BRP Inc.

Good morning, ladies and gentlemen. Welcome to the BRP Inc's FY26 third quarter results conference call. For participants who use the telephone line, it is recommended to turn off the sound on your device. I would now like to turn the meeting over to Mr. Philippe Deschain. Please go ahead, Mr. Deschain.

Thank you, Joelle. Good morning and welcome to BRP's conference call for the third quarter of fiscal 2016. Joining me this morning are José Boisjoli, President and Chief Executive Officer, and Sébastien Martel, Chief Financial Officer. Before I move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that the actual results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risk and uncertainty, and I invite you to consult BRC'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 are pleased with our third quarter financial results, which came in ahead of expectation. While we continue operating in a dynamic macroeconomic environment, our teams remain focused on discipline execution and our hard work paid off. We also gained market share in ORV, fueled by the success of our newly introduced models, notably the Canon Defender HD11. Let's turn to slide four for key financial highlights. We ended the quarter with revenue of 2.3 billion, normalized EBITDA of 326 million, normalized EPS of $1.59, and free cash flow of 220 million, all significant increase over last year. On the back of this solid performance, we are increasing our guidance and are now expecting to deliver approximately $5 of normalized EPS for the year. Moving on to slide five for global industry trends. In North America, our retail sales decreased by 4% or 1% excluding snowmobile in line with the market. Our retail in Canada was flat excluding snowmobile with a solid performance in the side-by-side category. In the US, We're down 3% in line with our plan, and we expect the trend to improve in Q4. In international markets, Latin America continues to experience solid momentum, with retail up 13%, led by a strong ORV performance in Mexico, and by our highly engaged and growing dealer network. Demand remains generally soft in EME, with retail down 4%, while Asia Pacific, our retail decreased 11%. Global industry trends have remained mostly consistent with previous quarters. In general, demand remains stronger for high-end products compared to entry-level. We view this favorably as we have introduced several new high-end model this year that are well received. Turning to slide six for a look at our retail performance by product line in North America. As anticipated, we have lost market share in all product lines except ORV due to the industry dynamic in the low volume period of the retail season. That said, the highlight of the quarter was the strong reception of our 2026 ORV lineup, which drove market share gain for both side-by-side and ETV, despite continued promotional activity from other OEMs. As you can see on slide 7, the momentum created by the new generation of the Defender, the Outlander backcountry 4x4 and 6x6, and enhancements to our Maverick lineup led to a record month of October at retail for both side-by-side and ETV. Our new model captured consumer attention and earned rave reviews from media representatives who tried them. The coverage highlighted our product as the market benchmark in the industry. Building on this momentum, we've launched additional ORV models at the end of November, namely the Defender CAD HD10, the most affordable HVAC equipped side-by-side in the industry. Now let's turn to slide eight for a more detailed look at year-round products. Revenue were up 22% to 1.3 billion, driven by higher ORV shipments following new product launches. At retail, side-by-side was up, high single-digit outpacing the industry. In fact, we delivered our strongest third quarter ever at retail for side-by-side. We continue to strongly outperform in current units, gaining four points of market share in the utility category. In ATV, retail was down mid-single-digit, outperforming the industry, which was down high single-digit. In current units, we've gained double-digit market share points driven by our Outlander platform and newly introduced models. As for three-wheel vehicles, we closed the 2025 season lagging the industry. We continue to experience softer retail for our entry-level Riker lineup, which is consistent with overall market trends. This said, our high-end Spyder lineup performed better, allowing us to remain number one in the three-wheel vehicle business with a market share over 50%. Turning to seasonal products on slide nine. Revenue were down 2% to $606 million, mainly due to a planned reduction of snowmobile shipments to right size network inventory. Looking at retail, the snowmobile industry saw a very high level of discounted non-current units from other OEMs. In fact, about two-thirds of units retailed during the quarter were non-current, a level we had not seen for many years. As expected, we lagged the industry given our lower non-current inventory and strong retail performance at the end of last season. This dynamic should continue throughout the winter. However, we are performing current unit as a result of the overall strength of our lineup and elevated level of pre-sold unit. Turning to on-water product trend remained relatively soft in North America. For the season ended in September, personal watercraft sales were down low 10%, slightly lagging the industry. but we maintained our number one position in North America. As for PON2, retail was down mid-20% as the industry is still going through a correction period. We had a better quarter in Hunter Seasonal Market, which are entering their peak retail season, with SIDU retail up mid-single digit in both Asia-Pacific and Latin America. Moving to slide 10 for parts, accessories, and apparel in OEM Engine. Revenue were up 18% to 379 million due to a higher volume of parts and accessory sales as dealers replenish their inventory. The increase in parts and oil sales show that consumers are riding our product, which is positive, while higher accessory sales reflect the success of our new product introduction. The revenue increase is also due to a more favorable mix of OEM engine sales. Before turning the call over to Sébastien, I want to give you an update on the sales of our marine business. In Q3, we've closed the sales of Manitou. As for Tellwater in Australia, the transaction remains subject to regulatory approvals. The process is taking longer than initially anticipated, and we expect a decision over the coming weeks. With that, I turn the call over to Sébastien.

