Q3 2025 BRP Inc Earnings Call
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Speaker Change: Good morning ladies and gentlemen and welcome to BRP Inc. fiscal year 25 third quarter results conference call. For participants who use the phone it is recommended to turn off the sound on your device and I would like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead Mr. Deschenes.
Speaker Change: Thank you, Sylvie. Good morning and welcome to BRP's conference call for the third quarter of fiscal year 25. Joining me this morning are Jose Boisjoli, President and Chief Executive Officer, and Sbastien Martel, Chief Financial Officer.
Speaker Change: Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that the actual result could differ from those implied in these statements.
Speaker Change: The forward-looking information is based on certain assumptions and is subject to risk and uncertainties and I invite you to consult BRP's MD&A for a complete list of these.
Speaker Change: Additionally, note that following the announcement of the initiation of the process for the sale of our marine businesses, these businesses are now presented as discontinued operations.
Speaker Change: Therefore, all periods presented in these relays reflect continuing operation only unless otherwise noted. Also note that you can find today's presentation on our website at brp.com under the investor relations section.
Speaker Change: So with that, I'll turn the call over to Jose. Thank you Philippe. Good morning everyone and thank you for joining us.
Jose Boisjoli: The third quarter was marked by disciplined execution of our plan, which allowed us to deliver results above our expectations, driven by the timing of snowmobile shipment and tight management of operating expenses.
Jose Boisjoli: Our retail performance was, as anticipated, reflecting a challenging market dynamic due to soft industry trends and high levels of promotional activity on non-current units from other OEMs.
Jose Boisjoli: We have remained focused on reducing network inventory, and we are pleased with the solid progress made so far. Based on retail trends, we are on track to deliver on our objective for the year.
Jose Boisjoli: Before going further, I want to say a few words on our decision to sell our marine businesses.
Jose Boisjoli: After careful consideration and given the current dynamic of both the marine and power sport industry, we have decided to double down on our core power sport activities.
Jose Boisjoli: We aim to focus our effort and investment toward this business, to capitalize on growth opportunity, and continue to position BRP for long-term success.
Jose Boisjoli: Consequently, we initiated the process for the sales of our marine businesses, namely Alumacraft, Manitou, and Tailwater.
Speaker Change: We continue operating in the normal course of business, but as Philippe mentioned, we are now reporting our result on a continuing operation basis and our guidance reflects this new reporting structure.
Speaker Change: You will understand that since the sales process is ongoing, we cannot comment further on today's call.
Speaker Change: Now let's turn to slide 5 for key financial highlight. Revenue reached 2 billion dollars, normalized EBITDA was 264 million, and normalized EPS was a $1.16, all above expectation.
Speaker Change: One of the key highlights of the quarter was the progress made on our network inventory reduction plan as you can see on slide 6.
Speaker Change: This plan was one of our priorities this year to protect our dealer value proposition.
Speaker Change: We have made significant strides toward our 15 to 20% reduction objective by the end of this fiscal year.
Speaker Change: and Venturi is down 10% so far given the timing of snowmobile shipment this year.
Speaker Change: More importantly, in ORV, it is down 22%, achieving our objective one quarter ahead of plan. We have also seen noticeable improvement on three-wheel vehicle, personal rotorcraft and switch pontoons.
Speaker Change: This put us in a favorable position to capture market opportunity when the industry rebounds and to foster long-term profitable growth.
Speaker Change: Turning to slide 7 for an update on the global power support market.
Speaker Change: And Asia Pacific saw mixed performance, depending on the country with the retail flat on average.
Speaker Change: Overall these controversies of little markets had a better start to the summer season than expected.
Speaker Change: Turning to slide eight for a look at North American retail performance by product line.
Speaker Change: As expected we experienced a decline in the RV as limited availability of non current unit reduce and market share resulted in market share losses.
Speaker Change: And the soft start to the snowmobile season, which is typical after a year with unfavorable snow condition.
Speaker Change: Meanwhile, personal watercraft had the better end of season than anticipated.
Speaker Change: Let's turn to slide nine to circle back to the RV market dynamic.
Speaker Change: As you can see about two third of side by side vehicle and close to 90% of the TV industry units.
Speaker Change: Retail this quarter was lumpier right.
Speaker Change: This dynamic is the result of intense promotional activity by other Oems, who had higher level of non current units.
Speaker Change: In our case, we have limited non Korean availability, which resulted in short term market share loss.
Speaker Change: However, we gained share in the more profitable current unit driven by our newly introduced product and the overall strength of our lineup.
Speaker Change: We expect this dynamic to persist at least through the fourth quarter, but our strong performance with Korean unit gave us confidence that we will regain market share when the inventory position of other Oems normalized.
Speaker Change: Now, let's turn to slide 10 for a look at the launch of our can am electric motorcycle lineup.
Speaker Change: The team has been busy.
Speaker Change: <unk> I worry less with consumers and the media preparing the dealer network for the official start of the 20th 25 retail season.
Speaker Change: And showcasing the product in key events, such as asthma, the largest motorcycle trade show in the world.
Speaker Change: I attended the show and I was pleased to notice the excitement for our technology and innovative design as well as the fit and finish of our can am pulse and leverage and motorcycle.
Speaker Change: The launch is well underway, we are approaching our targeted number of dealer globally production is ramping up in December and shipment will start at the beginning of fiscal 'twenty six.
Speaker Change: We look forward to our first season in the electric motorcycle industry.
Speaker Change: Now, let's turn to slide 11 for a more detailed look at year round products.
Speaker Change: Revenues were down 12% to $1 billion, primarily reflecting reduced shipment.
