Q2 2026 BRP Inc Earnings Call

Speaker #1: Good morning, ladies and gentlemen. Welcome to BRP Inc.'s FY26 second quarter results conference call. For participants who use the telephone line, it is recommended to turn off the sound on your device.

Joelle: Good morning, ladies and gentlemen. Welcome to BRP Inc.'s FY26 second quarter results conference call. For participants who use the telephone line, it is recommended to turn off the sound on your device. I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

Speaker #1: I would now like to end the meeting and turn it over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

Speaker #2: Thank you, Joel. Good morning and welcome to BRP's conference call for the second quarter of fiscal year 2026. Joining me this morning are Jose Boisjoli, President and Chief Executive Officer, and Sbastien Martel, Chief Financial Officer.

Philippe Deschenes: Thank you, Joelle. Good morning and welcome to BRP Inc.'s conference call for the second quarter of fiscal year 2026. Joining me this morning are José Boisjoli, President and Chief Executive Officer, and Sébastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that the actual results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risk and uncertainties, and I invite you to consult BRP Inc.'s MD&A for a complete list of these. Also, during the call, reference will be made to the supporting slides, and you can find the presentation on our website at brp.com under the Investor Relations section. With that, I'll turn the call over to José.

Speaker #2: Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that the actual results could differ from those implied in these statements.

Speaker #2: The forward-looking information is based on certain assumptions and is subject to risks and uncertainties. I invite you to consult BRP's MD&A for a complete list of these.

Speaker #2: Also, during the call, reference will be made to supporting slides. You can find the presentation on our website at brp.com under the Investor Relations section.

Speaker #2: So, with that, I'll turn the call over to Jose.

Speaker #3: Thank you, Philippe. Good morning, everyone, and thank you for joining us. We've delivered better-than-expected results in our second quarter, in an operating environment that remained challenging.

Jose Boisjoli: Thank you, Philippe. Good morning, everyone, and thank you for joining us. We've delivered better-than-expected results in our second quarter in an operating environment that remains challenging. At retail in North America, we have gained further market share with our current Can-Am models, but as expected, we've lost market share in the non-current due to our low inventory. With a 20% year-over-year reduction in network inventory, we have reached proper levels across all our product lines except snowmobile. From this healthier base, we are well-positioned to benefit from our newly introduced products to gain additional market share. During the quarter, we also announced a definitive agreement for the sale of Manitou, which is expected to close in the coming weeks. Now, let's turn to slide four for key financial highlights.

Speaker #3: At retail in North America, we have gained further market share with our current Can-Am models. However, as expected, we've lost market share in the non-current category due to our low inventory.

Speaker #3: With a 20% year-over-year reduction in network inventory, we have reached proper levels across all our product lines, except Snowmobile. From this healthier base, we are well positioned to benefit from our newly introduced product and to gain additional market share.

Speaker #3: During the quarter, we also announced a definitive agreement for the sale of MANI2, which is expected to close in the coming weeks. Now, let's turn to slide four for key financial highlights.

Speaker #3: We ended the quarter with revenue of $1.9 billion, normalized EBITDA of $213 million, normalized EPS of $0.92, and solid free cash flow of almost $100 million.

Jose Boisjoli: We ended the quarter with revenue of $1.9 billion, normalized EBITDA of $213 million, normalized EPS of $0.92, and solid free cash flow of almost $100 million. We are pleased with our results, considering that Q2 is usually a transition quarter as we start introducing products for the new model year. Looking at slide five, our North American parcels for retail decreased 11%. Canada continued to perform better than the U.S. with a 4% growth driven by ORV, as Can-Am side-by-side had a record quarter. This growth was offset by a 15% decline in the U.S. In the international market, Latin America continued to stand out through rapid and sustained growth. Retail was up 22%, led by a solid performance in ORV. In Asia-Pacific, our retail grew 5%, representing a first increase in about two years, fueled by momentum in China.

Speaker #3: We are pleased with our results, considering that Q2 is usually a transition quarter as we start introducing products for new model years. Looking at slide five, our North American power sport retail decreased 11%.

Speaker #3: Canada continued to perform better than the U.S., with a 4% growth driven by ORV, as the Can-Am side-by-side had a record quarter. This growth was offset by a 15% decline in the U.S.

Speaker #3: In international markets, Latin America continued to stand out through rapid and sustained growth. Retail was up 22%, led by a solid performance in ORV.

Speaker #3: In Asia Pacific, our retail grew 5%, representing the first increase in about two years, fueled by momentum in China. Meanwhile, demand remained generally soft in the MEA, with retail down 13% in line with the industry.

Jose Boisjoli: Meanwhile, demand remained generally soft in EMEA, with retail down 13% in line with the industry. Overall, we are encouraged to see that global industry trends have slightly improved from previous quarters. Turning to slide six for a look at our retail performance by product line in North America. Our parcel retail declined 11%. As in the previous quarter, Can-Am ORV market share was affected by a leaner level of non-current units and high promotional activity by other OEMs. In three-wheel vehicles, personal watercraft, and switch pontoons, retail was weak early in the quarter due to a soft trend and unfavorable weather, but conditions improved in July and early August. Turning to slide seven for highlights from Club BRP held in Boston earlier this month. The event was a success, with close to 4,100 participants in person and virtual.

Speaker #3: Overall, we are encouraged to see that global industry trends have slightly improved from previous quarters. Turning to slide six for a look at our retail performance by product line in North America.

Speaker #3: Our power sport retail declined 11%. As in previous quarters, Can-Am ORV market share was affected by a linear level of non-current units and high promotional activity by other OEMs.

Speaker #3: In three-wheel vehicles, personal watercraft, and switch pontoons, retail was weak early in the quarter due to soft trends and unfavorable weather, but conditions improved in July and early August.

Speaker #3: Turning to slide seven for highlights from Club BRP, held in Boston earlier this month. The event was a success, with close to 4,100 participants, both in person and virtual.

Speaker #3: We introduced several new models and upgraded across our lineups, including many industry firsts. Once again, we stayed true to our commitment to pushing technology and innovation to wow consumers.

Jose Boisjoli: We introduced several new models and upgrades across our lineups, including many industry-firsts. Once again, we stayed true to our commitment of pushing technology and innovation to wow consumers. The highlight was the launch of the new generation of the Can-Am Defender. This vehicle received a ground-up overhaul, further solidifying its position as the most capable, versatile, and reliable utility side-by-side on the market. The new Defender remained best-in-class in terms of technology, towing, and cargo capacity, while also offering riders the largest cab in its category. The Defender was already the best product out there, even with its original 10-year-old platform. Now, with this new generation outfitted with the most advanced technology, we are setting an entirely new standard in the industry. We are in an excellent position to continue gaining further market share in that segment that represents over two-thirds of the side-by-side industry.

Speaker #3: The highlight was the launch of the new generation of the Can-Am Defender. This vehicle received a ground-up overhaul, further solidifying its position as the most capable, versatile, and reliable utility side-by-side on the market.

Speaker #3: The new Defender remained best-in-class in terms of technology, towing, and cargo capacity, while also offering riders the largest cab in its category. The Defender was already the best product out there, even with its original 10-year-old platform.

Speaker #3: Now, with this new generation outfitted with the most advanced technology, we are setting an entirely new standard in the industry. We are in an excellent position to continue gaining further market share in that segment, which represents over two-thirds of the side-by-side industry.

Speaker #3: Reaction to the new Defender was extremely positive. Dealers' sentiment for the product was very good, while media who had the chance to test it were impressed and issued very positive reviews.

Jose Boisjoli: Reactions to the new Defender were extremely positive. Dealers' sentiment for the product was very good, while media who had the chance to test it were impressed and issued very positive reviews. I encourage you to read them. Let's turn to slide eight to look at some of the other product news. We expanded our electric vehicle offering by launching the Outlander Electric, featuring industry-leading towing capacity, impressive off-road performance, and a very quiet riding experience. It uses our e-power unit, which also propels our electric motorcycles and snowmobiles. This is another demonstration of how we leverage our modular design approach to optimize development costs across many product lines. In addition, we further surprised our dealers by introducing multiple model upgrades and enhancements. We've launched the Outlander Mach 66, designed to be the hardest-working ATV in the lineup under extreme conditions.

Speaker #3: I encourage you to read them. But that's not all. Let's turn to slide eight to look at some of our other product news. We expanded our electric vehicle offering by launching the Outlander Electric, featuring industry-leading towing capacity and impressive off-road performance in a very quiet riding experience.

Speaker #3: It used our e-POWER unit, which also propelled our electric motorcycle and snowmobiles. This is another demonstration of how we leverage our modular design approach to optimize development and costs across many product lines.

Speaker #3: In addition, we further surprised our dealers by introducing multiple model upgrades and enhancements. We've launched the Outlander Mach 66, designed to be the hardest-working ATV in the lineup, under extreme conditions.

Speaker #3: We added rock-crawling capabilities to the Mavic R lineup with the XRC package and updated our Mavic X3. In three-wheel, we continued the evolution of our lineup with new modern colorations.

Jose Boisjoli: We added rock-crawling capabilities to the Maverick R lineup with the XRC package and updated our Maverick X-Tree. In three wheels, we continue the evolution of our lineup with new modern coloration. As for Sea-Doo, we introduced new connectivity features and improvements to the entire lineup. We also ramped up the switch pontoon experience with a highly anticipated 300-horsepower engine on some models. We have also announced the repricing of some underperforming models, which was very well received by our dealers. As you see, we are the OEM who introduced the most product news for model year 2026. Now, let's turn to slide nine for a more detailed look at year-round products. Revenue was up 13% to $1.1 billion, driven by higher ORV shipments following last year's inventory reduction plan. At retail, side-by-side was down mid-single digit.

Speaker #3: As for Sea-Doo, we introduced new connectivity features and improvements to the entire lineup. We also ramped up the Switch pontoon experience, with a highly anticipated 300-horsepower engine on some models.

Speaker #3: We have also announced the repricing of some underperforming models, which was very well received by our dealers. As you see, we are the OEM that introduced the most product news for model year '26.

Speaker #3: Now, let's turn to slide nine for a more detailed look at year-round products. Revenues were up 13% to $1.1 billion, driven by higher ORV shipments following last year's inventory reduction plan.

Speaker #3: At retail, side-by-side was down mid-single digits. We underperformed due to high levels of discounting on non-current units by other OEMs. We continue to outperform in current units, ending the 25th season with more than three points of market share gain, driven by our Mavic R Max.

