Polaris Inc.

Good morning and welcome to the Polaris fourth quarter and full year 2020 earnings call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Richard Edwards, Vice President of Investor Relations, Please go ahead, sir.

Thank you, Chuck, and good morning, everyone. Thank you for joining us for our 2020 fourth quarter and full year earnings call. A slide presentation is accessible at our website at ir.players.com, which has additional information for this morning's call. Mike Speetson, our interim chief executive officer, and Bob Mack, our interim chief financial officer, have remarks summarizing the quarter and the full year and our expectations for 2021. Then we'll take some questions. During the call, we will be discussing various topics which should be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements. You can refer to our 2019 10-K for additional details regarding these risks and uncertainties. All references to the fourth quarter and full year 2020 actual results and 2021 guidance are reported on an adjusted non-GAAP basis unless otherwise noted. Please refer to our Reg G reconciliation schedules at the end of this presentation for the gap to non-gap adjustments. Now we'll turn it over to our interim CEO, Mike Spitzes. Mike? Thanks, Richard.

Good morning, everyone, and thank you for joining us. I'm pleased to be speaking with you today as Polaris' interim CEO. Before we review the results for the fourth quarter and the full year 2020, let me say a few words about my current role. I first want to thank Scott Wine on behalf of the Board of Directors and the entire Polaris team for for his leadership over the past 12 plus years. Through his tenure, he instilled a sense of enthusiasm and a commitment to excellence across the organization that has put our company in an enviable position to drive growth and profitability going forward, and I'm thrilled to build on that momentum. Our board of directors continues to work diligently through the process. In the meantime, I appreciate the board's confidence in Bob Mack, our interim CFO, and myself. Our performance in 2020 underscores the outstanding talent and dedication of our team. which will allow us to continue to win going forward. I'm excited and energized to lead the best team in power sports to another successful year. To say that 2020 was an exceptionally unusual year would be an understatement. The company started the year with very aggressive goals, both financial and operational, and the first couple of months were trending on plan. Then the pandemic drove an abrupt shutdown of international commerce in March, sending shockwaves through the global economy. In response, we quickly implemented our recession playbook and worked to ensure the liquidity of the company. The agility and dedication of our team was on full display as we navigated incredibly uncertain times. We temporarily closed factories, cut nonessential expenses, and shuttered underperforming assets. Within a matter of weeks, our retail sales turned positive and have only accelerated from there. I want to again thank the Polaris team for how they stepped up and leaned in to support our dealers and customers and protect this great company during such a challenging time. While we didn't experience sales growth in every business this past year, the momentum coming out of the fourth quarter was positive. Our fourth quarter sales increased 24%, and adjusted EPS was up an astonishing 83%. Strong retail and corresponding revenue growth drove full-year sales up 4%, topping $7 billion, and we leveraged this growth to adjusted earnings of 22% for the full year. Market share gains continued for our motorcycle business, and I'm proud to report that our ORV business gained share in the fourth quarter, As our production velocity improved and we leveraged the competitive advantage of our scale and our retail flow management system, while the data for boats is preliminary with a limited number of states reporting, the initial read is encouraging as well. Our manufacturing output improved substantially during the quarter, but constraints from various suppliers persisted, which impacted our ability to meet delivery plans. Improvements will continue into the third quarter of this year, and it will likely take us most of the year to improve dealer inventory levels. And finally, PG&A, aftermarket, global adjacent markets, and international all posted strong year-over-year growth in the fourth quarter despite ongoing challenges with supply and COVID-related economic shutdowns. Fourth quarter, North American retail sales were up 28%, continuing the unprecedented levels of growth as consumers continue to turn to power sports as a socially distanced outdoor activity. With improved product availability, our ORV business gained market share in the fourth quarter, as the industry grew in the high 20% range. Indian and Slingshot's fourth quarter retail remained strong, finishing up nearly 40% and market share up 4 percentage points. Boat retail was also strong for all brands during the quarter and year, tracking essentially in line with the industry for the year, which was up high teens percent. Snowmobile sales were strong as well, with retail up in the mid-20% range season to date through December, ahead of overall industry growth trends. We're confident that the growing interest in power sports, along with our expansive product lineup and innovative products, will continue to drive strong performance into 2021 and beyond. Our RFM system provided us a competitive advantage as we were able to outperform the industry in terms of delivering much-needed inventory to the dealers. Despite this performance, dealer inventory remained at historically low levels as demand continued at unprecedented rates. North American dealer inventory was down 58% year over year, with all segments trending below ideal levels. While inventory remains at decade-low levels, we improved on our delivery metrics sequentially as we ramped production and moved product around the channel to minimize customer wait times. Maximizing retail