Q4 2024 Polaris Inc Earnings Call

Good day and welcome to the Polaris fourth quarter 2024 earnings call and webcast all participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question you May press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. J C. Weigelt. Please go ahead Sir.

Speaker Change: Thank you Chuck and good morning, or afternoon, everyone I'm J C Weigelt, Vice President of Investor Relations at Polaris.

Speaker Change: For joining us for our 2020 for fourth quarter and full year earnings call. We will reference a slide presentation today, which is accessible on our website at IR Dot Polaris Dot com joining me on the call today are Mike <unk>, Our Chief Executive Officer, and Bob Mack, Our Chief Financial Officer, both have prepared remarks summarizing 2002.

Speaker Change: 24 fourth quarter and full year as well as our expectations for 2025, then we'll take your questions.

Speaker Change: During the call we will be discussing various topics, which should be considered forward looking for the purpose of the private Securities Litigation Reform Act of 1995 actual results could differ materially from those projections in the forward looking statements you can refer to our 2023 10-K for additional details regarding risks and uncertainties all references to the two.

Speaker Change: 24th fourth quarter and full year actual results and 2025 guidance are for our continuing operations and our reported adjusted non-GAAP basis, unless otherwise noted please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments now I will turn the call over to Mike speeds go ahead, Mike.

Mike: Thanks, Jay Z and good morning, everyone. Thank you for joining us today.

Mike: Before we discuss our Q4 results and our expectations for 2025 I'd like to begin today's call by reflecting on the past year and our key focus areas.

Mike: 2024 presented significant challenges across the power sports industry, leading to a prolonged down cycle driven by various factors affecting Oems dealers and consumers.

Mike: As players navigated these challenges last year I'm proud of how our team executed and stayed focus on the areas. We could control they maintained strong relationships with our dealers launched innovation to consumers and enhanced our operational capabilities inefficiencies. Our goal remains to position Polaris to emerge from this down cycle even stronger.

Mike: We concluded 2024 with a robust portfolio of new product innovations, including the new Indian motorcycles Scout lineup razor pro lineup quality improvements and Ranger and new boats from Bennington and hurricane.

This commitment to innovation is unwavering as we continue to lead the industry investing over 4% of sales into R&D, you've seen us ramp up our innovation productivity over the past couple of years with category defining vehicles.

Mike: Enhanced vehicle capabilities and comforts and we expect these trends to continue.

Mike: Some of this innovation with showcase with championship race wins in razors Snow and Indian motorcycles. This includes our razor factory racing teams recent first place finish of the car early this month and the side by side class.

Mike: This is the second year in a row their vehicle is out maneuvered and outpaced everyone else in the field and walked away with the top spot on the podium.

Mike: Our lean journey is in full swing with over $200 million and structural savings realized last year and additional opportunities identified for 2025 and beyond I understand its difficult to visualize the current impacts on margins given the negative absorption were experiencing given reduced shipments, but we are making real changes that should be reflected in our.

Mike: <unk> incremental margins going forward.

Mike: And help us achieve our long term target of mid to high teens EBITDA margin.

Mike: 2024 was hard for everyone in the industry are dealers included and our dealer meeting last summer, we committed to our dealers to have or that they have our support in both good and challenging times, we executed on that commitment by reducing dealer inventory, while also providing additional flooring support to help them navigate these challenging market conditions, we were.

Mike: Reduced or be dealer inventory by 16% year over year through lower shipments, but this commitment came at a cost as we realized approximately $140 million in negative absorption from lower build levels and left the year with higher finished goods inventory that we than we would like.

Mike: Although difficult actions like these are important as we adhere to our commitment to protect dealer health and maintain production in line with retail demand.

Mike: Well, we executed well on the items, we can control it was a difficult environment to forecast and our strategic actions to protect dealers and compete led to pressure on our financial results. The retail environment didn't help us retail was down from our initial expectations for the year, but more impactful was our decision to cut vehicle shipments to help reduce dealer inventory.

Mike: We also saw higher promotional environment, adding almost 200 basis points of pressured our EBITDA margins for the year, along with negative mix, which accounted for more than a point of EBITDA.

Mike: Headwind.

Mike: The headwinds we experienced during the year were far greater than our original guidance, but we believe many of these are short term in nature I remain confident that we're taking the necessary steps to emerge stronger as we strive towards higher incremental margins to improve profitability and innovation to help drive share gains.

Mike: Looking specifically at our fourth quarter results North American retail was down 7% driven by similar trends we've seen throughout the year with the addition of a very weak no season and strong youth retail.

Mike: We achieved the updated financial targets, we laid out in October we also achieved our or V dealer inventory reductions target production target established mid year as I mentioned earlier or V dealer inventory was down 16% year over year versus our goal of down 15 to 20.

Mike: We told you we'd anchor our financial results and shipment plans toward dealer inventory goals. We did just that with RV shipments in the fourth quarter being reduced approximately 30% versus Q4 2023.

Mike: This reduction cause negative pressure within our business, but it was necessary as we partner with our dealers to help them navigate this prolonged down cycle.

Mike: Adjusted gross profit margin of 21, 1% was up modestly given realized savings from lean and operational efficiencies as well as a favorable compare due to a one time warranty expense last year and on road.

Mike: Adjusted gross profit and EBITDA were pressured by negative absorption associated with the shipment cuts.

Mike: Somewhat offsetting these headwinds was the reduction to our variable compensation plan term profit sharing and executive bonus plan due to the financial results in 2024, as well as structural cost reductions made to size the business to current market conditions, which includes out which included salaried head count reductions.

Mike: Adjusted EPS of <unk> 92 cents was down 54% as a result of the previously mentioned factors interest expense was in line with our original expectations and our tax rate came in slightly favorable.

Mike: Breaking down retail further and off road, we saw similar trends across the portfolio relative to prior periods. This year.

Mike: Typically snow was an added benefit this time of year, but we are currently in the middle of another difficult snow season, given the lack of snow in the flatlands.

Mike: This is the second season in a row with below average snow, resulting in elevated inventory dealerships and sharply lower retail.

Mike: We've already lowered our build schedule to account for this week sales season to date and this has kept for in the guidance given today.

Mike: I think it's also important to call. It are you caught youth in our performance of recreational retail it was up strong double digits in the quarter due to a positive holiday selling season, and a favorable compare to last year outside of youth recreational side by sides were down mid teens as we still see growth in crossover offset by pressure in razor.

Mike: Utility was down low single digits with modest pressure on both Ranger and a T V's sequentially. Our Ranger retail decline was lower in Q4 than in Q3.

Mike: On road retail in Q4 was again driven by softness in the heavyweight segment.

Mike: We saw share gains and growth in our midsize bikes given the successful launch of our new Indian motorcycles Scout lineup. However, this was muted by the challenging dynamics in the overall industry.

Mike: At our motorcycle dealer meeting last week, we launched several new bikes and completely sport chief Roadmaster power, plus and chieftain power plus the power cost models incorporate our new hundred 12 cubic inch version of the power plus engine, which we spent two years developed within refining through the Indian motorcycle racing program as demonstrated in our 2024 king of the <unk>.

Mike: Acres championship. The response from dealers was positive on new products and cautious on 2025.

Mike: In Marine retail was down modestly in a seasonally light quarter and although we were entering the boat show season and feedback thus far has been positive.

Mike: I commented last quarter on how we've seen other oem's running at elevated promotional rates as they work through higher than normal non current inventory levels. This dynamic remain so going in the market today and continues to drive short term share gains for those Oems. We do not view. This tactic is sustainable or one that can drive long term high quality share growth we believe.

Mike: These aggressive promotions are the result of over shipping into a declining retail environment, resulting in dealers being saddled with non current inventory they cannot move without these elevated promotional dollars.

Mike: If I could sum up dealer sentiment right now I would say they are cautious they are closely watching inventory across all categories and Oems dealers are seeing items take different approaches in this prolonged down cycle and are therefore, choosing to keep inventory light as they continue to experience low retail.