Thank you, José, and good morning, everyone. Thanks to our team's disciplined execution, continued focus on operational efficiency, and the strong reception of our newly introduced models, we delivered a solid Q3 with retail and financial results above expectations. Now, looking at the numbers, revenues increased 14% to $2.3 billion, driven by stronger ORV shipments, partly offset by lower snowmobile deliveries. Gross profits reached $541 million, representing a margin of 24.1%, up 210 basis points, mainly driven by better capacity utilization, cost improvement initiatives, lower sales programs, and favorable pricing. These gains were partly offset by the impact of tariffs, the return of variable compensation, and unfavorable foreign exchange rate variations. Normalized dividend grew 21% to $326 million, and our normalized earnings per share rose 33% to $1.59. Free cash flow from continuing operations was $320 million, and we closed the quarter with $250 million of cash on hand. Also during the quarter, we seized the opportunity to further strengthen our balance sheet by extending the maturity of a portion of our long-term debt, lowering the average interest rate of our term facility, and repaying about $200 million of debt. These actions are expected to generate financing cost savings of about $10 million in fiscal 26 and $30 million annually from fiscal 27 onwards. Given our solid balance sheet and robust free cash flow generation, We are well positioned to enhance the return of capital to shareholders by reactivating our share buyback program. Accordingly, we have renewed our NCIB, allowing us to repurchase up to 3.1 million shares over the next 12 months. Now turning to slide 13 for an update on our network inventory. We maintain a disciplined approach to network inventory management throughout the quarter. ending Q3 with inventory down 17% versus last year and down 6% below pre-COVID levels. Importantly, we have made strong progress in key areas of focus with three-wheel, personal watercraft, switch, and snowmobile, all showing strong double-digit reductions. Meanwhile, our ORV network inventory remains healthy, down 8% year over year, with SSV sequentially declining from Q2 levels, notably driven by our solid retail performance. This positions our dealers with significant capacity to take on our newly introduced products as we ramp up production. Looking ahead, aside from snowmobiles for which the season is still unfolding, the right sizing of our network inventory is largely complete. This will allow us to better align wholesale with retail moving forward. With our robust product lineup and healthy network inventory levels, we believe we are best positioned in the industry to capture demand upside while market conditions improve. With this, let's turn to slide 14 for an update on fiscal 26. As I mentioned earlier, we are pleased with our execution and results so far this year. Assuming macroeconomic conditions and tariffs remain stable, we have good visibility on dealer orders for the rest of the year, positioning us to deliver revenues at the higher end of our initial guidance ranges. Additionally, with the continued tight management of our expenses, efficiency gains we are generating across the organization, and the benefits of our recent debt transaction, we now expect to deliver better normalized EBITDA and normalized EPS than previously anticipated. As such, we now expect to deliver about $8.3 billion of revenue, $1.1 billion of normalized EBITDA, and about $5 of normalized DPS for the year. Looking ahead with our successful product introductions, lean network inventory levels, and improving dealer sentiment, we expect to carry our strong momentum into fiscal 27, positioning us to deliver double-digit normalized DPS growth while having the financial flexibility to enhance return of capital to shareholders. On that, I turn the call over to Jose.

