BRP Inc.

Good morning, ladies and gentlemen, and welcome to BRP Inc. FY21 first quarter conference call. I would now like to send the meeting over to Mr. Philippe Deschenes. Go ahead, Mr. Deschenes.

Thank you, Julie. Good morning and welcome to BRP's conference call for the first quarter of fiscal year 21. Joining me this morning are Josee Boisjali, President and Chief Executive Officer, and Sebastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call that are subject to a number of risks and uncertainties. I invite you to read BRP's MD&A for a listing of these. Also during the call, reference will be made to supporting slides, and you can find the presentation on our website at brp.com. So with that, I'll turn the call over to Josee.

Thank you, Philippe. Good morning, everyone, and thank you for joining us. About two months ago, when we presented our year-end result, we were on a roll. We had incredible momentum with every product line worldwide, and we were anticipating another great year ahead. Like the rest of the world, we were faced with the sudden impact of the COVID-19 crisis, which brought rapid changes that significantly disrupted our business and operation and forced us to quickly adapt our plans. It began when our dealers had to close their business as the situation worsened in China in January. Closures followed in Western Europe in February, where local governments enforced severe containment measures. As you can see on this slide, retail in North America had been strong until mid-March, was negative for one month, and once dealers started to reopen, retail has been strong since mid-April. Our manufacturing has reopened or is in the process of reopening and we are adapting to the present reality. With retail tracking better than expected, we are now focused on getting production back to capacity globally. I am proud of the team's swift action taken to limit the potential impact of the crisis on our business and protect our financial flexibility, amongst others. We deployed global protocol to ensure that our employee can work in a safe environment and reduce risk. We adjusted our production plan in line with government health regulation and expected market demand. We implemented cost mitigation measure, notably to temporarily off, salary reduction, and an exhaustive review of discretionary spending, resulting in overhead saving of up to $450 million for the rest of the year. We focus on liquidity preservation, notably focusing our capex investment on key projects with high impacted returns, resulting in a total capex target of $220 to $250 million for the year, representing a reduction of about $130 to $160 million from last year level. And we were successful in extending our term loan B, Thank you. As a result of these efforts, with our cash on hand and $700 million of revolver availability following the completion of the term loan transaction, we have about $1.3 billion of financial flexibility. While we remain cautious about the future, we expect that these different initiatives will allow us to navigate to the uncertain times while allowing us to continue investing for the long-term growth of the company. However, these measures do not come with sacrifice and one of the toughest decisions we had to make, as we announced yesterday evening, is the discontinuation of outboard engine production. As you have witnessed over the last few years, despite its innovative technology, Our outboard engine lineup has been losing share in a market that was already difficult. Our strength was in the early power segment, while the industry growth was driven by the package sector, which led to continued share erosion. Given this trend, our outboard engine had fallen behind in terms of profitability and cash generation potential. As the current situation forced us to reduce our investment plan, I reviewed downward our growth expectation for the business. The path to profitability improvement for Outboard Engine was too long. It became apparent that we had to discontinue production. For our Evinrude employee, let me say that I am very proud of the part they have played over the past years, and in particular the effort over the past 18 months. Although we have made progress, The impact of the COVID-19 has left us no choice. I wish to thank them for their dedication and commitment in helping us create the Marine Group. This decision will allow us to refocus our marine investment on higher expected return and sustainable projects such as innovative technology and enhancing our boat offer. We remain committed to our marine strategy with an evolution to our approach. Along with the announcement last night, we also announced a global supply agreement with Mercury, which is securing access to engine and is expected to support our dealer network development efforts. Our strategy has always been about building a strong marine business by offering customers a superior boating experience to product innovation. The discontinuation of outboard engine production does not change that objective. The development of Project GOES and Project M are progressing as planned, and we are confident that they will be game changers in the industry. Before we get into the quarterly results, I wanted to provide you with an update on our manufacturing operations. As you know, we suspended or slowed down most of our operations starting in late March until mid-May, responding to local government containment measures. This obviously limited our ability to ship product in the first quarter and impacted our financial results. The good news is that we have been able to take extensive measures to protect our people while resuming capacity. Production has restarted or is ramping up in most of our facilities and we are set to be operational everywhere starting next week. As mentioned, our results were significantly impacted by mandatory closure of plant and dealership. However, our retail performance was solid given the current context with North American power sport retail being up 4% or 10% when excluding snowmobile. Contributing to that, From Retail Performance was our focus on supporting our dealers as we strive to continue delivering the best-in-class dealer value proposition in the industry. Ensuring the health of our dealer network is a key priority, and we made sure to find solutions to ease the financial burden on our dealer, notably as we extended floor plan support until the end of June. Adjusted Performax target until the end of July to account for potential reduced demand. We proactively adjusted dealer orders