BRP Inc.

Good morning, ladies and gentlemen. Welcome to the BRP Inc's FY26 second 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. Philip Deschain. Please go ahead, Mr. Deschain.

Thank you, Joelle. Good morning and welcome to BRP's conference call for the second quarter of fiscal year 26. Joining me this morning are José Beaujolais, 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 uncertainties, and I invite you to consult BRP's MD&A for a complete list of these. Also during the call, reference will be made supporting slide, and you can find the presentation on our website at brp.com under the investor relations section. So with that, I'll turn the call over to Jose.

Thank you, Philippe. Good morning, everyone, and thank you for joining us. We've delivered better than expected results in our second quarter in an operating environment that remained challenging. At retail in North America, we have gained further market share with our current Can-Am models, but as expected, we've lost market share in the non-current due to our low inventory. With a 20% year-over-year reduction in network inventory, we have reached proper level across all our product line except snowmobile. From this healthier base, we are well positioned to benefit from our newly introduced product to gain additional market share. During the quarter, we also announced a definitive agreement for the sales of Manitou, which is expected to close in the coming weeks. Now let's turn to slide four for key financial highlights. We ended the quarter with revenue of $1.9 billion, normalized EBITDA of $213 million, normalized EPS of $0.92, and solid free cash flow of almost $100 million. we are pleased with our result considering that Q2 is usually a transition quarter as we start introducing product for new model year. Looking at slide five, our North American power support retail decrease 11%. Canada continue to perform better than the US with a 4% growth given by ORV as Can-Am side by side had a record quarter. This growth was offset by a 15% decline in the U.S. In international market, Latin America continued to stand out through rapid and sustained growth. Retail was up 22%, led by a solid performance in ORV. In Asia Pacific, our retail grew 5%, representing a first increase in about two years, fueled by momentum in China. Meanwhile, demand remained generally soft in EMEA, with retail down 13% in line with the industry. Overall, we are encouraged to see that global industry trends have slightly improved from previous quarters. Turning to slide 6 for a look at our retail performance by product line in North America. Our passport retail declined 11%. As in previous quarter, Can-Am ORV market share was affected by a leaner level of non-current unit and high promotional activity by others OEM. In three-wheel vehicle, personal watercraft and switch pontoon, retail was weak early in the quarter due to soft trend and unfavorable weather, but condition improved in July and early August. Turning to slide seven. for highlights from Club BRP held in Boston earlier this month. The event was a success with close to 4,100 participants in person and virtual. We introduced several new models and upgraded across our lineups, including many industry firsts. Once again, we stayed true to our commitment of pushing technology and innovation to wow consumers. The highlight was the launch of the new generation of the Can-Am Defender. This vehicle received a ground-up overhaul, further solidifying its position as the most capable, versatile and reliable utility side-by-side on the market. The new Defender remained best-in-class in terms of technology, towing and cargo capacity, while also offering riders the largest cab in its category. The Defender was already the best product out there, even with its original 10-year-old platform. Now, with this new generation outfitted with the most advanced technology, we are setting an entirely new standard in the industry. We are in excellent position to continue gaining further market share in that segment that represents over two-thirds of the side-by-side industry. Reactions to the new Defender were extremely positive. Dealers' sentiment for the product was very good, while media who had the chance to test it were impressed and issued very positive reviews. I encourage you to read them. But that's not all. Let's turn to slide eight to look at some of other product news. We expanded our electric vehicle offering by launching the Outlander Electric, featuring industry-leading towing capacity, impressive off-road performance, and a very quiet riding experience. It uses our e-power unit, which also propels our electric motorcycle and snowmobiles. This is another demonstration of how we leverage our modular design approach to optimize development costs across many product lines. In addition, we further surprised our dealers by introducing multiple model upgrades and enhancements. We've launched the Outlander MAX66, designed to be the hardest-working ATV in the lineup under extreme conditions. We added rock-crawling capabilities to the Mavic R lineup with the XRC package and updated our Mavic X3. In three-wheel, we continue the evolution of our lineup with new modern coloration. As far as Sea-Doo, we introduce new connectivity features and improvement to the entire lineup. We also ramp up the switch pontoon experience with a highly anticipated 300hp engine on some models. We have also announced the repricing of some underperforming model, which was very well received by our dealers. As you see, We are the OEM who introduced the most product news for model year 26. Now, let's turn to slide 9 for a more detailed look at year-round product. Revenue were up 13% to $1.1 billion, driven by higher ORV shipments following last year's inventory reduction plan. At retail, side-by-side was down mid-single digits. we underperformed due to high level of discounting on non-current units by other OEMs. We continued to outperform in current units, ending the 25th season with more than three points of market share gain, driven by our Maverick R Max. In ETV, retail was down low single digit in the quarter, in line with the industry. That said, we gained over three points of market share in current units for the season, fueled by our new outlander platform. As for three-wheel, retail was down mid-20%, as entry-level consumers are struggling to get approved for financing. A few words on our electric motorcycle. Sorry. The ramp up of our retail sales is not as expected in the context of a slowdown in global EV adoption. However, it's still early. We are proud to have set the bar high and put our electric motorcycle at the forefront. The excitement around these new EV has been felt in North America and Europe as a result of our efforts to generate media and consumer awareness. In addition, To further build the demand and drive traffic in dealerships, we have announced price reduction in response to market feedback. We aim to leverage our past investment to grow this industry, make our motorcycle accessible to more riders, and position ourselves as leaders. Turning to seasonal product on slide 10. Revenue are down 13% to $470 million mainly due to a planned reduction of personal watercraft shipment. Our inventory is trending in line with pre-COVID level, which is creating a more favourable environment for the arrival of our model year 26. Looking at retail, trends remain weak for marine products in North America. Personal watercraft sales were down 15%, slightly lagging the industry. Switched pontoon retail was down mid-20% as the industry is still going through a correction period. Sea-Doo had a better performance in international market, with sales holding steady in Asia-Pacific and growing low single digit in Latin America. Moving to slide 11 with part accessories and apparel in OEM engine. Revenue were up 7% to $305 million, as dealers replenish their parts and accessories inventories. Finally, we continue to bring new parts and accessories through our LINQ system for customization, which will further stimulate this business. With that, I turn the call over to Sébastien.

