BRP Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 1, 2023

There are 14 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the VRP Inc. FY24 First Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Philippe Deschenes, please go ahead, Mr. Deschenes.

Speaker 1

Thank you. Good morning, and welcome to BRP's conference call for the Q1 of fiscal year 'twenty four. Joining me this morning are Jose Boisjali, President and Chief Executive Officer and Sebastien Marcell, 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 The forward looking information is based on certain assumptions and is subject to risks and uncertainties, And I invite you to counsel BRT's MD and A for a complete face of these. Also during the call, reference will be made to the supporting slides and you can find .com under the Investor Relations section.

Speaker 1

So with that, I'll turn

Speaker 2

the call over to Josep. Thank you, Philippe. Good morning, everyone, and thank you for joining us. I am pleased to report that we are off to a good start for fiscal 2024 As our solid production portfolio continue to drive strong demand globally. While the quarter started more slowly at the retail level Due to the late arriving spring season, the momentum picked up in April.

Speaker 2

This allow us to deliver another solid quarter at retail And gain further market share. From a financial standpoint, we continue our strong execution and delivered solid results That put us on pace to meet our guidance for the year. Let's turn to Slide 4 for key financial highlights. Revenue reached $2,400,000,000 up 34% from the previous year, driven by higher volume and pricing as well as a more favorable mix. Normalized EBITDA grew 39% to $377,000,000 And normalized EPS increased 43% to reach $2.38 Turning to Slide 5 For a look at our Q1 retail performance.

Speaker 2

The strength and the wide range of our powersport offering continue to drive strong results. In North America, our retail sales were up 3% for the quarter or up 8% excluding snowmobile. Remember that last year, our snowmobile shipments were made later than usual in the season, which led to usually high retail in the Q1 of fiscal year 2023. This compared to an industry that was down low single Our performance was also solid in other geographical markets, with retail up 14% in EMEA and 25% in Latin America. In Asia Pacific, our retail was down roughly in line with the industry.

Speaker 2

As shown on Slide 6, our retail progressively improved as we move through the quarter. Retail declined in February and was relatively flat in March due to poor weather as well as different timing of shipment for certain products, which make year over year comparison difficult, Like I point out for snowmobile. However, the momentum picked up significantly in April As weather improved and consumer reacted positively to certain retail incentives, the trends continue in May. Moreover, despite ongoing macro concerns, many indicators are pointing to healthy consumer interest for our industry And more particularly for our products such as continued strong demand for our lineup. For instance, we've just closed our snowmobile booking For the upcoming season and presold units to consumer ended up about 25% above our target.

Speaker 2

The financial position of consumer remains healthy with lending application continuing to show FICO score above historical level. The influx of new entrants remain high at 28% and web searches for different product categories remain Higher than pre COVID level. Now let's turn to Slide 7 for year round product. Revenues were up 42 percent, reaching $1,300,000,000 in Q1, driven by strong shipment of side by side and three wheeled vehicle, as well as favorable product mix and pricing. At retail, Can Am side by SAID had its strongest Q1 ever, with the Commander, Defender and Maverick X3 all gaining share in their respective markets.

Speaker 2

Our retail was up low single digit, but the momentum improved significantly through the period. April retail was our 3rd strongest month ever, only trailing the 1st 2 months of COVID. As for ATV, our retail was down low teen percent limited by the ramp up in production of the new MidCC Outlander platform. This new platform has been very well received by our dealers and the media, which position us well to continue our momentum as the OEM with the highest market share gain in the industry so far this season. Looking at 3 wheeled vehicle.

Speaker 2

Can Am retail was up low single digit. Early in the quarter, retail was impacted by the weather and by a product recall. It then picked up nicely in April with high teen growth And the momentum continued in May. All in all, we are pleased with our performance in the 3 well category, And we believe that we are well positioned heading into the most important retail period. Turning to seasonal product on Slide 8.

Speaker 2

Seasonal product revenue were up 69% from last year, reaching $692,000,000 driven by higher volume of Sea Doo Persol Watercraft and Paunteu. Looking at our retail performance. In snowmobile, we've closed the 2023 season in North America on March 31, which retail down low single digit, but with a 1% point market share gain, which further increased our historical record level. We also ended the season with the number one position in each segment in which we compete, including the youth category that we've just entered last season. In Scandinavia, our market share also improved gaining 4% point by the end of the season.

Speaker 2

Also, as I mentioned, we recently closed our Customer orders for the season 24 models and presale level in North America came in about 25% above target. The solid bookings significantly improve our visibility on expected volume and sell through for our snowmobile business. For this season, we have increased our seasonal product revenue guidance for the year as Sebastien will explain in a few minutes. Looking at Seadoo product. While still early in the season, our retail for personal autograph is performing very well, up in the mid-thirty percent for the quarter and the solid trend continue in May.

