Brunswick Corporation

Good morning, and welcome to the Brunswick Corporation's first quarter 2021 earnings conference call. All participants will be in a listen-only mode until the question and answer period. Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Brent Dahl, Vice President, Investor Relations.

Good morning, and thank you for joining us. With me on the call this morning are Dave Falks, Brunswick CEO, and Ryan Willem, CFO. Before we begin with our prepared remarks, I would like to remind everyone that during this call, our comments will include certain forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations. For details on the factors to consider, please refer to our recent SEC filings and today's press release. All of these documents are available on our website at Brunswick.com. During our presentation, we will be referring to certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP financial measures are provided in the appendix to this presentation and the reconciliation sections of the Consolidated Financial Statements accompanying today's results. I will now turn the call over to Dave.

Thanks, Brent, and good morning, everyone. Our businesses had a fantastic start to 2021 with a very healthy marine market, strong boating participation, and outstanding operating performance driving historic financial results. Robust retail demand for our products continues to drive low field imagery levels with increased production across all our facilities necessary to satisfy orders from our OEM partners and dealer network. Our teams have performed exceptionally well in the face of supply and transportation headwinds, tighter labor conditions, and continued impact from the COVID-19 pandemic. And we're excited about our ability to further harness the positive momentum we've generated to propel our growth and industry leadership. Our propulsion business continues to deliver outstanding top line earnings and margin growth. outperforming the market by leveraging and expanding the strongest product lineup in the industry. Our parts and accessories businesses delivered strong top line growth and robust operating margins as a result of increased boating participation, which drove strong aftermarket sales, together with high demand for our full range of OEM systems and services as boat manufacturers attempt to satisfy retail demand. Our boat business performed well as anticipated in the quarter, reaching double-digit adjusted operating margins for the first time in over 20 years. Despite elevated production levels consistent with our plans for the year, the continued surge in retail demand is still driving historically low pipeline inventory levels, with 41% fewer boats in dealer inventory at the end of the first quarter versus the same time last year. Finally, Freedom Boat Club has had an extremely busy start to the year, which I will discuss further in a couple of slides. We have exceptional momentum as we enter the prime retail season in most markets. As you can see from our significant guidance increase, we are confident in our ability to perform for the rest of the year and well beyond. Before we discuss the results for the quarter, I wanted to share with you some updated insights from 2020 concerning our boat buyers and Freedom Boat Club members that reflect very favorable trends for the future of our business. We continue to outperform the industry in attracting new, younger, and more diverse boaters, positioning us for very strong growth in the years to come. Last year, Brunswick's average boat buyer age was two years younger than the industry average and reached its lowest level in over a decade. Additionally, Brunswick's first-time boat buyers averaged five years younger than our overall boat buyer demographic and three years younger than the industry. Equally encouraging was the fact that the percentage of Brunswick female boat buyers in 2020, while still a minority, equaled the highest percentage on record. and first time female boat buyers entered a double that rate, which was a notable 700 basis points higher than the industry. In Freedom Boat Club, we saw even more promising trends, with the average Freedom member being almost three years younger than our typical boat buying customer, and female Freedom members making up 35% of our member base in 2020 and 2021. These trends are an extremely important validation of our strategy to secure a healthy future for Brunswick and also favorable for the entire marine industry. I also wanted to briefly update you on some very important awards and milestones for Brunswick during the first quarter, which are important in positioning Brunswick for investors and employees and our ability to secure top new talent. I'm pleased to announce that for the second consecutive year, Brunswick has been recognized by Forbes as one of the best employers for diversity. Those recognized were chosen based on an independent survey of over 50,000 employees working for companies employing at least a thousand people in their U.S. operations. Diversity and inclusion are cornerstones of our culture and a source of innovation and inspiration for our company. We also published our 2020 sustainability report at the end of March, which reviews the exceptional progress we've achieved against our sustainability goals, including our prioritization of the health and safety of our employees. In 2020, we reported the lowest recordable incident rate in company history in the face of immense challenges resulting from the COVID-19 pandemic. And I also wanted to share with you a snapshot of what the return to in-person boat shows looks like. The Palm Beach International Boat Show was recently held for the first time since the spring of 2019. This was the first major in-person saltwater show of the 2021 season and the outcomes were very positive. Attendance was up and our brands outperformed the broader marine industry. Over the course of the four-day show, CRA and Boston Boiler more than doubled the number of boats sold this year versus 2019, and revenues more than tripled, driven by increased demand for the recently launched models. Consumers were also able to see Mercury's V12 600 horsepower Verado in person for the first time, with many eager to repower their boats with this new game-changing engine. I'll now provide some first quarter highlights on our segments and the overall marine market. Our propulsion business continues to gain significant retail market share in outboard engines, especially in higher horsepower categories, where we have focused higher levels of investment in recent years. Mercury gained share in each horsepower category over 50 horsepower in the first quarter, with