Thank you, José, and good morning, everyone. Once again, our team did an exceptional job navigating a dynamic and volatile environment. We remained focused on our plan, continuing to be disciplined in managing shipments to further improve our network inventory position while maintaining a strong emphasis on operational efficiency. As a result, we closed the second quarter with a financial performance, a free cash flow generation, and a network inventory position all ahead of our expectations positioning us well as we enter the second half of the year. Now looking at the numbers, revenues were up 4% to $1.9 billion, primarily driven by stronger ORV shipments and offset by lower PWC deliveries. Gross profit came in at $398 million, representing a margin of 21.1%. down year-over-year mainly due to lower capacity utilization, an unfavorable product mix, and the impact of tariffs. These headwinds were partly offset by cost inefficiencies in our manufacturing operations, favorable pricing, and lower floor plan costs resulting from our leaner network inventory. Normalized EBITDA ended at $213 million, and our normalized earnings per share at $0.92, which includes roughly $0.35 coming from tax credits recorded in the quarter. Free cash flow from continuing operations reached $100 million, and we ended the quarter with over $270 million in cash, maintaining a solid balance sheet and strong financial flexibility. Turning to slide 14 for an update on the network inventory. As mentioned last quarter, our plan was to further right-size our network inventory in Q2, and we delivered on that objective. In fact, our dealer's inventory ended the quarter down 20% year-over-year and 13% sequentially from Q1. All product lines for which we had inventory in the network last year saw double-digit declines compared to the prior year. Also, to put things in perspective, on a comparable product line basis, our dealer's inventory is down 1% versus pre-COVID levels, including a 5% decline in ORV, even as our ORV retail is up about 50% over the same period. With these leaner inventory levels, our dealer's credit line usage ended the quarter at just above 60%. This is an excellent position to be in, as it not only reduces floor plan financing costs for both us and our dealers, but it also provides significant capacity for dealers to take on new products, particularly with the introduction of the all-new Can-Am Defender, which addresses the largest segment in the side-by-side industry and is a key driver of dealer profitability. Looking ahead, aside from snowmobiles, where some work remains, the right sizing of our network inventory is largely complete. This positions us to better align our wholesale with retail as we move into the second half of the year. More importantly, these leaner inventory levels help protect the value of our brand, strengthen the dealer's financial health, and enhance the competitiveness by enabling the rapid distribution of new products across the network, and by ensuring that we are best positioned to capture demand upside when market conditions improve. With this, let's turn to slide 15 for an update on fiscal 26. We are pleased with our execution so far this year. Quarterly results came in ahead of expectations, network inventory levels have been diligently reduced, and we continue to drive efficiency gains across the organization. Combined with the significant innovations we have introduced to the market, These achievements position us well for a strong second half. While the macroeconomic environment remains uncertain and the industry dynamics continue to be volatile, we now have better visibility on expected deliveries for the remainder of the year versus what we had in previous quarters, given that the right sizing of our network inventory is mostly complete, and these leaner levels provide us with more flexibility in managing our shipments based on retail trends, We have snowmobile orders on hand following our spring booking, and we will be fueling the initial demand of our new introduced products with the reception from the dealers was very positive. These factors give us the confidence in our volume outlook for H2, and consequently, we are comfortable issuing a guidance at this time. Obviously, this assumes that the tariff situation remains as is for the rest of the year. Note that based on the information we have today, we have factored in our guidance about $90 million of gross tariff impact. This is up from the previous estimate of $60 to $70 million, reflecting the increase in steel and aluminum tariffs to 50%, new tariffs on copper, and the expansion of steel and aluminum tariffs to additional products, including some of our vehicles. All in all, our guidance calls for revenues of $8,150,000,000 to $8.3 billion, normalized EBITDA of $1,040,000,000 to $1,090,000,000, and normalized EPS of $425,000 to $475,000. More importantly, it calls for solid growth across the board in the second half, as highlighted on slide 16. From a top-line perspective, our guidance implies growth of 8% to 12% in the second half, driven by the elements I previously mentioned. Benefiting from the stronger revenues and the ongoing focus on operational efficiency, we expect to be able to more than offset the impact of higher sales program tariff costs and the return on variable compensation to deliver significantly improved profitability. In fact, our guidance calls for H2 normalized EBITDA to be up between 22% and 31% over last year, resulting in a normalized EBITDA margin in excess of 14%, well above H1 levels. And this all results in normalized EPS that is expected to grow between 28% and 51%. From a cadence perspective, given the lower shipments planned for snowmobiles and the lower RV shipments in August ahead of the new product launches, Q3 normalized EPS is expected to be roughly stable versus last year, with the bulk of the H2 growth coming in Q4. On that, I will turn the call over to José.

