Polaris Inc.

Good morning, and welcome to the Polaris Third Quarter 2021 Earnings Call-In Webcast. All participants will be in 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. Please note this event is being recorded. I'd now like to turn the conference over to Richard Edwards, Head of Investor Relations. Please go ahead.

Thank you, Jason, and good morning, everyone. Thank you for joining us for our third quarter earnings call. A slide presentation is accessible at our website at ir.players.com, which has additional information for this morning's call. Mike Speets and our Chief Executive Officer and Bob Mack, our Chief Financial Officer, have remarks summarizing the quarter and our revised expectations for the year. 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 2020 10-K and recent 10-Qs for additional details regarding these risks and uncertainties. All references to the third quarter 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 I'll turn it over to our CEO, Mike Speetson. Mike? Thanks, Richard.

Good morning, everyone, and thank you for joining us. While demand remained very strong for our products, with pre-sold orders at record highs and new customers continuing to be a large portion of our sales mix, we were negatively impacted by supply chain challenges for the quarter. We were able to meet earnings expectations in the quarter, but a combination of logistics challenges and supplier shortages impacted our ability to ship. And as a result, sales finished below our expectations. This is not unique to Polaris. The entire power sports industry is being deeply impacted by the much reported on supply chain challenges. The good news is that Polaris continues to outperform as evidenced by our record year to date sales and earnings performance with sales and earnings up 24 and 59% respectively versus 2020. We also continue to drive market share gains in ORV and other segments of the business are in line with or are up year to date in market share versus last year. Additionally, our PG&A and international businesses performed well with PG&A sales growing 8% and our international business delivering strong sales growth of 21% in Q3. And while I'll cover more details in a few slides, our new product introductions for ORV have generated a lot of excitement and energy for dealers and customers. We continue to manage through very challenging supply chain constraints. Issues stemming from port backups, escalating commodity prices, truck and driver shortages, and labor shortages, the list goes on and on. We are taking aggressive steps to combat these headwinds, but given we are 10 months into the year, the impact of any additional countermeasures may not be realized until sometime next year. Thus, we're revising our full year 2021 guidance down slightly. Bob will give you more details shortly. While I'm disappointed that we're lowering our full year guidance as a result of the continued supply chain challenges, I couldn't be more impressed with the Polaris team for their ongoing dedication and exhaustive effort to keep the flow of our products moving to our customers. I also want to recognize our dealers for their understanding and dedication to Polaris in these challenging times, as well as our suppliers who continue to work with us to improve upon availability of components. Moving on to retail sales for the quarter. Our third quarter North American retail sales were down 24% from the positive 15% reported in the third quarter of 2020. This resulted in retail being down 13% on a two-year basis. Our retail results were lower than originally anticipated, driven entirely by supply chain issues. We continue to gain market share in ORV despite the supply-constrained retail sales, getting almost a point and a half of market share with gains in both ATVs and side-by-sides. Motorcycles retail sales were also down for the quarter. Indian market share is now flat year-to-date, with the midsize bikes being the most supplier-constrained category. Snowmobiles retail was down 30% in the quarter. Despite that, our snowmobile business gained share during the quarter as we performed better than the market. And lastly, boats market share continues to remain up year-to-date. Dealer inventory levels into the quarter down 46% on a year-over-year basis and down 75% when compared to pre-COVID levels in Q3 of 2019. We currently have, on average, less than a month of inventory in the channel. Pre-sold vehicles continue to be a very effective sales lever for our dealers to maintain consumer interest and as a way for consumers to stay engaged while their vehicle is being built. Given the competitive advantage we have seen with this process, the team has made some changes, which I'll provide more detail on shortly. Given the current supply chain issues, we don't expect the dealer inventory situation to improve materially until sometime in 2022. As I discussed earlier, continued unprecedented demand coupled with supply chain constraints have created significant disruptions in our shipping cadence, with dealer inventory at record lows and not expected to return to normal levels in the near term. The dealer pre-sold order process has become and will continue to be an integral process part of how we take orders and deliver products to dealers and consumers. Given the acceptance of the process and the escalating supply chain challenges, we've made some modifications to the pre-order process to improve the visibility and predictability to dealers and consumers. Let me share a few of the changes with you. A few weeks ago, we adjusted delivery dates on a limited number of pre-sold orders to align with our current production schedule. We are introducing a new industry-first online order tracker