Mike: Just this last quarter, we've seen news of Oh, we've seen news of Oems filing for bankruptcy or shutting down production for a prolonged period of time as well as oem's, putting part of their business up for sale, which leads many questions of many to question the future of some brands.

Mike: Dealer health is something we watch closely through our players acceptance joint venture and currently there are no alarming signs of an abnormal number of dealers in financial distress.

Mike: Dealers are taking the appropriate steps to manage this downturn by surgically lowering inventory levels and focusing on growth areas such as service to improve cash flows.

Mike: Throughout this time, we've worked hard to stay close to our dealers in order to be a strong partner.

Mike: I think it's important to acknowledge that while we met our dealer inventory goals for the year that does not necessarily mean shipments will begin to grow we're going to continue to actively manage dealer inventory and given the most recent retail data, we're forecasting shipments to be down in the first quarter.

Mike: Lastly, I want to comment on ridership and customer trends and interest as it relates to the off road portion of the business.

Mike: Turning to our overby ridership data riding remaining equal to or slightly above pre pandemic levels of course, we saw a spike in our ridership data during COVID-19, which peaked in 2022 that started coming down and it seemed to have bottomed out in late 2023. Since then ridership has steadily increased with our latest data showing a mid teens percentage increase versus.

Mike: January of 2020.

Mike: We also track short term and long term repurchase rates all of which are in line with pre pandemic levels.

Mike: The five year repurchase rate has been consistent for over four years unless the data tells us that if this trend continues we should expect a greater number of repurchases in the next several years given the higher retail levels in the early months of the pandemic. We believe this data around repurchases and ridership supports the notion that interest in the off road industry remains healthy.

Mike: And customers continue to enjoy being outside on our vehicles.

Mike: Shifting gears to our focus on lean and operational efficiencies. We are in full swing with these initiatives and the team is executing at a high level. This was always going to be a longer term journey measured in years versus quarters.

Mike: There were initial opportunities that we were able to capture in 2024, the team went above and beyond to deliver over 250 million in savings relative to our initial goal of $150 million driven by the need to respond to lower volumes and taking an appropriate amount of cost out of our business.

Mike: Our focus areas are commodities parts logistics implants, and these will continue to be areas of focus going forward.

Mike: As you know from past calls headwinds and absorption due to lower production in these current market conditions are masking much of the benefit but the changes are real and sustainable.

Mike: More importantly, we validated that theres larger opportunity to improve within our existing footprint given an ample runway to increase profitability as volumes return from cyclical lows.

Mike: We now have lean lines up and running in Monterrey, Mexico, and Huntsville, Alabama, and our currently established establishing a lean line in Roseau, Minnesota, our efforts resulted in a meaningful drop in variable costs in our plants. However, this was offset by the negative absorption from lower production.

I'm, Brian inventory was down 25% last year and we plan on additional reductions to finished goods inventory in 2025, all of this should lead to lower working capital and increased cash flows.

Mike: We will continue our lean journey in 2025, focusing on sustaining and building on the gains we've made so far our savings target in 2025 is approximately 40 million through these efforts given we're expecting lower production volumes in 2025 much of this will continue to be offset with negative absorption.

Mike: However, we're executing on these items to build higher incremental margins for players when volume does return.

Mike: This work has always been about the longer term value and I'm confident that we're taking the right steps to realize this goal.

Mike: Now going to turn it over to Bob to provide you with more details on the financials Bob.

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

Bob: First quarter sales declined 23% compared to last year similar to the third quarter. The main factor for our sales decline was our decision to actively reduce dealer inventory in the second half of the year by shipping less product to dealers.

Bob: Retail performance was slightly below our expectations during the quarter due to a challenging snow season.

Bob: Mix was also negative as we are lapping some difficult comparable periods. When we were still filling the channel with new products, such as Ranger XD and Polaris expedition.

Bob: In addition, we are shipping fewer premium products to provide more attractive entry points for consumers and help dealers manage their flooring expenses lastly.

Bob: Lastly, as Mike mentioned, the environment remains highly promotional.

Bob: Our international business was down 7% driven by a drop in shipments as we have adopted a similar strategy in the international markets has in North America to help dealers manage their inventory.

Bob: P. G&A sales were negatively impacted by the lower factory shipments in slower whole goods retail.

Bob: Going back to Mike's comments on ridership, we did see growth in items like parts and oil outside of our snow business. Historically. These are good indicators that our customers are out enjoying their vehicles.

Bob: Gross profit margins were negatively impacted by volume and mix as well as the negative FX impact from a strengthening dollar.

Bob: Somewhat offsetting these headwinds were savings within our operations and the cuts we made to our employee profit sharing program associated with the subdued financial performance in 2024.

Bob: A little background on our profit sharing program as it differs from what many companies referred to as a bonus plan our annual incentives.

Bob: Polaris, we maintain an equitable approach while both sharing in the success of our efforts and the challenges during downturns.

Bob: Our profit sharing program is not exclusive to executives are limited to a specific job level. Instead. It is deeply rooted across the organization and even extends to the majority of our U S based factory employees.

Bob: This program is a cornerstone of our culture, helping us attract retain and engage strong talent.

Bob: It is also slightly larger than similar programs at other organizations, reflecting our commitment to shared success the.

Bob: The program adjusted based on financial performance with lower payouts when results fall short of targets that was the case in 'twenty 'twenty, four which provided a benefit to our financial results.

However, this dynamic will reverse in 2025, which I will address when discussing guidance.

Bob: Turning to off road sales were down 25% due to lower volume and negative mix snow had an oversized impact in the quarter given sales in retail were both down over 30% versus the prior year driven by the lack of snow across many important regions for trail riders.

Bob: North American RV retail in the quarter was flat with weakness in razor offset by strength in use in the crossover category.

Bob: We believe retail in the RV industry was up mid single digits for the quarter.

Bob: Promotions and discounting from other Oems primarily on non current products are driving most of the share dynamics in the industry today as they work to clear out aged products.

Bob: Gross profit margin was positively impacted by operational efficiency, partially offset by negative mix and financing interest.

Bob: As we look at the first quarter, we expect shipments to remain down and off road as we continue to manage dealer inventory in a declining retail environment and we have a difficult comparable period, where we were still filling the channel with Rangers.

Bob: We also expect margins to be a headwind with unfavorable mix, partially offset by net price.

Bob: Switching to on road sales during the quarter were down 21% there continues to be a divergence between our midsize and heavyweight business and mid size, we are winning with the all new Indian motorcycles Scout lineup, we launched last year and continue to hold the number one market share position.

Bob: In the heavyweight segment, we are.

Bob: Pressure from competitive launches and a more challenging market environment. As these motorcycles are positioned at higher price points.

Bob: We also saw elevated competitive promotions during the quarter that negatively impacted sales.

Bob: Indian motorcycles gained modest share during the quarter driven by the success of the scout launch.

Bob: Adjusted gross profit margin was up 235 basis points, driven by an easier comparable quarter last year, when we booked a one time warranty expense.

Bob: Outside of that margin would have been pressured given the mix headwind and heavyweight bikes and elevated promotions.

Bob: In Marine sales were down 4% in what is typically a very light seasonal quarter as the industry ramps up for boat show season.

Bob: Latest industry data, we have shows the pontoon industry was down 11% in 2024 as Oems continue to work down inventory and consumers decided to forego larger discretionary purchases.

Bob: We have received positive innovation on our feedback in marine this year from dealers as we head into boat show season order flow of these new boats has been encouraging as dealers want to showcase the innovation to consumers in person on their dealer floors.

Bob: Gross profit margin in marine was down given unfavorable absorption from lower volumes.

Bob: Moving to our financial position, we have a strong balance sheet and continue to prioritize maintaining investment grade metrics are.

Bob: Our capital deployment priorities start with investing in our core business.

Bob: Our second priority is preserving our dividend as we have raised the dividend for 29 consecutive years in 2025, we intend to put a higher priority on paying down debt.