Speaker Change: At retail kind of a side by side was down mid single digits slightly lower than the industry due to the non current dynamic.
However, we continue gaining share in the utility segment led by the ongoing success of our high end defender cabs models.
Speaker Change: As for ATV retail was also down mid single digits.
Speaker Change: We have gained about four percentage point of market share. So far this year in the mid Cc segment.
Speaker Change: Driven by the introduction of our New York lender platform.
Speaker Change: As a reminder, a reminder, we have also introduced this platform into high Cc segment in August.
Speaker Change: Looking at three wheeled vehicle, Canada completed its 2024 season in October with retail down high teen percent.
Speaker Change: <unk> seen the industry, which was down about 20%.
While this season was more challenging than initially expected. We are pleased with continued market share gains that solidified our position as the industry leader.
Speaker Change: Turning to seasonal product on slide 12.
Speaker Change: Revenue were down 29% to $616 million, primarily reflecting lower shipment.
Speaker Change: And snowmobile, we proactively reduced production level given higher inventory following last winter unavailable snow condition.
Speaker Change: Our retail is performing in line with the industry early in the season, despite the lower level of non current inventory compared to our peers.
We are confident in our ability to outperform the market given our innovative lineup as well as our loyal and passionate customer base.
Speaker Change: As for Peter but you see we ended the season with retail down in the high 20% range lagging the industry as our competitor returned to normal production levels.
Speaker Change: Despite this situation our retailer was better than anticipated at the end of the season, which we concluded with the number one position in the industry and the market share above pre COVID-19 levels.
However, since our retail performance for the whole season was below initial expectation we ended with more inventory than planned and we will reduce shipments for the upcoming season.
Speaker Change: As for the <unk> switch we ended the season with retail down mid 40%.
Speaker Change: As we are as we were lapping the strong success of our first full season last year and facing a soft pontoon industry. This year.
Speaker Change: We're looking forward for more normal season 'twenty five for switch.
Speaker Change: Moving on to slide 13, with power sport part accessories, and apparel and OEM engine.
Speaker Change: Revenue were down 6% to $303 million, primarily due to lower shipments of snowmobiles peony, given the higher level of inventory in the network after last season.
RV parts business continued to increase driven by growing vehicle fleet, while accessories sales have been softer in line with unit retail.
Speaker Change: With that I turn the call over to Sebastian. Thank you Jose and good morning, everyone. Our third quarter results. Once again demonstrated our commitment to support our dealers as we were disciplined and limiting our shipments to reduce our network inventory levels.
Speaker Change: In my financial perspective, our results came in ahead of plan as we continue to diligently manage our expenses and we shifted some deliveries of snowmobiles, which were initially planned for Q4.
Speaker Change: Before jumping into the numbers I want to remind you that the following represents the results from continue operations out of our marine business has been reclassified as discontinued operation.
Now looking at the numbers revenues were down 18% to $2 million, primarily due to lower shipments and higher sales program.
Speaker Change: We generated $430 million in gross profit representing a margin of 22% down from last year, primarily due to the less sufficient to summer assets, given the lower production volumes and higher sales programs.
These were partly offset by a richer product mix, especially in SSP and through favorable pricing.
Speaker Change: Normalized EBITDA ended at $264 million and our normalized earnings per share at $1 16.
Speaker Change: To help you compare these results to our initial expectations for the quarter, assuming we would have reported with marine included in our numbers, our normalized EPS would have been 91%.
Turning to slide 16 for an update on the guidance.
As we already mentioned a third quarter played out generally in line with our expectations. Our retail performance was consistent with our outlook and we've made good progress on network inventory reduction plan, putting us in a good position to achieve our objective for the year.
Speaker Change: Looking ahead, while our Q3 results came in above our expectations. They benefited from the timing of shipments of snowmobiles between the third and fourth quarter and it was touched on that impact on the full year is negligible.
Speaker Change: Additionally, while there are only two months left to go in our fiscal year, we are keeping some flexibility in our guidance to account for the fact that the main snowmobile retail season is yet to start.
Speaker Change: The potential adjustments, we may make to our shipments and sales programs as we continue to prioritize the right sizing of network inventory levels.
Speaker Change: Consequently, we are reaffirming our guidance for the year and are maintaining the same guidance range.
Speaker Change: Note. However that our guidance is now presented on a continuing operations basis. So the changes that you are seeing in today's guidance when compared to the one that we issued in September are simply driven by this reclassification.
As such we now expect our revenues to end between seven six and $7 $8 billion.
Speaker Change: Normalized a bit doctor and between the $1 billion $20 million, and 1 billion, a $70 million and normalized EPS to between $4 25 and 475.
Speaker Change: Now to give you an appreciation of the impact of the sale of our marine business on our financial profile, let's look at slide 17 as yours.
Speaker Change: As I mentioned, we took the decision to sell the marine segment to refocus on our core power sports business, we strongly believe that doubling down on power sport an industry in which we have a solid track record of success is the right move forward for the ERP.
Speaker Change: Our most attractive opportunities are in power sport, especially in <unk> and our core power sports business has a much more attractive financial profile and investments in this sector upgrade or expected returns.
The highlight the benefit of this decision on our financial profile, we have illustrated on the slide the evolution of the guidance compared to the one we issued last quarter.
Speaker Change: As you can see by comparing the two that are continuing operations are expected to generate about 130 million more of normalized EBITDA improve our normalized EBITDA margin by 200 basis points and increased our normalized EPS $5 50.
Speaker Change: Additionally, excluding our discontinued operations our expectations in terms of free cash flow generation for the year would have been about $100 million fire.
