Q3 2025 BRP Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to B R. P M.
Full year 'twenty five third quarter results conference call.
Speaker Change: It depends 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. Philip Shen. Please go ahead, Mr to shine.
Speaker Change: Thank you Sylvie good morning, and welcome to <unk> Conference call for the third quarter of fiscal year 'twenty five.
Philip Shen: Joining me this morning are <unk> president.
Philip Shen: President and Chief Executive Officer, and said lets them after Chief Financial Officer.
Speaker Change: Before I 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 results could differ from those implied in these statements.
Speaker Change: Forward looking information is based on certain assumptions and are subject to risks and uncertainties and I invite you to consult the erp's MBNA for a complete base.
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. Therefore, all periods presented in this release reflect continuing operations only unless otherwise noted.
Also note that you can provide today's presentation on our website at <unk> com under the Investor Relations section, so with that I'll turn it over to Jonathan Thank.
Thank you Philip and good morning, everyone and thank you for joining us.
Jonathan Thank: The third quarter was marked by disciplined execution of our plan, which allow us to deliver results above our expectation driven by the timing of snowmobile shipments and tight management of operating expenses.
Jonathan Thank: Our retail performance was has anticipated, reflecting a challenging market dynamic due to soft industry trends and the high level of promotional activity on non current unit from other Oems.
We remain focus on reducing network inventory and we are pleased with the solid progress made so far.
Jonathan Thank: Based on the retail trend we are on track to deliver on our objectives for the year.
Jonathan Thank: Before going further I want to see a few word on our decision to sell our marine businesses.
After careful consideration and given the current dynamic of both the marine and power sports industry.
Jonathan Thank: We have decided to double down on our core power sports activities.
Jonathan Thank: We aim to focus our effort and investment toward this business to capitalize on growth opportunity and continue to position <unk> for long term success.
Jonathan Thank: Consequently, we initiated the process for the sales of our marine businesses, namely <unk>.
Jonathan Thank: As many two until the water.
Philip Shen: We continue operating in the normal course of business, but has Phillip mentioned, we are now reporting our results.
Philip Shen: Continuing operation basis.
Philip Shen: And our guidance reflect this new reporting structure.
We'll understand that since the sales process is ongoing we cannot comment further on todays call.
Philip Shen: Now, let's turn to slide five for key financial highlights.
Philip Shen: Revenue reached $2 billion normalized EBITDA was $264 million in normalized EPS was $1 16, all above expectation.
Philip Shen: One of the key highlights of the quarter was the progress made on our network inventory reduction plan as you can see on slide six.
Philip Shen: This plan was one of our priorities this year to protect our dealer value proposition.
Philip Shen: We have made significant strides toward our 15% to 20% reduction objective by the end of this fiscal year.
Philip Shen: Inventory is down 10%, so far given the timing of snowmobile shipments this year.
Philip Shen: More importantly in the RV it is down 22% achieving our objective of one quarter ahead of plan.
Philip Shen: We have also seen noticeable improvement on three wheeled vehicle personal watercraft and switch pontoons.
Philip Shen: This put us in a favorable position to capture market opportunity when the industry rebounds, and to foster long term profitable growth.
Philip Shen: Turning to slide seven for an update on the global power sport market.
Philip Shen: The third quarter was consistent with trends observed since the beginning of the year.
Philip Shen: In North America, our power sports retail was down 11% in line with expectation with Canada, continuing to outperform the U S market.
Philip Shen: From an international perspective.
Philip Shen: <unk> remained generally under pressure with our retail down 19%.
Philip Shen: Latin America continued to grow at a rapid pace with our retail up 21% driven by a strong performance in both RV and personal watercraft.
And Asia Pacific saw mixed performance, depending on the country with the retail flat on average.
Philip Shen: Overall, these counter seasonal markets had a better start to the summer season than expected.
Turning to slide eight for a look at the North American retail performance by product line.
Philip Shen: As expected we experienced a decline in RV.
Philip Shen: Limited availability of noncore and unit reduce and market share resulted in market share losses.
Philip Shen: And a soft start to the snowmobile season, which is typical after a year with unfavorable snow condition.
Philip Shen: Meanwhile, personal watercraft had the better end of season than anticipated.
Philip Shen: Let's turn to slide nine to circle back to.
Philip Shen: The RV market dynamics.
