Polaris Inc.

Good day, and welcome to the Polaris Second Quarter 2023 Earnings Conference Call and 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. To ask a question, you may press star then one on your telephone. To withdraw your question, please press star then two. Please note, today's 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, Rocco, and good morning or afternoon, everyone. I am J.C. Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2023 second 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 second 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 second 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 schedules 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. We hope everyone is enjoying their summer and the great outdoors with friends and families. For us at Polaris, summer certainly marks the peak of our riding season, and this year is especially exciting as we're welcoming our dealers back for our first in-person summer dealer meeting since 2019. In conjunction with this meeting, we'll also host our Capital Markets Day on July 31st in Nashville. Today's call will focus on recapping the quarter and current state of the business, and we'll save commentary on some of the longer-term strategy and future initiatives for the Capital Market Day event, which is less than a week away. For those who cannot make it, the event will be webcast on our investor relations website. Turning to the second quarter performance, sales grew 7%, driven by positive volume and higher net pricing. North American retail was up 14%, with on-road up more than 50% due to strong demand and availability of our Indian motorcycle and slingshot products. In off-road, it was encouraging to see positive retail trends for both utility and recreation. Our marine business did see some retail softness in the quarter. I'm proud of the team's performance and the fact that we gained share in off-road, on-road, and marine during the quarter. As we progress through the back half of the year, we expect to hold share in on-road while gaining more share in off-road with a robust product lineup that includes recently launched and soon to be launched vehicles. Margins were down modestly as we experienced near-term headwinds, including higher interest, foreign exchange, and snow warranty costs. We also continue to experience production inefficiencies due to challenges with supplier delivery, mainly wire harnesses, as well as tight labor markets in specific regions. Our team has been working hard to remediate these issues, and while we have seen some progress in July on both fronts, we expect it to take some time to improve our efficiency to pre-pandemic levels. Adjusted EPS was flat relative to the prior year, with higher interest expense and foreign exchange headwinds partially offset higher volume price and lower share count. The year is progressing in line with what we told you on our January call. Retail has improved, our product launches are on time and positive feedback from both dealers and customers, and inventory remains near optimal levels. While both gross profit and EBITDA margins expanded over 60 basis points and 50 basis points respectively in the first half of the year, margins have seen increasing pressure from labor, warranty, and litigation costs, which we expect to continue in the back half of the year. With that being said, our teams remain focused on the five-year strategy we laid out last year, and margin expansion is a significant objective of that strategy to generate strong returns for our shareholders. Bob will provide more color on guidance shortly, but it's worth noting that with half of the year behind us, we have narrowed many of our guidance ranges. We are raising our sales guidance, but increased costs incurred during the year thus far and anticipated in the second half has us narrowing our adjusted EPS guidance accordingly. It's been an exciting year at Polaris, and many of you will get to feel the energy and drive that we have as an organization at our dealer meeting and capital markets day next week. We wear our passion on our sleeves and are driven to make Polaris stronger than ever before. Now, let me share some thoughts relative to customer trends we're seeing. The demand story and off-road and on-road improved during the second quarter, while Marines saw more challenges. Let me dive into off-road in more detail. Demand for our utility vehicles remains strong, and we expect this trend to continue as we progress through the year. Recreation improved during the quarter, and we expect share gains to continue as momentum builds around our recent Razor XP and Polaris Expedition launches. Promotions are working, and our team is doing a great job of targeting these dollars to the right customers and geographies to drive quality leads and generate dealer traffic. And lastly, July retail is off to a good start for the third quarter. For on-road, Q2 retail was robust due to a combination of strong product line, easy comps, given a weak second quarter last year, and improved availability. This is true across both Indian motorcycles and slingshots. In marine, we did not see a recovery in retail during the second quarter. As a reminder, the selling season kicked off later than anticipated this year due to weather. Dealers seem a bit reluctant to take on additional inventory given the combination of a healthy inventory position, higher flooring costs, and soft retail. Our team is responding appropriately. We have adjusted production schedules and are controlling our variable costs in the near term to protect profits. The bulk of the marine selling season ends in a few weeks, and we'll assess dealer sentiment and inventory levels at that time as we