Speaker 2

We are also seeing strong momentum in international market, which retail up over 40% in Latin America and over 50% in EMEA. As far our Sidu Pontoons, Our retail was up significantly even if it was a very small base as we're ramping up the initial production during Q1 last year. To give you a better understanding of our momentum with this product, In less than 1 year, the Sidus switch has already reached the number 2 position in the U. S. Pontoon industry for the last 3 months ended in March.

Speaker 2

This is a superb example of how we can disrupt categories by developing market skipping product. As you can see, both our Sidu personal aircraft and pontoon are performing well heading into the peak retail season. Moving on to Slide 9 with powersports parts, accessories and apparel and OEM engines. Revenues were down 17 percent to $285,000,000 The revenue decline It's primarily due to lower repeat orders during the season and lower sales volume this year due to timing As late snowmobile unit delivery last season had pushed related P and A sales to Q1 'twenty three. We still have good momentum with our P and A business as we continue to see positive trend at the retail level, notably for our Sidu Persol Watercraft and Pantone business, for which we have significantly developed the accessory offerings in recent years.

Speaker 2

Moving to Marine on Slide 15. The revenue lag for Marine continued to be tied to the ramp up of the new Manitou platform. While we were planning to be further along in our production ramp up, we have been dealing with the supplier issue for an aesthetic component that did not meet our standards. These resulted in a slight revenue decline of 3% compared to last year. On a positive note, the situation has improved and shipments have increased throughout May, thereby increasing product availability Heading into the peak retail boating season.

Speaker 2

Looking at retail sales, from an industry perspective, the boat category seems to have Suffered the most from the late spring, especially in the Great Lakes region, which is key market for Alumacraft and Manitou. In addition, our retail performance was improved by the supply issue at Manitou as well from lapping months during which we were still retailing Alumacraft welded boat. As for Quinteres, retail was down in line with the industry. We are not pleased with the Marine results this quarter, but I would like to remind you that we are still on track to deliver a strong year. With that, I turn the call over to Sebastien.

Speaker 3

Thank you, Jose, and good morning, everyone. The Q1 essentially played out as expected As we delivered solid financial results driven by the continued strong demand for our products, which we were able to meet by leveraging our production capacity in a more favorable supply chain environment. Looking at the numbers, our revenues for the quarter were up 34% versus last year, ending at $2,400,000,000 We generated $624,000,000 of gross profit, representing a margin of 25.7 Up 60 basis points from last year, driven by the more efficient use of our assets resulting from volume increase, A favorable impact coming from pricing net of inflation and lower turbulence costs as we operated in a more normal production environment. Those benefits were partly offset by inefficiencies on the marine side due to the longer production ramp up of the new boats, Higher sales programs, increased interest rate on floorplan financing and unfavorable foreign exchange rate variations. While our overall gross profit margin upside was limited by Marine during the quarter, it is worth noting that our powersport gross profit margin was very strong at 27.3%, up 160 basis points from last year.

Speaker 3

Continuing down the P and L, we generated normalized EBITDA for the quarter of $377,000,000 representing a margin of 15.5 percent, up 50 basis points from last year's Q1 despite suffering a 110 basis point headwind from Thanks. Our normalized net income reached $192,000,000 resulting in a normalized earnings per share of $2.38 for the quarter, up 43% versus last year. We generated $141,000,000 of free cash flow providing us with the financial ability to take advantage of the current weakness in the share price to do buybacks. In fact, we have deployed about $110,000,000 towards share repurchases so far this year And we expect to continue being active in repurchasing shares as we still have about 2,400,000 shares available under our NCIB. Moving to Slide 13 for an update of the network inventory situation.

Speaker 3

As expected, the improved supply chain environment allowed us to better leverage our production and increased our throughput in Q1, further supporting network inventory replenishment. Our network inventory now stands Only 4% up from the Q1 of fiscal 'twenty one, a very comfortable level when you consider the significant growth of our business since then, driven by market share gains and the introduction of new product lines. Moreover, our mix of inventory is very healthy. We ended the end of the season inventory for snowmobile, while higher than last year, is still below historical levels, putting us in a good position for season 'twenty four. Unit availability is much better than last year for Sea Doo, PWC and Pontoons And for 3 wheeled vehicles as we head into key summer retail season, which should help support strong retail into Q2.

Speaker 3

And for off road, while there are some areas of the lineup where we still need to improve unit availability, such as the new ATV platform and some higher end SSV models, we believe that we are near optimal level in terms of overall network inventory. So all in all, with the improvement made in recent months, we are now better positioned to serve our dealers and customers and seize retail opportunities across the product portfolio. Now looking at Slide 14 for an update on the guidance for the year. As I already mentioned, the Q1 essentially played out as expected. The demand for our product remains healthy with Retail momentum improving in April May after a spring season that was late to come.