sales and filling order backlog remains front and center in this unique pandemic environment, while concurrently working to ease dealer inventory pressures as quickly as feasible. Supplier constraints remain the bottleneck, and we are working all available options to ease the supply chain strain as quickly as possible. As we project out dealer inventory levels for 2021, we have a couple of dynamics occurring that are meaningful. First, given improved delivery processes enabled by our refined RFM system, we believe that our dealers can successfully operate below their historical inventory profile levels. Secondly, as supply chain constraints abate, dealer inventory levels should improve through the year, but... we still believe 2021 will finish below optimal levels targeted under this refined RFM system. During the early days of the lockdowns, it quickly became apparent that many people were seeking ways for their families to enjoy the outdoors, which positioned us quite well. As you can see, we added a considerable number of new customers. This new diverse customer base drove growth across our Power Sports portfolio as they increasingly invited their friends and families to the sport, An important fact for you to consider is that historically approximately 65% of our customer growth has come from new customers. The past year, new accounted for just over 70% of our growth, representing roughly a 30% increase versus 2019. Our existing customers grew at a mid-single-digit rate versus 2019, reflecting the strength of our install base. Our Polaris Adventures business is further evidence of this increased attraction of first-time customers, with Adventures completing over 270,000 rides in 2020, a 95% increase over 2019. These are customers that have the potential to become Polaris owners in the coming years. As we've said in the past, Polaris is not unique in realizing the new customer growth, but we are taking active steps to engage and cultivate these important additions to the Polaris family. We recently introduced Polaris Adventures Select, the first ever monthly subscription service for the power sports industry. This is yet another great example of how Polaris leads in innovative approaches to attracting new customers to the business. Polaris Adventure Select is a membership program that offers access to the Polaris family of vehicles, including ORVs, Indian motorcycles, and slingshots through a monthly fee. Members can tailor their program, either by picking up a vehicle themselves, having it delivered directly to their home, or booking an experience at one of our Polaris Adventures outfits. The rollout of this unique service is currently being piloted in the Greener Phoenix, Arizona market. First, I want to thank our manufacturing, supply chain, and logistics teams around the world. They executed at levels never seen before and did so in an environment fraught with risks and challenges. Their effort and dedication made all the difference in Q4. Unprecedented demand has put considerable pressure on our plants. You will recall that during the peak of the pandemic, we had to bring most of our plant network down for a period of time. And while our plans have been at full production for some time now, we have work to do to meet both the ongoing retail demand and replenish depleted dealer inventory. We've been ramping factory output to the extent our supply chain will allow. However, as we indicated earlier, some of our suppliers are not yet capable of meeting the rapid demand spikes. Based on our retail demand expectations for 2020 and anticipated supply chain improvement plans, we are likely to be running our plans above ideal capacity levels throughout most of 2021. Given the anticipated continued strong retail demand for our products and the robustness of our future product plans, we will continue to look at all options for meeting demand and customer expectations. We continue to make strategic investments in manufacturing, sourcing, distribution, digital, and customer engagement, but we remain a product company at heart. In 2020, we introduced over 120 new products across our portfolio and over 900 new accessories in our PG&A and aftermarket segment. With the investments we've made in research and development over the past several years, our Innovation Vitality Index, which is defined as the percentage of sales from products introduced within the past three years, was a healthy 90% in 2020. The cadence of new product introductions will continue to accelerate in 2021, including vehicles and technology, that will make owning and using our vehicles more fun, easier to use, and more intuitive than ever. Just last week, we introduced two new Ranger vehicles, the Ranger Big Game and Waterfowl Editions, three new Razor Trail models, and a new Sportsman ATV. And trust that this is just the beginning of a full year of new product news in all categories, including a new Indian motorcycle that celebrates the 100-year anniversary of the original Indian Chief by launching a brand-new Chief on February 9th with shipments beginning this spring. I'm not going to steal Bob's thunder, but rest assured we have the company poised for yet another record financial year, and I'm very optimistic about our future. My role is to ensure that our strategic, operational, and financial priorities are clearly understood across the organization. First and foremost, maintaining the health and safety of our employees is our top priority. Second, delivering on our financial targets, both near-term and the five-year strategic goals, is critical. Third, bringing dealer inventory back in line with targeted RFM profiles as quickly as possible. And finally, executing on our strategic initiatives, including quality, supply chain transformation, digital, and electrification. I can assure you that our entire executive leadership team has the experience and dedication and are fully committed to executing on these priorities. I'll now turn it over to Bob Mack, who will summarize our fourth quarter and full year 2020 results and our expectations for 2021.