Q3 2023 BRP Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the PRP inks FY 'twenty two 'twenty three third quarter results conference call for participants who use the phone lines. It is recommended to turn off the sound on your device and I would like to turn the meeting over to Mr. Philip does Shine. Please go ahead, Mr does shine.
Good morning ladies and gentlemen and welcome to the PRP Inc's FY23 third quarter results conference call. For participants who use the phone line, it is recommended to turn off the sound on your device. I now would like to turn the meeting over to Mr. Philippe Deschigne. Please go ahead Mr. Deschigne.
Thank you Sylvia good morning, and welcome to <unk> Conference call for third quarter of fiscal year 'twenty three.
Thank you, Sylvie. Good morning and welcome to BRP's conference call for a third quarter of fiscal year 23.
Joining me. This morning are shows the boys at each President and Chief Executive Officer, and Sebastien Martel Chief Financial Officer.
Joining me this morning are Jose Baujalis, President and Chief Executive Officer and Sebastian Mastell, Chief Financial Officer.
Before we move to the prepared remarks, I would like to remind everyone that certain forward looking statements will be made during the call and that actual results could differ from those implied in these statements.
Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that actual results could differ from those implied in these statements.
The forward looking information is based on certain assumptions and is subject to risks and uncertainties and I invite you to read <unk> MD&A for a complete fleet of DS.
The poor looking information is based on certain assumptions and is subject to risk and uncertainty. I invite you to read BRPs and DNA for a complete list of these.
Also during the call reference will be made to supporting slides and you can find the presentation on our website that ERP dot com under the Investor Relations section, so with that I'll turn the call over to Jonathan Thank.
Also during the call, reference will be made to supporting slides and you can find the presentation on our website at brp.com under the investor relations section. So with that, I'll turn the call over to Jote. Thank you, Philippe. Good morning everyone and thank you for joining us. Our teams once again demonstrated incredible agility and resilience as we navigated through the unprecedented challenge of the pandemic.
Thank you Philip.
Good morning, everyone and thank you for joining us.
Our teams once again demonstrated incredible agility and resilience.
As we navigate through the unprecedented challenge of a cyber attack, which forced us to temporarily suspend operation early in the quarter and yet manage to deliver our strongest quarterly result ever.
of a cyberattack which forced us to temporarily suspend operation early in the quarter and yet managed to deliver our strongest quarterly result ever.
Driven by our strong product portfolio.
And our team ability to navigate the tight supply chain in general we continue to outperform the industry and delivered solid retail growth and market share gains.
Given by a strong product portfolio and our team's ability to navigate the tight supply chain environment, we continue to outperform the industry and deliver solid retail growth and market share gains.
With this excellent performance our financial result came in well ahead of expectation.
With this excellent performance, our financial result came in well ahead of expectation.
Taking into consideration. These exceptional result, and in light of the clearer visibility we have on customers demand and on the supply chain in general and then for the rest of the year, we are increasing our normalized EPS guidance for the year to a range of $11 65 to <unk>.
Taking into consideration these exceptional results, and in light of the clearer visibility we have on customers' demand and on the supply chain environment for the rest of the year, we are increasing our normalized EPS guidance for the year to a range of $11.65-$12 per share
<unk> dollar per share representing a year over year increase of 17% to 21%.
Let's turn to slide four four key financial highlight.
representing a year-over-year increase of 17 to 21 percent. Let's turn to slide 4 for key financial highlight.
Venue reached $2 $7 billion up 71% compared to last year, driven by solid growth for side by side fuel vehicle personal watercraft and snowmobile.
Revenue reached $2.7 billion, up 71% compared to last year, driven by solid growth for side-by-side, fuel vehicle, personal watercraft and snowmobile, as well as the introduction of the C-DU Pantone.
As well as the introduction of the <unk>.
Normalized EBITDA was up 94% to $488 million and normalized earnings per share increased 146%, reaching $3 64.
N. EBITDA was up 94% to $488 million and N. EARNING PER SHARE increased 146% reaching $3.64.
Turning to slide five for a look at our Q3 retail performance.
Turning to slide 5 for a look at our Q3 retail performance.
The strong demand for our product and our ability to navigate the tight supply chain environment allow us to deliver a strong retail performance across our product portfolio.
The strong demand for our product and our ability to navigate the tight supply chain environment allow us to deliver a strong retail performance across our portfolio of products and in all geographies.
Our portfolio of products and in all geographies.
In North America, our retail sales were up 42% or 39% when excluding the <unk> <unk>.
In North America, our retail sales were up 42% or 39% when excluding the CIDU pantone, compared to the industry which was up mid-single digit.
Compared to the industry, which was up mid single digit.
Our performance was also very strong in other region with retail up 34% in EMEA and 41% in Latin America.
Our performance was also very strong in other regions with retail up 34% in EMEA and 41% in Latin America.
As for Asia Pacific, while our retail was down 2% in the quarter, it's significantly outpace the industry, which was down in the low 30%.
As for Asia Pacific, while our retail was down 3% in the quarter, it significantly outpaced the industry which was down in the low 30%.
You can see the key driver of this strong performance on slide six.
Our success over the years has been driven by our ability to constantly innovate as.
You can see the key driver of this strong
As we bring new product to market that drive consumer interest and by our value proposition, which motivates dealer to sell our product by maximizing their profitability.
Our success over the years has been driven by our ability to constantly innovate, as we bring new products to market that drive consumer interest.
and by our value proposition which motivates dealers to sell our product by maximizing their profitability.
Through such initiatives, we have been able to attract the best dealers and gain floor base within their showrooms.
Through such initiatives, we have been able to attract the best dealers and gain floor pace within their showrooms.
Given we were able we were capable of leveraging additional product capacity, we have deliver impressive result.
Given we were capable of leveraging additional product capacity, we have delivered impressive results.
Our Q3 retail performance was our strongest ever for third quarter.
Our Q3 retail performance was our strongest ever for a third quarter.
We have gained over two percentage point of market or market in North American power sports industry. So far this year, increasing our global market share to more than 30% and.
We have gained over 2% point of market in North American and American power sport industry so far this year increasing our global market share to more than 30%.
And we have become the industry number one OEM in term of the average number of unit retailed per dealers. This make DRP a must for any power sport theaters.
and we have become the industry number one OEM in terms of the average number of units retail per dealers.
We are very pleased with our momentum and strongly believe that we have set a solid foundation to continue to grow in the coming years.
This makes BRP a must for any power support dealers.
We are very pleased with our momentum and strongly believe that we have set solid foundations to continue to grow in the coming years.
Turning to slide seven for a quick update of the state of consumer demand.
Turning to slide 7 for quick update of the state of consumer demand.
As you can see with the strength of our retail sales.
Humor demand to remain healthy despite the ongoing macroeconomic concern.
As you can see with the strength of our retail sales, consumer demand remains healthy despite the ongoing macroeconomic concern.
More importantly, when we look at the different indicator the trend remain positive.
More importantly,
We continue to see a strong level of preorders.
When we look at the different indicators, the trend remains positive.
Over 40% of our expected North American retail for Q4 is already pre sold to consumers.
We continue to see a strong level of pre-orders.
Over 40% of our expected North American retail for Q4 is already pre-sold to consumers.
Cancellation rate remained low.
We completed the international dealer booking following our August club and dealer order came in above expectation.
