BRP Inc.

Good morning, ladies and gentlemen, and welcome to the BRP, Inc. Fiscal Year 2025 Fourth 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 Deschaines. Please go ahead, sir.

Thank you, Sylvie. Good morning, and welcome to BRP's conference call for the fourth quarter of fiscal year 25. Joining me this morning are José Boisveli, President and Chief Executive Officer, and Sébastien 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 the actual results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risk and uncertainty, and I invite you to consult BRP's MD&A for a complete list of these. Also during the call, reference will be made to Sporting Flight, and you can find the presentation on our website at brp.com under the investor relations section. And as a reminder, note that following the announcement of the initiation of the sales process for our marine businesses, these businesses are now presented as discontinued operations. Therefore, all periods presented in these release reflect continuing operation only unless otherwise noted. So with that, I'll turn the call over to Joseph. Thank you, Philippe.

Good morning, everyone, and thank you for joining us. Although fiscal 25 brought its share of challenges, I am proud of our team's agility and dedication. We have always been known to be leaders, and this year was no different. In light of a difficult macroeconomic environment, softer industry, and continued pressure on consumer demand, we were the first OEM to proactively reduce production and shipments. Throughout the year, we remain focused on the disciplined execution of our inventory reduction plan to support our dealers and protect the value of our brand. As expected, this resulted in short-term market share losses. We have also continued positioning the business for long-term success. We have introduced several new models, entered new segments, and further improved operational efficiency by achieving over $200 million in lean savings for the year. Also, as you know, we have decided to sell our marine business. The process is currently following its course. We will update you in due time. Our strategy is to double down on our Parsport leadership position. will focus our effort and investment on our core activities and capitalize on attractive long-term growth opportunities. Now, let's turn to slide five for key financial highlight. We ended the year with $7.8 billion in revenue, normalized EBITDA of $1 billion, and normalized EPS of $4.68, all within our revised guidance range. We also achieved one of our key objectives by significantly reducing network inventory level, as you can see on slide six. Inventory was down 13% at the end of the year, or down 18% when excluding snowmobile, which saw softer than anticipated retail in the fourth quarter. With better snow condition in February, Snowmobile retail has improved, bringing our total North American power sport inventory reduction to 18%, in line with our objective of 15% to 20%. This solid performance shows our commitment to protecting our dealer value proposition and put us in a favorable position to capture market opportunity when the industry rebounds. Let's turn to slide 7 for an update on the global power sport market. The fourth quarter was consistent with the trend observed earlier in the year. In North America, our power sport retail was down 21%, essentially in line with our expectations. Excluding snowmobile, it was down 11%. From an international perspective, we continue to see softer demand in EMEA and Asia-Pacific, which retail down 11% and 10% respectively. Latin America continues to outperform other regions, which retail up 16%, driven by sustained momentum in ORV and personal watercraft. Turning to slide eight for a look at our North American retail performance by product line. ORV performed as expected during the quarter with our retail lagging the industry as we were less competitive in non-current unit due to our leaner inventory position. Meanwhile, snowmobile retail was softer than anticipated because of the late arrival of snowfall. retail peaked later in the season, with February and March better than planned, which should limit the shortfall for this season. As for three-wheeled personal autograph and pontoon, Q4 was the off-season, and there are no major trends to highlight as volumes were small. Let me circle back to ORV on slide 9. As you can see, the dynamic we've discussed last quarter continued in Q4, with the industry essentially being driven by discounted non-current units. Since we significantly reduced our network inventory, we had lower availability of non-current units and were less competitive in that market. However, we've gained further share in current units, which give us confidence that we will regain momentum when the inventory position of other OEMs normalize. Before reviewing quarterly results by product line, let's turn to slide 10 to take a step back and look at our progress made over the past few years. We became the number one OEM in power support in North America and we are a much stronger company than five years ago. In fact, we have gained six points of market share versus pre-COVID. Our ambitious ORV strategy paid off, leading to market share gain of 11 points in side-by-side and four points in ATV. We even extended our leadership position in personal watercraft and snowmobile with gain of two and nine points respectively. The only area where we lost some ground is in three-wheel vehicle as we face a tough compatible with pre-COVID being the first season of the RYCR. Even if fiscal 25 was a more difficult year, we continued applying the same formula that delivered these results. We pushed technology and introduced several key models across all our product lines to wow our consumers. We grew our addressable market with the launch of the Can-Am electric motorcycle. We expanded the rollout of our modular design, namely with the introduction of the new Hi-C CETV platform. And we stayed true to our performance and innovation heritage winning on the racetrack and being recognized by the industry with 17 design awards. With our momentum, we strongly believe that we are well positioned to benefit from a market rebound. Now, let's turn to slide 11 for a more detailed look at year-round products. Fourth quarter revenue were down 17% to $1.1 billion, primarily due to the reduced shipment to right-size our network inventory. At retail, Can-Am side-by-side was down about 10% due to the non-current unit dynamic compared to the industry, which was down low single-digit. Still, fiscal 25 was our second best year ever at retail. We continue to experience strong demand for high-end defender cabs gaining about two points of market share this year in the utility segment. BTV retail was also down about 10% for the same reason as side-by-side. However, we are well positioned with our new outlander platform and gained over two points of market share in the mid-CC category in fiscal 25. This platform was also introduced last August across our high CC model, a significant upgrade in ATV. Looking at three-wheel vehicle retail was down about 30% very early in the season. we remain optimistic about the upcoming season, given the positive response to the recently introduced Can-Am Canyon, which tapped into the growing adventure touring market. Turning to seasonal product on slide 12, revenue were down 29% to 678 million, primarily reflecting redo shipment. In counter seasonal market, It was peak season for personal watercraft and sea-dews had a low 10% decline in APAC, slightly outperforming the market that was down mid-10%. Meanwhile, we continued to grow in Latin America, which retail hopped low single-digit percentage. As for North America, we are in the off-season, but early indication from boat shows suggest more stable industry condition compared to last year. For snowmobile, retail was down low 30% in the quarter. When the season began, we had proportionally less non-current units than our competitors, resulting in market share loss in North America as of the end of January. In Scandinavia, we gained market share. We traded down high single-digit percentage compared to an industry that was down low 20%. We introduced our new model 2026 in mid-February, and we are currently in the booking process. We strengthened our lineup by expanding the REV Gen 5 platform to additional model, adding new feature and providing better connectivity. As this year was also challenging, we remain cautious with our upcoming production schedule to tightly manage inventory. Our new model, coupled with the fact that some players are exiting the industry, put us in a very good position to gain further share. Moving on slide 13, for part accessories and apparel and OEM engines. Revenue were down 1% to $293 million, primarily due to slower to lower shipment of P&A given softer industry trends. From a product standpoint, our ORV part business maintained its momentum, driven by ongoing usage of our growing vehicle fleet, while accessory sales have been softer in line with retail. With that, I turn the call over to Sébastien.

