Polaris Inc.

Welcome to the Polaris First Quarter 2025 Earnings Call-in 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 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 of Investor Relations. Please go ahead.

Thank you, Allison, 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 2025 First Quarter Earnings Call. We will reference a slide presentation today, which is accessible on our website at .polaris.com. Joining me on the call today are Mike Spietzen, our Chief Executive Officer, and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing the 2025 First Quarter, as well as our expectations for 2025. Then we'll take your questions. During the call, we will be discussing various topics which should be considered for 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 2024 10K for additional details regarding risks and uncertainties. All references to 2025 First Quarter actual results and future period 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 Spietzen. Go ahead, Mike. Thanks, J

.C., and good morning, everyone. Thank you for joining us today. 2025 has continued to be a dynamic period for our industry. These are certainly challenging times, but we're managing the situation thoughtfully. And as I mentioned in our last earnings call, it has become increasingly evident over the last several months that one of Polaris's greatest strengths continues to be our determined and unrelenting team, one that is willing and able to conquer any challenge. Today, Bob and I will walk through how the business performed in the first quarter, share more on our strategic approach to mitigating the impact from tariffs, and discuss how we intend to emerge stronger to deliver sales growth, stronger earnings power, and higher returns. In Q1, we continue to focus on managing what is within our control. As expected, sales were down 12 percent, driven by our decision to continue reducing shipments to manage dealer inventory amidst a prolonged downturn in power sports and a higher promotional environment. Margins were slightly below our expectations due to elevated promotions in the industry. Tariffs did not materially impact the first quarter results due to timing and the deferral of related costs. We partially offset these headwinds through ongoing operational savings, including lower manufacturing spend and favorable material and logistics costs during the quarter. Adjusted EPS of negative 90 cents came in at the midpoint of the guidance range we provided in January. North American retail was down 7 percent, with relatively better performance in our utility business versus recreational products. On our prior earnings call, we highlighted the positive indicators around ridership, pent-up demand, and continued interest in the power sports category. This point was reinforced this last quarter in our snowmobile business as late season snow in the flatlands resulted in strong retail growth of approximately 50 percent in the quarter. Additionally, in a RAZR consumer study we recently conducted that looked at vehicle usage and owner repurchase rates, RAZR ridership and engagement within the category remains strong. In fact, over 90 percent of RAZR riders in our study say they are planning to ride the same or more than last year. However, more than 40 percent of those we surveyed acknowledge that they're holding on to their vehicle longer than they typically would given factors like interest rates and economic uncertainty. The share story was mixed this quarter as we gained share in motorcycles and pontoons, but lost modest share in ORV. Remember that we were among the first to execute a dealer inventory reduction strategy, demonstrating our commitment to a strong partnership with our dealers. We continue to see ORV share being impacted by elevated promotions from some of the Japanese OEMs that continue to lag class and reducing dealer inventory. In our view, this is a short-term issue and we believe that we remain well positioned to gain back share with our innovative product line across ATVs and -by-sides once inventory levels normalize and industry retail stabilizes. The uncertainty in today's market reminds me of 2018 when we were dealing with the initial wave of tariffs that were placed on China. The environment is fluid and changes daily. My goals then as CFO and now as CEO are consistent. Successfully navigate the situation with the best team in powersports by staying close to our dealers, preserving cash and positioning this great American company to emerge stronger than ever and further cementing Polaris as the leader in powersports. We've decided to withdraw our full year guidance that we provided in January. This was not an easy decision. However, given the fluidity of the tariff environment, including the frequency of new tariffs, changing tariff rates and the temporary suspension of certain tariffs coupled with the potential impact consumer spending, we have determined that withdrawing our full year guidance is the most prudent course of action. We're actively monitoring developments and will reevaluate our decision on guidance once we have greater clarity. Our commitment remains to stay focused on navigating these challenges and positioning Polaris for sustained long-term success. Retail trends in the quarter were similar to what we've seen in recent quarters. Within off-road, our utility retail was down high single digits led by double digit declines in ATVs. Recreation was down high teens driven by greater than 20% declines