BRP Inc.

Good morning, ladies and gentlemen. Welcome to the BRP Inc. full year 22 first quarter results conference call. For participants who use the telephone line, it is recommended to turn off the sound on your device. I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

Thank you, Simone. Good morning and welcome to BRP's conference call for the first quarter of fiscal year 22. Joining me this morning are Josee Beaujolais, President and Chief Executive Officer, and Sebastien Martel, Chief Financial Officer. Before we move to the prepared remarks, please note that certain forward-looking statements will be made during the call and that future results could differ from those implied in these statements. Also note that forward-looking information is based on certain assumptions and is subject to a number of risks and uncertainties. I invite you to consult BRPs and DNA for listing of these. Also during the call, reference will be made to the supporting slide, and you can 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. Building on the momentum we had over the last several quarters, we experienced a solid start to the year with record first quarter results, which came in above our expectations. This growth was driven by the fact we are lapping a quarter in which our manufacturing operations were partially shut down, coupled with ongoing robust demand for products. Given these strong results and continued positive outlook for the business, we are increasing our normalized EPS guidance for the year by 50 cents to a range of $7.75 to $8.50 per share. We are maintaining a wider than usual guidance range given the ongoing challenges we are facing with the supply chain. I will touch on this in more detail in a few minutes. Now let's turn to slide 4 for a more detailed look at key financial highlights for the first quarter. Revenue grew 47% to an all-time first quarter high of $1.8 billion. primarily driven by higher volume across all our product lines, especially for parts and accessory business, coupled with lower than expected sales program. In fact, our revenues not only surpassed the same period last year, but also increased 36% compared to the first quarter of fiscal year 20. Our normalized EBITDA was up threefold to $375 million and our normalized earning per share reached $2.53. Not only were our financial results solid, but consumer demand remained very strong in the quarter, as you can see on slide five. Globally, our retail grew in all key regions while continuing to outpace the industry. In North America, our passport retail growth accelerated from the fourth quarter up 39% of 49% when excluding snowmobile. We also had a strong performance in international markets with retail up 9% in Latin America, 32% in EMEA, and 83% in Asia Pacific. By product line, we grew across all of our lineups except snowmobile as our dealer ran out of units at the end of the season. For side-by-side growth was more moderate as it has also suffered from limited product availability due to low inventory. I will provide more color by product line in a moment. Turning to slide 6. Despite the strong demand in the first quarter, we expect retail growth to be limited in the second and third quarters mainly due to the ongoing supply chain constraints which are evolving very rapidly. When we last updated you in late March, one of our key challenges was the logistic congestion at different ports. Our team was successful at addressing these issues by finding alternative solutions. Today, logistics are predictable and manageable. Currently, we are managing the type availability and delivery delay for certain raw materials. In this case, we are working with our supplier to find substitute or new source of supply, which are creating some delay. For the past month, our main challenge has been dealing with the shortage of semiconductors. This is affecting some of our Tier 1, but also some of our Tier 2 suppliers where we have less visibility. This is presently the main source of disruption in our operation because finding alternative parts would require technical changes. Given these issues, some of our units will need to be retrofitted. This means the unit is missing a few components and it will move to final assembly when the components are received. This situation will delay the timing of certain deliveries and temporarily increase our work in process. Regardless of these challenges, our objective is to deliver all orders by the end of our fourth quarter. Our plans are running at full capacity and we are in the process of increasing production capacity at URIS and Querétaro to make this happen. We plan to work through these issues for the balance of the year to deliver our production schedule. Take note that all of this is increasing our costs versus last year, but it has been factored into our guidance. Turning to slide seven. Given those challenges and the impact on production, dealer inventory will remain low throughout the year. To better illustrate the situation, we have provided statistics from the past few years. In fiscal year 18, 19, and 20, You can observe on the graph that our level of inventory in our dealer network was in sync with retail at about 175 days. During those years, our retail was growing low double digits. In fiscal year 21, given the surge in demand, coupled with our two-month production shutdown, inventory dropped to 80 days. In the first quarter of fiscal year 22, it dropped as low as 40 days. With the continued strong demand, we expect to remain at this level of inventory for the remainder of the year, which will limit our retail sales growth. Also, it is now clear that inventory replenishment will take place in fiscal year 23. Turning to slide 8, we continue to experience strong consumer demand across all our product lines. New entrants continue to enter the industry representing 37% of buyers in the first quarter compared to about 20% historically. This is good news for the industry and it doesn't seem to be driven only by the impact from the pandemic. According to our survey, only 7% of new entrants said they purchased a power sport vehicle