think consumers are still in a really good spot financially.

Speaker 2: So, you know, I think consumers are still in a really good spot financially, you know, their investment accounts are up, their jobs are strong, especially when you look at the demographic that is buying our product. So I don't anticipate that's going to have a material impact on the company.

Their investment accounts are up there dropped jobs are strong, especially.

Especially when you look at the demographic that is buying our product. So I don't anticipate that's going to have a material impact on the company.

Got it and just follow up on tap.

Seems pretty much uneven performance drove most of the year and it looks like the finished out the year down 5% just talking about what's going on there and what you would.

Speaker 10: seems pretty much uneven performance throughout most of the year. And it looks like it finished out the year down five percent. Just talk about what's going on there and what you would expect for TAP for 2022.

For tap for 2022.

Speaker 2: Yeah, I mean, you know, the unfortunate part is they source a fair amount out of out of Asia. And so, you know, the supply disruptions had an impact.

Yes.

The unfortunate part is a source of a fair amount out of.

Out of Asia, and so the supply disruptions had an impact a pretty substantial impact and lot of what we do with tap as we have customers come in and have a complete build on our vehicles. So they're doing a lift kit.

Speaker 2: a pretty substantial impact, and a lot of what we do with TAP is we have customers come in and have a complete build on their vehicle, so they're doing a lift kit, wheels, tires.

Tires, and so we've got a lot of.

Speaker 2: And so we've got a lot of customer porters that are in kind of a partial state because we're waiting on either wheels or tires or a suspension component. You know, Craig and the team have done an excellent job of getting that business headed in the right direction. You know, we generated a profit last year, so a big improvement from where we've been. They lean the business. They've got it incredibly focused. We've over the past several years.

Customer orders that are in kind of a partial state because we are waiting on either wheels or tires or a suspension component.

Craig and the team have done an excellent job of getting that business headed in the right direction and we generate a profit.

Last year, so a big improvement from where we've been they lean the business they've got a incredibly focused we've over the past several years we've.

Essentially fired a lot of unprofitable customers, especially through our wholesale distribution business to make sure that you know they're focused on being able to create incremental value. So.

Speaker 2: Essentially fired a lot of unprofitable customers, especially through our wholesale distribution business to make sure that you know They're focused on being able to create incremental value so I suspect as the supply chain Situation starts to improve that's obviously going to be very helpful to forward parts business So, you know, they're they're heading in the right direction And you know, we continue to give Craig and the team a lot of support for the improvements that they've made

So I suspect as the supply chain situation starts to improve that's obviously going to be very helpful to footwear parts business. So they're heading in the right direction and are continuing to give Craig and the team a lot of support for those improvements that they've made.

Got it thanks again.

Thank you. Thank you.

Our next question will come from Billy Cabanas with Morgan Stanley . Please go ahead.

Speaker 3: Our next question will come from Billy Covanis with Morgan Stanley . Please go ahead.

Hi, Thank you just in terms of retail sales those some under performance versus the industry in the fourth quarter off road in Snowmobiles, you did flag some product availability and inventory factors for this I'm just what gives you comfort that it is nothing else at this stage now we sort of compare.

Speaker 11: Hi, thank you. Just in terms of retail sales, there was some underperformance versus the industry in the fourth quarter for off-road and snowmobiles. You did flag some product availability and inventory factors.

Speaker 11: for this, just what gives you comfort that it's nothing else at this stage, no sort of competitive pressures there on promos or anything like that. And just in general, like your view on retail sales to stabilize in 22 and 23, any sort of leading indicators in the first few weeks of 22 to suggest that things are sort of leveling out here, thanks.

<unk> pressures there on promos or anything like that and just in general like your view on retail sales to stabilize in 'twenty, two and 'twenty three.

And he sort of leading indicators in the first few weeks of 'twenty to suggest that things are sort of leveling out here. Thanks.

Speaker 2: Yeah, I guess I'd start with the back part of that question. January retail has been quite good. You know, and I think that's indicative of the work that Steve and I don't his team did to ensure we got the product out in the field.

I guess I'd start with the back part of that question January retail has been quite good.

