BRP Inc.

Good morning, ladies and gentlemen, and welcome to the BRP's Q3 FY 2021 earnings call. I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

Thank you, Maud. Good morning, and welcome to BRP's conference call for the third quarter of fiscal year 21. Joining me this morning are Josee Bocelli, President and Chief Executive Officer, and Sebastien Martel, Chief Financial Assistant. 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 listing of these. Also during the call, reference will be made to supporting slides, and you will find the presentation on our website at brp.com under the investor relations section. So with that, I'll turn the call over to Jose.

Thank you, Philippe. Good morning, everyone, and thank you for joining us. As you know, fiscal year 21 has been a very volatile year for us. Once the temporary shutdown were lifted, we were able to resume production at full capacity, have taken special measures to manage our supply chain, and have been especially vigilant about protecting our people. Given the increased popularity of our product, we feel fortunate to be where we are during this time of international instability. It has been an exceptional period and it's not over yet. I would like to start by thanking the remarkable dedication of our people, dealers and suppliers who have risen to the occasion and allow us to continue to deliver incredible results while still ensuring the health and safety of our team everywhere around the world. As you are aware, interest in the transport sector remains very high and our strong lineup continues to allow us to outpace the industry worldwide. Although we faced some production challenges, we were able to manage them and we are delivering units in line with our plan. Let's turn to slide four for the financial highlight of this third quarter. Our revenue for the quarter were up 2% driven by year-round products partially upset by lower old sales of seasonal products due to a change in timing of personal watercraft production. Our gross profit margin came in much better than expected at 29.1%, as the continued strong consumer demand allowed us to reduce our promotional activity and drove a richer product mix than planned. Our normalized EBITDA ended the quarter up 30% to $349 million, resulting in a normalized earning per share of $2.13, up 41% over last year. We expect this positive trend to continue over the next quarter and beyond, and based on this, we are increasing our year-end guidance with revenue now expected to be down 1% to 5%, normalized EPS up 31% to 37% to a range of $5 to $5.25. As I mentioned earlier, the demand for our product remained exceptionally strong in the quarter, leading to our North American power sport retail being up 16% year-over-year. When excluding personal watercraft, for which network inventory was at an all-time low at the start of the quarter, our North American power sport retail was up 29% compared to an industry that was up mid-teen percentage. The strength and diversity of our product portfolio also led to solid retail growth of 16% in Latin America and 22% in Asia Pacific. Only EMEA experienced a retail decline in the quarter, with retail down 9% due to inventory shortage. Looking now at North American retail by product line on slide 6. Again this quarter, we have delivered solid growth across the Parasport product portfolio. Side-by-side and ETV both outpaced their industry with very strong retail results, up about 30% and low 20% respectively. Three-wheel vehicle ended the season on a strong low, which retailed up about 60%. I remind you that this is on top of a high of 80% growth in the same quarter last year. Stomobile is off to a good start for the season with Skidoo Retail already up low 20%. And Personal Watercraft was our only product that was down in Tier 3, as it was for the rest of the industry. As I already mentioned, this was due to the network inventory being at an all-time low, both in North America and in international markets, at the beginning of the quarter. We are pleased with the strength of our lineup, which continues to gain a share in this very healthy industry backdrop. Now on to slide 7 and the current trend in our industry. Like others in the power sport business, we are seeing continued consumer interest, and we have delivered another quarter of robust power sport retail growth. For Q3, our power sport retail is up 29% when excluding personal work rafts, following a strong retail pattern throughout the quarter. For example, the ORV industry had its best month in the quarter in October in terms of growth, and we saw this year the best start of the snowmobile season we have observed in five years. This solid growth is coming from both new entrants and returner customers who have decided to expand or extend their interest in Paris Forte. Based on a survey we conducted recently, we estimate that 34% of buyers were new entrants. We are feeling optimistic that this strong level of consumer interest is something that can be sustained. In part, this is due to the continuous strong consideration for our product shown online with, for example, Can-Am Off-Road Vehicle website visit up 59% in October compared to last year. and Personal Warcraft Pre-Season Customer Certificate were already up 12% at the end of October versus the entire full season October to March last year. We also know our three-wheel vehicle rider education program daily registration is trending at twice last year level since the beginning of November, so the interest does not appear to be slowing down. With our retail and production plan aligned to this current and projected growth, we believe we are well positioned to capitalize on the growing consumer interest in PowerSport. Turning to slide eight, I would like to talk about our recent product introduction. In 2020, our traditional launch model for new product evolved to be exclusively virtual. We held two global virtual events in the third quarter one for Can-Am and one for Sea-Doo. These were both very popular, had over 80% attendance by our dealers around the world, and allow us to reach a growing consumer audience at the same time. Future events will include many of these same elements to reach an even broader audience. Regarding our product introduction, in the side-by-side utility segment, we reinforce our premium offering by adding our very popular cab with HVAC and the Lone Star package to our long box lineup with the introduction of the Defender Pro Limited and