Q2 2024 BRP Inc Earnings Call
Speaker 1: Good morning ladies and gentlemen and welcome to the BRP Inks FY24 second quarter results conference call. For participants who use the telephone line, it is recommended to turn off the sound on your device. I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead Mr. Deschenes.
Thank you, Julie. Good morning and welcome to BRP's conference call for the second quarter of fiscal year 24.
Joining me this morning are Jose Bojali, President and Chief Executive Officer, and Sebastien Pastor, 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 the actual result could differ from those implied in these statements.
Before looking information is based on certain assumptions and is subject to risk and uncertainties, and I invite you to cancel BRT's MDNA for a complete piece of these. Also during the call, reference will be made to the supporting slide and you can find the presentation on our website at BRT.com under the investor relations section. So with that, I'll turn the call over to Jose. Thank you, Philippe. Good morning, everyone, and thank you for joining us. I am pleased to report that we have delivered a very solid quarter driven by continued strength in consumer demand for lineups and the ongoing support of our data network. Solid execution of our plan led to an impressive market share gain and record result for a second quarter. Given the strong performance and our positive outlook for the rest of the year, we are increasing our normalized EPS guidance to a range of $12.35 to $12.85.
Let's turn to slide four for key financial highlight. Revenue reached 2.8 billion of 14% from the previous year, given by higher volume and pricing. Normalize a bit, though, grew 13% to 473 million. And normalize the PS increased 9% to reach $3.21.
Turning to slide five for a look at our Q2 retail performance. Our product portfolio continue to gain traction with consumers leading to significant market share gain.
In North America, our retail sales were up 41% compared to an industry that was up mid-teen percent.
Given our retail performance, this imply that BRP accounted for most of the industry growth in the quarter.
We were also very strong in international market, with retail up 23% in EMEA, 36% in Latin America, and 33% in Asia Pacific.
Looking more closely at the numbers, we see that the demand for product remain robust despite ongoing macroeconomic concern.
We just had our strongest second quarter ever at retail, except for the first few months of COVID, where we experience significant and vendor redepletion.
Not only was our retail up 41%, but it was up 37% versus Q2 of fiscal year 20, showing continuous gain.
With this strong performance, we reach record market share for side-by-side, ETV and personal watercraft. All of this with retail incentive below pre-COVID levels. We believe those results are driven by the evolution of our customer profile over the last four years. The influx of new entrends remains high at 39%. We also continue to see high FICO score and the average household income from our customer survey is 40% higher than pre-COVID at slightly above $160,000. Those customers are looking for more high-end products which explain our momentum in this category across our lineups. Bottom line, the typical BRP product buyer remains in very good shape financially. This puts us in a favorable position entering the second half of the year. Turning to slide 7 for an overview of key products introduced at our BRP club.
With strong performance, we reach record market share for side-by-side, ETV, and personal watercraft. All of this with retail incentive below pre-COVID levels. We believe those results are driven by the evolution of our customer profile over the last four years. The influx of new entrants remain high at 39%. We also continue to see high FICO score and the average household income from our customer survey is 40% higher than pre-COVID at slightly above $160,000. Those customers are looking for more high-end products which explain our momentum in this category across our lineups. Online the typical BRP product buyer remains in very good shape financially. This put us in a favorable position entering the second half of the year. Turning to slide 7 for an overview of key products introduced at our BRP club held in Atlanta two weeks ago.
This year's club was one of the largest ever with 5,300 total participants in person and virtually. The highlight was the launch of the Can-Am Mavic R, our flagship model in the sport category. It brings a new dimension to riding with an industry-leading 240-horsepower engine, industry-first dual-clutch transmission, a unique suspension geometry, and lots of enhanced technology. With this new offering, we are well positioned to gain market share in the high-end sport side-by-side category. But this was not the only product news, as shown on slide 8. We improved our entry-level offering with the first major evolution of the highly successful Seido Spark since its introduction.
We also launched many new side-by-side models, notably the Canon Defender XT-HD7, as well as the Mavic X3 RS Turbo, the industry's most affordable mid-HP 72-inch wide side-by-side. These models offer a lot of value at price points that reach a wide range of consumers.
We also continue to push innovation in the premium segment, which has seen the fastest growth in recent years.
We introduce a full range of high-end model such as the Many2 Explore MAX 300 hp of pound-toon with dual rotax engine and the larger MAX deck, the CEDU RXPX and RXTX with 325 hp and the CEDU switch cruise limited.