Thank you, Sébastien. Before closing my remarks, I would like to talk about our fourth Yellow Day held on November 20th. As an organization, we are committed to making a positive social impact. I was pleased to see a growing number of employees, dealers, and ambassadors worldwide actively engaging with our cause to ride out intimidation. It is rewarding to know that we are making a real difference. In conclusion, I am proud of our accomplishments so far this year. Our strong Q3 performance has resulted in higher guidance for fiscal 26. In the short term, all our teams are aligned internally and focused on delivering against our new M28 strategic plan to capture our full power support potential. As part of this plan, we introduced financial objectives of 9.5 billion in revenue, and $8 in normalized APS by end of fiscal 28. We are confident in our ability to reach these objectives. Looking ahead, we are the best position OEM to benefit from an industry rebound given our lean inventory position, engaged dealer network, and strong lineup. We have the most product introduction for model year 26 and we will not stop here. Our goal is to consistently wow consumers with innovative products and unbeatable experience. With the solid foundation we have built over time, we can create a bright future for BRP and drive long-term profitability. Lastly, about the nomination of the new CEO, the process is ongoing and the board is still targeting the end of January. I will work closely with the executive team to ensure a smooth transition for my successor. I am proud of what BRP has become. We have built a strong organization, and I have no doubt that we are the best OEM in the industry. This is my last earning call. It was a pleasure working with all of you. On that, 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 touchstone 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 question and one follow-up. One moment, please. Your first question comes from James Hardiman with Citigroup. Your line is now open.

Hi, this is Sean Wagner on for James Hardiman. You gained share in the quarter in over RV despite once again calling out the high levels of non-current inventory and elevated promotions from the other OEMs. I guess I'm just wondering if you can give any color on how things looked if we split it up into current versus non-current and if you have any thoughts on sort of how that looks in the fourth quarter. I think you mentioned that that should continue through the winter, but I guess maybe – Do you see that sort of normalizing or maybe even improving next year?

Good morning. As you know, we came out of club with great engagement from the dealers. The dealers were extremely – and the media were extremely pleased with the ETV lineup and also the side-by-side lineup, notably the H11. The review is very good, and we start production and shipment – beginning of Q3, and we had the benefit mainly in the second half of Q3 to have very good retail because the product was at the dealership and they were selling every day then. Obviously, like I said in my remark, we've gained in the current. We've lost in non-current, which was unplanned. But this is basically what I can see. The momentum for side-by-side is very strong, and it was our highest quarter ever at the term of retail. Now, for November, obviously, I cannot go into detail. We have our numbers, but we don't have any industry data. But I can say that, again, the retail is quite positive. The AGD11 and the ETV backcountry series, the 4x4 and 6x6, are extremely well-received. Then off-road, we are very happy with the trend in October, but also the trend in one month in November. On the snow side, obviously, we're benefiting of an early snowfall in many regions. And right now, the momentum is improving. Then this is basically what I can say on what happened on off-road and our situation on snow. But overall, we are very happy with our position in the industry.

Okay. That's very helpful. I guess just following up on that, to your point, you've had a great start to model year 26, it sounds like, for ORVs through November. Your fiscal 28 targets assumed low single-digit growth in side-by-sides. Has your thinking changed at all there, the potential for that segment, or is this kind of still in line with your expectations, or is it just too early to say?

No, obviously we introduced them 28 about two months ago then. But as you remember, we reached close to 30% in a few years. We've lost market share in the last 18 months because of our desire to reduce the inventory, and we had less on current than the competition. But as we said when we introduced the N28, the plan is to go back to 30% by the end of fiscal year 28. Thank you very much, guys.

Thank you.

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

Yeah, thanks. And first, just let me repeat my congratulations to you, Jose. It's been a pleasure working with you over the last decade plus and wish you all the best in your next chapter. Obviously, product innovation is a key short-term variable, but I want to hear your comments or if you could just expand on your comments so far about dealer appetite to invest in their business and sort of step up inventory levels just given macro conditions and uncertainty.

Yeah, good morning, Mark. Obviously, when we went to club in August, we couldn't ask for it to be in a better position because we had invested in reducing network inventory. And now we're coming with great products. And so when dealers are sitting down and looking at their business, obviously, they are more willing to take on the new models, the new innovation. And that's what we're seeing from dealer orders. The reception is good. Dealers are obviously always concerned with the macroeconomics. Have we reached the trough? Some speculate that we are. But obviously, as we see rates come down, as we see inventories being leaned by all the OEMs, the level of appetite from dealers is also increasing to take on more inventory, especially of the new stuff. So we're in a very good position and can ask for better outlook in terms of dealer engagement.

