BRP Inc.

Good morning, ladies and gentlemen. Welcome to the BRP Inc.' 's FY26 first quarter results conference call. For participants who use the telephone lines, 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, Mr. Deschaines.

Thank you, Joelle. Good morning and welcome to BRP's conference call for the first quarter of fiscal year 26. Joining me this morning are José Boisjali, 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 result 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 BRT's MD&A 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. We've delivered a sound performance in our first quarter, which results in line with expectation as we continue to right-size network inventory level in seasonal product and execute on elements within our control. The operating environment remains challenging with significant macroeconomic uncertainty and a volatile tariff situation affecting consumer confidence. Still, driven by very solid snowmobile sales, we slightly outperformed the power sport North American industry at retail. Looking at the sales of our marine group, we made progress by announcing a definitive agreement for the sales of Tellwater and closing the sales of Alumecaraf. The process for Manitou is following its course. Now let's turn to slide four for key financial highlights. We ended the first quarter with revenue of $1.8 billion, normalized EBITDA of $201 million, normalized EPS of 47 cents, and strong free cash flow, generation of 162 million. As for retail, let's look at global trend on slide five. In North America, our passport retail held steady, reflecting a growth of 21% in Canada, fueled by a strong end of season for snowmobile, offset by a decline of 6% in the United States as we continue to see generally weaker industry trends. From an international perspective, demand remains soft in the EMEA and Asia-Pacific, which retailed down 22% and 13% respectively. Once again, Latin America outperformed other regions, which retailed up 18% driven by sustained momentum in ORV and personal watercraft. On a global scale, demand remains strong for high-end products compared to entry level. We also outperform in current units and underperform in non-current units due to our leaner inventory position. Turning to slide six for a look at our retail performance by product line in North America. As anticipated, our power sport retail held relatively steady compared to last year, surpassing the industry, which was down low single digits. Snowmobile retail was strong, up over 80%, driven by favorable snow conditions late in the winter. As for three-wheel vehicles, personal watercraft and switch pontoon, Retail was down early in the season due to the combination of softer industry trend and a late spring. Now let's turn to slide seven for a more detailed look at year-round products. Revenue were down 4% to $1.1 billion, probably driven by softer industry trends and higher sales program given the ongoing market dynamics. At retail, Can-Am side-by-side was down about 10% compared to the industry, which was down mid-single digit. We underperformed in non-current units, given our healthier inventory position compared to other OEMs. However, we continued to outperform in current units, gaining four points of market share in the quarter, driven by the sustained momentum of our newly introduced model. As for ATV, retail was down low single digit in line with the industry, but we had strong gain in the high CC segment fueled by our new outlander platform. Looking at three-wheel vehicle, we are very early in the season and retail was down high 20% in the quarter, reflecting industry softness in the late spring. A few words on two-wheel. As planned, we had our first shipment of Can-Am Pulse and Origin motorcycle to North America and Europe in the first quarter, continuing in the second quarter. We are organizing tours to get the media and consumer excited, and our dealers are also actively preparing demo rides. Turning to seasonal products on slide eight. Revenue were down 22% to $419 million, firmly reflecting reduced shipments as we continue focusing on right-sizing network inventory level. Looking at our retail performance, we flowed the North American snowmobile season down 18%, slightly lagging the industry. As I said earlier, favorable snow conditions late in the winter in North America stimulated demand. With our solid lineup and retail promotion, we outperformed the industry during the quarter, partially catching up on our plan for the season. In Scandinavia, it was a more difficult season and our retail was in line with the industry. More importantly, we remain by far number one worldwide with Ski-Doo and Link. The strong end of season in North America allow us to achieve a year-over-year network inventory reduction of 15%, healthier inventory level combined with our solid lineup resulted in strong spring pre-orders compared to last year. Pre-order are now back to a normal rate of approximately 30% of production already sold. All these elements put us in a better position for season 26. As for Sea-Doo products, retail was in line with our expectation in the first quarter, with personal watercraft down mid-single digit and the switch down low 20%. We also continue to grow in Latin America, with retail up mid-10%. The objective for this season is to right-size network inventory level, and so far we are on plan. Moving on to slide nine with power sport parts, accessories and apparel and OEM engine. Revenue were up 5% to $322 million, driven by a higher volume of snowmobile parts following the strong end of season, as well as the ongoing usage of our growing fleet of vehicles. Meanwhile, accessory sales have been softer, in line with retail trends. As with units, the inventory of PANE at dealer is getting back to more reasonable level. With that, I turn the call over to Sébastien.

