Polaris Inc.

Good day and welcome to the Polaris Third Quarter 2022 Earnings Call and Webcast. All participants will be in a listen-only mode. So if 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 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 Mr. J.C. Weigelt. Please go ahead, sir.

Thank you, Chuck. And good morning or afternoon, everyone. I am JC Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2022 third quarter earnings call. We will reference a slide presentation today, which is accessible on our website at ir.polaris.com. Joining me on the call today are Mike Steetson, our Chief Executive Officer, and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing the quarter and our expectations for 2022 as well as some early thoughts on 2023, then we'll take some questions. During the call, we will be discussing various topics which should be considered forward-looking for the purpose 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 2021 10-K for additional details regarding risks and uncertainties. All references to third quarter actual results and 2022 guidance are for our continuing operations and are reported on an adjusted non-GAAP basis unless otherwise noted. Please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments. Now, I will turn the call over to Mike Speetson. Go ahead, Mike.

Mike Speetson Thanks, J.C. Good morning, everyone, and thank you for joining us today. I want to start off with our third quarter results, which reflect record quarterly revenue of $2.3 billion, and while not a record, Adjusted EPS of $3.25 grew nicely at 64%. This is a testament of the hard work and dedication of our global teams. From supply chain to sales, corporate functions, and manufacturing, everyone played a role in achieving these results. Margins improved during the quarter with positive contributions from price and volume, offsetting higher year-over-year costs. Both price and volume should continue to play a role in expanding margins as we exit the year. While the retail story is mixed for the quarter, with retail sales down 8% year over year, our premium products across utility and recreation and off-road continues to be stable demand. In addition, snowmobile demand has been strong as we enter the riding season. We did experience some softness in Razor and ATV, with more pronounced softness in models that tend to be more price-sensitive and or more leisure-based. Pontoon retail declined low double digits due to continued supply chain constraints. Our 8% retail growth and on-road was driven by Indian motorcycles and a high mix of rework to ship a significant number of bikes that had been waiting for specific parts. As shared last quarter, striking the right balance of inventory at our dealers is a key focus for us. We are closely monitoring inventory levels to enable dealers to have an optimal level of support to support customer demand as the supply chain continues to improve. In fact, there are a handful of models where we believe we are close to optimal inventory levels already, such as ATVs and several off-road vehicles in our recreation category. All in, our strong third quarter results allow us to maintain our full-year adjusted EPS guidance and move to the upper end of our sales guidance. As we look at demand, the stories become more mixed. Polaris ORV retail was down sequentially by 4%, This was mainly driven by softness in the recreational space. Drilling down to more specific areas of softness, we are seeing some customers be more price-sensitive on value models, which is consistent with last quarter. This impacted some Razor and ATV sales. Across the industry, the utility segment continues to have stable demand indicators, while the recreational space seems to be slowing. Our premium models, such as Razor Pro-R, Turbo-R, and Ranger Northstar, remain favorites with customers. We're also seeing customer appeal for vehicles with the latest Ride Command Plus connected technology, as this continues to be an area where we have out-innovated the competition. As anticipated, the backlog of pre-solds is declining as shipments improve, and that was certainly the case this quarter. Pre-solds as a percentage of retail hit their peak last year at 75% in the third quarter, and this year during the third quarter they are trending near 40%, with the decline being driven by a mix of improved availability and softening demand. A few other points on demand include pre-sold order cancellation rates are staying low across our business. We continue to see a steady mix of customers new to Polaris, which is consistent with historical trends, while both short and long-term repurchase rates remain elevated or within the historic range. And PG&A attachment rates are at or near record levels, indicating that customers are looking to upgrade their vehicles with higher margin accessories. And currently, parts and oil service kits had a record quarter, pointing to strong riding trends. Another bright spot is the continued consumer interest in getting outside, as evidenced by organic search for industry terms staying well ahead of 2019. This level of elevated organic search gives us confidence that this is the time to increase spend on demand creation. The top end of the customer funnel is healthy, and we believe that investing in demand creation can amplify organic interest and increase the number of leads at the bottom of the funnel. As this process can take