Thank you, Sébastien. I am proud of our accomplishments so far this year. Despite macroeconomic environment, we've delivered results ahead of expectation through solid execution and operational excellence. The timing of our model year 26 launches could not be better. We are the OEM with the most product news, which we are bringing to market as our network inventory is healthy and dealer sentiment is improving. When I was in Boston for Club ERP, I felt a significant upswing versus last year. Many dealers appreciated that we were the OEM who supported them the most from day one during these challenging times. Since we are starting to see the benefit of our action, and despite ongoing volatility, we are comfortable issuing guidance. We are confident that the momentum generated by our new product introduction will allow us to deliver a stronger second half of the year. With the most complete product offering, Tron Brands and a solid data network, we are uniquely positioned to come out on top when the industry fully recovers. As I said many times in the past, our goal is to consistently wow consumers with market-shaping products. Over the long term, we remain committed to pushing technology and innovation to capitalize on market opportunities and sustain profitable growth. On that note, I turn the call over to the operator for questions.

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. One moment, please, for your first question. Your first question comes from Craig Kennison with Baird. Your line is now open.

Hey, thanks for taking my question and for the updated guidance. I wanted to ask about trade policy. You know, what are the tariff scenarios that you're contemplating? I know we have USMCA that is subject to renegotiation, and Mexico has suggested plans to raise tariffs on Asian imports. So, I think you're well positioned for the current landscape, but what are the scenarios you're thinking about down the road?

Yeah, good morning, Craig. Obviously, over the years, and you know that we optimize our manufacturing footprint and our supply chain, and all our product made in Canada and Mexico meet the USMCA. Today, about two-thirds of our content comes from North America. I won't give you the details between Canada, U.S., and Mexico for competitive reasons, but two-thirds of our content comes from North America. Obviously, we are in constant dialogue with Canadian and Mexican governments and authorities to try to follow very closely what's going on. And I believe that beyond VRP, the USMC agreement is critical for North American company to be able to compete worldwide. Then, to be honest, we're not working right now on any scenarios. Like I said many times, we always found ways to adapt to any regulation if the Regulate if the norm or the new USMC rules are clear and we have lead time, I'm very confident we will adapt to any situation. But we're following that closely and we're ready to fire up when we know better.

Thanks. And could you shed any light on your plans to mitigate the tariff exposure you forecast in your guidance?

Again, the $90 million is the growth, and basically it's sourcing. We move, depending on the regulation and where the goods are coming, sometimes we move the production or the supplier from one country to the others. I saw some idea from our team where a supplier were doing an assembly from a part coming from... and now we're doing it ourselves in our factory, then there is many, many things that we do to be able to minimize the impact of those tariffs. And to be honest, I'm impressed how fast we react and how good we are, but we're learning every day. Thank you.

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

Hey, good morning. So, would love to sort of have a conversation about the current versus non-current setup in the industry right now. Obviously, that was worth calling out, right, that your overall retail, particularly in ORV, was down. But if we split it up into current versus non-current, it tells a very different story. I guess as we roll that forward, What does that look like in the third quarter? And I think a lot of the answer comes down to when we think your peers will, if they haven't already, work down their non-current and ultimately sort of ease up from a promotional perspective. But curious how you see sort of your retail rolling forward in that context. Thanks.

Then obviously we are in the quarter, Q2 is the quarter where many OEM transitions from model year 25 to 26. Then there is some estimation in our forecast, but basically we saw in Q2 that most of the OEM are more cautious versus shipment. And we saw inventory, in our case, we are happy where we are except snowmobile that we intend to deplete in the upcoming season. But we saw positive signs, like in the ORV, the ETV inventory was down by 20% in Q2, side-by-side 10%, the industry, not us. Watercraft is a bit on the high side. One OEM have shipped quite a lot of 25 late into the season. But overall, the non-current versus current inventory ratio have improved over the quarters. then this is our situation. Why we are encouraged for each tool and we are comfortable to issue the guidance is we have a good visibility on what we will be shipping. And also, we see that we are in a position where our inventory is low. We have very good product news. The reception of the dealer were very upbeat at club. And, you know, we were the first one, like I said in my script, to take the bullet and support them in the last 18 months. And now it's time that we take advantage of this. And this is why we are in a unique situation and we're comfortable and we believe we can grow market share in H2 and we're comfortable with our guidance.

Got it. And just to clarify, it sounds like you're saying you think retail is going to be up in the second half. Maybe just confirm or deny that. And then just early thoughts on 2026. Obviously, as I think about puts and takes, there was some inventory drawdown this year. Assuming we're back to sort of one-to-one wholesale to retail, what does that get you? And then the tariff piece, right? I think you've said in the past that we shouldn't think about next year being double this year, but with the new $90 million number, any sort of initial thought on what that might look like for 26? Thanks.