Thank you, José, and good morning, everyone. We completed fiscal 25 with another quarter of tight execution against our plan to deliver on our network inventory reduction target, all the while meeting our revised guidance for the year. Looking at the numbers for Q4, revenues were down 20% to $2.1 billion, primarily due to the lower shipments and higher sales programs. We generated $429 million in gross profit, representing a margin of 20.5%, down from last year, primarily due to the insufficient use of our assets, given the lower production volumes, higher sales programs, and an unfavorable model mix. These were partly offset by favorable pricing. Our normalized EBITDA ended at $240 million, and our normalized earnings per share at $0.98. From a cash flow perspective, we ended the year generating over $450 million of free cash flow from continuing operations, allowing us to sustain attractive returns of capital to our shareholders with $62 million in dividend payments and $215 million in share repurchases. From a balance sheet perspective, we close fiscal 25 with $180 million of cash and a comfortable net leverage ratio of 2.6 times, providing us with the balance sheet flexibility as we navigate uncertain environments. All in all, while fiscal 25 was a challenging year from an industry dynamics perspective, I am pleased with our team's constant focus on the tight management of our expenses and cash generation and their ability to unlock efficiencies throughout the business. It is these efforts that allow us to deliver results at the upper end of our revised guidance. Now turning to fiscal 26, starting with an update on the current tariff situation on slide 16. Like many North American companies, we have optimized our manufacturing footprint supply chain over the years based on the free trade agreements between Canada, United States and Mexico. As such, we currently have operations in a supply chain across all three countries and consequently, the ongoing tariff disputes are impacting our business, our suppliers and our customers. So far, this is the situation for BRP. All of our vehicles produced in Canada and Mexico are USMCA compliant and are currently exempt from the 25% tariffs levied by the United States on these countries. We have limited exposure to imports from China into the US or from imports from US to Canada. And while we are impacted by US tariffs on steel and aluminum, the cost is relatively small as the exposure is mostly limited to our P&A business. So with what we know today, the tariffs that are currently in effect would have an estimated impact of about $40 million on our business if they stay as is throughout the year. But as you well know, the situation remains very fluid, and we are continuously refining our assessment of the potential cost of these tariffs on our business, especially as it relates to potential impacts on our Tier 2 and Tier 3 suppliers. This brings us to the discussion about what to expect for fiscal 26 on slide 17. As we already mentioned, with the disciplined execution of our plan throughout the past year, we started fiscal 26 in a stronger position, notably with leaner inventory levels, a cost structure that was right-sized for the current industry environment, and a greater focus on our core power sports business. With that, we were well positioned to deliver some top-line growth driven by improved ORV shipments with wholesales more closely matching retail, new product introductions, and partly offset by lower shipments of personal watercraft and snowmobiles to bring back our network inventory to a more normalized levels. And we were poised to deliver some improvements in EBITDA margin driven by the increased shipments and lower sales program, given that we are operating with leaner network inventory levels and a more efficient overhead structure following the optimizations we did in fiscal 25. These elements would be partly offset by return of variable compensation and unfavorable foreign exchange variations. Accounting for higher depreciation, financing costs, and tax rate, our plan called for about $4.50 to $5 of normalized EPS for the year, with tougher comparables in the first half of the year, notably expecting Q1 EPS to be down about 70% on a continuing operation basis. However, since the beginning of the year, with the ongoing tariff disputes and changing geopolitical dynamics, our operating and demand environment has become much less predictable. While we expect to be able to manage through the currently implemented tariffs, several more tariffs have been announced by different governments, and we lack the necessary visibility as to the timing, nature, and extent of potential changes to trade regulations to fully assess the potential impact on our business. More importantly, we are seeing the uncertainty created by the situation starting to impact the economy and the consumer confidence, which makes it very difficult for us to properly forecast our industries and the demand for products with the level of confidence we require. In this context, we believe it would be inappropriate to issue guidance today, and we will therefore refrain from doing so. Still, we remain focused on tightly managing our business and making sure that we remain agile to rapidly adapt to any change in operating environment, all the while continuing to position our business to create long-term value for our shareholders. We look forward to a return to a more stable and predictable environment, enabling us to provide you with a clearer outlook for fiscal year 26. On that, I will turn the call over to José.