Speaker Change: While this was a difficult decision to make we expect that our exit of marine will improve our ability to capitalize on how high return opportunities in the power sports space through greater focus on financial capabilities.
We are confident that this will enable us to strengthen our position as the leader in the industry and make DRP, an even stronger company for the long term on this I will turn the call back to shortly.
Speaker Change: Thank you Sebastian.
Speaker Change: <unk> has once again proven to be an agile organization in this transition year.
Speaker Change: We were the first OEM to prioritize network inventory depletion and we are on track to reach our objective by the end of the fiscal year.
Speaker Change: I am proud of our team execution to protect the strength of our dealer network and the value of our brands I think all of our employees for their commitment.
Speaker Change: Even though it is too early to give details for next year, we will enter fiscal 'twenty six with a strong product portfolio and an improved inventory position.
Speaker Change: Driven by our solid business fundamentals, we are uniquely placed to capture opportunities when the market rebounds.
Speaker Change: As a global organization, we constantly monitor the macroeconomic and trade and determined to anticipate and address any new policy developments.
Speaker Change: We are used to dealing with the evolving trade agreement and they have always succeeded in finding solutions to new tariffs.
Speaker Change: Looking to the long term, we remain focused on solidifying our position as a global leader in the power sports industry.
Speaker Change: You can expect us to continue pushing technology and innovation.
Speaker Change: We have repeatedly proven our ability to design award winning product and we're essentially took hold six new design Award in Australia, Japan and the U S.
Speaker Change: These distinction stem from our sustained investment in R&D count on us to continue to Wow consumers with our strong product pipeline in the coming years.
Speaker Change: On that note I turn the call over to the operator for question.
Speaker Change: Thank you Sir.
Speaker Change: Ladies and gentlemen, if you do have a question. Please press star followed by one on you touched on phone.
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Speaker Change: Before pressing any keys and out of consideration to other callers on the line today, we ask that you. Please limit yourself to one question and one follow up thank you.
Speaker Change: Your first question will be comes about Com at RBC capital markets. Please go ahead.
Speaker Change: Okay, great. Thanks, and good morning, Jos I understand that you're gonna give official guidance at the next quarter. If I can just maybe tease out any.
Any directional perspectives on sort of your three power sports segment and anything on seasonality as we look ahead to fiscal 'twenty six obviously, some clearing out to do in Q4 here, but any directional commentary you can provide on what youre seeing out there would be it would be great. Thank you.
Speaker Change: I mean, obviously, we don't we.
Speaker Change: We don't expect it will give you a guidance for next year. This morning, but we are planning for flattish industry overall.
Speaker Change: With this market dynamic and I believe we are well positioned with our product line.
Speaker Change: We have the off road business right.
Speaker Change: Right now, we're losing some market share because we have less <unk> than some of our competitor, but we have very strong product lineup with the off road business.
Speaker Change: And you can expect from US next year to introduce again, new exciting model.
Speaker Change: On the seasonal product.
Speaker Change: Skidoo snowmobile season is ongoing.
Speaker Change: This though was a bit late but now it's catching up and we expect good retail this season and watercraft Youll note that we ended the inventory with higher inventory than planned but.
Speaker Change: We are we counting on next summer season, two to rebalance the inventory than in the parts and accessory business is quite resilient.
Speaker Change: <unk> business is doing quite well accessories typically is in line with the sales of the unit, but overall, we are well positioned to be very competitive.
Speaker Change: Within the industry.
Speaker Change: Yes, maybe if I could add a few.
Speaker Change: L M L.
Speaker Change: Obviously as you mentioned, we need to go through snowmobile season.
Speaker Change: From a big picture point of view, obviously inflation and interest rates are moving in the right direction. So that obviously.
Is good but it may take an impact before we see an impact on overall consumer demand.
Speaker Change: And so our base case is that the power sports industry could be flat.
Speaker Change: Obviously, some of you might say well what you have done a good job this year of reducing inventory levels until well wholesale match retail next year certainly more yes.
Speaker Change: But there is still some oems that need to flush out some inventory.
Speaker Change: So we expect a market dynamic to be challenging, especially in the first half of next year.
Speaker Change: So a bit of topline growth.
Speaker Change: A bit of a benefit of wholesale and retail, but as Jose again indicated pwc snow inventory, we need to work through.
Speaker Change: And in terms of overall profitability, obviously, we took some measures to rightsize our cost. This year. So that's certainly going to help opex as a percentage of revenue.
Speaker Change: But there is some variable compensation elements depreciation and financing costs that will offset some of that.
Speaker Change: So again still a lot to go through there's the trade situation as well that we're monitoring.
Speaker Change: But we will certainly be in a better position to provide you a detailed guidance in a few months.
Speaker Change: Okay, Great and then just a follow up you know announced a renewal of euro in CIB. This morning, given where the balance sheet side and your outlook for next year, just any comments on how active you might be on the return of capital front. Thank you.
Speaker Change: If you look at our historical track record we've been quite active.
Speaker Change: In terms of buyback the priority, we always remains investing in the business.
Speaker Change: Certainly we'll want to see how things trend in the start of next year, especially with the tariff situation before we decided to be extremely active on buybacks.
Speaker Change: We've always.
Speaker Change: This cautious in managing the balance sheet diligently and we'll continue to do so but prioritize returns is certainly a focus of ours as well.
Speaker Change: Thank you.
Speaker Change: Thank you next.
Speaker Change: Our next question will be from James Hardiman of Citi. Please go ahead James.
James Hardiman: Hey, good morning, Thanks for taking my call.
Speaker Change: So obviously a better than expected Q3.
It sounds like to the tune of 30% to 35.
Speaker Change: I guess a.