We also added a touchscreen with Apple CarPlay to our Spider's models.
These additions represent an aesthetic level of product news, which will help us to gain more market share and grow our addressable market, while further improving our margin profile.
All our new products were well received.
The order process is ongoing, volume is as expected, and the mix is currently trending slightly better.
Now let's turn to slide 9 for a year-round product.
Revenue were up 8%, reaching $1.5 billion, driven by strong shipment of side-by-side vehicles and ETVs.
At retail, Can-Am side-by-side had its strongest Q2 ever with retail hop high 20% and solid growth in all segment and price categories.
We also finished the season with a 6-point market share gain to reach the high 20% range in North America.
With this performance, we are very close to delivering on our M25 objective of reaching a 30% market share by the end of fiscal year 25, but of course, we will not stop there.
Moreover, for the first time ever, Canada's side-by-side reached the number one position in Canada with the market share in the high 30%.
As for ATV, our retail was up mid 30%.
This performance was notably driven by strong growth in the mid CC segment, reflecting the success of our newly introduced mid CC outlander platform.
ETV also closed its North American season with the strongest share of gain in the industry, passing the 20% mark for the first time ever.
We are pleased with the momentum of our off-road business and with recent product introduction, we are in a good position to continue outperforming the industry.
Looking at three wheel vehicle.
Retail was down high single digit compared to an industry that was up high single digit.
While consumer interest remained high, the Rikers' retail performance was softer in the quarter.
As seen across the industry, buyers of entry-level products are more hesitant to purchase at the moment.
Meanwhile, the Spyder F3 and RT models, which are higher-end, had solid growth.
With the upgrade on the model year 24, we are well positioned for next season.
Turning to seasonal product on slide 10.
Revenue were up 30%, reaching almost $900 million, driven by a higher volume of snowmobile and switch pontoon, as well as favorable pricing.
Looking at our retail performance, we had a very strong quarter for personal watercraft which retail up about 60% again an easy compatible a year ago.
Remember that we had limited product availability in the network during Q2 last year. Still, this performance was exceptional from an historical perspective. In fact, our season to date retail is the strongest in the last 15 years. These results demonstrate the strength of our lineup and our ability to create new segments with models such as the Wake, Fish and Explorer Pros. These products bring new entrants to the category which drives industry growth.
And with our new product introduction for 24, we are well positioned to sustain our momentum. As for our C2 switch, our retail was up over 200% and we held the number 3 position in the US pontoon industry over the 3 month period ended in May.
This is a great example of how we can disrupt category by developing market shipping product.
Finally, for Snowmobile we are currently in the off-season. We are confident for the peak season with a high level of unit pre-sold to consumer.
Moving on to slide 11 with barsport part accessories in a peril and OEM engines.
Revenue were up 14% reflecting a lower volume of boat shipment. The revenue decrease is due to the slower than expected production run-up of the new many two platform, namely because of the supplier issue for an aesthetic component which limited product availability. This issue has now been resolved. Looking at retail sales, from an industry perspective, the boat category has seen weaker demand so far this year. The man was affected by higher financing costs and poor weather in many market, especially in the Great Lake region which is key for boat, Alumacaraf and many two. In addition, a retail performance was impacted by the supply issue for many two and we still had lapping months retailing welded boat for Alumacaraf. For Quinterex, retail was down in line with the industry in Australia. Given the slower production ramp up for many two and softer industry trend in the boating sector, we decided to realign our plan for this year focusing on season 24. While the year has not unfold according to plan, we are encouraged by consumer reaction to the new boat and we remain confident about our strategy for the marine business.
In fact, our network inventory is only up 24% versus pre-COVID, while our retail volumes have grown 49% over that period, driven by industry growth, the addition of a new product line, the CEDU switch, and more importantly, significant market share gains.
We still have opportunities to further improve availability on ORV while continuing to work through the remaining inventory for summer products as the season is winding down.
Looking ahead, we will continue to diligently manage our network inventory to ensure that we are well positioned to seize retail opportunities while continuing to operate more efficiently to limit the cost of inventory for both us and our dealers.
Secondly, our guidance calls for a very strong second half of the year, as you can see on Flight 18.
Although our top-line growth may appear limited, I would like to remind you that we are lapping a period in which we had about a billion dollars worth of inventory replenishment, making it a difficult comparable.
Nevertheless, our results for the second half of the year are expected to be very strong from a historical perspective, reflecting the solid momentum of our power sport portfolio and the underlying strength of the demand for our products.