Okay, thanks. And if I could follow up on that topic, you know, at the investor day, I think you talked about some OpEx being allocated, notwithstanding your lean initiative, some OpEx being allocated to support dealer engagement. Hopefully you could just talk more about those plans and the timing of that and how you see that affecting your business.

Like we said, the We intend to be the best, obviously, with our – we have the best product lineup, but also we want to be the best for experience, and that includes our dealers. And we'll invest to better support our dealers in terms of part and accessories, training them, and also leading them with all the lead we get from the website. And this is part of the plan. But like we said, we are full throttle. with the M28 plan right now. The plan has been cascaded down. And also, we will increase the number of dealers. We had an objective of 30 dealers addition net this year, and we already have achieved that number, and it's quite positive. And the team is not stopping because we have achieved our number for this year. They are already working on next year achievement. What I want to say is what you saw in Valco with the M28, everything is in motion and we're very happy where we are.

Okay. Appreciate all those comments and happy holidays. All the best. Thank you.

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

Great. Thank you. Just thinking about your commentary on ORV, and you mentioned that other OEMs have elevated inventory still and promos and non-current. It seems like yourselves and some of the larger OEMs and even CFMoto have felt good about their inventory position for a while. So it fair to think that at this point, the only other OEMs out there with this, you know, kind of excess non-current and being promotional, at this point, that's got to be a fairly small percent of what's out there. I guess I'm just curious on your thoughts on why that would be, you know, if it's a sort of a single digit percent of product out there, is that still pressuring things overall? And how much longer do you think at the rate that you're seeing that sell through? Do you expect this to continue? Thanks.

Oh, good morning, Robin. We expect Q4 to still be a non-current market. Obviously, we just transitioned into a new model year, and so as OEMs introduce new models, dealers are selling through their non-current. Obviously, Q3 is a big non-current quarter, where the bulk of the retail is non-current, Q4 as well. But we've seen OEMs being still promotional. Even on MOLLE or 26 products, we saw OEMs for side-by-side already advertising discounts. So our view is that this environment will be here for maybe another few quarters. And that obviously impacts the profitability of everybody's business. From a consumer point of view, the high-end products are selling well, but the lower-end models, the more entry-level models, traffic is lighter, and therefore, we see some OEMs pushing harder on discounts.

That's helpful. Thank you. And maybe just as a follow-up. Do you have a view on sort of where the industry may shake out for ORV retail in the next 12 months, you know, kind of based on everything you're seeing?

Yeah, our going-in assumption for next year is a flat industry. And if I look year-to-date, industry is down 1%, so we could call it flattish. So our base case for next year is for the industry to remain where it is.

Great. Thank you very much.

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

Yes, thank you very much and congrats, Jose. It's been a pleasure working with you over the years.

Thank you.

Yeah, and maybe first question for Sébastien. When I look at the working cap, you've benefited from a strong working capital release in the quarter. Just wondering if this was more of a one-time item impact and how should we expect working capital to play in the coming quarters?

Yeah, obviously, we're really happy with our free cash flow generation year to date. We're at about $650 million for the first three quarters of the year. My outlook for the years will probably end about, let's say, $650 to $700 free cash flow generation. Working capital has been a big focus of the organization, especially off COVID, where we did build up some safety stock, et cetera, now with better visibility on the supply chain. Obviously, everyone has been hands-on this element, and we see the benefits today. So I'm expecting overall for the full year, maybe a slight tailwind on overall working cap, but obviously very happy with the work that the team is doing in freeing up some cash by reducing our investments in working cap.

Okay, thanks. And this morning, there are some headlines about the fact that Trump could decide to withdraw from the USMCA. Obviously, you're very well positioned right now, but just wondering any actions that you can take to mitigate the risk and how do you deal with this uncertainty?

As we said, Benoit, we're very involved into following the negotiation and even giving our point of view or giving data on our situation with industry association, but also with some government. And the progress of reanalyzing and trying to renew the USMC is ongoing. We're not reacting to news every day because it will be too painful. And we're just focusing to better support the industry and the government with data and our point of view on different thing. And we will see what will be the outcome. But so far, the people are working hard to renew it with minimum changes.

Okay. That's great. Thank you for the time.

Thank you.

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

Hey, good morning. Thanks for taking my question. Seb, I wanted to follow up on your response to Robin. When you talked about flat retail for the year, were you talking about calendar 26? Yes, calendar 26. Thank you for clarifying. And then you were also talking about the low-end consumers still struggling relative to the more affluent consumer. Do you have an assessment of the rate sensitivity of that low-end consumer and the impact of meaningfully lower rates next year?