Speaker 3

The supply chain environment is more favorable, allowing us to better utilize our production capacity and reduce turbulence costs. The pricing actions we took over the last year are now more than offsetting the inflationary As a result, we are reaffirming our guidance for the year with only slight adjustments to account for the better than anticipated snowmobile booking And longer than planned production ramp up for the new Manitou boats. As such, our objective remains to deliver 9% to 12% growth in revenues And 19% to 13% growth in normalized EBITDA. Going down the P and L, we have adjusted upward our depreciation expense guidance to reflect the impact of FX variation and review downward or sharp count to our count for the buybacks done so far this year, Both elements offsetting each other. As such, we are still in line to deliver a strong normalized EPS between $12.25 $12.75 which would be a record year for BRP and another strong step towards our M25 objective of reaching $13.50 and $14.50 $0.50 of normalized EPS by fiscal year 'twenty five.

Speaker 3

Looking at the rest of the year, we expect to deliver 3 solid quarters driven by continued market share gains, A more favorable operational environment and upcoming product introductions. Moreover, we still expect to generate north of $400,000,000 of Our plan calls for a normalized EPS that is expected to be flat versus a record Q2 last year as we expect continued growth in the business to be offset by higher depreciation and financing costs. On that, I'll turn the call over to Jose.

Speaker 2

Thank you, Sebastien. I am pleased with how we began fiscal 2024. We acknowledge that there are still uncertainties surrounding macro concern, but our results demonstrate the strength of our diversified portfolio and ability to reinvent product categories. For the remainder of the year, we anticipate demand for our products to remain healthy and we will continue to focus on executing and optimizing efficiencies to deliver on our guidance. As we have proven many times Since becoming a public company 10 years ago, almost to the day, our team's strength, agility and resilience I've allowed BRP to grow significantly and outperform the industry.

Speaker 2

As shown on Slide 16, Our revenue more than tripled over that period. Normalized diluted EPS grew 8 fold And our Forest Park market share almost doubled. And the achievement that make me particularly proud is that our business with dealers, casual and we became the number one industry player worldwide. In addition, We have created significant value for shareholders with a 3 68% share price appreciation As of the anniversary date, we also distributed $2,700,000,000 in capital through dividends and share repurchase. In conclusion, our strong fundamentals are positioning us well to deliver another solid year in fiscal year 'twenty four and to gain further market share in the marine and powersports industries.

Speaker 2

Moreover, We believe we can sustain our momentum over the mid to long term given many new products in their early stage of growth, A solid pipeline of product introduction and constant progress on our journey towards electrifying our product line. As usual, we are hosting our dealer event in August and you are invited to join us in Atlanta. I thank all our employees for another strong performance this quarter. I also acknowledge the support of our dealers who made us the leading OEMs in the industry. On that note, I turn the call over to the operator for questions.

Operator

Thank you, ladies and gentlemen. We will now begin the question and answer One moment please for your first question. Your first question comes from James Hardiman with Citi. Please go ahead.

Speaker 4

Hey, good morning, John. Thanks for taking my call. So coming out of

Speaker 5

the Q4, you had given us some pretty good context. Maybe I missed it, but how are you thinking about industry growth? I think previously you were talking about a flattish industry. And then I guess within that context, I'm assuming based on everything that you've said, you still think that you will see Significant share gains this year, but maybe walk us through any updated thoughts on either of those assumptions.

Speaker 3

Yes, obviously, we're happy with how Q1 went, especially the tail end of Q1 and the beginning of the Q2 from a retail perspective. Our assumptions are still the same as when we initially established guidance. The expectation is for a flat industry this year. And obviously, the growth coming from new product introductions, some of which we've done already with the new ATV, some will come in August And also sustained market share gains, especially on the side by side segment and the ATV segment. But overall, the industry and the retail is trending in line with our expectations.

Speaker 5

Got it. That's helpful. And then, on the inventory front, pretty flat retail With a few years ago despite some significant increases in Your Owned Retail. So how should we think about, is there any remaining replenishment opportunity here or should Wholesale generally tracked with retail. I guess, converse another way to ask it, as we think about inventory turns, Those seem to have come in pretty meaningfully.

Speaker 5

Is there any way to think about this from an inventory turns perspective and what the right number is there? Thanks.

Speaker 3

Yes. Generally, we're happy with the overall level of inventory, especially going into retail Peak retail season for personal watercraft, pontoons, and 3 wheels. So we're super happy with what we have there. We believe that's going to drive good retail in the Q2. There are a few pockets of opportunities on the ORV side where Inventory is needed, obviously, the new ATV platform that we just launched and also a few high end models on the side by side Where dealers are raising their hand to have more inventory.