I will give you color on our forecast for the industry in H2, and Sébastien will talk about fiscal year 26 then. Obviously, there is a lot of volatility in the macroeconomic, but basically, we're planning for the industry H2 similar to Q2. And just to give you a sense by key countries, U.S. was down mid-single digit in Q2. Obviously, we believe tariff uncertainty and the inflation still affect consumer confidence. Canada have done well with up low single digit. I'm talking the industry. LATAM is doing very strong with over 20% growth in Q2 and drive by the ORV momentum in Brazil and Mexico, and we believe this will continue. And EME was down in Q2 by mid-teen, but is improved versus previous quarter. Then when this is basically our planning for the industry, and again, our position, we believe we are in a good position versus the others.

On tariffs, as I mentioned in the prepared remarks, this year is a headwind of a gross headwind of 90 million. There are some one-time elements that we've incurred this year that will not come back next year, probably in the range of about 10 million. If we do nothing, and obviously that's not how we operate, the teams are always there to optimize and minimize the impact. You could see, again, with the same tariff base that we have, maybe a headwind of $120 million, $130 million, but obviously we're going to keep working on optimizing and working with our suppliers to reduce as much as possible the tariff risk, but that would be, let's say, the run rate on a steady basis.

Got it. Thanks, guys.

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

Good morning. A question for Seb or Jose. You have called the 1.3 billion revenue head or so, a big number from the D stock over the past year, with the industry inventory being closer to right size now. How do we think about the revenue profile outlook of this alignment of wholesale and retail? Should it be straight line recovery over the next 12 months? How do you think about that?

Well, obviously, it's Good morning, Brian. Probably a bit early to call what next year is going to be like. We just issued guidance for the next six months of the year. But if you look at the pluses and minus for next year versus this year, I think the big one is going to be the retail equals wholesale. And when you look at the number this year and the destocking we did, it's between a $400 to $500 million revenue impact that we've had. And it's well above a buck of EPS impact, obviously. And so once, hopefully we're going to be there at the end of the year. We're there already where inventory is right size. We need a bit more work to do on snowmobile. And so that headwind should be gone next year. Obviously, there are some volume opportunities as well for next year. We've been losing market share in ORV now for the past year or so. mainly due to the non-current dynamic in the industry. Now the inventories are cleaner. There's a bit of more work to be done for a few OEMs, but my call is that they should be done by the end of the year. We're back from club. Jose mentioned that in his remarks as well. A lot of excitement. You were there as well, Brian, last week, and you saw the dealer engagement. You saw the great products we have, and so that obviously helps next year. And from the market share perspective, I trust that Sandy and its team will be working on turning the tide, and we should see market share improve next year, so that obviously will be a plus. So that's from a more top-line perspective. And then when you look at the profitability, obviously we continue to drive efficiencies, that's for sure. The teams are always working on optimizing the bill of material, the operations on our plants. We might decide to invest in other, in certain sectors. Even though there's a slowdown, you saw that we continued investing in innovation. We're going to continue doing that next year. So maybe that's a wash. And then in terms of other minuses, I talked about the tariffs that are going to be higher next year. That's if we don't do anything. Depreciation could be, let's say, $30 million higher next year. Financing costs as well. And the tax rate probably closer to where we were historically at the 25%, 26% range. So Again, here are some of the plus high level, the pluses and minuses, but obviously too early to call. We'll enjoy the guidance that we just issued today. It's still hot, it's still warm, and we look forward to provide you with details on 27 in the next few quarters.

I appreciate those details. I think the message, though, is that of that alignment, $400 million to $500 million of that is incurred in the second half of this year, and then in a flat environment, we should see the remainder of that next year. Is that correct? And then my second question is really just on your margin, what you said. Can you maybe just frame the impact from promo activity this year? Because obviously it's material, and with the non-current inventory in the industry starting to ease, maybe just frame how we should think about the margin impact that should have going forward.

Yeah, last year was a big year in terms of promotion. So this year we're getting a benefit probably in the range of, let's say, 75 to 100 basis points versus pre-COVID where even 50 basis points better. Could we further optimize next year? For sure. As we had did a big, well, the commercial environment was tougher this year, so more promotions. We had to compete against other OEMs that had noncurrent. So could there be another 50 basis point tailwind next year? Most certainly, that's something that is plausible. Obviously, there are a lot of variables that need to fall into place, but it is one possible scenario.

Thanks very much for the call.

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

Great. Thanks. Just two things. One is a follow-up to your comments about expectations for second half retail. You said kind of similar to what we saw in Q2, but you mentioned U.S. down mid-single, Canada up low single. If we were talking about just your ORV expectations, because I understand there's some seasonal things for your product lines that may be different, but if we were looking at just North American ORV retail in the second half, would you say that you're expecting North America to be up low single digit as you saw in Q2? In other words, some of the numbers you were giving, I assume, were impacted by those Fair to say that your comment about expecting second half trends similar to Q2 would be also the case just for ORVs specifically. Thanks.