How big of a benefit was the snowmobile timing, obviously, that's going to be a wash between Q3 and Q4.
But I guess, what I'm wondering is.
Speaker Change: Inventory right sizing seems to happen seems to have happened a little bit earlier, which would seem to me.
Speaker Change: You won't need to undershoot retail buy as much in Q4.
Speaker Change: And then it looks like the tax rate came down as well so.
Kind of feels like that.
The landing point for earnings should be.
Speaker Change: Modestly better maybe maybe help us tease out those factors.
Speaker Change: Maybe I will start toward the end, let's make some comments on the inventory we are very happy with the progress we've made enough road.
Speaker Change: Now we are at the level we.
Speaker Change: Believe we should be or at the.
Speaker Change: The big question between now and when we've stuck in March will be snowmobile.
Speaker Change: We're planning obviously.
Our retail season.
Speaker Change: Is that.
Speaker Change: Better slow condition than last year, but this will be key between now and the end of Q4 to see how the retail snowmobile will go and the depletion of inventory good progress like I said in my intro.
Speaker Change: On a switch.
Speaker Change: Three wheel.
Speaker Change: Product very very happy.
Speaker Change: Depletion, there and watercraft will discuss about next season.
Speaker Change: What we are happy of our progress.
Speaker Change: Inventory because at the end of the day.
The dealer and us make more money selling current than selling non current at discount.
Speaker Change: Got it and then maybe just a point of clarification on the inventory piece.
I think coming out of the first half you were saying total inventories were down 13.
Speaker Change: And your target was 15% to 20.
Now Youre, saying Theyre down 10, now we've pulled out marine so I'm, assuming that part of the disconnect, but maybe I don't know what was the first half.
Speaker Change: Year to date.
Inventory declined to.
Speaker Change: To compare to the current downturn.
Speaker Change: And what is in the new world the target for the year.
Speaker Change: Yes, well, you're absolutely right that we were down 13 year to date in Q2, our downturn.
Speaker Change: Basically that's all explained by snowmobile.
When I look at all of the other product lines.
Versus Q2, all the product lines were down.
Speaker Change: And the one that's up obviously is the <unk> because we've obviously shifted a lot of units in Q3 ahead of the peak retail season.
Speaker Change: So no change if there's anybody gets an improvement versus the position we were in Q2.
Speaker Change: And the overall objective of 15% to 20% still stands for the for the end of the year again, we highlighted a few times already in the call. It it's going to be largely driven by this fall season.
Speaker Change: Got it thank.
Speaker Change: Thank you.
Speaker Change: Thank you next question will be from Joe Alta Bella Raymond James. Please go ahead Joe.
Thanks, Hey, guys. Good morning, just wanted to follow up on James's line of question here, a little bit and if you think about 26 at a high level and again I understand no guidance today, but.
Speaker Change: If you only if you end this year with network inventory down, 15%, let's say and we assume the industry is flattish next year and I think you said earlier, the wholesale and retail should largely be alignment why wouldn't we see a pretty sizable lift in and shipments next year.
Speaker Change: Well.
Speaker Change: Two reasons as I indicated.
Speaker Change: While the industry Theres still a lot of inventory from other Oems and they need to work through their inventories. So we believe that dealers will be cautious in taking on more inventory.
Speaker Change: And even worked down further inventory so that's number one assumption, especially in a bit to the first half of next year and the other big one is.
Speaker Change: Personal watercraft and snowmobile there was going to be some inventory depletion happening next year. So yes, we will see a lift on the top line a modest lift on the top line.
But we believe that dealers will remain cautious.
Speaker Change: In the first half of next year and so if we do see.
Speaker Change: Bigger uplift in the wholesale it will be in the second half of next year.
Okay, and just just to follow up on that the non currents that are in the channel today.
Speaker Change: We're obviously going into the <unk>.
Speaker Change: <unk> season for a lot of that how long do you think it will take to flush out.
Speaker Change: Some of that inventory.
Speaker Change: We believe that.
Speaker Change: Most of it should go out in Q4.
Speaker Change: Maybe certain areas center dealers.
Speaker Change: Be some in Q1 next year, but we believe in the next two quarter most of the non current should be flushed out.
Speaker Change: Yes, we ended.
Speaker Change: Q3 in a good position our non current inventory and org is actually down about 30% year over year.
So we're actually very happy with the position we have and obviously.
Speaker Change: As already indicated we've got product that was coming up.
Speaker Change: And having.
Having floor space to introduce that product it was.
Speaker Change: <unk> is also positive.
Okay. Thank.
Speaker Change: Thank you I'll see you guys next week.
Speaker Change: Thank you.
Speaker Change: Next question will be from Ben.
Speaker Change: Please go ahead.
Yes. Thank you very much good morning, everyone.
Speaker Change: Just with respect to the launch of the electric motor cycle. I was just curious the obviously shipments will start fiscal year 'twenty six early but what kind of contribution on revenue. We could expect next year my understanding may be not material, but I'm also curious too.
To kind of gauge what could be the dilution on the margins and the impact next year.
Speaker Change: And good morning by the way first.
We're very happy with the way the motorcycle is receive right now.
Speaker Change: And I know what it's not.
Speaker Change: The best timing worldwide to introduce an electric product, but I would say what I'm pleased with every dealer or is it tend to be a dealer for us here every customer that we are media they were somewhat.
Speaker Change: Questioning and now when they tried a product they are very pleased with the right.
Speaker Change: The silence the performance and the overall experience of the product and so far we are on plan and we are also on plan to sign.
Speaker Change: <unk> Count we said, we're targeting 300 dealer for US here, we will be there when we start shipments and overall.