In terms of cadence, we expect to generate roughly 45% of the remaining normalized EBITDA for the year in Q3, resulting as usual in Q4 being our strongest quarter for the year. On that, I will turn the call back to Jose.
Thank you, Sebastien. I am pleased with our performance so far in fiscal 24 as we continue to significantly outperform the industry.
Our strategy is simple. We focus on delivering industry-leading innovation across a diversified product portfolio, and we team up with the best dealers.
This gave us access to a wide range of customer base across all markets and regions.
Our ability to execute has delivered exceptional results over the past eight years, as you can see on slide 20.
We have gained market share almost every quarter during that period. And we are now the number one OEM by a wide range, by a wide margin in terms of average unit retail producers.
Looking ahead, we will continue to execute that strategy.
The record level of new product introduced at FLAM positioned us well to continue our growth and remain the industry leader.
As for the remainder of the year, we expect demand for product to continue driving our market share momentum and we will stay focused on executing and optimizing efficiencies to deliver a record year in terms of top and bottom lines.
In closing, I want to thank our employee for another strong performance this quarter.
I also acknowledge the support of our dealers who made us the leading OEM in the industry.
On that note, I turn the call over to the operator for questions.
Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touchtone phone. If you'd like to withdraw your question, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.
Your first question comes from Mark Petri from CIBC. Please go ahead.
Good morning. Thanks. I wanted to ask first just on the sort of competitive dynamics in the industry. Obviously, there's a healthy rebound in sales volumes. versus sort of constraints last year. But I guess just, you know, commentary on on
on sort of the competitive dynamics and then I know the sales programs are higher but still below pre-pandemic levels. So is that just higher than what you sort of initially embedded in guidance or is it just higher from last year? Thanks.
Yeah, good morning, Mark. I'll take the question on the sales program. They are trending in line with our expectation. Yes, the floor plan cost is higher because of interest rates are higher, but from a retail incentive point of view, we are trending according to plan. You might recall that we said we would expect about a 200 basis point headwind coming from retail incentives this year.
And that is currently the assumption we're working with, so no changes there.
On the other question, Mark, there is not much change in the dynamic into the industry. All OEM are getting better with the supply chain and basically what I believe make us different than the others is our focus on technology and new product and pushing.
novelty, innovation, and on top what is positive, and we see more now the stability, but the customers' profile. As I mentioned in my remark, the household income of our customer has increased by 40% since pre-COVID, and those customers are shopping for high-end products where we are good at, and I think no big change in the dynamic of the industry with the other OEM, but I think what makes us different is what we've been good at, pushing innovation, technology, and coming out with new products in new segments and more premium products. Okay, thanks, and I wanted to ask about sort of the strength across the price points, and you called Outriker as sort of underperforming relative to Spider, but curious if that's also the case in PWCs where obviously you have a range across price points. Is that the same dynamic?
It's a bit different. Those two products are entry-level products, but the Riker customer is more, I would say, a mid-range household income. Sometimes those customers are definitely more concerned with the macroeconomic and the inflation and all this. The Watercraft Spark customer is more high household income. It's people who have typically a cottage on the river.
the lake and they buy two watercrafts for their family. Then it's a different profile.
Same type of product, entry level, but different profile in customers.
Okay, understood and then maybe just one last one. So, you mentioned the supply chain is sort of a 50 basis point tailwind in the. In the 2nd, half is there still an opportunity for this to be a tailwind in next fiscal year or will you be laughing stability by that point?
Obviously this year we are getting a huge benefit from a better supply chain and I'd say also a
The teams are very focused on coming back to more normal operations and they've outperformed our expectation. We have solid people running all our plans.
And so most of the benefit is going to happen this year. I might expect a bit of a benefit next year, but a significant part is being materialized, which is good news this year.
Yeah, understood. Okay, thanks for all the comments. All the best.
Thanks for all the comments, all the best.
Your next question comes from Robin Farley from UBS. Please go ahead.
Great, thanks. I wanted to ask a little bit more about the sales promos that you highlighted kind of being tied to interest rates that partially offset some of the margin improvement. Can you give us some color around the mix of your buyers that are paying cash versus financing and how that kind of compares to pre-COVID? When we look at the overall trends from our financing partners, there is not a significant change in terms of proportion of who's financing versus who's paying cash. So we're still in the range of, with our partners, about 30%, but we know that dealers have arrangements where there are local credit unions and banks and another 30% is being done through retail financing there as well. About 60% to 65% is done through retail financing, the other is cash.