Bob: As we focus on working capital improvements and planned for lower capital expenditures, we expect 2025 to be a strong year of cash generation.

Last year, we made progress on lowering raw material inventories, but also built finished goods balances as we work to rebalance our production line.

Bob: In 2025, we will execute a plan to drive down this high level of finished goods.

Bob: Inventory, we expect this to be accomplished with improved planning a reduction in rework and lower unit production levels.

Bob: Accordingly, we expect to start seeing finished goods inventory decline later in the year.

Bob: By lowering our working capital needs and planning for lower capital expenditures, we believe we can generate approximately $350 million and adjusted free cash flow this year.

Bob: We remain confident in our financial position and are driving our teams to improve working capital and this part of the economic cycle.

Bob: Next I would like to discuss our 2025 full year guidance and the assumptions that led us to these guidance metrics.

Bob: First sales are expected to be slightly lower than last year. The two biggest factors driving this decline are lower expected shipment volumes and the continued strength of the U S dollar.

Bob: Regarding the volume drop we've accounted for a sizable cut in production in our snow business given the second season in a row of poor riding conditions in the flatlands.

Bob: It is also worth noting that we expect positive net price with some moderate price increases.

Bob: Yeah.

Bob: Mix is expected to be a headwind during the year, but more pronounced in the first half as we have difficult comparison periods given channel fill and strong Ranger Northstar sales in the first half of 2024.

Bob: By segment off road sales are expected to be down low single digits.

Bob: Again, our decision to reduce snow inventory is the biggest factor driving this segment's lower than anticipated sales.

Bob: We expect a flattish year in RV.

Bob: And on road I've already noted that we are taking down shipments due to a weak industry.

Bob: In Marine we are expecting low single digit growth from them market share capture and the innovation across our three brands of boats.

Bob: We expect EBITDA margin to be down year over year for the following reasons first the reset of our employee profit sharing program, which is expected to have the biggest impact.

Bob: Second would be the mix headwind I noted earlier as well as lower volumes to actively manage dealer inventory in a challenging industry.

Bob: Third the lower production targets also put added pressure on our margins through negative absorption.

Bob: Yeah.

Bob: Somewhat offsetting these headwinds we continue to expect savings within our operations as we make progress on our lean journey. We also expect net price to be positive with modest price increases being marginally offset by promotional dollars.

Bob: Putting all this together, we expect adjusted EBITDA margin to be down 170 to 200 basis points.

Bob: Given these pressures we expect approximately $1 10 for adjusted EPS This year.

Bob: Cost headwinds are driving lower earnings despite some of our mitigation efforts the reset of our employee profit sharing program the expected drop in volume and lower mix plus negative absorption are expected to be a headwind of almost $3 to adjusted EPS.

Bob: We are working hard to offset some of these pressures with continued savings expected within our plants as well as the benefit of our cost reduction efforts last year.

Bob: Costs, such as depreciation and interest expense are also eroding EPS since theres no additional volume to offset and these are somewhat fixed year over year.

Bob: Note that our guidance does not assume a change in regulatory policy, which includes tariffs.

Bob: Some quick thoughts on the first quarter.

Bob: Sales are expected to be down over 10% due to a difficult comparable as last year, we were still filling the channel with product.

Bob: As I noted when discussing off road, we are expecting some material year over year headwinds from mix and FX in the quarter, where we are planning to continue reducing shipments to manage dealer inventory.

Bob: We expect this drop in volume coupled with the specific margin pressure I mentioned will result in an adjusted EPS loss of 85 to a dollar in the first quarter.

Bob: Our expectations are for earnings to improve and turn positive in the second quarter.

Bob: Importantly, we believe the innovation, we have brought to the market and the work we're doing with our dealers put us in a very strong competitive position in this century.

Bob: We expect to gain or hold market share with this innovation and look forward to being the partner of choice with our dealers as we navigate this market.

Bob: We believe our proactive efforts on cost and efficiencies will set us up well for strong recovery when the industry returns to growth.

Bob: We are also taking actions to generate more cash this year with specific actions around inventories.

Bob: As Mike shared consumers are still writing and we view this as a positive indicator for the longer term viability of this industry. We are bullish on power sports over the long term understanding this is a cyclical business.

Bob: We know these are challenging times for consumers in our industry, it's easy to take a short term view. However, I am confident we are taking the appropriate steps today and are focused in the right areas to navigate the current environment, while still executing towards our longer term initiatives around growth and stronger earnings power.

Bob: Our ability to execute this year should have a direct impact on our ability to emerge stronger.

Bob: The Polaris team is aligned on what needs to be done in order to define success for all of our stakeholders with that I'll turn it back over to Mike to wrap up the call go ahead Mike.

Mike Speeds: Thanks, Bob our key focus areas for 2025 are not all that different from 2024 I believe these focus areas set us up to be a strong partner with our dealers as we navigate the prolonged down cycle in the power sports industry and strengthen our operations become more efficient and position Polaris to emerge from this down cycle even stronger.

Mike Speeds: We continue to value our long term partnership with dealers striving to be the ROE am of choice.

Mike Speeds: We're actively working with them to navigate the current environment and we expect shipments to be down in the first quarter. As we continue to manage dealer inventory levels. We have worked closely with dealers to align their inventory and RFS profiles to an industry that is expected to be pressured by a recreational consumer dealing with elevated interest rates inflation and higher debt.

Mike Speeds: Turning to innovation, it's been several great years of innovation from Polaris, We expect to continue marching forward on innovation in 2025 and beyond.

Mike Speeds: I already discussed the new Indian motorcycles launched last week and off road. We currently have one of the most innovative and diversified portfolios in the industry and we look to strengthen our position in the base segment later this year.

Mike Speeds: And marine customers will get their first look at the upcoming boat shows at the completely redesigned Helms and Bennington pontoons as well as the new series M. We feel this next wave.

Mike Speeds: Innovation can continue to deliver on what customers want while leaving our competition in catch up mode.

Mike Speeds: As noted earlier, we expect to remain on the lean journey, we began a year ago. The results. We saw last year are real and encouraging we will build on those results in 2000 and twenty-five knowing there is still more work to do and additional savings to be created I am proud of the team's dedication to changing their behavior and embracing this lean initiative.

Mike Speeds: Lastly, we are highly focused on working capital specifically inventory to help improve our cash generation. We made progress last year on raw materials, but grew finished goods as we adjusted production schedules to protect dealer inventory.

Mike Speeds: For 2025, we reduced our build schedule to drive down our finished goods inventory and generate more cash there should be more evident during the back half of the year, but the initiatives internally have begun.

Mike Speeds: Similar to dealers, we remain cautious about the industry retail trends have not given us a reason to change our outlook nor do we see much change for the consumer in 2025.

Mike Speeds: We are committed to dealers that we were going to actively manage their inventory with the cadence of production leading to lower shipments as we start the year.

Mike Speeds: I do want to be clear that our teams are closely watching the data for any type of change in trends and we are ready to shift into high gear. If we see demand improving this is certainly a dynamic time in the history of power sports and we stand willing and able to partner with our dealers as we navigate toward better times together.

Mike Speeds: As has been the case, we remain on offense with our investment in innovation and our cadence of new vehicle launches. This is deeply rooted in our DNA and a key driver of our global leadership in the power sports industry.

Mike Speeds: The decisions we make today are not made with short term results in mind, we continue to build a company that we believe can emerge stronger and we remain committed to the mid cycle financial targets. We gave in 2022, when we talked about driving shareholder value through new mid single digit sales growth mid to high teens EBITDA margin double digit.

Mike Speeds: P S growth and mid twenties ROIC.

Mike Speeds: Until then we're focused on items that with that are within our control.

Mike Speeds: We have a strong balance sheet, a robust innovation pipeline, coupled with great dealers and a team of players that is willing and able to tackle any challenge.