Thank you, José, and good morning, everyone. This quarter was another demonstration of our team's ability to execute with discipline in a dynamic environment, putting us in a good position early in fiscal 26 with results in line with our expectations. Solid free cash flow generation and continued improvements on the network and the inventory front. Before getting into the numbers, please note that as part of the marine sales process, we decided to keep the legacy outboard engine parts business. Consequently, we have reclassified our fiscal 25 numbers to reflect this decision. Now looking at the numbers, revenues were down 8% to $1.8 billion, primarily due to lower shipments and higher sales program. We generated $395 million in gross profit, representing a margin of 21.4%, down from last year, primarily due to the less efficient use of our assets, given the lower production volumes, higher sales programs, unfavorable model makes, and foreign exchange headwinds. These were partly offset by cost inefficiencies across our manufacturing operations and favorable pricing. Note that through the first quarter, we saw limited impact from tariffs across our cost structure. Our normalized EBITDA ended at $201 million and our normalized earnings per share at $0.47. We generated $162 million of free cash flow from continual operations and ended the quarter with over $300 million of cash, further reinforcing our solid balance sheet and financial flexibilities. turning to slide 12 for an update on our network inventory. We continue to make progress on right-sizing our network inventory, which is down 21% compared to last year, with double-digit decline in all product lines. Our dealers' credit line usage is now just above 70%, the lowest level in over two years, and below pre-COVID utilization rates. This should alleviate some of the inventory impact on our dealers' finances all the while providing available capacity to be able to rapidly react when our industry rebounds. Looking ahead, while there is still some work to be done reducing dealer inventory on the seasonal product side, we expect that most of the heavy lifting across the portfolio will be done by the end of the summer, positioning us to better align wholesale with retail in the back half of the year. With this, let's turn to slide 13 for an update on fiscal 26, starting with tariffs. As you know, there have been a lot of movements on the tariff front since our last update at the end of March, but so far the impact remains manageable. On the finished vehicle side, most of them remain tariff-free given that all our vehicles produced in Canada and Mexico are USMCA compliant and consequently are currently exempt from the 25% tariffs levied on these countries. However, we have seen incremental tariffs stemming from the U.S. tariff rate increase on China, the new tariffs on other countries, these are primarily impacting our P&A business and some of our U.S. suppliers, which in turn is impacting us. Factoring in these elements based on the current environment, we now estimate that the total gross tariff impact for a business for fiscal 26 to be between $60 and $70 million. We expect this impact to be manageable, as we should be able to offset most of the incremental costs using different levers across our value chain. Now, looking at the rest of the year, with Q4 unfolding essentially in line with expectations, we are well positioned entering Q2, which we expect to be our last quarter of significant network inventory reduction. We have a line of production and shipment plan in line with this objective, and we expect our financial performance for the quarter to be similar to what we delivered in Q1. As for the back half of the year, things remain more difficult to forecast. As you know, the evolving tariff environment continues to create uncertainty and is weighing on consumer confidence. Furthermore, its full impact on the global economy is still unfolding and difficult to predict. In this context, it remains very difficult for us to properly forecast our industry and the demand for our products. And consequently, we still lack sufficient visibility to issue guidance today. Still, there are a few elements that make us optimistic for H2. First, Assuming Q2 goes as planned, our network inventory reduction efforts should be mostly completed, positioning us to better align wholesale with retail through H2. And second, we have exciting new products coming up at our club in August, and we are planning for the initial shipments of these new products to happen throughout H2, supporting volume growth and favorable product mix. So, in a scenario where the retail environment remains consistent with what we have seen in Q1, these elements could yield double-digit top-line growth, along with strong improvement in normalized EBITDA and EPS compared to the second half of last year. And while the environment is difficult to predict, we believe that with our healthy network inventory levels, the strength of our lineups, especially with upcoming key product launches, our agile manufacturing footprint, and our solid balance sheet with strong liquidity and long-term debt maturities that we are well equipped to face a wide range of scenarios. Still, we look forward to our more stable and predicting operating conditions, allowing us to provide you with a clearer outlook for our business. On that, I'll return the call back to José.