Philip Shen: As you can see about two third of side by side vehicle and close to 90% of the TV industry unit retail this quarter was <unk>.
Philip Shen: This dynamic is the result of intense promotional activity by other Oems, who has a higher level of non current units and.
Philip Shen: In our case, we have limited non current availability, which resulted in short term market share loss.
However, we gained share in the more profitable current unit driven by our newly introduced product and the overall strength of our lineup.
Philip Shen: We expect this dynamic to persist at least through the fourth quarter with our strong performance with current unit gave us confidence that we will regain market share when the inventory position of other Oems normalized.
Philip Shen: Now, let's turn to slide 10 for a look at the launch of our <unk> electric motorcycle lineup.
Philip Shen: The team has been busy raising our less with consumers and the media preparing the dealer network for the official start of the 2025 retail season.
Philip Shen: And showcasing the product in key events, such as eight months the largest motorcycle trade show in the world.
Speaker Change: I attended the show and I was pleased to lower the excitement for our technology and innovative design.
Speaker Change: As well as the fit and finish of our cannot pulse and origin 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 2006.
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 Canada 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 points of market share. So far this year in the mid Cc segment.
Speaker Change: Driven by the introduction of our new arc lender platform.
Speaker Change: As a remainder 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 outpacing the industry, which was down about 20%.
Speaker Change: While the season was more challenging than initially expected. We are pleased with continued market share gain that solidified our position as the industry leader.
Turning to seasonal product on slide 12.
Speaker Change: Revenue were down 29% to $616 million.
Emily: Emily reflecting lower shipments.
Emily: And snowmobile, we proactively reduced production level given higher inventory following last winter unfavorable snow condition.
Emily: 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.
Emily: 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 Pwc, 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.
Speaker Change: 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 parts accessories, and apparel and OEM engine.
Revenue were down 6% to $303 million.
Speaker Change: Primarily due to lower shipments of snowmobiles any given higher level of inventory in the network after last season.
<unk> parts business continued to increase driven by growing vehicle fleet, while accessory sales have been softer in line with you in this retail.
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 level.
Speaker Change: Financial perspective, our results came in ahead of plan as we continue to diligently manage our expenses and we shifted some deliveries of snowmobile, 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 continuing operations that is 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.
We generated $430 million in gross profit representing a margin of 22% down from last year, primarily due to the less efficient use of our assets given the lower production volumes and higher sales programs.
Speaker Change: These were partly offset by a richer product mix, especially in SSD and through favorable pricing.
Speaker Change: Our normalized EBITDA ended at $264 million.
Speaker Change: And our normalized earnings per share of $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.
Speaker Change: Turning to slide 16 for an update on the guidance.
Speaker Change: As we already mentioned our 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 snowmobile between the third and fourth quarter and also touched on net impact on the full year is negligible.
Speaker Change: Additionally, while there are only two months left to go in our fiscal year, we're 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.
Speaker Change: Consequently, we are reaffirming our guidance for the year and are maintaining the same guidance range.
Speaker Change: 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.
Speaker Change: As such we now expect our revenues to end between seven six and $7 $8 billion normalized EBITDAR and between $1 $20 million and $1 billion of $70 million.
Speaker Change: 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.
Speaker Change: As Jose mentioned, we took the decision to sell our 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 DRP.
Speaker Change: Our most attractive opportunities are in power sport, especially in RV and our core power sport business has a much more attractive financial profile and investments.
Speaker Change: Sector upgrade or expected returns.
Speaker Change: To 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 higher.
Speaker Change: 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.
Speaker Change: 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 some shortly.
Speaker Change: Thank you <unk>.
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.
Speaker Change: I, thank 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 improve 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 on determined to anticipate and address any new policy developments.
Speaker Change: We are used to dealing with the evolving trade agreement and they have alloys succeeded in finding solutions to new tariffs.
Speaker Change: Looking to the long term, we remained focus 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 products and we recently took home 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: And Thats node I turn the call over to the operator for questions.
Speaker Change: Thank you Sir.
Speaker Change: Ladies and gentlemen, if you do have a question. Please press star followed by one on your Touchtone phone.
Speaker Change: Been here a prompt that Johan has been raised and should you wish to decline from the polling process. Please press star followed by two.
Speaker Change: Yes.
Speaker Change: Speaker phone you will need to lift the handset.