Chuck: I am confident that there are better times ahead for us our dealers and customers and also for our investors. We appreciate your continued support and with that I'll turn call back over to Chuck to open the line for questions.

Chuck: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Chuck: If youre using a speakerphone please pick up your handset before pressing the keys.

Chuck: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

Fred Wightman: And the first question will come from Fred Wightman with Wolfe Research. Please go ahead.

Speaker Change: Hey, guys. Good morning, I, just wanted to start with the EPS Guide and if we go back last quarter, Mike I think you've sort of hinted that something flattish versus the 24 guide was a reasonable starting point and then obviously the formal outlook today came in a bit below that so I'm wondering if you could just walk us through what if anything changed it we sort of.

Fred Wightman: Misinterpret, what you were trying to convey how should we think about that.

Mike Speeds: Yeah. Thanks, Fred I, I guess I'd start with you know obviously.

Fred Wightman: We were we were in October so we were trying to avoid making too many comments about twenty-five my comment was specifically you got to start at 325 and that was deliberate because we had a number of analysts that we're projecting much much higher numbers that we knew were just not where the business was headed.

Fred Wightman: And the key word there was start with keywords start with I also made comments about the fact that you'd have to adjust for some of the moves we've made in incentive comp and we obviously didn't provide a lot of details about that.

Speaker Change: At the time, but you know as Bob just went through the incentive comp adjustment in profit share adjustments pretty sizable and then you know the reality is we were watching what was going on with retail in October November and December.

Speaker Change: And that was informing and instructing the trajectory that we saw things going into 'twenty five and you.

Speaker Change: At the time, we said the 325 that was based on the revenue we were delivering in 2024.

Speaker Change: And the reality is our revenue is going to be down 1% to 4% and as Bob indicated given softer retail in the fourth quarter.

Speaker Change: We ended up holding back on some shipments and you know we have a higher finished goods inventory. So you've got a lower revenue base, you've got a lower production base. So we're going to be producing less than what we're shipping into the channel and that's going to create some deleverage that we have in the business and then as I commented on Mike our prepared remarks.

Speaker Change: No industry is under pressure again, we met in early January based on seeing how things closed out in December and given where dealers were in and made the decision that we were going to pull our production down even further and work to get dealer inventory down even further in the in the first half.

Speaker Change: And then in the Marine segment, obviously can given continued weakness from a retail standpoint as you all saw in the recent notes that came out on Ssi.

Speaker Change: We've made the decision to keep pushing dealer inventory down there. So there's a lot of factors, which as you know why we would prefer to steer clear from trying to give guidance for the next year and in October of the prior year.

Speaker Change: There's more factors that build in we shipped a lot of premium vehicles and in 2024 as we pushed.

Speaker Change: The expedition and the Ranger X D into our dealerships and so theres going to be less of of those shipping in and then as I mentioned, we're going to have some value products coming in later in the year that are going to create some some mix headwind and then Bob pointed to foreign exchange. So there there's a lot going on I, what I would come back to us.

Speaker Change: As we emerge from this and we were very deliberate both Bob and I about the indicators, we're watching to make sure that people are still active in our segment and they are in their writing more than they did.

Speaker Change: Before the pandemic, we were gearing this business to have a lower fixed cost base and the efforts, we're making from a lean standpoint are going to mean, we can get more throughput through the factories with less input, meaning that the incrementals coming out of this and the performance for our business will generate higher EPS and that is what we're focused.

Speaker Change: On right now.

Speaker Change: Bob and his finance team have done an excellent job from a treasury standpoint, making sure that we're in a good spot for investment grade rating and protecting our debt position with our banks.

Speaker Change: And when you look around at the field of folks in our industry and the struggles and problems that they're having and businesses going out of business and solvent businesses being sold I think we're I think we're managing through this as best we can.

Speaker Change: Or is there anything you'd add to that.

Speaker Change: Just a couple of things Fred you know as you guys saw in CDK October retail it.

Speaker Change: Probably the best of the quarter and Unfortunately, we've seen that dynamic a few quarters in a row now where the first months starts off well and then it tails off and we saw that again in the fourth quarter. So.

Mike Speeds: That drove a more conservative view of what we think 2025 retail will look like and then to Mike's point. Yeah. There are a number of other factors interest will be relatively flat for the year, we're going to start paying down debt, we'll prioritize paying down debt. After we invest to make the necessary investments in innovation.

Speaker Change: <unk>.

Speaker Change: In our factories and pay our dividends. So we will start to bring that interest costs down, but we're not factoring in any substantial interest rate cuts as obviously everybody.

Speaker Change: <unk> has seen the market seems to think that that's going to not be much of an opportunity in 'twenty five so.

Speaker Change: Some of that is just sort of.

Speaker Change: Adjusting the size to the the size of that to the new size of the business that as we work through that those things will continue to be a less of an impact, but we're going to deal with it in 'twenty five.

Speaker Change: Okay. Thanks, and then just on the free cash flow outlook, you guys are guiding for a pretty nice year over year improvement. Despite the EBITDA and the earnings outlook Capex is coming down you've mentioned some potential tailwind as our expected tailwind from finished goods, but can you just sort of walk us through the big moving pieces there. Please.

Speaker Change: Yes.

Speaker Change: Yes, I mean, our Capex will.

Speaker Change: It will be down to the low two hundreds.

Speaker Change: We've had a fair amount of capital build in 'twenty three 'twenty four as we built those the new facilities in Mexico, and Vietnam that work is substantially complete.

Speaker Change: As you recall those are mostly back shop facilities in Mexico, and then a motorcycle assembly facility in Vietnam, We'd also updated paint facilities and other things like that in the in the factories. So you know we're kind of through that cycle, we're going to focus on the capital side on tooling. So we're driving innovation and then high return.

<unk> in the plants things that need to we need to do to support lean investments for quality and safety, obviously and but you know so it will be pretty lean I think for a couple of years here on on capital, which I think we're in a good position to do because we had been investing through the cycle.

Speaker Change: And and then on inventory.

Mike Speeds: We're about 100 between 150 and $200 million heavier on finished goods and I'd like to be and as Mike said, that's because as we went through the through the year and particularly the fourth quarter as we made pretty rapid adjustments to drive down dealer inventory.

Mike Speeds: The that all had to flow somewhere and you can't you can't just stop production immediately you have to figure out how to best balance the lines. We said we would be the shock absorber, we work we.

Mike Speeds: We drove that allowed us to drive some stuff out of raw and get the raw balances down but now we got to flow. The finished goods out through the course of the year, so it'll be it'll be part capital part.

Speaker Change: But I feel pretty good about where we're going to be from cash flow standpoint, Hey, fried back back to your first question. You know if you. If you look at our 24 EPS results and you adjust for the two big things that Bob mentioned.

Speaker Change: The incentive comp plan, where we essentially cut the plan and have given the performance and then a recalibration of foreign exchange. It really would say that 24 EPS was more like $1 69, So you're really bridging from $1 69 to $1 10.

Speaker Change: And you know because we're planning on paying out the full profit sharing incentive plan in 2025, and that's where you can really see the effects of volume and the deleverage, but I think that probably helps bridge. The difference between 24 performance and where were expecting 25 to play out that incentive plan.

Speaker Change: Which you know Bob did a great job of highlighting why we do what we do and it has been a cornerstone of this company since its founding in 1954.

Speaker Change: Okay.

Speaker Change: That'll help kind of bridge you know why their performance looks so dramatic on a 1% to 4% revenue decline.

Speaker Change: Okay really helpful. Thank you guys.

Joe <unk>: The next question will come from Joe <unk> with Raymond James. Please go ahead.

Joe <unk>: Thanks, Hey, guys. Good morning. So first question on the industry you mentioned a few times here. This morning that you do expect to continue challenging environment here in 2025, so I assume you're expecting another down year from an industry standpoint, but are you guys, assuming we're going to start to see some growth in the back half of the year.