Thank you, Sébastien. Fiscal 25 was a challenging year for the power sports industry. I am proud that we were the first OEM to reduce network inventory and, more importantly, that we have achieved our initial objective. We have also outpaced the off-road market and current units, which speak highly about the appeal of our lineups. We finished the year on plan, despite uncertainty created by the threat of tariffs, which has further impacted consumer sentiment and market demand. We are used to dealing with changing trade rules, and we have always succeeded in adapting to new tariffs. However, if we have to deal with significant changes in regulation, such as a 25% tariff, we will need enough time to adjust our plan accordingly. For now, we are closely monitoring the situation and proactively implementing short-term mitigation measures. As we enter fiscal 26, we are encouraged by our solid market position. From now on, doubling down on PowerSport will solidify our leadership while our strong product pipeline and passion for innovation will continue to set us apart. Our goal is to consistently wow consumers with market-shaping products, and I can tell you that in fiscal 26, consumers won't be disappointed. On that note, I turn the call over to the operator for questions.

Thank you, sir. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-down phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. And if you're using a speakerphone, you will need to lift the handset first before pressing any keys. Also, out of consideration to other callers on the line today, we ask that you please limit yourself to one question and one follow-up. Please go ahead and press star 1 now if you have any questions. First, we will hear from Shabbat Khan at RBC Capital Market. Please go ahead.

Great. Thanks, and good morning. And thanks for the initial sort of commentary on fiscal 2026. And as you think about your inventory that you outlined, what sort of industry inventory backdrop and competitive pricing, et cetera, are you taking into account when contemplating a situation where you could grow revenue potentially and margins. Do you feel the industry inventory broadly is in a good shape? Just reviews on the peers on the industry from that perspective.

Good morning. Well, if I go back 12 months, I think the industry expected a better outlook, and so that's why we are in a situation today where some OEMs have a lot more inventory. than we have. We proactively, as you might remember being here last year, decided to reduce production and shipments to really manage the inventory levels. And so for sure, we are starting the year in a much better position. However, not all of the OEMs are in a similar situation, and we're seeing higher non-current inventory from other OEMs. And so the expectation is that we would have another Q1 where non-current inventory would be in play from a market share perspective, and that we were looking for more normalized levels of inventory starting in the back half of Q2 and into the second half of next year. Obviously, if the industry is softer, it will take a bit more time for other OEMs to liquidate that inventory and come out with more normalized levels. That may mean that we might see a bit more incentives in the second quarter, in the second half of next year, but that's certainly something that we're used to navigating through and we'll adjust accordingly, and we believe that So the things we did of right-sizing our inventory earlier was the right thing to do for the dealers and also for the business.