And I think that's indicative of the work that Steve <unk> and his team did to ensure we get the product out in the field.

Speaker 2: The share dynamics, without getting into a lot of detail, we had two smaller competitors who I think had struggled through the course of the year and kind of got caught up in the fourth quarter.

Share dynamics without without getting into a lot of detail. We had two smaller competitors, who I think had struggled through the course of the year and kind of got caught up in the fourth quarter.

Speaker 2: which created a little bit of that inter-quarter dynamic. But I'd still point you back to the fact that, you know, we ended up gaining over a point of share in ATVs and about a point of share in side-by-side.

Which created a little bit of that inner.

Inter quarter dynamic, but I'd still point you back to the fact that we ended up gaining over a point of share in Atvs and about a point of share in side by side and to put that in perspective, we're essentially dealing delivering the number of products that all of our competitors on the side by side space our delivery. So that is not a small.

Speaker 2: And to put that in perspective, you know, we're essentially dealing, delivering the number of products that all of our competitors on the side-by-side space are delivering.

Speaker 2: So that is not a small achievement when you think about the monumental supply chain challenges we've had. And I think it speaks to the fact that consumer demand for a Polaris product remains incredibly high. We talked to the dealers. The pre-sale program is in high demand and an effective way for us to ensure we're delivering that. So there was nothing about the fourth quarter that gave me any level of concern.

Achievement when you think about the monumental supply chain challenges we've had in I think it speaks to the fact that consumer demand for our Polaris product remains incredibly high we talk to the dealers the presale program.

In high demand in an effective way for us to ensure we're delivering that so there was nothing about the fourth quarter that gave me any level of concern.

Speaker 2: I remain completely focused around the supply chain. Steve and his team, I think, are doing a great job of cultivating the customer demand.

I remain completely focused around the supply chain, Steve and his team are doing a great job of cultivating the customer demand and from what we can see consumer demand remains very strong for Polaris products.

Speaker 2: From what we can see, consumer demand remains very strong for Polaris products.

Great. Thank you.

Yeah.

Our next question will come from David Macgregor with Longbow Research. Please go ahead.

Speaker 3: Our next question will come from David McGregor with Longbow Research. Please go ahead.

Speaker 5: Yeah, good morning, everyone. Are you just want to go back to a question that Derek had asked earlier, and are you able to quantify the number of ORVs and motorcycles that you have red tagged and rework waiting for a backlogged component? And if you were able to move all those units in 22, what would that add to your report?

Yeah, good morning, everyone.

Just wanted to go back to a question that Eric had asked earlier are you able to quantify the number of <unk> and motorcycles that you have red tagged and rework waiting for our backlog to component and if you were able to move all of those units in 'twenty two.

What would that add to your revenue year over year growth.

Yeah, we're not going to get into talking about that I mean that number it moves around every single month.

Speaker 2: Yeah, we're not going to get into talking about that. I mean, that number, it moves around every single month. You know, unfortunately, we've gotten really good at

Unfortunately, we've gotten really good at creating a an entire process and tracking around our rework what I call our factories that we have.

Speaker 2: creating an entire process and tracking around our rework, what I call our rework factories that we have.

Speaker 2: you know, supporting each of our main factories. And it really depends on the specific components.

Supporting each of our main factories and it really depends on the specific components.

Speaker 2: You know, I think as I essentially kind of teased out a little bit, you know, if we could see the supply chain stuff improve more than anticipated in the second half, we would have the ability to deliver, you know, substantially more equipment to the market. But, you know, at this stage, we don't see anything that would tell us that that's necessarily going to be where things play out. And we're going to continue to take it quarter by quarter. And I'll put this team up against just about anybody's to be able to react quick and get product into the hands of our dealers.

As I essentially kind of teased out a little bit you know if we could see the supply chain stuff improve.

More than anticipated in the second half, we would have the ability to deliver substantially more equipment.

The market, but you know at this stage, we don't see anything that would tell us that that's necessarily going to be where things play out and we're going to continue to take it quarter by quarter and I'll put this team up against just about anybody's to be able to react quick and get product into the hands of our dealers.