Joe <unk>: Yeah, I mean right now we view the industry is probably down low single digits in 'twenty five and in a lot of that is is really being driven by motorcycles marine in the snow categories.

Speaker Change: And I think it's tough Joe you know certainly for us from a retail expectation standpoint, we think the first half is still going to be continued continued challenges.

Speaker Change: And that really is just reflective of the trends, we've seen coming into the fourth quarter and as we exit the fourth quarter, there isn't anything magical about.

Speaker Change: The new year, and you know as Bob indicated right now you know we're you know.

Speaker Change: Who knows how many interest rate changes there will be this year.

Speaker Change: But consumers still are carrying a lot of that you know inflation is kind of stalling out in the mid twos.

Speaker Change: Which would signal that there may not be that many interest rate cuts this year and as we've talked about in the past, it's going to take time.

Speaker Change: For this to work through the interesting thing is as we look at the performance in the industry kind of the 'twenty four 'twenty five combined to pre pandemic levels, it's really the rec areas that have struggled the most.

Speaker Change: All of which are either flat to down to before the pandemic and we think that's largely being driven by.

Speaker Change: Interest rates discretionary spend pullback.

Speaker Change: The utility category has held up low single digits growth and I think that bodes well in terms of at least being a little bit of a shock absorber and as I talked about in my prepared remarks, we know what the repurchase rates are we know people are using these vehicles, but you know it's a tough environment. They paid full MSRP there.

Speaker Change: They're.

Speaker Change: We've got a low finance loan trading values are going to be lower than what they would have expected when they first bought the vehicle they're trading into higher interest rates, it's going to take a little bit of time I would hope that things start to improve in the back half are certainly that would be encouraging for us in terms of our forward momentum.

Speaker Change: Minimum, but I think we're going to steer clear of making any big prognostications right now.

Speaker Change: That's very helpful and maybe just a follow up.

Speaker Change: You didn't ask about it but the tariffs you mentioned this morning.

Speaker Change: Youre not assuming any additional tariffs in your outlook, but obviously, it's been discussed so I'm just curious.

Speaker Change: I think last year tariffs were about 70 to 75 million.

Speaker Change: Given what's been discussed how much incremental tariffs could we potentially see in 'twenty five.

Speaker Change: Yeah, we.

Speaker Change: We've got about call it $60 million to $70 million of tariffs in the business today and that's largely the 301 tariff lists one two and three that were put in place under Trump's first administration.

Speaker Change: I'd just give you I'll give you some basic data, we're going to steer clear of trying to forecast where this is all headed.

Speaker Change: We're obviously watching it very closely we have some excellent government relations folks out in D. C who are staying very close to this.

Speaker Change: As you know it changes by the hour as of yesterday, we were hearing that it's far more targeted around specific areas like semiconductors, but there's no telling where things could go and I'm sure there'll be some short term things that may get pulled back because they are being used as a negotiating tactic so at.

Speaker Change: At this point, we're staying focused on the things we can control within the business.

Speaker Change: You look at China.

Speaker Change: We procure about a half a billion dollars of components out of China about half of that goes into the U S about half of that goes into our Mexico facilities.

Speaker Change: Obviously, the stuff going into the U S is where we're paying tariffs today and all the applicable items that hit unless one two and three.

Speaker Change: We have a couple of billion dollars' worth of revenue that comes out of our Mexico manufacturing facility, it's about a third of our production.

Speaker Change: In terms of sales that come into the U S and we have less than 100 million worth of revenue that comes out of the U S into Mexico.

Speaker Change: We're less than a half a billion dollars worth of revenue into Canada, and we import less than 50 million bucks into to the U S.

Speaker Change: What I would tell you is for China, we have been working since the original set of tariffs were put in place.

Speaker Change: We've pulled down considerably by about a couple of hundred million dollars the amount that we're procuring out of China.

Speaker Change: The team has plans in place as we've talked about this is not stuff that you can do overnight. These supply chains have been established for decades.

Speaker Change: But we've been working with our Chinese suppliers, our sourcing organization has worked aggressively to find alternative supply.

Speaker Change: We're going after an aggressive amount during 2025.

Speaker Change: And then we obviously have plans identified 26 and 27, the list gets harder and harder as we get lower and lower into the components that we would be going after.

Speaker Change: And that's what we're going to be focused on I would say that you know we have relative to the rest of the power sports industry up into this point been incredibly disadvantaged we're the only U S manufacturer yet we're the only ones paying tariffs.

Speaker Change: Some of our competitors three of them specifically have pretty heavy manufacturing base is down in Mexico.

Speaker Change: And obviously, we would be impacted but they would be more impacted some of which have almost all their manufacturing.

Speaker Change: Coming out of Mexico. So it's.

Speaker Change: It's a volatile environment, we're going to stay focused on the things that we can control as it relates to how much we're procuring out of China.

Speaker Change: And we're we're going to do what we can to help influence policy where appropriate.

Speaker Change: Understood. Thank you guys.

Craig Kennison: The next question will come from Craig Kennison with Baird. Please go ahead.

Craig Kennison: I was hoping to follow up on the tariff topic and then also the dividend, but with respect to tariffs Mike and the last point that you made or do you have a sympathetic ear in Washington.

Craig Kennison: Appreciate.

Craig Kennison: Frankly that you build part units in the U S and also pay the highest tariff just feels like whatever policies.

Craig Kennison: Editorialize, but whatever policy, they're aiming for it feels to be missing the mark and power sports and a fairly big way and I'm wondering if you have.

Craig Kennison: You know a sympathetic ear there.

Craig Kennison: Yeah, yes, or no we were successful during Trump's first administration. If you remember we got a pretty considerable list of exemptions.

Craig Kennison: But the exemptions were short lived so yes, they were sympathetic they listened but the message at the end was get out of China and they gave us some time, although it was not anywhere near as much as we would need.

Craig Kennison: You know the reality is we're kind of going at it alone because the rest of our industry is not facing some of the same challenges.

Craig Kennison: We did make the point loud and clear that you know we are the only.

Craig Kennison: American Tower Sports company, and we are the ones being disadvantaged both against the Japanese as well as the Canadian competitors in Chinese.

Craig Kennison: You know, there's new players involved but theres still some consistent ones.

Craig Kennison: That will be there.

Craig Kennison: We have attempted to make some inroads, but they are not at a point, where they're willing to engage with industry at all.

Craig Kennison: As you can see from Trump's first week in office. He has had a number of priorities that have been largely outside of this but you know when we have the opportunity we'll continue to to fight the good fight and for now we're just going to run the business and as I said multiple times control, what we can control.

Craig Kennison: Yeah, I think Craig no we have to sort.

Craig Kennison: Sort of focused on the positives of we have a really good balanced footprint, we have production in Mexico in the United States.

Craig Kennison: Two facilities for off road, and then obviously others for marine and.

Craig Kennison: Motorcycles and then another offer a plant in Poland. So we've got a pretty balanced footprint, which is a little bit different than other players in the industry and you can't you can't leverage that immediately to move things, but you know I think we're well set up for the long term and as Mike said, well, we'll continue to push that issue with with regulators around.

Craig Kennison: How the industry actually works.

Speaker Change: Yes, thanks, and thanks, Bob I'm wondering Bob maybe on the dividend I know, it's important to you you've got the aristocrat status.

Craig Kennison: But if I look I mean earnings are going to be.

Craig Kennison: Well under half of the dividend payment and twenty-five so maybe just help us bridge that gap and help us understand the levers you can pull to generate the cash.

Craig Kennison: To get to your 30 consecutive year of.

Craig Kennison: Dividend growth sure.

Speaker Change: Yeah look I think.

Speaker Change: As we talked about earlier I think we feel good about our free cash flow for 2025, obviously we.

Speaker Change: Have looked at the dividend you know the.

Speaker Change: The yield it's pretty attractive right now for investors and you know as Mike and I were on the road I guess late November early December.

Speaker Change: Got a lot of feedback from from some newer investors that they.