Thank you, Sébastien. As you know, I am always very proud of our product with industry recognition as it reflects positively on all our teams. I'm even more proud when one of our teams receives an important honor. Last week, our design and innovation team was crowned Red Dot Design Team of the Year 2025, a prestigious international title for design excellence. We have joined the ranks of previous winners that include iconic brands such as Ferrari, Apple, and Porsche. I want to congratulate our entire design team. Together with engineering, they constantly redefine our product to give our customers memorable experience. Innovation is part of our DNA. and this recognition reflects our ability to develop market-shaping products that fuel our growth. Our results for the quarter were in line with our plan, despite the current context. Our diversified product portfolio enabled us to outpace the North American transport industry at retail. We also had our highest retail sales ever for our first quarter in Canada, Brazil, Mexico, and China, as well as in our EME distributor markets, reflecting sustained momentum in these regions. Over the short term, as uncertainty is expected to continue, impacting consumer confidence, we are planning for demand to remain tough until economic conditions improve. We are looking forward to our dealer event in August to be held in Boston with exciting model year 26 product news that will continue building on the momentum of our successful lineup. You are all welcome to join us. In addition, we expect inventory depletion to be mostly completed by the end of next quarter. In this context, we anticipate a stronger second half. BRP is known for its agility, and we are ready to take advantage of a rebound given by a strong product portfolio, solid dealer network, and leaner inventory position. Over the long term, we remain committed to pushing technology and innovation to capitalize on market opportunity and sustain profitable growth. Before moving on to the question period, I would like to say a few words. As you probably saw this morning, I am announcing today my intention to retire by the end of the fiscal year after the appointment of a successor. After 36 years at BRP, including 22 as CEO, the time has come for me to hand over the wheel to a new leader. I am grateful that I was selected for this role back in 2003 and so proud of what BRP has become today. a diversified, innovative company that is well positioned for lasting growth. You can count on me to ensure a seamless transition supported by a seasoned management team dedicated to the success of BRP. Thank you. On that note, I turn the call over to the operator.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. We request that our callers limit their questions to one main question and one follow-up. One moment please for your first question. Your first question comes from Sabaha Khan with RBC Capital. Your line is now open.

Great. Thanks, and good morning. Hoping you could just give us a little bit more color on the inventory situation in the channel. You indicated that by the end of this next quarter, you expect to be in good shape. Maybe just talk us through what's left to sort of right-size, how much more inventory reduction that entails, and maybe just a bit of an update on the competitive inventory situation. Thanks.

Good morning. Well, as you know, it's been a focus of ours over the last 12 months to right-size network inventory. And we started this 12 months ago, actually. And so we're quite happy with where we are today. You saw at the end of Q1, inventories were down 21%. And we've seen double-digit inventory declines across all of the product categories. So that's another big, big plus. In my prepared remarks, I said we still had a bit of work to do on the seasonal products business. We are entering into personal watercraft season. So the expectation is that we will retail more than we're wholesaling for this season. And also snowmobile, this is a second year where we've had a below average season. And so we have more inventory to reduce. And so the expectation is that Most of the work will be done on the ORV business and the year-round product business at the end of Q2, and a bit more work to be done on the seasonal part, and we expect seasonal to be down about 20% at the end of the year versus where we started at the beginning of the year. So I'm really happy with that work that is being done. And actually, we have probably 70% of our dealers line of credit that are being used. So it gives us a good tailwind when things rebound. Now as for the competition, some OEMs have been later to react in adjusting production and wholesale. And so we saw a competitive dynamic that was still aggressive and very promotional in the first quarter. And we expect it to continue in the second quarter. Some OEMs still have a lot of inventory that they need to address. But come Q3, we are hopeful that things are more stable and everyone will be competing on a similar foothold.

Great, thanks. And just as my follow-up, I think you indicated that you're actually expecting a better H2. If you can maybe just give a bit more color on the retail uptake environment. What you saw through the quarter sounds like it was flatty over here in North America on retail. Maybe just talk us through some of the details on what's giving you confidence on the better setup at retail for H2. Thanks.

But first, like Sebastian just explained, we believe the non-current inventory will be at the more normal level by the end of Q2. And I think on the back half of the year, it's always, although we have introduced model year 26, and we have a strong lineup to be announced in August, and we're confident that with the product news, with the dealer network that is in better shape in terms of inventory, also all the momentum that we had in the last few quarters on the current unit, we are and the inventory position that is low, we are in better shape than others and we're confident for HV2. Thank you.

Your next question comes from James Hardiman with Citi. Your line is now open.