and we extended warranties for all our PowerSport products. We also implemented measures to simplify business processes for dealers and to drive consumer demand. The response from our dealer network on these initiatives was very positive and should help us to continue to gain momentum. Now taking a closer look at the North American quarterly retail performance on slide 10. Our product portfolio performed above our expectation during the first quarter. We continue to outperform the off-road industry with side-by-side retail growing above 40% and ETV retail being up high single digit driven by a strong first half of the quarter and very strong second half of April. The three-wheel vehicle category is suffering the most in the current context since the confinement measures taken have had the most impact on this category with the closure of riding school and cancellation of demo tours, two key projects to support the growth of this sector. I will explain more on this in a moment. While our boat down for the quarter, Personal Watercraft and Snowbill outpace their respective industries. As summer is approaching, there appear to also be a clear trend that people will be staying at home for their vacation, or as they say, a staycation, which would work in our favor. We added this slide to give you some color on our retail analysis that we did, showing that our retail performance was very strong in regions where access to power sports dealers and playgrounds remained more available during the containment period. You can see a clear difference between the US and Canada, where the provinces of Quebec and Ontario were completely closed for six weeks. The middle graph shows the data taken April 15, and as you can see, the gaps in retail between the dealers that were open versus closed and on the right, between rural and urban dealers. Retail was up 20% when dealers were open for most of the month of April and up 24% in rural areas. When dealers are open, sales remain strong. This bodes well for our industry as it gradually enters the confinement stages in many regions around the world. Now let's turn to slide 12 for the year-round product highlight. Revenue were up 2%, driven by a strong start of the quarter, partially offset by the impact of the crisis. On the retail side, 10 months into season 20, the side-by-side industry was up high single digit. The demand for Arcanum side-by-side was very strong, and our retail was up low 40% season to date. Can-Am side-by-side was also performing well in international market despite the situation with retail for the quarter up over 40% in Latin America and up over 20% in EMEA and 20% in Asia Pacific. Under the current context, these are incredible results. Turning to ATV, the North American ATV industry was also 10 months into the season and Retail was up low single-digit. For the same period, Can-Am ATV Retail was up low 10%, notably gaining share in the mid-cc segment. We are pleased with the performance of our off-road business, which had a very strong end of April, and the positive trend continued in May. Now looking at three-wheel vehicles. Early in Season 20, the North American three-wheel vehicle industry was down low 30%, while we were down low 40%. There are a few factors to note. First, we are lapping an excellent quarter due to the launch of the Riker last year. As I mentioned, the on-road industry suffered the most from containment measures due to the closure of riding schools and licensed issuers. and the cancellation of demo tours. We also had to cancel our marketing effort since we have no project to support new entrants into the market, a key driver for this category. We have now launched a new marketing campaign that is adapted to the improving situation. As schools are reopening, demand for classes is growing and we are confident we will regain traction. Turning to seasonal product on slide 13. Seasonal product revenue were down 14%, primarily driven by lower shipment as many dealer were closed. Now looking at retail, the North American snowmobile industry ended its season 20 on March 30th, which retailed down mid single digit percentage. Our Ski-Doo lineup continued to drive strong consumer demand, resulting in retail that was up mid single digit percentage, and ended the season with the highest market share in its history. In Scandinavia, 10 months into the season 20, the snowmobile industry is down mid-10%, driven by unfavorable snow conditions last winter. Skidoo and Lynx outperform all other brands, with retail only down high single-digit percentage. Our complete lineup and new product introduction, notably the new Summit Turbo models, have put us in a very favorable position in the industry with continued market share gain potential. Although we had to cancel our demo tour, we are encouraged by the level of spring certificate unit sold to customers. Our performance is very similar to last year, which is testament to the strength of our Ski-Doo and Lynx brand. Now, turning to personal watercraft. It is still early in the season and the North American personal watercraft is flat, with Sea-Doo retail is up low single-digit percentage. Given the current situation, which halted manufacturing, plus a cold spring, our retail was affected and we reduced our model year 20 production plan by 18% compared to last year. We decided to advance the cut-off of model year change, and we will be ready to ship model year 21 units starting this summer. May retail so far for watercraft has been very encouraging, and with our production adjustment, we will be ready to supply the demand as needed. Continuing with the look at power support part accessories and apparel and OEM engines. Revenue were down 15% as a result of dealer closure due to the pandemic. Parts order, which represent an important portion of our PA and A business, are directly correlated to the ability of dealer to service unit, and as a result, suffer the most from dealer being closed. As dealerships started to reopen, we saw an improvement in parts sales. Finally, looking at our marine business. Revenue were down 26% due to a lower volume of outboard engine and boats sold, partially offset by the impact of the acquisition of tailwater during last year. At the retail level, Allumacraft was down over 20%, resulting from weak industry trend in key market, while Manitou performed well with retail up low team percentage. With the confinement measure lifting and spring weather getting better, We see retail improving for both Manitou and Alumacalaf. With that, I will turn the call over to Sebastien.