They were they were looking for their entry point or had found and found their entry point and they liked the dividend yield because they felt like it gave them protect protection and a good stream of income while we're waiting for the industry to recover so we didn't want to make a sudden.

Speaker Change: Change we believe this is short term in nature.

Speaker Change: We got through the dealer inventory the bulk of it in 2024, obviously, we'll have to manage a little bit depending on what happens in the market and 25.

Speaker Change: 25, we're dealing with the the knock on effect of that with our build being lower than our ship.

Speaker Change: To get dealer to get finished goods inventory right and drive cash and we feel like it makes sense to use that cash to continue to pay the dividend.

Speaker Change: Because we do see as Mike said, you know customers are still writing their products, we're not seeing people leave the industry, we're not seeing a glut of used products in the market.

Speaker Change: So it's not that people are writing it is just this delayed replacement cycle, particularly in the recreational focused products and we think that's going to continue.

Speaker Change: Continue to get better is as consumers work through their balance sheets over the next couple of years and so we don't want to make a sudden change the dividend then.

Speaker Change: Sort of is a.

Speaker Change: It takes us off the track we have been on for a long time based on a one year dynamic which is similar to the decision. We got trading during Covid. We felt like that was short term and unlike a lot of companies. We continued our dividend and that turned out to be the right decision. So that's where we are here too.

Speaker Change: Great. Thank you.

Speaker Change: Thanks, Greg.

Speaker Change: The next question will come from Megan Clap with Morgan Stanley. Please go ahead.

Speaker Change: Hey, good morning, Thanks for taking my question I wanted to go back to the but EPS guidance. So Bob I think it was in your prepared remarks, you said that.

Speaker Change: The various cost headwinds that you talked about or is that incentive comp volume mix absorption were around $3. In earnings is there any way to quantify of those headwinds and of that $3. One is more short term or transitory in nature. It seems like the absorption just given all the commentary around.

Speaker Change: And finished goods inventory in production not necessarily turning on immediately when when shipments pick up.

Speaker Change: <unk> is the biggest driver, but any sort of to capitalizing around what's transitory versus structural in nature would be helpful.

Speaker Change: Yeah, I mean, it's.

Speaker Change: That's a deep question, let me break it into a couple of pieces.

Speaker Change: You know as Mike said are a very large chunk of it if you if you took out.

Speaker Change: Profit.

Speaker Change: Profit share returning the profit share and things to a normal level and then FX Hugh you would've effectively gotten the 325, we made this year down to you know.

Speaker Change: <unk> of $1 70.

Speaker Change: So you know when you when you proceed from there I mean, I think the big things.

Speaker Change: There's there's a volume and mix.

Speaker Change: <unk> talked about will be down $100 million in revenue.

Speaker Change: Mix is negative again, because we did ship a fair number of XD expeditions and Ranger northstar's into the channel in the early part of 'twenty four.

Speaker Change: Now, we'll be shipping more to retail because we don't have to build any inventory.

Speaker Change: So that's probably the next largest chunk.

Speaker Change: After after a profit sharing stuff volume is a little bit of a smaller impact.

Speaker Change: The plant deleverage is mostly offset with other cost improvements at the plants.

Speaker Change: And then.

Speaker Change: The other big items are really just a price and promo we think.

We are taking a little bit of price this year, which we haven't done in a couple of years been very selective price increases as we redo models are then.

Speaker Change: And then also there's some some kind of carryover benefit from promo obviously as we were working to clear our side of the channel.

Speaker Change: We had.

Speaker Change: Elevated promo on certain models some of that won't repeat that'll be clear that's clear the channel I don't think the promotional environment is is going to is going to change a whole lot.

Speaker Change: Been relatively aggressive I always think at least in the first half of the year that will continue.

Speaker Change: The other big kind of negative and it's a it's a negative and a positive as are our earnings from financial services will be down and a lot of that is driven by our earnings from P. E and you know at Polaris acceptance, our wholesale finance JV and you know the.

Speaker Change: The reason the earnings are down is that the dealer inventory balances are down and so the amount of dealer interest paid of the JV is down and that's something we wanted to see but that's a that's a 20 plus cent headwind.

Speaker Change: From an EPS perspective in the year also.

Speaker Change: Hey, Megan the the other thing I'd, maybe put a little bit more context is.

Speaker Change: Obviously as we refund the.

Speaker Change: Profit sharing incentive plan.

Speaker Change: I don't want to say that that number doesn't really move upward. It can move up a little bit of performance is better but the performance has to fund obviously, an incremental payment, but it's capped at a certain level right. So almost view it as a cost base that you can leverage off of.

Speaker Change: The other thing is you know obviously, we're not going to be spending a lot on share repurchase in the near term. So as you come out of this and we start to improve earnings you've got the ability to get back to share repurchase in and drive that share count number down.

Speaker Change: And then the last thing is we're gonna be pivoting here in the near term to paying debt down and obviously as we come out of this with improved cash flows and we drive that debt level down.

Speaker Change: That drives the interest costs down so I think when you take all of that and you couple that with what we've done to our fixed cost structure, we took almost 10% of our salaried workforce out.

Speaker Change: Last year it was oriented at the higher level of the company V piece.

Speaker Change: Where the heavily is impacted because we restructured to simplify the business.

Speaker Change: And you combine that with the.

Speaker Change: The lean work that we're doing in our factories I mean, you can really see where we can get a lot of leverage out of this business on a little bit of growth.

When we get to a point that the industry's recovered.

Mike Speeds: Okay. That's really helpful. Thank you and then I'm sorry to ask another tariff question, but Mike you gave a lot of numbers. There in terms of your exposure I think I kind of added up to maybe $1 billion of houses of Cogs that could be at risk between Mexico, and China, correct me, if I'm wrong, but.

Speaker Change: You know you do even 10%.

Speaker Change: Our president's talking talked about 25%. So you do the math there that would be.

Speaker Change: Really large headwind.

Speaker Change: So.

Speaker Change: Again, I understand you don't really want us to horizon, what would happen, but in that kind of scenario. If we're doing the math right. You know what what would be the strategy would you kind of looked at price is there an ability to pull some of the supply from Mexico into into your plans.

Speaker Change: Plants in the U S understanding that would probably be at a higher per unit cost to but just trying to kind of understand what the strategy would be given it does seem like it could be a big number.

Speaker Change: Yeah, you know I think first and foremost I mean, if if that were to happen I think we are as a.

Speaker Change: American citizens would have bigger issues in front of us because I think there'd be a larger economic implication given the trade flows between Mexico, and the U S and even between the.

Speaker Change: The U S and Canada.

So I I think theres going to be a tempered approach as is my guess and I think it's going to be very specific and there's gonna be negotiations I think you saw that play out with the.

Speaker Change: The president of Colombia relative.

Speaker Change: Relative to immigration so.

Speaker Change: That's what I'm hopeful for but.

Speaker Change: You know if we get to a point, where it's a reality as Bob pointed out I mean, we've got the most diversified footprint.

Speaker Change: And I'm, not suggesting that we could flip a switch and move everything today. It would take it would take time.

But we do have a footprint we have a presence that we would be able to leverage if we viewed this as a more permanent.

Speaker Change: Situation that we needed to move content back into the U S. We certainly have footprint, but I think we're a long long way from from being at that point.

Speaker Change: Trump understands how the economics work the automotive the appliance industry.

Speaker Change: Culture power sports, obviously everything has a heavy presence in Mexico.

Speaker Change: I think he will probably use some short term tactics to get a earlier bite at negotiating on U S. M C. A as well as driving some of the other things around immigration and drugs in and those types of things to get them higher up on the agenda, but.

Speaker Change: They are an important trading partner important part of the U S economy, and I, just don't see us doing anything that impairs that long term.

Speaker Change: Okay. Thanks, Mike.

Speaker Change: Yep.

Speaker Change: The next question will come from Steven Macgregor with David Macgregor. Please go ahead.

