Polaris Inc.

Good day, everyone, and welcome to the Polaris Second Quarter 2021 Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist 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. Please note that this event is being recorded. I would now like to turn the conference over to Richard Edwards, Head of Investor Relations. Please go ahead, sir.

Thank you, Cole, and good morning, everyone. Thank you for joining us for our second quarter earnings call. A slide presentation is accessible at our website at ir.polaris.com, which has additional information for this morning's call. Mike Speedson, our Chief Executive Officer, and Bob Mack, our Chief Financial Officer, have remarks summarizing the quarter and our revised expectations for the full year. Then we'll take 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 2020 10-K for additional details regarding these risks and uncertainties. All references to the second quarter 2021 guidance and report are reported on an adjusted non-GAAP basis unless otherwise noted. Please refer to our Reg D reconciliation schedules at the end of this presentation for the gap to non-gap adjustments. Now we'll turn it over to our CEO, Mike Speetson.

Mike? Thanks, Richard. Good morning, everyone, and thank you for joining us. I continue to be incredibly impressed with the dedication, commitment, and execution of the Polaris team as we navigated ongoing supply chain pressures, logistical challenges, and increasing input costs to deliver impressive second quarter results. Focused execution is our mantra, and it once again paid off as the team expertly navigated the challenges to enable us to exceed expectations. I want to again thank the entire Polaris team for their continued focus and commitment to this great company. The power sports industry has experienced significant demand, and that trend continued into the second quarter. Demand, while down from unprecedented levels in the second quarter of last year, was up over pre-pandemic levels of Q2 2019 by 14%. ORV market share gains continued in the second quarter, with gains in both ATVs and side-by-sides. We did, however, lose a small amount of share in Indian, particularly in our midsize bikes, given the supply chain challenges. That said, demand remains strong for these models, and we anticipate our share gains will resume as our vehicle supply improves. Boats also remain strong, growing retail sales and market share during the quarter, and we have a healthy and significant backlog. Although it's off-season for snowmobiles, with over half our snowmobile build this year being represented by our near-record high snow check pre-orders, the sales cadence of our snowmobile business will be even more heavily weighted toward our fourth quarter this year, given the timing variation in our component deliveries. Our PG&A and international businesses also performed quite well. PG&A sales were up 35% during the quarter. I'd also note that we're experiencing an increase in the attachment rate for PG&A as more consumers look to personalize their vehicles. Our international business continues to see strength. We grew sales 64% as the economies outside North America continue to improve in Q2. Our earnings outperformed expectations, demonstrating the team's ability to overcome challenges with focused execution. Not surprisingly, production and delivery were, and continue to be, impacted by global supply chain and logistics challenges. As a result of this and continued strong consumer demand, our dealer inventories are at the lowest levels in decades. I'll talk more about this in a moment. Given our first half results, continued strong consumer demand, and our team's hard-fought ability to execute, I am pleased to report that we are again raising our full-year earnings guidance. Bob will give more details shortly. On a two-year basis, our retail is up 14%, reflecting continued growth in power sports driven by strong underlying consumer demand. As expected, our second quarter North American retail sales were down 28% from the 57% increase reported in the second quarter of 2020. The gating factor for retail sales today compared to a year ago is low dealer inventory driven by supply chain impacts on delivery. Retail sales would have likely been significantly higher without these impacts. Despite the supply impacts to ORV retail sales, market share again grew during the quarter. Our ORV business gained over a percentage point of market share in both ATVs and side-by-sides. Motorcycle retail sales also continue to grow, increasing 22% during the quarter. However, Vendian lost a modest amount of share during the quarter driven by low availability of bikes, particularly our very popular Scout and Chief models. Strong boat retail also continued and remained ahead of the industry. Dealer inventory levels ended the quarter down 57% on a year-over-year basis and were also down sequentially. Our pre-sold order process continues to be an effective lever that our dealers are utilizing to ensure they don't lose a sale. I'll go into this in more detail in the next slide. Looking at the remainder of the year, dealer inventories are expected to remain lean into Q4, which is when we are anticipating the supply chain issues will begin to slowly improve. Given stronger than anticipated demand coupled with continued supply constraints, our expectations for dealer inventory levels to return to RFM profile levels is now sometime in late 2022 or even into 2023. As I discussed earlier, the unprecedented demand coupled with a supply chain constraint has created significant disruption in our shipping cadence. With dealer inventory at record lows, the most effective, efficient way for our customers to secure the product they want and for our dealers to maximize retail and profitability is through our pre-sold order process. The advantage to consumers is that orders placed in the pre-sold system receive priority in our production and shipping schedule. In addition, dealers and consumers can receive PG&A priority if placed at the time of the vehicle order. As a result, pre-sold orders have increased significantly since the pandemic began. Pre-pandemic, presold orders accounted for roughly 3% of our retail. Exiting Q2, ORV presold orders were approximately 80% of retail. While there have been some reports that the presold order process can be misused, our audits have found that not to be the case. We regularly audit the system, looking for a name change from the presold order at the time of registration. These audits have found less than 1% where the names changed at registration, and where there were changes, the majority had valid reasons for the change. I'd also point out that the pre-sold order cancellations remain at low single-digit percent, which is similar to pre-pandemic levels. Lastly, we have analyzed shipping patterns to our dealers by tiers, volumes, and regions, and we're all within 1% of pre-pandemic levels. The bottom line is that there's high confidence in the pre-sold order process, which is why it continues to be a competitive advantage in this very tight inventory environment. Our manufacturing plants are operating at peak supply chain constraint capacity. Our manufacturing, supply chain, and logistics teams continue to execute at a very high level, managing the ever-changing production schedules driven by component availability with the singular focus to meet the demand of our consumers and dealers with high-quality vehicles and components. Despite our efforts, we couldn't meet all the demand during the quarter. As I indicated earlier, our pre-sold order levels have increased significantly, and it appears those customers are waiting for the high-performing, high-quality vehicles we produce. I'd like to be able to say today that we see the light at the end of the tunnel, but given the ongoing heightened demand for our vehicles and supplier challenges, it appears we, along with the entire power sports industry, will be in a period of tight vehicle supply for the remainder of the year. Our teams are doing impressive work to keep the flow of products moving, including expediting components, adjusting build schedules, substituting materials where appropriate, and buying select materials on the spot market. Focused execution and teamwork will ensure we win the competitive battle. As indicated in our last call, we are also adding capacity later this year and into 2022 that will bring on 30% more production capability between ORV boats and motorcycles. This capacity is needed to meet demand, fill the dealer channel, and allow for the addition of some very exciting new products coming next year. One of the drivers behind the unprecedented demand has been new customers coming into power sports. New customer growth in the first half of 2021, while down slightly from the robust rates in the first half of 2020, remains comfortably ahead on a comparable two-year pre-COVID basis, with approximately 300,000 new customers coming into the Polaris family over the first half of 2021. The mix of new to existing customers has remained high at over 70% of the total customers for ORV, motorcycles, snowmobiles, and boats. Our existing customers continue to grow at a healthy rate. And lastly, it's exciting to see the diversity of our customers also grow, led by Hispanic and female riders joining the Polaris family. Overall customer demand in total remains very strong. We track repurchase rates for our customers, which are increasing on a year-over-year basis. This provides us with the confidence that our customers intend to remain with the sport. I'll now turn it over to Bob Mack, who will summarize our second quarter results and our updated expectations for 2021.