Cancellation rate remains low.
We completed the international dealer booking following our August club and dealer order came in above expectation.
Retail financing metric remained quite favorable demonstrating that our customers are in a strong financial position with continued increase in FICO scores.
Retail financing metrics remain quite favorable, demonstrating that our customers are in a strong financial position with continued increase in FICO scores.
Website visit and Google search for brands remained higher than pre COVID-19 level.
Website visits and Google searches for brands remain higher than pre-COVID levels.
As you can see customer interest for our products remained healthy.
As you can see, customer interest for product remains healthy.
Turning to slide eight for a quick update on our manufacturing operation.
Turning to slide 8 for a quick update on our manufacturing operation.
In terms of the supply chain the situation during the third quarter essentially evolve has anticipated.
In terms of the supply chain, the situation during the third quarter essentially evolved as anticipated.
This allow us to increase production throughput and progressively ship more unit and component to our dealers.
This allows us to increase production throughput and progressively ship more units and components to our dealers.
As the environment improve our strategy of shipping unit that are missing a few components and quickly restore fixing them at the dealer delivered great result Bay.
As the environment improves, our strategy of shipping units that are missing a few components and quickly retrofixing them at the dealer deliver great results.
Based on the current state of the supply chain and a healthier inventory level, we are well positioned to have a strong Q4 and deliver on our guidance for the year.
Based on the current state of the supply chain and the healthier inventory level, we are well positioned to have a strong Q4 and deliver on our guidance for the year.
Now, let's turn to slide nine for a year round product.
Revenue were up 74%, reaching $1 3 billion in Q3.
Now let's turn to slide 9 for a year-round product.
This was primarily driven by strong side by side shipment as we were able to further utilize our increased capacity.
Revenue were up 74%, reaching $1.3 billion in 2003.
This was primarily driven by strong side-by-side shipment as we were able to further utilize our increased capacity and by the later shipment of three-wheel vehicle Model Year 22 due to the supply chain issue earlier this year.
And by the later shipments of tea will vehicle model year 'twenty two due to the supply chain issue earlier this year.
In term of retail Canada side by side had its strongest quarter. So far this year benefiting from the additional production capacity at <unk>.
In terms of retail,
Canana side-by-side add its strongest quarters so far this year, benefiting from the additional production capacity at URS3, and from an improving supply chain.
And from an improving supply chain.
Ken and gain market share in all industry segments, but more importantly made significant gain in utility which is the largest segment.
Can-Am gained market share in all industry segments but more importantly made significant gain in utility which is the largest segment.
Our retail was up high 40% in the quarter and so far in season 'twenty. Three we are close to our EM twenty-five objective of 30% market share in the category.
Our retail was up high 40% in the quarter and so far in season 23, we are close to our M25 objective of 30% market share in the category.
As for ATV retail was down low single digits in the quarter due to the limited product availability as we made the decision to prioritize component for side by side.
As for ATV, retail was down low single digit in the quarter due to the limited product availability, as we made the decision to prioritize components for side by side.
Still cannot meet TV continues to gain traction with customers and has gained over one point of market share so far in fiscal year 'twenty three.
Still, Kanami TV continues to gain traction with customers and has gained over one point of market share so far in fiscal year 23.
With our solid lineup in additional production capacity, we are well positioned to sustain our growth momentum with Ken them off road.
With our solid lineup and additional production capacity, we are well positioned to sustain our growth momentum with Can-Am off-road.
As for three wheeled vehicle.
We ended season 'twenty two under strong note with can am three wheel vehicle retail being up over 50% in the quarter driven by shipment later than usual due to supply chain challenges.
Ask for three wheel vehicle.
We ended season 22 on a strong note with Can-Am 3-wheel vehicle retail being up over 50% in the quarter, driven by shipment later than usual due to supply chain challenges.
For season, 'twenty to Ken empty will vehicle retail was down mid 20%.
For season 22, Can-Am three-wheel vehicle retail was down mid 20%.
Though disappointed with our performance for the season as a retailer was impacted by the untimely product deliveries. We strongly believed that the future is bright for our three wheeled vehicle business. Since we continue to attract a high level of new entrants to the industry.
Though disappointed with our performance for the season, as our retail was impacted by the untimely product deliveries, we strongly believe that the future is bright for our three-wheel vehicle business since we continue to attract a high level of new entrants to the industry.
We also continue to see strong traction with our rider education program for which course completion are up over 20% year to date.
We also continue to see strong traction with our Rider Education program for which course completion are up over 20% year-to-date.
Historically these completion have resulted in a strong conversion rate towards the purchase of new units.
Historically, this completion has resulted in a strong conversion rate towards the purchase of new units.
Turning to seasonal product on slide 10.
Seasonal product revenue were up 132% from last year, passing the $1 billion mark for the quarter.
Turning to seasonal product on slide 10.
Seasonal product revenue were up 133% from last year, passing the billion dollar mark for the quarter.
This strong growth was driven by late shipments of personal watercraft model year, 'twenty, two and the introduction of <unk> two.
The strong growth was driven by late shipment of personal watercraft model year 22 and the introduction of the Cidou Pantone.
We also shipped more snowmobile than last year.
Looking at the retail.
We also ship more snowmobiles than last year.
Our retail for Perceval the graph in the quarter was up over 100% driven by later deliveries of model year 'twenty two product pre sold to consumers.
Looking at the retail, our retail for personal autograph in the quarter was up over 100% driven by later deliveries of Model Year 22 products pre-sold to consumers.
<unk> sold unit have also contributed to maintaining a solid momentum in November which retail hub significantly.
These pre-sold units have also contributed to maintaining a selling momentum in November , which retail have significantly.
Looking at counter seasonal market.
We are only at the beginning of their their season and retail was up mid single digits in the quarter.
Looking at counter seasonal markets.
We are only at the beginning of their season and retail was up mid single digit in the quarter.
As for snowmobile.
We are still early in the season and retail is trending well being up mid single digits for the quarter.
Ask for a snowmobile.
We are still early in the season and retail is trending well being up mid single digit for the quarter.
With the strong level of customer preorder, we are well positioned to have a successful snowmobile season.
With the strong level of customer pre-order, we are well positioned to have a successful snowmobile season.
Continuing on slide 11, with the look at power sport parts accessories, and apparel and OEM engines.
Continuing on slide 11 with a look at the fig. rearrange the EM engines.
Revenue were up 5% to $297 million.
Our revenue continued to benefit from our growing product portfolio, which led to higher volume of replacement parts and increase sales of accessories, driven by the linq ecosystem.
Revenue were up 5% to $297 million.
Our revenue continued to benefit from a growing product portfolio, which led to higher volumes of replacement parts and increased sales of accessories driven by the Lync ecosystem.
We are currently witnessing solid momentum for our new model year lineup of snowmobile accessories and apparel.
We are currently witnessing solid momentum for our new model year lineup of snowmobile accessories and apparel, both from dealers and consumers which bode well for the upcoming season.
Both from dealers and consumers, which bode well for the upcoming season.
Moving to marine on slide 12.
Marine was the last business unit to restart operation after the cyber attack.
Moving to Maureen on slide 12.
Marine was the last business unit to restart operation after the cyberattack.
This combined with some supply chain issue impacted the ramp up of production for the new menu to product, which affected Q3 and is also expected to affect Q4.