Speaker Change: Before pressing any keys and outlet 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 from us about com at RBC capital markets. Please go ahead.
Speaker Change: Okay, great. Thanks, and good morning, Jos I understand youre going to give official guidance at the next quarter. If I can just maybe tease out.
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 carrying 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: Yeah.
Speaker Change: I mean, obviously, we don't we.
Speaker Change: We don't expect we 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 <unk> business right.
Right now we are losing some market share because we have less non current and 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.
Skidoo snowmobile season is ongoing.
Speaker Change: The snow 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 we.
Speaker Change: We are we counting on next summer season to to rebalance the inventory then.
Speaker Change: The parts and accessory business is quite resilient.
Speaker Change: The parts 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 within the industry.
Speaker Change: Yes, maybe if I could add a few.
Speaker Change: Elements.
Speaker Change: Obviously reservoir as you mentioned, we need to go through snowmobile season.
From a big picture point of view, obviously inflation and interest rates are moving in the right direction. So that obviously.
Speaker Change: Is good but it may take an impact before we see an impact on overall consumer demand.
Speaker Change: So our base case is that the power sport industry could be flat.
Speaker Change: Obviously some of you might say why would 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 needs to flush out some inventory.
Speaker Change: So we expect the 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 benefit of wholesale matching retail, but 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 costs this year so.
Speaker Change: 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 detailed guidance in a few months.
Okay, Great and then just a follow up you know announced a renewal of Youre 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 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 situations 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 at Citi. Please go ahead James.
James Hardiman: Hey, good morning, Thanks for taking my call.
James Hardiman: So obviously a better than expected.
James Hardiman: <unk> III.
James Hardiman: It sounds like to the tune of 30% to 35.
Yes.
Speaker Change: How big of a benefit was the snowmobile timing, obviously, that's going to be a watch.
Speaker Change: Q3 and Q4.
Speaker Change: But I guess, what I'm wondering is.
Speaker Change: Inventory right sizing seems to happen things 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.
Speaker Change: Kind of feels like.
Speaker Change: The landing point FERC for earnings should be at least modestly better maybe maybe help us tease out those factors.
Speaker Change: Maybe I will start towards the end with some comments on the inventory we are very happy with the progress we've made on the road.
Speaker Change: Now we are at the level, we believe we should be or at the big question between now and when we've stuck in March will be snowmobile.
We are planning obviously.
Our retail season that.
With better snow condition than last year, but this will be key between now and the end of Q4 to see how the retail of snowmobile will go and the depletion of inventory good progress like I said in my intro.
On a switch.
Speaker Change: Three wheel.
Speaker Change: Product very very happy.
Speaker Change: Depletion, there and watercraft, who will discuss about next season than what we are happy of our progress.
Speaker Change: Inventory because at the end of the day.
Speaker Change: The dealer and us make more money selling curran than selling non current that discount.
Speaker Change: Got it and then maybe just a point of clarification on the inventory piece.
Speaker Change: I think coming out of the first half you are saying total inventories were down 13.
Speaker Change: And your target was 15% to 20.
Speaker Change: Now you are saying Theyre down 10, now we've pulled out marine so I'm, assuming that part of the disconnect.
Speaker Change: But maybe I don't know what was the first half.
Speaker Change: Year to date.
Speaker Change: 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, we were down 13 year to date in Q2, our downturn.
Speaker Change: Basically that's all explained by snowmobile.
Speaker Change: When I look at all of the other product lines.
Speaker Change: Versus Q2, all the product lines were down.
Speaker Change: And then one of the top obviously snowmobile because we've obviously shifted a lot of units in Q3 ahead of the peak retail season.
Speaker Change: 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.
Speaker Change: Thank you.
Speaker Change: Thank you next question will be from Joe also below at Raymond James. Please go ahead Joe.
Speaker Change: Thanks, Hey, guys. Good morning, just wanted to follow up on James's minded question here, a little bit and if you think about 2006 and 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 in alignment why wouldn't we see.
Speaker Change: Sizable lift in <unk>.
Speaker Change: Shipments next year.
Speaker Change: Well to.
Speaker Change: Two reasons as I indicated.
Speaker Change: While the industry Theres still a lot of inventory from other Oems that they need to work through their inventories. So we believe that dealers will be cautious in taking on more inventory.