Yeah, obviously it's difficult to triangulate how a movement of, let's say, 25 basis points in rate will impact consumers. But what I can tell you is if I look at Canada versus the U.S., rates are probably about 175 basis points lower in Canada than the U.S. And we've seen good demand and good, better retail in Canada. So certainly as rates will come down in the U.S., we do hope that we'll see the same impact that it had on Canadian demand.

Thanks. And finally, it sounds like HD11 has done really well and dealers are selling through that quickly. I'm curious, how quickly are you getting retail signals such that you can adjust production to make sure you have the right inventory? Because we do hear that, hey, we'd love more HD11s, but we've got too many of the other units that are turning more slowly. I'm curious if you've upgraded your ability to process those signals.

Yeah, to give you a sense, we're still producing the old platform and the new one, but in Q3, we produce about three-quarters of the new one and one-quarter of the old one. Then we're definitely transitioning fast. We're taking orders every month, Craig, as you know. And right now, beginning of December, we're taking deliveries. We're taking orders for what will be delivered in February. Then we have – we have quite a good ability to adjust to the most popular model at retail. And we're very confident with it's a fast turnover. The dealer received the unit, they PDI it, and it don't stay on the floor very often. And we could not be happier of the reception of the new defender.

Great. Thank you. Congratulations, Jose. Thank you.

Your next question comes from Martin Lander with Stiefel. Your line is now open.

Hi, good morning. I would like to focus a little bit on snowmobiles. Wondering if you can just refresh or remind us, what's your inventory level versus your comfort level in terms of snowmobiles right now?

Then, just to give you a sense, we finished last season, last spring, with about 60% market share in North America, I'm talking, and 30% of the inventory, the non-current inventory. Then, obviously, we're planning to lose market share this year because this unbalanced current-non-current ratio from other OEM. But this was all planned, all included in our guidance. What is good right now in the northeast, including Quebec, the snow is quite good, good in upper peninsula. In the west, Canada, U.S., it's a bit patchy. And in Scandinavia, it's good. Then overall, it's a good start of the season. We gain market share in the current, and we have a lot of pre-sold units. We've lost in the non-current as planned. And this will be a year of correction, and this was all planned.

Okay, so can we expect you to have fully cleared your older models by the end of the automobile season?

We were a bit on the high side, but we were in relatively good shape at the end of the season 25. Then we still need to deplete some of that inventory to be at, I would say, normal level. But we believe that, and partially with the good snow, we believe that all of this should be, for us, realigned at the end of the season, 26.

Perfect. Thank you. And best of luck, José, in your future projects. Thank you.

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

Thank you. Hey, guys, good morning. I wanted to go back to the promotional environment. I think in your press release you mentioned that you saw favorable variations in your sales programs, but this morning you're talking about there's still very elevated levels of promotion in the industry. So is it that the industry is still very promotional, but you guys were a little bit lower in terms of sales programs versus last year?

Yeah, well, if you recall last year, Joe, we wanted to address inventory in the network and the non-current inventory as well. And so we did put a lot of dollars last year to work in order to flush that inventory, which we were able to do. And so this year we're probably trending about, let's say, 70 to 80 basis points lower in terms of retail promotion versus last year. So that's the main reason. But nonetheless, I mean, there's still some high levels of promotions that are being advertised out there in the market.

Got it. Okay. And in terms of fiscal 27, you mentioned that wholesale and retail should be largely in alignment. And I think, Seb, in the past you've said that just lapping this year's destocking, you know, probably gives you $400 million to $500 million of revenue. Is that still the case? And should we think about that as a base? and then later on whatever assumptions we have on pricing and market share gains.