Speaker 3

But generally, as the business grows, we will see the absolute number Of dollar value of inventory growing units grow as well because coming with higher market share. And obviously, if you look at if you compare our wholesale to retail, well, obviously ASPs are higher as well. And benefiting from pricing, and so you'll see a higher wholesale growth and you'll see a retail growth in the The 9 months.

Speaker 5

Makes sense. But just to clarify, if I were to think about this in terms of units From here, the expectation is that wholesale units would be pretty similar to retail units? Or is that not a

Speaker 6

good assumption?

Speaker 3

Wholesale will be slightly higher than retail as we obviously grow the business. So number of days should remain similar. We'll see a minor impact on the top line.

Speaker 5

Got it. Awesome. Thank you. Thank you very much.

Operator

Your next question comes from Dan Hsu with BNP Paribas. Please go ahead.

Speaker 7

Hey, guys. Thanks for the question. Maybe on the P and A, so it was down 17% in the quarter. You mentioned some timing effects, But the guide of 3% to 7% growth was maintained. Any other kind of shifts we should think about over the rest of the year?

Speaker 7

And Are there any kind of inflection points, like maybe in Q3? Or yes, any kind of thoughts on the P and A?

Speaker 3

Yes. Q1 P and A down, some of it is driven by timing Shipments of snowmobiles last year, they were shipped much later in the season. And so that drove higher P and A sale probably accounts for half of the P and A Variation that we saw this quarter, just timing of snowmobile year over year. And also when we look at what the dealers have on hand last year and During the COVID period, everyone had a fear of missing out and so people ordered more inventory. They wanted to make sure they were not They were not running out.

Speaker 3

And so what we are seeing is that the dealers now that there's a more stable supply, they're rebalancing their DSOs And managing the business with lower inventories. So I think Q1 was also impacted by, we'll call it, inventory adjustment on the dealer side. But overall, when we look at the overall attachment rates on the P and A, it's good. And obviously, we have exciting product introductions coming Later this year that is also going to be tied to P and A and accessory introductions, which is going to drive growth for the rest of the year.

Speaker 6

Okay. Thanks. And then I

Speaker 7

want to ask, maybe just a little more housekeeping, but there was in the other expense line, there was And FX contract cost of about $17,300,000 I guess like what is that expense And why not exclude that or I guess adjust it out similar to the other kind of FX impact on the P and L?

Speaker 3

Well, the euro It was more volatile in Q1. And so that obviously drove some and unfortunately, it Went the wrong way and so that drove some a loss on foreign exchange. The majority of it is revaluation of balance sheet items, monetary balance sheet items. And in the 1st few weeks, there was a mismatch, which kind of amplified that volatility. And so we've obviously made a few adjustments.

Speaker 3

I'm not expecting that to impact our business as much going forward. But certainly the euro the strength of the euro in Q1 did have a unfavorable impact On the remeasurement of some balance sheet exposures.

Speaker 7

Right. But I guess it's fair to say that's more of a one time kind of impact?

Speaker 3

Well, it doesn't mean that it cannot happen going forward. But as I said, we've made a few adjustments to how we look at these exposures. And so I'm not expecting as much volatility going forward even though the rates would vary as well.

Speaker 2

Okay. Thank you.

Operator

Your next question comes from Jamie Katz with Morningstar. Please go ahead.

Speaker 8

Hi. I hope you can talk a little bit about what you guys are seeing with the holdup in Marine Parts and how you guys have gotten more clarity on what the rest of the year is going to look like given the disruptions that have already been seen.

Speaker 2

Yes, good morning. First, the marine industry It's probably the industry, like I said in my remarks, that is the most affected by the late spring. And just to give you some numbers, obviously, as you know, there is not much the data on Marine is not as tight on For support, but I give you some numbers. And for the 1st 3 months of the year, the pontoon industry was down 18%. But in the Midwest, where is the very, very strong area for Manitou?

Speaker 2

The marine industry was down 35% in Michigan and Minnesota. Then in April was also down 18%, then The marine industry is still affected. In aluminum fishing boat, the industry was down for the 1st 3 months of the year by 17%, improved in April to 7%, down 7%. But again, Minnesota, Wisconsin, Michigan worse Then the industry. Then this is the environment that we are in.

Speaker 2

And our retail, we believe with Talumacraft That we are it's a question of timing and seasonality, but we are in good shape. Many too, obviously, we Still have the problem with the supplier for anesthetic parts, but I have to say now the supplier is able to follow production And we have BOs with that missing part in the yard in the Lansing and we will pick up retrofitting the BO ourselves in May June, then this would stabilize. And It's late into the season, but not too late because the spring affected the retail.