in RAZR and youth vehicles. Volatility amongst intra-quarter months was elevated with double digit swings month to month with February being down roughly 20%. It's worthwhile calling out our premium products such as Polaris Expedition, Ranger XD and Ranger XP Northstar as these products had positive retail in the quarter. The sustained demand for our premium feature-rich products highlights strength among cash buyers. Within on-road, the motorcycle market continues to be pressured both domestically and internationally due to its discretionary nature. However, Indian motorcycles outperform the industry and gain share in North America driven by the new Power Plus lineup and our heavyweight portfolio of bikes. In marine, the boat show season is behind us and retail at those shows was flat to slightly down against last year. During our recent dealer visits, there was a lot of excitement from dealers regarding the new boats we launched and while we expect sales pressure to remain in the marine industry due to high cost and the discretionary nature of the product, we believe we can win share with our innovative portfolio of boats. As previously mentioned, we also continue to see OEMs in the marine space impacting share with aggressive promotions to help dealers move non-current inventory. While this negatively impacts us in the short term, we do not believe this is a long-term strategy to move share. In the first quarter of 2025, Bob and I spent time meeting with some of our off-road and marine dealers. This is an important part of the job and I always walk away from those meetings impressed with the partnership we have with our dealers and their commitment to Polaris. My takeaway from those meetings are that partnership matters. They feel like we're listening and are making appropriate adjustments and they were appreciative of us meeting our commitment to reduce inventory last year and into this year. Innovation matters. Dealers feel we're listening to our customers and it can be seen in the features we added to our model year 2025 lineup. Innovation also includes quality where we've seen significant improvements in model year 2025 warranty claims and dealers confirm that Polaris is among the best in this regard. Lastly, dealers voice concern and uncertainty for the remainder of the year. We assured them that we would have remained close and make the appropriate adjustments to help ensure their businesses are protected. From our visits, it was clear that those dealers who are focusing on all five profit centers within their dealership are faring better financially given strength in service, used vehicles, and accessories. So while uncertainty remains high, I feel our relationship with dealers is healthy and strong. We understand each other's priorities and are working hard to ensure we experience mutual success. Now shifting gears to tariffs. Every day seems to bring a new headline or new information, so we're staying focused, keeping a level head, and being proactive. This includes going to Washington, DC to meet with our elected officials and their staff to reemphasize the fact that we are the only major U.S.-based power sports company. Our story started more than 70 years ago as a small business founded in Minnesota, and while we have grown to be a global company, we maintain our strong sense of pride being headquartered in the U.S. with the most significant U.S. manufacturing, testing, and R&D presence in the industry. We employ more than 8,000 Americans while supporting approximately 35,000 American workers employed by our U.S. dealers. In addition, approximately 65 percent of our U.S. production value stems from U.S. content. Unfortunately, the tariff policies as written today have created an environment that disadvantages Polaris for our U.S. manufacturing footprint. As we mentioned at our capital markets day in March, we import approximately $250 million of components from China to the U.S. to be used to assemble vehicles. Under the current tariff regime for China, we are forecasting an incremental tariff rate of approximately 145 percent on our U.S.-imported Chinese components, equating to approximately $200 million to $240 million in new estimated tariff costs this year. This 145 percent tariff rate doesn't apply to competitors who also source from China but manufacture in other countries like Mexico or Japan and then ship products to the U.S. The same goes for many of the retaliatory tariffs throughout the rest of the world, which equates to a potential gross tariff impact this year of approximately $35 million. This current environment puts us at a competitive disadvantage because we have a U.S. manufacturing footprint. All in, we expect to incur between approximately $320 million to $370 million of gross tariff costs, of which approximately $60 million to $70 million was budgeted within our original guidance. With costs being capitalized in inventory, we can defer a large portion of these costs into the back half of the year and 2026. In response to the tariffs, we've launched a tariff mitigation strategy. Following the initial tariff announcements in February, we mobilize cross-functional teams to evaluate the implications for our supply chain and cost structure. These teams meet daily, we have war rooms, and have already implemented several actions to help mitigate the potential tariff impact. To manage this complexity and reduce our exposure, we're executing a four-prong mitigation strategy focused on, one, making