Well, when I look at Q2, every month sequentially ORV retail improved. And so from May to June to July. And sequentially, we're seeing improvements as well happening in August. As Jose mentioned, the industry is cleaner in terms of current, non-current. Yes, some OEMs have higher non-current than where they were historically. But I think we'll be competing in a better environment. Obviously, yes, we're transitioning to a new model year. So I'm hoping to see better numbers than what we saw in Q2 and early in August the trend is in the right direction and so obviously we're working to make sure that that continues.

Okay, great. Thank you. And then my other question is, when we look at your inventory compared to pre-COVID levels, being, you know, up only 2%, down 1%, including new product lines or excluding new product lines, and I guess specifically for ORV, down 5%. With your retail volume so much higher than pre-COVID levels, How is that down 5% the right number? And especially because I'm assuming that's an aggregate and your dealer base has probably grown. So that would suggest that like on a per dealer level, your ORV inventory is even further below. Just wondering why that is the right number for you. Thanks.

Well, one, the dealer count is fairly stable versus we were pre-COVID. And so it's on a, let's say, same store basis. And were we too a bit too high during pre-COVID? Some could say yes. Obviously, it's a question of dollars as well. The dollar value of units is significantly higher. And so dealers are more cautious in taking inventory when the dollar value is almost up 50%, i.e. MSRP increase, but also a combination of better mix. And also there is a benefit in where demand for cab units is still very strong and supply is slightly lower than where we were in historical level for our other product lines. So that's one of the reasons that's driving lower ORV inventory for us, but also other OEMs. And there's always going to be variation in our inventory levels. It's never going to be fixed 90-day every month, every quarter. It'll move. But generally, we're happy with where the inventory stands. It provides us with flexibility, proactivity if there were to be an economic slowdown. And I think given where the uncertainty in the state of the economy, I think it's at the right level. And we'll adjust our inventories accordingly as the business continues to evolve.

Okay, great. Thank you very much.

Your next question comes from Sabaha Khan with RBC Capital Markets. Your line is now open.

Great. Thanks, and good morning. Just in light of some of the comments around the inventory position and sort of the outlook, can you get a little bit deeper into sort of the retail evolution you expect into sort of the back half of this year and into next year? Is this sort of just sequential improvement in the retail uptake on the consumer side? And sort of how are you factoring into your outlook? some of the macro factors that you talked about and how they might impact consumer uptake. And if there's any color across categories on the retail uptake outlook, thanks.

Yeah, again, we don't have, let's say, a black box that gives us the full industry and retail trends. But obviously, we need to appreciate that there are many variables, such as tariff, interest rates, consumer sentiment. So it's difficult to forecast industry at the moment. But all in all, despite all the noise that we've seen in the industry and the market, the industries have held up so far decently this year, being down low single-digit percentage overall. Yes, some of that was helped by the non-current and promotions. That's fair. But we're transitioning now to a model year, so now there's going to be non-current. The model year 2025 will be non-current. And the other big question is how interest rates will behave, how interest rates will move. So our base case there for the rest of the year is a continuation of the trend we are seeing because we're transitioning to a new model year. But despite this, even though there's volatility, we're confident in the guidance we have today because, again, even if there's slight movement in industry and retail, Our inventories are low. Dealers want our new units, the new innovation. We have orders for snowmobile. And so we're confident in the guidance we've issued today based on all of these factors.

Great. And then as we look at sort of the balance sheet in the call it two and a half times range, is it a bit of a wait and see on the balance sheet and capital allocation as you look ahead? And presumably, you know, production probably picks up, might be some need for investment there as units start to improve. Why don't you just walk us through your views on sort of capital allocation, balance sheet, and maybe reinvestment into the business as we potentially move toward an upcycle here. Thanks.

Yeah, well, our priority in terms of capital allocation has always been investing in the business, growing the dividend, and also doing buybacks. But we've – Given the context, the uncertainty around tariffs, the economy, we've been on the sideline on buybacks, and we'll probably continue being on the sideline as well until we see that clarity and when we see the cash flow come in. The priority has always been protecting the financial flexibility of the company, and we're fortunate we are in a good position. We've got debts with no covenants, and so... We don't need to worry about meeting our financial covenants. We've got ample flexibility on the revolver as well. But currently, being prudent has been the name of the game, and we're going to continue managing our balance sheet that way.

Great. Thanks very much.

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

Thanks. Hey, guys. Good morning. So, just wanted to go back to the guidance for a second. And I think, Seb, you mentioned this earlier. If I look at first half versus second half, it's quite striking. You know, revenue midpoint, I guess, is up 10%, or around $400 million. So, I'm just trying to understand how much of that is simply lapping last year's undershipping demand, and how much is innovation like Defender, for example? I'm just trying to assess the risk of that outlook.

Well, for sure. I mean, last year was an easy, H2 was an easy second half the lap. And most of the focus last year was on reducing seasonal product inventory in the network. And so our shipments were actually down for the seasonal product business. This year when you look at our H2 guidance or outlook, seasonal revenue is relatively flat versus last year as there's still work to be done on snowmobile. But we're planning to increase year-round products. Last year was decent, but this year H2 is going to be more in line with what we did in 23 and 24. In terms of delivery, obviously, we have the new products that's driving some of the volume, but we believe that's also going to be driving retail. And also, mix is also going to be beneficial in the second half of this year, where mix was more challenged last year as we undershipped seasonal business with a very rich mix. And we also have, obviously, cost efficiencies that we're factoring in the second half and also lower sales program. So all in all, I would say that, yes, it was an easy comp last year, and last year was well below what we believe the earnings power of the company is, and this year is a more indication of what the true earnings power of BRP is when we're shipping more wholesale equal retail.