outsized gains in nodes in excess of 200 horsepower. As I mentioned earlier, Mercury launched this new 600-horsepower V12 Verado engine in February at Lake Exit in Florida to much fanfare. Many OEM partners, including Fountain, Scout, Viking, and Tiara, and our own Boston Whaler and Sea Ray brands, have already designed boats with this engine in mind and are taking orders. Many models are already sold out for 2021, with twin, triple, or even quad configurations being very popular with both OEMs and customers. New or enhanced OEM relationships, along with significant investments in new technology, have also helped fuel the continued growth in Mercury's industry-leading controls, rigging, and propeller businesses. As Mercury's growth continues to accelerate, we regularly review our capacity requirements to ensure we're able to meet projected demand and fully capitalize on future growth opportunities. In this regard, we anticipate having to pull ahead some additional capacity actions. Our parts and accessories businesses also experience significant top line and earnings growth in the quarter, as aftermarket sales remain elevated due to strong participation trends and service needs. with increased OEM orders to keep up with production, resulting from the accelerated retail demand. Our dealer network reports that their service centers are busier than ever, with a strong participation trend from 2020 continuing into 2021. In addition, favorable weather conditions in many parts of the U.S. are enabling consumers to return to the water early and in force. This demand drives the need for aftermarket service parts and a healthy distribution network to get dealers the products they need on a same-day or next-day basis. The Advanced Systems Group, which has a larger OEM component to its business and also serves some non-marine segments, demonstrated significant growth across all its product categories and delivered strong operating margins that were accretive to the overall segment. Our boat segment had an outstanding quarter. with successful execution of its product plan resulting in strong revenue and earnings growth, together with double-digit operating margins. Given the continued retail demand surge, 95% of our production slots are now sold for the calendar year, with many Whaler, C-Ray, and other models now sold out at wholesale well into 2022. Pipeline inventory, which Ryan will discuss in more detail in a few slides, remains at historically low levels. and we continue to hire additional workers at most facilities to ramp up production consistent with our stated plan. We remain on track with our plans to reopen and staff the Palm Coast facility and expand our operations at Reynosa and Portugal. However, it remains very unlikely that pipelines will be significantly rebuilt until 2023 at the earliest. Freedom Boat Club also continues to exceed our growth expectations, now with over 40,000 memberships and 280 locations, which is more than 100 new locations since we acquired Freedom in 2019. Freedom has been expanding both through acquisition and organic growth in 2021. We acquired franchise operations in major boating markets, including Chicago and New York, and opened our first location in the UK. As a reminder, having company-operated locations allows us to gain the full economic benefits of the territories and allows us to increase investment to enable faster growth. In addition, company-operated locations provide the opportunity to get close to the end voting consumer and allow us to enhance our other offerings, including Botteca and our F&I businesses. You will hear more from Brenna about our plans for freedom and our other business acceleration initiatives on our upcoming investor day, which I'll discuss at the end of today's presentation. The outstanding operational and financial performance I've been discussing has not been without some external challenges that our businesses continue to manage and mitigate, sometimes on a daily basis. Our supply chain teams, in particular, performed exceptionally well. Winter storms and resulting power outages in the central and southern United States affected oil-based product production and supply, including our third-party producers of resin and foam. While tight semiconductor supply, raw material shortages, and transportation disruption, and resulting cost increases, continue to present challenges to our businesses to varying degrees. However, the global reach of our supply network and our unique scale in the marine industry, together with our purposeful vertical integration, have so far enabled us to mitigate these challenges and keep our production plans on track for 2021. I want to thank our supply teams as well as our third-party supply partners for continuing to work together to ensure the manufacturing continuity necessary to satisfy our robust market demand. Finally, labor conditions remain tight in many locations in which we manufacture products, but our talent acquisition teams have been working hard and successfully to add manufacturing and other talent to our teams as we increase production. Next, I'd like to review the sales performance of our business by region on a constant currency basis. First quarter sales increased in each region, with international sales up 42% and sales in the US up 47%. International growth was very strong across all regions, with continued strength in Europe and Asia Pacific, contributing to growth in propulsion of P&A sales. Canada continued its trend from the back half of 2020 with significant sales growth in all three segments. This table provides more color on the recent performance of the U.S. marine retail market. All boat categories reported retail gains in the first quarter, continuing the momentum from 2020. The main powerboat segments were up 34% in the quarter, with Brunswick's unit retail performance ahead of market growth rates, especially in outboard boat categories. Outboard engine unit registrations were up 21% in the first quarter, with Mercury significantly outperforming the market and taking market share, as I discussed earlier. As we enter the primary selling season in the U.S., lead generation, finance applications, dealer sentiment, and other leading indicators all remain very positive. In addition, similar to our comments on previous calls, at the end of March, our percentage of dealer orders received with a customer name already attached is approximately three times the percentage from the same time last year. All these factors give us high confidence in the continuing strength of the retail market as we move through 2021. I'll now turn the call over to Ryan for additional comments on our financial performance.