as a COVID distraction. In fact, new entrants are a more diverse group representing younger people and more women and families. In addition, according to our survey, 82% of buyers are not making a trade-off when purchasing a unit. Contrary to our general belief, only 3% of buyers declare to have purchased a unit instead of traveling. There are multiple positive signs of sustained consumer interest. This is the fourth consecutive quarter of double-digit growth for the power sport industry. Website visits are up over 60% compared to last year for all our brands. And we have a strong demand for products, including RECORD snowmobile spring unit booking, the strongest start of the personal watercraft season in over a decade, and our three-wheel vehicle rider education program registrations are trending above our target. These are all positive trends for the mid- to long-term growth of our industry. Now, let's turn to slide 9 for year-round products. Revenue were up 44% to $923 million, mainly driven by a higher volume, lower sales program, and a richer mix of side-by-side vehicles. Looking at side-by-side vehicle season to date retail, 10 months into season 21, the North American side-by-side industry is up high 20% while our Can-Am side-by-side vehicle is up low 20% as we were impacted by limited product availability. This is also impacting our retail performance in international market as we deliver more units to North America. As a result, our retail performance was up high single digit in EME and 19% in Asia-Pacific. Still, we are very happy with the strong consumer demand for our lineup and we look forward to ramping up production as we expect the UAS3 facility to come online at the end of the third quarter. Turning to ATV, the North American industry is also seven months into the season 21 and retail is up in the low 30%. Can-Am is performing in line with the industry, with retail up in the low 30% over the same period. For both ETV and side-by-side, our worldwide network inventory is at a historic low. Now looking at three-wheel vehicles. Now six months into Season 21, the North American three-wheel industry retail is up about 90%. Can-Am three-wheel vehicle is off to a very strong start, It is the fastest growing brand in the motorcycle industry so far this season with retail up over 140%. We are very happy with the momentum we have with three-wheel vehicles. The retail trend is very positive. The rider education program registration continues to trend above expectations with registration up over 50% versus our internal target which bode well for the sustainability of consumer demand, and we continue to attract a younger and more diverse consumer base, notably with retail to women up 166%, diverse community up 190%, and new entrants up 180%. These are exceptional results, and we are very excited at the outlook for the three-wheel vehicle business appeared from Ising. Turning to seasonal product on slide 10. Seasonal product revenue were up also 44% to $463 million, driven primarily from higher shipment and richer mix of personal watercraft and lower sales program. Now looking at personal watercraft retail. Only six months into the North American season 21, the industry retail is up in the low 70%. Seydoux Retail is up mid-90%, outpacing the industry and gaining market share in all the industry segments in which we compete. The trend is also very good in international markets, with retail up over 110% in EMEA, 130% in Australia and New Zealand, and up over 30% in Brazil. This year, is the strongest start of the retail season that we have experienced in over 20 years. Given this strong start, unit availability is already getting tighter heading into the summer. We expect to end the season with a very low level of inventory again this year, which should lead to strong shipment in the next fiscal year. Turning to snowmobile, the North American snowmobile industry ended the season 21 with retail up in the high 10%. Ski-Doo retail was also up high 10% over the same period and ended the season with the number one market position in every industry segment in which it competes and with its highest market share in history. Our momentum was also very good in Scandinavia and Russia with retail up low 20% for the quarter. Turning to slide 11. Looking ahead, our snowmobile business is very well positioned for season 22, as we have a very strong lineup, notably with the introduction of the Lynx brand in North America and the return of an all-time favorite, the Ski-Doo Maxi. We ended season 21 with record-low network inventory, and units pre-sold to consumers are up 157% over last year. As a reminder, spring units are special models only available at pre-order and allow us to better forecast volume for the upcoming season. This year, exceptional strong spring unit orders represent roughly 70% of the upcoming season volume compared to about 35% historically. This reflects the continued very strong consumer interest for power sport products and snowmobiles in particular. Continuing on slide 12 with a look of power sport parts, accessories and apparel and OEM engine, which experience a similar trend as vehicles. Revenue were up 91% to $300 million, driven by higher volume of replacement parts due to increased product usage combined with strong unit retail, which generated increased accessory sales across all our product lines. It is clear that our LINQ ecosystem accessory strategy is driving demand and paying off. Despite supply chain challenges that also affected PAME, we've delivered exceptional results. Now looking at marine on slide 13. Revenue were up 11% to $122 million as strong boat shipment more than offset the impact of the wind down of the even route outboard engine. Looking at our different brands in terms of retail performance for the quarter, Manitou was up over 80%, Allumacraft over 60%, and Tailwater was about up 40%. All in all, we are pleased with the performance of our both brands and are on track for the introduction of new products with the GOES engine. With that, I will turn the call over to Sebastien. Thank you, Josee, and good morning, everyone.