Speaker 2: And just to clarify one thing, you know, we're not seeing the challenge some of the automotives are seeing where, you know, they've got months of inventory or old model year inventory, you know, we're, we're pretty focused on making sure that we're reworking things, you know, aggressively and, you know, not letting anything get get out of model year and things like that. Yeah, that's a good point. We're not letting things age that rework, you know, we don't have necessarily an official external turn metrics that we would give.

Just to clarify one thing.

We're not seeing the challenge some of the Automotives are seeing where they've got months of inventory your old model year inventory.

We're pretty focused on making sure that we're reworking things aggressively and not letting anything it get out of model year and things like that that's a good point, we're not letting things age that rework, we don't have necessarily an official external turn metrics that we would give but we've been acutely focused on <unk>.

Speaker 2: But we've been acutely focused on making sure that we're not going to let vehicles age and sit there so.

Sure that we're not going to let vehicles agents out there so they get priority in terms of new components coming in so we're turning them on a frequent basis.

Speaker 2: they get priority in terms of new components coming in. So we're turning them on a pretty quick basis.

Speaker 5: Got it. The second question, Mike, you made reference to the fact that you're picking up new customers. I'm just wondering if you have any sense of what portion are buying their first ORV or motorcycle versus what percentage or portion may have previously owned a used product or a competitive brand and now are coming back.

Got it.

Second question, Mike you made reference to the fact that you are picking up new customers I'm. Just wondering if you have any sense of what portion are buying their first or via your motorcycle versus what percentage of your portion may have previously owned it used product or a competitive brand and now we're coming to Polaris.

Speaker 2: You know, it's tough, you know, we get a lot of anecdotal, what I will tell you is, you know, when we talk about those new customers, we've got an awful lot of folks that are coming through avenues like Polaris Adventures and Adventure Select that, you know, either have never ventured into the category or they did when they were young. In our Select program, for example, which is essentially a subscription program where they can become a member of Polaris.

It's tough we get a lot of anecdotal.

What I will tell you is you know when we talk about those new customers. We've got an awful lot of folks that are coming through avenues like Polaris Adventures and adventure select that either have never ventured into the category or they did when they were young.

And our select program for example, which is essentially a subscription program, where they can become a member of Polaris.

Speaker 2: That is allowing folks that were involved with power sports at a young age, now they've got maybe a young family, they're living in an apartment or a home in a neighborhood where they can't store these, and financially they're just not ready to make that kind of commitment, but becoming a member of Polaris gives them access.

That is allowing folks that were involved with power sports at a young age now they've got maybe a young family. They are living in an apartment or a home in a neighborhood, where they can't store. These and financially. They are just not ready to make that kind of commitment, but becoming a member of claris give them access to an array of products.

Speaker 2: to an array of products at a location that they choose. And so that gives them a really good and fun opportunity. So what's encouraging to me is we're attracting a lot of folks in, and as I talked about, it's at a higher clip in 21 than it was in 20. And so I think there's pretty strong evidence that we can stop talking about a pandemic effect. I think there is a shift here, and I think we've done a really good job of providing a compelling,

The location that they choose and so that gives them a really good opportunity. So.

What's encouraging to me is we're attracting a lot of folks and as I talked about it at a higher clip in 'twenty one than it was in 'twenty.

And so I think there is pretty strong evidence that we can stop talking about a pandemic. In fact I think there is a shift here and I think we've done a really good job.

Providing a compelling.

Speaker 2: Opportunity to folks that isn't just about the vehicle itself. It's about all the experiences and the the culture around being a

Opportunity to folks that isn't just about the vehicle itself, it's about all the experiences and the.

The culture around being a polaris customer.

Speaker 5: Are those new customers coming in at opening price points or are they coming up further up the mix?

Are those new customers coming in at opening price points or are they coming up further up the mix.

Well you know to be honest with you they're coming in kind of middle to upper because you know if you look at as Bob made a comment earlier the mix of products as we're making decisions about allocating scarce inbound components, we're pivoting to the middle to higher end products. So you know.