But we are seeing higher FICO scores versus pre-COVID and that obviously is being highlighted as Jose said through the average household incomes that are higher as well. But the acceptance rates are in line with pre-COVID and with COVID and we don't feel that our retail partners have tightened on the credit as well.
Thank you. And then just one follow up. You talked about the higher demand, your higher customer income level, and obviously a lot of demand at the higher end. Can you talk a little bit about what's happening at the entry level and whether it is a share shift to maybe some lower priced OEMs, some other imported product, or is it do you think just overall just less entry level? In other words, is it more of a share issue or a size of the pie issue at the more entry level? Thanks. I think it's obviously the inflation that we've been through in the last.
Thank you. And then just one follow up. You talked about the higher demand, your higher customer income level, and obviously a lot of demand at the higher end. Can you talk a little bit about what's happening at the entry level and whether it is a share shift to maybe some lower priced OEMs, some other imported product, or is it do you think just overall just less entry level? In other words, is it more of a share issue or a size of the pie issue at the more entry level? Thanks. I think it's obviously the inflation that we've been through in the last 18 months and the.
The pressure on the macroeconomic and the uncertainty is scary for people who are buying entry-level products. It could be scary. But you know, our job is to make sure that we are competitive in the entry-level. And you know, we're focusing a lot on the premium because that's where we shine. But we still have, you know, CIDU Spark and SCCIDU MXN Neo below $7,000. We have many, many side by side models and commander and maverick between $13,000 and $16,000.
which is an entry level pontoon at below $24,000, then what we're trying to do is always keep good offering in the value product.
and pushing again technology and innovation for the high-end product. Then we want to have the wide portfolio of product to make sure that we please everybody. Positive thing like I said before on the previous question, is the trend of the customer change in the last few years.
and it's benefiting us right now.
Okay, great. Thank you.
Your next question comes from James Ardenman from Citi. Please go ahead.
Hi, good morning. Thanks for taking my call. I wanted to dig into the inventory situation a little bit. Obviously, you talked about your inventory being up 24% versus 49% increase in retail. What is the impact on aanchention of the value of that inventory?
And it sounds like you're comfortable with where you are. I guess why is that? And ultimately, why is there not a greater opportunity to replenish inventories? And then I guess sort of a second part of that question, in the...
In the prepared remarks, you talked about how some dealers were working through elevated levels of inventory. It sounds like it's not your inventory that's elevated, but help us sort of connect those two comments.
Well, we've always said that coming out of the pandemic, we wanted to run our dealer network with less inventory. We've set up, a lot of OEMs have set up as well and dealers say it as well. And so we've been very focused on making sure that we have enough inventory so that the dealers have the right product offering when the consumer walks in and they can close the sale rapidly and get the unit to the consumer rapidly..
We also have flexibility in our ability to quickly deliver units to the dealers if they need them. And so our goal is to make sure that we have that right level. And so I'm actually happy to see that, again, dealers are saying that they have the right level of inventory. They're able to meet consumer demand and we're managing it diligently. I mean, we are cognizant as well that interest rates are higher. So why put more inventory in the network?
create more cost for us, more cost for the dealer network if we don't need it. Ultimately what we are driving for with the dealer network is not to create a great pressure where they're focused on our units because they have them in the yard, but because they're making more profits selling our units. And one way of making more profits is by having the right level of inventory so that they don't pay unnecessarily for property.
Just maybe to add to Sebastien's, I just came back from a club where we had many discussions about this with dealers. For sure if you survey a dealer they will tell you they have too much inventory but they look at it in dollars.
And we look at it in units. And again, I said it in the remark, but our inventory level right now in the network is 24% higher than pre-COVID, but our retail is 50% higher than pre-COVID.
Plus you have higher-end product and you had all the price increase that we have done in the last four years. Then for sure the dealer when they look at it in dollars, they don't like it with the interest rate. But if they want to support the growth and retail and be able to supply to the demand, this inventory is needed. When we look at it…
in number of days and we are below pre-COVID. Got it, that's helpful. And just to clarify, um,
The billion dollar headwind that you're laughing against in the second half of last year. That's versus a zero this year, this year second half presumably, or I guess maybe put a better way. The days on hand, you expect to stay pretty constant as we move forward, maybe not quite a one to one wholesale to retail because retail is obviously growing. But is there any offset to that billion dollars in the second half of this year versus the second half of last year or is that your retail going to have to grow by that much more just to get to sort of flatish?
in the second half of last year. That's versus a zero this year, second half presumably, or I guess maybe put a better way. The days on hand, you expect to stay pretty constant as we move forward, maybe not quite up, a one to one wholesale to retail, because retail is obviously growing. But is there any offset to that billion dollars in the second half of this year versus the second half of last year or is that your retail going to have to grow by that much more just to get to sort of flatish?