Jose Boisjoli: We underperformed due to a high level of discounting on non-current units by other OEMs. We continued to outperform on current units, ending the 2025 season with more than three points of market share gain, driven by our Maverick R Max. In ATV, retail was down low single digits in the quarter, in line with the industry. That said, we gained over three points of market share in current units for the season, fueled by our new Outlander platform. As for three wheels, retail was down mid-20%, as entry-level consumers are struggling to get approved for financing. A few words on our electric motorcycle. The ramp-up of our retail sales is not as expected in the context of a slowdown in global EV adoption. However, it's still early. We are proud to have set the bar high and put our electric motorcycle at the forefront.

Speaker #3: In ATV, retail was down low single digits in the quarter, in line with the industry. That said, we gained over three points of market share in current units for the season, fueled by our new Outlander platform.

Speaker #3: As for three-wheel, retail was down mid-20% as entry-level consumers have struggled to get approved for financing. A few words on our electric motorcycle. Sorry.

Speaker #3: The ramp-up of our retail sales is not as expected in the context of a slowdown in global EV adoption. However, it's still early. We are proud to have set the bar high and put our electric motorcycle at the forefront.

Speaker #3: The excitement around these new EVs has been felt in North America and Europe as a result of our efforts to generate media and consumer awareness.

Jose Boisjoli: The excitement around these new EVs has been felt in North America and Europe as a result of our efforts to generate media and consumer awareness. In addition, to further build the demand and drive traffic in dealerships, we have announced price reductions in response to market feedback. We aim to leverage our past investments to grow this industry, make our motorcycle accessible to more riders, and position ourselves as leaders. Turning to seasonal products on slide ten. Revenue was down 13% to $470 million, mainly due to a planned reduction of personal watercraft shipments. Our inventory is trending in line with pre-COVID levels, which is creating a more favorable environment for the arrival of our model year 2026. Looking at retail, trends remain weak for marine products in North America. Personal watercraft sales were down mid-15%, slightly lagging the industry.

Speaker #3: In addition, to further build demand and drive traffic in dealerships, we have announced price reductions in response to market feedback. We aim to leverage our past investments to grow this industry, make our motorcycles accessible to more riders, and position ourselves as leaders.

Speaker #3: Turning to seasonal products on slide ten, revenues were down 13% to $470,000, mainly due to a planned reduction of personal watercraft shipments. Our inventory is trending in line with pre-COVID levels, which is creating a more favorable environment for the arrival of our model year 26.

Speaker #3: Looking at retail, trends remain weak for marine products in North America. Personal watercraft sales were down mid-15%, slightly lagging the industry. Switch pontoon retail was down mid-20%, as the industry is still going through a correction period.

Jose Boisjoli: Switch pontoon retail was down mid-20%, as the industry is still going through a correction period. Sea-Doo had a better performance in the international market, with sales holding steady in Asia-Pacific and growing low single digits in Latin America. Moving to slide 11 with parts, accessories, and apparel in OEM engines. Revenue was up 7% to $305 million, as dealers replenished their parts and accessories inventories. Finally, we continue to bring new parts and accessories through our linked system for customization, which would further stimulate this business. With that, I turn the call over to Sébastien.

Speaker #3: Sea-Doo had a better performance in international markets, with sales holding steady in Asia Pacific and growing low single digits in Latin America. Moving to slide eleven with Parts, Accessories, and Apparel, and OEM engines.

Speaker #3: Revenues were up 7% to $305,000 as dealers replenished their parts and accessories inventories. Finally, we continue to bring new parts and accessories through our link system for customization, which would further stimulate this business.

Speaker #3: With that, I turn the call over to Sébastien.

Speaker #4: Thank you, Jose, and good morning, everyone. Once again, our team did an exceptional job navigating a dynamic and volatile environment. We remain focused on our plan, continuing to be disciplined in managing shipments to further improve our network inventory position.

Sebastien Martel: Thank you, José, and good morning, everyone. Once again, our team did an exceptional job navigating a dynamic and volatile environment. We remained focused on our plan, continuing to be disciplined in managing shipments to further improve our network inventory position while maintaining a strong emphasis on operational efficiency. As a result, we closed the second quarter with a financial performance, a free cash flow generation, and a network inventory position all ahead of our expectations, positioning us well as we entered the second half of the year. Now, looking at the numbers, revenues were up 4% to $1.9 billion, primarily driven by stronger ORV shipments and offset by lower PWC deliveries. Gross profit came in at $398 million, representing a margin of 21.1%, down year-over-year, mainly due to lower capacity utilization, an unfavorable product mix, and the impact of tariffs.

Speaker #4: While maintaining a strong emphasis on operational efficiency, we closed the second quarter with a financial performance of free cash flow generation and a network inventory position, all ahead of our expectations, positioning us well as we entered the second half of the year.

Speaker #4: Now, looking at the numbers, revenues were up 4% to $1.9 billion, primarily driven by stronger ORV shipments and offset by lower PWC deliveries. Gross profit came in at $398 million, representing a margin of 21.1%, down year-over-year, mainly due to lower capacity utilization, an unfavorable product mix, and the impact of tariffs.

Speaker #4: These headwinds were partly offset by cost inefficiencies in our manufacturing operations, favorable pricing, and lower floor plan costs, resulting from our linear network inventory.

Sebastien Martel: These headwinds were partly offset by cost efficiencies in our manufacturing operations, favorable pricing, and lower floor plan costs resulting from our leaner network inventory. Normalized EBITDA ended at $213 million and our normalized earnings per share at $0.92, which includes roughly $0.35 coming from tax credits recorded in the quarter. Free cash flow from continued operations reached $100 million, and we ended the quarter with over $270 million in cash, maintaining a solid balance sheet and strong financial flexibility. Turning to slide 14 for an update on the network inventory. As mentioned last quarter, our plan was to further right-size our network inventory in Q2, and we delivered on that objective. In fact, our dealers' inventory ended the quarter down 20% year-over-year and 13% sequentially from Q1. All product lines for which we had inventory in the network last year saw double-digit declines compared to the prior year.

Speaker #4: Normalized EBITDA ended at $213,000, and our normalized earnings per share were $0.92, which includes roughly $0.35 coming from tax credits recorded in the quarter.

Speaker #4: Free cash flow from continued operations reached $100 million, and we ended the quarter with over $270 million in cash, maintaining a solid balance sheet and strong financial flexibility.

Speaker #4: Turning to slide 14 for an update on the network inventory. As mentioned last quarter, our plan was to further right-size our network inventory in Q2, and we delivered on that objective.

Speaker #4: In fact, our dealers' inventory ended the quarter down 20% year-over-year and 13% sequentially from Q1. All product lines for which we had inventory in the network last year saw double-digit declines compared to the prior year.

Speaker #4: Also, to put things in perspective, on a comparable product line basis, our dealers' inventory is down 1% versus pre-COVID levels, including a 5% decline in ORV, even as our ORV retail is up about 50% over the same period.

Sebastien Martel: Also, to put things in perspective, on a comparable product line basis, our dealers' inventory is down 1% versus pre-COVID levels, including a 5% decline in ORV, even as our ORV retail is up about 50% over the same period. With these leaner inventory levels, our dealers' credit line usage ended the quarter at just above 60%. This is an excellent position to be in, as it not only reduces floor plan financing costs for both us and our dealers, but it also provides significant capacity for dealers to take on new products, particularly with the introduction of the all-new Can-Am Defender, which addresses the largest segment in the side-by-side industry and is a key driver of dealer profitability. Looking ahead, aside from snowmobiles, where some work remains, the right-sizing of our network inventory is largely complete.

Speaker #4: With these linear inventory levels, our dealers' credit line usage ended the quarter at just above 60%. This is an excellent position to be in, as it not only reduces floor plan financing costs for both us and our dealers, but it also provides significant capacity for dealers to take on new products, particularly with the introduction of the all-new Can-Am Defender, which addresses the largest segment in the side-by-side industry and is a key driver of dealer profitability.

Speaker #4: Looking ahead, aside from snowmobiles, where some work remains, the right-sizing of our network inventory is largely complete. This positions us to better align our wholesale with retail as we move into the second half of the year.

Sebastien Martel: This positions us to better align our wholesale with retail as we move into the second half of the year. More importantly, these leaner inventory levels help protect the value of our brand, strengthen the dealer's financial health, and enhance the competitiveness by enabling the rapid distribution of new products across the network and by ensuring that we are best positioned to capture demand upside when market conditions improve. With this, let's turn to slide 15 for an update on fiscal 2026. We are pleased with our execution so far this year. Quarterly results came in ahead of expectations, network inventory levels have been diligently reduced, and we continue to drive efficiency gains across the organization. Combined with the significant innovations we have introduced to the market, these achievements position us well for a strong second half.

Speaker #4: More importantly, these linear inventory levels help protect the value of our brand, strengthen the dealers' financial health, and enhance competitiveness by enabling the rapid distribution of new products across the network, and by ensuring that we are best positioned to capture demand upside when market conditions improve.

Speaker #4: With this, let's turn to slide 15 for an update on fiscal 2026. We are pleased with our execution so far this year. Quarterly results came in ahead of expectations, network inventory levels have been diligently reduced, and we continue to drive efficiency gains across the organization.

Speaker #4: Combined with the significant innovations we have introduced to the market, these achievements position us well for a strong second half. While the macroeconomic environment remains uncertain and the industry dynamics continue to be volatile, we now have better visibility on expected deliveries for the remainder of the year versus what we had in previous quarters, given that the right-sizing of our network inventory is mostly complete. These linear levels provide us with more flexibility in managing our shipments based on retail trends. We have snowmobile orders on hand following our spring booking, and we will be fueling the initial demand of our newly introduced products with the positive receptions from the dealers.

Sebastien Martel: While the macroeconomic environment remains uncertain and the industry dynamics continue to be volatile, we now have better visibility on expected deliveries for the remainder of the year versus what we had in previous quarters, given that the right-sizing of our network inventory is mostly complete, and these leaner levels provide us with more flexibility in managing our shipments based on retail trends. We have snowmobile orders on hand following our spring booking, and we will be fueling the initial demand of our new introduced products, with the reception from the dealers being very positive. These factors give us the confidence in our volume outlook for Q2, and consequently, we are comfortable issuing guidance at this time. Obviously, this assumes that the tariff situation remains as is for the rest of the year.

Speaker #4: These factors give us confidence in our volume outlook for H2, and consequently, we are comfortable issuing guidance at this time. Obviously, this assumes that the tariff situation remains as is for the rest of the year.

Speaker #4: Note that, based on the information we have today, we have factored in our guidance about $90 million of gross tariff impact. This is up from the previous estimate of $60 to $70 million, reflecting the increase in steel and aluminum tariffs to 50%.