Speaker Change: And even work down further inventory so that's number one assumption, especially in 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.
Speaker Change: But we believe that dealers will remain cautious.
Speaker Change: In the first half of next year or so.
Speaker Change: If we do see it.
Speaker Change: Bigger uplift in wholesale and will be in the second half of next year.
Speaker Change: Okay, and then just to follow up on that the non current that are in the channel today.
Speaker Change: We're obviously going into the.
Speaker Change: Off 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.
Maybe certain areas Tim third dealers.
Speaker Change: Some in Q1 next year, but we believe in the next two quarter most of the <unk> should be flushed out.
Speaker Change: Yes, we ended.
Speaker Change: Q3 in a good position our non current inventory in <unk> is actually down about 30% year over year.
Speaker Change: So we're actually very happy with the position we have and obviously.
As Charles indicated we've got product news coming up.
Speaker Change: <unk>.
Speaker Change: Having floor space to introduce that product it was.
Speaker Change: <unk> is also positive.
Jonathan Thank: Okay. Thank.
Jonathan Thank: Thank you I'll see you guys next week.
Jonathan Thank: Thank you.
Speaker Change: Next question will be from Noah.
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 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.
Speaker Change: To kind of gauge what could be the dilution on the margins.
Speaker Change: The impact next year.
Speaker Change: Good morning.
First.
Speaker Change: 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, while I am pleased with every dealer or is it tend to be a dealer for us here of every customer that we are media they were somewhat.
Speaker Change: The questioning and now when they try the 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.
Speaker Change: But 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 here we are somewhat.
Speaker Change: <unk> thing.
The production to a level that we believe is healthy and it will be.
Speaker Change: A small number to start with.
Speaker Change: And we will grow from there.
Yes year over year impactful forget we are investing in any event through will this year saw the.
Speaker Change: The incremental next year is still an investment year, because we will 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.
Speaker Change: 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.
Speaker Change: Side by side manufacturer, so theyre small.
Speaker Change: Some natural selection.
Speaker Change: Exciting exhibiting the snowmobile market so in.
A 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.
Speaker Change: Okay.
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.
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 in different possibility. There is hundreds of possibility there, but the industry is going to transition there is.
Speaker Change: Some Oems have more difficulty than others.
Speaker Change: The only thing I can say I'm very very happy where we are because we have strong product lineup in each product line we operate.
Speaker Change: And by refocusing on bars sports I think we will accelerate.
Speaker Change: Our planet.
Speaker Change: Thank you very much shortly.
Speaker Change: Okay. Thank you.
Speaker Change: Next question will be from Robin Farley of UBS. Please go ahead Robyn.
Robin Farley: Great. Thank you can you please remind us.
Robin Farley: 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 add acute uterus hearings that are every quarter, but.
No big evolution today total dealers in the U S.
Speaker Change: Yesterday with buying 182 dealers.
Speaker Change: Covering all the product lines.
Okay, great. Thank you.
I don't know a heel.
Speaker Change: Have any color to add given the.
Speaker Change: Loans out there, but do you have any thoughts on that.
Speaker Change: The potential tariff situation and what kinds of mitigating.
Speaker Change: The mitigating actions you may be able to take or potentially a 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: Some production.
Speaker Change: I don't know.
Speaker Change: Early in the process of what May take place.
Jonathan Thank: Any thoughts there thank you.
Speaker Change: As you know Robyn we closely obviously monitoring the situation and at this time there is hundreds of different possibility.
Speaker Change: But it has a global company, we optimize over the years, our manufacturing footprint and our supply chain to meet customer demand and be efficient.
Speaker Change: Again.
Speaker Change: We have a long history of managing through trade and tariff requirement.
Speaker Change: <unk>, Canada.
Speaker Change: U S and Mexico, but also between other country around the world.
We have always been able to navigate the changing the change in the geopolitical landscape.
Speaker Change: 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.
Speaker Change: And I don't think we.
Speaker Change: We need we Shouldnt overreact right now because we can speculate that this and we should not speculate too much because there is like I said.
Speaker Change: 100 of different possibilities.
Speaker Change: Just wanted to say to you and to the Investor.
We're monitoring the situation.
Speaker Change: And the rest assure if needed we will add that and we will take action in the best interest of the customers.
Speaker Change: The employee and their shareholders.
Okay. Thank you.