Okay, got it. And on the tariff front, you mentioned the $90 million this morning. I think somebody else asked this, but I'm not sure if you answered it. What's the net number post-mitigation? I'm just trying to tie back to your original EPS outlook for this year, which I think was $4.50 to $5. I'm just curious if that's now actually higher if we exclude the tariffs.

Yeah, net of the mitigation efforts we've put in, we're probably ending at a 25 to 30 cents negative impact on the P&L. Most of the mitigation efforts have been that we've taken higher pricing. Usually we do a 1, 1.5%, but we've taken pricing hires mainly on the parts and accessories business, but that's how we've mitigated the impact.

Okay, great. Thank you.

Your next question comes from Martin Landry with Stifel. Your line is now open.

Hi, good morning, guys. Sébastien, you know, speaking about earnings power, I would like to, you know, just have a little bit of a discussion. A couple of years ago, you know, the company was guiding for an EPS of, all the way up to $14. And now you're guiding for an EPS of 470, yeah, around 450. So how long and what kind of earnings power could we expect from the company in the coming years? I understand that going back to $14 is probably unrealistic in the near term. But I'd love to hear you talk a little bit about, you know, what kind of earnings power can the company have in the next two, three, four years?

Well, I mean, I like where BRP is sitting today. I've been with the company for 20 years. I've seen how the company has grown and evolved. And obviously, we are today a must in the power sport industry from the breadth of our product portfolio, from the quality of the products we offer, from the the dealer network we've built over the years, not only in North America, but around the world. And so do I believe that BRP can continue growing in this industry? Absolutely. We've talked about the market share, being able to grow it, and obviously not only the side-by-side, but ATV. It all obviously depends on the industry. So BRP has the resources, the capacity to continue growing. We need to drive industry as well. But the industry is based on the macro environment, interest rates, consumer confidence, unemployment rates, et cetera. So there are many variables. So it's very dependent on how the industry behaves. So do I believe that if the industry grows and the economy is robust, that we can get to the numbers that we talked about in the past? Absolutely. Because BRP has become an innovation machine and a profitability machine as well for the dealers. And these are the key factors that are going to drive growth in the future.

Okay. And, you know, could we, is it fair to say that there's a realistic scenario where your EPS could double from current level in the next two, three years?

Again, it's very, do we have the backbone to do it? Yes. Do we have the manufacturing capacity to do it? Yes. Do we have the product lines to do it? Yes. The network? Yes. It'll be very dependent on industry dynamics. Okay. Okay, thank you.

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

Good morning, Mark.

Mark Petrie?

Oh, sorry about that. Thanks for the question and good morning. I just want to clarify maybe a couple of things. You talked about two figures from the destock headwind, the $1.3 billion and then the $400 to $500 million. Could you just square up exactly what those are referring to? I think the $400 to $500 is the potential tailwind into next year, but could you just be clear on that?

Yeah, the overall impact, if you do the accumulation there, when we talked about destocking in fiscal year 25, and now we're destocking in fiscal year 26, the combined effect probably adds up to a billion-dollar close. The number I referred to in my question to Brian was a $400 million to $500 million impact. When I compare the stocking we did in the current fiscal year. The impact of that, the stocking, is about $400 to $500 million of revenue just for this year.

Okay. Understood. Thank you. And then you were talking about or highlighting the 14% to 15% EBITDA margin level implied for the second half in your outlook. Could you just sort of walk through kind of the biggest factors bridging that from last year and then you know how to shape those into fiscal 27 i think you've already touched on the programs which you know i think you said it could be a 50 basis point tailwind um but um but could you just give a little bit more color there please

Yeah, and I'll probably refrain from making any estimates on 27 too early. But I gave you some colors to what I believe the pluses and minuses are for next year. But when I look at this year, just for H2, we'll look at gross profit. Obviously, the second half of the year, I'm expecting gross profit to increase probably 300 basis points easily versus where we were last year. so let's say low 300 basis points to whatever 250, 300 from a OPEX, it will be higher in the second half of the year versus last year, probably 500 basis points, mainly coming from variable compensation. And from a Nibida margin, Second half of the year, you're probably going to see 150 basis point net there when you do the pluses and minuses on the EBITDA, a positive growth. So well above 14% EBITDA margin in the second half of the year.

Yeah, okay. Understood. Appreciate that. All the best. Thank you. Thank you.

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

Yeah, good morning. Jose, just in terms of retail sales between Canada and U.S., there's been a discrepancy. Canada was up low single digits. U.S. was down low single digits. So I was wondering if you have any thoughts on what's driving this trend. I've seen some comments from dealers in Canada pointing to greater interest for BRP products given the geopolitical issues, or I'm just wondering if it's a matter of having a much lower of non-current units in Canada. So any color on the discrepancy between both countries would be great.