This, combined with some supply chain issues, impacted the ramp-up of production for the new Many2 product, which affected 2.3 and is also expected to affect 2.4.
As a result revenue were down 15% in comparison to last year, ending the quarter at $111 million.
As a result, revenue were down 15% in comparison to last year, ending the quarter at $111 million.
Looking at retail sales.
In North America, our retailer for the quarter was down below 30% for a new mechanism, which we believe is in line with the industry, but I would point out that we are no longer selling welded boat.
Looking at retail sales
In North America, our retail for the quarter was down low 30% for Alumekara, which we believe is in line with the industry. But I would point out that we are no longer selling welded boats.
Many two was down in the low 60% due to the production ramp up issue has already mentioned.
Many tools down in the low 60% due to the production ramp up issue has already mentioned.
As for <unk>, we are in the early part of the season in Australia, and retail was down low teen percent in the quarter.
As for Quintedex, we are in the early part of the season in Australia and retail was down 13% in the quarter.
We are in the off season for both in North America, but we believe that with the new Manitou and early Megadeth product, we are well positioned for the future.
We are in the off season for boating in North America, but we believe that with the new Manitou and Alumacraft product we are well positioned for the future.
Our new boat and pontoon design are very well received.
Notably many two new <unk> platform won the top prize in the innovative onboard design solution category at <unk> 2022, bolt builder awards in Amsterdam, where we're competing against high end luxury boat from world renowned brands.
Our new boat and pontoon design are very well received.
Notably, MANI2's new MAXDEC platform won the top prize in the innovative onboard design solution category at the recent 2022 Boatbuilder Awards in Amsterdam.
Many too is also feature on the cover of pontoon and deck boat magazine.
where we were competing against high-end luxury boats from well-renowned brands.
Many2 is also featured on the cover of
Segment, most influential publication with an impressive readership.
The cover tagline says it all.
the segment most influential publication with an impressive readership.
<unk> to shake up the industry.
With that I'll turn the call over to Sebastian.
The cover tagline says it all. It's time to shake up the industry.
Thank you Jose and good morning, everyone. Thanks to the sustained robust demand for our products and the improving supply chain environment. We delivered results that came in well above our expectations, leading to the strongest quarter ever in our history.
With that, I turn the call over to Sebastien.
Thank you, Jose, and good morning everyone. Thanks to the sustained robust demand for products in the improving supply chain environment, we delivered results that came in well above our expectations, leading to the strongest quarter ever in our history.
The outperformance was primarily driven by higher deliveries of side by sides stronger shipments of components to dealers in the quarter, resulting in a higher completion of unfinished units and the continued tight management of our expenses.
The outperformance was primarily driven by higher deliveries of side-by-sides, stronger shipments of components to dealers in the quarter resulting in a higher completion of unfinished units, and the continued tight management of our expenses.
Looking at the numbers our revenues for the quarter were up 71% versus last year, reaching $2 7 billion.
Looking at the numbers, our revenues for the quarter were up 71% versus last year, reaching $2.7 billion.
We generated $655 million of gross profit representing a margin of 24, 2% down in comparison to last year's level.
We generated $655 million of gross profit, representing a margin of 24.2%, down in comparison to last year's level. As the benefit from higher volume, especially side-by-side, mix and pricing was more than offset by the impact of inflation, supply chain inefficiencies and cyber attacks.
The benefit from higher volume, especially side by side mix and pricing was more than offset by the impact of inflation and supply chain inefficiencies and cyber attack note that the cyber attack represented a headwind to gross profit of about 90 basis points in the quarter.
Note that the cyber attack represented a hit win to gross profit of about 90 basis points in the quarter.
While continuing down the P&L, we generated record normalized EBITDA for the quarter of $488 million.
While continuing down the P&L, we generated record normalized dividends for the quarter of $488 million, representing a strong margin of 18%.
Representing a strong margin of 18% and our normalized net income came in at $293 million, resulting in a normalized earnings per share of $3 64.
And our normalized income came in at $293 million, resulting in a normalized earnings per share of $3.64.
Up 146% from last year's Q3.
Moving to our network inventory situation on slide 15, as we already mentioned, we have been able to increase our throughput during the quarter.
Up 146% from last year's Q3.
Moving to our network inventory situation on slide 15.
Driven by better utilization of our production capacity and the improved supply chain environment. As a result, we have seen a healthy increase of 105% in our network inventory driven by side by side, ATV, and snowmobile, which puts us in a better position to support the strong demand for products in the fourth quarter.
As we already mentioned, we have been able to increase our throughput during the quarter.
driven by better utilization of our production capacity in the improved supply chain environment. As a result, we have seen a healthy increase of 105% in our network inventory driven by Side-by-Side ATV and Snowmobile, which puts us in a better position to support the strong demand for products in the fourth quarter.
We have also ended the quarter with a higher level of inventory for three wheel and personal watercraft.
We have also ended the quarter with a higher level of inventory for three-wheel and personal watercraft, resulting from the late deliveries after the summer season due to the supply chain challenges we had to deal with earlier in the year.
<unk> from the late deliveries after the summer season due to the supply chain challenges, we had to deal with earlier in the year.
The retail of these model year 'twenty two units is growing well, especially with many of the pwc's already pre sold to customers and we expect to be in a good inventory position with these units in the spring.
The retail of these Model Year 22 units is going well, especially with many of the PWCs already pre-sold to customers, and we expect to be in a good inventory position with these units in the spring.
While we have made good progress on improving the availability of our products in the network. There are still areas, where we have a lot of inventory to rebuild to bring it to a more optimal level in fact, despite significantly increasing or re deliveries to dealers in the last nine months. We also delivered important retail growth and market share.
While we have made good progress on improving the availability of our products and the network, there are still areas where we have a lot of inventory to rebuild to bring it to a more optimal level.
In fact, despite significantly increasing ORV deliveries to dealers in the last 9 months, we also delivered important retail growth and market share gains, which limited the inventory growth for that product category, as it is still down 42% versus pre-COVID and is still far from an optimal level at roughly 50 days of inventory.
Gains, which limited the inventory growth for that product category as it is still down 42% versus pre COVID-19 and it is still far from an optimal level at roughly 50 days of inventory bringing.
Bringing <unk> up to our target of about 100 days and optimizing our inventory for seasonal product sell represents about $750 million of inventory to rebuild.
Bringing ORV up to our target of about 100 days and optimizing our inventory for seasonal product still represents about 750 million dollars of inventory to rebuild.
But all in all things are trending in the right direction as we were able to make headway in improving unit availability to support our retail momentum.
But all in all, things are trending in the right direction as we were able to make headway in improving unit availability to support our retail momentum.
Now looking at the slide 16 for an update of guidance for the year, while the year has seen its share of challenges. Our teams have done an exceptional job to manage through these tough situations, allowing us to outperform our competitors and deliver results of expected ahead of expectation.
Now, looking at the slide 16 for an update of guidance for the year. While the year has seen its share of challenges, our teams have done an exceptional job to manage through these tough situations, allowing us to outperform our competitors and deliver results ahead of expectations.
As we look to the rest of the year, we are well positioned to sustain our solid momentum as we continue to experience robust demand for our products and as the improvement in our supply chain is allowing us to better utilize our increased capacity and deliver more units through our network.