Speaker Change: Very much.
Speaker Change: Thank you next question will be from carrier index at National Bank Financial. Please go ahead Kevin.
Kevin: Yes. Thanks.
Speaker Change: 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: Maybe compare and contrast, what you're seeing out of your Canadian dealers versus 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 at candidates, maybe doing a little better.
Speaker Change: Right. So just wonder if you can 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 to compare Canada versus U S.
And I think the dealer recognize first that we're the first one in the industry to lead.
The charge to reduce inventory in the I appreciate it.
Speaker Change: Once we doing and obviously right now.
Speaker Change: <unk> see the progress we are doing on off road do you see the progress that we've done three wheeled and smaller product line, but do you see the progress that we're doing there.
Speaker Change: The question is snowmobile.
Speaker Change: We had the inventory of 2024 with shipping 2025 production is almost done then the 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 snow belt and it feel good overall.
Speaker Change: Beginning additional bid season than the dealers see.
Speaker Change: The difference.
Speaker Change: And they recognize what we're doing they just we just need to go over the hump of the snowmobile season, and if the retailer is decent with the normal slow season, I think the pressure will go down and we are planning irresistible watercraft season next year.
Speaker Change: If we end up with more inventory, what we planning.
Speaker Change: To reduce shipments of 2025% to make sure we.
Speaker Change: We ended the season clean then I think.
Speaker Change: The dealers see where we're going the appreciate where we're going but we need to deliver.
With them the retail on snow in 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 that we have done on the RV.
Speaker Change: Okay. That's 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.
Well obviously.
Speaker Change: Yes, it has a big impact on.
Total operating expenses.
Speaker Change: Maybe 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've right sized and so we should see an improvement year over year in the Opex probably in the range of another 50 basis points 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.
Speaker Change: Understood.
Speaker Change: None of us can really predict the future on that front, but what percentage of your cost of goods sold.
Speaker Change: Are sourced out of China, and then what percentage of your production.
Speaker Change: 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 parts that we source.
Speaker Change: Our.
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.
Speaker Change: Obviously that 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: It comes 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.
But also for our labor availability.
Speaker Change: The workforce in Mexico was highly skilled both from a.
Speaker Change: The blue collar and a professional point of view as well.
So.
We believe we will not be the same company had we not.
Speaker Change: Of that footprint in Mexico.
Thank you.
Speaker Change: And then on 2026 again I.
Speaker Change: I know youre, not providing guidance but.
Speaker Change: 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 have accepted the same amount that was fair.
Speaker Change: <unk>.
Speaker Change: Okay, well hey, thank you.
Speaker Change: Thank you Greg.
Speaker Change: Next question will be from.
Speaker Change: The lumpy at Stifel. Please go ahead.
Speaker Change: Hey, good morning, guys.
Speaker Change: Wanted to go back to a previous answer you.
Speaker Change: On the non current models.
Speaker Change: <unk> seen the optimistic too.
Speaker Change: That the non current inventory I believe that was the industry you were talking about with clear and they're coming.
Speaker Change: The next quarter or two.
Speaker Change: I just wanted to understand.
Speaker Change: Understand a little bit where we are today in terms of industry units of non correct.
Speaker Change: Versus historical level. If you can provide that would be helpful. And then what.
Speaker Change: Why are you optimistic that.
Speaker Change: All of those non current models will clear up.
Speaker Change: In a short order.
Speaker Change: Well, what we said.
Speaker Change: Some one currency will clear now, but also in the first half of next year and dealers will remain cautious.
Speaker Change: And that's been a standard industry practice of clearing 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.
Speaker Change: It gets filled up.
Speaker Change: And in terms of visibility.
Speaker Change: We don't have industry information on the current and non current inventory.
Speaker Change: Okay.
Speaker Change: Okay, and maybe just.
Speaker Change: Just in that area.
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: Some of the dealers.
Speaker Change: From a financial standpoint that you start to see some delays in payments from from dealers.
Speaker Change: We.
Speaker Change: We do every quarter, we do a deep dive with our floor plan financing partners and assessment of the health of the dealers and generally the dealers are in very good health.
Speaker Change: They've 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 costs financing.
Speaker Change: 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.
Speaker Change: But nothing out of South America.
Speaker Change: Special provision no risk of repo.
Speaker Change: Is on the radar.