Well, I think this is my belief. In U.S., you know, there is still the tariff uncertainty. think the price changed very often also the inflation is is still high on the high side and there was no interest rate reduction so far then then the us consumers uh i think is is more uncertain about the overall economy and we see that in the uh lower income customers a lot of uh our rejection rate for people who are asking to buy a Riker is very high in U.S. In Canada, it's a bit different dynamic. First, the dealers in Canada are very loyal to BRP, and the economy is overall good. I didn't hear personally dealers saying that because of the terrorist situation, there is more interest for BRP product. I believe maybe some U.S. companies have more difficulty because of the exchange rate between Canada and U.S. to come to Canada. But I think the dynamic is more caused by the macroeconomic environment in the U.S. than anything else.

Okay, that's interesting. And with respect to the pricing adjustment that you just announced at the club, we've seen some of your peers that were able to drive stronger sales on the back of lower pricing. So I was wondering whether you're seeing positive impact following price adjustment made at the club, José?

I mean, it's too early to call because right now, Benoit, we have order on end for all the ORV product for deliveries in August, September. We're doing next week the booking for deliveries in October. But what I can tell you, you know, it's normal that from time to time you readjust your pricing. And what happened during the COVID pandemic, A lot of OEM have increased more the pricing than others. And we were somewhat not competitive in six category. And we took the timing right now that our inventory is low situation. It seems to be more stable to readjust our pricing in six category because we drive to continue to gain market share in the off-road business. And every category needs to grow. And the timing was perfect for us. Then it's too early to tell you, but in our internal planning, we're definitely planning to grow volume in those categories for products.

Okay. And maybe last one for me. You've been quite successful ramping up the fishing offering in the Sea-Doo category. We've seen Yamaha that came with the new fishing PWC called the CrossWave. So I was wondering, José, if you have any thoughts on this new product from Yamaha and whether you've seen some impact on the Sea-Doo Fish Pro offering so far.

But first, the product, nobody saw it physically yet. It's scheduled to be delivered next spring. Then we'll see how it goes. But definitely, in the watercraft industry, you know, recreational product for recreational-only activity is still good. But we've been very good to have specialized vehicles. And that's what we've done with the Wake Pro. That's what we've done with the Explorer. That's what we've done with the Fish Pro. And this is tailored to activity which brings new customers to the industry. Then, obviously, Yamaha took a different approach, but it will be interesting to see how it grows. And at the same time, it's pushing us to be better and to be more competitive. We like competition, and if they can, accelerate the development of people who fish into the watercraft category, I welcome the initiative. I mean, if we could continue, because we are the two main players, to grow the industry, I think it will be better for both of us, and we're not afraid of the competition.

Perfect. Thank you very much for the call there, José. Thank you.

Your next question comes from Luke Annan with Canaccord. Your line is now open.

Thanks. Good morning, everyone. Most of my questions have been answered, so it's just a clarification on some earlier lines of questioning. On the topic of the normalized earnings power, I know you've referenced it as far as EPS in the past. but I know that you've also discussed a normalized EBITDA margin of in and around 17% as sort of being the structural mid-cycle target that you guys have had. What does that number look like, or has it changed at all post-marine divestments? What should we be thinking about as sort of the longer-term margin potential here?

If there's anything, it's probably even more achievable. I mean, we've delivered... high EBITDA margin percentages in the past with the marine business up to 19%. I think when you exclude marine pro forma, you would be at 21%. So is the 17% still achievable? To an earlier question from Martin Andre, as the business grows, as the industry grows, as we get to these higher revenue numbers, for sure EBITDA margin will grow as we leverage the investments we've made in the past and as we leverage the existing manufacturing capacity. So I do believe that it's a number that's still very much achievable.

Great. Thanks. And then you also touched on the dealer's utilization of their line of credit is 60% this quarter and it's down from 70% last quarter. How has that fluctuated over the course of, we'll say, the last few years? And, I mean, like, is it at a point now where it's basically troughed and we should see that expand given the retail environment? Or just how roughly, I guess, should we be thinking about that over the course of the near to medium term?

It is very healthy. Dealers see it as well in their monthly financing costs or floor plan costs. So it is very healthy. As I said, it will move, yes, because there's seasonality in our business. There's inventory buildups before retail season. Sometimes retail does not go according to plan. Sometimes it's better. So we are expecting it to move. It did go up quite significantly in the last 24 months. But we also did right-sizing of line of credits. We talked about this as well. Our business has grown significantly. MSRPs have grown as well. And so we needed to bring dealers along to acknowledge that their lines of credit also needed to be tailored to the new reality of the power sports industry and of BRP's business. So that's another factor.

Okay, thanks. And then last one for me, and then I'll pass the line. Utility SSVs represent about two-thirds of the overall industry. Can you share what it represents as far as your SSV mix today? And then when we think about the longer-term market share opportunity for you in SSVs, how much of that is utility market share capture versus other, we'll say capture and recreational versus other drivers?

The same ratio for us, two-thirds of our volume is utility. And obviously, we've always been stronger in the REC support. And obviously, there is more opportunity in the utility. And that's why we're so optimistic with the new Defender. Because like I said, we have the best ATV with all technology. Now we establish a new standard with the new technology. Okay.

Thank you very much.