Sebastien Martel: Note that based on the information we have today, we have factored in our guidance about $90 million of gross tariff impact. This is up from the previous estimate of $60 million to $70 million, reflecting the increase in steel and aluminum tariffs of 50%, new tariffs on copper, and the expansion of steel and aluminum tariffs to additional products, including some of our vehicles. All in all, our guidance calls for revenues of $8.15 billion to $8.3 billion, normalized EBITDA of $1.04 billion to $1.09 billion, and normalized EPS of $4.25 to $4.75. More importantly, it calls for solid growth across the board in the second half, as highlighted on slide 16. From a top-line perspective, our guidance implies growth of 8% to 12% in the second half, driven by the elements I previously mentioned.

Speaker #4: New tariffs on copper and the expansion of steel and aluminum tariffs to additional products, including some of our vehicles. All in all, our guidance calls for revenues of $8 billion, $150 million to $88.3 billion, normalized EBITDA of $1 billion, $40 million to $1 billion, $90 million, and normalized EPS of $425.

Speaker #4: More importantly, it calls for solid growth across the board in the second half, as highlighted on slide 16. From a top-line perspective, our guidance implies growth of 8% to 12% in the second half, driven by the elements I previously mentioned.

Speaker #4: Benefiting from the stronger revenues and the ongoing focus on operational efficiency, we expect to be able to more than offset the impact of higher sales program tariff costs and the return on variable compensation to deliver significantly improved profitability.

Sebastien Martel: Benefiting from the stronger revenues and the ongoing focus on operational efficiency, we expect to be able to more than offset the impact of higher sales programs, tariff costs, and the return on variable compensation to deliver significantly improved profitability. In fact, our guidance calls for Q2 normalized EBITDA to be up between 22% and 31% over last year, resulting in a normalized EBITDA margin in excess of 14%, well above Q1 levels. This all results in normalized EPS that is expected to grow between 28% and 51%. From a cadence perspective, given the lower shipments planned for snowmobiles and the lower RV shipments in August, ahead of the new product launches, Q3 normalized EPS is expected to be roughly stable versus last year, with the bulk of the Q2 growth coming in Q4. On that, I will turn the call over to José.

Speaker #4: In fact, our guidance calls for H2 normalized EBITDA to be up between 22% and 31% over last year, resulting in a normalized EBITDA margin in excess of 14%, well above H1 levels.

Speaker #4: And this all results in normalized EPS that is expected to grow between 28% and 51%. From a cadence perspective, given the lower shipments planned for snowmobiles and the lower RV shipments in August, ahead of the new product launches, Q3 normalized EPS is expected to be roughly stable versus last year, with the bulk of the H2 growth coming in Q4.

Speaker #4: On that, I will turn the call over to Jose.

Speaker #3: Thank you, Sébastien. I am proud of our accomplishments so far this year. Despite the macroeconomic environment, we delivered results ahead of expectations through solid execution and operational excellence.

Jose Boisjoli: Thank you, Sébastien. I am proud of our accomplishments so far this year. Despite the macroeconomic environment, we've delivered results ahead of expectation through solid execution and operational excellence. The timing of our model year 2026 launches could not be better. We are the OEM with the most product news, which we are bringing to market as our network inventory is healthy and dealers' sentiment is improving. When I was in Boston for Club BRP, I felt a significant upswing versus last year. Many dealers appreciated that we were the OEM who supported them the most from day one during these challenging times. Since we are starting to see the benefits of our actions, and despite ongoing volatility, we are comfortable issuing guidance. We are confident that the momentum generated by our new product introduction will allow us to deliver a stronger second half of the year.

Speaker #3: The timing of our model year 2026 launches could not be better. We are the OEM with the most product news, which we are bringing to market as our network inventory is healthy and dealers' sentiment is improving.

Speaker #3: When I was in Boston for Club BRP, I felt a significant upswing versus last year. Many dealers appreciated that we were the OEM who supported them the most from day one during these challenging times.

Speaker #3: Since we are starting to see the benefit of our actions, and despite ongoing volatility, we are comfortable issuing guidance. We are confident that the momentum generated by our new product introduction will allow us to deliver a stronger second half of the year.

Speaker #3: With the most complete product offering, strong brands, and a solid dealer network, we are uniquely positioned to come out on top when the industry fully recovers.

Jose Boisjoli: With the most complete product offering, strong brands, and a solid dealer network, we are uniquely positioned to come out on top when the industry fully recovers. As I said many times in the past, our goal is to consistently wow consumers with market-shaping products. Over the long term, we remain committed to pushing technology and innovation to capitalize on market opportunities and sustain profitable growth. On that note, I turn the call over to the operator for questions.

Speaker #3: As I said many times in the past, our goal is to consistently wow consumers with market-shaping products. Over the long term, we remain committed to pushing technology and innovation to capitalize on market opportunities and sustain profitable growth.

Speaker #3: On that note, I turn the call over to the operator for questions.

Speaker #1: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your touch-tone phone.

Joelle: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift your hands up before pressing any keys. One moment, please, for your first question. Your first question comes from Craig Kenison with Baird. Your line is now open.

Speaker #1: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two.

Speaker #1: If you are using a speakerphone, please lift your hands up before pressing any keys. One moment, please, for your first question. Your first question comes from Craig Kennison with Baird.

Speaker #1: Your line is now open.

Speaker #5: Hey, thanks for taking my question and for the updated guidance. I wanted to ask about trade policy. You know, what are the tariff scenarios that you're contemplating?

Craig Kenison: Hey, thanks for taking my question and for the updated guidance. I wanted to ask about trade policy. What are the tariff scenarios that you're contemplating? I know we have USMCA that is subject to renegotiation, and Mexico has suggested plans to raise tariffs on Asian imports. I think you're well-positioned for the current landscape, but what are the scenarios you're thinking about down the road?

Speaker #5: I know we have USMCA that is subject to renegotiation, and Mexico has suggested plans to raise tariffs on Asian imports. So, I think you're well-positioned for the current landscape. But what are the scenarios you're thinking about down the road?

Speaker #3: Yeah, good morning, Craig. Obviously, over the years, and you know that we optimize our manufacturing footprint and our supply chains, and all our products made in Canada and Mexico meet the USMCA.

Jose Boisjoli: Yeah, good morning, Craig. Obviously, over the years, and you know that, we optimize our manufacturing footprint and our supply chain, and all our products made in Canada and Mexico meet the USMCA. Today, about two-thirds of our content comes from North America. I won't give you the details between Canada, U.S., and Mexico for competitive reasons, but two-thirds of our content comes from North America. Obviously, we are in constant dialogue with Canadian and Mexican governments and authorities to try to follow very closely what's going on. I believe that beyond BRP Inc., the USMCA agreement is critical for North American companies to be able to compete worldwide. To be honest, we're not working right now on any scenarios. Like I said many times, we always found ways to adapt to any regulation.

Speaker #3: USMCA. Today, about two-thirds of our content comes from North America. I won't give you the details between Canada, the US, and Mexico for competitive reasons, but two-thirds of our content comes from North America.

Speaker #3: Obviously, we are in constant dialogue with Canadian and Mexican governments and authorities to try to follow very closely what's going on. I believe that, beyond BRP, the USMCA agreement is critical for North American companies to be able to compete worldwide.

Speaker #3: Then, to be honest, we're not working right now on any scenarios. Like I said many times, we always found ways to adapt to any regulation if the norms or the new USMCA rules are clear and we have lead time. I'm very confident we will adapt to any situation.

Jose Boisjoli: If the norm or the new USMCA rules are clear and we have lead time, I'm very confident we will adapt to any situation. We're following that closely, and we're ready to fire up when we know better.

Speaker #3: But we're following that closely, and we're ready to fire up when we know better.

Speaker #5: Thanks. Could you shed any light on your plans to mitigate the tariff exposure you forecast in your guidance?

Craig Kenison: Thank you. Could you shed any light on your plans to mitigate the tariff exposure you forecast in your guidance?

Speaker #3: Again, the $90 million is the growth, and basically, it's sourcing. We move depending on the regulation and where the goods are coming from; sometimes we move the production or the supplier from one country to another.

Jose Boisjoli: Again, the $90 million is the growth, and basically, it's sourcing. We move, depending on the regulation and where the goods are coming. Sometimes we move the production or the supplier from one country to the other. I saw some ideas from our team where a supplier was doing an assembly from a part coming from Asia, and now we're doing it ourselves in our factory. There are many, many things that we do to be able to minimize the impact of those tariffs. To be honest, I'm impressed how fast we react and how good we are, but we're learning every day.

Speaker #3: I saw some ideas from our team where a supplier was doing an assembly from a part coming from Asia, and now we're doing it ourselves in our factory.

Speaker #3: Then there are many, many things that we do to be able to minimize the impact of those tariffs. And to be honest, I'm impressed by how fast we react and how good we are.

Speaker #3: But we're learning everything.

Speaker #5: Thank you.

Craig Kenison: Thank you.

Speaker #1: Your next question comes from James Hardiman with CITI. Your line is now open.

Joelle: Your next question comes from James Hardeman with Citi. Your line is now open.

Speaker #6: Hey, good morning. So, I would love to sort of have a conversation about the current versus non-current setup in the industry right now. Obviously, that was worth calling out, right?

James Hardeman: Hey, good morning. I would love to sort of have a conversation about the current versus non-current setup in the industry right now. Obviously, that was worth calling out, right? That your overall retail, particularly in ORV, was down. If we split it up into current versus non-current, it tells a very different story. I guess as we roll that forward, what does that look like in the third quarter? I think a lot of the answer comes down to when we think your peers will, if they haven't already, work down their non-current and ultimately sort of ease up from a promotional perspective. Curious how you see sort of your retail rolling forward in that context. Thanks.

Speaker #6: That your overall retail, particularly in ORV, was down. However, if we split it up into current versus non-current, it tells a very different story.

Speaker #6: I guess as we roll that forward, what does that look like in the third quarter? I think a lot of the answer comes down to when we think your peers will, if they haven't already, work down their non-current and ultimately sort of ease up from a promotional perspective.

Speaker #6: But I'm curious how you see your retail rolling forward in that context. Thanks.

Speaker #3: Then, obviously, we are in the quarter Q2. Is the quarter where many OEMs transition from model year 25 to 26? Then there is some estimation in our forecast, but basically, we saw in Q2 that most of the OEMs are more cautious versus shipments.

Jose Boisjoli: Obviously, we are in the quarter. Q2 is the quarter where many OEMs transition from model year 2025 to 2026. There is some estimation in our forecast. Basically, we saw in Q2 that most of the OEMs are more cautious versus shipments. We saw inventory. In our case, we are happy where we are except snowmobiles that we intend to deplete in the upcoming season. We saw positive signs, like in the ORV. The ATV inventory was down by 20% in Q2, side-by-side 10%, the industry, not us. Watercraft is a bit on the high side. One OEM has shipped quite a lot of 2025 late into the season. Overall, the non-current versus current inventory ratio has improved over the quarters. This is our situation.