Speaker Change: Cool. Thank you best of luck.
Speaker Change: Thank you.
Next question will be from John <unk> at <unk>.
Speaker Change: 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.
Speaker Change: How we should think about gross margin.
Speaker Change: Gross margin ex marine.
Speaker Change: Next year, what are some of the puts and takes there.
Speaker Change: Yes ill puts and takes obviously, where we're still operating with less than optimal levels.
Speaker Change: Capacity utilization.
Speaker Change: The one big variable for next year as the programs. This year, we did have to put more dollars on programs hurting gross margin percentage for one positive element will obviously be program.
Speaker Change: Other positive development will be cost efficiencies that we're driving in the business.
Speaker Change: So that would be the main one.
Speaker Change: So, yes, expecting a slight improvement in gross margin next year.
Speaker Change: Okay. Thanks, and then on the current units you kind of showed that slide show how your 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 clean.
Speaker Change: Well two things one we've recently launched.
Speaker Change: The two new ATV platforms, covering all of the segments.
Speaker Change: 90% of the segments and Thats, certainly been well receive 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 if thats a word and so that that's a big plus and on the RV side.
Speaker Change: Buy side Maverick <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.
Jonathan Goldman: 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.
Yes.
Jonathan Goldman: This.
Jonathan Goldman: That's a funny one.
Jonathan Goldman: First overall in Q3, the the trend with consumer didn't changed and UN trend.
Jonathan Goldman: We're at 23% pre COVID-19 level, there is definitly entry level buyers are under pressure.
Jonathan Goldman: And.
Jonathan Goldman: We see it in entry level model like the spark on watercraft, the ryker three wheel to switch on pontoon retail were down 30% in those industry.
Jonathan Goldman: And 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 dynamic and it didn't change in Q3.
Speaker Change: We heard this.
Speaker Change: Our debt twice in the last few weeks that now.
Speaker Change: That 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 into few time.
Speaker Change: Interesting thanks for the color I'll get back in queue.
Speaker Change: Thank you next question will be from Jamie Katz with Morningstar. Please go ahead Jamie.
Jamie Katz: 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.
Impac.
Jamie Katz: The consumer takeaway as new units in the year ahead. So have you guys seen any noteworthy trends.
Speaker Change: Maybe whether prices have been decelerating or core volume has been increasing in that youth channel just to help us triangulate the entire inventory.
Speaker Change: Inventory picture across the industry.
Speaker Change: Yes, as you know in language.
Speaker Change: <unk> said a few times, we don't have any better on the used market and then when the only thing. We can say is what we hear from the dealers do use obviously lagged <unk> right now is getting some retail, but we don't see I didnt heard any big change into the used market.
Speaker Change: In the last in the last quarter.
Speaker Change: Okay, and then I think earlier in the call you said the current expectation for next.
Speaker Change: Next year is for a flat industry are there any.
Speaker Change: Number of interest rate cuts baked into that I'm, just trying to think about the.
Speaker Change: Sort of a bull case bear case scenarios.
From.
Speaker Change: What are your current point.
Speaker Change: Today the assumption we have is the current interest rate.
Speaker Change: Environment.
Speaker Change: Obviously, we believe that will take.
Speaker Change: Several cuts in order to.
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.
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 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.
Luke Hannan: Has yet to really come back are materialized, but I mean as you pointed out they are making as much money as they were pre COVID-19. It sounds like maybe the sentiment is 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.
Speaker Change: I think the dealer many dealer has to somewhat to rightsize their business that we were doing it.
Luke Hannan: And.
Luke Hannan: No.
Luke Hannan: Dealer and U S very often carry 567, OEM and they need to right.
Luke Hannan: The right side of their business, what I mean by that decide.
Who would the preferred to work.
Luke Hannan: It's quite rare that the dealer will drop a product line or brand, but they could decide to buy less of that brand and buy more of that other brand and this is why we're bidding on our approach to <unk>.
Luke Hannan: Improve inventory of ERP product have a better inventory returned over and <unk>.
Luke Hannan: Proved to the dealer then when the <unk> product they make more money than selling other brands, where they carry more inventory.
Luke Hannan: 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 ups that you mentioned the incremental 50 basis points, 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.
Speaker Change: 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.
Speaker Change: The way they do with their business again, we expect a modest.