Speaker Change: This will be the first rollout, but again.
Speaker Change: First year, we are somewhat.
Limited thing.
Speaker Change: The production level.
Speaker Change: A level that we believe is healthy and it will be.
Speaker Change: A small number to start with.
Speaker Change: We will grow from there.
Speaker Change: Year over year impactful forget we are investing in any event through will this year saw the.
Speaker Change: The incremental next year, we're still in an investment year, because we will invest to be investing marketing dollars at the launch so it could be an incremental headwind.
Speaker Change: Probably let's say $20 million to $30 million next year.
That's great color and just for the fall walk when we look at the power sports market right now, obviously, it's crowded, especially when we count the number of our side by side manufacturer, So theres probably be some natural selection.
Speaker Change: Exciting exiting the snowmobile market so.
Speaker Change: Question, Mark around Arctic capsule any early indication that some RV manufacturers are looking to exit and given that some players are impacted is there any willingness on your part two to be involved in potential M&A that would complement your current product offering.
Thanks.
Speaker Change: Obviously, the NOI, we following like all of you the dynamic in the industry and the position of each OEM into the industry.
Speaker Change: I agree with you there is some dynamic and I think that the industry will change over time, but obviously you cannot expect me to comment on M&A or different possibility. There is hundreds of possibility there, but the industry is going to transition there is.
Speaker Change: Some Oems that have more difficulty than others.
Speaker Change: I think I can see I'm very very happy.
Speaker Change: We are because we have strong product lineup in each product line we operate in.
By refocusing on power Sports I think we will accelerate.
Our planet.
Speaker Change: Thank you very much Rosie.
Thank you.
Speaker Change: Next question will be from Robin Farley of UBS. Please go ahead Robyn.
Speaker Change: Great. Thank you can you please remind us.
Speaker Change: The change in dealer count in the U S is for your RV dealer channel.
Speaker Change: There hasnt been much change in the overall dealer counts Robyn.
Speaker Change: I mean, we either through dealers here and there every quarter, but no.
No big evolution today total dealers in the U S. As of yesterday was 982 dealers.
Speaker Change: Covering all the product lines.
Speaker Change: Okay, great. Thank you and.
Speaker Change: I don't know if you really have any color to add given the.
Speaker Change: Unknowns out there, but do you have any thoughts on you know.
Speaker Change: The potential tariff situation and what kinds of.
Speaker Change: The mitigating actions you may be able to take or potential this shift.
Speaker Change: Production Q some facilities that may be for sale now in the U S for other product lines that where you could potentially.
Speaker Change: There's some production.
I don't know if I know, it's still early in the process of what May take place.
Speaker Change: Any thoughts there thank you.
Speaker Change: As you know Robyn we closely obviously monitoring the situation and at this time is hundreds of.
Speaker Change: Of different possibility.
Speaker Change: But it has a global company, we optimize over the years, our manufacturing footprint and our supply chain.
Speaker Change: To meet customer demand and be efficient.
Speaker Change: And we have a long history of managing with trade and tariff requirement.
Speaker Change: Between Canada U S and Mexico, but also between other country around the world.
Speaker Change: Always been able to navigate the changing the change in the geopolitical landscape and we are a leader in the industry than the only thing I can see at this at this time and I know, it's top of mind for many investors, but we have the team we have the knowhow and we will adapt to the change and.
Speaker Change: I don't think we.
Speaker Change: We need we should overreact right now because we can speculate that this and we should not speculate too much because there is like I said.
Speaker Change: Hundreds of different possibilities.
Speaker Change: Just wanted to say to you and to the Investor we're monitoring the situation and.
Speaker Change: The rest assure if needed we will adapt and we will take action in the best interest of the customers.
Speaker Change: The employee and their shareholders.
Speaker Change: Okay. Thank you understood thanks very much.
Speaker Change: Thank you next question will be from Kamran decks at National Bank Financial. Please go ahead Kevin.
Speaker Change: Yeah. Thanks, Good morning, I'm wondering if you can maybe comment a little bit about what youre seeing as far as dealer behavior as it relates to interest rate reductions and maybe the way to do that.
Speaker Change: <unk> in contrast, what you're seeing out of your Canadian dealers versus the U S dealers, because we have had I guess, a more aggressive interest rate reductions in Canada versus U S.
Speaker Change: It does seem as though your retail performance had candidates maybe doing a little better right.
So I was wondering if you maybe talk about what Youre hearing from your from your dealers as far as the impact of interest rate cuts.
Speaker Change: Maybe the way to do that is compare Canada versus U S.
Speaker Change: And I think the dealer recognize first that were the first one in the industry to lead.
Speaker Change: The charge to reduce inventory in the I appreciate it.
Speaker Change: What we're doing and obviously right now.
Speaker Change: Do you see the progress we are doing on off road diesel.
Speaker Change: The progress that we've done on <unk> and smaller product line, but do you see the progress that we're doing there.
The question is snowmobile.
Speaker Change: We had the inventory of 2024 with shipping 28 75 production is almost done then inventory of snowmobile is high right now, but this is normal at this time of the year.
Speaker Change: And at least now the snow.
Speaker Change: Came in the snowbelt in and it feel good overall.
Speaker Change: Turning of the snowmobile season than the dealers see the difference.
And they recognize what we're doing they just we just need to go over the hump of the snowmobile season, and if the retail is decent with the normal slow season, I think the pressure will go down and we are planning a risk.
Speaker Change: <unk> watercraft season next year, we end up with more inventory, but we are planning.
Speaker Change: To reduce shipment of 2025 to make sure we end the season clean then I think the.
Speaker Change: The dealers see where are we going to appreciate where we're going but we need to deliver.