Speaker #3: And we saw inventory in our case, we are happy where we are versus except snowmobiles, that we intend to deplete in the upcoming season.

Speaker #3: But we saw positive signs, like in the ORV, the ATV inventory was down by 20% in Q2, side-by-side 10%. The industry, not us. Watercraft is a bit on the high side.

Speaker #3: One OEM I've shipped quite a lot of 25 late into the season, but overall, the non-current versus current inventory ratio has improved over the quarters.

Speaker #3: Then this is our situation. Why we are encouraged for H2, and we are comfortable to issue the guidance, is we have good visibility on what we will be shipping.

Jose Boisjoli: Why we are encouraged for Q2 and we are comfortable to issue the guidance is we have a good visibility on what we will be shipping. Also, we see that we are in a position where our inventory is low. We have very good product news. The reception of the dealers was very upbeat at Club BRP in Boston. You know, we were the first one, like I said in my script, to take the bullet and support them in the last 18 months. Now it's time that we take advantage of this. This is why we are in a unique situation, and we're comfortable, and we believe we can grow market share in Q2, and we're comfortable with our guidance.

Speaker #3: And also, we see that we are in a position where our inventory is low. We have very good product news, and the reception of the dealers was very upbeat at Club.

Speaker #3: And you know, we were the first ones, like I said in my script, to take the bullet and support them in the last 18 months.

Speaker #3: And now it's time that we take advantage of this. This is why we are in a unique situation, and we're comfortable. We believe we can grow market share in H2.

Speaker #3: And we're comfortable with our guidance.

Speaker #6: Got it. And just to clarify, it sounds like you're saying you think retail is going to be up in the second half. Maybe just confirm or deny that.

James Hardeman: Got it. Just to clarify, it sounds like you're saying you think retail is going to be up in the second half. Maybe just confirm or deny that. Then just early thoughts on 2026. Obviously, as I think about puts and takes, there was some inventory drawdown this year. Assuming we're back to sort of one-to-one wholesale to retail, what does that get you? The tariff piece, right? I think you've said in the past that we shouldn't think about next year being double this year. With the new $90 million number, any sort of initial thought on what that might look like for 2026? Thanks.

Speaker #6: And then just early thoughts on 2026. Obviously, as I think about puts and takes, there was some inventory drawdown this year. Assuming we're back to sort of one-to-one wholesale retail, what does that get you?

Speaker #6: And then the tariff piece, right? I think you've said in the past that we shouldn't think about next year being double this year, but with the new $90 million number, any sort of initial thought on what that might look like for '26?

Speaker #6: Thanks.

Speaker #3: I will give you a color on our forecast for the industry in H2, and Sébastien will talk about fiscal year 26 then. Obviously, there is a lot of volatility in the macroeconomics, but basically, we're planning for the industry H2 to be similar to Q2.

Jose Boisjoli: I will give you a color on our forecast for the industry in Q2, and Sébastien will talk about fiscal year 2026. Obviously, there is a lot of volatility in the macroeconomics, but basically, we're planning for the industry Q2 similar to Q2. Just to give you a sense by key countries, the U.S. was down mid-single digits in Q2. We believe tariff uncertainty and inflation still affect consumer confidence. Canada has done well with up low single digits. I'm talking the industry. LatAm is doing very strong with over 20% growth in Q2, driven by the ORV momentum in Brazil and Mexico, and we believe this will continue. EMEA was down in Q2 by mid-teens, but it's improved versus the previous quarter. This is basically our planning for the industry, and again, our position, we believe we are in a good position versus the others.

Speaker #3: And just to give you a sense, by key countries, the U.S. was down mid-single digits in Q2. Obviously, we believe tariff uncertainty and inflation still affect consumer confidence.

Speaker #3: Canada, I've done well with low to low single digits. I'm talking about the industry. That time is doing very strong with over 20% growth in Q2, driven by the ORV momentum in Brazil and Mexico, and we believe this will continue.

Speaker #3: EME was down in Q2 by mid-teens, but it has improved versus the previous quarter. This is basically our planning for the industry, and again, our position. We believe we are in a good position relative to the others.

Speaker #6: On tariffs, as I mentioned in the prepared remarks, this year's gross headwind of $90 million includes some one-time elements that we've incurred this year that will not come back next year, probably in the range of about $10 million.

Sebastien Martel: On tariffs, as I mentioned in the prepared remarks, this year is a gross headwind of $90 million. There are some one-time elements that we've incurred this year that will not come back next year, probably in the range of about $10 million. If we do nothing, and obviously, that's not how we operate, the teams are always there to optimize and minimize the impact. You could see, again, with the same tariff base that we have, maybe a headwind of $120 million, $130 million, but obviously, we're going to keep working on optimizing and working with our suppliers to reduce as much as possible the tariff risk. That would be the, let's say, the run rate on a steady basis.

Speaker #6: If we do nothing—and obviously that's not how we operate—the teams are always there to optimize and minimize the impact. You could see, again, with the same tariff base that we have, maybe a headwind of $120 million to $130 million, but obviously, we're going to keep working on optimizing and working with our suppliers to reduce as much as possible the tariff drift.

Speaker #6: But that would be the, let's say, the run rate on a steady basis. Got it. Helpful. Thanks, guys.

James Hardeman: Got it. It's helpful. Thanks, guys.

Jose Boisjoli: Thank you.

Speaker #1: Your next question comes from Brian Morrison with GB Cowan. Your line is now open.

Joelle: Your next question comes from Brian Morrison with TD Cowen. Your line is now open.

Speaker #7: Good morning. Question for Seb or Jose. You have called the $1.3 billion revenue headwind or so a big number from the desktop over the past year.

Brian Morrison: Good morning. Question for Sébastien or José. You have called the $1.3 billion revenue headwind, or so, a big number from the destock over the past year, with the industry inventory being closer to right-size now. How do we think about the revenue profile outlook of this alignment of wholesale and retail? Should it be a straight-line recovery over the next 12 months? How do you think about that?

Speaker #7: With the industry inventory being closer to right-size now, how do we think about the revenue profile outlook of this alignment of wholesale and retail?

Speaker #7: Should it be a straight-line recovery over the next 12 months? How do you think about that?

Speaker #6: Well, obviously, it’s good morning, Brian. It’s probably a bit early to call what next year is going to be like, as we just issued guidance for the next six months of the year.

Sebastien Martel: Good morning, Brian. Probably a bit early to call what next year is going to be like. We just issued guidance for the next six months of the year. If you look at the pluses and minuses for next year versus this year, I think the big one is going to be the retail equals wholesale. When you look at the number this year and the de-stocking we did, it's between a $400 to $500 million revenue impact that we've had, and it's well above a buck of EPS impact, obviously. Once, hopefully, we're going to be there at the end of the year. We're there already where our inventory is right-sized. We need a bit more work to do on snowmobiles, and that headwind should be gone next year. Obviously, there are some volume opportunities as well for next year.

Speaker #6: But if you look at the pluses and minuses for next year versus this year, I think the big one is going to be the retail equal wholesale.

Speaker #6: And when you look at the numbers this year and the destocking we did, it's between, I think, $400 million to $500 million revenue impact that we've had, and it's well above a buck of EPS impact, obviously.

Speaker #6: And so once and hopefully, we're going to be there at the end of the year. We're there already where inventory is right-sized. We need a bit more work to do on snowmobiles.

Speaker #6: And so that headwind should be gone next year. Obviously, there are some volume opportunities as well for next year. We've been losing market share in ORV now for the past year or so.

Sebastien Martel: We've been losing market share in ORV now for the past year or so, mainly due to the non-current dynamic in the industry. Now the inventories are cleaner. There's a bit more work to be done for a few OEMs, but my call is that they should be done by the end of the year. We're back from Club. José mentioned that in his remarks as well. A lot of excitement. You were there as well, Brian, last week, and you saw the dealer engagement. You saw the great products we have, and that obviously helps next year. From the market share perspective, I trust that Sandy and his team will be working on turning the tide, and we should see market share improve next year. That obviously will be a plus. That's from a more top-line perspective. When you look at the profitability, obviously, we continue to drive efficiencies.

Speaker #6: Mainly due to the non-current dynamics in the industry. Now the inventories are cleaner; there's a bit more work to be done for fewer OEMs, but my call is that they should be done by the end of the year.

Speaker #6: We're back from the Club. Jose mentioned that in his remarks as well. There's a lot of excitement; you were there as well, Brian, last week, and you saw the dealer engagement. You saw the great products we have, and that obviously helps for next year.

Speaker #6: From a market share perspective, I trust that Sandy and his team will be working on turning the tide, and we should see market share improve next year. That, obviously, will be a plus.

Speaker #6: So that's from a more top-line perspective. And then when you look at the profitability, obviously, we continue to drive efficiencies, that's for sure. The teams are always working on optimizing the bill of materials and the operations in our plant.

Sebastien Martel: That's for sure. The teams are always working on optimizing the bill of materials, the operations in our plant. We might decide to invest in other certain sectors. Even though there's a slowdown, you saw that we continued investing in innovation. We're going to continue doing that next year. Maybe that's a wash. In terms of other minuses, I talked about the tariffs that are going to be higher next year. That's if we don't do anything. Depreciation could be, let's say, $30 million higher next year. Financing costs as well. The tax rate probably closer to where we were historically at the 25% to 26% range. Here are some of the plus high levels, the pluses and minuses, but obviously, too early to call. We'll enjoy the guidance that we just issued today. It's still hot, it's still warm.

Speaker #6: We might decide to invest in other sectors. Even though there's a slowdown, you saw that we continued investing in innovation, and we're going to continue doing that next year.

Speaker #6: So maybe that's a wash. And then in terms of other minuses, I talked about the tariffs, so they're going to be higher next year.

Speaker #6: That's if we don't do anything. Depreciation could be, let's say, $30 million higher next year. Financing costs as well. And the tax rate will probably be closer to where we were historically, at the 25% to 26% range.

Speaker #6: So again, here are some of the high-level pluses and minuses, but obviously, it’s too early to call. We'll enjoy the guidance that we just issued today.

Speaker #6: It's still hot, it's still warm. And we look forward to providing you with details on '27 and in the next few quarters.

Sebastien Martel: We look forward to providing you with details on 2027 and in the next few quarters.

Speaker #7: I appreciate those details. I think the message, though, is that of that alignment, $400 to $500 million of that is incurred in the second half of this year.

Brian Morrison: I appreciate those details. I think the message, though, is that of that alignment, $400 to $500 million of that is incurred in the second half of this year. In a flat environment, we should see the remainder of that next year. Is that correct? My second question is really just on your margin of what you said. Can you maybe just frame the impact from promo activity this year? Because obviously, it's material. With the non-current inventory in the industry starting to ease, maybe just frame how we should think about the margin impact that should have going forward.