adjustments to our supply chain and manufacturing to diversify sourcing and optimize our production footprint. Second, initiating cost control initiatives to offset pressures elsewhere in the business. Third, reprioritizing markets and pricing where appropriate to preserve margin. Finally, ongoing government affairs and advocacy to ensure our perspective as a U.S. manufacturer is represented in policy discussions. Within our supply chain and manufacturing footprint, our immediate focus has been on our Chinese content, given the size of the impact. We started moving sourcing out of China and into other countries, including the U.S., in 2018. By the end of this year, we anticipate we'll have reduced our Chinese source parts by approximately 30%, with plans in place to make further reductions in 2026. Regarding our manufacturing in Mexico and USMCA compliance, approximately 95% of our U.S. imports from Mexico are USMCA-qualified. We are working to increase that percentage to further reduce tariff exposure. On the cost control front, we acted quickly to reduce discretionary spending, including tightening travel requirements and placing a selective near-term pause on hiring. As Bob will discuss shortly, we're taking a disciplined and proactive approach to managing costs, preserving liquidity, and ensuring Polaris remains well positioned in this period of uncertainty. In response to retaliatory tariffs, we've taken action to reduce shipments of Slingshot and certain motorcycles to Canada and motorcycles to Europe for a short period. We do not fear losing any material sales and share given current dealer inventory levels in those regions, and we can reevaluate this approach mid-year. We also pre-position motorcycles in Europe ahead of the announcement of retaliatory tariffs. We're carefully assessing our pricing strategy to ensure we remain competitive while navigating the complexity of the current trade environment. We began meeting with congressional members as well as leaders from the administration a couple weeks ago, and will continue to do so. My takeaway from those conversations is that we're approaching this in the right manner and the message is resonating, that the only U.S. headquartered power sports company is being impacted the most. We believe the Trump administration understands our issues, and we remain hopeful that productive negotiations on tariffs between the administration and key countries will progress in the near term. As you can see, there's a lot going on, and we are implementing actions that can reduce our tariff exposure over the short and long term. What I just walked through is not an exhaustive list. There are several other actions identified that our teams are working diligently on, and we'll execute them once we have further clarity on tariff policy. Adding together the new net impact from tariffs, our mitigation efforts, and the accounting deferral, we estimate the impact from tariffs in 2025 to be less than $225 million. Our teams are working hard on a large funnel of mitigation actions, with the goal of reducing the tariff impact even further. While we manage the immediate challenges of tariff, my leadership team and I remain focused on the critical long-term initiatives that are expected to drive value for customers, dealers, and shareholders long into the future. Mark Suarez, our VP of Off-Road Operations, did an excellent job at our capital markets day in March, laying out some of the actions his team is taking to build a more efficient operating culture in our manufacturing facilities. So far, his team has executed their agenda, and we're ahead of our plan in our manufacturing facilities. We also continue to push the pace on innovation and have some exciting products launching later this year that are expected to enhance our industry-leading portfolio of vehicles and boats already in dealer showrooms. Some of you saw the new Bennington digital helm at the Miami Boat Show, and many of our analysts were able to experience the dynamic shock technology of our snowmobiles in West Yellowstone. Turning to working capital, we committed to you in January that we were focused on lowering our finished goods inventory, and I'm proud to say the team did a great job of that during the first quarter. This effort helped us achieve our highest Q1 operating pre-cash flow in nine years. There's more work to be done, but the progress is measurable. Lastly, on dealer health, a broader team and I have met with many dealers this year. I'm encouraged by the feedback I get from dealers and the rankings our team receives from dealer surveys. We're again ranked number one in the categories of sales and service. We achieved a net promoter score of over 70, which indicates we're listening and making the right investments in our dealers. This partnership is vital in both good times and bad, and I'm confident that we are a trusted partner to our dealers. So while there's a great deal of uncertainty in the market today, we have a plan in place to help mitigate the impact from tariffs. Additionally, we're executing our long-term strategy to build, built to deliver shareholder value through sales growth, strong earnings power, and higher returns. The current market conditions will not cause us to deviate from our strategy, and I remain confident that Polaris will emerge as a stronger company and will generate above average return for shareholders. I'm going to turn it over to Bob to provide you with more details on the financials. Bob?