Okay, great. And then just the second one on, you know, your expectations for sort of production, CapEx, et cetera. Is that a bit more fluid at this point in the year? Just trying to get an understanding of, you know, this year maybe benefited from a bit of inventory cleanup on the free cash flow side. Just your thoughts on how CapEx and cash flow could trend through the year. Thank you.

Yeah, well, again, start of the year, we were expecting very good solid free cash flow generation with, I guess, the elements I highlighted in my prepared remarks. Working capital is certainly something that we continue managing diligently, and it could be a minor tailwind for us. And from a CapEx perspective, ballpark, we should be slightly higher to where we were last year, again, with what we see today. Most of that increase is actually coming from foreign exchange. U.S. and Euro rates are quite high compared to last year, and that's what's driving the CapEx variation. But again, we're nimble, we're flexible, and if things are more challenging, we'll obviously adapt our plans. But we remain very much aware of the situation.

Thanks very much.

Thank you. Next question will be from Joe Alpabello at Raymond James. Please go ahead.

Thanks. Hey, guys. Good morning. I want to go back to the network inventory situation for a second. You mentioned in your slide deck that you think shipments and retail should be in better alignment here in fiscal 26. But would you still expect to take inventory out of the channel? It does sound like ORV is in good shape, but PwC and snow probably a little bit heavy.

Good morning. Like you said, I think on ORV we have reached our level and we are very comfortable with what we have. On watercraft, everything is in line to achieve. Obviously, the retail is on plan to achieve a good level of inventory at the end of the model year, the existing model year season that ends in the fall. And on this, we were cautious on production to make sure that we would end up in good shape. And on snowmobile, to be honest, February and March was good retail, better than what typically we do because of the late snow. Then it will be lower than last year, but still too high. And we are cautious on how many snowmobile we'll produce in this fiscal year to make sure we have the inventory in good shape next year. Then overall, we have very good progress in all product line. Watercraft is unplanned. snowmobile is behind because of delayed snow.

Got it. Okay, helpful. And just to kind of go back to A comment you made earlier, Seb, about the $4.50 to $5 outlook for 26. Correct me if I'm wrong, but it sounds like that was more of your assumption three months ago. Since then, obviously, the tariff situation has evolved. And so the $40 million you mentioned earlier is sort of incremental to that, and then maybe some demand impact. Is that how we should think about that number?

Yeah, that's how you should think of it. And as you mentioned in the last comment you made, obviously, since the beginning of the year, obviously, consumer demand has also softened, and that would have obviously impacted any guidance if we would have issued any guidance today. So it does not include the $40 million headwind, and obviously does not include the softness in expected consumer demand.

And maybe if I can add on, Sébastien, and this is a measure we want to complete, Basically, our plan in H2 was very well executed and we're on plan all second half of the year. And we were on plan for fiscal year 26 before the tariff situation. And this is basically a message we want to make sure that the investor understands. Okay, perfect.

Thank you.

Thank you. Next question will be from Craig Kenison at Bayard. Please go ahead.

Hey, good morning. Thanks for taking my question. Just to follow up on the non-current inventory situation across the industry, will that be an overhang in fiscal 26, and would you therefore expect to continue to lose share until that is complete?

Good morning, Craig. I mean, right now, If we look at the, some OEMs still have too much inventory. I give an example in ORV, and again, this is coming from CDK, Datola. It's a tool to manage in and out at dealer level. But on ORV, I mean, some OEMs still have 50% of non-current inventory at this time of the year, which is too high. Then we believe, like Sébastien said, that this, if the retail hold, this will normalize at the end of Q1 or early Q2, but we feel confident for the second half of the year.

And to your question, Craig, yes, so market share challenges in the first half of the year are expected on our front.

Thank you. And then with respect to the $200 million in cost savings that you have identified, how will that impact the income statement As you think about fiscal 26 and beyond, is that something where you'd give price back to consumers or some of that flow to the bottom line?

Well, obviously, we're operating in an environment where production is not at the level where we'd want it to be, where the industries are softer. And so it's not something that would automatically flow through as price reduction. We want to generate profitability. We want to generate free cash flow, so that's something that we will try to protect as much as possible. But again, we'll remain flexible based on what the industry dynamics are and what the promotional environment is to make sure that our products remain competitive for the consumers, for the dealers as well, and that we're able to win the market share battle as well and sell the innovation that we have. Thank you.

