Polaris Inc.

Good morning, and welcome to the Polaris Third 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, everyone, or afternoon, everyone. I'm J.C. Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2023 third quarter earnings call. We will reference the 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 third quarter, our expectations for the remainder of the year, and some initial thoughts on 2024. Then we'll take your questions. During the call, we'll 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 third 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. This morning, we posted third quarter results that were slightly lower than our original expectations, driven by elevated manufacturing costs and an increasingly cautious consumer environment, which resulted in lower shipments. Despite these headwinds, we posted share gains across all of our segments for the quarter, and we had record PG&A results that were bolstered by the broadest portfolio in all of PowerSports. We also had an incredibly successful off-road dealer meeting in July and marine dealer meetings in August, both with positive feedback from dealers regarding our new products. We are certainly operating in a dynamic environment where we have seen declining consumer confidence given persistent inflation, coupled with even higher interest rates and rising consumer debt. We saw this impact retail more than we anticipated in the third quarter and anticipate this to continue into the fourth quarter. Additionally, dealers are taking a more conservative position given a slower retail environment and rising flooring costs associated with higher interest rates. Despite all this, I remain confident in our ability to excel in this environment as evidenced by our share gains in all three segments in the quarter and a very positive reaction to our recently introduced new products. Our teams continue to closely monitor the environment, and we believe our revised guidance accounts for what we know today. Turning to our third quarter performance, sales declined 4% driven by lower shipments relative to a year ago, as well as higher finance interest. If you will recall, last year we had elevated shipping in the quarter to alleviate low dealer inventory levels and to catch up on motorcycle shipments that have been constrained earlier in the year. North American retail was up 5% in the third quarter. The promotional environment picked up a little in Q3, but still remains lower than 2019. Additionally, we believe we are successfully targeting potential customers with the right promotional offers to drive dealer traffic. While retail was generally lower than we had expected, we further strengthened our share position in each of our three segments. This included achieving the notable milestone in North America of being the number one motorcycle company in the midsize category. Margins were down due to continued headwind from foreign exchange, as well as increased pressure from floor plan promotional costs driven by higher interest rates and higher dealer inventories. Shipping volumes were also lower as we lapped a strong shipping quarter last year. Mix was another contributing factor to lower margins as we saw a slower than expected ramp up in production of our premium off-road products, including our new Polaris Expedition and Ranger XD. I would note that our marine team did a good job reacting to lower demand signals early in the quarter and made required cost adjustments to protect margins. On the manufacturing front, we have two big themes occurring in our off-road business. The first, which is encouraging, is that we had some of our strongest clean build days and weeks as we neared the end of the third quarter. These are days where vehicles came off the line ready to be shipped versus entering a rework process. Our teams believe they can build on the success in the fourth quarter. While this is encouraging, The later than anticipated improvements did impact our ability to get many high demand vehicles into dealers on time. The second theme is that we continue to build at a much higher cost than we should be. The supply chain has improved quite a bit, but our ability to more cleanly and efficiently execute has not. There are several factors impacting this. Over the last few years, our plants have contended with the pandemic, labor shortages, part shortages, new production lines and facilities, and in the third quarter, the complexity of the startup of manufacturing of our new premium products. These rapid and drastic changes have brought on an inefficient cost structure and mode of operation. As we appear to be entering a slower growth time in our industry, there is no better time than now to address these inefficiencies. We've deployed key lean resources into the most troubled facilities and remain committed to a culture of continuous improvement. While this is disappointing, it is very fixable, and we will show the best of Polaris' fighting spirit as we work aggressively to not just improve our performance, but to make it better than it has ever been. Execution is key here, and I believe we have the right team as well as the right strategy to remediate the situation. Considering these manufacturing inefficiencies and weaker-than-anticipated end markets, we're narrowing our full-year sales guidance to the lower end of our previously issued range. and lowering our margin and adjusted EPS guidance. Bob will provide more detail later in the call, but we plan to remain competitive and gain share in this dynamic environment while actively managing costs. Our goal is to continue to invest in the business, strengthen our operations, and emerge from this stronger than we entered. Now, let me share some thoughts related to customer trends we're seeing. We're