Well, if you look at what the implied growth is for the back half of the year, obviously there is that inventory replenishment that we did last year. About 60% of that was for seasonal products because of timing of shipments for personal watercraft and switch. But when you look at the implied growth for year-round products, based on the guidance, you're talking about a growth of 11 to 16%.
So well, if you look at what the implied growth is for the back half of the year, obviously, there is that inventory replenishment that we did last year. About 60% of that was for seasonal products because of timing of shipments for personal watercraft and switch. But when you look at the implied growth for year-round products, based on the guidance, you're talking about a growth of 11% to 16% growth.
That obviously comes from the market share gains we've experienced over the last few years, the recently introduced products that we've done at the club, obviously better pricing, better mix as well, and also by strong deliveries of ATVs as we've launched a brand new platform. But I'll remind you that in the last three years, we've gained three points of market share inside by side, and obviously that momentum is...
fueling, wholesale delivery and retail deliveries as well. That's really helpful. Thank you. Thank you.
We've recently launched the Maverick R. We'll call it the next level in tax we should think about.
No, we were expecting a very strong second quarter for seasonal products due to better deliveries of personal watercraft and Cidoo switch. Again, last year because of supply chain, it was a tough quarter. So now things are back to normal seasonal pattern. That obviously is a big plus. And so the implied revenue decline in the back half of the year is really mainly related to the timing of deliveries compared to last year. But all in all, we're very happy with the season we had on seasonal Cidoo switch. It was the first real year of deliveries. Obviously, the demand was very good and the performance of the switch was also strong from a retail point of view and from an industry point of view as well.
But nothing to highlight specifically other than that. Okay. Great. Thank you. Good luck. Your next question comes from Fred with Wolf Research. Please go ahead. Hey, guys. Good morning. I just wanted to come back to the dealer inventory number, and I totally get that it's below the retail share performance. But in the past, you guys have given sort of a bridge between seasonal products and then also year-round products. Can you give us an update on sort of where the dealer inventory levels for both of those categories stand today, either on a year-over-year basis or next to 19, however you want to talk about it? Well, when I look at the overall inventory position, what I'd say is for year-round products, we are comfortable with the inventory we have for both ATV as we've started shipping the new model.
For side-by-side, as I said, we have opportunities to increase delivery, especially on the utility full enclosure cabins side-by-side. That's a product that's in high demand. Spyder, very strong on the traditional Spyder. We're good there. We have a bit more Rikers, and that obviously will... We've put a plan in place to make sure that we get through that inventory in the next quarter.
From a seasonal point of view, we finished the season. We're personal watercraft. It's going to finish in a month. Very happy with the season that we had. Good levels of inventory coming out of that season. And the Cebu switch, strong season in some markets. The Midwest was a bit softer than what we were expecting. So we have a bit of inventory there that we are working through. And we've put promotions as well in those regions to make sure we get them all year within 2023.
retail and get ready for model year 24. Okay, and then just to follow up on sort of the marine business. I mean, you guys are cutting the outlook, you're delaying or deferring some of the capacity expansion. It's just a pretty big change versus a couple months ago. So can you just give us maybe an industry lay of the land as far as what changed and maybe why you think it was so much different than sort of the what seems like solid demand for year out.
And if you talk about the industry, obviously the weather was not the best. We didn't have the best summer to start with. After that, many customers financed their both 15 to 20 years, which is a very long period. And obviously the interest rate.
that client over the last 18 months affected our people's delay, then when you have a combination of interest rate going up, in the summer that weather is so-so, some customers prefer to delay their purchase. And this is for the industry.
For us, what happened, and you know the story, I mean, I don't want to talk too much about it, but we were a victim of the cyber attack last fall. The operation in Marine was the last to be reintegrated. After that we had that supplier difficulty and when we started to really ramp up with good volume, the production in May.
dealer already have high inventory of other brands.
At the end of the day, we were pushing too much. Then we decided to slow down for season 23 and refocus everything on season 24.
And as I said the teams are and highlight the teams that are over performing from a operations point of view and from a procurement point of view, which is also driving good savings, which will be there next year.
And as you know next year is RMB 25 anniversary date, and so where we have ambitious financial objectives and our plans are still very much in line with the 25 objective.