Speaker Change: With them their retail on snow and watercraft.
Speaker Change: And but I don't see any big difference between Canada and U S. The only thing I would say in Canada every single dealer or low sell snowmobile when in the U S. The dealer in the South field already a better with the reduction we have done on the RV.
Okay.
Speaker Change: Helpful and maybe just a quick.
Speaker Change: Maybe modeling question for <unk>, just wondering about the G&A.
Speaker Change: Line item here on the cost side, just wondering if the Q3.
Speaker Change: As a decent run rate as we look forward just now we have the marine out of out of the business.
Speaker Change: Well obviously.
Speaker Change: Yes, it has a big impact on.
Speaker Change: Total operating expenses.
Speaker Change: I mean, if we would've had marine and our numbers, we'd probably be lets say 50 basis points higher in terms of opex percentage.
Speaker Change: And as we look to next year.
Speaker Change: Obviously, we still we're still investing in some product categories. We right size, then we should see an improvement year over year in the Opex probably in the range of another 50 basis points of year over year from 25 to 26.
Speaker Change: Okay. That's helpful. Thanks very much.
Speaker Change: Thank you next question will be from Craig Kennison Baird. Please go ahead Craig.
Craig Kennison: Hey, good morning, Thanks for taking my question you addressed many of them, but maybe I'll just ask a follow up on the tariff issue.
Craig Kennison: Understood.
Craig Kennison: <unk> can really predict the future on that front, but what percentage of your cost of goods sold.
Craig Kennison: Are sourced out of China, and then what percentage of your production.
Craig Kennison: Today is in Mexico, just to help those of US trying to guess at it that impact.
Speaker Change: Yes, we've never been a big source or out of China.
Speaker Change: In fact today less than 10% of our sourcing comes from China, and the partners that we source.
<unk>.
Speaker Change: Less technically complex.
Speaker Change: So in a situation where incremental tariffs could be imposed obviously there are parts that we could.
Speaker Change: Easily transferred to another supplier.
Obviously, it would require work I don't want to undermine it but it's certainly something we could do and from a medical point of view over 70% of our production.
Speaker Change: That was out of Mexico, but obviously, we're in Mexico, Yes, where are the cost advantage.
Speaker Change: As we took the benefit of the various free trade agreements.
Speaker Change: But also for labor availability.
Speaker Change: The workforce in Mexico was highly skilled both from a.
Speaker Change: The blue collar and professional point of view as well.
Speaker Change: So.
Speaker Change: We believe we will not be the same company had we not have.
Speaker Change: That footprint in Mexico.
Speaker Change: Thank you and then on 2026 again.
Speaker Change: No, we're not providing guidance but.
Youre saving essentially $1 50.
Speaker Change: And loss avoidance related to marine in 2025, but it should be very clear that the benefit next year is much smaller than that because you werent expecting to lose maybe the same amount.
Speaker Change: We're not a except it was the same amount that's fair yeah.
Speaker Change: <unk>.
Speaker Change: Okay, well hey, thank you thank.
Speaker Change: Thank you Craig.
Speaker Change: Next question will be from the.
Speaker Change: Lumpy at Stifel. Please go ahead.
Speaker Change: Hi, good morning, guys.
Speaker Change: To go back to a previous answer you.
Speaker Change: On the non current models.
Speaker Change: <unk> seen the optimistic too that.
Speaker Change: The non current inventory I believe that was the industry you were talking about with clear and they're coming.
Speaker Change: Next quarter or two.
Speaker Change: I just wanted to understand a little bit where we are today in terms of industry units.
Speaker Change: Correct.
Versus historical level. If you can provide that would be helpful. And then what why are you optimistic.
Speaker Change: All of those non current models will clear up.
In a short order.
Speaker Change: Well, what we said was.
Speaker Change: Where is that.
Speaker Change: Non current work there now but also in the first half of next year in theaters will remain cautious.
Speaker Change: And that's been a standard industry practice.
Speaker Change: Bring out inventory OEM relates to sit with inventory.
Speaker Change: No dealer likes to sit with non current inventory as well so.
Speaker Change: Usually when you look at historical patterns Q4, and Q1 are big quarters, where non current.
Units gets filled up.
Speaker Change: And in terms of visibility.
Speaker Change: Don't have industry information on current and non current inventory.
Speaker Change: Okay.
Speaker Change: Okay, and maybe just.
Speaker Change: Just another quick.
Speaker Change: Quick one for me.
Speaker Change: Just trying to see a little bit how your dealers are approaching 2025.
Speaker Change: How is their financial position given the industry has been challenging.
Speaker Change: What are some of the dealers hurt.
Speaker Change: From a financial standpoint that you start to see some delays in payments from from dealers.
Speaker Change: We we do every quarter, we do a deep dive with our Floorplan financing partners and assessment of the health of the dealers and generally the dealers are in very good health.
Speaker Change: It made a lot of money during COVID-19.
Speaker Change: We're fairly well capitalized.
Speaker Change: We're supporting them tremendously with the inventory, we're paying almost 70% of the four plant cost financing.
And we've been diligent as well in managing deliveries this year in reducing inventory, which is certainly a plus for them.
Speaker Change: Dealers are making obviously less money than there were making during the COVID-19, but when you look at the overall dealer profitability and some of the metrics, we could put our hands on their profitability is somewhat in line with what they were making pre COVID-19.
Yes.
Speaker Change: But nothing out of South America.
Speaker Change: No special provision no risk of repo.
Speaker Change: Is on the radar.
Speaker Change: Cool. Thank you best of luck. Thank.
Speaker Change: Thank you.
