Q3 2023 Polaris Inc Earnings Call

Speaker 1: Good morning and welcome to the Polaris Third Quarter 2023 earnings conference call. All participants will be in list

Good morning, and welcome to the Polaris third quarter 2023 earnings Conference call.

All participants will be in listen only mode.

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Speaker 1: After today's presentation, there will be an opportunity to ask questions.

After today's presentation there'll be an opportunity to ask questions.

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Speaker 1: I would now like to turn the conference over to JC Wagell, Vice President and Vester Relations. Please go ahead.

I'd now like to turn the conference over to J C. Weigelt Vice President Investor Relations. Please go ahead.

Speaker 2: Thank you Gary and good morning everyone or afternoon everyone. I'm JC Wygill, Vice President of the Best Relations at Polar.

Thank you Gary and good morning, everyone. Our afternoon, everyone I'm J C Weigelt Vice President of Investor Relations at Playa. Thank you for joining us for our 2023 third quarter earnings call. We will reference a slide presentation today, which is accessible on our website at IR Polaris Dot Com joining me on the call today are Mike speeds and Archie.

Speaker 2: Thank you for joining us for our 2023 third quarter earnings call. We will reference a slide presentation today, which is accessible on our website at ir.pooris.com. Joining me on the call today are Mike Speetson, our chief executive officer, and Bob Mack, our chief financial officer. Both have prepared remarks summarizing the third quarter, our expectations for the remainder of the year, and some initial thoughts on 2024, then we'll take your question.

Executive Officer, and Bob <unk>, our Chief Financial Officer, both have prepared remarks, summarizing the third quarter, our expectations for the remainder of the year and some initial thoughts on 2024, then we'll take your questions. During the call we'll be discussing various topics, which should be considered forward looking for the purpose of the primary private securities litigation reform.

Speaker 2: During the call, we'll be discussing various topics, which should be considered forward looking for the purpose of the primary private security's litigation reform act of 1995. Actual results could differ materially from those projections in the forward looking statements. You can refer to our 2022 10K for additional details regarding risks and uncertainty.

Act of 1995 actual results could differ materially from those projections in the forward looking statements you can refer to our 2022 10-K for additional details regarding the risks and uncertainties.

Speaker 2: All references to third quarter, 2023 actual results and 2023 guidance are for our continuing operations and are reported on an adjusted non-gap basis unless otherwise noted.

All references to third quarter 2023, actual results and 2023 guidance are for our continuing operations and are reported on an adjusted non-GAAP basis.

Yes, otherwise noted.

Speaker 2: Please refer to our RegG reconciliation schedules at the end of the presentation for the gap to non-gap adjust.

Please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments now I will turn it over to Mike Pizza go ahead, Mike.

Speaker 3: Now I will turn it over to Mike Feetzen. Go ahead Mike. Thanks JC. Good morning everyone and thank you for joining us today. This morning we posted third quarter results that were slightly lower than our original expectations.

Thanks, Jaycee good morning, everyone and thank you for joining US today. This morning, we posted third quarter results that were slightly lower than our original expectations.

Speaker 3: driven by elevated manufacturing costs and an increasingly cautious consumer environment which resulted in low-res shipping.

Driven by elevated manufacturing costs, and an increasingly cautious consumer environment, which resulted in lower shipments. Despite these headwinds we posted share gains across all of our segments for the quarter and we had record PJM <unk> results were bolstered by the broadest portfolio in all power sports. We also had an incredibly successful off road.

Speaker 3: Despite these headwinds, we posted share gains across all of our segments for the quarter, and we had record PGA and A results that were bolstered by the broadest portfolio and all powers.

Speaker 3: We also an incredibly successful off-road dealer meeting in July and marine dealer meetings in August , both with positive feedback from dealers regarding our new product.

They're meeting in July and Marine dealer meetings in August both with positive feedback from dealers regarding our new products.

Speaker 3: We are certainly operating in a dynamic environment where we have seen declining consumer confidence, given persistent inflation, coupled with even higher interest rates and rising consumer debt. We saw this impact retail more than we anticipated in the third quarter and anticipate this to continue into the fourth quarter.

We're certainly operating in a dynamic environment, where we have seen declining consumer confidence given persistent inflation, coupled with even higher interest rates and rising consumer debt.

We saw this impact retail more than we anticipated in the third quarter and anticipate this to continue into the fourth quarter.

Speaker 3: Additionally dealers are taking a more conservative position, given a slower retail environment and rising flooring costs associated with higher interest rates.

Additionally, dealers are taking a more conservative position, given our slower retail environment and rising flooring costs associated with higher interest rates.

Speaker 3: Despite all this, I remain confident in our ability to excel in this environment as evidenced by our share gains and all three segments in the quarter and a very positive reaction to our recently introduced new product.

Despite all of this I remain confident in our ability to excel in this environment as evidenced by our share gains in all three segments in the quarter and a very positive reaction to our recently introduced new products.

Speaker 3: Our teams continue to closely monitor the environment and we believe our revised guidance accounts for what we know today.

Our teams continue to closely monitor the environment and we believe our revised guidance accounts for what we know today.

Speaker 3: Turning to our third quarter performance, sales declined 4% from by lower shipments relative to a year ago, as well as higher finance interest. If you were recall, last year we had elevated shipping in the quarter to alleviate low dealer inventory levels and to catch up on motorcycle shipments that have been constrained earlier in the year.

Turning to our third quarter performance sales declined 4% driven by lower shipments relative to a year ago as well as higher finance interest. If you will recall last year, we had elevated shipping in the quarter to alleviate low dealer inventory levels and to catch up on motorcycle shipments that had been constrained earlier in the year.

Speaker 3: North American retail was up 5% in the third quarter. The promotional environment picked up a little in Q3, but still remains lower than 2019. Additionally, we believe we are successfully targeting potential customers with the right promotional offers to drive dealer traps.

North American retail was up 5% in the third quarter, the promotional environment picked up a little in Q3, but still remains lower than 2019.

Additionally, we believe we are successfully targeting potential customers with the right promotional offers to drive dealer traffic.

Speaker 3: While retail was generally lower than we had expected, we further strengthened our share position in each of our three segments. This included achieving the notable milestone in North America of being the number one motorcycle company in the mid-size category.

While retail was generally lower than we had expected we further strengthened our share position in each of our three segments. This included achieving a notable milestone in North America are being the number one motorcycle company in the midsize category.

Speaker 3: Margins were down due to continued headwind from foreign exchange, as well as increased pressure from floor plan promotional costs driven by higher interest rates and higher dealer inventory.

Margins were down due to continued headwind from foreign exchange as well as increased pressure from floor plan promotional costs, driven by higher interest rates and higher dealer inventories shipping.

Speaker 3: Shipping volumes were also lower as we lacked a strong shipping core last year. Mix was another contributing factor to lower margins as we saw a slower than expected ramp up in production of our premium off-road products, including our new Polaris expedition and Ranger XD. I would note that our marine team did a good job reacting to lower demand signals early in the quarter and made required cost adjustments to protect margins.

Shipping volumes were also lower as we lapped a strong shipping quarter last year.

Mix was another contributing factor to lower margins as we saw a slower than expected ramp up in production of our premium off road products, including our new players expedition of Ranger X D I.

I would note that our marine team did a good job reacting to lower demand signals early in the quarter and made required cost adjustments to protect margins.

Speaker 3: On the manufacturing front, we have two big things occurring in our off-road business. The first, which is encouraging, is that we had some of our strongest clean build days and weeks as we neared the end of the third quarter. These are days where vehicles came off the line, ready to be shipped versus entering a rework process.

On the manufacturing front, we have two big themes occurring in our off road business. The first which is encouraging is that we had some of our strongest clean bill days and weeks as we neared the end of the third quarter. These are days, where vehicles came off the line ready to be shipped versus entering a rework process.

Speaker 3: Our teams believe they can build on the success in the fourth quarter. While this is encouraging, though later than anticipated improvements, did impact our ability to get many high demand vehicles and dealers on time.

Our teams believe they can build on our success in the fourth quarter. While this is encouraging the later than anticipated improvements did impact our ability to get many high demand vehicles under dealers on time.

Speaker 3: The second theme is that we continue to build at a much higher cost than we should be. The supply chain has improved quite a bit, but our ability to more cleanly and efficiently execute has not.

The second theme is that we continue to build at a much higher cost than we should be the supply chain has improved quite a bit but our ability to more cleanly and efficiently execute is not there.

Speaker 3: There are several factors in impacting this. Over the last few years, our plants have contended with the pandemic, labor shortages, part shortages, new production lines and facilities, and then, in the third quarter, the complexity of the startup of manufacturing of our new premium product.

There are several factors impacting this over the last few years, our plants have contended with the pandemic labor shortages part shortages, new production lines and facilities and then the third quarter the complexity of the startup of manufacturing of our new premium products.

Speaker 3: These rapid and drastic changes had brought on an inefficient cost structure and mode of operation.

These rapid and drastic changes have brought on an inefficient cost structure and mode of operation.

Speaker 3: As we appear to be entering a slower growth time in our industry, there's no better time than now to address these inefficient.

As we appear to be entering a slower growth time in our industry. There is no better time than now to address these inefficiencies.

Speaker 3: We've deployed key lean resources into the most troubled facilities and remain committed to a culture of continuous improvement. While this is disappointing, it is very fixable. And we will show the best of Polaris' fighting spirit as we work aggressively to not just improve our performance, but to make it better than it has ever been. Execution is key here, and I believe we have the right team as well as the right strategy to remediate the situation.

We've deployed key lean resources under the most troubled facilities and remain committed to a culture of continuous improvement.

While this is disappointing it is very fixable and we will show the best of Polaris is fighting spirit as we work aggressively to not just improve our performance, but to make it better than it has ever been execution.

Execution is key here and I believe we have the right team as well as the right strategy to remediate the situation.

Speaker 3: Considering these manufacturing inefficiencies and weaker than anticipated end markets, we're narrowing our full year sales guidance to the lower end of our previously issued range, and lowering our margin and adjusted EPS guidance.

Considering these manufacturing inefficiencies and weaker than anticipated end markets, we're narrowing our full year sales guidance to the lower end of our previously issued range and lowering our margin and adjusted EPS guidance Bobble.

Speaker 3: Fobble provide more detail later in the call, but we plan to remain competitive and gain share in this dynamic environment while actively managing costs. Our goal is to continue investing the business, strengthen our operations, and emerge from this stronger than we entered. Now let me share some thoughts related.

Bob will provide more detail later in the call, but we plan to remain competitive and gain share in this dynamic environment, while actively managing costs. Our goal is to continue to invest in the business strengthen our operations and emerge from this stronger than we entered.

Now, let me share some thoughts related to customer trends, we're seeing.

Speaker 3: or closely watching software retail trends that have extended in October . And off-road, these trends are pointing to a cautious outlook in utility and continued weakness and recreation.

We're closely watching softer retail trends that have extended into October and off road. These trends are pointing to a cautious outlook and utility and continued weakness in recreation.

Speaker 3: We missed our third quarter retail expectations, which was the result of weaker than anticipated end markets, coupled with the slower ramp up of new product shipments and continued constraints on manufacturing our premium products. Retail continued to be strong and...

We missed our third quarter retail expectations, which was the result of weaker than anticipated end markets, coupled with the slower ramp up of new product shipments and continued constraints on manufacturing our premium products.

Retail continued to be strong and new and premium products. Our dealers are telling us they have sufficient inventory of base value models and would prefer to see higher volumes of our premium Northstar products and more of our recently launched players expedition and Ranger X D, which is obviously a big focus for us in the fourth quarter.

Speaker 3: Our dealers are telling us they have sufficient inventory of base and value models and would prefer to see higher volumes of our premium North Star products in more of our recently launched PlayerSexed edition and Ranger XD, which is obviously a big focus for us in the fourth quarter.

Speaker 3: For on road, Q3 retail was down low teens, given a slower market and difficult comps to last year when motorcycles were retailing much later, given constrained availability early in the year. I would note that our heavy weight bikes are seeing more pressure than our mid-sized categories.

For on road Q3, retail was down low teens, given a slower market and difficult comps to last year. When motorcycles were retailing much later given constrained availability early in the year.

Note that our heavyweight bikes are seeing more pressure than our midsize category.

Speaker 3: And marine softness continued and even somewhat accelerated. We are now over 90% through the selling season and dealers seem cautious given negative headlines covering the broader market as well as elevated interest rates.

And marine softness continued and even somewhat accelerated we're now over 90% through the selling season and dealers seem cautious given negative headlines covering the broader market as well as elevated interest rates.

Speaker 3: Given the filling season has mostly wrapped up and the continued softness through the first three quarters of the year as well as sufficient dealer inventories, we have adjusted our marine sales guidance downwards.

Given the selling season has mostly wrapped up and the continued softness through the first three quarters of the year as well as sufficient dealer inventories, we've adjusted our marine sales guidance downward.

Speaker 3: Freshers have mounted on our retail assumptions, but we still expect to grow retail in the fourth quarter. I'll be at a slower rate than previously expected.

Pressures are mounted on a retail assumptions, but we still expect to grow retail in the fourth quarter, albeit at a slower rate than previously expected.

Speaker 3: Growth is expected to be driven by snowmobiles as well as our new product.

Growth is expected to be driven by snowmobiles as well as our new products. We also have a favorable comparison in snow it should help contribute to retail growth in Q4 as we are on track this year to ship snow check units before the season begins versus much later shipments last year.

Speaker 3: We also have a fable comparison and snow that should help contribute to retail growth in Q4. As we are on track this year to ship snow check units before the season begins versus much later shipments last year.

Speaker 3: As many of you saw first handed our dealer meeting in July , we launched two new categories in the power sports space and could not be more excited about the opportunity ahead of us. Player's expedition, which started shipping in Q3, has seen strong demand for our premium models and we're working hard to meet this elevated demand. In addition, feedback from early customers has been very positive.

As many of you saw firsthand at our dealer meeting in July we launched two new categories in the power sports space and could not be more excited about the opportunity ahead of us Polaris expedition, which started shipping in Q3 has seen strong demand for our premium models and we're working hard to meet this elevated demand. In addition feedback from early customers has been.