Speaker #7: And then in a flat environment, we should see the remainder of that next year. Is that correct? And then my second question is really just on your margin voice; you said, can you maybe just frame the impact from promo activity this year?

Speaker #7: Because, obviously, it's material. And with the non-current inventory in the industry starting to ease, maybe just frame how we should think about the margin impact that should have going forward.

Speaker #6: Yeah, last year was a big year in terms of promotion. So this year, we're getting a benefit probably in the range of 75 to 100 basis points versus pre-COVID, where it was even 50 basis points better.

Sebastien Martel: Last year was a big year in terms of promotion. This year, we're getting a benefit probably in the range of, let's say, 75 to 100 basis points versus pre-COVID, we're even 50 basis points better. Could we further optimize next year? For sure. The commercial environment was tougher this year, so more promotions. We had to compete against other OEMs that had non-current. Could there be another 50 basis point tailwind next year? Most certainly, that's something that is plausible. Obviously, there are a lot of variables that need to fall into place, but it is one possible scenario.

Speaker #6: Could we further optimize next year? For sure. As we did a big well, the commercial environment was tougher this year, so more promotions.

Speaker #6: We had to compete against other OEMs that had non-current. So could there be another 50 basis point tailwind next year? Most certainly, that's something that is plausible.

Speaker #6: Obviously, there are a lot of variables that need to fall into place. But it is one possible scenario.

Speaker #7: Thanks very much for the color.

Brian Morrison: Thanks very much for the color.

Speaker #1: Your next question comes from Robin Fairly with UBS. Your line is now open.

Joelle: Your next question comes from Robin Fairley with UBS. Your line is now open.

Speaker #8: Great, thanks. Just two things. One is a follow-up to your comments about expectations for second-half retail. You said it’s kind of similar to what we saw in Q2, but you mentioned the U.S. down mid-single, Canada up low single.

Robin Farley: Great, thanks. Just two things. One is a follow-up to your comments about expectations for the second half of retail. You said kind of similar to what we saw in Q2, but you mentioned U.S. down mid-single, Canada up low single. If we were talking about just your ORV expectations, because I understand there's some seasonal things for your product lines that may be different, but if we were looking at just North American ORV retail in the second half, would you say that you're expecting North America to be up low single digit as you saw in Q2? In other words, some of the numbers you were giving, I assume, were impacted by those other product lines. Is it fair to say that your comment about expecting second half trends similar to Q2 would be also the case just for ORV specifically? Thanks.

Speaker #8: If we were talking about just your ORV expectations, because I understand there are some seasonal factors that for your product lines may be different, but if we were looking at just North American ORV retail in the second half, would you say that you’re expecting North America to be up low single digits, as you saw in Q2?

Speaker #8: In other words, some of the numbers you were giving, I assume, were impacted by those other product lines. But is it fair to say that your comment about expecting second-half trends similar to Q2 would also be the case just for ORV specifically?

Speaker #8: Thanks.

Speaker #6: Well, when I look at Q2, every month sequentially, ORV retail improved. From May to June to July, we are seeing improvements sequentially happening in August as well.

Sebastien Martel: When I look at Q2, every month sequentially, ORV retail improved, from May to June to July. Sequentially, we're seeing improvements as well happening in August. As José Boisjoli mentioned, the industry is cleaner in terms of current non-current. Yes, some OEMs have higher non-current than where they were historically. I think we'll be competing in a better environment. Obviously, yes, we're transitioning to a new model year. I'm hoping to see better numbers than what we saw in Q2. Early in August, the trend is in the right direction. Obviously, we're working to make sure that continues.

Speaker #6: As Jose mentioned, the industry is cleaner in terms of current and non-current. Yes, some OEMs have higher non-current than where they were historically, but I think we'll be competing in a better environment.

Speaker #6: Obviously, yes, we're transitioning to a new model year. So, I'm hoping to see better numbers than what we saw in Q2. Early in August, the trend is in the right direction, and so, obviously, we're working to make sure that that continues.

Speaker #8: Okay, great. Thank you. And then my other question is, when we look at your inventory compared to pre-COVID levels, being up only 2%, down 1%, including new product lines or excluding new product lines? And I guess specifically for ORV being down 5%, with your retail volume so much higher than pre-COVID levels, how is that down 5% the right number?

Robin Farley: Okay, great. Thank you. My other question is, when we look at your inventory compared to pre-COVID levels, being up only 2%, down 1%, including new product lines or excluding new product lines, I guess specifically for ORV down 5%, with your retail volume so much higher than pre-COVID levels, how is that down 5% the right number? Especially because I'm assuming that's an aggregate and your dealer base has probably grown. That would suggest that like on a per dealer level, your ORV inventory is even further below. Just wondering why that is the right number for you. Thanks.

Speaker #8: And especially because I'm assuming that's an aggregate, and your dealer base has probably grown, so that would suggest that on a per-dealer level, your ORV inventory is even further below.

Speaker #8: Just wondering why that is the right number for you. Thanks.

Speaker #6: Well, one, the dealer count is fairly stable versus where we were pre-COVID. And so it's on a, let's say, same-store basis. And where we, too, are a bit too high during pre-COVID, some could say yes.

Sebastien Martel: The dealer count is fairly stable versus where we were pre-COVID. It's on a, let's say, same-store basis. Were we a bit too high during pre-COVID? Some could say yes. Obviously, it's a question of dollars as well. The dollar value of units is significantly higher, so dealers are more cautious in taking inventory when the dollar value is almost up 50%, i.e., MSRP increase, but also a combination of better mix. There is a benefit in where demand for cab units is still very strong and supply is slightly lower than where we were in historical levels for our other product lines. That's one of the reasons that's driving lower ORV inventory for us, but also other OEMs. There is always going to be variation in our inventory levels. It's never going to be fixed 90 days every month, every quarter. It'll move.

Speaker #6: Obviously, it's a question of dollars as well. The dollar value of units is significantly higher, and so dealers are more cautious in taking inventory when the dollar value is almost up 50%, i.e., MSRP increase, but also a combination of a better mix.

Speaker #6: And also, there is a benefit in where demand for cab units is still very strong, and supply is slightly lower than where we were at historical levels for other product lines.

Speaker #6: So that's one of the reasons driving lower ORV inventory for us, but also other OEMs. And there's always going to be variation in our inventory levels.

Speaker #6: It's never going to be fixed 90-day, every month, every quarter. It'll move. But generally, we're happy with where the inventory stands. It provides us with flexibility and proactivity if there were to be an economic slowdown.

Sebastien Martel: Generally, we're happy with where the inventory stands. It provides us with flexibility, proactivity if there were to be an economic slowdown. I think given where the uncertainty in the state of the economy, I think it's at the right level. We'll adjust our inventories accordingly as the business continues to evolve.

Speaker #6: And I think, given the uncertainty in the state of the economy, it's at the right level, and we'll adjust our inventories accordingly as the business continues to evolve.

Speaker #8: Okay, great. Thank you very much.

Robin Farley: Okay, great. Thank you very much.

Speaker #1: Your next question comes from Sabaha Khan with RBC Capital Markets. Your line is now open.

Joelle: Your next question comes from Sabaha Khan with RBC Capital Markets. Your line is now open.

Speaker #9: Great, thanks. And good morning. Just in light of some of the comments around the inventory position and sort of the outlook, can you get a little bit deeper into the retail evolution you expect into the back half of this year and into next year?

Sabahat Khan: Great, thanks, and good morning. In light of some of the comments around the inventory position and the outlook, can you get a little bit deeper into the retail evolution you expect into the back half of this year and into next year? Is it just sequential improvement in the retail uptake on the consumer side? How are you factoring into your outlook some of the macro factors that you talked about and how they might impact the consumer uptake? If there's any color across categories on the retail uptake outlook, thanks.

Speaker #9: Is it sort of just sequential improvement in the retail uptake on the consumer side? And sort of how are you factoring into your outlook some of the macro factors that you talked about and how they might impact the consumer uptake?

Speaker #9: And if there's any color across categories on the retail uptake outlook, thanks.

Speaker #6: Yeah, again, we don't have, let's say, a black box that gives us the full industry and retail trends. But obviously, we need to appreciate that there are many variables, such as tariffs, interest rates, and consumer sentiment.

Sebastien Martel: Yeah, again, we don't have, let's say, a black box that gives us the full industry and retail trends. Obviously, we need to appreciate that there are many variables such as tariffs, interest rates, consumer sentiment. It's difficult to forecast industry at the moment. All in all, despite all the noise that we've seen in the industry and the market, the industries have held up so far decently, this year being down low single-digit % overall. Yes, some of that was helped by the non-current and promotions. That's fair. We're transitioning now to a model year. Now there's going to be non-current. The model year 2025 will be non-current. The other big question is how interest rates will behave, how interest rates will move.

Speaker #6: So it's difficult to forecast the industry at the moment. But all in all, despite all the noise that we've seen in the industry and the market, the industry has held up decently this year, being down low single-digit percentage overall.

Speaker #6: Yes, some of that was helped by the non-current promotions, that's fair. And we're transitioning now to a model year, so now there are going to be non-current; the model year 25s will be non-current.

Speaker #6: And the other big question is how interest rates will behave and how interest rates will move. So our base case there for the rest of the year is a continuation of the trend we are seeing.

Sebastien Martel: Our base case there for the rest of the year is a continuation of the trend we are seeing because we're transitioning to a new model year. Despite this, even though there's volatility, we're confident in the guidance we have today because, again, even if there's slight movement in industry and retail, our inventories are low. Dealers want our new units, the new innovation. We have orders for snowmobiles. We're confident in the guidance we've issued today based on all of these factors.

Speaker #6: Because we're transitioning to a new model year. But despite this, even though there's volatility, we're confident in the guidance we have today because, again, even if there's slight movement in industry and retail, our inventories are low; dealers want our new units.

Speaker #6: The new innovation — we have orders for snowmobiles, and we’re confident in the guidance we’ve issued today based on all of these factors as well.

Speaker #9: Great. And then, you know, as we look at sort of the balance sheet and the call it two and a half times range, is it a bit of a wait and see on the balance sheet and capital allocation as you look ahead?

Sabahat Khan: Okay, great. As we look at sort of the balance sheet in the, call it, 2.5 times range, is it a bit of a wait-and-see on the balance sheet and capital allocation as you look ahead? Presumably, production probably picks up. There might be some need for investment there as units start to improve. Maybe just walk us through your views on sort of capital allocation, balance sheet, and maybe reinvestment into the business as we potentially move toward an upcycle here. Thanks.

Speaker #9: And presumably, you know, production probably picks up. There might be some need for investment there as units start to improve. Or could you just walk us through your views on capital allocation, balance sheet, and maybe reinvestment into the business as we potentially move toward an upcycle here?