Hey, good morning. So obviously a lot has changed since we last heard from you, although I don't know, based on yesterday's announcement, maybe not as much has changed, but maybe walk us through sort of what you were seeing at retail over the course of the quarter. And then specifically, I mean, around Liberation Day, sort of as we think about April, was that sort of the worst of it? And what, if anything, can you tell us about trends in May? Obviously, the more current we can get, I think the better as we try to tease out sort of the consumer's response to some of the macro factors, particularly the various tariffs. Thanks.

Then maybe, obviously, the macroeconomic is very volatile and it's very difficult to predict, but to be honest, we saw lots of ups and downs, but there is no big change in the trend versus the last few quarters. To give you some numbers, the new entrant We in Q1, our new entrant who purchased product was at 21% and we're back to pre-COVID numbers like we gave you. This is basically the same number we gave you in the last few quarters. And we saw the same trend. The premium vehicles selling better than the entry-level product. I'll give you some numbers. In the watercraft category, our entry-level Spark was down in 15% when the high-end was about flat-ish. The Switch was down 24%. The Riker, the entry-level three-wheel vehicle, was down 40%. And on the side-by-side, the Premium was up 16% when the value was down 34%. The Utility, side-by-side, flat-ish, and the Rexport, down 9%. And as you can see, There is no global trend, and we believe that the higher income customer is still interested and is still buying. The lower income customers, obviously, who finance is more difficult, and they are squeezed with the inflation, the interest rate that is still on the high side, and they are on the fence to buy. This is basically what we see, and it's very difficult to predict where all of this is going.

Got it. And then, you know, obviously, everything's difficult to predict. But as I think about the tariff environment, obviously, you know, most of your production is Canada and Mexico. At least up through yesterday, China was getting penalized significantly more. And so You know, you talked about a gross tariff headwind that you think you'll be able to offset. I guess my question is on the competitive environment. Your biggest competitor has a much higher tariff burden as we think about what they're getting directly from China into the United States. Assuming that this is the tariff scheme, right, 30 percent on China, 10 percent on the rest of the world, Can you talk about what potential, if any, competitive advantage that that creates, that you're in a relatively favorable tariff environment going forward? Thank you.

It's a long question. Let's say that obviously every OEM faces different situations, and I believe that with time, every OEM will find a way to mitigate the tariff or reduce the impact of the tariff. And if I'm talking by ourselves, you know when we had our call in March, the situation was more difficult. Now, Sébastien mentioned growth of 60 to 70, which is less than 1% of our revenue, which is manageable. But we are working right now with Tier 1 supplier, Tier 2 supplier, to change the origin of some components, sometimes to change the location of assembly, to avoid the tariff, then so far we've been quite successful to reduce the existing tariff for our vehicle. And as you know, all our vehicles made in Canada and Mexico are USMC compliant. Then I think if you look at the big picture, everyone, every OEM has its own reality. But I believe that every OEM will find ways to mitigate those additional costs. That being said, I think the biggest risk for all of us in the industry is the uncertainty that it creates into the customer confidence, and many are on the fence and they're waiting to have a better visibility before they will buy our products that are discretionary. Then that's in a nutshell our view on the overall situation, but like we said in March and we're repeating, this changed day by day. Very helpful. Thank you.

Your next question comes from Benoit Poirier with Desjardins Capital Markets. Your line is now open.

Yes, thank you very much, and congrats, José, and well-deserved retirement after 22 successful years. Sébastien, you mentioned about the potential to reach top-line growth, double-digit, in the second half. So obviously in this power sport, volume matters. How should we be thinking in terms of EBITDA margins? Should we expect EBITDA to grow even further than double digit? And what type of kind of EBITDA margins should we be looking for given this potential tailwind in the second half?

Well, the tailwind, Benoit, comes from obviously the product launches that we're doing, also the fact that retail is going to be matching wholesale. And so when I look at where the market is in terms of consensus, it's certainly something that I'm comfortable with. And so generally, yes, the average margin is going to improve, but we're going to be away from what we are targeting in terms of overall EBITDA margin in the long term. But overall, we're still going to be under utilizing our assets. There's going to be more programs, so there's going to be some compression there. But obviously, with the added volume, it's certainly going to bring some tailwind on the margin side.

Okay, perfect. And now when we look at the free cash flow generation working cap, you've done a good job. So what should we be looking for in terms of working cap for the full year and how you would characterize the best opportunities in terms of capital deployment right now?