Very positive.

Speaker 3: The Ranger XD is the first extreme duty side by side with industry leading torque, payload and towing capacity. Shipments are slayed to begin in November and dealers are telling us they have high interest and allocations to customers already established.

The Ranger XD is the first extreme duty side by side with industry, leading torque payload and towing capacity shipments are slated to begin in November and dealers are telling us they have high interest in allocations to customers already established.

Speaker 3: It's also important to remember the Razer XP launch from earlier this spring. This product has been well received by dealers and customers. Importantly, the Razer XP hits the largest sub-segment of the recreational market. It's a multi-terrain product that makes up approximately 35% of our Razer sales and our share in the multi-terrain space is over 2X, our nearest competitor, over the last period of recovery.

It's also important to remember the razor XP launch from earlier. This spring. This product has been well received by dealers and customers importantly, the razor XP hits at the largest subsegment of the recreational market. It's a multi train product that makes up approximately 35% of our razor sales and our share in the multi train spaces over <unk> our nearest.

Competitor over the last five years.

Speaker 3: Certainly a product we love having in the portfolio and should not be overlooked in our share game strategy

So certainly a product we love having in the portfolio and should not be overlooked in our share gain strategy.

Speaker 3: In addition to our new vehicles, we also launched the next generation lock and ride with our all new lock and ride max cargo system. The new system adds an unmatched level of adaptability and provides customers with virtually limitless configurations to best match their needs for every journey, task, and activity.

In addition to our new vehicles. We also launched the next generation locking ride with our all new lock in right Max cargo system. The new system adds an unmatched level of adaptability and provides customers with virtually limitless configurations to best match their needs for every journey task and activity.

Speaker 3: Lock and ride max is yet another step in our industry leading parts, garments and accessory strategy where we've seen significant content increases across all product categories related to new accessory and attachment offer.

I can write backs is yet another step in our industry, leading parts garments and accessories strategy, where we've seen significant content increases across all product categories related to new accessory attachment offerings.

Speaker 3: While they are not explicitly mentioned on the page, our on-road and marine segments also had incredible new product launches that reflect our continuity commitment to industry leading innovation. It was an exciting new product, Europolaris, and we believe these new products can help us gain share on the four-quarter and end of 2024.

While they are not explicitly mentioned on the page our on road and Marine segments also had incredible new product launches that reflect our continued commitment to industry, leading innovation. It was an exciting new product your players and we believe these new products can help us gain share in the fourth quarter and into 2024.

We continue to be in a much healthier dealer inventory position relative to last year dealer inventory has improved given better production and supply chain dynamics, coupled with softening demand in some markets.

I would note that dealer inventory is still below 2019, as I mentioned earlier, we're continuing to evaluate and adapt our mix given current demand trends, we're putting more emphasis on prioritizing Ranger XD Polaris expedition and Ranger Northstar lines during the fourth quarter as this is where we see the greatest demand.

We're watching inventory levels closely and are ready to take appropriate steps necessary to manage inventory and off road and on road.

Over to how we've pulled back production in marine in the face of weakening demand and rising dealer inventory.

Wrapping up my comments on the quarter, while the results are short of our expectations, we did gain share and see strong demand for our new products. We're excited to get these new products into the market. So consumers can again experienced <unk> leads the industry in innovation.

We still have work to do operationally to ensure we deliver more consistently and at a lower cost as I said I am confident in the team and their ability to execute.

We will continue to watch retail trends and are prepared to adjust our business model. Accordingly, we will continue to invest in innovation and to improve our operations. The strategy, we laid out last year and talked about at our capital markets day in July remains unchanged and I expect our team to deliver on all aspects of the strategy, which we believe can generate attractive returns for our shareholders.

I'll now turn it over to Bob who will summarize our third quarter performance and provide additional details for the remaining balance of 2023, including guidance and expectations.

Thanks, Mike and good morning, or afternoon to everyone on the call today.

Third quarter results were driven by lower shipping volumes and higher finance interest impacting both sales and margins manufacturing costs remained elevated versus expectations heading into the quarter, which tempered much of the expansion opportunity promotions continue to be higher on a year over year basis, given abnormally low levels last year during the third quarter.

Adjusted EPS was down 17% for the quarter, a positive contribution from tax and share count was more than offset by the previously mentioned headwinds to margin as well as higher net interest expense, which was up over 60% relative to last year, primarily due to higher rates.

As Mike mentioned P. G&A had a record quarter for revenue as we continue to benefit from the broadest portfolio in power sports as well as new innovations such as locking ride Max that is being very well received with our new products.

In our off road business revenue increased 6% driven by strong growth in utility snow in commercial.

This was partially offset by a decline of approximately 20% and recreation.

North American retail was up 5% in O R V with double digit contributions from utility and crossover lives, which include general and the new Polaris expedition.

Industry data shows we took share across the RV portfolio.

Snow season is off to a good start in what is encouraging is that we are well on track to deliver customer orders before the 'twenty three 'twenty four riding season begins which was a key goal of ours. This year.

Margins in the quarter were pressured by foreign exchange finance interest and unfavorable mix another factor, which Mike mentioned was elevated manufacturing costs that did not subside during the quarter.

We do expect share gains going forward as we pick up production of our new products and allocate promotion dollars effectively to drive customer purchase patterns.

It remains an exciting time in our off road segment as we continue to lead with innovation and enter new spaces within the power sports market.

Switching to on road, our fifth straight quarter of motorcycle share gains was driven by our strong product portfolio and healthy inventory.

During the quarter, our mid sized portfolio earned the distinction of number one market share in North America. This is another achievement in the rich history of Indian motorcycles are midsize bike portfolio consists of the Scout Scout Bobber, Scott Road, all of which have an iconic style rooted in the 120 year history of Indian motorcycles, while offering modern performance.

And technology to our riders.

North American Indian motorcycle retail was down low teens, driven by a challenging backdrop and increased competition.

On road revenue was down 19% due to lower shipped volumes given the industry softness combined with comparing against our third quarter of last year, which saw a large catch up on motorcycles with black painted parts given production issues earlier in 2022.

<unk> gross profit margin was up 335 basis points, driven by favorable product mix, partially offset by promotion is driving lower net price.

This marks the fifth straight quarter, expanding margin over 250 basis points as the on road team continues to deliver on its profitability plan.

In marine the industry continued to be negatively impacted by slowing consumer demand.

Industry data shows the pontoon market is down almost 10% year to date as customers continue to be deterred from purchasing by high interest rates.

These industry headwinds, our marine portfolio did gain share in the quarter led by Hurricane and Bennington.

Gross profit margin was down 338 basis points given top line pressures. However, our team continues to actively manage the variable components of their cost structure to protect profits.

Most of the season is behind us in Marine and we are busy planning for 2024.

At the August dealer meeting, we launched some new value boats under the Beddington brand called the S. N. S. V. We know dealers are closely watching inventory and we want to support their ability to have the right mix. We believe the S. N S V. Bennington boats attract a different customer relative to our legacy portfolio and we look forward to helping dealers broaden the options they offer to customers with more <unk>.

<unk> pricing and features.

Moving to our financial position, we continue to see our balance sheet is a competitive advantage.

Cash generation continues to trend favorably and our net leverage ratio continues to be in a healthy spot at one seven times.

Our cash flow in the quarter was impacted by late quarter shipments and off road as well as the delayed wire transfer from our Polaris acceptance joint venture. This pushed a normal month end payment into early October .

Absent these items, which provided strong cash inflows in the first week of October our leverage would have been approximately 15 basis points lower.

We have repurchased one 4 million shares year to date, and we are well ahead of our target to repurchase 10% of our outstanding shares before the end of 2026.

We believe we are set up well for a variety of scenarios in the broader market with our balance sheet and cash generation capabilities in 2023.

Now, let's move to guidance and our current expectations for 2023 give.

Given what we saw in Q3, and our update and our updated assumptions for Q4, we are slightly narrowing sales guidance towards the bottom of the previous range and bringing margin guidance down which lowers our adjusted EPS guidance.

Regarding sales we are lowing lowering the top end of guidance and now expect sales to grow 3% to 5% this year.

While we have lowered our off road sales expectation, which has a negative impact on mix, we still expect off road sales to grow in the high single digits.

We are moving on road to flat given the softness we have recently seen in the industry and moving marine down as well given year to date trends.

We do expect to off road to have a sizable contribution from snow in Q4, as we remain on track to ship a significant amount of model year 'twenty four slides in the quarter.

<unk> Polaris expedition and anticipated shipments of Ranger XD are also expected to have a positive impact on sales in retail.

Operator: Good morning and welcome to the Polaris third quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero.

Share gains are expected to continue for off road as well on the back of the shipments in line with prior expectations net price will be a fourth quarter headwind driven by the lapping of the benefit we've seen from the price increases and a stronger promotional environment.

Operator: After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your telephone keypad. To withdraw your question please press star then two.

Finance interest will also continue to be a headwind.

Margin guidance is being lowered given what we saw in Q3 and the trends we expect to continue into the fourth quarter.

While we knew we had over 130 basis points of margin headwinds heading into the year associated with higher finance interest and FX. We had plan to overcome these macro headwinds with efficiencies on the operations side and improvement in warranty.

Operator: Please note this event is being recorded.

JC Wagle: I would now like to turn to the conference over to JC Wagle, Vice President and Investor Relations. Please go ahead. Thank you Gary and good morning everyone or afternoon everyone. I'm JC Wagle, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2023 third quarter earnings call. We will reference the slide presentation today which is accessible on our website at ir.pooris.com.

We have seen year over year benefit in these areas. They are not to the extent that we had planned.

JC Wagle: Joining me on the call today are Mike Speetson, our Chief Executive Officer and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing the third quarter are expectations for the remainder of the year and some initial thoughts on 2024 then we'll take your questions. During the call we will be discussing various topics which should be considered forward looking for the purpose of the primary private securities litigation reform act of 1995.

On the operations side benefit from improved logistics cost have been somewhat offset by higher plant manufacturing costs that have not subsided.

While we see the typical start up inefficiencies associated with launching major new products as temporary they remain a headwind for Q4 <unk>.

Production of the Ranger X D as late relative to our initial thinking we now expect a sharp start shipping the product in November as.

As Mike mentioned going forward, we see significant opportunity to refocus on lean principles to improve the overall efficiencies of our plants.

It is also worth noting the mix benefit we are seeing the first half of the year has gone the other direction with delays in new products and lower than previously guided off road sales.

JC Wagle: Actual results could differ materially from those projections in the forward looking statements. You can refer to our 2022-10K for additional details regarding risks and uncertainties. All references that third quarter 2023 actual results and 2023 guidance are for our continuing operations and are reported on an adjusted non-gap basis unless otherwise noted. Please refer to our RegGee Reconciliation Schedules at the end of the presentation for the gap to non-gap adjustments.

Operating expense dollars are expected to be sequentially flat in Q4. Therefore, the same factors that are impacting gross margin are also impacting EBITDA margin.

We will continue to contain costs, where we can certainly move fast in this area, we see our markets deteriorate further.

Adjusted EPS is now expected to be in the range of $9, 60, and $10 or 8% to 4% below 2022.

Mike Speetson: Now I will turn it over to Mike Speetson. Go ahead Mike.

Mike Speetson: Thanks JC good morning everyone and thank you for joining us today. This morning we posted third quarter results that were slightly lower than our original expectations driven by elevated manufacturing costs and an increasingly cautious consumer environment which resulted in lower shipments. Despite these headwinds we posted share gains across all of our segments for the quarter and we had record PGNA results that were bolstered by the broadest portfolio and all power sports.

We are not expecting any material changes in interest expense our share count, but we are expecting our tax rate to be closer to 20% as we close out the year.

For the fourth quarter, a few things to note.

We expect retail to be up year over year and off road, partially upset by on road and Marine the main driver being snowmobile ship in retail.

As noted earlier margins are expected to be down year over year.

Mike Speetson: We also had an incredibly successful offer of dealer meeting in July and marine dealer meetings in August both with positive feedback from dealers regarding our new products. We are certainly operating in a dynamic environment where we have seen declining consumer confidence given persistent inflation coupled with even higher interest rates and rising consumer debt. We saw this impact retail more than we anticipated in the third quarter and anticipate this to continue into the fourth quarter.

We have significant other cost headwinds from higher finance interest debt interest and foreign exchange that we expect will persist.

In summary, there are some puts and takes in the third quarter, but our longer term goals of driving leadership in the power sports space and delivering on our financial goals remain on track we have work to do and the team remains focused on the task at hand.

It was encouraging to see share gains in the quarter, which we are which are expected to continue.

It was also great to see another strong quarter from our on road team.

Mike Speetson: Additionally dealers are taking a more conservative position given a slower retail environment and rising flooring costs associated with higher interest rates. Despite all this I remain confident in our ability to excel in this environment as evidenced by our share gains and all three segments in the quarter and a very positive reaction to our recently introduced new products. Our teams continue to closely monitor the environment and we believe our revised guidance accounts for what we know today.

We believe our long term strategy can generate strong shareholder value and our teams are working hard to make that happen.

With that I will turn it back over to Mike to provide some early thoughts on 2024 and summarize our call today go ahead Mike.

Thanks, Bob the dynamic environment I spoke about earlier is not expected to abruptly ended on January one and thus we need to be vigilant and agile in how we manage our business going forward.

When I turn on the news it does seem like a parade of horrible space and the consumer with higher interest rates persistent inflation mounting credit card debt student loan payments, returning and other significant domestic and global events.

Mike Speetson: Turning to our third quarter performance sales declined 4% from by lower shipments relative to a year ago as well as higher finance interest. If you were recall last year we had elevated shipping in the quarter to alleviate low dealer inventory levels and to catch up on motorcycle shipments that have been constrained earlier in the year. North American retail was up 5% in the third quarter. The promotional environment picked up a little in Q3 but still remains lower than 2019.

We are focused on adjusting and adapting to these external factors, we expect to manage production shipments in spending consistent with what we see and ongoing demand trends and we'll stay close to our dealers.