Speaker 8

Okay. And then maybe this is a little nitpicky, but I think in the prepared remarks, you guys had noted that you were on track To achieve the M25 EPS goals, but I don't think you guys articulated that you would Specifically reached the revenue goals that had been laid out there in the past, and I assume that was just an omission and not Just caution on what we're seeing in the environment. Can you clarify that? Thanks.

Speaker 3

Well, Obviously, and as we've said in the past, we've always been very focused on growing this business, Growing a profitable business and that's the number one priority. And top line is obviously the driver of that growth. So Our plans are still very much in line with the M25. Could there be adjustments in terms of which product line delivers the revenue target? Absolutely.

Speaker 3

But overall, we're very much in line with the target.

Speaker 8

Excellent. Thank you.

Operator

Your next question comes from Jonathan Goldman with Scotiabank. Please go ahead.

Speaker 6

Hi, good morning. On one of the slides, you show your unit growth from February to May. So on the May numbers, Obviously, some significant growth there. Can you provide some color on how much of that is a catch up from earlier in the year? And also how much may be attributable To industry growth versus share gain for May?

Speaker 2

Yes. This is Difficult question, but I will try to give you some color. If we look at the powersports industry overall And if you our retail for powersports in April, if you compare to last year, we were up 37%. But if you compare to pre COVID 26%, then you could see here some maybe catch up. But what is interesting this is what April.

Speaker 2

What is interesting in In May, the retail was up 47% versus last year, but 42% versus pre COVID. Then there might be some catch up in there, but I don't think it's significant with what we see so far.

Speaker 6

No, that's very helpful. Thank you for that. And the second one I have is on expenses. It looks like SG and A was up 35% year on year, which is the same as revenue growth. Can you discuss if there's anything unusual

Speaker 3

in the quarter? Or can

Speaker 6

you break out how much of that SG and A increase is Shavicle to growth, investments for growth or just the business is getting bigger? What other sort of drivers behind that SG and A pickup?

Speaker 3

Yes, your latter point in terms of business being better certainly is an element. Obviously, we are Being in technology and that is an investment and comes with obviously higher dollars. When I look overall for the year on an EBITDA margin, the target is to deliver about 17% EBITDA margin And we'll see an improvement of probably 50 basis points from coming from gross margin and a headwind coming from Operating expenses of about 50 basis points. Some of that is greater R and D expense, some of it Is greater marketing expense and some of it is SG and A as well.

Speaker 6

And just to clarify, you said 50 basis points tailwind from gross margins and minus 50 basis points from OpEx netting out to Ethan? Yes. Perfect. Thanks for taking the questions.

Speaker 7

Thank you.

Operator

Your next question comes from Robin Farley with UBS. Please go ahead.

Speaker 9

Great. Thanks. I have two questions. One is just A follow-up there on your margin commentary. Just thinking about your top line scoring at a double digit rate and just thinking about Whether the supply chain has kind of gotten back to what you would say is normal at this point when we think about margin comps and just With that double digit revenue growth, should we be thinking about other things like as pontoons grow, if that's a lower margin business And ORV and like are there sort of segment mix issues that we should be thinking about with your margin that Would be offsetting the benefit to margin that we'd think from the double digit revenue growth?

Speaker 9

Thanks.

Speaker 3

Hi. Good morning, Robin. Obviously, we're happy with the margin improvement, especially on the powersports So when I look at the drivers of the gross margin in Q1, last year we did get a benefit coming from an insurance claim with Little bit wise to fire. That was last year or this year a headwind of 100 basis points. But when I look at volume mix and fixed cost absorption, that's a positive $100,000,000 Mix was a bit negative, But not that significant to your question.

Speaker 3

But the big tailwind we got this quarter is Finally, we're getting ahead of inflation. So all the pricing actions we took over the last several years are now more than offsetting the inflation and also turbulence costs. So that's a 400 basis point tailwind. As planned, we have more retail incentives out there. That's 130 basis point Headwind, higher interest rates on the floor plan financing, a slightly higher number of days as well.

Speaker 3

That's another 100 basis point Headwind Marine was a 70 basis point headwind and then the other elements impacting margin for about 40 basis points as a headwind is depreciation effects And warranty. So overall bringing us to the 25.7% gross margin of this quarter.

Speaker 9

Okay, great. Thanks very much. And then my other question is just on the demand side of things. If you can just help us think a little bit about What's going on? Obviously, it sounds like it certainly improved through the quarter.

Speaker 9

Any color on sort of higher end versus This lower end demand from the consumer or utility versus rec demand, just kind of any color like that? Thank you.