Yeah, obviously we are in the middle of our planning for next year, but it's certainly too early to provide a detailed guidance to all of you. And as you mentioned, there are some elements we already know. And that should serve as your best case for your models there for next year. The big tailwind is the element that you mentioned there, just the right sizing of the inventory that is behind us last year and this year. And so that is a tailwind of about $400 million to $500 million of revenue and probably roughly about $1.25 of EPS. Obviously, there are some headwinds. We're transitioning the production of Riker to Vietnam. And so with that transition, there'll be less Riker deliveries next year. So that's one of the headwinds. Some of the cost drivers as well, depreciation expense will go up probably about 30 million next year. And I'm also expecting my tax rate to go up to historical levels, call it 25 to 26%. So if you factor these elements in your base case, Joel, you'll probably end up in an EPS probably up in the mid to high teen percentages for next year and probably an EBITDA margin ballpark 14-ish percent. But again, this is a base case, and obviously over the next few months, we'll see how the business trends. Snowmobile season is... is an important business for us. And so if the snow sticks, maybe it will be good. The macro environment is also evolving every day. As Benoit mentioned this morning, we have new data on tariffs. We'll see how that unfolds. And obviously there's a competition as well. How are other OEMs going to behave? Are they going to be more aggressive in terms of putting units in the industry and also discounting? So obviously there's a lot of variables that we're monitoring in order for us to make an educated guess on the industry. But again, with still a few months to go before we issue guidance, we'll be able to give you the full download in March. But again, we're optimistic, especially with a strong lineup that we have in all the product categories.

Very helpful. Thank you. And also, let me offer Jose my good luck in future endeavors. Thank you. Thank you.

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

Yeah, thanks very much. And Jose, it's certainly been a pleasure working together all these years. I want to go back to the inventory, and you've done a very good job explaining ORV and and snowmobiles. Can you just maybe let us know how CV sits as we enter into the season? And with respect to ORVs, how has the initial reception been with respect to the discounting of your entry-level product line?

I'll take on the first question, personal watercraft. If you look at slide 13 on the deck, personal watercraft is actually down 22% versus last year, so obviously very happy with where we sit. As I've shared with you in the past, other OEMs do have more inventory in the network, and so we believe it'll be a similar, I guess, a similar dynamic than we see in snowmobile for the next season. with some non-current units impacting overall market share performance. But from a current point of view, the lineup we have is obviously very strong, and the orders that we got from the dealers at our club in August also provide us a good outlook for next year. So we were sitting in a very good position, much better than where we were last year. And on the entry-level products, what was the overall reception?

Yeah, basically, consumer trend, no big change since the beginning of the year. Just to give you some statistics, the new entry in Q3 was 21%, about in line with the pre-COVID level. And premium sells better than value. Just to give you a sense on side-by-side, Our premium units was up mid-double-digit when – this is the industry, by the way. The premium was up mid-double-digit when the value was down low double-digit. And for the utility, selling better up low double-digit when the export was down mid-single-digit. The trends don't change. Our household income of our customers is high at $175,000, and the same trend continues. The beauty about this is obviously we don't like when we talk about SparkRiker, our entry-level product, but overall our lineups are more high-end than low-end, and it's very good for us.

Right. Hey, Seb, one follow-up question if I can. You renewed your NCIB here this morning. I wonder if you can just reiterate what your target leverage is and if you expect to be active with the NCIB in the near term.

Yeah, our target leverage for the end of the year, probably in the range of two times net debt to EBITDA. We've always said our overall target is between one and two times, so we're really happy with how the business has progressed and the refinancing that we did. last just a few months ago with the repayment of $200 million U.S. of debt and also the repricing where it provides us a big tailwind of 30 cents next year. So I couldn't ask for better results from our treasurer and our legal team. Really happy with the outcome. On the NCIB, we've been on the sideline now being more cautious over the last 15 months. waiting to see where the overall economy is going to go, trade, etc. Now that we are seeing our leverage come down, we're strong free cash flow generation. Our intention is to be active on the NCIB in the next few weeks.

Have a great holiday season.

Thank you.

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

Great. Thanks, and good morning. I guess just some of the directional comments you gave on calendar 26, you know, something around a 14% type base case rate with the margin. I'm just curious, based on your current visibility, what sort of production levels are you at? Just trying to think, you know, operating leverage is obviously – for the potential part of the story going forward. Are you back to something resembling normal production, or where about will your factories be for the next year based on?

We'll still be below average asset utilization rates. You know, I talked about a tailwind of, say, $400 to $500 million of revenue, and so it still would bring us in the probably lowest of any asset utilization.

Great. And then, you know, the tariff impact to the dollar amount in the calendar release here, or sorry, in the presentation. Can you just talk about, you know, the tariffs might evolve, but is this more the idea that, look, anything additional might just have to be sort of worked through via efficiencies, or is pricing on the table as well, depending on how tariffs evolve? Thanks very much.