As we look to the rest of the year, we are well positioned to sustain our solid momentum as we continue to experience robust demand for our products, and as the improvement in our supply chain is allowing us to better utilize our increased capacity and deliver more units to our network. As such, with two months to go in the year, we are comfortable increasing both our top line and bottom line guidance.
Such with two months to go in the year, we are comfortable increasing both our topline and bottom line guidance.
Now expect our total revenues for the year to be up 27% to 32% as we are planning for increased production of side by sides.
We now expect our total revenues for the year to be up 27-32% as we are planning for increased production of side-by-side. We are well positioned to hit the higher end of our seasonal products guidance. Snowmobile is off to a good start.
And we are well positioned to hit the higher end of our seasonal products guidance snowmobile is off to a good start.
You will notice that we reduced our guidance for marine revenues.
As a result of the delayed ramp up in production for the new Manitou as already mentioned earlier.
You will notice that we reduced our guidance for marine revenues as a result of the delayed ramp-up in production for the new many 2, as Jose mentioned earlier.
Going down the P&L benefiting from increased volume, we now expect our normalized EBITDA to grow between 15, and 18% and our normalized EPS to between $11 65, and $12, representing a growth of 17% to 21 over last year.
Going down the P&L, benefiting from increased volume, we now expect our normalized dividend to grow between 15 and 18% and our normalized DPS to end between $11.65 and $12, representing a growth of 17 to 21 over last year.
Our guidance calls for the delivery of another strong quarter in Q4, carrying our momentum into fiscal year, 'twenty, four which we expect to be another solid year for ERP given the.
Our guidance calls for the delivery of another strong quarter in Q4, carrying our momentum into fiscal year 24, which we expect to be another solid year for BRP given.
The strength of our product portfolio, we're structurally it is driving higher margins.
Strong progress we made in terms of market share gains, especially with side by side, the continuing momentum with new products, such as the <unk> switch into new menu to tune.
the strength of our product portfolio where structurally it is driving higher margins.
The strong progress we made in terms of market share gains, especially with side-by-side, the continued momentum with new products such as the Studio Switch and the new Mini 2.2,
All of this supported by better utilization of our increased production capacity and lastly, an improved cost environment with expected lower commodity rates and a reduction in supply chain related headwinds such as retrofits expenses spot buys and special freight.
All of this supported by better utilization of our increased production capacity and lastly an improved cost environment with expected lower commodity rates and a reduction in supply chain related headwinds such as just got to a fit the expenses spot buys and special phrase
On that I'll turn the call over to Rosie.
Thank you Sebastien.
I am pleased with our multiple accomplishment.
On that, I'll turn the call over to Jose.
We are also making good progress on the CSR front.
Thank you, Sebastian. I am pleased with our multiple accomplishments.
Earlier this year, we committed to take corporate social responsibility, even further with the launch of our new CSR 25 program.
We are also making good progress on the CSR front.
Earlier this year we committed to take corporate social responsibility even further with the launch of our new CSR25 program.
It include ambitious target and concrete initiative like the ERP community engagement programs Rideout intimidation.
It includes ambitious targets and concrete initiatives like the BRP Communauté engagement program Rideout Intimidation.
We are very proud of this initiative and of all the ERP employees worldwide, who are embracing the fight against intimidation and you're raising awareness for this important cause.
We are very proud of this initiative and of all the BRP employees worldwide who are embracing the fight against intimidation and raising awareness for this important cause.
In conclusion.
I am impressed with our performance so far this year as we deliver better than expected result in a challenging environment.
In conclusion.
I am impressed with our performance so far this year as we've delivered better-than-expected results in a challenging environment while continuing to progress on our strategic initiatives.
While continuing to progress on our strategic initiatives.
This positions us well to deliver on our guidance as we anticipate another record year.
This positions us well to deliver on our guidance as we anticipate another record year.
Looking ahead, the new product introduction additional production capacity as well as our momentum with dealers and the recent acquisition puts us in a strong position to sustain our growth trajectory.
Looking ahead, the new product introduction, additional production capacity, as well as our momentum with dealers, and recent acquisition put us in a strong position to sustain our growth trajectory.
I sincerely, thank all our employees dealers and suppliers for their relentless effort, especially given the numerous challenges and headwinds we have had to face.
I sincerely thank all our employees, dealers and suppliers for their relentless effort, especially given the numerous challenges and headwinds we have had to face.
Without their hard work resilience and dedication it would not have been possible to achieve these exceptional results and we look forward to keeping our momentum.
Without their hard work, resilience and dedication, it would not have been possible to achieve these exceptional results, and we look forward to keeping our momentum.
On that note I'll.
Turn the call over to the operator for questions.
Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one audio Touchtone phone you will then hear a switch on prompt acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two and if you are using a speakerphone you will need to lift the handset before pressing.
On that note, I turn the call over to the operator for questions.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by 2. And if you are using a speakerphone, you will need to lift the handset before pressing any keys. Please go ahead and press star 1 now if you do have a question.
Any keys. Please go ahead and press Star one now if you do have a question.
And your first question will be from Joe I'll Debello at Raymond James. Please go ahead.
And your first question will be from Joe Altobello at Raymond James. Please go ahead.
Thanks, Hey, guys good morning.
First question I guess is on your retail and the share gains that we've been seeing in previous quarters. Obviously this quarter very strong again.
Thanks. Hey guys, good morning. First question I guess is on your retail and the share gains that we've been seeing in previous quarters. Obviously this quarter very strong again, particularly in side-by-sides. I guess...
Particularly in side by side I guess, what are you guys doing that the competition isn't that's enabling you to get more units.
The dealers and how much of that improvement is product availability versus some other driver.
What are you guys doing that the competition isn't, that's enabling you to get more units to dealers, and how much of that improvement is product availability versus some other driver?
Yes, good morning, Joe.
Listen.
I believe that the fundamental of our business. Our strategy is very strong first we have very.
Yeah, good morning Joe. Listen, I believe that the fundamental of our business, our strategy is very strong. First, we have very innovative and competitive product. We have took the call a few years ago to increase capacity in URIs and now with the supply chain that is getting better.
Innovative and competitive products.
We have.
Took the call a few years ago to increase capacity and you at Ace and then now with the supply chain that is getting better the supply chain is definitely helping and we can use that capacity, which we cannot use in each one.
The supply chain is definitely helping and we can use the capacity which we could not use in H1. The third element is the BO strategy. We decided to ship H1 to the H1.
The third element is the <unk> strategy, we decided to ship.
Uncomplete product to dealers.
Little thing to the Barrick two had done to the unit a few parts to have done to the unit and.
uncompte product to dealers with little thing to repair or to add on to the unit. A few parts to head on to the unit and we RE using their service to PDI the product then in Q3. We had excellent, we had good supply chain. We're able to accelerate our throughput in production, ship more dealers.
And we're using their their their service to our PDI product and in Q3, we had excellent.
We had good supply chain, we're able to.
Accelerate our troops and production ship more dealers to more units through the dealer, but also ship components. The dealer then I think it's a combination of all this.
And we have we have great momentum with the dealers, we have been working hard to improve the value proposition.
<unk> is paying US then I think it's a combination of all of this I don't think there is a silver bullet, but this is what is making a difference and the beauty is.