Again, we're not providing guidance this morning, but in a context where we're expecting a good second half of the year, that is going to drive good free cash flow generation as well, provide us with obviously some flexibility. But in the short term, with the uncertain context that every company is facing today, we prefer to be prudent. before committing to any capital deployment. The priority is going to be focusing on organic growth of the business. Obviously, we've increased our dividend back in Q1, and we're going to continue paying the dividend. But in terms of buybacks, we're probably going to be on the sideline for the foreseeable future until we get a better view as to where all of this is going to end. and how the economy is going to bounce back.

Okay, perfect. Thank you very much for the time.

Merci. Your next question comes from Craig Kennison with Baird. Your line is now open.

Hey, good morning. Thanks for taking my question. Sub, you described a $60 million to $70 million gross tariff impact. I'm wondering if you can help us unpack that and give us a sense of what it would look like mitigated and then what it might look like on an annualized basis since you haven't faced all of these tariffs all year?

Yeah, as I mentioned, the impact in the first quarter was minimal because all the costs that we've incurred were most of them were inventoried as that raw material is going to be used in the second and third quarter. And so the full year impact is, as I mentioned, 60 to 70 million on a gross basis. Full year, you're probably going to add an extra, call it 30 million on a full year basis. As Jose mentioned, we're working very closely with our suppliers to mitigate that impact. And about half of the impact comes from our P&A business. And probably, let's say a half of that is the China impact tariffs that are being imposed on China. Obviously, we're running our numbers with the current assumptions, which is the relief that was given a few weeks ago on the China tariffs. And so that's why when we're reporting our numbers today, it's significantly lower than what our competitors reported a month ago. And how do we alleviate? So as I mentioned, obviously, suppliers is one strategy, relocation, driving efficiency in the organization. And as we do every year, we do price increase. And so we will be revisiting our pricing for the new model year 26, which we'll be announcing in August. And that's going to help alleviate some of the headwinds that we're seeing.

Thanks. And maybe as my follow-up, I'll just ask Jose, you know, congratulations on just an extraordinary career. I'm wondering if you would just reflect on what maybe gives you the most pride or satisfaction during your tenure.

First, I'm not gone yet. Then we can discuss later. But for me, what I'm the most proud of is what BRP has become. You know, we had two product line profitable, two are not profitable in 2003. Today we have seven profitable product line and we are a diversified obviously product portfolio, international manufacturing footprint and very happy of where we are.

Thank you. Thank you.

Your next question comes from Robin Farley with UBS. Your line is now open.

Great Thank you and Jose congratulations on on a fantastic run. My question is going back to your expectations that you know it will only take maybe one more quarter for retail and shipments to kind of be aligned. It seems like there's, you know, like an implicit retail assumption there. And just sort of are you assuming that the demand sort of recovers to flat or is it up slightly? Or just maybe help us think about what your retail assumption is there and kind of what underpins that. Thank you.

Yeah, good morning, Robin. When we talked back in March, I referred back to the assumption that we had in January where we were assuming a flat industry. When you look at the Q1 retail and industry numbers, we reported the industry being flat, but a lot of that was driven by the snowmobile, a very strong snow season, especially in February and March. drove good retail. But when you exclude snowmobile, the overall industry is down 5%. And so obviously with the ongoing threat of tariffs, the volatile environment, we are seeing consumers hesitant to purchase. And retail has continued to be choppy in the month of April, in the month of May, and it's obviously depending on weather, the latest news, and also how people are feeling about where the economy is going to head. And so it's difficult to forecast any industry demand. And for May, we're seeing the continued trends there with ORV, some OEMs being aggressive on promotions, and the ORV industry being down year over year in May. And the seasonal business as well, personal watercraft, the weather hasn't been great in the last few, in the last month, and so we're seeing softer retail. But even in a context where retail is declining, we expect to have a good second half of the year because the inventory is already corrected and we'll have retail matching wholesale in the back half of the year. And because we also have great new product launches that will be announced in the next month or so, where the dealers and consumers will certainly be interested in receiving them.

Okay, great. That's very helpful. Thanks. And just as my follow up, it sounded like the comment a moment ago that you would revisit price increases to think about helping alleviate tariffs. And I know you'll have more to say on that in August. But maybe if you can just give us what your thought is on, you know, if the retail environment is challenging you know, at current prices, which are also, you know, being impacted further by promotions, right? So the average price even lower given the promotional environment. Is there really the opportunity to increase price without, you know, kind of further impacting demand?