Thank you. Next question will be from Martin Landry at FIFO. Please go ahead.

Good morning, guys. You know, lots of headwinds and lots of moving parts, but if we focus on retail demand, I'd like to understand a little bit how you view the industry at retail in North America evolved this year.

Good morning. If you look at some consumer highlight, basically new entrants right now are at the same level than pre-COVID. And retail on the high-end product is quite good. It's touching more the entry-level product or recreational product. Then I give you an example. In some product line like... the all our entry-level product the spark the riker and the switch are down about 30 on the other hand the defender cab is up then this is basically what we see same trend and what we've told you in q3 and q4 in q3 sorry but this is the dynamic that we see the the the inflation The high interest rates are affecting more the customer for entry-level product, and the high end is doing quite well. Obviously, because of our non-current position, we're losing some share in the non-current, but on the other hand, we're very happy of the momentum we have in the current category.

But your statement, Martin, as you mentioned, the situation is obviously evolving and it's tough to read. And that's the reason why today it's difficult for us to have an evaluation of what the true industry demand is and provide guidance. I'm looking at the February numbers. The retail is choppy. I'm looking at ORV retail down in the mid-teens for the ORV industry in February only. And so how is that going to trend going forward? And again, it's very difficult to call.

Okay. And just to follow up to that, you're saying that high-end products are selling well and value or entry price products are a little less soft. So does that mean when you talk about your potential for top-line growth, does that mean from a volume price standpoint, volumes could be down year over year and price up?

Potentially, yes. Potentially, yes. Again, based on today, the difficulty in forecasting the industry, that is a potential scenario.

Okay. Thank you.

Best of luck.

Thank you.

Next question will be from Robin Farley at UBS. Please go ahead.

Great. Thanks. Just trying to understand a little bit more. I know you mentioned that sort of, you know, previously you would have guided to the $450 to $500 range before the $40 million headwind from tariffs and retail softening. Can you sort of quantify what you, I guess, what that $450 to $5 would have assumed, what in industry retail, you know, kind of overall and for ORV? And maybe you, you know, sort of aren't ready to quantify where you see that now, but just wanting to think about how your retail expectation has changed.

Yeah, the assumption assumed a relatively flat industry outlook, but obviously we were lapping a year where we did significant inventory correction, especially in ORV, and so we would have had retail matching wholesale in fiscal 26, which have provided for obviously volume growth on our end and also new product introductions which are expected to be very well received from the consumers. So that was our initial assumption at the start of the year before all of this took place.

And now your assumption would be for industry retail to be kind of… The assumption is no guidance. Got it.

It's difficult to call. It's been choppy, and obviously with the uncertainty created by all of this, the consumers are holding back. You could have expected consumers to buy these goods because if their tariffs are coming on, there's going to be surcharges that are going to be applied. And so technically these goods are more affordable today than they might be in six months. But again, that uncertainty is a bigger overhang than the potential opportunity of buying a product with no tariffs today. So it says a lot about how the consumer is feeling.

But then just for my follow-up, you mentioned you've taken some mitigating actions. Is there sort of some amount of inventory that you've manufactured that you have crossed the border or are able to get across by April 2nd so that you could continue to have inventory go to dealers without tariffs again? for some period of time? I don't know if you can quantify any sort of day's sales outstanding or kind of thinking about what amount of inventory you've maybe been able to move in anticipation of, you know, potential further tariff action.

Yeah, when all this tariff discussion started back in December last year, We even rented some warehouse in the United States to give us additional capacity. And right now, every product that is produced to be shipped to the United States, even if it's too early to ship them to the dealers, we cross the borders and our warehouse that we have in the U.S. are always full. We're maximizing everything we can for product, but also for parts and accessories. And this is what we're doing right now. And it's difficult for us to quantify, but I would say we probably have a month of inventory altogether that is on the other side of the border.

And also we need to remember that doorkeepers also have inventory in their yards. And so if something would be announced, we don't necessarily need to knee jerk. We can see how things will evolve. And as we've seen in the past, things sometimes change after a few days. And so we're not forced to ship units every day, and that's, I think, a positive thing about our business, that we can see where things are going to kind of trend towards before making more mid-term to long-term decisions.

Great. Very helpful. Thank you. Thank you. Next question will be from James Hardiman at Citigroup. Please go ahead.

Hi, this is Sean Wagner, also James. You touched on February retail trends. Is there any color you can give on March month-to-date retail trends?

We're kind of seeing the same elements. Retail is still softer than what we would have expected three months ago. So, again, there's still the uncertainty around what's going to happen on April 2nd, and I think that is influencing consumer behavior.