We just got started with Polaris expedition of Ranger XD is next therefore, we expect those to be nice contributors to retail and share gains into next year.

Mike Speetson: Additionally, we believe we are successfully targeting potential customers with the right promotional offers to drive dealer traffic. While retail was generally lower than we'd expected, we further strengthened our share position in each of our three segments. This included achieving the notable milestone in North America of being the number one motorcycle company in the mid-size category. Margins were down due to continued headwind from foreign exchange, as well as increased pressure from floor plan promotional costs from by higher interest rates and higher dealer inventories.

Innovation remains key to our strategy and you should continue to expect innovative new products each year from our teams to help strengthen our leadership position in power sports.

Tackling the manufacturing inefficiencies is critical to our long term strategy to expand EBITDA margin. Thus you should expect to hear more about this opportunity when we formally provide guidance in January .

Part of this will help with lowering working capital through inventory management, which should result in positive cash generation no matter what happens externally cash remains king and we have a strong track record of investing that cash and earning high returns for our shareholders and I do not expect this pattern to change.

Mike Speetson: Shipping volumes were also lower as we lacked a strong shipping core last year. Mix was another contributing factor to lower margins as we saw a slower than expected ramp up in production of our premium off-road products, including our new Polaris expedition and Ranger XD. I would note that our marine team did a good job reacting to lower demand signals early in the quarter and made required cost adjustments to protect margins.

I strongly believe our team with focus execution can deliver a strong year with share gains and margin expansion in 2024 by focusing on innovation, improving manufacturing efficiencies and implementing smart capital allocation decisions.

Mike Speetson: On the manufacturing front we have two big themes occurring in our off-road business. The first which is encouraging is that we had some of our strongest clean build days and weeks as we near the end of the third quarter. These are days where vehicles came off the line, ready to be shipped versus entering a rework process. Our teams believe they can build on the success in the fourth quarter. While this is encouraging, they'll later than anticipated improvements did impact our ability to get many high demand vehicles and dealers on time.

Wrapping it up it was encouraging to see share gains across all three segments during the quarter and to see record results from P. G N a as well as strong margin expansion in on road. The feedback from dealers that are dealer meetings over the summer gave me renewed confidence that we were focused on the right areas to drive strong results, while we're tracking softer retail trends, we believe that we have an attractive line.

Our products to enable share gains with new products as well as premium products that remain in high demand.

Efficiencies within manufacturing, our huge opportunity for us and while they will not be achieved overnight. We are focused on improving them through an enhanced lean environment.

Mike Speetson: The second theme is that we continue to build at a much higher cost than we should be. The supply chain has improved quite a bit, but our ability to more cleanly and efficiently execute has not. There are several factors in impacting this. Over the last few years our plants have contended with the pandemic, labor shortages, parts shortages, new production lines and facilities, and in the third quarter the complexity of the startup of manufacturing of our new premium products. These rapid and drastic changes have brought on an inefficient cost structure and mode of operation.

We remain confident in the strategy, we laid out in 2022 and with all long term strategies. Their objective is to see through good times as well as bad with focused execution I believe we can end the year strong and emerge stronger to continue marching towards our 2026 goals. We thank you for your continued support and with that I'll turn it over to Gary to open up the line for <unk>.

Questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

Mike Speetson: As we appear to be entering a slower growth time in our industry, there is no better time than now to address these inefficiencies. We've deployed key lean resources into the most troubled facilities and remain committed to a culture of continuous improvement. While this is disappointing, it is very fixable, and we will show the best of Polaris' fighting spirit as we work aggressively to not just improve our performance, but to make it better than it has ever been. Execution is key here, and I believe we have the right team as well as the right strategy to remediate the situation.

If you were using a speakerphone please pick up the handset before pressing the keys to withdraw your question. Please press Star then two.

Our first question is from Joe also Bello with Raymond James. Please go ahead.

Hey, guys. Good morning, I guess for Mike for you I wanted to dive in a little bit deeper into your initial thoughts on 2024. He did make the point that you would expect.

Retail softness to extend it to 24, but if we look at Q3 retail was up five you expect retail growth in Q4 as well on an easy compare so.

Mike Speetson: Considering these manufacturing inefficiencies and weaker than anticipated end markets, we're narrowing our full-year sales guidance to the lower end of our previously issued range and lowering our margin and adjusted EPS guidance. Bob will provide more detail later in the call, but we plan to remain competitive and gain share in this dynamic environment while actively managing costs. Our goal is to continue to invest in the business, strengthen our operations, and emerge from this stronger than we entered.

Is the base case for 'twenty four right now in terms of retail you know flat to up modestly or.

So somewhere in that neighborhood.

Yeah Joe.

We're still working through our the first views of next year. Obviously, we saw a fair amount of change happened relatively quickly here in the third quarter.

Mike Speetson: Now let me share some thoughts related to customer trends we're seeing. We're closely watching software retail trends that have extended in October. And off-road, these trends are pointing to a cautious outlook in utility and continued weakness and recreation. We missed our third quarter retail expectations, which was the result of weaker than anticipated end markets coupled with the slower ramp up of new product shipments and continued constraints on manufacturing our premium products.

Our last call we talked about July retail looking good and then obviously August and September start moving at a very different direction.

So we're still working through that I think the key point for US is that we anticipate that the pressures are going to continue.

You know the fed has clearly signaled that.

But theyre not going to do much on rates here for the balance of the year. We anticipate there could be other action next year, but I anticipate interest rates are going to continue to remain a headwind and I think when you look at the broader macro.

Mike Speetson: Retail continued to be strong in new and premium products. Our dealers are telling us they have sufficient inventory of base and value models and would prefer to see higher volumes of our premium North Star products in more of our recently launched players expedition and Ranger XD, which is obviously a big focus for us in the fourth quarter. Faron Road, Q3 retail was down low teens given a slower market and difficult comps last year when motorcycles were retailing much later given constrained availability early in the year.

Even though the the talk of recession had come down it's kind of bounced up just a little bit and so we do think consumers are going to continue to have a cautious mindset given everything that's going on in the environment.

That said, we do feel good about the new products. We think that's certainly going to be a tailwind as we get into next year.

And given our poor performance from our inefficiency and margin standpoint.

Mike Speetson: I would note that our heavyweight bikes are seeing more pressure than our midsize category. And marine softness continued and even somewhat accelerated. We are now over 90% through the selling season and dealers seem cautious given negative headlines covering the broader market as well as elevated interest rates.

Even in a what I'd call a flattish environment, we do anticipate that we can improve margins next year with the level of cost discipline that we've got brought back into the business, you're starting into the fourth quarter and will continue to gain momentum.

As we go into next year operating expenses for us if it had been a well managed and will continue to do that as we head into next year and our guidepost is gonna be dealer inventory.

Mike Speetson: Given the selling season has mostly wrapped up and the continued softness through the first three quarters of the year as well as sufficient dealer inventories, we have adjusted our marine sales guidance downward. Pressures have mounted on our retail assumptions but we still expect to grow retail in the fourth quarter albeit at a slower rate than previously expected. Growth is expected to be driven by snowmobiles as well as our new products. We also have a favorable comparison and snow that should help contribute to retail growth in Q4 as we are on track this year to ship snow check units before the season begins versus much later shipments last year.

We're still below where we were in 2019.

We're going to continue to watch that and make sure. It remains at the right levels and react accordingly, so tough to call. What we think next year is going to be we need to get you know a couple of more months under our belt and see how things are are headed for next year and then we'll talk more in January .

Understood and maybe just kind of follow up on that.

How does the softer near term retail outlook impact your 'twenty six target it does it make the path.

Mike Speetson: As many of you saw first handed our dealer meeting in July we launched two new categories in the power sports space and could not be more excited about the opportunity ahead of us. Players expedition which started shipping in Q3 has seen strong demand for our premium models and we are working hard to meet this elevated demand. In addition feedback from early customers has been very positive. The Ranger XD is the first extreme duty side by side with industry leading torque payload and towing capacity.

More back end loaded that you thought back in Nashville.

I you know I don't think so you know clearly the biggest of.

Headwind that we've got that is really around the margins.

I'd make a couple of comments number one.

The thing to keep in mind, and we don't use as an excuse but between interest rates impacting our flooring costs as well as foreign exchange, we're dealing with 120 basis points of headwind right out of the gate versus when we put the targets out originally.

Mike Speetson: Shipments are slayed to begin in November and dealers are telling us they have high interest and allocations to customers already established. It's also important to remember the Razer XP launch from earlier this spring. This product has been well received by dealers and customers. Importantly the Razer XP hit the largest sub-segment of the recreational market. It's a multi-terrain product that makes up approximately 35% of our Razer sales and our share in the multi-terrain space is over 2X our nearest competitor over the last five years. This is certainly a product we love having in the portfolio and should not be overlooked in our share game strategy.

All that said given the deterioration in productivity, we've seen in our plants over the past year or so.

We see a pretty ample opportunity I actually look at it very positively because these are things well within our control.

And we can get after that when it look when you look at revenue and you look at the other measures I feel very confident about that the margins. We've got some work to do I think you should expect to see progress on that into 'twenty, four and I think we'll be on the right trajectory to to get ourselves into that mid to high teens EBITDA level that we committed to.

Mike Speetson: In addition to our new vehicles we also launch the next generation lock and ride with our all new lock and ride max cargo system. The new system adds an unmatched level of adaptability and provides customers with virtually limitless configurations to best match their needs for every journey, task, and activity. Lock and ride max is yet another step in our industry leading parts garments and accessory strategy where we've seen significant content increases across all product categories related to new accessory and attachment offerings.

Got it thank you.

The next question is from Craig Kennison with Baird. Please go ahead.

Hey, good morning, Thanks for taking my question I appreciate the candid call here I wanted to ask first about the utility segment.

That's an area that has held up better than recent quarters, but it seems to have changed recently, maybe shed some light on that.

Yeah, I'd say a couple of things Greg we have seen some softening in the commercial side as we've talked about in the past, we're a top provider of equipment into you know big rental companies and we have seen.

Mike Speetson: While they are not explicitly mentioned on the page our on-road and marine segments also had incredible new product launches that reflect our continued commitment to industry leading innovation. It was an exciting new product year of players and we believe these new products can help us gain share in the fourth quarter and end of 2024.

Some pullback and hesitation as they've seen some of the commercial building projects either get delayed pushed out or canceled and so we have seen some of those things and then I would tell you that we're seeing similar dynamics and that kind of the the value to midline side of the market, where consumers are a little bit more sensitive to interest.

Mike Speetson: We continue to be in a much healthier delirimentary position relative to last year. Delirimentary has improved, given better production and supply chain dynamics, coupled with softening demand and some markets. I would know that the delirimentary is still below 2019. As I mentioned earlier, we're continuing to evaluate and adapt our mix, given current demand trends. We're putting more emphasis on prioritizing Ranger XD, Flores expedition, and Ranger North Star lines during the fourth quarter, if this is where we see the greatest demand.

Rates and that certainly has impacted you know not only the rec space, but now has crept in to the utility space all of that said as we talked about in our prepared remarks, we continue to see a high level of interest in those premium products things like Northstar, obviously, the XD hasn't hit dealer showrooms, yet, but we know from talking to <unk>.

Mike Speetson: We're watching inventory levels closely and are ready to take appropriate steps necessary to manage inventory and off-road and on-road, similar to how we've pulled back production and marine in the face of weakening demand and rising delirimentary.

They're anxious to get the product on the floor and they've already got a number of customer commitments. So we continue to feel good about that high end of the market. We just see a little bit of a slowdown relative to expectations in the middle to lower end of the utility market.

Mike Speetson: We're wrapping up my comments on the quarter, while the results are short of our expectations, we did gain and share and see strong demand for our new products. We're excited to get these new products into the markets so consumers can again experience what Polaris leads the industry and innovation. We still have work to do operationally to ensure we deliver more consistently and a lower cost. As I said, I'm confident in the team and our ability to execute. We'll continue to watch retail trends and are prepared to adjust our business model accordingly. We'll continue to invest innovation and to improve our operations.

Thank you and then on slide four.

You mentioned that 70% of your customers or new customers that seems like an unusually high number maybe you can just tell me what that has been recently and then what it might say about repurchase activity among your existing customers.

Yeah, I mean, it's still in the range that we've seen I would say over the past two to four quarters, we've probably seen that number in the mid sixties.

Mike Speetson: The strategy we laid out last year and talked about at our capital market stay in July remains unchanged and I expect our team to deliver on all aspects of the strategy, which we believe can generate attractive returns for our shareholders.

So I don't know statistically that I would say that it has moved dramatically relative to what we've seen.

Both historically as well over the last few years.

Bob Mack: I'll now turn it over to Bob who will summarize our third quarter performance and provide additional details for the remaining balance of 2023, including guidance and expectations. Thanks, Mike, and good morning or afternoon to everyone on the call today. Third quarter results were driven by lower shipping volumes and higher finance and interest impacting both sales and margins. Manufacturing costs remained elevated versus expectations heading into the quarter, which tempered much of the expansion opportunity.

We have seen some slowdown in repurchase rates, the near term repurchase rates, which isn't surprising given the comments.

Comments that we made around the health of the consumer and just some of the other dynamics consumer has an existing vehicle. They probably are more apt to put accessories on it or let that vehicle run for another year or so and until they repurchased so.

We don't see anything in those numbers that has us overly concerned.

Bob Mack: Emotions continue to be higher on a year-over-year basis given abnormally low levels last year during the third quarter. Adjust the EPS was down 17% for the quarter. A positive contribution from tax and share account was more than offset by the previously mentioned headwinds to margin as well as higher net interest events, which was up over 60% relative to last year primarily due to higher rates. As Mike mentioned, PG&A had a record quarter for revenue as we continue to benefit from the broadest portfolio and power sports, as well as new innovations such as lock and ride max that is being very well received with our new products.

As we talked about in the prepared remarks around customer dynamics. The search the configuration builds all those types of things remain healthy not just versus last year, but in many cases relative to 2019. So we know theres still as interest in the category. We think people are just hesitant to make the purchase right now relative.

To what we were expecting.

Thanks, Mike.

Thank you Greg.