Thanks. But for sure, we're sensitive to price increase in this global macroeconomic situation. uh and like we've just said growth and pack of tariff as of now is 60 to 70 million we will continue to work again with our supplier to reduce it we have already announced to our network that there will be no price increase on every model year 25 that is selling at the moment there will be some price increase on pna that will happen in june pna is more difficult to avoid because It's 60,000 different SKU, about 16,000 are affected by the tariff, and there will be some price increase on P&A. On model year 26, Robin is too early to say. Again, we don't want to charge more for the tariff than what it costs us. But at the end of the day, we will continue to work on the mitigation plan, plus the rules can change any days like it did yesterday. I don't know yet the consequence, but we will minimize the price increase because of tariffs on our Model U26, obviously.

Great. Thanks very much.

Your next question comes from Jian Xu with BNP Paribas. Your line is now open.

Thanks, and congrats, Jose, and best of luck in the next chapter. Thank you. Maybe on the current versus non-current, you kind of mentioned how current is doing better. Maybe you can give us an update of what the mix is of non-current inventory for you and maybe versus the rest of the industry and how that maybe evolved in the last 90 days.

But it's a bit difficult because the industry data for current, non-current, and depending on the country where you are, but I would just give you some number to give you a sense. On the U.S. CTV in Q1, the industry was down 26% versus last quarter, which is an improvement, significant improvement. Side by side, it was down 15% in Q1 versus last quarter. On ORV, we are down 21%. And I think this is off-road vehicle on snowmobile, basically, for the upcoming season. We will have about a third of the non-current inventory when we have about two-thirds of the market share. Then we're well positioned on the snowmobile front. And on watercraft, the goal is to deplete significantly the inventory this summer. We're tracking on our plan. But it's a very moving environment with different product line and different competition, different OEM in each product line. But I think the industry is definitely getting in a better position overall, and like we said, should be back to normal level at the end of Q2. And that's why we're confident to regain momentum in H2.

Got it. That's helpful. And maybe following up on that, your current inventory is doing well. And like you said, you're one of the first to kind of start the destocking. How is dealer feedback? So if inventories are kind of clean going into the back half, are they kind of saying like, You know, we want to maybe expand and buy more or gain share with BRP or I guess like how are you thinking about market share gains into that environment?

But I think right now, you know, we will switch from model year 25 season to model year 26 in a few months depending on the product line. And I think right now the dealers are in the mindset to reduce their inventory of any OEM as fast as possible. We call that the great pressure. But I think, like I said, if the level of non-current inventory is back to a normal level for this time of the year, this is where we bet with our product line, existing product line, and the new product line we'll introduce in August, plus uh the strength of our dealer value proposition better margin better profitable for the dealers and obviously our inventory uh level that is lower than than the competition we believe we are in the best position in the industry to bounce back quickly in h2 great thanks and good luck thank you your next question comes from martin landry with steve your line is now open

Hi, good morning, guys. Josie, congrats on an exceptional quarter and good luck on the next steps. Thank you. I would like to talk about new product introductions. You've called this up a couple of times during the call. What can you say? I know they're going to be introduced in August, so I don't expect you're going to reveal too much. How would you characterize this year? Is it a strong innovation year? Do you have more models that are being introduced, more SKUs? What are the price points looking at? Are you SKU towards higher price points, lower price points? Anything you can give us in terms of color on the new product lineup and new product introduced would be great.

As you can imagine, we cannot disclose much on what we will introduce. This would be too interesting for our competition. I can say we obviously every year we look at our lineup and we try to be as competitive as possible in each product category. And there is some platforms, some models that are older than the others. And this fall, it's a strong product intro for Can-Am. But also, Watercraft, we have a very strong line-up on Watercraft with 65 plus percent market share worldwide. But obviously, we feel good about what we will introduce to the dealers. And that's why the combination of the product introduction The value proposition for the dealer where they have better margin selling our product than other OEM plus our inventory that is in good shape, we are well positioned to gain in H2. I cannot tell you more.

okay okay that's helpful um and and jose i mean you've been through several industry cycles um and um i was wondering how do you see this cycle how does it compare and how does it differ from from previous cycles and how can that inform uh you on on the length of the cycle and the timing of demand stabilization and recovery

I think, like you said, so many cycles over my career, but every crisis or slowdown is different from one to the other. I think what is a bit unique in this one is we had high inflation in the last few years, high interest rate, and everyone was expecting the inflation to go down. Now it's not going down as fast as we were hoping for. The interest rates are somewhat higher than what everyone was anticipated and this tariff war i mean created a lot of uncertainty and and slow down everything and and affecting consumer confidence and i believe that to be honest a lot of customers are interested to buy our product and to to enjoy life But I think at the minute that we see some clarity on the tariff in terms of the impact, but also in terms of stability, the industry will bounce back quickly. And I feel we are in a very good position to be the best OEM to bounce back quickly.