time, we've made the decision to invest in growth and are increasing our spend on demand creation in the fourth quarter. Broadly speaking, we continue to track how the consumer is faring with pressure from rising interest rates, inflation, and higher gas prices. While we've not seen drastic changes in consumer behavior due to these factors, we will continue to closely monitor consumer behavior and react accordingly. We also weigh these dynamics with the fact that our average consumer is affluent, owning their own home, and dual-income households. Importantly, approximately 60% of our off-road business is in the utility space, as well as the commercial and defense sectors, where the purchase is not characterized as leisure or discretionary. We believe this part of the business is more insulated from external factors impacting consumer buying patterns. We'll continue to be vigilant in monitoring these metrics and will remain agile as we see shifts in consumer demand trends. So by segment, let me wrap up our thoughts on demand. In off-road, there is a clear delineation between utility and recreation. Demand indicators remain stable in utility, while recreation is softening, with pronounced moderation in the value segment. In on-road, we had a very strong Q3, and were able to ship a high percentage of reworked bikes. Dealer inventory seems to be in a healthier spot, and we believe we are closer to a normal operating environment. As we enter the traditionally slower winter season, we expect to see a seasonally driven softening in demand. For marine, demand at the entry and premium levels continues to be healthy, while we are seeing demand slow in the middle of the lineup. Similar to motorcycles, we do see the industry as moving closer to a normal seasonal environment, and with healthier dealer inventory levels, we expect seasonal weakness as we finish the year. As discussed last quarter, filling the channel remains one of the biggest opportunities for us in the near to medium term. We made progress in the third quarter given improvements in the supply chain and expect this to continue as we progress through the fourth quarter and into next year. With the progress made this quarter, we see inventory down approximately 50% versus 2019. We believe an optimal level of inventory represents an approximate 1.5 times increase from current inventory levels. which we estimate could total almost $400 million to refill the channel to this new optimal level of inventory. We've seen recent evidence that where we can supply product, we can gain share. That was evident in Indian Motorcycle and Razor during the third quarter and is playing out in October for ATVs, as we had heavy ATV shipments in the last couple of weeks of the third quarter. Given an improving supply chain and recent softness in retail, we expect this channel refill opportunity to last through the fourth quarter and into early next year. but the exact timing remains uncertain. The utility segment remains our greatest near-term opportunity as the supply chain improves given lower dealer inventory levels coupled with continued consumer demand. Moving to some of our newest rider-driven innovation announced recently for our 2023 model year lineups. We continue to push forward with industry-first technologies, next-level performance, and features that deliver for our customers. For Ranger, our North Star Trail Boss Edition is packed with new upgrades specifically designed to meet the demands of hardworking consumers. The Polaris Razor lineup introduced new color, audio, lighting, and tire options to allow our customers to make their statement when riding their own industry-leading Razor. Lastly, on off-road, we announced that Ride Command Plus will come standard in all 2023 Ranger XP 1000 North Star Editions. and is available as an add-on accessory in several 2023 Ranger, Razor, and ATV models. A first in the industry, Ride Command Plus uses connected vehicle technology to create a more seamless ownership and riding experience through features like vehicle health monitoring and remote location services. The technology also allows us to provide users with over-the-air updates, meaning our team can roll out new benefits as soon as they're ready. We've already shared that location alerts, post-ride report, and group ride plus are new features that we'll make available in Ride Command Plus later this year. This platform continues to elevate our position in connected vehicles to deliver the best customer experience. In marine, Godfrey pontoons launch the Mighty G, built from the ground up to optimize for electric propulsion while also compatible with a more traditional gas-powered engine. The Mighty G is the ultimate entry into pontooning and boating, providing plenty of room for passengers while delivering a highly maneuverable and comfortable ride. Hurricane announced the new Sun Deck 2600, offering it over 26 feet, which will be one of the largest deck boats in the Hurricane lineup. The versatility of this boat is unmatched, providing power and performance for an exhilarating time, whether it be tow sports, fishing, or a leisurely cruise. As you can see, Polaris continues to lead the way by powering the passion and pioneering new possibilities for all those who play, work, and think outside. I'll now turn it over to Bob, who will summarize our third quarter performance as well as our expectations for the remainder of the year. Bob?