BRP Inc.

Good morning, ladies and gentlemen. Welcome to the BRP Inc.'s Fiscal Year 2022 Second Quarter Results Conference Call. 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, Natalia. Good morning and welcome to BRP's Conference Call for the Second Quarter of Fiscal Year 2022. 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 and that future results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risk and uncertainties, and I invite you to consult BRPs and DNA for a complete list 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. So with that, I'll turn the call over to Jose.

Thank you, Philippe. Good morning, everyone, and thank you for joining us. I am pleased to report that we concluded the first half of the year on a very strong note, delivering record financial results again this quarter, driven by continued momentum across all our product lines. Our team once again demonstrated incredible resiliency and successful manage to a challenging supply chain and logistic environment while limiting the negative impact on our dealers and customers. This resulted in the delivery of more units than planned. I would like to thank our supplier for their relentless effort and for going above and beyond to deliver in a very difficult environment. Given these exceptional results, our continued positive outlook for the business, and factoring in the successful completion of our substantial issuer bid, we are increasing our normalized EPS guidance for the year to a range of $8.25 to $9.75 per share. It now represents a growth of 53% to 81% compared to last year. You will notice that we widened our guidance range to account for the current environment and ongoing supply chain challenges. Sebastien will provide further details on this in a moment. Let's take a look at key financial highlights for the second quarter on slide four. Revenue were up 54% to $1.9 billion. Normalized EBITDA increased 94% to $415 million. and normalized earnings per share were up one and a half times to $2.89. This robust performance was primarily driven by higher volume across all our product lines, lower than expected sales program due to the continued strong retail demand, coupled with very low network inventory. Turning to slide five for a look at our retail performance for the quarter. Our North American power sport retail sales were better than expected, but were down 19% for the quarter as we were lapping a record quarter last year, with retail up 40%. Compared to the second quarter of fiscal year 20, which was pre-COVID, our North American retail was up 14%, despite operating with significantly less inventory in the network. This is a clear indication of continued solid demand. In fact, our fiscal year 2022 Q2 retail is the highest ever recorded, with the exception of last year. A few words on our network inventory. As we mentioned last quarter, historically we have been operating with about 170 days of inventory in the network. Last year, we were down to about 80 days, and in our most recent quarter we are down to an average of 26 days. This low inventory level combined with ongoing supply chain uncertainty are limiting our ability to grow retail. As a result, we expect retail to remain under pressure throughout Q3 and start to grow and improve in Q4, driven by the timing of snowmobile shipment, and the additional production capacity from URIS3 and Querétaro. Looking at the global retail picture on slide 6, although our North American retail sales were down in comparison to last year, we still outpaced the industry, which was down mid-30%. You can notice that our lineup continued to perform well in North America, as we've gained market share in most product lines. Similarly, in international market, retail sales decreased in Q2 due to the lack of inventory, combined with it being a very strong quarter last year. However, compared to the corresponding quarters two years ago, retail was up 9%. With our new product introduction, combined with the additional capacity, we are very well positioned to continue to outpace the industry. Another positive sign is the continued strong traction we are experiencing with new entrants, as you can observe on slide seven. To seize this growth opportunity, we are focusing on key initiatives to attract and retain new entrants. Our strategy consists of continuing to strengthen our product portfolio and provide a broad lineup of entry-level product through innovation, Creating and Reinventing Categories and Generating Value for Customers Inspiring them to join Parasport by leveraging our ambassador and expanding our offer within Unchartered Society Easing their learning curve to education with initiatives such as the Rider Education Program and How-to Videos Content Series and growing and further developing our community with programs such as Women Off On Road. With this strategy, we believe we are well positioned to leverage the growing interest of new customers in our industry. Our recent statistics indicate that new entrants represent 43% of our buyers in the second quarter compared to 41% last year. As a reminder, it was roughly 20% historically. They are a more varied group than our traditional customer with younger and more diverse people, including more women and families. In addition, our surveying continues to confirm that these new entrants intend to remain in the industry with only a mere 4% indicating having purchased a product as a COVID distraction. Also, The repurchase rate of our customer is higher than what we typically observe. These are all positive trends for the mid- to long-term growth of our industry. Turning to slide 8 for an overview of the key products we introduced at our recent virtual Can-Am and Sea-Doo Club that was held mid-August. Once again, the event was extremely popular with over 85% attendance by our dealers from around the world. It also allows us to reach a growing consumer audience at the same time. In terms of product launches, on the personal watercraft side, we expanded our FishPro lineup with the addition of two key models. The FishPro Trophy, a top-of-the-line fishing personal watercraft equipped with many of the key features of full-size fishing boats, and the FishPro Scout, a more accessible option. This product has been very popular since its introduction in 2018. It is the fastest growing segment in our personal watercraft lineup, with over 65% of buyers being new entrants to personal watercraft. With over 50 million anglers in the U.S. and over 700 million worldwide, there is a significant market opportunity for the FishPro lineup. This is another example of our ability to identify market opportunities and create subcategories. For Can-Am, our product introduction includes the upgrade of Maverick Turbo RR engine to 200S power, which is a first in the industry. This new engine power, coupled with our all-new P-Drive roller clutch system, ensure that we maintain the performance leadership in the sports segment, the fastest-growing category in the industry. We also introduced new engine options in our utility lineup with the HD7 and HD9 that offer leading class power and capabilities, and we improved the ruggedness and capabilities of the Can-Am Riker Rally to maximize performance and comfort off-road. These new products were very well received by dealers and the media, and our booking results are tracking very strong. Turning to slide 9, the main highlight of the club was the official