Speaker 2

Yes. Then first, if we look at and obviously, as you know, we are stronger in premium product than 3 lever product, but I give you some color on the Spark and the Ryker. On the Spark, to be honest, no change. The Spark need is typically 30% of our work aircraft retail in Q1 and we compare that to the last 5 years and basically this year it's in line with the previous year. Ryker is about 50% of our retail versus the traditional Spider.

Speaker 2

And It's again comparable to what we had in 2022, 2021, 2020. Last year, we were missing Some traditional freewheeled vehicle that I think it's you cannot compare to last year. But for Ryker And for Spark, the mix versus the other product line is stable. If you look now at the industry and you know in the TV industry We're not very strong in the mid cc and other segment. We're stronger and higher.

Speaker 2

But the high cc is stable at 20%, then the mid and other are stable at 80%. And side by side, there is a change. Side by side, In terms of premium, the industry grew from about 35% premium in fiscal year 2020 To 60% so far this year, and it's a big change for side by side going from higher end product. What is helpful, we are basically our side by side business, 70% of what we sell is premium. Dan, this is the big picture.

Speaker 2

Look, we don't see big change in watercraft, 3 wheel and ATV, definitely a shift on side by side where the market is going more high end. Lucky for us, we stronger on that product category.

Speaker 9

Fantastic. Thank you.

Speaker 7

Your

Operator

next question comes from Fred Whitman with Wolfe Research. Please go ahead.

Speaker 10

Hey, guys. Jose, I just wanted to go back to last Quarter and sort of entering the fiscal year, you called out a few different things to monitor for the industry. One of them was momentum and use.

Speaker 3

And I'm wondering if you

Speaker 10

could sort of give an update on that. You had talked about dealers might be carrying some higher cost inventory and what that might do for retail. So I'm wondering if that showed up at all In the spring, sort of X, the weather benefit or timing?

Speaker 2

Yes. Obviously, we don't have much of that. It's anecdote that we have from the dealers on this, but price are starting to go down on the used, which I think is helping the whole retail Situation. Typically, a customer come in, if

Speaker 6

there is

Speaker 2

a good trade between Is used machine and the new one, then the wheel is moving. And I think the dealer were holding To high price for use for long period of time and now it's starting to be more, I would say, normal.

Speaker 10

Okay. And if we think about strong early No indications, but if you look at sort of dealers with higher inventory levels, higher floor plan rates, are you seeing An impact on dealer orders? Are people sort of adjusting the size, adjusting the cadence of when they would be ordering sort of products Versus what you were seeing a year or 2 ago because of sort of where floorplan rates are?

Speaker 2

I mean, the if you Obviously, dealers, this team and we monitor it by days of inventory and the dealer also are looking at the dollars. But On the dollar side, like Sebastien explained, we're selling more premium high end product. The dollar is going up per unit. The other thing is we've gained significant market share since the COVID situation and It's normal that we need more inventory to support the continuous retail. Then dealer are Obviously, watching their line of credit.

Speaker 2

On the other hand, the snowmobile order was Better than what we had anticipated. And what is very interesting, close to half of our production is already presold to consumers. Dennis, we feel we're going into the snowmobile season with a very good visibility of what's going on. We take ETV order every month For delivery in the next 3 months and so far dealer most of the time are ordering above the recommended order Because Can Am is having a good traction at retail. Then we all Heard about those macroeconomic concern, but the dealer who are on the front line are quite positive about the business.

Speaker 6

Okay. Thank you.

Operator

Your next question comes from Joe Altobello with Raymond James. Please go ahead.

Speaker 6

Thanks. Hey guys, good morning. Jose, I just want to go back to the comment you just made to Fred about the softness you're seeing in used pricing. Certainly understand why that would drive used retail, but could it diminish demand for new products as a price gap between new and used

Speaker 3

widened here?

Speaker 2

I mean, I don't believe it will affect the new product. I think there is enough novelty in the new product that the customer will go for the technology and all the novelty that we bring. This is something that we're very good at. We are good to come out with novelty that Excite the consumer and the good example is the snowmobile. We came out with the 2nd year of the Rev Gen 5 And we had very, very good traction with the new model we introduced.

Speaker 2

Then I think We are in a very good position. My comment to Fred on the use, I think to get the wheel in motion At retail level, you need the trade in and dealer need to accept That they buy the use maybe a bit higher than what pre COVID, but lower than few months ago and this gets the will in motion.

Speaker 3

And maybe if I just add a bit of color, obviously the big hedge that lies with the used market is that there's been Material price increases over the last 2, 3 years. And so MSRPs are much higher than they were 2, 3 years ago. So someone who brought a product 2 or 3 years ago, that price is protected from the inflation that the new products have had. So yes, the gap is widening more than it was During COVID, that gap almost went to 0, but it's still a very, very healthy gap because of the MSRP increases we've seen over the last 2, 3 years.