Speaker #9: Thanks.

Speaker #6: Yeah, well, our priority in terms of capital allocation has always been investing in the business, growing the dividend, and also doing buybacks. However, given the context and the uncertainty around tariffs and the economy, we've been on the sidelines with buybacks.

Sebastien Martel: Our priority in terms of capital allocation has always been investing in the business, growing the dividend, and also doing buybacks. Given the context, the uncertainty around tariffs, the economy, we've been on the sideline on buybacks. We'll probably continue being on the sideline as well until we see that clarity and when we see the cash flow come in. The priority has always been protecting the financial flexibility of the company. We're fortunate we are in a good position. We've got debts with no covenants, so we don't need to worry about meeting our financial covenants. We've got ample flexibility on the revolver as well. Currently, being prudent has been the name of the game, and we're going to continue managing our balance sheet that way.

Speaker #6: And we'll probably continue being on the sidelines as well until we see that clarity and when we see the cash flow come in. The priority has always been protecting the financial flexibility of the company, and we're fortunate we are in a good position.

Speaker #6: We've got debts with no covenants, so we don't need to worry about meeting our financial covenants. We've got ample flexibility on the revolver as well.

Speaker #6: But currently, being prudent has been the name of the game, and we'll continue managing our balance sheet that way.

Speaker #9: Great. Thanks very much.

Sabahat Khan: Great. Thanks very much.

Speaker #1: Your next question comes from Joel Altabello with Raymond James. Your line is now open.

Joelle: Your next question comes from Joe Altabello with Raymond James. Your line is now open.

Speaker #7: Thanks. Hey guys, good morning. So, I just wanted to go back to the guidance for a second, and I think Seb, you mentioned this earlier.

Brian Morrison: Thanks. Good morning. I just wanted to go back to the guidance for a second. I think, Sébastien, you mentioned this earlier. If I look at first half versus second half, it's quite striking. The revenue midpoint, I guess, is up 10% or around $400 million. I'm just trying to understand how much of that is simply lapping last year's under-shipping demand and how much is innovation like Defender, for example. I'm just trying to assess the risk of that outlook.

Speaker #7: If I look at the first half versus the second half, it's quite striking. You know, the revenue midpoint, I guess, is up 10%. We're around $400 million.

Speaker #7: So, I'm just trying to understand how much of that is simply lapping last year's undershipping demand and how much is innovation, like Defender, for example.

Speaker #7: I'm just trying to assess the risk of that outlook.

Speaker #6: Well, for sure, I mean, last year, it was an easy H2 was an easy second half to lap. And most of the focus last year was on reducing seasonal product inventory in the network and so our shipments were actually down.

Sebastien Martel: Last year was an easy Q2, was an easy second half to lap. Most of the focus last year was on reducing seasonal product inventory in the network, and our shipments were actually down for the seasonal product business. This year, when you look at our Q2 guidance or outlook, seasonal revenue is relatively flat versus last year as there's still work to be done on snowmobiles, but we're planning to increase year-round products. Last year was decent, but this year Q2 is going to be more in line with what we did in 2023 and 2024. In terms of delivery, obviously, we have the new products that's driving some of the volume, but we believe that's going to be also going to be driving retail.

Speaker #6: For the seasonal product business, this year, when you look at our H2 guidance or outlook, seasonal revenue is relatively flat versus last year, as there's still work to be done on snowmobiles.

Speaker #6: But we're planning to increase year-round products. Last year was decent, but this year, H2 is going to be more in line with what we did in '23 and '24.

Speaker #6: In terms of delivery, obviously, we have the new products. That's driving some of the volume, but we believe that's also going to be driving retail.

Speaker #6: And also, mix is going to be beneficial in the second half of this year, where mix was more challenged last year as we undershipped seasonal business with a very rich mix.

Sebastien Martel: Also, mix is also going to be beneficial in the second half of this year where mix was more challenged last year as we under-shipped seasonal business with a very rich mix. We also have, obviously, cost efficiencies that we're factoring in the second half and also lower sales programs. All in all, I would say that, yes, it was an easy comp last year. Last year was well below what we believe the earnings power of the company is, and this year is a more indication of what the true earnings power of BRP Inc. is when the inventory is when we're shipping more wholesale equals retail.

Speaker #6: And we also have, obviously, cost efficiencies that we're factoring in the second half and also lower sales program. So all in all, I would say that, yes, it was an easy comp last year.

Speaker #6: And last year was well below what we believe the earnings power of the company is, and this year is a more accurate indication of what the true earnings power of BRP is.

Speaker #6: When the inventory is equal, we're shipping more wholesale than retail.

Speaker #7: Okay, got it. And on the tariff front, you mentioned the $90 million this morning. I think somebody else asked this, but I'm not sure if you answered it.

Brian Morrison: Okay, got it. On the tariffs front, you mentioned the $90 million this morning. I think somebody else asked this, but I'm not sure if you answered it. What's the net number post-mitigation? I'm just trying to tie back to your original EPS outlook for this year, which I think was $4.50 to $5. I'm just curious if that's now actually higher if we exclude the tariffs.

Speaker #7: What's the net number post-mitigation? Now, I'm just trying to tie back to your original EPS outlook for this year, which I think was $4.50 to $5. I'm just curious if that's now actually higher if we exclude the tariffs.

Speaker #6: Yeah, net of the mitigation efforts we've put in, we're probably ending at a, let's say, 25 to 30 cent negative impact on the P&L.

Sebastien Martel: Net of the mitigation efforts we've put in, we're probably ending at a, let's say, $0.25 to $0.30 negative impact on the P&L. Most of the mitigation efforts have been that we've taken higher pricing. Usually, we do a 1% or 1.5%, but we've taken pricing higher, mainly on the parts and accessories business. That's how we've mitigated the impact.

Speaker #6: Most of the mitigation efforts have been that we've taken higher pricing. Usually, we do a 1% to 1.5% increase, but we've taken pricing higher, mainly on the parts and accessories business.

Speaker #6: But that's how we've mitigated the impact.

Speaker #7: Okay, great. Thank you.

Brian Morrison: Okay, great. Thank you.

Speaker #1: Your next question comes from Martin Landry with SkiFull. Your line is now open.

Joelle: Your next question comes from Martin Landry with Stifel. Your line is now open.

Speaker #10: Hi, good morning, guys. Sébastien, you know, speaking about earnings power, I would like to, you know, just have a little bit of a discussion. A couple of years ago, you know, the company was guiding for an EPS of all the way up to $14.

Craig Kenison: Hi, good morning, guys. Sébastien, speaking about earnings power, I would like to just have a little bit of a discussion. A couple of years ago, the company was guiding for an EPS of all the way up to $14. Now you're guiding for an EPS of $4.70, yeah, around $4.50. How long and what kind of earnings power could we expect from the company in the coming years? I understand that going back to $14 is probably unrealistic in the near term. I'd love to hear you talk a little bit about what kind of earnings power can the company have in the next two, three, four years.

Speaker #10: And now you're guiding for an EPS of $4, yeah, around $4.50. So, you know, how long and what kind of earnings power could we expect from the company in the coming years?

Speaker #10: I understand that going back to $14 is probably unrealistic in the near term. But I'd love to hear you talk a little bit about, you know, what kind of earnings power the company can have in the next two, three, four years.

Speaker #6: Well, I mean, I like where BRP is sitting today. I've been with the company for 20 years. I've seen how the company has grown and evolved.

Sebastien Martel: I like where BRP Inc. is sitting today. I've been with the company for 20 years. I've seen how the company has grown and evolved. Obviously, we are today a must in the power sport industry from the breadth of our product portfolio, from the quality of the products we offer, from the dealer network we've built over the years, not only in North America, but around the world. Do I believe that BRP Inc. can continue growing in this industry? Absolutely. We've talked about ORV market share, being able to grow it. Obviously, not only the side-by-side, but ATV. It all obviously depends on the industry. BRP Inc. has the resources, the capacity to continue growing. We need to drive industry as well. The industry is based on the macro environment, interest rates, consumer confidence, unemployment rates, etc. There are many variables.

Speaker #6: And obviously, we are today a must in the power sport industry from the breadth of our product portfolio, from the quality of the products we offer, and from the dealer network we've built.

Speaker #6: Over the years, not only in North America but around the world, I believe that BRP can continue growing in the industry.

Speaker #6: Absolutely. We've talked about ORV market share being able to grow, and obviously not only the side-by-side but also ATV. It all obviously depends on the industry.

Speaker #6: So BRP has the resources and the capacity to continue growing. We need to drive industry as well, but industry is based on the macro environment, interest rates, consumer confidence, unemployment rates, et cetera.

Speaker #6: So there are many variables. It is very dependent on how the industry behaves massively. So, do I believe that if the industry grows and the economy is robust, we can get to the numbers that we talked about in the past?

Sebastien Martel: It's very dependent on how the industry behaves, must say. Do I believe that if the industry grows and the economy is robust, that we can get to the numbers that we talked about in the past? Absolutely. BRP Inc. has become an innovation machine and a profitability machine as well for the dealers. These are the key factors that are going to drive growth in the future.

Speaker #6: Absolutely. Because BRP has become an innovation machine and a profitability machine as well for the dealers. These are the key factors that are going to drive growth in the future.

Speaker #10: Okay. And you know, is it fair to say that there's a realistic scenario where your EPS could double from the current level in the next two to three years?

Craig Kenison: Okay. You know, is it fair to say that there's a realistic scenario where your EPS could double from current level in the next two to three years?

Speaker #6: Again, it's very clear: do we have the backbone to do it? Yes. Do we have the manufacturing capacity to do it? Yes. Do we have the product lines to do it?

Sebastien Martel: Do we have the backbone to do it? Yes. Do we have the manufacturing capacity to do it? Yes. Do we have the product lines to do it? Yes. The network? Yes. It'll be very dependent on industry dynamics.

Speaker #6: Yes, the network? Yes. It'll be very dependent on industry dynamics.

Speaker #10: Okay. Okay, thank you.

Craig Kenison: Okay. Thank you.

Speaker #1: Your next question comes from Mark Petrie with CIBC. Your line is now open.

Joelle: Your next question comes from Mark Petrie with CIBC. Your line is now open.

Speaker #6: Good Good morning, Mark.

Sebastien Martel: Good morning, Mark.

Speaker #1: Mark Mark Petrie?

Joelle: Mark Petrie?

Speaker #10: Oh, sorry about that. Thanks for the question. And good morning. I just want to clarify maybe a couple of things. You talked about two figures from the desktop headwind: the $1.3 billion and then the $400 to $500 million.