introduction of the game-changing steedoo switch. When we re-entered the boat industry in 2018, we realized there were many opportunities for us to reinvent the pontoon space. which accounts for about 30% of U.S. powerboats and is quite sizable. In addition, it has one of the fastest growing rates in the industry with an 8% KGAR over the last five years. Turning to slide 10, the switch is a product that combines all the onboard space and stability of a pontoon with the driving performance and water sport-friendly capabilities of a runabout. It provides the most convenient, accessible, adaptable, and fun boating experience. One of the key innovative features of this switch is its plug-and-play LEGO-inspired system, which provides flexibility to change around your interior layout to adapt to your needs as the day evolves. The boat will also appeal to new boaters as it is easy to use, easy to dock, and is the first ever boat to come with a braking system. It is available in a variety of length and engine configuration with different packages, starting at the very accessible price of $17,999, and will be sold through our SeaDude dealer network. The product also represents a sizable opportunity for our accessories business. It is highly adaptable with over 65 dedicated accessories available at lunch and is also compatible with all link systems. Production is planned to start in the latter part of the fourth quarter with deliveries expected for the next boating season. Having talked to many dealers, Many are already sold out of model year 22, which is expected to be delivered to customers by the end of June, and some are taking orders for model year 23. We strongly believe that the Sea-Doo Switch is a game changer for the boating world, as it is a unique innovative product that is well positioned to attract new boarders and the younger generation. Over the years, we have proven we are able to disrupt the industry by creating new segments. We did it with the Sea-Doo Spark, which helped the personal watercraft industry grow 86% since its introduction, and more recently with the Riker, which allowed the three-wheel vehicle industry to grow 48% in two years following its introduction. And now we believe we will do the same in the pontoon industry. Now, let's turn to slide 11 for year-round product. Revenue were up 54% to $956 million, mainly driven by higher volume, lower sales program, and a richer mix for side-by-side vehicle. On Saturday, July 17, there was a fire in the outdoor storage yard of the UAS2 Mexico facility where side-by-side vehicle are produced. All employees on site were safely evacuated and no damage was caused to the manufacturing facility. Production resumed on the following Tuesday, and once again, I wish to sincerely thank our employees for their quick response. I'm very grateful to the firefighters, local businessmen, local businesses, and authorities for their help and support. Now, looking at side-by-side North American retail. In the second quarter, Can-Am side-by-side retail was down low 20%, outpacing the industry which was down mid-40%. As a result, Can-Am side-by-side made some solid market share gain, despite being constrained by very low network inventory. Similarly, we've closed the North American season at the end of June with an increase of high single-digit compared to mid-single digits for the industry. Note that this growth comes over and above record-level growth last year for the full season when the industry grew low 20% while Can-Am low 40%. The future looks very promising for Can-Am side-by-side business. Consumer demand for our lineup remains very strong. Our new products are very well received. and on August 23rd, we started the production of our URI Street facility on plan. We'll be ramping up to the end of the year to a full second shift and plan to have the full benefit of the additional 50% of capacity at the beginning of January 2022. Turning to ATV, Can-Am North American Retail was in line with the industry for both the quarter and full season. Both were down in the low 40% for the quarter due to the limited product availability and have high single digits for the full season. Now, three-wheel vehicles. Can-Am three-wheel vehicles continue to perform well compared to the industry, gaining market share both in the quarter and season to date. It remains the fastest growing brand in the motorcycle industry so far this season. The Rider Education Program registration continues to trend above expectation. In fact, we continue to be successful at attracting a younger and more diverse consumer base with a high level of new entrants, women, and visible minorities. This trend is very positive, and we are very excited at the outlook for the three-wheel vehicle business. Turning to seasonal product on slide 12. Seasonal product revenue were up 78% to $575 million driven primarily from higher shipment, a richer mix of personal watercraft and lower sales program. Now looking at personal watercraft retail, Sea-Doo continued to gain market share in the quarter. in North America, in North American retail season to date is now up low 10% compared to an industry that is down low single digit. Currently, the brand holds the number one market position in all segments in the industry. Based on the way the season is performing, we expect it to end with a very low level of network inventory again this year, which will lead to strong shipment in the next fiscal year. For snowmobile, we are currently in the slow period of the season. Our retail was down due to limited product availability as we ended last season with an all-time low level of inventory in the network. Still, we are very well positioned for the upcoming season with a record level of units pre-sold to consumers. Continuing on slide 13 with a look at power support parts, accessories and apparel, and OEM engines. Revenue were up 19% to $249 million for the quarter. Year-to-date, revenue increased by about 30% in each of our product lines. This growth is driven by higher volume of replacement parts due to increased product usage, combined with strong unit retail, which generates increased accessory sales across all product lines. Our extensive lineup of parts, apparel, and accessories, notably our proprietary link system, is driving strong consumer demand. Now looking to Marine on slide 14. Revenue were up 56% to $125 million. The benefit from a favorable mix of both sole and lower sales program more than offset the lower volume of outboard engines sold due to the wind down of Evenru. Looking at retail sales, both Alumacraft and Manitou saw retail decline in the quarter as sales were made earlier in the season compared to last year. However, both brands are performing well year-to-date with North American retail up low single-digit for Alumacraft and high 10% for Manitou. As for tailwater, we're at the end of the boating season in Australia, Retail continued to perform well and was up five single digits for the quarter. We also hosted a virtual event with our Allumacraft and Manitou dealers three weeks ago, where we introduced our 2022 lineup. It included improvements to our Allumacraft Pro City bass boats and to our Manitou XT and LX models. We are pleased with the progress we've made in our marine business and are looking forward to launching new boats with the Ghost engine in each of our three brands in the second half of 2022. With that, I turn the call over to Sebastien.