The next question is from Robin Farley with UBS. Please go ahead.

Great. Thank you just if we could return to the long term targets for a moment I know you mentioned a bunch of them.

Bob Mack: In our off-road business, revenue increased 6% driven by strong growth in utility, snow, and commercial. This was partially offset by a decline of approximately 20% in recreation. North American retail was up 5% in ORV with double-digit contributions from utility and crossover lines, which include general and the new Polaris expedition. Industry data shows we took share across the ORV portfolio. Snow season is off to a good start and what is encouraging is that we are well on track to deliver customer orders before the 23-24 riding season begins, which was a key goal of ours this year.

Changes that you still expect to come over time with the manufacturing improvement.

Could you just circle back to kind of your top line expectations, and what you've kind of thought about it.

Since 2026 targets and whether that's impacted by starting to see usually soften here just how we should think about that.

The top line part of the long term.

Yeah, I, you know Robyn I, I guess I'm not overly concerned about it in a couple of fronts I mean, one we've obviously seen strong performance.

Even even with a tepid environment just given the mix of vehicles. We've had some of the pricing actions that have been taken although we expect pricing obviously you become less of a factor moving forward.

Bob Mack: Margins in the quarter were pressured by foreign exchange, finance interest, and unfavorable mix. Another factor which Mike mentioned was elevated manufacturing costs that did not subside during the quarter. We do expect share gains going forward as we pick up production of our new products and allocate promotion dollars effectively to drive customer purchase patterns. It remains an exciting time in our off-road segment as we continue to lead with innovation in internew spaces within the power sports market.

You know I would tell you that if you look over history.

When our market slows down it tends to come back pretty quickly.

I'm not necessarily sitting here, telling you I think that happens in 'twenty, four but as I look out to 'twenty six and I look at the mid single digit revenue growth that we've got them out there I'm pretty confident that are you know over the course of the next two to three years, we're going to see the markets move in a way that allow us to continue on the trajectory that we've been on thus far.

Bob Mack: Switching to Enroad, our fifth straight quarter of motorcycle share gains was driven by our strong product portfolio and healthy inventory. During the quarter, our mid-size portfolio earns a distinction of number one market share in North America. This is another achievement in the rich history of Indian motorcycles. Our mid-size bike portfolio consists of the Scout Bobber and Scout Rogue, all of which have an iconic style rooted in the 120-year history of Indian motorcycles, while offering modern performance and technology to our riders.

Like I said that the biggest focus area for us for me is ensuring that we've got the inefficiencies being addressed in our factories. The margin improvement is the probably the single largest opportunity that we have in front of us that we've got to get after the teams are aligned we've been working through everything that has to happen we've got the right trajectory.

Bob Mack: North American Indian motorcycle retail was down low teens driven by a challenging backdrop and increased competition. Enroad revenue was down 19 percent due to lowered ship volume to give an industry softness combined with comparing against our third quarter last year, which saw a large catch-up on motorcycles with black painted parts given production issues earlier in 2022. Enroad gross profit margin was up 335 basis points driven by favorable product mix partially offset by promotions driving lower net price. This marks the fifth straight quarter of expanding margin over 250 basis points as the Enroad team continues to deliver on its profitability plan.

The change here in the fourth quarter and I'm confident that as we get into 'twenty four we will continue to see that progress.

Great No. That's very helpful. Thank you and maybe just one small follow up in terms of the market share gains can you characterize a little bit about what might be happening in the market overall with market share shifts you know there.

There's been a lot of movement in the last two or three years and are you seeing that consumer.

Is it do you think that the share gain is that maybe the sort of value our entry level customers not buying products in the way that they were of your competitors are.

Did that part of the market isn't there in that sneaking other industry share number is lower or is there a move to or away from premium out there in terms of.

Bob Mack: In marine, the industry continued to be negatively impacted by slowing consumer demand. Industry data shows the pontoon market is down almost 10 percent year-to-date as customers continue to be deterred from purchasing by high interest rates. Despite these industry headwinds, our marine portfolio did gain share in the quarter led by Hurricane and Vennington. Gross profit margin was down 338 basis points given top line pressures. However, our team continues to actively manage the variable components of their cost structure to protect profits.

Market share shifts thanks.

Yeah, I'd say, there's a couple of things I mean, certainly the dynamic we saw during the <unk> dam at pandemic when some of those value players had a lot of availability and picked up some what I'll call short term share that certainly has moved back the other way those consumers are really not in the market. They are highly sensitive to interest rates.

And economic conditions, and so certainly we've seen impacts there and as we've talked about there's a bit of a bifurcation.

Bob Mack: Most of the fees in its behind us in marine and we are busy planning for 2024. At the August dealer meeting, we launched some new value boats under the Vennington brand called the SNSV. We know dealers are closely watching inventory and we want to support their ability to have the right boat mix. We believe the SNSV Vennington boats attract a different customer relative to our legacy portfolio and we look forward to helping dealers broaden the options they offer customers with more approachable pricing and features.

US in one of our other key players.

Both are doing well right now and I would say that we're viewed as more premium and high performance and I think that end of the market.

Albeit weaker than what we expected remains strong relative to the other segments of the market and so you know I think that's a continuation of trends we've seen in the past and definitely a dynamic around some of the short term share gains that were had a back in 2020 one.

Bob Mack: Moving to our financial position, we continue to see our balance sheet as a competitive advantage. Cash generation continues to trend favorably and our leverage ratio continues to be in a healthy spot at 1.7 times. Our cash flow in the quarter was impacted by late quarter shipments in off-road, as well as the delayed wire transfer from our Polaris acceptance joint venture. This pushed a normal month end payment into early October. Ascent these items, which provided strong cash inflows the first week of October, our leverage would have been approximately 15 basis points lower.

From those value players that had <unk>.

Readily available, albeit very cheap product the consumers went after and those consumers are really not in the market anymore.

Okay very helpful. Thank you.

Thank you.

The next question is from Saba Hot Kahn with RBC. Please go ahead.

Great. Thanks, and good morning, I guess I know you're one of your earlier comments was around a couple of drivers of the Lora shipments and I think you've talked about kind of the lower demand, but also some manufacturing issues as well are you able to maybe parse out how much of each of those components kind of contributed to the guide down or the performance in the quarter across demand versus maybe kind of a.

Bob Mack: We have repurchased 1.4 million shares year to date and we are well ahead of our target to repurchase 10% of our outstanding shares before the end of 2026. We believe we are set up well for a variety of scenarios in the broader market with our balance sheet and cash generation capabilities in 2023.

The ability to maybe get the product into the channel and to.

To what extent does I guess mixing that.

Composition as well.

Bob Mack: Now let's move to guidance and our current expectations for 2023. Given what we saw in Q3 and our updated assumptions for Q4, we are slightly narrowing sales guidance towards the bottom of the previous range and bringing margin guidance down, which lowers our adjusted EPS Regarding sales, we are lowering the top end of guidance and now expect sales to grow 3-5% this year. While we have lowered our off-road sales expectation, which has a negative impact on mix, we still expect off-road sales to grow in the high single digits.

Yeah, a complicated question, but yeah. If you think about Q3, I would say that our the.

In terms of shipments.

The bigger impact was.

The timing of getting our new products out would have been the largest impact on shipments in the quarter certainly then.

Because of that mix is a little bit negative because those are high margin products and then we talked about last quarter that we thought we would see an incremental $40 million of manufacturing inefficiencies and costs related to those.

In the second half of the year and most of that would be in Q3, and what we think now as you said, it's going to be about $70 million.

Bob Mack: We are going to contract the ship a significant amount of model year 24 sleds in the quarter. Shipments of Polaris Expedition and anticipated shipments of Ranger XD are also expected to have a positive impact on sales and retail. Share gains are expected to continue for off-road as well on the back of these shipments. In line with prior expectations, net price will be a fourth quarter headwind, driven by the lapping of the benefit we've seen from the price increases and a stronger promotional environment.

With most of it most of the 40 in Q3, and then about 30 in Q4.

And really just because of the way the accounting works.

Cost we see in Q3, we incurred in Q2 and the cost of wheat, we see in Q4, we incur really in Q3, just because they get loaded into inventory.

So our focus right now as Mike has said is just driving those cost out as fast as we can.

Bob Mack: Finance interest will also continue to be a headwind. Margin guidance is being lowered given what we saw in Q3 and the trends we expect to continue into the fourth quarter. While we knew we had over 130 basis points of margin headwinds heading into the year associated with higher finance interest and effects, we had plans to overcome these macro headwinds with efficiencies on the operation side and improvement in warranty. While we have seen year over year benefit in these areas, they are not to the extent that we had planned.

So that they don't carry forward into next year and that we can get a handle on it as quickly as possible.

Taken really aggressive actions.

Really our two largest plants they have the most complicated product sets. If you look at the rest of our plants. They are operating at the levels of efficiency. They were at pre Covid. So we feel confident that we can get there. It's just taken longer in the large plants.

But we've got a lot of resources focused on it right now.

Bob Mack: On the operation side benefit from improved logistics costs have been somewhat offset by higher plant manufacturing costs that have not subsided. While we see the typical startup inefficiencies associated with launching major new products as temporary, they remain a headwind for Q4. Production of the Ranger XD is late relative to our initial thinking, we now expect to start shipping the product in November. As Mike mentioned, going forward we see significant opportunity to refocus on lean principles to improve the overall efficiencies of our plants.

Okay, Great and then I guess as we look out to 'twenty four and you mentioned that youre working on fixing some of these manufacturing issues.

Is that kind of the bigger uncertainty on 24 beyond just the consumer is there is there some variability in your time line are you able to get this stuff maybe sorted before it impacts 24, and a meaningful or is that something you are still kind of TBC.

TBC on how quickly some of these issues can be contained I'm just wondering.

What's the timeline to get this stuff settled is whereas maybe the consumer might be the only variable in the outlook.

Yeah, No. We're I mean look we're.

Bob Mack: It is also worth noting the mixed benefit we are seeing in the first half of the year has gone the other direction with delays in new products and lower than previously guided off road sales. Operating expense dollars are expected to be sequentially flat in Q4, therefore the same factors that are impacting gross margin are also impacting EBITDA margin. We will continue to contain cost where we can and certainly move fast in this area if we see our markets deteriorate further.

Clearly I'm not happy with the performance and the issues that we encountered that said you know as I talked about in the prepared remarks, I mean, the business has contended with an awful lot in terms of the supply chain labor disruptions schedules moving around all that.

That said as we look forward, there's really five things that have to happen stability in the supply chain stability in labor.

Bob Mack: Adjusted EPS is now expected to be in the range of $9.60 and $10 or 8 to 4% below 2022. We are not expecting any material changes in interest expense or share count that we are expecting our tax rate to be closer to 20% as we close out the year.

Ability in our production schedule.

Getting the new product production process nailed down and then this refocus on lean.

I would tell you is.

The supply chain has stabilized I'm, not saying that things are perfect, but I can tell you that you know we have worked through one of the last largest suppliers that was causing a bit of disruption even into Q3.

Bob Mack: For the fourth quarter, a few things to note. We expect retail to be up year-over-year in off-road partially offset by on-road and marine, the main driver being snowmobile ship in retail. As noted earlier, margins are expected to be down year-over-year. We have significant other cost headwinds from higher finance interest debt interest in foreign exchange that we expect will persist.

And we're feeling better about where those things stand.

Labor stabilization that presented some pretty significant challenges for us in Q2, and Q3 and and we feel like we've got that largely are in a better spot and the team has really put a lot behind that.

Bob Mack: In summary, there are some puts and takes in the third quarter, but our longer-term goals of driving leadership in the power sports space and delivering on our financial goals remain on track. We have worked to do and the team remains focused on the task at hand. It was encouraging to see share gains in the quarter, which are expected to continue.

I'd tell you that schedule stability is improving it helps to have a more dependable supply chain, we're getting better at our demand forecasting certainly with the market slowing down that takes some of the volatility out of the equation allows the teams kind of catch your breath and get that schedule.

Set.

Mike Speetson: It was also great to see another strong quarter from our on-road team We believe our long-term strategy can generate strong shareholder value and our teams are working hard to make that happen With that, I will turn it back over to Mike to provide some early thoughts on 2024 and summarize our call today Go ahead Mike Thanks Bob The dynamic environment I spoke about earlier is not expected to abruptly end on January 1 and thus we need to be vigilant and agile and how we manage our business going forward When I turn on the news it does It seems like a parade of horrible space in the consumer with higher interest rates, persistent inflation, mounting credit card debt, student loan payments returning, and other significant domestic and global events However, we are focused on adjusting and adapting to these external factors We expect to manage production shipments and spending consistent with what we see and ongoing demand trends and we'll stay close to our dealers We just got started with Polaris expedition and Ranger XD is next Therefore, we expect those to be nice contributors to retail and share gains in the next year Innovation remains key to our strategy and you should continue to expect innovative new products each year from our teams to help strengthen our leadership position and power sports Tackling the manufacturing inefficiencies is critical to our long-term strategy to expand EBITDA margin Thus, you should expect to hear more about this opportunity when we formally provide guidance in January Part of this will help with lowering working capital through inventory management which should result in positive cash generation No matter what happens externally, cash remains king and we have a strong crack record of investing that cash and earning high returns for our shareholders and I do not expect this pattern to change I strongly believe our team with focus execution can deliver a strong year with share gains and margin expansion in 2024 by focusing on innovation improving manufacturing efficiencies and implementing smart capital allocation decisions Rapping it up, it was encouraging to see share gains across all three segments during the quarter and to see record results from PG&A as well as strong margin expansion and on-road The feedback from dealers that are dealer meetings over the summer gave me renewed confidence that we were focused on the right areas to drive strong results While we are tracking software retail trends, we believe that we have an attractive lineup of products to enable share gains with new products as well as premium products that remain in high demand Efficiencies within manufacturing are a huge opportunity for us and while they will not be achieved overnight, we are focused on improving them through an enhanced lean environment We remain confident in the strategy we laid out in 2022 and with all long-term strategies their objective is to see through good times as well as bad With focus execution, I believe we can end the year strong and emerge stronger to continue marching towards our 2026 goals We thank you for your continued support and with that I'll turn it over to Gary to open up the line for questions We will now begin the question and answer session To ask a question, you may press star then one on your telephone keypad If you are using a speaker phone, please pick up the handset before pressing the keys To withdraw your question, please press star then two Our first question is from Joe Altabello with Raymond James, please go ahead Thanks guys, good morning I guess first mic for you, I wanted to dive in a little bit deeper into your initial thoughts On 2024, you did make the point that you expect to continue retail softness to extend into 2024 But if you look at Q3, retail is up 5, you expect retail growth in Q4 as well on an easy compare So it is the base case for 2024 right now in terms of retail flat to up modestly or somewhere in that neighborhood Yeah, Joe, we're still working through the first views of next year. Obviously, we saw a fair amount of change happen relatively quickly here in the third quarter.