Craig Kenison: Sorry about that. Thanks for the question and good morning. I just want to clarify maybe a couple of things. You talked about two figures from the D stock headwind, the $1.3 billion and then the $400 to $500 million. Could you just square up exactly what those were referring to? I think the $400 to $500 million is the potential tailwind into next year, but could you just be clear on that?

Speaker #10: Could you just square up exactly what those are referring to? I think the 400 to 500 is the potential tailwind into next year, but could you just be clear on that?

Speaker #6: Yeah, the overall impact of the accumulation there, when we talked about destocking in fiscal, I don't want to make the fiscal year to fiscal year 2025. Now we're destocking in fiscal year 2026. The combined effect probably adds up to a billion-dollar close.

Sebastien Martel: Yeah, the overall impact to do the accumulation there, when we talked about destocking in 2020 fiscal, I don't want to make the fiscal year to fiscal year 2025, and now we're destocking in fiscal year 2026, the combined effect probably adds up to $1 billion close. The number I referred to in my question to Brian was a $400 to $500 million impact when I compare the destocking we did in the current fiscal year. The impact of that destocking is about $400 to $500 million in revenue just for this year.

Speaker #6: The number I referred to in my question to Brian was a $400 to $500 million impact. When I compare the destocking we did in the current fiscal year, the impact of that destocking is about $400 to $500 million of revenue.

Speaker #6: Just for this year.

Speaker #10: Okay, understood. Thank you. And then you were talking about, you know, or highlighting the 14% to 15% EBITDA margin level implied for the second half, you know, in your outlook.

Craig Kenison: Okay, understood. Thank you. You were talking about or highlighting the 14 to 15% EBITDA margin level implied for the second half in your outlook. Could you just sort of walk through kind of the biggest factors bridging that from last year and then how to shape those into fiscal 2027? I think you've already touched on the programs, which I think you said could be a 50 basis point tailwind. Could you just give a little bit more color there, please?

Speaker #10: Could you just sort of walk through the biggest factors bridging that from last year and then, you know, how to shape those into fiscal 2027?

Speaker #10: I think you've already touched on the programs, which, you know, I think you said could be a 50 basis point tailwind. But could you just give a little bit more color there, please?

Speaker #6: Yeah, and I'll again probably refrain from making any estimates on 2027 too early. But I gave you some colors on what I believe the pluses and minuses are for next year.

Sebastien Martel: Yeah, I'll probably refrain from making any estimates on 2027, too early. I gave you some colors to what I believe the pluses and minuses are for next year. When I look at this year, just for H2, we'll look at gross profit. Obviously, the second half of the year, I'm expecting gross profit to increase probably 300 basis points easily versus where we were last year. Let's say low 300 basis points to probably whatever, 250, 300 from an OpEx. It will be higher in the second half of the year versus last year, probably 500 basis points, mainly coming from variable compensation. From an EBITDA margin, second half of the year, you're probably going to see 150 basis points net net there when you do the pluses and minuses on the EBITDA, a positive growth. Well above 14% EBITDA margin in the second half of the year.

Speaker #6: But when I look at this year, just for H2, we'll look at gross profit. Obviously, in the second half of the year, I'm expecting gross profit to increase by probably 300 basis points easily versus where we were last year.

Speaker #6: So let's say low 300 basis points to probably whatever, 250 to 300. From OPEC, it will be higher in the second half of the year versus last year, probably 500 basis points, mainly coming from variable compensation.

Speaker #6: And from an EBITDA margin, in the second half of the year, you're probably going to see a 150 basis point net there when you do the pluses and minuses on the EBITDA positive growth.

Speaker #6: So, well above 14% EBITDA margin in the second half of the year.

Speaker #10: Yeah, okay. Understood. I appreciate that. All the best. Thank you.

Craig Kenison: Yeah, okay. Understood. Appreciate that. All the best.

Speaker #6: Thank you.

Sebastien Martel: Thank you, José.

Speaker #10: you.

Brian Morrison: Thank you.

Speaker #1: Your next question comes from Benoit Poirier with Desjardins. Your line is now open.

Joelle: Your next question comes from Benoit Poiré with Desjardins. Your line is now open.

Speaker #6: Yeah, good morning. Jose, just in terms of retail sales between Canada and the US, there's been a discrepancy. Canada was up low single digits, while the US was down low single digits.

Craig Kenison: Yeah, good morning. José, just in terms of retail sales between Canada and the U.S., there's been a discrepancy. Canada was up low single digit, the U.S. was down low single digit. I was wondering if you have any thoughts on what's driving this. I've seen some comments from dealers in Canada pointing to greater interest for BRP products given the geopolitical issues. I'm just wondering if it's a matter of having a much lower non-current units in Canada. Any color on the discrepancy between both countries would be great.

Speaker #6: So, I was wondering if you have any thoughts on what's driving this? I've seen some comments from dealers in Canada pointing to greater interest for BRP products given the geopolitical issues, or I'm just wondering if it's a matter of having a much lower non-current units in Canada.

Speaker #6: So, any color on the discrepancy between both countries would be great.

Speaker #3: Well, I think this is my belief in the U.S. You know, there is still tariff uncertainty, and the prices change very often.

Jose Boisjoli: I think this is my belief. In the U.S., you know there is still the tariff uncertainty and the thing, the price change very often. Also, the inflation is still high on the high side, and there was no interest rate reduction so far. The U.S. consumers, I think, are more uncertain about the overall economy. We see that in the lower-income customers. A lot of our rejection rate for people who are asking to buy a Ryker is very high in the U.S. In Canada, it's a bit different dynamic. The dealers are, first, the dealers in Canada are very loyal to BRP Inc. The economy is overall good. I didn't hear personally dealers saying that because of the tariff situation, there is more interest for BRP Inc. products. I believe maybe some U.S. companies have more difficulty because of the exchange rate between Canada and the U.S.

Speaker #3: Also, the inflation is still high on the high side, and there was no interest rate reduction. So far then, the US consumers I think is more uncertain about the overall economy.

Speaker #3: And we see that, among lower-income customers, a lot of our rejection rate for people who are asking to buy a Ryker is very high in the U.S.

Speaker #3: In Canada, it's a bit different dynamic. The dealers are first; the dealers in Canada are very loyal to BRP. And the economy is overall good.

Speaker #3: I didn't hear personally dealers saying that because of the tariff situation, there is more interest for BRP products. I believe maybe some U.S. companies have more difficulty because of the exchange rate between Canada and the U.S. to come to Canada.

Jose Boisjoli: to come to Canada. I think the dynamic is more caused by the macroeconomic environment in the U.S. than anything else.

Speaker #3: But I think the dynamic is more caused by the macroeconomic environment in the U.S. than anything else.

Speaker #6: Okay, that's interesting. With respect to the pricing adjustment that we viewed just announced at the club, we've seen some of your peers that were able to drive stronger sales on the back of lower pricing.

Sebastien Martel: Okay, that's interesting. With respect to the pricing adjustment that you just announced at the Club BRP, we've seen some of your peers that were able to drive stronger sales on the back of lower pricing. I was wondering whether you're seeing positive impact following price adjustment made at the Club BRP, José.

Speaker #6: So I was wondering whether you're seeing a positive impact following the price adjustment made at the club, Jose?

Speaker #3: I mean, it's too early to call because right now, Benoit, we have orders on hand for all the ORV products for deliveries in August and September.

Jose Boisjoli: I mean, it's too early to call because right now, Benoit, we have orders on hand for all the ORV products for deliveries in August, September. We're doing next week the booking for deliveries in October. What I can tell you, you know it's normal that from time to time you readjust your pricing. What happened during the COVID, a lot of OEMs have increased more the pricing than others. We were somewhat not competitive in six categories. We thought the timing right now that our inventory is low, the situation seems to be more stable to readjust our pricing in six categories because we drive to continue to gain market share in the off-road business. Every category needs to grow. This is the timing was perfect for us.

Speaker #3: We're doing the booking for deliveries in October next week. But what I can tell you is that it's normal to readjust your pricing from time to time.

Speaker #3: And what happened during COVID is that a lot of OEMs increased their pricing more than others. As a result, we were somewhat not competitive in six categories.

Speaker #3: And we took the timing right now that our inventory is low; the situation seems to be more stable. To readjust our pricing in six categories because we drive to continue to gain market share in the off-road business.

Speaker #3: And every category needs to grow. The timing was perfect for us. Now, it's too early to tell you, but in our internal planning, we are definitely planning to grow volume in those categories for the product.

Jose Boisjoli: It's too early to tell you, but in our internal planning, we're definitely planning to grow volume in those categories for products.

Speaker #6: Okay. And maybe last one for me: you've been quite successful ramping up the fishing offering in the Sea-Doo category. We've seen Yamaha come out with the new fishing PWC called the Crosswave, so I was wondering, Jose, if you have any thoughts on this new product from Yamaha and whether you've seen any impact on the Sea-Doo Fish Pro offering so far.

Sebastien Martel: Okay. Maybe last one for me. You've been quite successful ramping up the fishing offering in the Sea-Doo category. We've seen Yamaha that came with the new fishing PWC called the Cross Wave. I was wondering, José, if you have any thoughts on this new product from Yamaha and whether you've seen some impact on the Sea-Doo Fish Pro offering so far.

Speaker #3: Well, first, the product—nobody has seen it physically yet. It's scheduled to be delivered next spring. Then we'll see how it goes. But definitely, in the watercraft industry, you know, recreational products for recreational-only activity are still good. However, we've been very focused on having specialized vehicles.

Jose Boisjoli: The product, nobody saw it physically yet. It's scheduled to be delivered next spring. We'll see how it goes. In the watercraft industry, you know recreational products for recreational-only activity are still good. We've been very good to have specialized vehicles, and that's what we've done with the Wake Pro, the Explorer, and the Fish Pro. This is tailored to activities which bring new customers to the industry. Obviously, Yamaha took a different approach, but it will be interesting to see how it grows. At the same time, it's pushing us to be better and to be more competitive. We like competition. If they can accelerate the development of people who fish into the watercraft category, I welcome the initiative.

Speaker #3: And that's what we've done with the WakePro. That's what we've done with the Explorer. That's what we've done with the FishPro. And this is tailored to activities that bring new customers to the industry.

Speaker #3: Then, obviously, Yamaha took a different approach. But it will be interesting to see how it grows. At the same time, it's pushing us to be better and to be more competitive.

Speaker #3: We like competition. If they can accelerate the development of people who fish into the watercraft category, I welcome the initiative. I mean, if we could continue because we are the two main players to grow the industry, I think it will be better for both of us.

Jose Boisjoli: If we could continue, because we are the two main players to grow the industry, I think it will be better for both of us, and we're not afraid of the competition.

Speaker #3: And we're not afraid of the competition.

Speaker #6: Perfect. Thank you very much for the color, Jose.

Sebastien Martel: Perfect. Thank you very much for the call, José.

