BRP Inc.

All participants, please stand by. Your meeting is now ready to begin. Good morning, ladies and gentlemen. Welcome to the BRP's Q2 fiscal year 2021 earnings call. I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

Thank you, Julie. Good morning and welcome to BRP's conference call for a second quarter of fiscal year 21. Joining me this morning are José Boisjoli, 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 under the investor relations section. With that, I'll turn the call over to Jose. Thank you, Philippe.

Good morning, everyone, and thank you for joining us. Before I talk about our result this quarter, allow me to say that in this unusual year, I'm extremely proud of the effort of our people and our dealers in reacting with agility in order to respond to the crisis and preserve our business momentum. Our results this quarter are significantly better than our original projection that we made when the pandemic was first declared and confinement measures were put in place. We were in an excellent position heading into this situation and we will emerge stronger from this crisis. Based on our revised projection and better visibility, we are expecting revenue down 5% to 9% for the year and a normalized EPS range of $3.65 to $3.95 for the year. The range is quite large because of the uncertainties we are still facing. Let's start with the highlight of the quarter, beginning with the financial result on slide 4. Although most of our sites were shut down in April and May, our revenue came in much better than expected at $1.2 billion, only down 15% from last year's second quarter. Our normalized EBITDA ended the quarter up 28% to $214 million. resulting in a normalized earning per share of $1.14 up 61% over last year. This performance was driven by stronger than expected demand for product and parts, accessories and apparel that drove retail worldwide. This had led us to deplete our yard inventory and reduce our promotional activity more than we had anticipated. Our operational expenses were reduced half-planned. The highlight of the quarter was the strength of the demand for our products. As you know, we have steadily been increasing market share for the last several quarters. We started Q1 with a strong retail momentum, and our inventory was positioned to sustain that trend. However, given the exceptionally high demand for our product and the production shutdown, We ended up depleting our inventory quickly in the quarter and therefore lost some market share. Our analysis shows that as travel options were limited and people began to rethink how they will spend their free time, many have turned to PowerSport as a way to spend quality time with friends and family while respecting social distancing guidelines. This trend led to exceptional retail performance in all our key markets and all across our product lines. Our retail sales were up 40% in North America, 41% in EMEA, 34% in Asia Pacific, and 27% in Latin America. As you can see on the slide, our product line had significant growth. Let's talk about the impact of the forced closure of our plan on inventory. As you can see on this slide, our North American dealer inventory was down 51% at the end of July, and our finished goods inventory in our warehouse and in transit around the world was down 38%. To illustrate how fast this depletion happened, take a look at the graph to the right. Side-by-side inventory declined in May and June as retail ramped up, and we felt the impact of the suspension of our production lines from the previous months. For personal watercraft, the effect is even more drastic. Inventory was very low in June and July, ending the season with almost no Sea-Doo available due to the popularity of our brand. Given the strong retail trend, we expect it could take several quarters before we get back to optimal inventory level. Our team have done an incredible job of quickly ramping up production in this new environment. Our focus is on managing the growth throughout our operation while ensuring that we preserve the health and safety of our employees and our business partners. The strong retail demand in all our product lines was in part driven by a significantly higher number of new entrants to the industry. Early in August, we conducted a global study with customers in seven countries who have purchased units during the quarter and the results are phenomenal. As you can see on this slide, when looking at our retail sales, 77% of our power support customer purchased from BRP for the first time, representing an increase of 51% over the same quarter last year. By product line, it represents 74% for ORV, 65% for three-wheel vehicle, and 32% for personal watercraft. Of these new customers, 41% were completely new to power sport industry. This represents almost three times the number of new entrants we had over the same period last year. These results are very impressive and present a very good opportunity to grow our business. Our focus is to ensure that the surge of new entrants is converted into lifelong customers. Now let's turn to slide 8 for the year-round product highlight. Revenue were down 15% due to the temporary shutdown of our production site, partially offset by a favorable product mix for a three-wheel vehicle, driven by the introduction of the new Spyder RT and by a lower sales program. On the retail side, the North American side-by-side industry ended its season 20 on June 30th with retail up low 20%. Can-Am side-by-side had another very strong season with retail up low 40%, solidifying our number two market share position in the industry. We also performed well in international market with retail for the quarter up almost 50% in EME and up about 30% in Asia Pacific. Now, Not even five years after the opening of UAS2 facility, we have tripled the size of our side-by-side business and our momentum remains very strong. To ensure we can maintain that momentum, we have announced the construction of a second plan dedicated to side-by-side in UAS. This new plan will grow our capacity by about 50% and is expected to be operational by fall of 2021. Turning to ATV, the North American ATV industry also ended its season 20 on June 30th, with retail up high 10%. For the same period, our retail was up low 20% and ended the season with the number three market share position in North America. Our ATV business also performed well in international markets, with retail up over 30% in Asia-Pacific and over 50% in EME. Now looking at three-wheel vehicles. After a slow start to the season due to the closure of riding school and licensed bureaus and consequently the major readjustment of our marketing plans, when the situation turned around, our three-wheel vehicle retail picked up significantly starting in June and has continued through the summer. Looking at the industry, nine months into season 20, the North American three-wheel vehicle industry retail is now up high single digit, while Can-Am retail is up low 10%, with June and July performing significantly better than expected, and retail up over 90% over as riding school reopened. We are planning a virtual launch of new Can-Am products on October 1st. Overall, we are very happy with our Can-Am business. Turning to seasonal product on slide 9. Seasonal product revenue were down 25%, impacted by temporary production suspension and a negative product mix for personal watercraft, which were partially offset by lower sales program. Now, looking at retail. The personal watercraft industry also benefited from the strong consumer demand for outdoor activities that are compatible with social distancing. Ten months into season 20, North American industry retail is up 19%. Sea-to-personal watercraft retail was slow in April-May and then took off in June. As a result, retail is also up mid-teen percentage over the same period, notably gaining share in the industry-largest segment with the new SIDU GTI platform in the recreational segment. Given production constraints and the very strong retail demand, SIDU currently has its lowest level of network inventory in its history. The same positive trend was also seen in the international market, which retailed up for the quarter in the high 30% in Latin America and mid 40% in EMEA and Asia Pacific. On September 10, we are hosting a virtual product launch for all our dealers worldwide with some exciting personal watercraft product news. We believe that the demand for next season will continue to be strong. With respect to snowmobiles, we are still very early in the season, but retail is already up 70%. We believe it is due to the same trends that have benefited our other product lines. We are now in full production and will be able to meet dealer orders and have more units if the conditions warrant it. Continuing with a look at power sports parts, accessories and apparel, and OEM engines. Revenue were up 20% driven by a higher volume of PANA coming from strong unit retail sales and higher replacement parts revenue driven by an increased usage of product by consumers. Parts are up over 20%, accessories are up over 30%, and apparel is up over 40% compared to last year. The same trend affecting vehicle sales apply to these categories. Finally, looking at our marine business. Compare year over year, revenue were down 35% due to the wind down of Evenwood Outboard Engine and inventory is depleting faster than planned as retail is also performing well. These results were partially upset by the impact of the additional revenues from the acquisition of Tailwater last year. At the retail level, Allumacraft is up high teens percentage, Manitou is up high 30%, and Tailwater is up high 20%. The current phenomenon of getting outdoor is also helping our boat brand. We are progressing well with our discontinuation plan for Outboard Engine and remain committed to our marine buy-build-transform strategy which we are pleased to say is on track. We remain convinced that our best strategy is to focus our marine business on the growth of our boat brand with accelerated investment on new technology and innovative products including the Ghost Engine family. With that, I will turn the call to Sebastien.