Polaris Inc.

Good day and welcome to the Polaris fourth quarter and fiscal year 2022 earnings call and webcast. 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 on a touchtone phone. 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 J.C. Weigelt, Vice President, Investor Relations. Please go ahead.

Thank you, Betsy, and good morning or afternoon, everyone. I'm J.C. Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2022 fourth quarter and full year 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 Speetson, our Chief Executive Officer, and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing the quarter and year, as well as our initial expectations for 2023. Then we'll take your 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 10K for additional details regarding risks and uncertainties. All references to fourth quarter and full year 2022 actual results and 2023 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. Thanks, JC.

Good morning, everyone, and thank you for joining us today. We delivered another record year for both sales and earnings from continuing operations, despite a difficult supply chain environment and lower retail versus our original expectations. We also improved our cash position in 2022 and executed over $500 million of share repurchases. I want to thank the entire Polaris team. Through your relentless effort in a challenging environment, we delivered record results, once again, proving this is the best team in power sports. During the year, we made progress in our five-year strategy with a renewed focus on power sports. And while we intentionally delayed several product launches in 2022 as the team focused on navigating the supply chain challenges and delivering orders to dealers and customers, we didn't stop investing in innovation. With more than $365 million invested in R&D in 2022, we continue to make our mark on the industry within the wide-open, side-by-side category with Razor Pro-R and Turbo-R, and through the introduction of the industry's first connected technology with Ride Command Plus. With a focus on extending our industry leadership, we divested TAP and redirected our resources, time, and focus on our core power sports customer, a decision that has had a positive impact on our EBITDA margin and returns. While innovation is the foundation of everything we do, our number one priority will always be the safety of our riders. We are making investments in product safety while standing behind our vehicles and acting if needed. This past year saw an increase in warranty expense and recalls driven largely by legacy designs or supplier issues. Our investments in safety and quality over the years have supported what I believe to be one of the broadest post-market surveillance programs in the industry, which is enabling us to aggressively monitor for and identify issues. We recognize these recalls are frustrating for dealers and customers, but we are committed to correcting these identified issues. This approach to monitoring our products even after they leave our factory floors, combined with our ongoing investments in engineering, testing, supplier quality, and manufacturing processes, bolsters our focus on providing our customers with safe, high-quality vehicles. The last point I'll make is that we benchmarked our recalls per 1,000 vehicles produced from 2016 through 2022 against automotive, on-road motorcycles, and power sports. Polaris was in the top quartile in terms of the fewest number of vehicle recalls vehicles impacted per 1,000 produced. We have and will continue to invest in and drive improved quality for safety of our riders. As we look at the fourth quarter specifically, sales grew 21% to $2.4 billion. Excluding marine, North American retail was down approximately 6% year-over-year with modest growth in off-road utility and Indian motorcycle, offset by a slowing off-road recreational market. These trends are similar to what we saw in the third quarter and are expected to continue into 2023. While fourth quarter market share was down approximately 1.5 points year over year, it was our best market share performing quarter of the year, and we saw two consecutive quarters of sequential share growth in on-road and ORV. Pontoon retail declined overall with share loss concentrated in the low end of the market, and we gained share in the high end of the market. Both adjusted gross profit and EBITDA margins expanded nicely to drive year-over-year adjusted EPS growth of 57%, despite increased headwinds from warranty costs, interest expense, and foreign exchange. I'm proud of our record performance, especially considering the environment and the unanticipated headwinds that the team worked relentlessly to overcome. Now, let me talk about the demand environment. The demand story remains mixed. Polaris ORV Q4 retail was down 4% year-over-year and down 1% sequentially, mainly driven by softness in the rec space. Our ATV and Ranger products were up low to mid-single digits sequentially and year-over-year. Remember, the utility space represents approximately 60% of our off-road business, including sales to commercial customers, which do not factor into our retail metrics. We continue to see and expect stable demand here, as these customers use their vehicles for work applications on a ranch, farm, job site, or multi-acre homes. I'd also add that weaker recreational retail in Q4 was partially driven by many Razors being on a recall-related stop sale in December. As anticipated, the backlog of pre-solds declined in the quarter as shipments improved. We continue to see sales growth in our premium models, such as Razor Pro-R, Turbo-R, and Ranger Northstar, as they remain favorites with customers due to their competitive features and capabilities. A few other points on demand include PG&A attachment rates are at or near record levels, indicating that customers are upgrading their vehicles with higher margin accessories. 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. Interestingly, five-year repurchase rates were at all-time high And we're seeing these customers return and upgrade their vehicles to Razor Pro-R, Ranger Northstar, and even vehicles with Ride Command Plus. And on financing, the metrics we're seeing continue to point to a consumer in a healthy financial position. FICO scores and approval rates are consistent with last year. Also, credit availability has not meaningfully changed. There continues to be strong consumer interest in the space measured by online activity versus pre-pandemic metrics, with off-road organic online searches up approximately 30% versus 2019. Indian motorcycles also saw strong web traffic, leading to a record number of leads. By segment, let me wrap up our thoughts on demand. In off-road, there remains a delineation between utility and recreation. Demand indicators are stable in utility, while recreation is soft, with more pronounced moderation as you move through models with less content. We expect these trends to continue for the foreseeable future. In on-road, we had a strong Q4 with the second quarter in a row of market share gains for Indian Motorcycle. With a strong product lineup for 2023, we are optimistic that on-road can continue seeing share gains in retail growth. For marine, demand at premium levels continues to be healthy. Inventory is the healthiest it has been in a long time, so we are seeing customers shop around a bit longer. Boat show season has kicked off and thus far dealers are optimistic as we enter their busiest season of the year. Turning to North American dealer inventory, we continue to move closer to a more normal operating environment with seasonality even more present within our business versus recent history. For ORV specifically, we looked at data from 2016 through 2019 to get a sense of the average seasonality with North American dealer inventory and retail before the disruption that occurred over the past couple of years. The data shows we typically see our highest dealer inventory levels and lowest retail levels in Q1, which makes sense as customers typically come in looking for units before the spring and summer riding season. We think this is an important context to know as we enter a more normal seasonal operating environment and to better understand the inventory build ahead of the heavier retail season in the summer. As for the current dealer inventory, we continue to make progress towards our new optimal level. In fact, most of our products are close to these optimal levels, except for our Ranger side-by-side portfolio, especially the high-end North Star editions where we continue to see strong demand. Total company dealer inventory was up 116% from 2021 to 2022, but remains well below 2019 levels. We currently see the value of refilling dealer inventory at approximately $150 million and which is below the $400 million we discussed on the October call due to progress we made with its shipments in the fourth quarter. We expect to reach this optimal level in inventory sometime in the first half of 2023. So today, given a return to a more normal operating environment and traditional seasonality, our operations are focused on building inventory into the channel where needed to ensure a strong retail season, allowing dealers to sell products and not worry about availability. In summary, our say-do ratio in 2022 was high, with revenue coming in at the high end of our guidance and EPS exceeding guidance by 10 cents, despite headwinds in the supply chain and increased pressure from interest rates and foreign exchange. I'll now turn it over to Bob, who will summarize our fourth quarter and full-year performance, as well as 2023 guidance and expectations. Bob?