Speaker #3: Thank you.

Jose Boisjoli: Thank you.

Speaker #1: Your next question comes from Luke Anand with Canaccord. Your line is now open.

Joelle: Your next question comes from Luke Anan with Canaccord. Your line is now open.

Speaker #10: Thanks. Good morning, everyone. Most of my questions have been answered, so it's just a clarification on some earlier lines of questioning. On the topic of the normalized earnings power, I know you've referenced it as far as EPS in the past.

Brian Morrison: Thanks. Good morning, everyone. Most of my questions have been answered, so it's just a clarification on some earlier lines of questioning. On the topic of the normalized earnings power, I know you've referenced it as far as EPS in the past, but I know that you've also discussed a normalized EBITDA margin of in and around 17% as sort of being the structural mid-cycle target that you guys have had. What does that number look like, or has it changed at all post-marine divestments? What should we be thinking about as sort of the longer-term market potential here?

Speaker #10: But I know you've also discussed a normalized EBITDA margin of around 17% as sort of being the structural mid-cycle target that you guys have had.

Speaker #10: What does that number look like, or has it changed at all post-marine divestments? What should we be thinking about as sort of the longer-term margin potential here?

Speaker #6: You know, if there's anything, it's probably even more achievable. I mean, we've delivered high EBITDA margin percentages in the past, with the marine business reaching up to 19%.

Sebastien Martel: No, if there's anything, it's probably even more achievable. I mean, we've delivered high EBITDA margin percentages in the past with the marine business up to 19%. I think when you exclude marine pro forma, you would be at 21%. Is the 17% still achievable? To an earlier question from Martin Landry, as the business grows, as we get to these, as the industry grows, as we get to these higher revenue numbers, for sure, EBITDA margin will grow as we leverage the investments we've made in the past and as we leverage the existing manufacturing capacity. I do believe that it's a number that's still very much achievable.

Speaker #6: I think when you exclude marine pro forma, you would be at 21%. So it's just 17% still achievable. To an earlier question from Martin Landry, again, as the business grows, as we get to these as the industry grows, as we get to these higher revenue numbers, for sure EBITDA margin will grow as we leverage the investments we've made in the past.

Speaker #6: And as we leverage the existing manufacturing capacity, I do believe that it's a number that's still very much achievable.

Speaker #10: Great. Thanks. And then you also touched on the dealers' utilization of their line of credit—60% this quarter, down from 70% last quarter.

Brian Morrison: Great. Thanks. You also touched on the dealer's utilization of their line of credit. It was 60% this quarter, and it's down from 70% last quarter. How has that fluctuated?

Speaker #10: How has that fluctuated over the course of, we'll say, the last few years? And I mean, like, is it at a point now where it's basically troughed, and then we continue we should see that expand given the retail environment?

Joelle: Over the course of the last few years, is it at a point now where it's basically trough and then we continue, we should see that expand given the retail environment? How roughly, I guess, should we be thinking about that over the course of the near to medium term?

Speaker #10: Or just how roughly, I guess, should we be thinking about that over the course of the near to medium term?

Speaker #6: It is very healthy. Dealers see it as well in their monthly financing costs or floor plan costs, so it is very healthy. As I said, it will move, yes, because there's seasonality in our business.

Philippe Deschenes: It is very healthy. Dealers see it as well in their monthly financing costs or floor plan costs. It is very healthy. As I said, it will move, yes, because there's seasonality in our business. There are inventory buildups before a retail season. Sometimes retail does not go according to plan. Sometimes it's better. We are expecting it to move. It did go up quite significantly in the last 24 months. We also did right sizing of lines of credit. We talked about this as well. Our business has grown significantly. MSRPs have grown as well. We needed to bring dealers along to acknowledge that their lines of credit also needed to be tailored to the new reality of the powersports industry and of BRP Inc.'s business. That's another factor.

Speaker #6: There's inventory buildups before our retail season. Sometimes retail does not go according to plan; sometimes it's better. So we are expecting it to move.

Speaker #6: It did go up quite significantly in the last 24 months. But we also did right-sizing of lines of credit. We talked about this as well.

Joelle: Okay. Thanks. Last one for me, then I'll pass the line. Utility SSVs represent about two-thirds of the overall industry. Can you share what it represents as far as your SSV mix today? When we think about the longer-term market share opportunity for you in SSVs, how much of that is utility market share capture versus other, we'll say, capture in recreational versus other drivers?

Philippe Deschenes: The same ratio for us: two-thirds of our volume is utility. We always have been stronger in the rec sport, and obviously, there is more opportunity in the utility. That's why we're so optimistic with the new Can-Am Defender. Like I said, we had the best ATV with all technology. Now we establish a new standard with the new technology.

Joelle: Okay, thank you very much.

Philippe Deschenes: Thank you.

Jose Boisjoli: Your next question comes from Cameron Dirksen with National Bank Financial. Your line is now open.

Sebastien Martel: Yeah. Thanks. Good morning. I guess a question on the tariffs. You mentioned that the new tariff estimate for the year includes the recent announcement of the expansion of products on steel and aluminum tariffs. It doesn't sound like that affects all of your products. Can you just maybe detail that a bit more and whether there's any risk that there could be further tariff impact if there's another expansion of that steel and aluminum to more products?

Philippe Deschenes: Good morning, Cam. Yeah. There's always a possibility of the rules changing. This came into effect on August 18, where steel and aluminum are now at 50%. The vehicles that are impacted are mainly ATVs, side-by-side. However, some models of side-by-side are excluded. It's really on the steel content that is in the vehicles. The secret is obviously providing what the weight impact is. Steel is obviously a big part of the vehicle, but it's a low cost in the vehicle. We prefer not to have it. It is an impact, but it's certainly something that we can absorb. If the rules change, we'll adapt, as we always do. Difficult for me to call what could be the impact if I were to apply X% tariff on X and Y products.

Sebastien Martel: Okay. No, that's helpful. Maybe, I guess, second question, not that we're rushing to see José accelerate his retirement, but just wondering if there's any update on a new CEO search at this point.

Philippe Deschenes: No update. The search is ongoing. I was with the HR committee this week, and the transition should be by the end of the year. No change.

Sebastien Martel: Okay. Perfect. I'll pass the line. Thanks very much.

Philippe Deschenes: Thank you.

Jose Boisjoli: Your next question comes from Tristan Thomas Martin with BMO Capital Markets. Your line is now open.

Craig Kenison: Good morning. I don't know if I missed this, but did you guys disclose where you expect your channel inventory levels to be at the end of the year? Also, anecdotally, I'm curious if you've heard anything about how dealers are planning on ordering the new product. I understand the reception has been very positive, just curious how dealers are kind of thinking about the back half and then early next year in terms of planning to ordering.

Philippe Deschenes: From an inventory perspective, no big changes versus where we stand. Obviously, as we've mentioned, there's a bit of work to do on snowmobile, and that's going to be the focus in the second half of the year. Generally, where we are in Q2 for the various product lines is where we expect to be at the end of Q4. For your second question, sorry, I missed the I think José is going to take it. On the other front, like Sébastien mentioned, we have the order on hand for snowmobiles for the delivery for fiscal year 2026. Now, on watercraft, we're just finalizing the booking. Dealers saw the product at Club BRP. They look, they do their model mix. Basically, we are on plan. Off-road, we have dealer on hand for the deliveries in August and September.

Philippe Deschenes: We're taking the delivery, we're taking an order every month for delivery in two months. We'll be taking deliveries in the next two weeks for delivery in October. We're very confident with the off-road lineup that we have and the novelty that we will meet our numbers.

Craig Kenison: Great. If I could just make one more in there, I believe in your prior comments, you said investing in other sectors. Is that investing in product lines within an end market you're already in or possibly expanding into other end markets? Thanks.

Philippe Deschenes: Still centered around the powersport industry.

Craig Kenison: Okay. Great. Thank you.

Philippe Deschenes: Thank you.

Jose Boisjoli: Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Jonathan Goldman with Scotiabank. Your line is now open.

James Hardeman: Hi. Good morning, team, and thanks for taking my questions. I apologize if I missed this, but just going back to the guidance, the second half implying plus 10% at the midpoint. I think you called out retail being aligned with wholesale and retail kind of being similar in the second half to Q2, which was down low single digits. To bridge the delta, is it pricing, share gains, new product launches, any other elements in there?

Philippe Deschenes: It is a combination of factors. As I mentioned, the favorable product mix is going to be a factor. The less programs as well is another factor, helping revenue. These would be the two big items that are, let's say, not volume related.

James Hardeman: Okay. Thanks for that. Jose, could you comment on the level of new entrants in the industry now versus 2019, how elevated it is? I guess this ties into the broader question of the earnings power of the business. If you look at the industry data, calendar 2024 units are kind of exactly where they were in 2019. Do we have more room to grow unit-wise in the industry, or is it kind of stabilized in terms of volume? Obviously, this year would be lower, and it's just getting back to the $1.2 billion level.

Philippe Deschenes: New entrant numbers in Q2 were at 23%, same level as pre-COVID. It seems that we're back to where we were before the COVID bubble. I think in terms of the industry, I answered what the planning for the industry is. What may be additional for you is the trend that we saw in the last two quarters is continuing. Obviously, the inflation, the high financing rate, the uncertainty put some pressure on the lower-income customers. We see the premium selling well versus the value product. Spark and Ryker are below traditional watercraft and below traditional fuel vehicle. In the side-by-side, the premium sells well. The value is down. Utility sells well, and the rec sport is down. The same trend that we saw in the last two quarters continues. We are well positioned because, as you know, we're better in the high-end product than the entry level.

Philippe Deschenes: With the new Defender and the utility going up, timing could not be better.

James Hardeman: Okay. That makes sense. I guess just following up on that, do you think the industry is larger today in terms of units than it was in 2019? If you exclude motorcycles, I guess there was about 1.2 million units sold in 2019. In a normalized environment, do you think we can exceed that volume in the industry totally in North America?

Philippe Deschenes: I think side-by-side have grown over the last few years, and it continued to grow. What is interesting, it's growing in North America, but it's growing even more in some international markets. The numbers are still obviously lower than North America, but the growth is very good. I think there is a place to continue to grow, or the industry will continue to grow in the side-by-side business.

James Hardeman: Okay, thank you very much for the color.

Philippe Deschenes: Thank you.

Jose Boisjoli: There are no further questions at this time. I will now turn the call over to Mr. Philippe Deschenes for closing remarks.

Brian Morrison: Thank you, Joel. Thank you, everyone, for joining us this morning and for your interest in BRP Inc. Before we go, know that we will be hosting an Analyst and Investor Day on October 8th and 9th in Valcourt. Stay on the lookout for more details. Thank you again, everyone, and have a good day.

Jose Boisjoli: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.