When you look at what we have delivered since we've done our Investor meeting last June <unk> last year.
On the side by side side, we are just shy of about 30% market share objective that we had.
Given ourselves, especially with the recent product introductions.
I don't want to obviously drive continued market share gains.
We finished very strong the season with 20% market share.
And theres going to be continued momentum as we've just started delivering the new platform we.
We finished the season with record market share in snowmobile and personal watercraft and that obviously bodes well for next year.
<unk>, which we said we want this to be a $500 million business. This year, we will be at $500 million. So again continuation next year. So everything in power sport is in line and even better than our plans.
And again, if I want to put things into perspective, if you look at the last 12 months, we've gained about six points of market share in the power sports industry and every point of market share. We gain is about $190 million of revenue.
And so with the recent product introductions the momentum the brand the dealer engagement we.
Our well positioned for next year marine softer than expected, but we are obviously, making the necessary steps to position it well for next year. The lien is going very well as I mentioned.
The modular design is paying off and we have a greater proportion of vehicles being produced in Mexico.
So all in all.
If the industry remains the same.
And consumer demand is maintained we feel very comfortable with our plans for next year.
Okay.
Helpful. Congrats on your results.
Yes.
Your next question comes from Jamie Katz from Morningstar. Please go ahead.
Hi, Good morning, I Hope you can just.
Back to your outlook on gross margin a little bit more.
The ability to take pricing the premium premium innovation of the next and then.
Much more.
<unk> <unk> or less.
All of that thanks.
Yes, obviously, we had a very good gross margin in the second quarter when I look at the puts and takes of the margin.
Obviously pricing net of inflation.
What are the big driver of that was a tailwind of 170 basis point.
Offset by programs.
We said our expectation for the year was 200 basis point headwind this quarter was 170 basis point.
<unk> costs are higher as well Thats, a headwind of 100 basis point and in terms of turbulence, we're looking at 250 basis point tailwind.
Big tailwind in Q1 Big tailwind in Q2, that's going to taper down in Q3 and Q4 as even last year Q4, we saw benefits from from turbulent costs, but overall in line with our.
And our plan plus the adjustments we've made in the guidance and as we mentioned we had FX, which was a headwind for 100 basis 100 180 basis points.
In the quarter so.
Obviously strong strong gross margin strong EBITDA margin.
<unk> bye.
Again, the great mix.
Products that command these margins and as well with greater operational efficiency from from the teams.
And then are there any inefficiency that Samsung question.
Thank you <unk>.
Lay on gross margin next year in Belgium, and Buildout of that Marine facility.
Not significant when you look at the cost to build a plant, yes, theres some operating expenses associated with it but.
When you look in the Grand scheme of things.
Not that material.
Thanks helpful.
Your next question comes from Joe <unk> from Raymond James. Please go ahead.
Thanks, Hey, guys good morning.
Go back to your comments regarding at 25, he making power sports.
It's trending well marine not so much.
You're pushing back capacity expansion by 12 months is it safe to assume that we should think about the marine and 'twenty five targets is getting pushed back a year as well as how is your long term outlook for that segment changed at all.
Yes, if you remember then the employee of five we were targeting.
By the end of fiscal year, 'twenty five to be at $1 billion.
Too early to say.
If we.
What will happen next year, I think we need to wait to see how the industry will unfold.
Beginning of the year the boat show in all of this.
But you know.
For me this is short term.
For the Marine Division that we have.
Is working it's just a matter of execution this year and will it be aligned for next year, then I think it's too early.
For the.
The $1 billion in 'twenty, five or fiscal year 'twenty five for marine.
But it doesn't change the overall feature like Sebastien described for the overall <unk> 25 objective next year.
Okay. That's helpful. And then maybe just a quick question for Steve I wanted to better understand.
How you see overall gross margins versus Opex, playing out this year I think the prior expectation with gross margins would be up 50 basis points Opex up 50 basis points since they sort of offset but it sounds like that's still the case on the gross margin line.
But we're looking to see maybe some lower or lesser increase in opex. So I'm curious if I have that right and where that's coming from.
Yes. The initial estimate when we issued guidance was that we get a tailwind on gross margin of 50, and we'd get a headwind on opex of 50, So net flat EBITDA margin year over year at 17% now with the revised numbers gross margin it will be a tailwind of about 100 basis points and we'd get the tailwind from.
Opex of 50, so pardon.
Yeah and so.
So that would be for this year.
Delivering strong EBITDA margin this year.