Speaker Change: <unk> growth next year.
<unk>.
Speaker Change: And so most of the.
Speaker Change: I got to probably 50 50 comes from operating leverage and the other one from cost efficiency.
Speaker Change: Thank you very much.
Speaker Change: Thank you next question will be from Tristan Thomas Martin at BMO Capital markets. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change #100: As a point of clarification the floor plan financing the 70% that youre covering how does that work is that something that gets dealers through into next selling season or is it a certain amount of time post whenever they receive unit. Thanks guys theories.
Speaker Change #101: Two types of support we provide them we provide them with standards support when we ship a units, which could be 60 to 90 days and then in a context, where the industry is more challenging seasonal business. We finished with more inventory will provide them with what we call. It certainly risk assurance. So we'll cover the floorplan cost for longer periods.
Speaker Change #101: Usually until the next retail season begins.
Speaker Change #101: And so that's the main performance.
Speaker Change #101: Okay.
Speaker Change #101: You assume maybe we get a little bit of carryover into <unk> of next year.
Speaker Change #101: Yes, well last fall of crude for the financials. So when we endless automobile season will take the accrual.
Speaker Change #102: First of all aircraft season as well.
Speaker Change #103: So what's the hit that you take in the in the current fiscal year.
Speaker Change #104: Got it thank you.
Speaker Change #105: Thank you.
Speaker Change #106: And our last question is from Brian Morrison at TD Cowen. Please go ahead Brian.
Brian Morrison: Thanks, very much and I appreciate all the detail on the puts and takes for next year.
Couple of 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 TWC and switch for the.
Brian Morrison: The season ended.
Speaker Change #108: I wish I could but I don't have the backup with B, Brian So I'll have to after they get offline.
Speaker Change #109: Okay, and then I guess my second question is clearly in great shape and side by side inventory and Thats a real benefit.
Speaker Change #110: Just wondering if you play Devil's advocate here do you expect to lose or gain market share next year and the reason why I ask is I'm curious how do you adjust retaining royalty if consumers are gated by the promo on the heavy non current of competitors because the entire industry is challenged until this clears correct.
Yeah, but you know.
Speaker Change #110: The theory.
Speaker Change #110: The philosophy that we have dealers know that selling carbon product is more profitable than non current product.
Speaker Change #110: And we're trying obviously.
Speaker Change #110: 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 thats why we believe that the strategy that we have is the right one.
When the season starts it's normal to have a certain level of the <unk>, which is happening right now, but typically after a quarter or two of the new season.
Speaker Change #110: Customer purchase is mainly occur and this is where we believe we will win.
Speaker Change #110: Then right now we are into the transition of.
Speaker Change #110: Inventory depletion period, but we believe that mid to long term this will be very beneficial for us.
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 #110: Yes, but at the end of the day there is so many customers and some was shut for a price could by our can am.
Speaker Change #110: But if we don't have any concurrent non currently we'll buy another brand, but again, we have 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 debts, we think we push technology and innovation.
To attract more customers and gained share and we grew from zero percent in 2010% to 20%.
Speaker Change #110: Last year to 30% last year.
And we still believe that we can continue to grow.
But we think.
Speaker Change #110: We cannot gain.
Our every customer who shut for a price this is nothing.
Speaker Change #111: I agree with you I just wanted to understand the dynamic I appreciate the comments.
Speaker Change #111: Thank you.
Speaker Change #111: Thank you Sir.
Speaker Change #113: There are no more questions at this time I will.
Speaker Change #114: Turn the call back to Mr. Shang to close the meeting.
Mr. Shang: Great. Thank you Sylvia and thanks, everyone for joining us this morning and for your interest and we look forward to speaking with you again for our Q4 results on March 26, Thanks again, everyone. Another good day.
Speaker Change #116: 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.
Okay.
Speaker Change #116: Sure.
Speaker Change #116: Yes.
Speaker Change #116: Okay.
Speaker Change #116: Okay.
Speaker Change #116: Okay.
Speaker Change #116: Sure.
Yes.
Speaker Change #116: Okay.
Speaker Change #116: Yes.
Speaker Change #116: Yes.
Speaker Change #116: Okay.
Speaker Change #116: Yes.
Speaker Change #116: Okay.
Speaker Change #116: Yes.
Speaker Change #116: Yes.
Speaker Change #116: Yes.