Speaker 6

Okay. That's helpful. Thank you. And just to clarify on the acceleration of retail that you guys saw in April May, Were your share gains in those 2 months similar to what we saw in Q1? And was it concentrated in any particular categories?

Speaker 3

All I can say is we're obviously happy with the retail growth that we saw in April, May. We're happy with the performance. Things are trending in line with Our assumptions for the guidance.

Speaker 6

Okay. Thanks guys.

Operator

Your next question comes from Benoit Poirier with Desjardins Capital Markets. Please go ahead.

Speaker 11

Yes. Good morning, everyone. Just when we look at your dealer inventory, you're almost toward the end of the ORV season. Could you talk about the ORV inventory and maybe your overall inventory? How much would be considered Obsolete and therefore requiring some sales programs.

Speaker 2

Good morning, Benoit. We're comfortable with our ORV inventory. On side by side, we have good momentum in the retail level. And the end of the season, it's July, August, and after that, you have a transition that And we believe we are in good shape with our side by side inventory, good product news that will come in August. And on the ATV side, if there is something, we've lost some retail because the inventory is too low.

Speaker 2

We are in a transition with the new platform and it's a bit always tricky though. You have like 3, 4 months where You try to ramp down the whole one and you ramp up the new one. We are on plan, but The dealer will see high volume coming their way in June with the new platform. Then If I have something comfortable with side by side, everything is on plan. And on ATV, the inventory is probably too low And that's why our retail was a bit soft.

Speaker 2

I believe that when the network will be Fulfilled with the new platform, you will see our retail gaining momentum. Okay.

Speaker 11

And just you mentioned that the sales program were a little bit higher than it has been in the past. Where are you versus Normal level and maybe on the supply chain, I think it impacted your margin close to 400 bps and given the improvement in supply chain Situation, have you been able to capture the full 100 bps, 400 bps or are you maybe just Halfway through the margin recovery coming from supply chain.

Speaker 2

Yes, I will take the question on the sales program. Just to give you a sense, On Watercraft and pontoon, the Sidu Pontoon and Watercraft, first today, we have nothing on model year 'twenty three. We have some program on model year 2022, but it's a slight program. What we have out there is a 2 year warranty plus Either 2.99 percent interest rate for 36 months or 4.99 percent for 60 months. If a Customer would like to finance the machine, it would pay probably 7% for 5 years.

Speaker 2

And we are in line with the competition for model year 2020 On ORP, we are weaker than our main competitor. But again, ATV, we have Some program on Model Year 22, mainly because of the old platform that's on the mid-60 category. And on side by side, it's the same thing. We have some program in Modelia 22 and a few on Modelia 23 that are Entry level unit. But at the end of the day, we are not I mean, it's significantly less aggressive than what We had at this time of the year pre COVID.

Speaker 2

And that's how I would qualify our the My comments on the remarks about the slight program. Maybe you want to comment on the

Speaker 3

On the Turbulence and inflation, as you reminded us, yes, it was a 400 basis point tailwind. It's probably fifty-fifty between turbulence and the positive effect of inflation. There's still some inefficiencies that we could Further reduced, and that's the plan for the rest of the year. And from a retail incentive, we're still below pre COVID, Significantly below pre COVID. And again, we did yes, we did put more programs, especially on the interest side, where we subsidize the rates.

Speaker 3

But we think it's the right thing to do with and it has an impact on the retail momentum.

Speaker 11

Okay. Thank you very much for the time.

Speaker 1

Thank you.

Operator

Your next question comes from Craig Kennison with Baird. Please go ahead.

Speaker 12

Hey, good morning and thanks for taking my questions. You've addressed a lot already, but wanted to ask about your dealer body and just I'm curious, how do you evaluate the financial health of your dealer partners just given the potential for an economic downturn?

Speaker 3

Well, as you know, we partner with Huntington Bank on the floorplan financing. So we work hand in hand with them in constantly evaluating the health of their dealer, How much credit can they take? The terms of inventory. So it is a daily operation With our internal credit team and their credit teams in order to make sure that we monitor the health of the network, It is something we pay very close attention to. And in the end, it's a balance.

Speaker 3

And dealers Need inventory in order to be successful, in order to drive top line. But obviously, we don't want to have them too much inventory, so it becomes an issue from Floor plan costs. And so we are quite active on that front. And we have constant discussions With our different floor plan partners around the world to make sure that we find that right balance.