Real good about the new product manufacturing on expedition.

Obviously slated to start delivering XD in November and the teams are making really good progress on that so I feel like that one is well underway and then really comes down to this refocusing on lean now that the environment has settled down we can start working on things within our factories like material flow that probably haven't been operating very efficiently.

Over the past several years.

And we can get to work on those I laid all that out because it's important to understand there's a number of different things going on Bob made the comment it's really our two plants are in Alabama and in Mexico.

But there is reason to believe we can get this done because we did it in roseau with our snowmobile business.

We did it in spirit Lake, Iowa, with our motorcycle business.

And as I mentioned in my prepared remarks, our timber production efficiency.

And hitting the Mark was much improved and we've seen that continuing into October .

Bob mentioned it you know from an accounting standpoint cost improvements or cost inefficiencies kind of fall on a one quarter lag. So we're gonna be battling a little bit of that as we get into next year, but.

The teams are aligned we've got incredible lean resources that we now have embedded in each of the two big facilities.

And we're monitoring it daily.

Briefing on it every week. So it is a is a big focus for us and I'm confident the teams will get this moving in the right direction as we get into 'twenty four.

Great. Thanks, very much for the color.

You bet.

The next question is from Megan Alexander with Morgan Stanley . Please go ahead.

Hi, Thanks for taking our questions first I just wanted to make one clarification, Bob I think you mentioned in the prepared remarks, you lowered the off road guide, but still up high singles. Thank slide 12 fed off route unchanged. So is that just a plus seven or plus eight nuance type of situation.

Yeah, as we lowered the range a little bit okay.

And then looking at the implied fourth quarter again, you talked about flattish volume year over year, you maybe have some shifts that you talked about from the new products from a shipment perspective into the fourth quarter and then you talked about retail off driven by snow. So I guess is the implication that side by side retail you expect to be down in the fourth quarter.

And maybe can you contextualize, how that compares with what you're seeing so far in October .

Yes so.

Couple of things. So if you think through a shipment in Q4.

Relative to prior year, there's a fair amount more snow in 'twenty three than there was in 'twenty two because we have production problems and snow in 'twenty, two and that will all ship Q3 Q4. This year. So that's that's part of it from a shift standpoint that that's negative to mix, though.

And then on the side by side.

On the side by sides.

If you think about retail.

Retail will be up on side by sides, primarily driven.

Based on our expectations of shipments of the new expedition, and XD Ranger X D products.

Those will be big contributors, because they're shipping expeditions were shipping in Q3 for retail in Q4, and then we'll continue to ship expeditions and will start shipping ex DS, which dealers have orders are customers waiting for and so that will all retail in the quarter. So we're not expecting side by side to be down with it.

Just right now the core part of the side by side market looks a little soft.

Okay. That's helpful. And then maybe a follow up as it relates to dealer inventory levels, given those comments and some of the shipments shifting into the fourth quarter and you talked about <unk> 10.

10% versus 19.

One of your slides suggest you know history would imply that dealer inventories flat on a quarter over quarter basis. So is the implication that it's actually on a quarter over quarter basis, and I guess, how are you thinking about how dealer inventory and the year end and what that could mean in terms of its 24 south.

Mike Speetson: Our last call, we talked about July retail looking good and then obviously August and September start moving in a very different direction. So we're still working through that. I think the key point for us is that we anticipate that the pressures are going to continue. The Fed has clearly signaled that they're not going to do much on rates here for the balance of the year. We anticipate there could be other action next year.

Yes, I mean, its dealer inventory improved sequentially. So it certainly is up and in third quarter versus the second quarter. You know a lot of that is driven by.

Mike Speetson: But I anticipate interest rates are going to continue to remain a headwind. And I think when you look at the broader macro, even though the talk of recession had come down, it's kind of bounced up just a little bit. And so we do think consumers are going to continue to have a cautious mindset given everything that's going on in the environment. That said, we do feel good about the new products. We think that's certainly going to be a tailwind as we get into next year.

You know the slowdown we've seen in and obviously, even though our production inefficiencies were there we were able to get more product into the market.

We're targeting to have dealer inventory kind of either flat or down versus 2019, as we get to the end of the year, but we're going to watch that certainly you've got dynamics around making sure that we get plenty of XD and expedition, which are both under high demand as well as our North Star Rangers into the channel, but I wouldn't suggest that there's some.

Mike Speetson: And given our poor performance from an efficiency and margin standpoint, even in what I'd call a flatish environment, we do anticipate that we can improve margins next year with the level of cost discipline that we've got brought back into the business. If you're starting in the fourth quarter and we'll continue to gain momentum as we go into next year, operating expenses for us have been well managed and we'll continue to do that as we head into next year.

<unk> a significant change from where we were or where we are today.

Okay awesome. Thank you very much.

The next question is from Fred Wightman with Wolfe Research. Please go ahead.

Hey, guys. Good morning, I wanted to come back to the manufacturing inefficiency number it sounds like that's now supposed to be $70 million versus 40. Previously can you just sort of help us with the sequencing of had as we carry into the first half of the year.

Mike Speetson: And our guide post is going to be dealer inventory. We're still below where we were in 2019. We're going to continue to watch that. Make sure it remains at the right levels and react accordingly. So tough to call what we think next year is going to be. We need to get a couple more months under our belt. See how things are headed for next year.

It sounds like that's something that you expect to continue.

But just the relative impact on <unk> versus <unk> would be helpful.

Yes.

So either way, it's it's flown flowed it through this year at the end of Q2, we thought it would be $40 million and really most of those costs were incurred in Q2. So we knew they were going to come through in Q3, and we had expected to be able to have a big impact on them in Q3 than we did so the Q3 sort of excess cost.

Mike Speetson: And then we'll talk more in January. Understood. Maybe just to kind of follow up on that. How does the software near term retail outlook impact your 26th target? Does it make the past a little bit more back and loaded than you thought back in and national? You know, I don't think so. You know, clearly the biggest of headwind that we've got is really around the margins. And I'd make a couple of comments.

<unk> carried into Q4, that's about $30 million that'll impact us in Q4.

It's a little tough to say what the impact will be in Q1 were actively working to.

Because we will but the Q1 impact would be the cost we mostly the costs we incur in Q4.

And so we're working actively.

Mike Speetson: Number one, the thing to keep in mind and we don't use it as an excuse, but between interest rates impacting our flooring costs as well as foreign exchange, we're dealing with 120 basis points ahead when right out of the gate versus when we put the targets out originally. All that said, given the deterioration and productivity we've seen in our plants over the past year or so. We see a pretty ample opportunity.

To bring those costs out and two to address those inefficiencies as Mike discussed so I would say, it's a little early to say what the impact will be in 'twenty 'twenty four and were not focused on 24 guidance, yet, but you know you can.

Count on the fact that we're working as aggressively as we can to minimize any impact going forward.

Fair enough and then there was a comment in the slides just talking about some lending metrics that were pressured can you just expand on what exactly you're referring to what categories, whether its retail or wholesale what exactly you meant by that.

Mike Speetson: I actually look at it very positively because these are things well within our control. And we can get after that. When you look at revenue and you look at the other measures, I feel very confident about that. The margins we've got some work to do. I think you should expect to see progress on that into 24. And I think we'll be on the right trajectory to get ourselves into that mid to high teams EBITDA level that we committed to.

Operator: Got it.

Operator: Thank you.

Really the comment was really related to retail.

And so what we saw in the quarter was really good good pen rates.

Volumes up up versus kind of prior quarters and last year approval rates were pretty flat relative to history and FICO scores are actually up the pressure is coming from our increased focus on kind of a debt to income ratios and ER.

Craig Kennison: The next question is from Craig Canisant with Beard. Please go ahead. Hey, good morning. Thanks for taking my question. I appreciate the candid call here. I wanted to ask first about the utility segment. That's an area that has held up better in recent quarters, but it seems to have changed recently. Yeah, I'd say a couple things, Craig. We have seen some softening in the commercial side. You know, as we've talked about in the past, we're a top provider of equipment and to, you know, big rental companies.

The lenders.

Putting more focus on that versus just if iqos and then also some of the smaller lenders to the.

Credit unions and things like that.

Our aggressive during the pandemic have backed off a little bit which is good for us because we've got four lending partners who've been aggressive in the market. So there's not a lack of credit, but there's a little bit of pressure on this on the sort of debt to income as the banks continue to review their portfolios.

Craig Kennison: And we have seen some pullback and hesitation as they've seen some of the commercial building projects, either get delayed, pushed out or canceled. And so we have seen some of those things. And then I would tell you that we're seeing similar dynamics in that kind of the value to midline side of the market where consumers are a little bit more sensitive to interest rates. And that certainly has impacted, you know, not only the wrecked space, but now has crept in to the utility space.

Perfect. Thank we don't believe in kind of dramatic impact on retail or anything like that.

So slightly changing environment.

It makes sense. Thank you.

The next question is from Tristan Thomas Martin with BMO capital markets. Please go ahead.

Craig Kennison: All that said, as we talked about in our prepared remarks, we continue to see a high level of interest in those premium products. Things like North Star, obviously the XD hasn't hit dealer showrooms yet, but we know from talking to dealers, they're anxious to get the product on the floor. And they've already got a number of customer, so we continue to feel good about that high end of the market.

Hey, good morning.

Good morning, a question.

Given the kind of a slower production ramp.

Are you shipping and as many Ranger X the <unk> hundreds and four accuse you expected three months ago or something or is it going to kind of spill over into the first quarter next year.

We are not we got off to a late start as we talked about and so we anticipate that just pushes forward into 'twenty four.

Mike Speetson: We just see a little bit of a slow down relative to expectations in the middle to lower end of the utility market. Thank you. And then on slide four, you mentioned that 70% of your customers are new customers. That seems like an unusually high number. Maybe you can just tell me what that has been recently. And then what it might say about repurchase activity among your existing customers? Yeah, I mean, it's still in the range that we've seen.

Okay, and then just kind of back to retail I think he said.

Maybe down a little bit versus 19, if I just look at I think market share is down a bit retail is trending lower.

Should your inventory levels be lower and kind of how are you thinking about what's appropriate.

I didn't catch the first part did you say market share is down.

Mike Speetson: I would say over the past two to four quarters, we've probably seen that number in the mid 60s. So I don't know statistically that I would say that it has moved dramatically relative to what we've seen both historically as well over the last few years. We have seen some slow down and repurchase rates, the near term repurchase rates, which isn't surprising given the comments that we made around the help of the consumer and just some of the other dynamics.

Well I said, if I look at market share compared to 19 at least I can see your or of your market share is down and then also retail is running lower than 2019, but if inventories flat I mean, why why is that appropriate.

Well our inventory right now is down 10% and the point I was trying to make when I answered. The earlier question is if it we anticipate by the end of the year will be either be down slightly versus 19 are flat. The thing to keep in mind is we now have expedition and XD shipping into the market. So if you were to adjust for those items.

Mike Speetson: Consumer has an existing vehicle. They probably are more apt to put accessories on it or let that vehicle run for another year or so until they repurchase. So we don't see anything in those numbers that has us overly concerned, you know, the as we talked about in the prepared remarks around customer dynamics, you know, the search, the configuration builds, all those types of things remain healthy, not just versus last year, but in many cases relative to 2019. So we know there's still is interest in the category. We think people are just hesitant to make the purchase right now relative to what we were expecting. Thanks, Mike. Thank you, Craig.

Our inventory is definitely down versus 19, as we come out of the year.

Which is consistent with what we're seeing around retail performance more broadly.

Okay.

But.

The next question is from David Macgregor with Longbow Research. Please go ahead.

Yes, good morning, Mike and congratulations on the progress in the on road.

Encouraging.

Wanted to ask you about the promotional programs are you seeing in the marketplace right now if you could elaborate a little bit further what more detail around what you're seeing that'd be competitive behaviors and also are consumers responding to the promotions or.

Robin Farley: The next question is from Robin Farley with UBS. Please go ahead. Great. Thank you. Just if we could return to the long term targets for a moment, I know you mentioned a bunch of the changes that you still expect to come over time with the manufacturing improvement. Could you circle back to kind of your your top line expectations and what you've kind of thought about it with this 2026 targets and whether that's impacted by, you know, starting to see you fill yourself in here or just how we should think about the top line part of the long term.

Is that maybe not so much the case right now.

Yeah, I mean, you know the promotional environment certainly has ticked up.

We look at it on a number of different measures and an overall as a percentage of revenue, it's still down about 25% from where it was in 2019.

And we've gotten much more specific around what we're doing.

In terms of tailored.

Promotions directed at specific consumers as.

As well as the interest rate buy downs I think on the targeted <unk>.

Robin Farley: Thanks. Yeah, I, you know, Robin, I guess I'm not overly concerned about it on a couple of fronts. I mean, one we've obviously seen strong performance, even even with a tepid environment, just given the the mix of vehicles we've had some of the pricing actions that have been taken, although we expect pricing obviously become less of a factor moving forward. You know, I would tell you that if you look over history when our market slows down, it tends to come back pretty quickly.

Offers we see those picking up traction.

The interest rate buy downs, certainly have garnered a lot of interest, but as Bob mentioned.

The banks have tightened lending standards and certainly that's creating some pressure obviously its no secret to this community that credit card debt is is peaked in anybody taken on a new mortgage is obviously dealing with higher interest rates. So the banks are getting a more particular about installment debt and overall debt loads.