Q3 was strong and we see November continuing with that trend.
That's very helpful. And then maybe just a follow up for <unk>.
I believe you mentioned earlier.
The pipeline refill opportunity with $750 million and I think that was $1 4 billion last quarter. So maybe help us bridge that difference well.
One of it is timing related as you saw we have more inventory for personal watercraft and three wheel.
Really timing related because we we had supply issues and so we delivered these units later so that means there is more inventory of that unit, which should correct itself.
Over the next few quarters.
But obviously, what we want is make sure that the product availability is there for the consumers for the dealers and so it's our goal to replenish inventory, we always said that it would happen at the tail end of fiscal year 2003, and at the beginning of next year.
There is still $750 million to replenish some of it is going to happen in Q4, it depends on obviously production and how strong retail is on.
But my expectation is that by early next year.
We should be in a good inventory position level at the dealer network, where there is enough product there for the dealers to meet consumer demand.
Got it okay. Thank you guys.
Thank you.
Next question will be from Robin Farley at UBS. Please go ahead.
Great. Thanks, I Wonder if you could comment on some others in the market have talked about seeing some softness and recreation units and you did mention your release.
A return of some sales programs I don't know if it was related to that and then also just a quick clarification.
When you talk about dealer inventory down, 20% and I know, it's on the slide as well is that including the substantially completed units that technically are not in your shipments yet or is that excluding.
The.
They completed thanks.
Good morning, Robin I'll take the inventory one first.
It does include the units.
The dealers.
On hand, which are incomplete, but also has the parts so.
If you were to look at the increase in inventory. We said, it's about 200% if you exclude the units for which the dealers have and the dealers have the parts of it are not yet installed that would be up only about 100%. So there's still quite a bit of units that still need to be retrofitted by the dealer network.
As of where we stand at the end of October obviously, the dealers will repair them as the season progresses.
But that's that's in.
Not sure what the inventory is insurance programs.
We've seen a bit more program happening from various Oems.
But far from the extent, where they were pre COVID-19, so theres a bit of money being put towards products.
I think it's more.
A.
Getting customers through the doors attracted him at the dealership, it's not a caused by excess inventory definitely not.
Yes.
Okay. No that's very helpful and if I could just fit one more quick one and I'm just wondering with the Pwc.
You mentioned there were some.
Later than normal deliveries than you expected is there a way to quantify where there some of those units where they were deposits on them that then.
Cancel due to how late they arrived.
Dealers are you able to adjust their orders for next summer to sort of factor in that they would maybe have a little bit more inventory than they thought when.
When they thought those.
That's what a retail thanks.
Yes on this robin first whether amid the dealer at club in August the new that those units would be delivered to them in August basically.
Then the.
The bookings that we took from the dealer for model year 'twenty three.
Dealer knew that it was there then this is done once.
What we are hearing and again, we don't have hard data on this but most all of the dose unit were pre sold to consumers and there was some cancellation, but very very little and when you have a cancellation you you find a customer was ready to take it because dose unit or the dealer and they will be there next spring.
For the snow belt and what we're hearing is a portion of the customer take it now because they want to secure the delivery and everything but many customer seat, we will stick to R 22, and we will take it when spring come in the Snow belt then too.
To be honest, we're not worry about dose unit at all.
And if.
If in the spring, we see we see that the retail is not going as expected, we could reduce or adjust model year 'twenty three or <unk> 22 to 24, we'll adjust depending of the retail trend, but right now those 'twenty two for us.
It's a non issue.
Great. Thanks, very much thank you.
Next question will be from Joe Spak at RBC capital markets. Please go ahead.
Thanks, so much everyone.
I guess the.
I was wondering if you could comment on just working capital and free cash flow because you mentioned.
Some of the changes in production and getting sort of dealers and I know working capital has been an issue.
Really all year all year long is should we expect some relief to begin in the fourth quarter or is that really more of a.
Next year phenomenon at this point.
Good morning, well, if you look at the numbers at the end of October nine months that we've invested over $500 million in working cap.
Coming from all of the items that you've listed.
And it's a strategy that has paid off for us in building more retrofits units and you see it in the retail numbers I'm doing I do expect a small release.
Happening in Q4, as the supply chain is improving but nothing too material.
And we're still going to be running with higher levels of working cap in Q1 Q2 of next year.
As we get more comfortable with our suppliers delivering to the levels, we want with the logistics.
Headwinds that we saw around the world.
Obviously, we'll we'll encourage the teams to reduce working cap if it happens, it's probably going to happen in the tail end of next year. So over the second half is when we should see improvements.
Okay. Thank you and then maybe.
One more since since you're dealt into next year a little bit.
Interest expense for the guided up a little bit here, obviously, we know your capital structure.
What the floating rate.
But I do think you have a good amount of.
Of cap contracts as well that limit your exposure there so.
How far out do those go I mean, I think you're continuing to roll those and I guess, considering where rates are now and the contracts is is that like $130 million interest expense like a good level for next year.
Well the.
The caps go out to 2025.
And so we got off.
Probably we're hedged for about 60% or is it a 1% cap obviously, we've seen rate.
On the term B, we've seen rate increase by the fed are two rate increases since we talked when in September one in November .
We've also done a few acquisitions, so we've used the revolver more.
And so that's what's driving the increase in interest.
Next year, probably expecting in the range of 110 slightly higher as well because obviously, we will have a full year effect of higher rates and especially the fed is calling for further rate increases as well so.
At a minimum 110, but could go higher as well.
Thank you.
Next question will be from Matthew laundry at Stifel. Please go ahead.
Hi, good morning.
You've touched on next year.
And you expect sustained momentum and I was wondering if you can talk a little bit about.
Industry retail sales in North America, I'm wondering what's your assumption for.
Industry retail sales to do next year.
Well again.
Tough it's a.
Tough call Ms, Diane and I guess, my Crystal ball is probably not better than your crystal ball, but theres a few things that make us optimistic if I just look at the industry side.
If you take the side by side the industry is down rolling 12 months.
And even if we were to have a flat industry next year is down versus the.
The peak of Covid, probably 25% down versus the peak of Covid. If we were just to maintain the market share that we have.
In Q3.
It would represent.
Almost a 10% volume growth just next year for us so even with a flat industry.
We'd be able to generate growth with <unk>.
Market share gains that we've experienced if you look at the personal watercraft industry. The season that just ended.
Our expectation is that for maybe seasonal products the industry should be higher than what we've experienced this year, but despite all of that.
With with.
Flat to modestly increasing industries for seasonal we are.
Okay. That's helpful.
And I'd like to just touch on Europe or EMEA.
Your your retail sales there were up 34% year over year.
Significant outperformance.
I was wondering a little bit.
<unk>.
Related to preorders or are you still seeing.
New orders coming in just trying to get a bit of understanding of how the consumer is.
Leaving there given the economic and political challenges.
Good morning, Matt.
The what we're hearing from theaters and it's even the case in North America, but more in Europe , there is less traffic in the dealership.
That being said the worldwide, we do less promotion because we don't want to attract dealers our customers to the dealership then do you have nothing to see there.
Then.
We slow down deep promotion.
There is less traffic also customer are trained right now if they go into the dealership. They will have a new product out there then luisa.
Except for the traffic at the dealership.