Steven Macgregor: Yes. Good morning, Thanks for taking my questions I.

Steven Macgregor: I guess I wanted to just drill in a little bit around the discussion on incremental margins.

Steven Macgregor: You highlighted with the progress that's being made so it's not really visible I guess, given the absorption issues, but.

Steven Macgregor: Been quite a bit of progress made on incremental margins can you just open that up a little bit for us.

Steven Macgregor: Give us some context for what we should expect in the recovery phase of the cycle.

Speaker Change: Yes, I mean, it's a.

Speaker Change: Depend obviously, where the volume comes back and the products, but we.

Speaker Change: We have we have taken.

Speaker Change: A substantial amount of indirect and salaried cost out of the plants to Mike's point, we've done the same at the at the corporate level.

Speaker Change: The reductions we had in salaried head count of about 10% last year. So you know I think we will see incremental EBITDA margins you know of in the.

Speaker Change: 30% range, if we start to see volume come back and then to Mike's point. You know you you. In addition to the sort of leverage on the manufacturing the profit share is it's.

Speaker Change: It's not fixed but it is relatively fixed.

Speaker Change: It will it will only go higher incrementally if if earnings are are well above targets.

Speaker Change: And then interest is sort of at a flat base right now and we're going to continue to work that down so you'll see even greater leverage on the EPS side than you will on the on the EBITDA side as things start to recover.

Speaker Change: Got it thanks for that and then just within your guidance can you talk about.

Speaker Change: Health far into the year, you're assuming that the production curtailments extend.

Speaker Change: Obviously, a first quarter issue discussed already but are you contemplating that extending through <unk>.

Speaker Change: How should we think about that.

Speaker Change: Yes, so the the way the the build we're going to ship.

Speaker Change: More shipped more than we billed.

Speaker Change: This year as well as to take down in finished goods.

Speaker Change: <unk>.

Speaker Change: It will be more pronounced in the first half, but it would be it will continue through Q3.

Speaker Change: Because we know we're not trying to.

Speaker Change: Shake the system too much we've got to still maintain level production.

Speaker Change: Production down the lines that were still running we've been working to take off second shifts and and rebalanced lines for for slower flow rates.

Speaker Change: Count for the lower volume so we're not trying to upset the whole system and do it all in the first quarter I.

Speaker Change: I would say it is most pronounced in the first quarter and it will continue into Q3, but at lower levels.

Speaker Change: Okay, Thanks, very much and good luck.

Speaker Change: And some of that too is snow because still we only build certain times of the year and we are taking a big production cut in snow, but just given the lack of snowfall two years in a row.

Speaker Change: Five down dealer inventory. So that's part of what drives the dynamic into the back half of the year.

Speaker Change: Alright, Okay got it thanks.

Speaker Change: Yep.

Speaker Change: The next question will come from James Hardiman with Citi. Please go ahead.

James Hardiman: Hey, good morning.

Speaker Change: Thanks for fitting me in here so.

James Hardiman: Focusing on the.

James Hardiman: Critical RV segment inventories were down 16%.

James Hardiman: Finished the year, which was in line with what you had targeted.

Speaker Change: Any way to help us out with that all the numbers on a from a turns perspective.

Speaker Change: And then as we move forward from here I guess I'm, a little unclear as to whether or not the job is done there.

Speaker Change: Should we expect wholesale to equal retail in 2025.

Speaker Change: And if not how much further should we expect that to come down.

James Hardiman: Yeah, Yeah James.

James Hardiman: From a DSO standpoint think of the number hovering somewhere around 100, you know, obviously well below where we've been historically.

James Hardiman: So really proud of the work the team did an AR for the patients our dealers had to work through that and.

James Hardiman: We led the industry as we look at all the metrics around current versus non current days of supply. So I feel really good about that I think we set the right tone.

James Hardiman: And hopefully others will follow.

James Hardiman: From a inventory standpoint, the two biggest areas. We've got left to work on our really snow, which obviously, we couldn't see until we were in the middle of it in December January.

James Hardiman: And we're going to contend with that through the year and then we got a little bit more work to do from a marine standpoint, I mean, we've been making huge cuts. So that's nothing that the team didn't work hard to do it's just you know as you guys saw on the boat.

James Hardiman: <unk> continued to weaken through the fourth quarter and so there's a little bit more than we have to do there.

James Hardiman: Within or V. In aggregate were pretty good. The issue is is we've got some buckets, where we think the rec side is going to continue to be weak so theres going to be more to do and as you know the way the whole inventory works is as youre dealing with declining markets, you've got to take out kind of on a ratio of 1.25 to 1.5.

James Hardiman: <unk>.

James Hardiman: Inventory to retail because you're trying to to.

James Hardiman: Pull the inventory down on a forward basis and account for a declining retail market. So there's.

James Hardiman: There's a little bit more to do in those markets and we've committed to to the dealers that we're going to watch the rec side and make sure that we're adjusting shipments down that sat on the utility side, we see some pockets of opportunities where they could use a little bit more inventory and so.

James Hardiman: We'll be very surgical in the way, we do that but I would view or V is largely just kind of more tweaks nothing order of magnitude on the scale of what we had to contend with this past year.

James Hardiman: Got it and then.

James Hardiman: Obviously this is going to be a pretty lean year in terms of financial performance I just want to make sure.

James Hardiman: That we're good from a from a debt perspective.

Speaker Change: Thank you have a couple of covenants.

Interest coverage and a leverage ratio covenant.

Speaker Change: Maybe help us with the math there it seems like those could potentially be in jeopardy is there an opportunity to renegotiate some of those credit agreements.

Speaker Change: Or am I, just looking at that the wrong way.

Speaker Change: Yeah.

Speaker Change: Yeah, I mean, so we did renegotiate those credit agreements.

Speaker Change: In.

Speaker Change: The fourth quarter.

Speaker Change: And you know obviously.

Speaker Change: Our forecast it was evolving but we did take that into account and so we we harmonized the EBITDA coverage.

Speaker Change: Between the private notes and the credit facility, which gave us more room in the private notes because they had historically been a lower.

Speaker Change: Our coverage ratio and then we changed from.

Speaker Change: And EBIT interest coverage ratio to an EBITDA interest coverage ratio and so.

Speaker Change: We feel like we will be okay with those going through 2025, we you know from the way we've looked at how the orders unfold.

Speaker Change: But obviously, we maintain a great relationship with our bank group, which is what allowed us to be able to refinance the debt in the fourth quarter and a reset that credit facility going through 2029.

Speaker Change: It's also why we're focused on debt pay downs to try to give ourselves more room.

Speaker Change: And so we're aware of it we don't see that being an issue obviously if it the industry.

Speaker Change: Changed and was dramatically different from what we think will work with our bank group, which we've historically not had any issue being able to work through.

Speaker Change: Challenges during times like Covid and.

Speaker Change: That's the sort of things that have happened over the last year. So I feel good about where we are and the team's done a nice job getting us set up better than we were prior to the renegotiation in Q4, I mean, James we were fortunate we have a fair number of the same bank group lender group and management team that were here during the early parts of Covid, where.

Speaker Change: We did a very similar we got out ahead of what we saw as a potential issue and started renegotiating and so you know I get Bob and the team a lot of credit for proactively working to mitigate the risk and I think if you step back and look at the rest of our industry Theres a number of folks out there struggling pretty mightily right now and not.

Speaker Change: Knock on some wood I think we are I think we've tried to to gear the business appropriately steer through some of the choppy water and you know now hopefully we've got everything set up for a win win that recovery starts in the industry I think we'll be in a really good position to take advantage of that.

Speaker Change: Can you guys share those those updated covenants I mean, obviously tariffs are a pretty big swing factor.

Speaker Change: Or at least point us in the right direction, where those might be well.

Speaker Change: So James I don't want you guys to think that we had tariffs as part of that conversation.

Speaker Change:

Speaker Change: Nothing's happened yet so there's nothing to talk about with the banks are obviously, if we get down that path. We will have to go back and have some of those conversations with them.