Okay, that's helpful. Best of luck. Thank you.

Your next question comes from Mark Petrie with CIBC. Your line is now open.

Good morning. Thanks. And I'll echo my congratulations to you, Jose, on your leadership and track record of growth. It's been a pleasure to interact with you over these years and certainly wish you all the best in your next chapter. Thank you. Many of my questions have been asked. I did want to ask, I guess, you know, I know it wasn't formal guidance previously, but would you say that the dynamics around competitor inventory and competitive dynamics or consumer demand have changed materially your view from the $4.50 to $5 range as what you were sort of thinking about coming into the year? Have any of the assumptions around that sort of changed materially up or down?

Well, versus the 450, yes, there's been some change. And the two changes are one, tariffs, because the 450 tariffs were not there. So that impact of tariffs is certainly one element. And the other one is the industries. As I've mentioned earlier, if you include snowmobile, industries are down 5% in Q1. And we are seeing that softness continuing in May. And so that would be the other big driver of us holding back before issuing any guidance until we get fair ideas on these two elements.

Okay, so first is the 450 to 5. The consumer demand environment is softer.

Yes.

And there were no tariff impacts on the 450 to 5. Yeah, understood. Okay, that's all I had. Thanks very much. Thanks, Mark.

Your next question comes from Joe at Tobello with Raymond James. Your line is now open.

Good morning. This is Martin on for Joe. I just wanted to really quickly touch on the big, beautiful bill. There is a provision there which essentially allows buyers to write off interest on products where the final assembly is in the United States. So compared to your smear competitors, would that put you at a disadvantage or is there any kind of read-through we can get from this bill?

Well obviously it is a bill that has yet to be enacted and there's a lot of provisions in that bill that may or may not go through. It's certainly something that we are taking a close look at. Obviously there are some caps that are being put in there in terms of total deductibility in a year. Income levels as well, so not necessarily addressable to all income levels. And we tend to attract people that have higher levels of income. And so even though it might apply to some of our products, it might not apply to these individuals. And also, will people use the itemized deduction or the available deductions that are available to anyone when they file their tax returns? to be seen, but certainly something we are paying close attention to. And obviously, and in the end, it will certainly be part of discussions when Canada, Mexico, and US sit down and talk about tariffs and subsidies that are provided to industries by local governments, either directly and indirectly. And you could almost qualify this as a subsidy And so still early. I think we're in the first inning of this big, beautiful bill. And we'll see where things end. But as usual, we'll be responsive and adapt our business accordingly.

Great. Thank you. And congratulations on your retirement. Thank you.

Your next question comes from Cameron Dirksen with National Bank Financial. Your line is now open.

Yeah, thanks. Good morning and congratulations from me as well, Jose. Just on that, I mean, just anything you can provide as far as a timeline or I guess the search process for a new CEO candidate, just sort of what kind of timeline we should expect and whether the board is looking at internal versus external candidates, just any color you can provide there would be great.

I mean, obviously, I was discussing with the board twice a year about my plan, and we came in the last few weeks to an agreement that it was time for me to move on. The board, you know, we have a very experienced, long-time board members that know the business very well. Then they have already started this morning the process with Head on Tour. It will be, obviously, a global search considering internal and external candidate. And it could take anywhere between three to nine months. That would be the normal timeline. And I obviously committed to stay and to ensure a good transition till the new CO is found.

Okay, that's helpful. Maybe just a quick follow-on for Seb, just on the decision to keep the marine accessories business or parts and accessories business. Just wondering why that was decided and is that business profitable?

Well, as part of the decision to exit the marine business, obviously we've put all the assets up for sale. It is a good business because it's part of the legacy of Enroute business. We generated last year over $70 million of revenue, almost a 25% EBITDA margin from this business because it's captive parts. But we were not able to get an acceptable price for this business, and so we decided to keep it. It's low maintenance internally, not very disruptive. and it's generating free cash flow. So that's what drove the decision to keep it.

Okay. No, that makes sense. I appreciate the time. Thanks very much. Thank you.