It really all depends. It's tough to speculate. It'll depend on the materiality, on what components it impacts, on the flexibility we have with suppliers, can relocate parts, etc. But what I can say is that our teams, our custom brokers are getting smarter, more sophisticated. We have now more granular data that allows us to be a lot more targeted when we do file custom declaration forms. And so that headwind that we have this year is expected to be actually very similar next year as well because of the the better processes we have and better collaboration we have with the various partners. But again, we'll monitor and we'll act accordingly as we usually do. We've always been very proactive in adapting to new situations.

Great. Thanks very much and all the best, Joseph. Thank you. Thank you.

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

Thanks. Good morning. I wanted to follow up on that last line of questioning, Seb. So just to be absolutely clear, if we went back to last quarter, I think the gross headwind that you were expecting for fiscal 27 was in the neighborhood of $120 million to $130 million. So it should now be closer to $90 million when it comes to the gross tariff headwind?

Yeah, that's correct. As I mentioned again, the team obviously is a huge focus of ours. And we worked on finding ways to reduce the overall exposure. And it's a very positive outcome. And so my expectation is that we should be flattish next year. Got it.

very helpful thanks and then somewhat for my follow-up here the higher level when we think about the bridge between the the new race guidance that you just put out there and then the mission 2028 target of eight dollars of eps and then we also factor in the the mid to high teens eps growth roughly speaking that we should expect for next year it does imply more contribution i suppose during the year of fiscal 28 as well. Can you just help us think from a high level what should be the bigger drivers of EPS growth during fiscal 27 versus 26?

Well, for next year, I gave you – well, are you talking calendar or you're talking fiscal? Fiscal year, yeah. So I gave you the fiscal details. So the drivers obviously are, in the base case, is mainly the tailwind coming from retail equal wholesale. But then when you look at 28, obviously, there's a lot of elements, the market share gains from the ORV business, the dealer network expansion. All of that will be drivers of growth in 28. So the base case for 27 remains, as I highlighted, and the drivers between 26 and 27. With 28, obviously, there's the product introductions that we'll be doing and the focus on the dealer experience and the dealer network. Very helpful.

Thanks, and all the best, Jose. Thank you.

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

Thanks, guys. Could you talk maybe a little bit about how retail and market share gains evolved over the quarter? It sounded like maybe the first couple months of the quarter were a little bit more promotional and maybe, you know, there's some acceleration in October and into November. And if that's the case, I guess, like with the exit rate improving, does that give you kind of more confidence in potential market share gains over the next year or so?

I mean, we don't want to start to split quarters because it will be complicated, but we were talking more about off-road. Basically, we introduced very good novelty for model year 20 sticks, and those products were introduced in August at the club. We started production the day after, and basically the time that you produce, you ship the dealer PDI, transportation dealer PDI, That's why our second half of Q3 in terms of retail for off-road was stronger than the first half because the new model hit the ground at the dealership when they had low inventory. Then it's more a timing of a new model hitting the dealership. What I'm happy with is in November the trend continued, and this is promising for the remaining of the fiscal year.

Okay, very helpful. And then maybe, yeah, sorry, go ahead. On the utilization rate, I think you mentioned, like, in the 70% next year. Can you maybe just remind us this year what is the utilization rate and how, like, so that we can kind of calibrate, you know, as utilization steps up, how to think about margin benefits?

Yeah, we're in the average of a 65% utilization rate this year.

Okay, great. Thank you. Good luck.

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

Yeah, thanks. Good morning, and let me echo my congratulations to Jose. I'm sure you're looking forward to the end of January. I wanted to come back to the, I guess, the snowmobile market discussion. So if you and the industry end this season with very healthy dealer inventories and we have a pretty decent snow season, it's off to a decent start so far, It feels like this could be a very nice tailwind for you in fiscal 2027. I'm just wondering if that's a potential upside to kind of that $400 to $500 million revenue from the alignment of retail and wholesale, or is that kind of incorporated into that assumption?

No, obviously, if we have, again, a super good season, we have a lot of enthusiast customers in the snowmobile industry. And so if you have a lot of snow and people get a lot of riding in, we obviously will have great product news next year as well. You can expect strong customer orders in the spring. uh and that obviously is going to be a good tailwind for uh for the back half of fiscal year 27. so uh but we always like to plan snowmobile conservatively because it's very dependent on snowfall uh and uh and so again every uh every inch of snow is uh is more units that get retailed so we'll take it okay no that's good that that's helpful and

And, Seb, just a clarification, I guess, on the remaining marine sale, the tailwater. I think, Josie, you mentioned hopefully coming in the next few weeks. Just what's the cash inflow? I mean, I think the number, it looks like it's probably something like $200 million that you would expect from that. Have I got that right? And if not, what is the expected cash inflow from that?