And maybe specific country like <unk>, where it's more difficult retail is still strong like you said North America without Sea-doo pontoon was 39 and EMEA was 34 and.
And dealer orders you know we had our club in August .
And we gave to the dealer.
At three months I think to complete the two months to complete their booking for model year 'twenty three and the booking of the dealer came out stronger and what we're planning in the art of frontline <unk> will meet the customer visit.
Then we hearing like you do like everyone do the tough situation with dinner GNL. This in Europe , but it doesn't show in our numbers.
Okay. That's it for me thank you.
You.
Next question will be from Fred Wightman of Wolfe Research. Please go ahead.
Hey, guys. Good morning, I was hoping you could just sort of put the <unk> results in the context I know if we go back last quarter, you had given us some guide rails about where you thought EPS with sort of shake out <unk> versus <unk>.
Was <unk> just much stronger is there anything thats, giving you a little bit of caution about <unk> or <unk>.
Just sort of have things modeled appropriately.
It's very much a modeling obviously when we talked in September for the Q2 results. We were we were coming out of the cyber incident. We were also looking at the supply chain. So.
There was some I guess cautiousness or we were gun shy on on the Q3 numbers may be a bit.
But.
The team has outperformed.
Both on the recovery from the cyber incident.
Managing supply chain on the utilization of capacity and so we were able to deliver more units than expected in the third quarter. So these are units that were planned in Q. In Q4 that now are carried forward or carried earlier in Q3 and also expenses as well.
We continue to manage them tightly and that came in lower than expected as well so helping deliver the strong strong Q3 results.
Makes sense and then just on the Marine segment.
You touched on sort of the supply chain impact and then also the cyber security impact I get why the cyber ramp would hit <unk>, but can you just dig into the <unk> outlook as the supply chain just worse than you expected there and if there's anything in particular, that's holding up the marine segment of the business would be great to hear a bit more about that.
Yeah on the cyber what happened is.
Think we disclose this.
The hacker came into a third party to our system.
And obviously.
When all of this happened we shut down all of those third party.
We were able to ramp up after that giving them access to our system, but.
As many too.
Is the whole system that the previous owner had and there is more third party involved in managing the business and because of this we were able to restart production, but there was many system that was not operational.
Because of too many third party like.
Like I assume the kitchen, and we were very cautious to reopen those excess.
And they suffer most than the other product line, our division and that's in a nutshell.
It had been we were cautious about any opening access to third party.
And Thats why Q4 will be deliveries will be and this combined with some supplier issue.
We.
With our delivery for Q4 will be lower than what we had planned.
September and Thats, why we reduce our guidance.
Makes sense, thanks, a lot.
Thank you.
Next question will be from Benoit Poirier at Deutsche Bank. Please go ahead.
Yes, good morning, everyone.
Congratulations for the good quarter.
Could you talk a little bit about the subset of zero financing for 60 months that you offer down select 2022 Sea-doo models.
In order to lower to sold units at the dealer level.
And when we look at your inventory.
Inventory still down 20% versus pre pandemic levels, but if you were to remove the units that are substantially completed and also that 2022 Sea-doo models, what how down would be the dealer inventory.
What would be kind of the inventory replenishment. Unfortunately.
Yes, I'll take the I'll take the interest question I'll try to give you a bit of color as well on the inventory.
We actually had an opportunity with our retail financing partner to offer a program with very little cost to be ERP.
Again structurally with.
With this floorplan partner, that's financing partner that we have.
In the last few years.
We kind of accumulated credits with them that we could use.
So it was a good opportunity for us to use these credits and offer.
An attractive financing package for for consumers on the retail side.
And that's being that's being successful obviously, we have strong retail.
You saw the retail and <unk> in Q3, and Josie comment is on the momentum that we have in November as well.
Is certainly helping.
And from the inventory perspective, as I said, if we were to exclude the incomplete units their inventory would be up only 100%.
And the personal watercraft and we'll have a number have been whether we could come back to you on this one and what the impact of a personal watercraft is but it is a quite sizable on the on the inventory growth just for the quarter.
Okay perfect.
The other question, we saw full iris struggling with recalls over the last three months just wondering if you had seen benefits. So far in terms of new end trends, whether they are looking more closely at the <unk> brand or do you see a fortunate these to gain.
Additional revenue.
With those recalls.
Yes.
Lee if you talk to a dealer that is.
Polaris in VIP.
And there is 40% of our dealers that are put our recent ERP.
Then those dealer obviously right now are overwhelmed because in the snow belt the snowmobile PDI.
Delivering all those unit in a short period of time is always a heavy period.
They have to retrofit some of our deals but also they have all of those recall from Polaris.
For those 40% of the ERP dealer that are also Polaris for sure it's a difficult fall.
We're lucky in the sense of that 60%.
If our dealers are nuts polaris than those have.
And these year.
<unk>. The first one and then there is definitely I think by the way in that vintage.
In the dealership debt, our net debt, our <unk> peanut Polaris, but is very difficult to.
To quantify it.
And by the way if you were to take the total inventory and just remove personal watercraft and three wheel the inventory would be up 120%.
Perfect that's great color and for fiscal year 'twenty. Four you gave a great color about how should we be looking at the revenue the pluses and minuses what about the margin side could you maybe provide some color about that.
The key element that will impact the <unk>.
Margin going into fiscal year, 'twenty, four and whether a 17% is still.
Something that should hold up.
Well absolutely, yes, the 17% is something that should still hold up and if you look at <unk> either structurally we're a very different company than.
And then what we were just a few years ago and there is a few things that obviously are helping us. So one our modularity approach that we've implemented over the last several years is obviously paying off benefits for sustain gross margin. The two we have a better asset utilization as well with the volume growth that we have.
Our footprint is as you know.
The growth that we've invested in Mexico, and so very cost efficient will structurally that brings.
Margin improvement and from a product mix point of view are side by side business has grown a lot in the last few years just a few years go side by side represented 30% of our revenues.
This year will be just almost 40% of our revenue coming from side by side in the parts business that goes with it then that business drives better margin than the average portfolio of products of ERP and so that obviously is helping to sustain strong gross margin and then if you look at fiscal year 'twenty three we've obviously have a lot.
Headwinds from from inefficiencies from profits from doing spot buy for micro chips from air Freighting components from suppliers to our assembly plants just to get the units out the door.
We probably have a 250 basis point headwind this year just coming from those inefficiencies now not all of those will go away next year because of the supply chain is still strong.
While in some pockets in logistics has not yet been reestablished completely but we'll certainly get some gains coming from better efficiency. So when I look at next year I talked about the top line element a lot of optimism, but also from a cost efficiency point of view as well. There is there are some great opportunities.
Okay, that's great color thanks for the time.
Thank you Benoit.
Next question will be from John Soo BNP talk about please go ahead.
Hi, guys. Thanks for the question I, just wanted to ask a little bit more about inventory levels.
So you're expanding capacity and youre, gaining a lot of share I'm just wondering is it possible that.
I guess in the future when the dust settles that you can have structurally higher inventory levels than pre pandemic anyways.
And that the pre Covid I guess compares maybe less relevant as you get the bigger the business becomes bigger.
Well from a from a dollar perspective, yet because our business have been growing we've been gaining market share we are adding new products as well as some products are bigger ticket items as well. If you look at the switch you look at the side by side. So from a dollar point of view yes.