Robin Farley: I'm not necessarily sitting here telling you I think that happens in 24, but as I look out to 26 and I look at the mid single digit revenue growth that we've got out there, I'm pretty confident that, you know, over the course of the next two to three years, we're going to see the markets. Moving away that allow us to continue on the trajectory that we've been on thus far, like I said, the biggest focus area for us for me is ensuring that we've got the inefficiencies being addressed in our factories, the margin improvement is probably the single largest opportunity that we have in front of us that we've got to get after the teams are aligned.

And that certainly is preventing.

Some consumers from from getting finance, but overall, we feel like we're putting them into the right spots are still more efficient than what we have been historically.

But ultimately its you know its tough to get consumers off the sidelines, if they're worried about are much larger issues and we're not going to get into you know throw in just huge gobs of money into the marketplace. We're going to continue to be very targeted in how we drive consumers into the dealer and have it be a high quality lead that the dealer can convert.

Okay.

Robin Farley: We've been working through everything that has to happen. We've got the right trajectory change here in the fourth quarter, and I'm confident that as we get into 24, we'll continue to see that progress. Great. That's very helpful. Thank you.

Thanks for that and just as a follow up can you just talk about what you're seeing in the used market right now and the extent to which that may be impacting.

Your business, Yeah, I mean, as we talked about we launched players exchange. So we obviously have very good visibility into what's going on there.

Mike Speetson: And maybe just one small follow up in terms of the market share gains. Can you characterize a little bit about what might be happening in the market overall with market share shifts? There's a lot of movement in the last two or three years. And are you seeing the consumer? Or is it, do you think that the share gain is that maybe the sort of value or entry level customers not buying products in the way that they were of your competitors are, you know, and that that part of the market isn't there and that's making other industry share numbers lower or is there a move to or away from premium out there in terms of market share shifts.

Whose market has slowed.

Used prices have come down we see that directly through the <unk>.

Vehicles, we have coming out of.

Polaris Adventures and through the exchange process I would I would say its normalized relative to some of the very high.

Vintage of MSRP resale numbers that we saw back in 2021 and even into 'twenty two.

And I would say it mimics more what we're seeing in the broader new vehicle retail market things are just slower than they had been.

Great. Thanks, very much good luck.

The next question is from Jamie Katz with Morningstar. Please go ahead.

Mike Speetson: Thanks. Yeah, I'd say there's a couple of things. I mean, certainly the dynamic we saw during the pandemic pandemic when, you know, some of those value players had a lot of availability and picked up some what I'll call short term share that certainly has moved back the other way. Those consumers are really not in the market. They are highly sensitive to interest rates and economic conditions. And so certainly we've seen impacts there.

Hey, Good morning, I was hoping you guys could articulate maybe what the differences you're seeing between the marine buyers and the traditional power sports buyers are I know you've.

Spoken a bit about everybody shifting to just like premium purchasing that has been benefiting you.

Models, but I think in Marine you had mentioned that Youre getting some lower price point products now I'm wondering if that's a function of just the absolute price point and so it's really a chance to like atvs or if there are some wider basketball market or some other or anything that's driving that decision.

Mike Speetson: And as we've talked about, there's a bit of a bifurcation, you know, us in one of our other key players, both are doing well right now. And I would say that we're viewed as more premium and high performance. And I think that end of the market. You know, I'll be a weaker than what we expected remains strong relative to the other segments of the market. And so, you know, I think that's a continuation of trends we've seen in the past and definitely a dynamic around some of the short term share gains that we're had back in the past.

Yeah on the marine side, Jamie, it's a really kind of two things to your point the absolute dollar value of the boats you know makes the Eric exacerbates the interest rate problem.

Youre looking at boats that average <unk>.

Mike Speetson: In 2021, from those value players that had, you know, readily available, I'll be a very cheap product that consumers went after in those consumers are really not in the market anymore. Oh, great, very helpful. Thank you.

60 to 75000, and then go up as high as 300000, and so you know that interest rate impact is.

A lot more of the tenure of the financing is a lot longer. So we think that the interest rates that had a bigger impact in marine we still see tremendous interest at the high end of our portfolio, but you know the the consumer as it came through the pandemic. They really just where no kind of entry level boats of ours are and even most.

Sabahat Khan: The next question is from Sabahad Khan with RBC. Please go ahead. Great.

Mike Speetson: Thanks, and good morning. I guess in one of your earlier comments was around a couple of drivers of the Laura shipments. And I think you talked about kind of the Lord demand, but also some manufacturing issues as well. Are you able to maybe parse out how much of each of those components kind of contributed to the guide down or the performance in the quarter across demand versus maybe kind of inability to maybe get the product into the channel.

Mike Speetson: And, you know, to what extent is I guess mixing that composition as well. Yeah, complicated question, but yeah, if you think about Q3, I would say that the in terms of shipments, the bigger impact was the timing of getting our new products out would have been the largest impact on shipments in the quarter. Certainly, then, you know, because of that mix is a little bit negative because those are, you know, high margin products.

Of our competitors available in.

Coming at coming out of that with boat production returning to normal dealer inventories starting to return to normal we felt like it was a good time to reinvigorate the entry level of Bennington line and give another option to try to bring kind of a different consumer into the space just given the.

The lack of availability of those products over the last two to three years. So we think it's good timing, we think it'll be a positive for the Beddington brand.

And will help bring that new consumers.

And Jamie the only thing I'd add is remember marine is probably more directly correlated to say, our razor business, where you've got primarily vehicles that are for people to go out and enjoy the outdoors.

The utility portion of our business, even though we're obviously a little bit more cautious than we had been.

Mike Speetson: And then, you know, we talked about last quarter that we thought we would see an incremental $40 million of manufacturing inefficiencies costs related to those in the second half of the year. And most of that would be in Q3 and what we think now is that it's going to be about 70 million, you know, with most of it, most of the 40 in Q3 and about 30 in Q4. And really, just because of the way the accounting works, you know, the cost we see in Q3, we incurred in Q2 and the cost we see in Q4, you know, we incurred really in Q3 just because they get loaded into inventory.

That does dampen volatility.

Because these vehicles are being used obviously for far more than just people going out and enjoying the outdoors there use to get work done and so that's certainly dampen some of what we see when we compare the two categories.

Okay, and then any update on the GAAP estimate about to mature in December .

Yes, so where are.

We are a bit of a board meeting after after this the next few days and I will be discussing with the board what our options are and what path, we want to take and we expect to get that executed.

Mike Speetson: So, you know, our focus right now, as Micah said, is driving those costs out as fast as we can, so that they don't carry forward into next year, and that we can get a handle on them as quickly as possible. We've taken really aggressive actions. It's really our two largest plants. They have the most complicated products. If you look at the rest of our plants, they're operating at the levels of efficiency they were at pre-COVID. So we feel confident that we can get there. It's just taken longer in the large plants, but we've got a lot of resources focused on it right now.

Before the term of the 364 expires in mid December .

Okay. Thanks.

Thank you.

Next question is from John Healy with Northcoast Research. Please go ahead.

Thanks Ross.

Just wanted to ask a question about feedback from the dealer community largely on inventory levels and I know you mentioned that.

Your 10% below today and ended the year youll be comparable to 2019 levels, but our dealers wanting to be at 2019 levels in the thought process and some of the feedback we've gotten this morning as questions relating to with Asps relative to 19, and just the cost to carry that inventory is 19, the right way to think of.

Mike Speetson: Good, great. And then I guess as we look out to 24 and you mentioned that you're working on fixing some of these manufacturing issues, I guess is that kind of the bigger uncertainty on 24 beyond just the consumer? Is there some variability in your timeline? Are you able to get this stuff maybe sorted before it impacts 24 in a meaningful way? Is that something you're still kind of to be TBC on how quickly some of these issues can be contained?

Where dealers want to be or should we be thinking about the right level of inventory for a dealer is.

Maybe 80 or 90% of 19 levels. So just curious of what the feedback has been about where they would like to be themselves.

Mike Speetson: I'm just wondering what the timeline to get this stuff settled is. So where is maybe the consumer might get the only variable in the outlook? I mean, look, clearly I'm not happy with the performance and the issues that we encounter. As I talked about in the prepared remarks, the business has contended with an awful lot in terms of supply chain labor disruptions, schedules moving around all that. That said, as we look forward, there's really five things that have to happen.

Yes, I mean, we spend a lot of time working through that obviously and the tough part about talking about dealer inventory as you know we don't do it justice by talking at a high level.

We're looking at this by region by model.

By Submarket.

So we worked through that with our dealers in terms of the way we set our profiles in terms of stocking levels.

We you know we are below 2019.

And that's on a adjusted for the sales price dynamics basis.

Mike Speetson: Stability in the supply chain, stability in labor, stability in our production schedule, getting the new product production process nailed down, and then this refocus on lean. And what I tell you is the supply chain has stabilized. I'm not saying that things are perfect, but I can tell you that, you know, we have worked through one of the last largest fires that was causing a bit of disruption, even into Q3. And we're feeling better about where those things say fan labor stabilization that presented some pretty significant challenges for us and Q2 and Q3 and we feel like we've got that largely in a better spot.

The key difference as we get to the end of the year as we do have two very new large platforms with XD and expedition and so you know when we look at the numbers excluding that.

We are we are at a point, where the dealers are below where they were in 2019.

And we think and you know I think broadly they agree that we're zeroing in on the right range that said, we know that Theres pop kids, we've seen more pronounced slowdown in some of the razor products, where we've got to work with the dealers in specific regions regions to make sure. They can move that product that isn't anything that is abnormal.

We constantly have to deal with shifting dynamics and where we're working through that with the dealers and I think the key is we're using that as our guidepost as we move forward into 'twenty four.

Mike Speetson: And the team has really put a lot behind that. I would tell you that schedule stability is improving. It helps to have a more dependable supply chain or getting better at our demand forecasting, certainly with the market slowing down that takes some of the volatility out of the equation allows the teams to kind of catch a breath and get that schedule set. I feel good about the new product manufacturing on expedition.

Mike Speetson: We're obviously slated to start delivering XD in November and the teams are making really good progress on that. So I feel like that one's well underway. And then really comes down to this refocusing on lean now that the environment has settled down, we can start working on things within our factories like material flow that probably haven't been operating very efficiently over the past several years. And we can get to work on those.

To make sure that we keep those inventory levels at the right at the right.

Level so.

So that the dealers got the right products for the consumer and they can manage their finances, given the higher floor planning costs.

Understood and then just a follow up on August now.

Obviously, you guys are enthusiastic about what's on the horizon there is that more about.

The catching up over last year or are you starting to see some benefit from maybe dealers starting to shift towards you guys and maybe away from Yamaha as a kind of exit the category here at some point in the not so distant future and how big of an opportunity do you think that is for you guys.

Yeah. The the Yamaha pieces is small really we and beer appear the two major players in the snow business. So theres certainly some business to be picked up there, but I would tell you that the the reason we're optimistic about our snow business is all the work we've done over the past year year, and a half to get that business back.

Mike Speetson: I laid all that out because, you know, it's important to understand there's a number of different things going on. Bob, you know, made the comment. It's really our two plants in Alabama and Mexico. But there's reason to believe we can get this done because we did it in Roseville with our snowmobile business. We did it in Spirit Lake, Iowa, with our motorcycle business. And as I mentioned in my prepared remarks, our September production efficiency and hitting the mark was much improved.

On track you know part of the part of the headwind we've got as we head into 'twenty four is the dynamic of the fact that we relate delivering.

R 22, snowmobiles. So we ended up shipping a lot in the first quarter of this year and we've made vast improvements in our ability to deliver and we're gonna have all of our snow check.

Mike Speetson: And we've seen that continuing in October. Bob mentioned it, you know, from an accounting standpoint, cost improvements or cost inefficiencies kind of fall on a one quarter lag. So, you know, we're going to be battling a little bit of that as we get into next year. But the teams are aligned. We've got incredible lean resources that we now have embedded in each of the two big facilities. And we're monitoring it daily. I'm briefing on it every week. So it is a big focus for us. And I'm confident the teams will get this moving in the right direction as we get into 24.

Units delivered before the end of this year and so.

Obviously as we get into 'twenty five we're going to be back on a more normalized cadence and that obviously will present, some some challenges as we move forward, but we're really happy with what we've been able to do in that business. Both in terms of getting the production.

Smoothed out but also the improvements we've made in quality.

The new products that that team has ready to launch as we get into into 24 has us very optimistic about that business, albeit it's a small part of the overall company, but you know a big part of of the heritage and heart of the company and so it's really important for us to make sure that we've got that are on the right track. So we're very optimistic about where we're headed.

Mike Speetson: Great, thanks very much for the color.

Megan Alexander: The next question is from Megan Alexander with Morgan Stanley. Please go ahead. Hi, thanks for taking our questions. First, I just wanted to make one clarification. Bob, I think you mentioned in the prepared remarks you lowered the off-road guide, but still up high singles. I think slide 12 said off-road unchanged. Was that just a, you know, plus seven or plus eight nuanced type of situation? Yeah, we lowered the range a little bit.

Great I appreciate the color.

The.

The next question is from Scott <unk> with Roth M. P. M. Please go ahead.

Morning, guys and thanks for taking my questions.

Good morning.

First question on the utility side of RV you mentioned.

Megan Alexander: Okay. And then looking at the implied fourth quarter, you know, you talked about flat-ish volume year over year. You maybe have some shift that you talked about from the new products, from a shipment perspective, into the fourth quarter. And then you talked about retail up driven by snow. So I guess is the implication that side by side retail, you expect to be down in the fourth quarter. And maybe can you contextualize how that compares with what you're seeing so far in October?

But the commercial side is softening a little bit could you.

Maybe talk about the other side of that whether it's.

Agriculture or anything else, that's driving that business, how is that piece holding up.

Yeah, I would just echo the comments I made earlier I would tell you kind of at the value to mid range of our lineup has slowed relative to what we had seen but the demand at the higher end.