Defender Pro Lone Star considered to be the best in the industry. We also strengthened our mud lineup with the introduction of an improved ViscoLock 4-lock at the ETV industry best four-wheel drive system which provide equal power to all four wheels at the push of a button, providing an even more agile ride. As for SIDU, our model year 21 lineup includes industry-leading acceleration and control with a completely redesigned RXP X300, which include the performance-inspired Ergolock R system, which holds the rider in the perfect position. We also took the onboard experience to the next level with the launch of a 7.8-inch wide full-color LCD display, the industry-first app-enabled Bluetooth display, providing full control of music, navigation, weather, and more. These product introductions were very well received by theater and the media, and booking was very solid. Now let's turn to slide 9 for the year-round product highlight. Revenues were up 11% driven by a lower sales program and a richer mix. Meanwhile, volume of units sold was slightly lower than last year due to many of the units produced being in transit to replenish our international yard inventory despite increasing our production numbers as mentioned during our Q2 call. These units are expected to be sold over the coming quarters. On the retail side, four months into the Season 21, the North American side-by-side industry is up low 20%. Can-Am side-by-side continues gaining share, especially in the utility segment, with retail up low 30%. The ATV industry is also four months into its Season 21, and retail is up high 20%. Can-Am is also up high 20% over the same period. The demand for off-road lineup is very strong, and we believe we could have sold additional units had we been able to supply more of them. We have broken ground on the construction of our new side-by-side manufacturing facility in Mexico, having 50% of side-by-side production capacity. The project is progressing on plans, and is expected to be ready for operation by fall 2021. Now looking at the three-wheel vehicle. The North American three-wheel industry ended the season 20 on October 30th with retail up low 10%. Our Can-Am three-wheel vehicle retail was up low 20% over the same period, gaining share in both the three-wheel vehicle and two-wheel motorcycle industries. This season was very successful for our three-wheel vehicle business. Once schools were allowed to reopen, our rider education program continued to attract many potential customers, and we now have over 31,000 courses completed with a better-than-anticipated conversion rate to new and used units of over 45%. We also launched the Can-Am Women Mentorship Program. This program is designed to help overcome the barriers that have traditionally held women back for experiencing the pleasure of riding through inclusivity and education. We already have over 6,000 active, highly engaged members, and the program has been given significant coverage from magazines such as Forbes and Rolling Stone. We are pleased with the traction we have with this program, and the positive feedback received from participants as well as its potential going forward. And finally, Riker had another very good season. Over 50% of Riker customers are new entrants compared to slightly more than 40% last year. We're also successful in attracting key buyer groups with over a third being women, almost three-quarters of riders under the age of 55. and almost half from diverse communities compared to one-third last season. The Riker has definitely been successful at attracting a younger and more diverse customer base, growing our total addressable market. With these different initiatives, we are paving the way for new entrants to join our sport and to continue to grow the business. Turning to seasonal products on slide 11. Since the low product revenue were down 8%, primarily due to a change in product change schedule for personal watercraft versus last year. The lower shipment volume were partially upset by lower sales program. Now looking at retail, the North American personal watercraft industry ended season 20 on September 30th, with retail up mid-single digit. Sea-Doo Retail was also up mid-single digit percentage for the season. With the success of the new GTI platform, SIDU took the number one position in the recreational segment and now lead every segment in the industry in North America. SIDU is also off to a good start in the season in counter seasonal market, which retail up high 20% in Australia, New Zealand, and up mid 30% in Latin America. Given the strong demand for these products, compounded by the production shutdown we experienced in Q2, we ended the season with network inventory at an all-time low, down 95% from last year. With these low levels of inventory and the strong trend in consumer certificates, we are expecting a strong performance for our personal watercraft business next year. Looking at snowmobiles. While still early in the season, the North American industry retail is up mid-10%. Schedule retail is up high 20% over the same period, despite a lower level of inventory available in the network. Given that demand for snowmobile does not appear to be diminishing, we have decided to extend our production schedule until mid-January for Season 21. This is accounted for in our increased guidance. Continuing with the look at power sports, parts, accessories, and apparel in OEM engines. The same phenomenon we have observed with vehicles likewise holds for parts, accessories, and apparel. Revenue were up 15% driven by a higher volume of P&A coming from strong unit retail sales and higher replacement parts revenue as a result of increased usage of product by consumer. The focus we have placed on our link accessories lineup is paying off. Looking at marine, revenue were down 25% in the quarter, driven by the wind down of the even route outboard engine line. At the retail level, the positive momentum continue for Manitou and Tailwater, both delivering mid-30% retail growth. Alumacast saw a slight decline in retail due to limited product availability. Since during this period, we have been consolidating our operation into St. Peter's, Minnesota facility and closed the Acadacia plant. We are pleased with the performance of our boat brand and the progress we are making on our strategy to transform the marine industry. We look forward to sharing with you soon more detail on our latest initiative. With that, I will turn the call over to Sebastien.