We can have more inventory than in the past and there's been inflation and price increase et cetera.
But from a number of days.
We were trending in sometimes in the 150 180 days of inventory in the past.
And.
We want to operate with lower levels of inventory, we said 100 days ish would be a number that we like operating with dealers like operating with.
There is enough product there so that they can quickly execute on quick retail.
But lower the total cost of operations for us and the dealership as well so.
That's a targeted number.
Okay got it makes sense and then maybe just on the N C. B it sounds like working cap, maybe a couple of quarters before you really see the big benefit, but just wondering how you're thinking about step.
Stepping into the market.
Is it when the working cap kind of unwind or how are you thinking about.
I guess share buybacks.
While we've always our priority has always been investing in the business Capex has been one priority, where we're investing quite a bit this year investing for growth as well as without obviously required some working cap investments, we did $300 million of buybacks this year of which $2 50 as an SUV.
And so and we've also done acquisitions, so investing in the business as well so our priorities remain growth and we are a business that generates good free cash flow in.
Increasing the dividend modestly as well as part of our priority, but then with excess cash returning that capital to shareholders.
Is a good way to provide good returns and that's something that we'll continue to investigate especially in this context where are we.
Our expectations for the business is very good and the valuations currently are at very attractive prices.
Okay very helpful. Thanks, guys and good luck.
Next question will be from Mark Petrie at CIBC. Please go ahead.
Yeah. Thanks, good morning.
I was wondering if you could just give a bit more color on the topic of dealer engagement.
And just sort of how you're gauging the that the impact of that obviously it is difficult to quantify in totality, but any commentary just with regards to sort of floor space or the pace of renovations are updated dealerships.
Would be helpful.
Yes, good morning, Mark I don't have any hard facts, but definitely.
We're growing at the fast pace, we're taking more and more floor space in dealership and at the same time like you said you say people, we like to have the ERP.
Pace in the dealership space. This is one of the strategy. We put together we won't when you enter into a dealership you have the <unk> flavor.
But right now we are forcing dealers give you. The example of the <unk> switch when we gave to the dealers the switch line.
They needed to committed to a certain amount of space a floor to display. The product. Then this is a type of thing we've done and we will continue to do but this is part of our strategy first to sign the best dealers.
And second to continue to gain floor space.
And to BNS, because we have strong product line, because we have a good value proposition they are making money more money with our product and the most of our competitor.
I would say, it's a good value proposition, it's a business discussion and it's not too complicated to convince dealer.
Okay helpful.
And then I was wondering if you are able to or willing to quantify how much of the revenue in the quarter.
Recognize list from retrofit unit that were sort of brought to sale will condition.
Are you able to quantify sort of the level of retrofit unit at the dealer today compared to last quarter or earlier in the year.
I don't have the numbers with me obviously these numbers have been going down every quarter at the end of.
Q3, the number of units remaining in the network is a very small percentage.
Of our total annual production there.
Super small.
Almost nothing left in the network, but it was relatively.
Isn't that much as well.
In the.
In the second quarter and what happens is the <unk>.
Dealers convert them quite quickly or we ship the parts quite quickly. So we might chip I don't know.
We can replicate easily in a quarter of 100% of ships.
So things turnaround quite quickly usually it's just a few week window between the time, we ship. The unit then we ship the parts.
Okay. Okay. That's helpful. Thank you.
Next question will be from Kamran Dirkson at National Bank Financial. Please go ahead.
Thanks, Good morning.
I've talked a bit about the side by side market, you sort of called out the market share gains that you've had so far this year for.
For the defender are you able to give us some some color around what percentage of your assets.
I guess sales now are related to the utility segment.
Yes.
We used to be we used to be behind.
The segment.
Proportion of this segment has you know utilities about 60% of the industry and we use the defender used to be below that in our numbers, but.
Like we said on the in Q3 with gained nine point in market share in that segment and right. Now we are about in line with the industry.
Utility represent for us about 60.
60% of our retail in Q3, which is a great.
Which is a great accomplishment the only thing I would like to highlight to give you more colors.
We always also measure the premium product versus the value product and about 75% of our.
Side by side sales are premium.
Where the industry is 55 then.
We are gaining share and on top of it we're gaining on the high end.
Which all of which has been our trademark in this sport with the extra week then we're very very happy with the momentum we have in the side by side business. This fall and again, it's a combination of we had the capacity and now the supply chain is getting better and the momentum is there.
Okay.
Really good information and maybe just secondly for me.
Obviously the dealer retail for you guys have been really exceptionally strong.
I guess my question is are there any signs for you that that are sort of cautionary.
Other than sort of the macroeconomic indicators that we all see I mean is there anything that youre seeing out in out in your markets that would give you I guess any reason to be incrementally more cautious than say three months ago.
Again.
In line with your question I answer for the European market. When you talk to a dealer that would tell you. It will tell us that the traffic is not as much as it used to be.
But at the same time, we don't.
<unk> has much publicity and when the customers showing the hurdle there is not much to see then there is a reason for that but when you look at our numbers our retail in Q3 was exceptional.
<unk> trend the new on trend in Q3 was over 30% when typically it was 20% and it's about in line since the Covid led 30% 35%.
Our web traffic is higher than what it was pre COVID-19.
The other thing also that change into the Covid period as the household income.
65% of the population in U S.
Household income is is below 100000 U S.
All of our product are significant nothing you can't go above, but our lowest product is ETV with the 115000 U S and all the others are above that.
Then when we look at 40% of our Q4 retail is pre sold to consumer denim when you having all of those elements.
We hearing like you do about the macroeconomic concern and the slowdown in the interest rate.
Except for the traffic at the dealership, we don't see that in our hard numbers.
And the traffic is down compared to pre COVID-19.
Compared to Covid is where it was obviously at an all time high.
But in line with what it was pre COVID-19.
Okay.
Very helpful. Thanks, very much.
Thank you.
Thank you next question will be from Derik de Lee of Canaccord. Please go ahead.
On the cost side, obviously, you had some really strong cost control. This quarter can you just give it right.
Could you re ask your question, we missed the beginning at least here.
Yes, sure. So just wondering on the on the cost side.
You guys, obviously had some strong cost control this quarter and.
Historically, we used to think about R&D as a percentage of revenue in the 4% range and its been tracking a bit below that over the last three quarters.
Should we expect that a change in that in that algorithm going forward.
Well, obviously, we've had very strong growth in revenues this quarter and so thats why when you look at overall opex or just.
It'll shy of 10% of revenues for the quarter.
R&D trending at a 3%.
Some of it is timing related.
Some projects were.
We're we're kept were pushed into Q4.
But our expectation is that we'll continue investing in R&D.
In the range of 4% going forward, that's the expectation so a lot of it this quarter is very much related to the strong growth in revenue that we've experienced.
Okay. That's helpful look at an absolute in absolute dollars. The opex spend is increasing has been increasing sequentially there over the last several quarters.
Yes, Okay got it and then.
And the new entrants, yet still 30% of.
Product sales are of revenue, but if we go back to <unk>.
The Covid period, when you had a big jump in new entrants can you just comment on <unk>.
Any of the any of the buying activity from from those I know, it's still relatively early days, but have you seen those new entrants trade up by a second product what kind of.
It kind of purchasing.
Patterns are you seeing there.
Yes.