Speaker 2: Well, you know, to be honest with you, they're coming in kind of middle to upper, because, you know, if you look at, as Bob made a comment earlier, the mix of products, you know, as we're making decisions about allocating scarce inbound components, we're, you know, pivoting to the middle to higher end products. So, you know, we've got people that are coming in, good price

We've got people that are coming in are good price points.

Got it.

Speaker 6: Yeah, you're obviously seeing a lot of families, so you're seeing a lot of four paths, as Mike said, so you get to, that's also driving some of the mix and price side. Yep. That sounds promising. Thanks very much.

Seeing a lot of families. So you're seeing a lot of four passes mindset. So you get to that that's also driving some of the mix and price.

That sounds promising thanks very much.

Matt We've got.

Speaker 12: Matt, we've got a couple more questions we'll take and then we'll end it. Go ahead.

A couple more questions, we'll take them they will end up Glenn.

Thank you. Our next question will come from John Chu with BNP Paribas Exane. Please go ahead.

Speaker 3: Thank you. Our next question will come from John Xu with BNP Paribas AgZane. Please go ahead.

Hey, guys. It's Dan here. Thanks for the question just first for the retail sales expectations are flat in 2022, maybe can you help us with the cadence first half versus second half I think you mentioned January is off to a pretty good start.

Speaker 3: Hey guys, it's Dion here. Thanks for the question. Just for the retail sales expectations of flat in 2022, maybe can you help us with the cadence, first half or second half? I think you mentioned January is off to a pretty good start, but yeah, any color there would be helpful.

But any color there would be helpful.

Yeah, I think the cadence really is gonna tied more with with shipment cadence and you know and we expect shipments in the first half to be relatively similar to shipments in the second half of 'twenty, one and then in the back half of 'twenty, two we expect to see improvement so as of right now.

Speaker 1: Yeah, I think that the cadence really is going to tie more with shipment cadence, and we expect shipments in the first half to be relatively similar to shipments in the second half of 21, and then in the back half of 22, we expect to see improvement. So as of right now, given the low dealer inventory, I think we expect retail will track with those shipments.

Given the low dealer inventory I think we would expect retail will track with those shipments.

Speaker 2: So it's kind of out of our normal cycle, and if we see supply chain improvements, as Mike said, we'll see increased shipments, which are driving curious retail. Yeah, and the thing to keep in mind is Q1 of 21 was kind of our last.

So it is kind of out of our normal cycle and you know if we see supply chain improvements as Mike said.

See increased shipments, which are driving curious retail yeah and I you know the thing to keep in mind is Q1 of 'twenty, one was kind of our last huge.

Huge year over year retail quarter.

Speaker 2: huge year-over-year retail quarter. You know, we were lapping the first quarter of 20, which was obviously a pretty bad situation given the onset of the pandemic. So, you know, there's some numerical things in Q1 that'll be challenging as we look at our retail versus 20, for example, or even 19. The Q1 performance looks pretty good.

We were lapping the first quarter of 'twenty, which was obviously.

A pretty bad situation given the onset of the pandemic. So theres some numerical things in Q1 that'll be challenging as we look at our retail versus 'twenty for example, or even 19.

One performance looks pretty good.

Okay. Yeah, that's really helpful. And then just on two H you showed that chart I think slide 14.

Speaker 13: Okay, yeah, that's really helpful. And then just on 2H, you show that chart, I think slide 14, how price, as you mentioned, like volume's kind of flat in the first half.

Price as you mentioned like volumes kind of flat in the first half versus QA 21, and then.

Speaker 13: QH21 and then it's all driven by price and then you're starting to pick up volume in the second half. But maybe if you can help disaggregate the price versus volume in the back half, is the price increase is the same as in the first half or something like high single digit?

All driven by price and then you are starting to pick up volume.

In the second half, but maybe you can help decide.

Disaggregate the price versus volume in the back half as the price increase is the same as in the first half was something like high single digit single digit.

So it's really not.

Speaker 1: So it's really not price increases in the second half. What it is, is it's the impact of the price increases that have already rolled in, really coming into full effect as we get through the pre-solds and the...

Price increases in the second half what it is is it the impact of the price increases that have already rolled in.

Really coming into full effect as we get through the pre sold and B.