closely watching softer retail trends that have extended into October. And off-road, these trends are pointing to a cautious outlook in utility, and continued weakness in recreation. We missed our third quarter retail expectations, which was the result of weaker than anticipated end markets coupled with the slower ramp up of new product shipments and continued constraints on manufacturing our premium products. Retail continued to be strong in new and premium products. Our dealers are telling us they have sufficient inventory of base and value models and would prefer to see higher volumes of our premium Northstar products and more of our recently launched Polaris Expedition and Ranger XD, which is obviously a big focus for us in the fourth quarter. For on-road, Q3 retail was down low teens given a slower market and difficult comps to last year when motorcycles were retailing much later given constrained availability early in the year. I would note that our heavyweight bikes are seeing more pressure than our midsize category. In marine, softness continued and even somewhat accelerated. We are now over 90% through the selling season, and dealers seem cautious given negative headlines covering the broader market, as well as elevated interest rates. Given the selling season has mostly wrapped up and the continued softness through the first three quarters of the year, as well as sufficient dealer inventories, we have adjusted our marine sales guidance downward. Pressures have mounted on our retail assumptions, but we still expect to grow retail in the fourth quarter, albeit at a slower rate than previously expected. Growth is expected to be driven by snowmobiles as well as our new products. We also have a favorable comparison in snow that should help contribute to retail growth in Q4 as we are on track this year to ship snow check units before the season begins versus much later shipments last year. As many of you saw firsthand at our dealer meeting in July, we launched two new categories in the power sports space and could not be more excited about the opportunity ahead of us. Polaris Expedition, which started shipping in Q3, has seen strong demand for our premium models and we're working hard to meet this elevated demand. In addition, feedback from early customers has been very positive. The Ranger XD is the first extreme duty side by side with industry leading torque, payload and towing capacity. Shipments are slated to begin in November and dealers are telling us they have high interest and allocations to customers already established. It's also important to remember the Razor XP launch from earlier this spring. This product has been well-received by dealers and customers. Importantly, the Razor XP hits at the largest subsegment of the recreational market. It's a multi-terrain product that makes up approximately 35% of our Razor sales, and our share in the multi-terrain space is over 2x our nearest competitor over the last five years. This is certainly a product we love having in the portfolio and should not be overlooked in our share gain strategy. In addition to our new vehicles, we also launched the next generation Lock & Ride with our all-new Lock & Ride Max cargo system. The new system adds an unmatched level of adaptability and provides customers with virtually limitless configurations to best match their needs for every journey, task, and activity. Lock & Ride Max is yet another step in our industry-leading parts, garments, and accessories strategy, where we've seen significant content increases across all product categories related to new accessory and attachment offerings. While they are not explicitly mentioned on the page, our on-road and marine segments also had incredible new product launches that reflect our continued commitment to industry-leading innovation. It was an exciting new product year at Polaris, and we believe these new products can help us gain share in the fourth quarter and into 2024. We continue to be in a much healthier dealer inventory position relative to last year. Dealer inventory has improved, given better production and supply chain dynamics, coupled with softening demand in some markets. I would note the dealer inventory is still below 2019. As I mentioned earlier, we're continuing to evaluate and adapt our mix given current demand trends. We're putting more emphasis on prioritizing Ranger XD, Polaris Expedition, and Ranger North Star lines during the fourth quarter as this is where we see the greatest demand. We're watching inventory levels closely and are ready to take appropriate steps necessary to manage inventory and off-road and on-road. similar to how we've pulled back production in marine in the face of weakening demand and rising dealer inventory. Wrapping up my comments on the quarter, while the results are short of our expectations, we did gain share and see strong demand for our new products. We're excited to get these new products into the market so consumers can again experience why Polaris leads the industry in innovation. We still have work to do operationally to ensure we deliver more consistently and at a lower cost. As I said, I'm confident in the team and their ability to execute. We'll continue to watch retail trends and are prepared to adjust our business model accordingly. We'll continue to invest in innovation and to improve our operations. The strategy we laid out last year and talked about at our Capital Markets Day in July remains unchanged, and I expect our team to deliver on all aspects of the strategy, which we believe can generate attractive returns for our shareholders. I'll now turn it over to Bob who will summarize our third quarter performance and provide additional details for the remaining balance of 2023, including guidance and expectations. Bob?