Okay, that's fair. And I guess if we take the incremental $40 million in tariff costs as sort of a base case scenario, are you even considering what the size of worst case scenario might be? Or I guess excluding tariffs, you had talked about 50 bits of improvement in OPEX. um year over year in your last call is that still sort of excluding the incremental 40 million what you would be targeting or were there other moving parts since since your last report that um maybe changed that thinking uh well again we've the situation obviously is always changing we try to be uh we obviously follow it closely and today what i can tell you is what we know today is 40 million

Obviously, if I can give you an appreciation of what it could mean for BRP, and obviously the U.S. market is a big market for us, 60% of our revenues come from the U.S., and most of what we sell to the U.S. originates from either Mexico or Canada. And so it could have a sizable impact if tariffs were imposed on all goods crossing the border. But as we've always said, I mean, our supply chain and the supply chain of many, many industries have been optimized over the last 25 years leveraging these free trade agreements. So if you were to do a dramatic shift overnight, it would be extremely disruptful for a lot of companies and the economy. And so for us, that is not a scenario which we believe is viable in the long term. Can there be changes to the USMCA agreement? I think, yes, that's a very likely probability, and it's scheduled to be renegotiated in a little over 12 months. So maybe that is where we go. And as they've done during the last time when there were changes to the USMCA agreement, there was a transition period that was put in place to allow companies to adjust. And we've always been flexible and adapted our operations to make sure that we leverage the new rules as they come in place. So that's how we see it. Thank you.

Thank you. Next question will be from at BNP Paribas. Please go ahead.

Hi, guys. Thanks for the question. On the current versus non-current inventory mix, helpful that you mentioned what you think some of the competitors are at. But could you maybe give us a sense of how your inventory mix is, current versus non-current, and how that compares to maybe pre-COVID, FY20?

Yeah, when I look at where we were on January, and if I look at just ORV, only a third of my inventory was non-current. And so the rest was current, which obviously is very good compared to what the numbers that Josie mentioned to you. And I would say it's pretty much in line, even better than when we were pre-COVID. We actually purposefully reduced inventory, and so that had the benefit of reducing non-current inventory. So that's where we are for non-current on ORV. And for seasonal business, we're a bit higher because we've just ended the season, and snowmobile was a tougher season versus the season we had versus pre-COVID. So trending a bit higher on snowmobile, but in a very good position on ORV with 30% of our inventory being non-current.

Okay, very helpful. And then on snow, it sounds like you're planning some reduction in shipments. Maybe could you help us think about how big of an impact that could be to the top line, or maybe remind us how big snow is within your seasonal?

Yeah, I'd say snow business is probably going to be similar to the snow season we had last year. And so fiscal year 25 for us was not a good snow season from a wholesale perspective because we reduced shipments off a tough season. So the expectation for next year is we'll have similar deliveries as we had in fiscal year 25. Correcting inventory in the network. Got it. Thank you.

Thank you. Next question will be from Jonathan Goldman at Scotiabank. Please go ahead.

Hi, good morning, and thanks for taking my questions. I just wanted to circle back to some of the slides you provided, the potential for top-line growth and potential for margin improvement. On the top-line growth, you talk about better alignment of retail and wholesale and ROV and destocking and seasonal, and you discussed earlier potential for share shifts. So what would be the underlying assumption that would drive the top-line growth?

Well, the underlying assumption that would draw up land growth is the first one is ORV deliveries where wholesale is better aligned with retail. We did a significant adjustment to inventory, 19% reduction in ORV reduction and inventory reduction this year. Obviously, that means that you're shipping much less into the network than you're retailing. So that's the number one. The other element, which is not on slide 17, but it's the introduction of new products this year, which we believe will, in the back half of the year, which will drive wholesale deliveries and revenue because the dealers and the consumers will want these products in the showroom and in their yards. And that would be somewhat offset by the adjustment of inventory for seasonal business. There's also a pricing increase, obviously, and we believe that The overall promotional environment will be better for us in 26 than it would have been in 25 because of less non-current inventory that we need to deplete.

Okay, but just circling back maybe on the pricing discussion, the margin improvement driven by lower sales programs, given the consumer headwinds you've called out of the aggressive promo from other OEMs that maybe weren't as proactive, the stocking on current units, why would industry or your promo be down or even flat this year?