Speaker 1: and, you know, and get those fully implemented. So you see that, you know, sort of ramp up a bit through the year, and then on the margin side, you know, it's the commodities cost really coming down in the later part of the year relative to 2021, you know, that helps in terms of the profitability improvement. So the level of price in the retail growth is relatively consistent all year. Okay.

And.

And get those fully implemented so you see that sort.

Sort of a.

Ramp up a bit through the year and then on the margin side you know, it's it's the commodities cost really coming down in the later part of the year.

Relative to 2021.

Helps in terms of the profitability improvement so the level of pricing in the retail growth is relatively consistent all year.

Okay got it helpful. Thank you.

Yeah.

Last question.

Our next question will come from Garrick Johnson with BMO. Please go ahead.

Speaker 3: Our next question will come from Garrick Johnson with BMO. Please go ahead.

Speaker 8: Hey, great. Thank you. I just wanted to circle back to the comment on building Indian motorcycles in Vietnam. Can you talk about that for a moment?

Hey, great. Thank you I just wanted to circle back to the comment on building Indian motorcycles in Vietnam can you talk about that for a moment.

Speaker 2: Sure, we started up a joint venture probably about four years ago with someone who had been a current supplier.

Sure.

I started out by a joint venture probably about four years ago.

With someone who had been a current supplier.

Speaker 2: and really with the intent of expanding the amount of inbound components that they were supplying for us.

And really with the intent of expanding the amount of inbound components that they were supplying for us.

Speaker 2: as well as in an effort to, you know, they had really high quality, so we wanted to really build off of that. What we've seen is increasing interest in Asia and Australia for Indian motorcycles, and as you can imagine, building those in Spirit Lake and shipping them all the way over is not the most cost effective.

As well as in an effort to you know they had really high quality. So we wanted to really build off of that.

What we've seen is increasing interest in Asia, and Australia for Indian motorcycles, and as you can imagine building those in spirit Lake and shipping them all the way over is not most the most cost effective.

Speaker 2: way to do that. So, we went through a pretty thorough review given the volume expectations in markets like China.

Way to do that so we went through a pretty thorough.

<unk>, given the volume expectations and markets like China.

Speaker 2: and saw a good opportunity to essentially create motorcycle production for Asia in Vietnam. Similar to what we did with Poland and our startup there of the mid-sized bikes for Indian has gone incredibly well. We've used a lot of the same team and processes to get our Vietnam facility up. They literally sent pictures across a couple of days ago of the first units coming out.

And saw a good opportunity to essentially create motorcycle production for Asia.

In Vietnam.

Similar to what we did with Poland and our startup there of the midsize bikes for Indian has gone incredibly well we've used a lot of the same team and processes to get our Vietnam facility up they literally sent pictures across a couple of days ago. The first units coming out and so we're optimistic it's going to give us the ability.

Speaker 2: And so we're optimistic it's going to give us the ability to be close to the markets and be able to serve them in a cost-effective way. It in no way impacts Spirit Lake. Our Spirit Lake business has got more than enough demand on it, and this will essentially allow it to be freed up and focused on serving North America.

To be close to the markets and be able to serve them in a cost effective way it in no way impacts.

Spirit Lake our Spirit Lake business has got more than enough demand on it.

And will this will essentially allow it to be freed up and focused on serving North America.

Speaker 8: Okay, so are you producing the product or is this made on an outsourced OEM basis?

Okay. So are you producing the product or is this made him an outsourced OEM basis.

Speaker 2: No, we're producing it through our joint venture, which we're a majority on.

No we're producing it through our joint venture, which we're majority aligned.

Okay. Thank you.

Yep.

Okay I want to thank everyone for participating this morning, and look forward to seeing many of you at our Investor event in Vegas on February 24th we have a great event planned and some really good riding on some of our new products. So look forward to seeing many of you are in Vegas. Thanks again goodbye.

Speaker 12: Okay, I want to thank everyone for participating this morning and look forward to seeing many of you at our investor event in Vegas on February 24th. We have a great event planned and some really good writing on some of our new products. So look forward to seeing many of you in Vegas. Thanks again.

Speaker 3: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.