Polaris Inc.

Good morning, and welcome to the Polaris, Inc. first quarter 2023 earnings conference call. 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. To ask a question, you may press star, then one on your telephone keypad. 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, Gary, 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 2023 first 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 Speetson, our Chief Executive Officer, and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing the first quarter as well as our 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 2022 10-K for additional details regarding risks and uncertainties. All references to first quarter 2023 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 schedule at the end of the presentation for the GAAP to non-GAAP adjustments. Now I will turn it over to Mike Speetson. Go ahead, Mike.

Thanks, JC. Good morning, everyone, and thank you for joining us today. This may be a little premature here in Minnesota, but I hope your spring and riding season has opened up from what seemed to be a prolonged winter, although I can't complain too much as it was helpful to our snowmobile business. I consistently reinforce with my team that the key to a successful year is a strong start, and our first quarter results reflect just that. Sales were up over 20%, adjusted EBITDA margin expanded 172 basis points, and adjusted EPS grew 55% versus last year. Sales growth was driven by strong mix and higher ship volumes, favorable net price, which is price net of promotions, increased share in off-road, on-road, and marine as availability improved through the back half of last year and into Q1, and a great start in our commercial business. And the balance of the restocking benefit, mainly in off-road, that we discussed in January. While North American retail was down 5% versus last year, it increased 14% versus 2019. Our teams and dealers are seeing a return to more normal seasonality. The spring selling season, which continues for the next couple of months, is going to be an important gauge for the remainder of the year. April is off to a good start despite a delayed spring for most of the country given poor weather conditions in early March. We saw gross profit and EBITDA margin expansion for the third consecutive quarter as we maintained our focus on process improvements and efficiencies that can drive us closer toward our long-term target of mid to high-teens EBITDA margins. We executed margin expansion despite factory inefficiencies as a result of late deliveries from suppliers. This gives me confidence in the margin improvement opportunity as we drive suppliers to more normalized delivery performance and continue to drive efficiencies in the factories. I shared in January that 2023 is going to be an exciting year, and we came out of the gate strong with the launch of the Razor XP, where we made the industry's best-selling side-by-side even better with more horsepower, a stronger chassis, redesigned ergonomics, and added comfort. Initial reviews of this all-new Razor are very strong, and we're excited for deliveries to start later in Q2. We also started production of our first all-electric Ranger XP Kinetic, which is now shipping to customers. Our mighty G pontoon, a Godfrey pontoon designed specifically with an electric motor option in mind, will be entering its first selling season and should do well given a very strong order book. OnRoad has its most competitive portfolio of bikes and slingshots ever, with a fresh lineup of FTRs, the debut of the Indian Challenger Elite, as well as our Scout and Indian Pursuit lineup. There's certainly a lot to be excited about this year given what we've launched thus far, but we're not done. I'm incredibly excited about the launches we have planned for the rest of the year, so stay tuned. Overall, we're off to a strong start in 2023. That said, we are closely monitoring external factors that could impact our customers, and we remain laser-focused on being agile and adaptable should the demand environment change. Now, let me share some thoughts related to customer trends that we're seeing. The demand story remains mixed and largely consistent with what we've been seeing over the past couple of quarters. In off-road, demand for our utility vehicles remains steady, as the use case for these products is less affected by mild fluctuations in the macro environment. Recreation remains soft, and we expect this to be the case as we progress through 2023 with share gains for us coming from new product launches. We continue to see higher demand for our premium products regardless of category, including Ranger Northstar and Razor Pro-R and Turbo-R. Snow check for model year 2024 hit our target, making it the third best snow check in the past 20 years. And lastly, April retail is off to a very good start. For on-road, we're just now entering the selling season, and April has been very encouraging as spring has arrived and our dealers have an extremely competitive lineup of Indian motorcycles and slingshots. In fact, we believe our lineup of bikes has never been more competitive than where we are today. In marine, it was a later than anticipated start due to weather, but the boating season is upon us in many parts of the country, and inventory is finally healthy. I was recently on the road visiting some of our marine dealers with our marine team, and they told us they've had a successful boat show season, but the customers seem to be taking longer to make a decision about buying a boat given improved inventory levels. Like our other segments, the high end of the marine market continues to perform well. In addition to customer trends, we also keep a close eye on credit and lending trends that we see with our customers. In general, the metrics we monitor remain consistent with past levels. If anything, we're reverting closer to pre-pandemic metrics. As normalization within our retail finance continues, the key metrics we follow are average FICO scores, approval rates, and penetration, each of which has not deviated materially from data dating back to 2018. Our information comes from our partner banks that are available to our dealers to provide credit to customers. These partner banks finance about one quarter of retail purchases, and the information we're sharing today comes from that piece of our business and our partnership with these key banks. As you've heard me say many times, our relationship with these banks are very important. Because we do not have a captive financing arm, we have minimized credit risk and exposure. These partner banks are well-established, strong, and well-capitalized, and we are appreciative of our relationship with them and their willingness to work so closely with our dealer network to help make consumer financing available. They are truly allies in our strategy to provide the best customer experience. Lastly, these key partner banks are telling us they want more volume, and we're working with our dealers to make this happen. Regarding dealer inventory, I'm happy to say that we are in a much healthier position than we've been in a long time. We believe inventory is mostly at our targeted and optimal levels as we enter our prime selling season. We do have a few exceptions and are working to optimize dealer inventory across all categories. Year over year, the number looks staggering. But remember, we're coming from a point in 2022 where dealers were starved of inventory given supply chain constraints and our inability to build and deliver enough product. Relative to 2019, inventory is down about 20%. We're getting numerous signals from dealers, and our own data shows that we're returning closer to a more normal seasonal trend as inventory levels improve. When you look at the average North American retail for off-road vehicles, excluding snowmobiles, for 2016 through 2019, the first quarter is typically our smallest quarter, and we anticipate this to be the case in 2023. Historical performance and seasonality show that we typically see a sizable jump in retail sequentially from Q1 as the riding season begins and weather improves. We expect this to be the case this year, and our April performance supports this assumption. The magnitude of the jump in Q2 is expected to be a bit more muted due to a strong start in Q1, as well as some of the macro headwinds. As the chart shows, history would suggest that we would see a sequentially similar third quarter followed by a dip into Q4. The bottom line is that our first quarter performance was in line with our expectations, and April performance is trending consistent with our expectations. Although challenges remain, our team remains focused on enhancing our internal processes and systems to improve efficiency and delivery. We continue to see ourselves in a strong position to gain share as the year progresses with healthy inventory at the dealers and a big year for innovation and product launches. We also remain vigilant as we assess consumer trends. While nothing has changed significantly compared to the past couple of quarters and our original expectations, our team remains agile and committed to optimizing the business. Finally, we remain committed to delivering on our five-year strategy and plan to provide a comprehensive update on our progress during our recently announced Institutional Investor and Analyst Day on July 30th. I'll now turn it over to Bob, who will summarize our first quarter performance and provide additional details for the balance of 2023, including guidance and expectations.