Megan Alexander: Yeah, so a couple of things. So if you think through shipment in Q4, they'll relative to prior year. There's a fair amount more snow in 23 than there was in 22 because we had production problems in snow in 22. And that'll all ship Q3, Q4 this year. So that's that's part of it from a ship standpoint that that's negative to mix though. And then on the side by side, on the side by sides.

That's the Northstar Ranger or the soon to be delivered Ranger <unk>.

Solids. So you know I think it speaks to the fact that.

GOR areas.

More resilient because consumers are using that to get work done on a ranch or a farm and we see that holding up better than we do.

And many of our rec purely recreational categories.

Yeah, we talked earlier that we saw some slowing from the rental companies are in effect in the back half of the year.

Megan Alexander: If you think about retail, you know, retail will be up on side by sides primarily driven based on our expectations of shipments of the new expedition and XD Ranger XD products. Those will be big contributors because they're shipping expeditions. We're shipping in Q3 for retail in Q4. And then we'll continue ship expeditions and we'll start shipping XDs, which dealers have orders, customers waiting for. And so that'll all retail in the quarter.

But you know the rental company rental our rental commercial business was still really strong for the year. As these guys got into their kind of Q4, they they backed off on capital purchases.

We expect to see that start to return as we get out of the.

A year and they get back to their new capital budgets.

And the road.

<unk> and chip App stuff and all that remains pretty strong so.

Megan Alexander: So we're not expecting side by side to be down, which is just right now the core part of the side by side market looks a little soft. Okay, that's helpful. And then maybe a follow-up as it relates to dealer inventory levels given those comments and some of the shipments shifting into the fourth quarter. And you talked about down 10% versus 19. One of your sides suggests history would imply that dealer inventory is flat on a quarter of a quarter basis.

We do expect to see that commercial business.

Pretty solid again in 'twenty four.

Got it and last question on P. G&A, you talked about it being pretty strong.

Still as the close out the year, but if you were to back out so the lock in ride phenomenon in some of the newer products on a like for like basis. How are you viewing the attachment rates or people.

Holding off.

Megan Alexander: So is the implication that it's actually up on a quarter of a quarter basis. And I guess how are you thinking about how dealer inventory and the year and what that could mean in terms of 24 sales? Yeah, I mean dealer inventory improved sequentially. So it certainly is up in in third quarter versus the second quarter, you know, a lot of that's driven by, you know, the slow down we've seen and obviously even though our production and efficiencies were there, we were able to get more product into the market.

Putting as much items on their vehicles.

No well I mean first of all the the new lock in ride Max.

Really hesitant I mean, it's obviously on the new vehicles that we've got out there, but the proliferation is still relatively low obviously that'll pick up as we get into next year no. The attachment rates have continued to climb.

We've done a lot with the factory installed accessories, we do whether that's through Slingshot design center or the customization that our off road customers can do when they order a vehicle through the dealer and we see that continuing to be strong, which I think speaks to the fact that people want a customized vehicles, which was a big part of our.

Megan Alexander: You know, we're targeting to have dealer inventory kind of either flat or down versus 2019 as we get today into the year. But we're going to watch that, you know, certainly you've got dynamics around making sure that we get plenty of XD and expedition, which are both under high demand as well as our North Star Rangers into the channel. But you know, I wouldn't suggest that there's some substantial significant change from where we are today. Okay, awesome. Thank you very much.

Strategy, so were optimistic they've done a lot to grow that business and you know as we talked about in my prepared remarks, I mean, we have the industry's leading number of attachments and.

I'm really happy with what the team's done you know you look at these new vehicles that have launched.

The expeditions launched with over 100 accessories XD is launching with over 70 accessories. We did the same thing with our XP razor.

Fred Wightman: The next question is from Fred Wightman with Wolf Research. Please go ahead. Hey guys, good morning. I wanted to come back to the manufacturing and efficiency number. It sounds like that's now supposed to be 70 million versus 40 previously. Can you just sort of help us with the sequencing of that as we carry into the first half of the year? That's something that you expect to continue, but just the relative impact on one queue versus two queue.

It really allows us to get out and get customers customizing. These vehicles the way that they want to.

Got it that's all I have thank you.

Thank you.

The next question is from James Hardiman with Citi. Please go ahead.

Hey, good morning, Thanks for squeezing me in here first just a quick clarification, Bob I think you said you expected side by side to be up in the fourth quarter.

Fred Wightman: You would be helpful. So either the way it's flown, flowed through this year. At the end of Q2, we thought it would be 40 million. And really most of those costs were incurred in Q2. So we knew they were going to come through in Q3. And we had expected to be able to have a bigger impact on them in Q3 than we did. So the Q3, you know, sort of excess cost carried into Q4.

Side by side or do you think total or view will be up in <unk>.

I think total RV will be up then obviously off road would be up because that was included in off road.

Okay great.

Then maybe just another point of clarification.

As you think about retail I guess overview retail in particular, where do you think that finishes versus 2019, I'm just trying to wrap my brain around <unk>.

Fred Wightman: That's about 30 million that'll impact in Q4. It's a little tough to say what the impact will be in Q1. We're actively working to, because we'll, but the Q1 impact will be the cost we, mostly the cost we incur in Q4. And so, you know, we're working actively to bring those costs out and to address those inefficiencies as Mike discussed. So I would say it's a little early to say what the impact will be on 2024. And we're not focused on 24 guidance yet, but, you know, you can count on the fact that we're working as aggressively as we can to minimize any impact going forward.

Weeks on hand or of inventory or inventory turns versus 19. It just did.

Feels like with retail down in inventories even close to flat.

It would almost have to be.

More weeks on hand, fewer fewer returns versus 19, when I. When I think you said coming out of 19 that you were a little bit heavy.

Yeah. So I mean, you know as Mike said, we think it's gonna be retailed be relatively flat to 19, if you look across the whole company.

Bob Mack: Fair enough. And then there's a comment in the slides just talking about some lending metrics that were pressured. Can you just expand on what exactly you're referring to, what categories, whether it's retail or wholesale? What exactly meant by that? Really, the comment was really related to retail. And so what we saw in the quarter was, you know, really good, good pen rates and volumes up up versus the kind of prior quarters and last year.

And dealer inventory right now it looks like it's going to be down.

If you exclude XD and expedition that you'll have new channel fill on so you know those weren't in the base, but in terms of major categories that we don't think have a lot of overlap.

So you know turns are relatively consistent like Mike said.

They there are pockets and there are pockets, where white spots, where we're heavy.

Bob Mack: Approval rates were pretty flat relative to history. And FICO scores are actually up. The pressure is coming from increased focus on kind of debt to income ratios. And the lenders, you know, kind of putting more focus on that versus just FICO's. And then also some of the smaller lenders, the credit unions and things like that that were aggressive during the pandemic. Have backed off a little bit, which, you know, is good for us because we've got four lending partners who've been aggressive in the market.

We're focused on that helping the dealers, where where theyre heavy in getting things like North stars, where we're still light out into the channel. So we feel good about dealer inventory. We are that's part of the reason we took the revenue guide down a little bit is we are going to be cautious as we go through the quarter.

We took out some marine.

The quarter that we wanted to make sure we stay in the right position on dealer inventory and Marine are same thing with.

With on road, you know its been a motorcycle market retails looked a little soft so we're making sure. We go into the season with the right amount of inventory. So I don't I don't think we're heavy from a turn standpoint, certainly the dollars and what you'll probably hear from dealers is there they feel the dollars and with the price increases in the heavier more.

Bob Mack: So there's not a lack of credit, but there's a little bit of pressure on this on the sort of debt to income as the banks continue to review their portfolios. Perfect. Thank you. We don't believe in the panic impact on retail or anything like that. Just a sort of slightly changing environment. Makes sense. Thank you.

Mix on premium products and the interest rates you know, obviously, where we're conscious of that and we're working through that to try to optimize it for people, but we feel like we're in a good place on dealer inventory.

Tristan Thomas: The next question is from Tristan Thomas Martin with BMO capital markets. Please go ahead. Hey, good morning. Morning. A question given the kind of slower production ramp. Are you shipping in as many Ranger X, the 1500s and 4Qs you expected three months ago or some of it going to kind of spill over into the first quarter of next year. We are not. We got off to a late start as we talked about.

Speaker 4: I'm sorry, did you say you thought that full year ORV retail would be flat with 19 even after I think it was down 20? Wait a minute. In fully in the third year of the year.

I'm sorry did you say you thought that full year or the retail would be flat with 19, even after I think it was down 20.

In the.

The third quarter.

Speaker 3: yeah james i eat you know we're not going to sit here and get down into the particulars but i think overall is company we think will be flatish maybe down a little bit relative to nineteen

Yeah, James I E.

We're not going to sit here and get down into the particulars, but I think overall as a company, we think will be flattish, maybe down a little bit relative to 19.

Mike Speetson: And so we anticipate that just pushes forward into 24. Okay, and then just kind of back to retail. I think you said flat, maybe down a little bit, verse 19. If I just look at, I think market shares down a bit, retail is trending lower. Should your inventory levels be lower and kind of how are you thinking about what's appropriate? I didn't catch the first part. Did you save market shares down?

Speaker 3: And it is about, I mean, our Dealing inventory levels adjusted for the two new products to be comparable to 19 should be down as well. And so, we know it's not perfect in all areas, but certainly a pretty good guidepost for us is we think about getting into 24 and how we want to start planning the business. Thank you.

And as you know is its about that I mean are.

Dealer inventory levels adjusted for the two new products to be comparable to the 19.

It should be down as well and so you know we're we know it's not perfect in all areas, but certainly a pretty good guidepost for us as we think about getting into 'twenty four and how we want to start planning the business.

Got it okay. Thanks, guys.

Speaker 1: Thanks. The next question is from Xian Su with BNP Paribas. Please go ahead.

Thanks.

The next question is from Xeon Sue with BNP Paribas. Please go ahead.

Mike Speetson: Well, I said, if I look at market share compared to 19, at least I can see. Your RV market shares down and then also retail is running lower than 2019. But if inventory is flat, I mean, why, why is that appropriate? Well, our inventory right now is down 10%. And the point I was trying to make when I answered the earlier question is, if we anticipate by the end of the year, will there be down slightly versus 19 or flat?

Speaker 5: Hi, guys. Thanks for taking the question. Maybe on the new category, it sounds like, you know, as you've kind of talked about before, that you view them as incremental with little overlap for the existing line. And I know it's kind of early, but are there any kind of initial indications that you're bringing in a new customer or any kind of – is it – whether it be, like, pre-sales or anything like that?

Hi, guys. Thanks for taking the question maybe on the new category it sounds like.

You've kind of talked about before that you view them as incremental and with little overlap for the existing line and I know, it's kind of early but are there any kind of initial indications that you bring in a new customer or any kind of.

Is it whether it would be like pre sales or anything like that.

Mike Speetson: The thing to keep in mind is, we now have expedition and XD shipping into the market. So if you were to adjust for those items, our inventory is definitely down versus 19 as we come out of the year, which is consistent with what we're seeing around retail performance more broadly.

Speaker 3: Yeah, we definitely, you know, we don't have a lot of experience yet with the XD other than what we're hearing from the dealers given we haven't delivered that. But for expedition, you know, certainly we are pulling in folks that, you know, would have contemplated buying a more of an automobile to go do the types of activities, but the expedition offers them at a far more attractive price point.

Operator: Thank you.

That you know would have contemplated buying a.

More of an automobile to go do the types of activities, but the expedition offers them at a far more attractive price point.

John Healy: But the next question is from David McGregor with Longbow Research. Please go ahead. Yes.

Speaker 3: the ability to have a vehicle that can get them out, doing the overlanding and deep woods activities that they want. So it's still early days, but we're really encouraged with what we've seen. And I'd encourage you, if you get the chance, there's plenty of reviews and customer videos and things out on YouTube that I think really speak to it better than we ever could on this call.

The ability to have a vehicle that can get them out.

Mike Speetson: Good morning, Mike. And congratulations on the progress in the road. It's encouraging. Wanted to ask you about the promotional programs you're seeing in the marketplace right now. If you could elaborate a little bit further, one more detail around what you're seeing. I'd be competitive behaviors. And also our consumers responding to the promotions or is that maybe not so much the case right now? Yeah, I mean, you know, the promotional environment certainly has has ticked up.

Doing the overlapping in deep.

Deep woods activities that they want so you know it's still early days, but we're really encouraged with what we've seen and I'd encourage you if you get the chance there's plenty of reviews and.

Customer videos and things out on the on Youtube that.

I think really speak to it better than we ever could on this call.

Speaker 6: Yeah, I think if you think about Expedition, right? The product we have that's both comparable as general and we've continued to see strong retail on general and no fall off there. It looks like it's, as Mike said, it looks like it's proving out to be a somewhat different customer. Just a customer that wants more features would have maybe traded out of a Jeep or some other type of off road vehicle into the Expedition, which obviously has a lot more capability than the general, which has a little bit of a different use case.

I think if you think about expedition right. The product we have that's most comparable as general and we've continued to see strong retail in general.

Mike Speetson: You know, we look at it on a number of different measures and overall is a percentage of revenue. It's still down about 25% from where it was in 2019. And we've gotten much more specific around what we're doing in terms of tailored promotions directed at specific consumers as well as the interest rate buy downs. I think on the targeted offers, we see those picking up traction. The interest rate buy downs certainly have garnered a lot of interest.

No no no falloff there it looks like it's as Mike said, it looks like it's proving out to be somewhat different customer just a customer that wants more features would've maybe trade it out of a jeep or some other type of off road vehicle into the expedition, which obviously is a lot more capability than the general which is has a little bit of a different use case.

Speaker 5: God, thanks. And maybe just to follow up, it sounds like versus, we talked last time, it sounds like the value segments, whereas it's maybe getting a little more pressure. Can you maybe just remind us the mix of value versus premium?

Got it thanks, and maybe just a follow up it sounds like versus.

We talked last time, it sounded like the value segments, whereas maybe getting a little more pressure can you, maybe just remind us the mix of value versus premium.

Mike Speetson: But as Bob mentioned, you know, the banks have tight and lending standards and certainly that's creating some pressure. Obviously, it's no secret to this community that, you know, credit card debt is is peaked and anybody taking on a new mortgage is obviously dealing with higher interest rates. So, you know, the banks are getting a more particular about installment debt and overall debt loads and that certainly is is preventing some consumers from getting finance.