prepare for the 2024 season. But for now, the marine industry seems softer than our original expectations, and this is reflected in our revised guidance. Turning to what we've been hearing from dealers, our dealers are one of the greatest sources of feedback, and our biannual dealer survey provides great insights into how our dealers view working with Polaris, as well as their outlook for power sports. This survey touches on many facets, including dealer satisfaction, sentiment, quality, and inventory, to name a few. We conducted the latest survey in mid-April for off-road with over 900 dealers responding. The results were certainly encouraging and give me great confidence that we were focused on the right areas and Polaris is poised to succeed. A few highlights include we continue to rank number one in dealer satisfaction relative to other OEMs. Sentiment around inventory strengthened as the supply chain improved. However, Ranger North Star supply continues to be an area of opportunity. Dealers expressed optimism about how promotions and product availability can positively impact retail, and our quality scores improved across all product lines. Lastly, the team and I regularly visit dealers. Earlier in the year, some of us visited marine dealers in the southeast, which we talked about last quarter. And a month ago, we visited off-road dealers in the mid-Atlantic region. The two biggest takeaways from our most recent visits are that dealers told us Polaris is winning the innovation race. From the launch of the Pro, Razor Pro R, and Turbo R, the Razor XP, to the more recent Polaris Expedition, we believe that we are at the forefront of rider-driven innovation and providing the best customer experience while expanding the market. Secondly, dealers noted their outlook on the year has improved relative to what they believed earlier in the year. Pressure remains at the low to mid end of the recreation market, but premium continues to perform well, and there's plenty of excitement around our new products. As we indicated at the start of this year, 2023 is an exciting year for product innovation, and two of these launches are shipping now. The first is our completely redesigned Razor XP lineup. The multi-terrain category is the largest segment in the sports side-by-side segment, and the Razor XP has long been the best-selling sports side-by-side in the industry. In March, we launched the next generation of Razor XP with class-leading durability, comfort, and performance that takes this lineup to the next level. This product hits at the heart of the market, and we expect it to continue to be our top-selling razor. Reception has been great, and many of you will get to see it in person for the first time at next week's meeting. The second product is the Polaris Expedition, which is hitting dealers' floors during the summer. Similar to how Razor in general pioneered new categories in the side-by-side market, We are on the path to do that yet again with this entirely new adventure side-by-side category. Targeting consumers who are into overlanding and have a destination in mind for camping, adventure, and exploration, the Polaris Expedition has added comfort and capabilities. Plus, it touts the industry's largest fuel capacity of any factory side-by-side on the market with a 200-plus mile range, making it stand out against any other side-by-side in the market. Rider-Driven innovation is one of our core strategic tenants, and we are not done yet. It's safe to say there's more yet to come this year. Regarding dealer inventory, we continue to be in a much healthier position relative to last year and are diligently working to get new products and more Ranger North Stars to dealers' floors. Relative to 2019, inventory is down about 25%. We view this level as near optimal, and dealers seem to agree. While we occasionally hear feedback from dealers that their overall inventory is too high, they also tell us their Polaris inventory is in a good place and their excess inventory is coming from lower-end OEMs they brought on during the pandemic to meet demand. On some of our recent dealer visits, we heard that dealers are working hard to sell those lower-end OEM products and evaluating the need for such OEMs now that vehicle availability has improved across the industry. We value our relationships with our dealers and continue to work with them to enable our mutual success. Switching to our Geared for Good strategy around a variety of ESG metrics, I want to recognize our recently published 2022 Corporate Responsibility Report. I love seeing this report and the compilation of stories illustrating our team's passion and commitment to be good stewards. One of the highlights from this year's report was around our environmental goals. We celebrated exceeding our original three environmental goals that we set in 2017 and announced seven new 2035 environmental goals. We continue to take a genuine approach to the strategy and are aligned at when needs to be done to meet these goals and our other geared for good initiatives. So here we are halfway through the year, and thus far it has played out very similar to how we initially expected in January. Innovation is back at Polaris in a big way, and we believe it will continue to drive retail growth and share gains across our business. Although some challenges remain, we have been working hard to remediate supply chain and labor constraints with positive momentum experience thus far in July. While uncertainty remains in the broader economy, we are executing on the matters we can control. I'll now turn it over to Bob, who will summarize our second quarter performance and provide additional detail for the balance of 2023, including guidance and expectations. Bob?