Well, there's two things. One is we have less non-current inventory to liquidate, so that means you don't necessarily need to have the same level of promotion on your non-current inventory. Yes, OEMs would need to liquidate their non-current inventory, and that's why we said we would expect to lose market share in the first half of the year. And then in the back half of the year, once the OEM in the industry has corrected their inventory situation, we'd be operating in a more normalized environment in the back half of the year. But again, these were the assumptions that we had at the beginning of the year. And so we'll see how the industry is trending and we'll adapt accordingly.

Okay, got it. Thanks for taking my questions.

Thank you. Next question will be from Cameron Dirksen at National Bank Financial. Please go ahead.

Yeah, thanks. Good morning. Just a question, I guess, on the supply chain. I mean, you mentioned the $40 million, I guess, tariff impact so far. I presume that most of that is related to the steel and aluminum tariffs. Maybe there's a little bit of China exposure in there. I'm just wondering if just on that portion of what's been announced so far, is there anything you can do to adjust your supply chain to mitigate that over time?

Yeah, I mean, for sure. You know, we've been dealing with tariff all our life and we are used to adapt to roles. What is difficult this time is the roles are not clear and they're changing all the time. And there is no lead time. The point is we need clear roles, stability and lead time and we'll adapt. We've done that a lot of time and we'll adapt going forward. Right now, the $40 million is an estimation. I think we can work on it to reduce, but we don't know if there is another rule that will happen in a month. And this is the difficulty. The $40 million is our best estimate at this point with what we know, and obviously we'll continue to work on ways to mitigate it.

Okay, no, fair enough. A lot of uncertainty out there. And just for a follow-up, just on the, I guess, the dealer inventory finance, I know you've been providing a fair amount of support there for the dealers on that front. Now that the dealer inventory, at least for your products, is down to a more normalized level, how do you expect that that financing support is going to trend over the next 12 months?

Well, for us, it'll obviously be a positive. When I look at what we've invested in fiscal year 25 versus pre-COVID, just the floor plan financing was about 1.6% of our revenues compared to 1% in fiscal year 20. And today with what I see, I'm expecting floor plan to be relatively as a percentage of revenue similar to what we had in fiscal year 20. Obviously the leaner inventory will certainly help and the more rapid liquidation from the dealers as well with that leaner inventory is another factor.

Okay, that's very helpful. Thanks very much.

Thank you. Next question will be from Luke Hannon at Canaccord. Please go ahead.

Good morning. Thanks. I want to follow up on the earlier line of questioning on the staging of inventory. I know that that was in response to the discussion around the tariff uncertainty and perhaps moving inventory around. in advance of these tariffs being imposed. But I wonder if the experience that the dealers have had over the course of the last several years now has given them any sort of thought, and perhaps yourselves, any sort of thought as to, I guess, helping to stage inventory a little bit more, thoughtfully we'll call it, moving forward so as to make sure there's less inventory on their lots going forward, less of a burden from a floor plan perspective going forward. I'm curious to know if you've had any discussions there and what your thoughts are, absent, of course, what's going on with tariffs.

Obviously, with the high interest rate that we had in the last few years, dealers are extremely sensitive to inventory. And that's why on the year-round product off-road, particularly where we take order every month for what will be shipped in three months, It's a discussion that is a lot more detailed with dealers than it used to be. Then for sure, and when the seasonal product, like we're doing the booking right now on snowmobile for production that will happen this spring and summer, it will be for sure a total discussion with the dealer. Then the dealer don't typically, they make less profit selling non-current and obviously the high interest rate, then they are extremely cautious about what they will order. And I think overall this will be healthy for the industry mid to long term.

Okay, thanks. And then for my follow-up here, José, you mentioned that the early read from the boat shows was showing more stable industry conditions. Just curious, what sort of data points are you looking at there? Is it registrations primarily, or is there other information that's sort of informing that?

Yeah, boat show, it's always difficult to get statistics from boat show because it's Customer go to the boat show, dealer meet them, and it's very difficult to get what is signed at the boat show or what will be signed in the following weeks. But what we're hearing from dealers, last year dealers, boat show were very good in certain area and bad in other area. This year it was more consistent across North America. Then what we're hearing, the dealer are quite happy. with the boat show booking or the boat show sales. And even right now, we are on tour, on off-road, and the tendency, the interest for the product is there. Then, like we've said many times, we feel good about the beginning of the year, and I think a lot of customers are on the fence, waiting to better understand what will happen with the tariffs and the global economy.

Okay, thank you very much.

Thank you. Next question will be from Jamie Katz at Morningstar. Please go ahead.

Hi, good morning. I want to frame profit growth in a different way. Do you guys have a level of sales where you really start to see the absorption pick up and lend to operating margin expansion? Is it something like low single digit growth, mid single digit growth? Can you just sort of put a size around that for us?