Speaker Change: Because you could model tariffs about 95 different permutations at this point and there's just no point in having that discussion with them until we know what we're dealing with.

Speaker Change: Yes, I mean, they are both three and a half times.

Speaker Change: The coverage the both both of the two major covenants, but all the details around how the calculations actually are done are in all of the debt filings that we have already published.

Speaker Change: Got it thanks guys.

Speaker Change: Thanks.

Speaker Change: The next question will come from Tristan Thomas Martin with BMO capital markets. Please go ahead.

Speaker Change: Good afternoon.

Speaker Change:

Speaker Change: Point of clarification quickly and I think he said Power's overall power sports retail for the industry down low single digits. In 2025 is that right and if so what does that imply for off road vehicle I think you said motorcycles marine and snow down.

Speaker Change: Yeah I mean.

Speaker Change: We're not going to sit here and try and progressive Gnostic Kate about every element of the industry, but I think youre going to see more stability in off road given the utility component.

Speaker Change:

Speaker Change: It's it's much larger than the rec components within or V.

Speaker Change: And then obviously motorcycles boats those areas, we think are going to continue to be down from an industry standpoint.

Speaker Change: Okay.

Speaker Change: Our marine specifically I think you called out early season boat shows being positive. So are we just assuming its going to.

Speaker Change: We can a little bit as we progressed through the year and maybe the shows are a little bit of that head fake.

Speaker Change: Could you repeat that it did so a little quiet on our end, we couldn't quite it couldnt quite get muscled.

Speaker Change: Yeah, just trying to square early season boat shows being positive adverse marine retail being down for the year.

Speaker Change: Yeah, I think look.

Speaker Change: When we say positive you know it's more it's a sentiment driven thing. So we've got a lot of new innovation in the market, particularly with Bennington and hurricane the reaction of dealers.

Speaker Change: From the dealer show and then customers at the boat shows that we've seen.

Speaker Change: Have been have been good people like the product we.

Speaker Change: We think interest has been has been good at the boat shows and attendance at boat shows has been a little bouncy.

Speaker Change: Atlanta, obviously, they had snow, which is not conducive to getting good attendance at a boat show.

Speaker Change: And you know this cold snap.

Speaker Change: It probably hasn't helped some of the southern boat shows either Minneapolis seems pretty good haven't gotten final numbers, yet, but so I think you know I.

Speaker Change: I think where we're seeing positive sentiment from consumers in terms of their interest in the boats I think we're just being cautious around.

Speaker Change: Whether that turns into stronger retail.

Speaker Change: We do feel like we've got some opportunity to take share this year in marine because we do have a lot of innovation in the market a lot of really new product.

Speaker Change: And we'll be focused on that and you know I think theme in the industry itself is it's probably going to be.

Speaker Change: <unk> down a little bit I don't I don't know that it'll be a continued double digit down like it wasn't 24, but I think I.

Speaker Change: I don't see a massive recovery coming either in marine in 'twenty five.

Speaker Change: Alright, if I could sneak one more in real quick just on the off road vehicle side is there any thoughts of maybe continuing to go even lower either through a mix shift or kind of pricing on the affordability spectrum just to kind of offset some of the headwinds to the consumer.

Speaker Change: Yeah, I mean, you know I I kind of tip my hat to it a little bit in the script I mean, it's it's been an area. We've been focused on and if you step back and look I mean Indian motorcycles with the Scout 60, that's really more about getting a bite that sub $10000. You look at what Bennington did with D. S. S V lineup.

Speaker Change: Please the refreshed.

Speaker Change: It's really an entry level for the pontoon.

Speaker Change: And we're focused from an off road vehicle standpoint.

Speaker Change: And a couple of different areas and I think you'll see us making moves later in the year.

Speaker Change: It's an area that's it's.

Speaker Change: <unk> important entry point for consumers and when you're in more stressed economic times like this it's important to make sure that we still have an attractive lineup of products to bring customers in because we know that whether they come in through our value Ranger or trail razor or through an a T V.

Speaker Change: They tend to stick with the brand and we can move them up through the category. So I think that gives you a pretty good idea of where we're thinking we need to head.

Speaker Change: Okay awesome. Thank you.

Speaker Change: Yep.

Speaker Change: The next question will come from Robin Farley with UBS. Please go ahead.

Speaker Change: Thanks.

Speaker Change: Goodbye.

Speaker Change: Dealer footprint.

Speaker Change: Seems like even at higher volumes in the EBIT line do you have announced that there was a fair amount of dealer overlap is there any thought to maybe having a smaller dealer footprint.

Speaker Change: Yeah Robin we've starting a few years ago, we've been really actively working what the optimal footprint is.

Speaker Change: The North Star program has gone a long way.

Speaker Change: And we have pulled the footprint down ever so slightly over the past few years and we will continue to work at what the optimal it's it's what I've told the team and I think there's broad alignment, it's less about the number it's about the coverage and when.

Speaker Change: Whether we want to have individual points, which are vital, especially in some of the rural markets or look at contiguous.

Speaker Change: Rooftops, where we have a dealer who has more presence across an MSA.

Speaker Change: To be able to better manage inventory provide really good customer service.

Speaker Change: And the best customer experience when they come into the dealers so.

Speaker Change: I'm really happy with what the team's done.

Speaker Change: I think our dealers are in a good spot.

Speaker Change: One of the one of our best weapons outside of innovation as our sales team.

Speaker Change: Set with our sales team.

Speaker Change: Last week and talked about priorities as we head into this year and reinforced to them that when we go out and talk to our dealers. The first thing out of their mouth as typically we have the best sales team in the industry and so.

Speaker Change: We're really focused on not necessarily the count of dealers, but how we support them, making sure that theyre running optimally.

Speaker Change: Yes, theres been some talk in the industry around our footprint and I just want to.

Speaker Change: Clarify some things I mean, we take a very sophisticated look at the footprint ours is larger.

Speaker Change: Certainly that does create some points of overlap, but we work with an outside firm that advises all the major sort of retail companies to do a very scientific look at population.

Speaker Change: Relative to where our stores are geographic issues like rivers, and bridges and traffic patterns and where people will go and not go so it is not.

Speaker Change: It's not an unsophisticated analysis, and we continue to work to optimize that but.

Speaker Change: Spend some some discussion around the footprint and just because we have more than others, but that's the cause of the overlapping and it's a it's a much more sophisticated view than that.

Speaker Change: Okay, great. Thank you and then sorry Robin you have another question.

Speaker Change: Okay.

Speaker Change: It's just a very small clarification, just because you guys have given lots of color and I really appreciate that.

Speaker Change: In terms of when you mentioned the industry you'd be expecting the industry to be down low single digits, especially because of.

Speaker Change: No.

Speaker Change: Marine and motor cycle.

Speaker Change: I think you said you'd be shipping flat or.

Speaker Change: I know you said Rick.

Speaker Change: Our utility felt like would stabilize.

Speaker Change: It was the bottom line your expectation for retail for either yourself or the industry for hours in.

Speaker Change: In total to be.

Speaker Change: Slightly down or was that closer to flat maybe slightly down based on your comments.

Speaker Change: Yeah, I mean, we we think Oh RV is is going to be slightly down for the industry.

Speaker Change: And.

Speaker Change: Obviously, our effort our goal is going to be to hold share I.

Speaker Change: I do think share will be bouncy you know as we go through the year as we continue to see some of these Oems discounting certain products that are that are aged out in the channel.

Speaker Change: You know that that.

Speaker Change: Hopefully that will correct itself over the next couple of quarters, but we don't have perfect visibility into.

Speaker Change: What theyre sitting on but yeah, I think the industry will be.

Down slightly on the RV side.

Speaker Change: Okay. Thank you that's it for me thanks.

Robyn: Thank you thanks Robyn.

Speaker Change: This concludes our question and answer session as well as our conference call for today. Thank you for your participation you may now disconnect.