Speaker 12

That's very helpful. And I guess the second question on just the affordability dynamic For consumers, I'm wondering if you ever look at it from a monthly payment standpoint on a like for like unit. Curious, you've got rates moving higher, but inflation has waned a bit and dealers probably are offering much Sharper prices than when there was no inventory. Just what is the consumer looking at from an affordability standpoint? And are we at some inflection where Their monthly payment may not be going up anymore?

Speaker 3

Yes. When I look year over year, obviously, with the rise in interest rates that we've seen in the last 12 months or if a for a like for like product, there a consumer buying a product a year ago and buying a product today, The consumer would pay 8% more on a monthly payment. So that factors in inflation, interest rates, etcetera. So Yes, it's higher. But on the other side, now we are offering promotions That's certainly helping to drive retail.

Speaker 3

And on a $300 monthly payment, 8% is something that It's something the consumer looks at, but probably not significant enough to pull them away from executing On the purchase.

Speaker 12

Great. Thank you.

Operator

Your next question comes from Brandon Rollais with D. A. Davidson. Please go ahead.

Speaker 4

Good morning. Thank you for taking my questions. First, just quickly, when would you be able to start your buyback this quarter?

Speaker 3

As soon as next week, certainly it's something that we could start doing again. Okay. And we have till the end of November to do the buyback. So there's quite a long window to execute on the buyback front.

Speaker 4

Okay, great. And then also on the promotional side, I think you guys had started increasing support to dealers in April May and obviously saw strong market share gains. Do you see your competition potentially responding with Increased promo to respond or could that cause you to go back to pre pandemic promotional levels this year?

Speaker 2

So far, we don't see an escalation of programs. On the watercraft, our main competitor, we are about in line with our main Below historical programs level. On Off Road, Obviously, the leader in the industry is a bit more aggressive than us, but it's lower than what it was pre COVID.

Speaker 4

Okay, great. And just finally, on market share dynamics. Obviously, the Japanese competition still doesn't have necessary inventory in the channel. How much of their absence in the channel is contributing to your market share gains?

Speaker 2

It's a very difficult question, but I would say I believe that our market share gain last year came from our first our strategy about You know building unit that was almost completed and a little bit them when we received the part either in our factory and at the dealer level. This Give us a head start versus some of our competitor who reduced production. And second, the strength of our lineup. Our lineup and again, I'm biased about our lineup are the best in the industry and we have a complete Product portfolio, we have product for all season, which is very helpful for the dealers. Then it's all this that I believe explain why we have so much momentum at the retail level.

Speaker 4

Okay, great. Thank you.

Operator

Your next question comes from Brian Morrison with TD Securities. Please go ahead.

Speaker 13

Yes, good morning. I want to understand the margin cadence throughout the year. So Q2 sounds like It will be sub-seventeen percent EBITDA margin again, so below in the first half. So the second half weighing and The forecast improvement in

Speaker 6

the back half of the

Speaker 13

year, is this a mismatch of timing of the offsetting benefits and headwinds? Is it scale or is it the need for marine to improve? And I understand the weather impact in marine, but can you just talk about the demand pull for the new Manitou Marine product?

Speaker 3

I'll let Jose cover the Manitou and then I'll cover the cadence, if that's fair.

Speaker 2

On the Manitou, as you know, we are sold out to the dealers and basically The dealer orders everything we can produce. To be honest, we reduced our planning for We hear from the dealer is retail. The New Pontoon is very popular. I think The New Manitou with the MAX deck, you know the fact that you have an open space, you're gaining 4 feet in the back, You have an open space. You don't have the engine in your way.

Speaker 2

It's a big, big benefit. And I would say very happy that we dealer and consumer react to the product.

Speaker 3

From just the margin profile, similar to what we saw probably last year in terms of the EBITDA margin, we Historically, we've had a higher EBITDA margin in the second half of the year, a lot of it driven by mix, but some of it driven by timing of operating expenses. So probably consistent to what we've seen in prior years, Brian.

Operator

Okay. Thank you for that. And then the

Speaker 13

Snow Chek is up 25% relative to your target. Can you just provide a comparison relative to preorders last year? It sounds like it's probably flat.

Speaker 2

It's below last year in term of production unit that are sold in percentage of production. Like I said, About close to 50% of our production is sold presold to a consumer. This is the 3rd best year in our history. Then obviously, the COVID year were exceptional because the fear of missing. But it's the highest year in, I would say, a more normal non COVID year And very, very happy with the snowmobile season.

Speaker 13

All right. Appreciate that clarification, Jose.

Speaker 6

Thank you.

Speaker 1

Well, thank you very much everyone for joining us this morning and for your interest in BRP. We look forward to speaking with you again for our Q2 conference call on step number Thanks again everyone and have

Speaker 2

a good day. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating in Assai. Please disconnect.

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Earnings Conference Call
BRP Q1 2024
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