Okay, great. Thank you guys.
Your next question comes from Luke Hannan from Canaccord. Please go ahead.
Thanks, and good morning, I'll start off with a quick one session. I believe you said last quarter that for the year you expected working capital Okay.
Roughly 400 million.
He said if you had mentioned it earlier in the call, but do you still expect to see that level of talent for the year.
Yes, we've generated strong cash flow free cash flow since the beginning of the year over 500 million for the first six months total.
Total free cash flow.
With minimal working capital benefits as I said.
We're still running with higher levels of inventory.
We'll call it safety stock.
But obviously with the good results that we're seeing from the supply chain turbulent. The expectation is that we will be able to achieve our $400 million working capital benefit.
At the end of the year.
Okay, and then a higher level question here I appreciate the commentary earlier in the colleges.
The market share that <unk> been able to gain in SSD, and particularly in Canada, but I guess, just taking a step back and from a higher level structurally when it comes to the competitive dynamics or anything else.
And to that product line specifically.
Any reason why longer term you wouldn't be able to achieve a market share in ssds similar to what you have right now in snowmobiles and personal watercraft.
There is no reason.
Sure.
You know, we're going step by step on the end of 2005. The objective was to reach 30% market share. We almost there and then we will pass that 30% next year.
And that for that.
Momentum that we have and the product innovation. There is we will not stop there like I said in my prepared remarks.
Yes for us it's always.
Like I said in some some investor many investor is asking why are you gaining so much versus others that are <unk>.
Table, but.
As we said in 2015.
When we introduced the defender.
We wanted to convey a strong message about our commitment in the side by side industry and Thats, where we committed of the new model every six months for the next four years and that message convince.
<unk>, many dealers to convert more space to be ERP.
And with our capacity to come out with innovative product pushing technology bushing design combined with debt commitment. It was like a big wheel that did start in motion and to date. The wheel is really in motion.
And I believe that.
With our continued push on.
And helping the dealers and working with the dealers.
To continue to grow.
This is what explains the success then definitly will not coming this morning about any specific number four and eight days, but I can assure you will not stop at 30%.
Great. Thanks for the commentary.
Your next question comes from Brian Morrison from TD Securities. Please go ahead.
Hey, good morning, Thanks for all the clarification comments I have one further question to clarify, though you mentioned in slide 18 in your prepared comments that you are lapping each to fiscal 'twenty. Three there is a $1 billion of inventory replenishment.
How much of that how much.
Inventory replenishment revenues in fiscal 'twenty three how much do you estimate will be in fiscal 2024, and how much is there to go in the second half I understand that retail unit sales are well access to all of the increase in inventory at retail.
As of today, Brian I'd say, we're pretty much done on inventory replenishment.
Obviously, theres going to be some seasonal elements, where we might find okay, theres snowmobile thats going to be there at Q3 more than last year, but from a overall business point of view their inventory replenishment is not a tailwind for us.
Growth in inventory will come with growth and market share growth in industry, but not from putting more units with the dealership.
Okay, and how much replenishment Walter will share amongst.
Well last year was a billion, we probably did $250 million at the beginning of this year.
And in fiscal year 'twenty three.
I have to check but not that significant.
And then this year probably seemed in this area.
But obviously it okay.
In the second half of last year.
Alright.
And then on Slide 17, you said theres lower shipments of <unk>, primarily due.
<unk> can you just reconcile that with the strength of the switch was it just a prebuilt because the product was in infancy last year.
Well last year as you know we under delivered in terms of.
Switch pontoons and with dealers, we under delivered units, but we delivered the dealers.
Theater set order the parts and accessories and so they had quite a bit of inventory on hand.
And so this year they were able to cycle through their inventory get it through the dealers, but they still have a bit more inventory with dealer levels are higher from a P&A.
Slide.
And so they will be adjusting the dealer inventory and therefore ordering less from us.
Okay simply timing, okay. Thank you very much.
Your next question comes from Justin Thomas Martin from BMO Capital markets. Please go ahead.
Okay.
Hi, Good morning, just one question for me.
Our dealers are approaching holding inventory or maybe ordering over their off season is any different given how elevated floor planning call Sir.
To be funny.
If you thought I was again with box for dealers and marine dealer two weeks ago, and if you talk to dealer like I said in the question before they don't like the <unk>.
Inventory in dollars and the interest.
But at the same time.
You know when we take an order it's like a discussion between.
Youll grow within what you're planning in the basically orders in line with our expectation.