Well, obviously, we have a good offer from Yamaha for that asset. And the ballpark gets around that amount of expected cash inflow from the proceeds. That is expected.

Okay. So that would come in Q4, assuming that the regulator approves it?

Yes, it would come into Q4.

Okay, perfect. Thanks very much.

Your next question comes from Jamie Katz with Morningstar.

Your line is now open. Hey, good morning, guys. I have just a quick one on CapEx. I know it was shifted down a little bit. Were there any particular investments that we should be aware were sort of either pushed out or delayed? And then should we be thinking of CapEx as a percentage of sales still around that like four and a half percent level longer term?

Yeah, nothing special to call out for this year. Obviously, we are diligent in our CapEx spend, and the teams know that if we push a project out, it doesn't mean that they lose it, and so everyone's being responsible in how they deploy CapEx. And for next year, probably in the range of, let's say, $420 million is a fair number in terms of CapEx and for the out years as well. As you might know, we've invested quite a bit in the last two years in capacity. And so we don't necessarily need to build any more capacity out for our plants. That's the good news. And most of the investments are around product and technology.

Okay. And then I don't know that this was called out, but for new-to-brand consumers, is there anything noteworthy on what is – Getting them to convert sales, is it promotions, innovation, financing deals, some mix of that all? Just curious, what's motivating consumers the most right now?

I'd say innovation is what's motivating customers the most. Obviously, with products that have been out there in the market for quite a bit of time, discounts can drive consumers, but... For new to BRP, obviously, when they see the innovation that we have on most of the product line, on all the lineup, that is what's driving the conversion from other brands.

Excellent.

Thanks. Your next question comes from Ellie Latt with BMO Capital Markets. Your line is now open.

Oh, thank you. Two for me. I just wanted to follow up on the potential sale of Yamaha to Yamaha. and what you would potentially do with those proceeds, the $200 million. And then just kind of in the same vein, you mentioned $210 million of debt reduction. Could you tell us where your debt stood, where your total debt stood at the end of the quarter? Thank you.

Yeah. Well, our capital deployment priorities are not changing. The first one is to invest in the business, and that will remain. Then the other capital deployment priority is obviously modestly increase our dividend and then any excess free cash flow. When the shares trade below what the implied value is, we like to return capital to shareholders. So the good news is we have flexibility. I feel that our cap structure is adequate today with the refinancing that we did just a few months ago. The overall debt stands at 1.7 billion US today. And so overall leverage is very comfortable, and I don't feel that we need to reduce the overall debt level.

So just as a follow, you had mentioned during the call, I think, that If you correct me if I'm mistaken, but I think you said your long-term guidance was one to two times? 1.5 to two times leverage. 1.5 to two times. Okay. All right. Thank you. Thank you.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Jonathan Goldman with Scotiabank. Your line is now open.

hi good morning and thanks for taking my questions uh most of them have been asked but maybe just to clarify one to begin with i'm sorry if i missed this but said did you talk about the base case for next year including share gains uh well again our plan if you look at the m28 target we said modest share gains in the orv segment so yeah it does factor a bit of share gains next year but it would be a modest impact.

Okay, perfect. Thanks for that. And then on the gross margin, I believe, Seb, on the last call, you said you could possibly see a tailwind next year in the 50-bip range. Given where the inventory is in the industry right now and your comments about promo still being somewhat elevated, how are you thinking about potential gross margin expansion next year?

Well, the big driver of our gross margin obviously is some of the volume that we're going to be bringing back from just matching retail with wholesale. The other element is obviously cost initiatives that we have in all of our plans, all of our product lines. And so from asset utilization and cost efficiency, that should drive margins up. We are expecting as well to continue investing in the business or in the marketing. So I do not expect a huge operational leverage coming from OPEX, maybe let's say 50 bps, which could bring us to a 14% of the margin on the base case.

Okay, perfect. I appreciate the color. Thanks.

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

Thank you, Joel, and thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again for earnings in March. 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.