Following five thing about the new entrants phenomenon first the numbers like I said that in Q3 is above 30% in <unk>.
And typically historically was 'twenty and into 'twenty, one and fiscal year 'twenty. One 'twenty. Two it was 30, then we are above 'twenty one 'twenty two.
What is interesting is 55% of dosing that they are in deeper support for a long time, which is a good number.
Many have already repurchase and other products.
They are younger.
The number of.
People, who are eating between 18 and 44 years old have increased by 10.
Standpoint.
More women seven point and more family six point.
And their household income is higher than what it was pre Covid then when you. Additional this is difficult to say one plus one plus one legal tree.
But this all all of those things are positive.
And the.
The the.
The momentum of the statistic didn't change since.
I would see this fall even if the macroeconomic.
Zero is unstable.
Okay, great. Thank you very much thank.
Thank you.
Next question will be from Garrick Johnson with BMO capital markets. Please go ahead.
So on the alumina Craftsman Manitou product that you have.
<unk> been shipping I see it.
Certain dealers.
What's the consumer reaction been you've given us metrics before and switch and so forth and what's been pre sold and sell through so can you talk about the end consumer reaction.
Excellent.
I mean, the people are very happy with the new menu to like you. So we are winning many price at <unk>, it's a different market.
See in the Midwest.
Dominion <unk> Board show, but.
But we don't have any preorders system for the vote.
Can tell you we sold out for our production capacities till next summers, but we don't have any preorder number to give to you and again I would like to highlight.
We've done the tour North American tour with the boats, that's why we get the feedback, but we don't have any preorders system with the marine business year.
Okay, Great and then on the model year 'twenty, two personal watercraft and three oilfield tools that you have.
You've shipped what proportion of those are pre sold.
I'm just concerned that you have 22 product out there after the seasons over and how that might affect the flow of 'twenty threes.
And for next season, and then also the discounting probably needed to move those those units really who wants a 22 personal watercraft in December .
Paul.
Just if you could talk about how much of that is pre sold and what you have baked into your guidance in terms of what you need to discount to move those units before the 'twenty threes come in.
Yes, as I said, we do have.
A retail incentive program out there offering.
Zero interest for <unk>, but for five years to where consumers until that.
That's been.
In May and June and get them to consumers because as you know the level of preorders from consumers was very high.
The season last year in the industry ended at.
All time low in the last five years. So there is still a high level of unfulfilled demands.
And the other reason why we're comfortable obviously were we don't like it but we're comfortable with the situation is.
The level of preorders at the dealership with high so dealers are telling us I am not getting cancellations for these units customers are going to take on.
Ownership of these units in the spring.
And the other thing is that there will be price increases on model year 'twenty three that we've announced.
3% to 4% increases.
And so customers they have an option of taking our model year 'twenty two.
Priced lower than our model year, 'twenty, three and Thats something that will also incentivize them not to cancel their order intake the units.
Okay, so to be clear, what's what's embedded in your guidance right now or your thought process as the finance offer not additional rebating.
Okay, great great. Thank you.
Once again as a reminder, if you do have any questions. Please press star followed by one on your Touchtone phone and your next question will be from Jamie Katz with Morningstar. Please go ahead.
Hi, good morning.
I was hoping that you guys would elaborate.
Maybe where youre seeing supply chain shortfalls that might lead to opportunities for further vertical integration integration given the recent acquisitions, you've made and then.
Adjacent to that it looks like in the financials. Today, you guys have carved out this low voltage human.
<unk> group.
And I'll.
I will take your growth strategy and I'm curious whether that suggests.
Electric or is there something else, we should be thinking about to figure out what the total addressable market. What you are trying to do there might include thanks.
Yes first on the vertical integration.
We are happy with.
<unk>.
The acquisition.
In Austria, and basically what we acquire this talent.
Was it group.
About 50 people that are <unk>.
Deeply competence into electric technology that now as part of our R&D group.
Cause bird in Quebec.
We're the biggest customer of that division and four for US dose component are key and they will be even more key.
Going more electric.
And <unk> is a different thing to Neil.
It's a compact gearbox.
That we can implement obviously on bike an electric bike, but also on other product line or new type of product line.
<unk>.
Right now there is no plan for additional.
Other vertical integration or activity.
We were opportunistic with those.
We are very happy with dose acquisition, because over and above and those are not big acquisition, but.
We acquired a lot of talent that will be key for the future.
On the LDH shape.
Right now is the name as a as an internal codename, but.
Low vol page, our motorcycle and our power sport electric vehicle will be high voltage. We are right now working on low voltage product that will be electric.
And obviously H eight is human assist and opinion gearbox is key for the <unk> product line and all of this is our strategy to enter Youll know when were presented that the.
And then this meeting Investor meeting in June in Florida, We had the $34 billion bubble of <unk>, where we have about 30% market share. We marinas 36 billion were a small player we intend to grow there we had model cycle Europe , and North America 15 billion.
We have a plan with our electric motorcycle and we're talking about $70 billion have been mobility.
Our new type of market and those acquisitions are key to enter in those market.
Okay. That's helpful. Thanks.
Thank you next question will be from Brian Morrison of TD Securities. Please go ahead.
Hello. Good morning, just very quickly said when I look at the working capital unwind next year.
Spoken about this a bit but it looks like it should be north of $500 million.
Just wondering if that would be correct and then with the rising cost of debt would you plan to allocate some of your free cash flow towards debt rather than the in CIB.
Well.
Sure.
When you look at the overall number of days of working cap and what we've invested there year to date <unk> said, we've invested about $526 billion. Obviously this is a growing business, but from a number of days perspective, if you will compared to let's say fiscal.
Fiscal year 'twenty.
If you were to come back to the same number of days there, it's about a $500 million opportunity of reduction in working cap when is that going to happen.
As I said some of it is going to happen in the back half of next year, how quickly do we come back to the previous levels we were.
Obviously, we'll be structuring our teams to make sure we optimize the working cap investments.
And run our plants efficiently.
But yes, you are right ballpark, its a $500 million opportunity that we have.
Now how we use the cash next year, obviously, it's something that we look at continuously we have discussions with our board our leverages relatively still low.
The overall cost of financing, yes rates are going up but its relatively still accessible.
We have interest rate caps, which are making the overall costs lower for us as well but.
We don't we do want to make sure that we optimize returns to shareholders and obviously these decisions are based on where the stock is trading.
And how much cash we have to deploy either to.
Reduction of debt or two.
To doing buybacks.
Okay.
Housekeeping question.
Just in terms of the pack high margin business and it seems to have realised sides growth in Q4, and what is driving that it looks like it's going to be a very record quarter in the fourth quarter I'm just not sure what.
As the key contributor there.
While the snowmobile business is always a big parts business and obviously we're shipping.
A lot of units in the fourth quarter, both from a viewpoint of view from a personal watercraft point of view as well.
So there are some deliveries to the dealers as well for upcoming season.
Our products and getting ready for the season as well so theres a bunch of factors that are helping with the strong growth in fact.
Thank you.
Thank you.
No more questions I would like to turn the call to Mr. Shane to close the meeting.
Super Thanks, everyone for joining us today and for your interest and we look forward to speaking with you again for our Q4 earnings call in March. Thanks, again, everyone and have a good day.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we ask that you. Please disconnect your lines.
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