that will provide customers with order confirmation data, plus the ability to find up-to-date shipping estimates for their pre-sold order. This will allow for greater transparency of order status for both the dealer and pre-sold customer. Next, we created a new Polaris off-road reservations program for select premium models, including the Ranger full-size and multi-premium plus models, general full-size and multi-performance models, and the Razor Extreme and multi-performance turbo models. These premium models are currently the most popular, have the highest demand, and are the highest percentage of pre-sold orders in our system today. We believe this allocation method will provide the necessary prioritization of whole good and PG&A shipments to drive increased retail velocity and dealer profitability while improving the customer experience. All other models will remain unchanged within the existing RFM and pre-sold process currently in place today. In summary, these changes are designed to improve communication to the dealer and consumer while improving our ability to manage product flow in the supply-constrained environment and setting clear expectations for shipment timing to better serve the dealer and customer. Our manufacturing plants continue to operate at peak supply chain constraint capacity. While our teams are mitigating shortages and deliver delays real-time, the supply chain disruptions have become unavoidable for a large number of our models. The shortages include shocks, plastics, crank cases, doors, and of course semiconductors to name just a few. We continue to aggressively work with suppliers across our business who are behind schedule with ORV being impacted the most given its size. A byproduct of the supply chain shortages is higher input cost. Each link in the supply chain from shipping lines, port bottlenecks, shortages of trucks and rail cars, to the increased rework and disruption in production schedules has created an environment where input costs have increased exponentially. As an example, since the first of the year, cost attributable to supply chain disruptions has increased five-fold. That's over $300 million of additional costs that we did not anticipate when the year began. We've attempted to offset these costs through pricing and surcharges, which Bob will discuss shortly. Again, I want to reemphasize this is not a manufacturing capacity issue. It's a supply chain issue. Bob will give you an update on recent capacity additions, which will clearly demonstrate that we have and will have capacity improvements when the supply chain constraints New product introductions and innovation remain a key component of our growth strategy going forward. During the quarter, we introduced 15 new ORV models, product enhancements, and limited edition models, including a new midsize Ranger with more comfort, storage, and a noticeably quieter ride. It comes with rider-inspired features, including a larger dump box, more onboard storage, more legroom, and new premium contoured seats. Our North Star trim is also available with a fully enclosed heated cab to keep riders comfortable into the cold seasons. Sportsman, the industry-leading ATV brand, just got better with the addition of the exclusive industry-leading 7-inch ride command technology with GPS navigation and communication technology. And for our younger riders, we introduced a new Razor 200 EFI with industry-leading safety and technology features, including standard hard doors and high-visibility front and rear LED lights, digital speed limiting to control top speeds, and geofencing to allow parents to control where the vehicle is allowed to go. In addition, we added a number of enhancements and limited edition models to the Ranger, General, Razor, and Sportsman lineup for model year 2022. We continue to invest aggressively in research and development, and a bold slate of industry-first innovations are now entering the introduction phase with an exciting sequence of launches to play out over the next several years. One of these introductions, which is sure to throw our extremely passionate recreational riders, is the all-new Razor that will be unveiled on November 9th. If you haven't seen some of the teaser videos, you should check them out. While the new Razor has been highly anticipated, the social media and video tease last week launched excitement across our rider forums and fan channels. One little nugget I'm excited to confirm today is that we're not just launching one new Razor. We're getting ready to launch two. The all-new Razor Pro-R and the Razor Turbo-R are ready to reaffirm our leadership position in the wide open segment with the highest performing recreational vehicle in the industry. We're incredibly energized to bring these industry-leading products to market. As I've said, innovation will always be front and center in our growth strategy. One innovation we have been talking about for some time now is the all-new full-size electric Ranger, which is set to launch in December. This is a completely redesigned Ranger. We've been previewing the benefits of this new Ranger in a number of marketing videos throughout the year, including more torque and power, instant acceleration, precise control, regenerative braking, industry-leading ground clearance, highest power-to-weight ratio, lowest cost of ownership, and the quietest ride. You can see each of these videos on our website. We're incredibly excited to bring this game-changing Ranger to market as it reflects our commitment to expanding our product offering to meet the needs of our customers. With that, I'll turn it over to Bob, who will summarize our third quarter 2021 results and our updated expectations for the remainder of the year.