Your next question comes from Tristan Thomas Martin with BMO Capital Markets. Your line is now open.

Hey, good morning. And another congrats, Jose, to the tally. Thank you. I had a question. You kind of called out, right, dealers are at 70% credit line usage. What signs do you think they're looking for to maybe order ahead of any retail inflection, or do you think they're just going to wait until they begin to see retail improvements to begin ordering and kind of more volume?

Well, there is still, again, we were one of the OEMs that reacted quickly, and based on the experience that we have in the business, we knew that. when you see a potential slowdown happen, might as well react quicker. It'll be more beneficial in the long term for everyone, which was the right decision to do. But we have some OEMs that have more inventory out there. And so I think dealers need to get that inventory out, liquidate that inventory, see where the consumer is, see where the whole economy is going to land, where the tariff situation is going to land as well. before we see some confidence. Obviously, they'll want to order the new products, the latest innovation. That's why we're excited about the second half of the year. But before we see a strong inflection in demand, I think dealers are going to want to see more door swings and continuous door swings as well before stepping on the gas and ready for the next wave of growth.

Okay, that makes sense. Just one more. Are you seeing any changes in buyer credit approvals or credit scores or credit availability? Anything?

In terms of the people applying for credit, we haven't seen any changes in terms of FICO scores. People who are granted credit as well, we haven't seen big changes. where we've seen is the I guess the lower tier financiers that are more selective in providing credit to lower credit scores so entry-level products like the Riker is suffering a bit from a lower acceptance rate this is something that we've seen in the last in the last quarter got it thank you ladies and gentlemen as a reminder should you have a question please press star one

Your next question comes from Brian Morrison with TD Cowan. Your line is now open.

Thanks very much. Seb, I appreciate the colour on the second half outlook. I want to understand it a little bit better. So this quarter, you've got sales down $150 million, EBIT and EBITDA down about $109 million. So there's a 70% decline in the sales change. That's far greater than decrements. So it's telling me that promo and mix played a very big role. So I think decrements are typically 35%. Can you just confirm that and then break down the components of this decline? Because I want to know as inventory improves, what gets alleviated so I understand the back half of it better?

Okay, that's a big question for the final one of the day. But if I look at the margin in Q1, okay, obviously gross margin was hit pretty hard in Q1 by almost 500 basis points. And the drivers of that are mix were significant, sales programs were significant as well. Mix was about 170 basis points down, program 120 basis points down. fixed cost absorption also 190 basis points as well impact. So quite a big impact on the profitability and offset by a bit of efficiency and pricing as well that we were able to build in the overall plan. And obviously retail higher than wholesale in this quarter and so that's obviously a a big impact. Looking at the back half of the year, as I've mentioned earlier, for sure the new product introduction is going to be a big element. And the other thing we have as well is wholesale matching retail, which I've already covered. So the big drivers of the second half, if I look to 3 to 4, Q3 potentially could be flat-ish year-over-year. Yes, there's going to be some, obviously, some top-line growth. I'm still expecting a bit of programs, but certainly a margin improvement in Q3. And the big margin improvement is going to be happening in Q4, where we could expect volumes up significantly, almost a... Easily more than a 5% increase in volume, probably got in the range of $300 million, $400 million of volume increase in Q4. Margin improvement, because the mix is going to be rich as well. That's certainly going to be a big uptick. And so that's how we see the back half of the year. Certainly less programs, certainly better volume, and also better mix. driven with asset utilization.

And that's largely the new product introduction, correct?

Largely to new product introduction, and also largely to wholesale equal retail. Last year, we were reducing side by side and ORV inventory, and so we were wholesaling less than we were retailing.

Okay, and then just on that last question, ORV sales, I think you said you maintain the path of this mid-single-digit decline for the industry. But that has been helped with heavy promo on aged inventory. So should we expect it to soften more with just current-priced inventory or assume that that's offset with a new product introduction?

In the back half of the year, you could expect that you'll have an offset with a new product introduction. Don't forget that you will be transitioning into a non-current season in Q3 and Q4. And so the model year 25s will become non-current. OEMs should have discounts on these. And so that should help sustain a certain level of demand also in the back half of the year. Thank you very much.

There are no further questions at this time. I will now turn the call over to Mr. Deschain for closing remarks.

Great. Thank you, Joël, and thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again for our second quarter conference call planned for August 29th. Thanks again, everyone, and have a good day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.