Well, this year, fiscal 25, we were operating our plans probably at a, let's say, 55% utilization, which is obviously suboptimal. Every unit we add is contributing what we'll call it direct margin or call it revenue minus variable cost to the bottom line. And so they're all extremely profitable. And so any volume increase is beneficial for us and it'll give you more than what you're currently reporting as a profit margin or a gross margin. So that's obviously the beauty of our business. Yes, there's a certain level of fixed costs. We still can be profitable even running with 55% asset utilization. But as we increase, every percentage point of asset utilization is exponential in terms of revenue growth that we could get.

So anything positive would be good is what it sounds like.

Yes.

And then can you talk a little bit about how you guys are thinking about your capital allocation priorities this year and where that spend is going to? Thanks.

Well, the number one priority continues to be the product, the innovation. This is what fuels demand, fuels interest in the consumer, fuels dealer engagement. And so that's why we're continuing to invest. And we have an exciting year of product introductions coming up. and we'll continue focusing on that and protecting this. The other element is obviously we want to distribute the capital to shareholders with the dividend, and so we're modestly increasing the dividend this year. We still have $3.3 million of shares that we can buy back under the NCIB program, and so that is certainly an opportunity that we would like to tap in, but obviously you'll understand in the current context We prefer protecting the flexibility of our balance sheet and so we'll be holding back on buybacks until we have a better read as to where tariffs will go and where the economy is going to land. Thanks.

Thank you. Next question will be from Tristan Thomas Martin at BMO. Please go ahead.

Hey, good morning. Good morning. Good morning. I may have missed this, but just on the $40 million tariff impact, was that COGS or somewhere else on the income statement? It will be in the COGS. Okay, awesome. And then just how are you thinking about affordability? I mean, you called out entry-level still being soft. One of your competitors is hinting at much cheaper kind of offered vehicle products. coming later in this year. So how are you thinking about ASPs and where do you think they kind of need to go to bring back entry-level demand?

As you know, the price have increased quite a lot during the COVID years. But give an example of last year, model year 25 ORV that we introduced last August. Basically, we didn't increase our pricing in ORV, it even side-by-side. Modest increase of 1% on watercraft entry-wheel. But what is important, we still try to protect our entry-level product in each product category. Then on watercraft and on snow, we have some model below $7,000. The Riker is still below $10,000. Some side-by-side vehicles are below $15,000. And the base switch is still at $23,000, $24,000. The point is we, now we, pre-COVID, the price increase was about 1% per year. That was the average for the last two years. We had price increase higher than typical during the COVID year, but now we are back to normal, and we're making effort to protect the entry-level model for new customers.

Okay, and then if I could maybe sneak one more in there. Just how are the underlying retail rates to the consumer looking year over year?

The retail what, sorry, Tristan?

Retail financing rates to the consumer.

Well, similar in the U.S., very similar to where we were 12 months ago. No big changes, no changes in terms of acceptance, credit scores, penetration, et cetera. Very consistent. Awesome. Thank you. Thank you.

Next question will be from Michael Kiprios at Desjardins Capital Markets. Please go ahead.

Good morning and thank you for taking my question. I was just wondering if you had any update on the marine sale and anything else in the business that you might be considering divesting?

Yeah, the process is still ongoing and obviously we cannot say much about the topic. The only thing I would say is, like we said, we're still targeting to end the process, end of Q1, beginning of Q2, and overall, we are on plan.

Perfect. I appreciate it. I was just curious if you had performed any internal scenarios on the cost of potentially having to build or acquire a manufacturing facility or exposure in the U.S.? ?

But for sure, you know, our current footprint, like we explained this morning, is optimized to meet the USMCA role that is there. We're very happy with our manufacturing facility in Canada because it's close to R&D. It's close to the center of expertise for BRP. We like Mexico because the culture, the availability of labor, the proximity to the US market, We have some factories in the U.S. that were mainly for marine because of transportation costs. But at the end of the day, like I said before, when the rules are clear and there is a stable environment and we have enough time to adapt, we will adapt. We've always done it and we'll be what is right for the customers the employees and the shareholders. But again, we need to have clear rules, stable environment, and with some lead time, we'll be able to adapt. Appreciate the call.

Thank you.

And at this time, we have no more questions. I will turn the call to Monsieur Deschain to close the meeting.

Thank you, Sylvie, and thanks, everyone, for joining us this morning and for your interest in BRT. We look forward to speaking with you again on May 29th for our Q1 earnings call. Thanks again, everyone, and have a good day.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we ask that you please disconnect your lines.