Speaker Change: Next question will be from Shaun SKU at BNP Paribas. Please go ahead.
Speaker Change: Hi, guys. Thanks for the question.
Speaker Change: You gave a little bit of guardrails in terms of next year for revenues and maybe Opex can you talk a little bit about how you think how we should think about gross margin.
Gross margin ex marine.
Speaker Change: Next year, what are some of the puts and takes there.
Speaker Change: Yes, I will puts and takes obviously, where we're still operating with less than optimal levels of.
Speaker Change: Capacity utilization.
Speaker Change: One big variable for next year as the programs. This year, we did have to put more dollars on programs hurting gross margin percentage, but one positive element will obviously be programs.
Speaker Change: Other positive elements will be cost efficiencies that we're driving in the business.
Speaker Change: So that would be the main one.
Speaker Change: Yes, expecting a slight improvement in gross margin next year.
Okay. Thanks, and then on the current units you kind of showed that slide.
Speaker Change: <unk> sales for the current inventories really strong I guess like what do you think that.
What's driving that.
Speaker Change: How does that give you confidence into next year in terms of maybe gaining share as well.
Speaker Change: Inventory gets cleaned.
Speaker Change: Well two things one we've recently launched.
Speaker Change: Two new ATV platforms, covering all of the segments.
Speaker Change: 90% of the segments.
Speaker Change: That's certainly been well received and these are being sold as current units.
Speaker Change: It's been over 10 years since we have introduced a brand new platform like that so.
Speaker Change: The industry has been relatively if I could use the word non innovative.
Speaker Change: The word until that that's a big plus and on the RV side.
Speaker Change: Buy side Maverick are <unk>, certainly well received the defender cab.
Speaker Change: Current models are in high demand and that's been fueling our retail growth.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Next question will be from Jonathan Goldman at Scotia Bank. Please go ahead Jonathan.
Speaker Change: Hi, good morning, and thanks for taking my questions. Most of them have been asked but I guess just one for you Joe Zee can you discuss if you've seen any change in consumer sentiment post election have you seen any signs of increased optimism around the consumer.
Speaker Change: Yes.
Speaker Change: This.
Speaker Change: That's a funny one.
Speaker Change: First overall in Q3, the the trend with consumer didn't change the new and trend.
Speaker Change: We're at 23% pre COVID-19 level, there is definitly entry level buyers are under pressure.
Speaker Change: And we see it in entry level model like the spark on watercraft, the ryker freewheel the switch on to our retail were down 30% in those industry.
Speaker Change: When you look to the side by side the premium high end product was up almost 15% and the value was down 25% and when you look at all of this the dynamic but it didn't change in Q3.
Speaker Change: We heard this.
Speaker Change: We heard that this comment that a lot of customer were waiting for the election now with funny and I heard that twice in the last few weeks that now.
Speaker Change: The people are waiting that the new president is and for us to make their decision and I think I believe there is something there, but we cannot quantify what it will be but.
Speaker Change: I heard that come in a few times.
Speaker Change: Interesting thanks for the color I'll get back in queue.
Speaker Change: Sure.
Speaker Change: Thank you.
Speaker Change: Next question will be from Jamie Katz.
Speaker Change: Morningstar. Please go ahead Jamie.
Speaker Change: Hi, Good morning, I guess, what we haven't talked about yet is what the used market looks like right now and maybe how the behavior in the market.
Speaker Change: Could impact the consumer takeaway of new units in the year ahead. So have you guys seen any noteworthy trends.
Speaker Change: And maybe whether prices have been decelerating or core volume has been increasing and that use channel just to help us triangulate the entire.
Speaker Change: Inventory picture aircraft industry. Thanks.
Speaker Change: Yes, as you know in that.
Speaker Change: We said a few times, we don't have any better on the used market than when the only thing. We can say is what we hear from the dealers do use obviously like the non occurring right now is getting some retail.
Speaker Change: But we don't see it didn't hurt any big change into the used market.
Speaker Change: In the last in the last quarter.
Okay, and then I think earlier in the call you said the current expectation for.
Speaker Change: Next year is for a flat industry are there any.
Number of interest rate cuts baked into that I'm, just trying to think about the.
Speaker Change: Let's start a bull case bear case scenarios from.
Speaker Change: What are your current point is.
Speaker Change: The assumption we have is a current interest rate environment.
Speaker Change: Obviously, we believe that will take.
Speaker Change: <unk> cuts in order to.
Speaker Change: Consumer demand.
Speaker Change: Interest rates are still relatively high so from a retail financing point of view, we need to see several cuts next year to start seeing an impact on demand, but obviously any rate cuts.
Speaker Change: Short term is going to help floor plan financing costs on our financing costs as well on our balance sheet.
Speaker Change: Excellent. Thank you.
Speaker Change: Thank you next question will be from Luke Hannan of Canaccord. Please go ahead Luke.
Luke Hannan: Hey, Thanks, Good morning, I was hoping just to follow up on an earlier line of.
Luke Hannan: Questioning on the dealer health in dealer profitability, maybe coming at it from a different angle. If we were to frame up where dealer sentiment stands as of today because there are a lot of moving parts on the one hand, it sounds like the inventory picture is getting a bit better but the end customer demand has yet to really come back are materialized, but I mean as you can.
Luke Hannan: Pointed out they are making as much money as they were pre COVID-19. It sounds like maybe the sentiment is a little bit detached from that but overall, where would you say dealer sentiment stands today as of perhaps this time last year or let's say pre COVID-19 levels.
I think the dealer many dealer has to somewhat to rightsize their business that we were doing it.
Luke Hannan: And you know the dealer in the U S very often carry 567, OEM and they need to.