Why we said the volume is in line with expectation, but with a richer mix.
Then it's a bit funding the product support dealer right now most of them complain about.
The interest bill at the end of the month, but the cylinder the understand that to support the growth they need to invest in working cap.
And the other thing is that dealers do trust us, but we'll make the right decisions.
One thing is important is that we do support the inventory in the first 60 to 90 days when the unit is shipped so obviously that is a burden that they do not have and we have and we accept that and the other thing is in the past. If we've ended the season with too much inventory, we have always been there to step in and some.
Fort the dealers with the floor plan financing.
And that's something that we've done and Thats something that we will continue to do with.
If a season would end up to be not as good as expected and did have more inventory. So there is a level of trust there that exists between us and the dealers on that side.
Okay, so they're complaining more but theyre not changing their habits got it. Thank you.
I mean, they've lived the perfect world for two years, they had no floor plan financing costs until they forgot what it was now.
They have inventory, which they are happy because that allows us to sell but there is a obviously higher interest rates and the higher floorplan.
That comes with it and so there is a sticker shock, but it's a cost of doing business select meal of the restaurant more expensive but to still go.
Sounds good thank you.
Your next question comes from Michael <unk>.
Please go ahead.
Good morning, and congrats on the strong strong results just one quick one for me maybe on the snowmobile Brent I think you mentioned <unk>.
<unk> had been pre sold the same figure that you had mentioned last quarter have you seen any early signs of cancellation or anything.
Ending up well from a strong season in your point of view, especially with one of your competitors, saying that they're going to exit the market.
No no sign of every year, you'll have some fallout will in some cancellation, but I didnt heard any dealers, saying that this year was worse than previous year.
Snowmobile customer are different than the others is some will save money.
The last thing they will cut their budget because it's a passion.
And we believe we are in good shape for the snowmobile season.
I appreciate the color. Thank you.
Your next question comes from Jonathan Goldman from Scotiabank. Please go ahead.
Hi, Good morning, guys and thanks for taking my question most of them have been answered just two housekeeping ones.
Just you talked about possibly exceeding the 30% market share in side by side next year I just wanted to see if you can revisit the capacity that you have.
And side by side currently and coming online what market share could that support over the next two years or year and a half.
Oh, that's a good one first.
We have plenty of capacity for next year season, we.
We will not to reach the maximum of our capacity.
As you'll remember we build.
<unk> one <unk> two <unk> two phase <unk> three into phase <unk>.
We have plenty of capacity for next year for sure and now we even looking how we could tweak.
Tweak and maybe up to <unk> the capacity between within those two factory I think there is a ways where are with small investment you can even increase the capacity above what we had planned.
Two years ago.
Perfect. That's helpful. And then just I guess one for use of SG&A on the reduced Capex guide by $108 million does that change your thinking around capital allocation for this year at all.
No.
We're still going to be generating strong free cash flow, even before the reduction of capex.
And obviously, we've been active with buybacks, we still have about 900000 shares to buyback under the CIB.
But the priority as we've always said is investing in growth and any excess free cash flow will be used to.
Return it to shareholders, which we've.
<unk> been very good at doing in the last few years.
Okay. Thank you destiny.
Ladies and gentlemen.
Sure do you have a question please press the star.
Followed by the one.
Your next question comes from Brandon <unk> from D. A Davidson. Please go ahead.
Good morning, and thank you for taking my quick question, just circling back to the fiscal year 'twenty five earnings targets and revenue guidance.
Could you just speak to your level of confidence that those targets I feel as though.
There is a view out there is going to be impossible for you to hit even the low end of that.
Earnings range I know you talked about the market share gains, but just overall.
Where could there be some downside to the current guidance and are you still comfortable hitting those targets.
Well as I said.
Two questions.
Question, when we look at all the.
Positive it's been happening Theres been a lot. We're ahead of plan.
On a lot of the elements.
And again, if the consumer sentiment is to remain as it is today.
We strongly believe that the <unk> 25 target is achievable now.
Where is it going to be.
A soft landing and everybody calls or a recession, obviously, we would revisit our plan.
I mean, we can't manage the business and one foot on the gas and one foot on the brake and today when.
When we look at the great momentum we have there is no reasons why.
We could not achieve that target next year.
Alright, thank you.
And there are no further questions at this time I will turn the call to Mr. This time to close the meeting.
Thanks, everyone for joining us this morning and for your interest in VR team. We look forward to speaking with you again for our third quarter conference call on November 30th Thanks, again, everyone and have a good day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
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