Speaker 6: We don't really, I don't know that we've ever given that mix, but, you know, we've

Yeah, we don't really I don't know that we've ever given that mix, but.

We've.

Speaker 6: Seen old got a good growth on the premium side. You know, value, it's, you know, obviously units a lot lower dollars. And you know, that pressure, like we said, is coming really, we think from interest rates and this, you know, credit pressure on debt to income ratios because that tends to be that buyer. So.

<unk> got a good growth on the premium side.

You know value is.

Obviously units are lot lower dollars and you know that pressure like we said has come in really and we think from a from interest rates.

And this you know credit.

Credit pressure on debt to income ratios because that tends to be that buyer. So.

Mike Speetson: But, you know, overall, we feel like we're putting them into the right spots, still more efficient than what we have been historically. But ultimately, it's, you know, it's tough to get consumers off the sidelines if they're worried about much larger issues. And, you know, we're not going to get into, you know, throwing just huge gobs of money into the marketplace. We're going to continue to be very targeted in how we drive consumers into the dealer and have it be a high quality lead that the dealer can convert. All right. Thanks for that.

Okay. Thanks, Good luck guys.

Thanks.

Speaker 1: Disconclus our question and answer session, and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.

This concludes our question and answer session and the conference is also now concluded.

You for attending today's presentation you may now disconnect.

Mike Speetson: And just as a follow-up, can you just talk about what you're seeing in the used market right now and the extent to which that may be? Yeah, I mean, as we talked about, we launched Polaris Exchange, so we obviously have very good visibility into what's going on. The use market has slowed. Use prices have come down. We see that directly through the vehicles we have coming out of Polaris adventures and through the exchange process.

Mike Speetson: I would say it's normalized relative to some of the very high percentage of MSRP. We resell numbers that we saw back in 2021 and even in 22. And I would say it mimics more what we're seeing in the broader new vehicle retail market. Things are just slower than they have been. Thanks very much.

Operator: Good luck.

Jaime Katz: The next question is from Jaime Katz with Morningstar. Please go ahead. Hey, good morning. I was hoping you guys could articulate maybe what the differences you're seeing between the marine buyers and the traditional power sports buyers are. I know you've spoken a bit about everybody shifting to this like premium purchasing that has been benefiting you in models. But I think in marine, you'd mention that you're doing some lower price point product. So I am wondering if that's a function of just the absolute price point of both relative to like ATVs or if there's some wider adjustable market or some other thing that's driving that decision.

Mike Speetson: Yeah, in the marine side, Jamie, it's really kind of two things to your point. The absolute dollar value of the boats makes the exacerbates the interest rate problem. You're looking at boats that average 60 to 75,000 and go up as high as 300,000. So that interest rate impact is a lot more. The tenor of financing is a lot longer. So, you know, we think that the interest rates have had a bigger impact in marine.

Mike Speetson: We still see tremendous interest at the high end of our portfolio. But, you know, the consumer as came through the pandemic, they really just were no kind of entry level boats of ours or even most of our competitors available and coming coming out of that with both production returning to normal dealer inventory starting to return to normal. You know, we felt like it was a good time to reinvigorate the entry level of our betting in line and give another option to try to bring kind of a different consumer into the space just given the lack of availability of those products over the last two to three years.

Mike Speetson: So, you know, we think it's good timing. We think it'll be a positive for the banks and brand. And we'll help bring that new consumer. And, you know, Jamie does think I'd add is, you know, remember marine is probably more directly correlated to say our razor business where you've got primarily vehicles that are for people to go out and enjoy the outdoors. The utility portion of our business, even though we're obviously a little bit more cautious than we had been.

Mike Speetson: That does dampen volatility because these vehicles are being used obviously for far more than just people going out and enjoying the outdoors they're used to get work done. And so that certainly dampens some of what we see when we compare the two categories.

Operator: Okay, and then any update on the death that's about to mature in December? Yeah, so we're, we have a board meeting after this the next few days and we'll be discussing with the board what our options are and what path we want to take and we expect to get that executed certainly before the term of the 364 expires in mid-December. Okay, thanks. Thank you.

Operator: The next question is from John Healy with North Coast Research. Please go ahead. Great, thanks for fit me in.

Scott Stember: I just wanted to ask a question about feedback from the dealer community largely on inventory levels and I know you mentioned that you know you're 10% below today and end of the year you'll be you know comparable to 2019 levels but are dealers wanting to be at 2019 levels and you know the thought process and some of the feedback we've gotten this morning is questions relating to with ASP's up relative to 19 and just the the cost to carry that inventory is 19 the right way to think about where dealers want to be or should we be thinking about you know the right level of inventory for a dealer is you know maybe 80 or 90% of 19 levels so just curious of what the feedback has been about where they would like to be themselves yeah I mean we spend a lot of time working through that obviously and you know the tough part about talking about dealer inventory is you know we don't do it justice by talking at a high level we're looking at this by region by model by sub market and so we work through that with our dealers in terms of the way we set our profiles in terms of stocking levels we you know we are below 2019 and that's on a you know adjusted for the sales price dynamics basis but the key differences we get to the end of the year is we do have two very new large platforms with XD and Expedition and so you know when we look at the numbers excluding that we are we are at a point where the dealers are below where they were in 2019 and we we think and you know I think broadly they agree that we're zeroing in on the right range that said we know that there's pockets we've seen more pronounced slowdown in some of the razor products where we've got to work with the dealers in specific regions to make sure they can move that product that isn't anything that is abnormal we constantly have to deal with shifting dynamics and we're working through that with the dealers and you know I think the key is we're using that as our guidepost as we move forward into 24 to make sure that we keep those inventory levels at the right at the right level so that the dealers got the right product for the consumer and they can manage their finances given the higher floor planning costs understood and then just follow up on the snow business obviously you guys are enthusiastic about what's on the horizon there is that more about you know the the catching up over last year or are you starting to see some benefit from maybe dealer starting to shift towards you guys and maybe away from Yamaha as they kind of exit the category here at some point in the in the not so distant future and how big of an opportunity do you think that is for you guys yeah that the Yamaha piece is small you know really we and beer appear the two major players in the snow business so you know there's certainly some business to be picked up there but I would tell you that the the reason we're optimistic about our snow businesses all the work we've done over the past year year and a half to get that business back on track you know part of the part of the headwind we've got as we head into 24 is the dynamic of the fact that we relate delivering our 22 snowmobiles so we ended up shipping a lot in the first quarter of this year and we've made vast improvements in our ability to deliver and we're going to have all of our snow check units delivered before the end of this year and so obviously as we get into to 25 we're going to be back on a more normalized cadence and that obviously you know we'll present some some challenges as we move forward but we're really happy with what we've been able to do in that business both in terms of getting the production smoothed out but also the improvements we've made in quality the new products that that team has ready to launch as we get into into 24 has us very optimistic about that business albeit it's a small part of the overall company but you know a big part of the heritage and heart of the company and so it's really important for us to make sure that we've got that on the right track so we're very optimistic about where we're headed great appreciate the color the next question is from Scott Stember with Roth MKM please go ahead. Good morning guys and thanks for taking my questions.

Scott Stember: Good morning. First question on the utility side of ORV you mentioned that the commercial side is softening a little bit. Can you maybe talk about the other side of that whether it's you know agriculture or anything else that's driving that business. How is that piece holding up? Yeah I would just echo the comments I made earlier I would tell you kind of it the the value to mid-range of our lineup has slowed relative to what we had seen but the demand at the higher end whether that's the North Star Ranger or the soon to be delivered Ranger X-D's remains solid so you know I think it speaks to the fact that the category is more resilient because we've got a lot of work to do with that.

Scott Stember: The consumers are using that to get work done on a ranch or farm and you know we see that holding up better than we do in many of our rep purely recreational categories. Yeah we talked earlier you know that we saw some slowing from the rental companies in the fact in the back half of the year but you know the rental company rental our rental commercial business was still really strong for the year.

Scott Stember: You know as these guys got into their kind of queue for they backed off on capital purchases but you know we expect to see that start to return as we get out of the year and they get back to their new capital budget and you know the road projects and chip app stuff and all that remains pretty strong so you know we do expect to see that commercial business could be pretty solid again in 24. Yeah and last question on PG&A we talked about it being pretty strong still as we close out the year but if you were to back out the lock and ride phenomenon some of the newer products on a light full light basis how are you viewing the attachment rates are people holding off not putting as much items on to their vehicles.

Scott Stember: Yeah well I mean first of all the the new lock and ride max really hesitant I mean it's obviously on the new vehicles that we've got out there but the proliferation still relatively low. Obviously that will pick up as we get in the next year no the attachment rates have continued to climb. You know we've done a lot with the factory installed accessories we do whether that's through Flingshot Design Center or the customization that our off road customers can do when they order a vehicle through the dealer and we see that continuing to be strong which you know I think speaks to the fact that people want to customize vehicles which was a big part of our strategy.

Scott Stember: So we're optimistic they've done a lot to grow that business and you know as we talked about my prepared remarks I mean we have the industry's leading number of attachments and you know I'm really happy with what the team's done you know you look at these new vehicles that have launched. You know the expeditions launch with over 100 accessories XDs launching with over 70 accessories we did the same thing with our XP razor. It really allows us to get out and get customers customizing these vehicles the way that they want to.

Operator: That's all I have. Thank you.

James Hardiman: The next question is from James Hardiman with City. Please go ahead. Hey, good morning. Thanks for squeezing me in here. First just a quick clarification. Bob, I think you said you expected side by side to be up in the fourth quarter. It is just side by side, or do you think total RV will be up in 4Q? I think total RV will be up. Then obviously off-road will be up because snow is included in off-road.

Bob Mack: Okay, great. And then maybe just another point of clarification. If you think about retail, I guess the RV retail in particular, where do you think that finishes versus 2019? I'm just trying to wrap my brain around weeks on hand or of inventory or inventory turns versus 19. It feels like with retail down and inventory. The inventory is even close to flat. Those would almost have to be more weeks on hand if you were turns versus 19 when I think you said coming out of 19 that you were a little bit heavy.

Bob Mack: Yeah, so I mean, as Mike said, we think it's going to be retailed, be relatively flat to 19 if you look across the whole company. And dealer inventory right now looks like it's going to be down. If you exclude XD and expedition that you'll have new channel fill on, so those weren't in the base, but in terms of major categories that we don't think have a lot of overlap. So, you know, turns are relatively consistent.

Bob Mack: Like Mike said, there are pockets and pockets weren't light. There's pockets where we're heavy. We're focused on that, helping the dealers where they're heavy and getting things like nor stars where we're still light out into the channel. So, you know, we feel good about dealer inventory. We are part of the reason, you know, we took the revenue guy down a little bit is we are going to be cautious as we go through the quarter.

Bob Mack: You know, we took out some marine, you know, from the quarter that we wanted to make sure we stay in the right position on dealer inventory and marine. Same thing with on road, you know, it's been the motorcycle market retails looked a little soft. So, we're making sure we go into the season with the right amount of inventory. So, you know, I don't think we're heavy from a turn standpoint. Certainly the dollars, you know, and what you probably hear from dealers is they feel the dollars and with the price increases and the heavier mix on premium products and the interest rates.

Bob Mack: You know, obviously we're we're conscious of that or we're working through that to try to optimize it for people, but we feel like we're in a good place on dealer inventory. I'm sorry, did you say you thought that full year or V retail would be flat with 19 even after I think it was down 20% in fully in the first year? Yeah, James, you know, we're we're not going to sit here and get down into the particulars, but I think overall company we think will be flatish, maybe down a little bit relative to 19.

Bob Mack: And you know, I mean, our dealer inventory levels adjusted for the two new products to be comparable to 19 should be down as well. And so, you know, we're we know it's not perfect in all areas, but certainly a pretty good guidepost for us as we think about, you know, getting into 24 and how we want to start planning the business.

Operator: Got it. Okay, thanks guys. Thanks.

Xian Sam: The next question is from Zian Su with BNP Parabos. Please go ahead. Hi guys, thanks for taking the question. Maybe on the new category, it sounds like, you know, as you've kind of talked about before that you view them as incremental and with little overlap for the existing line. And I know it's kind of early, but are there any kind of initial indications that you're bringing in a new customer or any kind of pre-sales or anything like that?

Xian Sam: Yeah, it's definitely, you know, we don't have a lot of experience with the XD other than what we're hearing from the dealers given we haven't delivered that, but for Expedition, you know, certainly we are pulling in folks that, you know, would have contemplated buying a more of an automobile to go do the types of activities, but the Expedition offers them at a far more attractive price point. The ability to have a vehicle that can get them out, you know, doing the overlanding and, you know, deep woods activities that they want.

Xian Sam: So, you know, it's still early days, but we're really encouraged with what we've seen. And, you know, I'd encourage you, if you get the chance, there's plenty of reviews and customer videos and things out on YouTube that I think really speak to it better than we ever could on this call. Yeah, I think if you think about Expedition, right, the product we have that's both comparable is general and, you know, we've continued to see strong retail on general, and no fall off there.

Xian Sam: It looks like it's, as Mike said, it looks like it's proving out to be a somewhat different customer, just a customer that wants more features would have maybe traded out of a Jeep or some other type of off road vehicle into the Expedition, which obviously has a lot more capability than the general, which is has a little bit of a different use case. Got it. Thanks. And maybe just a follow up.

Xian Sam: It sounds like versus we talked last time. It sounds like the value segments, whereas maybe getting a little more pressure. Can you maybe just remind us the mix of value versus premium? Yeah, we don't really know that we've ever given that mix, but, you know, we've, we've seen all got a good growth on the premium side. You know, value, it's, you know, obviously units a lot lower dollars. And, you know, that pressure, like we said, is coming really, we think from from interest rates and, and this, you know, credit pressure on debt to income ratios because that tends to be that buyer. Okay, thanks. Good luck, guys. Thanks.

Operator: This concludes our question and answer session, and the conference is also now concluded. Thank you for attending today's presentation.

Operator: You may now disconnect.