Luke Hannan: Right side their business, what I mean by that decide.
Luke Hannan: Who would they prefer to work.
Luke Hannan: It's quite rare that the dealer will drop the product line or brand, but they could decide to.
Luke Hannan: A less of that brand and buy more of that other brand and this is why we are bidding on our approach to.
Improve inventory of ERP product have a better inventory returned over.
<unk>.
Luke Hannan: Proved to the dealer then when the <unk> product they make more money than selling other brand.
Luke Hannan: They're carrying more inventory.
Then I would say many dealer right now are in that process of right sizing or maybe realigning their priorities inside their dealership and we believe we can play a positive role there.
Speaker Change: Okay. Thanks, and then as my follow up you mentioned, the incremental 50 basis points that you expect to get as far as the the Opex rate goes.
Speaker Change: What do you have in the pipeline I guess as far as cost savings programs or how much of that is going to be allocated towards specific cost savings programs or process efficiencies versus sales leverage.
Speaker Change: Well, obviously every year, we challenge the teams on being more efficient and re questioning the way.
Speaker Change: Are there businesses again, we expect a modest.
Speaker Change: Client growth next year.
Speaker Change:
Speaker Change: And so most of the impact I'd say, probably 50 50 comes from operating leverage and the other one from cost efficient.
Speaker Change: Thank you very much.
Speaker Change #100: Thank you next question will be from Christian Thomas market of BMO capital markets. Please go ahead.
Christian Thomas: Hey, good morning.
Christian Thomas: Just a point of clarification the floor plan financing the 70% that you are covering how does that work because that's something that gets dealers through into next selling season or is it a certain amount of time post whenever they receive unit. Thanks guys Aries.
Speaker Change #102: Those two types of support we provide them we provide them with standards support when we ship a unit, which could be 60 90 days and then in a context, where the industry is more challenging seasonal business, we finished with more inventory.
We'll provide them with what we call. It certainly risk assurance. So we'll cover the floorplan cost for a longer period, usually until the next retail season begins.
Speaker Change #102: And so that's the main performance.
Speaker Change #103: Okay. So it's safe to assume maybe we get a little bit of carryover into <unk> of next year.
Speaker Change #103: Well by fall of crude for the financials. So when we enter snowmobile season will take the accrual a personal watercraft season as well.
Speaker Change #104: What's the hit that you take in the in the current fiscal year.
Speaker Change #103: Okay.
Speaker Change #103: Got it got it thank you.
Speaker Change #103: Thank you.
Speaker Change #105: And our last question is from Brian Morrison at TD Cowen. Please go ahead Brian.
Brian Morrison: Thanks, very much and so but I appreciate all the details on the puts and takes for next year.
Brian Morrison: Quick questions, one when I think about the season and inventory and Pwc and <unk>.
Brian Morrison: And the switch you did provide the surplus inventories for snowmobiles back in Q1, I think you said destocking was 30% or $350 million can you provide the metrics for the Pwc and switch for US This season ended.
Speaker Change #107: I wish I could but I don't have the backup with B, Brian So I'll have to take it offline.
Speaker Change #108: Okay, and then I guess my second question is you're clearly in great shape and side by side inventory and Thats a real benefit I'm. Just wondering if you play Devil's advocate here do you expect to lose or the market share next year and the reason why I ask is I'm curious how do you adjust retaining loyalty as consumers are paid by the promo.
On the heavy non trunk of competitors because the entire industry is challenged until this clears correct.
Speaker Change #109: Yes, but you know the theory.
Speaker Change #109: The philosophy that we have dealers know that selling current product is more profitable than non current product.
And we're trying obviously.
Speaker Change #109: There are benefits in our benefit and protecting the value of our brand because the brand cannot brand as a value is recognized for performance quality design and we want to protect that then basically that's why we believe that the strategy that we have is the right one.
When a season start it's normal to have a certain level of the non current which is happening right now, but typically after a quarter or two of the new season.
Speaker Change #109: Customer purchase is mainly Curran and this is where we believe we will win.
Speaker Change #109: Then right now we are into the transition of that in.
Speaker Change #109: Inventory depletion period, but we believe that mid to long term this will be very beneficial for us.
Speaker Change #110: I think I agree with that Joe say I'm, just curious as to if you lose a customer because they go non current how do you get them back.
Speaker Change #111: Yeah, but at the end of the day there is so many customers and some was shut for a price could via kennan.
Speaker Change #111: If we don't have any concurrent non currently we'll buy another brand, but again, we've been able to go to grow market share by the quality of our product by the innovation with our product technology and this is the bad debt, we think we push technology and innovation.
Speaker Change #111: To attract more customers and gain share then we grew from zero percent in 2010% to 20%.
Speaker Change #111: Last year to 30% last year, and we still believe that we can continue to grow.
Speaker Change #111: But we think.
Speaker Change #111: We cannot gain.
Speaker Change #111: Our every customer who shut for a price this is nothing.
Speaker Change #112: I agree with you I just wanted to understand the dynamic I appreciate the comments.
Speaker Change #113: Thank you. Thank you. Thank you Sir.
There are no more questions at this time I will turn the call back to Mr. Shang to close the meeting.
Speaker Change #114: Great. Thank you Sylvia and thanks, everyone for joining us this morning and for your interest in PRT. We look forward to speaking with you again for our Q4 results on March 26, Thanks again, everyone. Another good.
Speaker Change #115: Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we ask that you. Please disconnect your lines.
Speaker Change #115: Sure.
Speaker Change #115: Okay.
Yes.
Speaker Change #115: [music].
Speaker Change #115: Yes.
Yes.
Speaker Change #115: Yes.