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

Yeah, thanks. Good morning. I guess a question on the tariffs. You mentioned that the new tariff estimate for the year includes the recent announcement of the expansion of products on steel and aluminum tariffs. It doesn't sound like that affects all of your products. Can you just maybe detail that a bit more and whether there's any risk that there could be I guess, further tariff impact if there's, I guess, another expansion of that steel and aluminum to more products?

Good morning, Cam. Yeah, there's always a possibility of the rules changing. This came into effect on August 18th, where steel and aluminum now at 50%. The vehicles that are impacted is mainly ATV side-by-side, and however, some models of side-by-side are excluded, and it's really on the steel content that are in the vehicles. So the secret is obviously providing what the weight and back is. And steel is obviously a big part of the vehicle, but it's a low cost in the vehicle. And so we prefer not to have it. It is an impact, but it's certainly something that we can absorb. And if the rules change, we'll adapt as we always do. but difficult for me to call what could be the impact if I were to apply X percentage tariff on X and Y products.

Okay, that's helpful. And maybe, I guess, second question, not that we're rushing to see Jose accelerate his retirement, but just wondering if there's any update on a new CEO search at this point.

No update. The search is ongoing, and I was with the HR committee this week, and the transition should be by the end of the year, no change. Okay, perfect.

I'll pass the line. 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. I don't know if I missed this, but did you guys disclose where you expect your channel inventory levels to be at the end of the year? And then also, anecdotally, I'm curious if you've heard anything about how dealers are planning on ordering the new product. I understand the reception has been very positive, but just curious how dealers are kind of thinking about the back half and then early next year in terms of planning their ordering.

From an inventory perspective, no big changes versus where we stand. Obviously, as we've mentioned, there's a bit of work to do on Snowmobile, and so that's going to be the focus in the second half of the year. But generally, where we are in Q2 for the various product lines is where we expect to be at the end of Q4. And for your second question, sorry, I missed the, I think Jose is going to take it.

On the other front, like Sebastien mentioned, we have the order on hand for snowmobiles for the delivery for fiscal year 26. Now on watercraft, we're just finalizing the booking. Dealers saw the product at cloud, they look, they do their model mix, but basically we are on plan. And off-road, we have dealer on hand for the deliveries in August and September. We're taking the delivery We're taking an order every month for delivery in two months. Then we'll be taking deliveries in the next two weeks for delivery in October, but we're very confident with the Afro lineup that we have and the novelty that will meet our numbers.

Okay, great. And if I could just sneak one more in there. I believe one of your very comments, you said investing in other sectors, is that investing in product lines and markets you're already in or possibly expanding into other end markets next?

It's still centered around the power sport industry. Yep. Okay, great. Thank you. Thank you.

Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Jonathan Goldman with Scotiabank. Your line is now open.

Hi, good morning, team, and thanks for taking my questions. I apologize if I missed this, but just going back to the guidance, the second half implying plus 10% at the midpoint. I think you called out retail being aligned with wholesale and retail kind of being similar in the second half to Q2, which was down low single digits. So to bridge the delta, is it pricing, share gains, new product launches, any other elements in there?

Well, it's a combination of factors. As I mentioned, the favorable product mix is going to be a factor. The less programs as well as another factor helping revenue. These would be the two big items that are, let's say, not volume related.

Okay. Thanks for that. And maybe, Jose, can you comment on the level of new entrants? in the industry now versus 2019, how elevated it is. And I guess this ties into the broader question of the earnings power of the business. If you look at the industry data, calendar 24 units are kind of exactly where they were in 2019. So do we have more room to grow unit-wise in the industry or is it kind of stabilized in terms of volume? And then obviously this year would be lower and it's just getting back to the 1.2 billion level.

New entry numbers in Q2 were at 23%, same level than pre-COVID. And it seems that we're back to where we were before the COVID bubble. I think in terms of industry, I answered what the planning for the industry. I think what may be additional and for you is the trend that we saw in the last quarter is continuing. Obviously, The inflation, the high financing rate, the uncertainty put some pressure on the lower-income customers, and we see the premium selling well versus the value product. And Spark and Riker are below traditional watercraft and below traditional fuel vehicle. And in the side-by-side, the premium sell well, the value is down. Utilities sell well and their export is down. Then the same trend that we saw in the last two quarters. But we are well positioned because, as you know, we're better in the high-end product than the entry level. And with the new Defender and the utility going up, our timing could not be better.

Okay, that makes sense. And I guess just following up on that, Do you think the industry is larger today in terms of units than it was in 2019? If you exclude motorcycles, I guess there was about 1.2 billion units sold in 2019. In a normalized environment, do you think we can exceed that volume in the industry totally? In North America?

Side-by-side have grown over the last few years, and it continues to grow. And what is interesting, it's growing in North America, but it's growing even more in some international markets. The numbers are still obviously lower than North America, but the growth is very good. And I think there is a place to continue to grow, or the industry will continue to grow in the side-by-side business. Okay. Thank you very much for the call.

Thank you.

And now for the questions at this time, I will now turn the call over to Mr. Deschain for closing remarks.

Thank you, Joël. And thanks, everyone, for joining us this morning and for your interest in BRT. Before we go, know that we will be hosting an analyst and investor day on October 8th and 9th in Valcour. Stay on the lookout for more details. 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.