BRP, Inc. Q4 FY2024 earnings call

• Fiscal ‘24 was marked by market share gains, product launches, but macroeconomic challenges led to a more challenging financial year.
• North American power sports sales were up 8% for the year, with retail 35% higher than pre-COVID level and market share gain across almost all product lines.
• Fourth quarter retail performance was impacted by unfavorable winter conditions, but excluding snowmobile, retail was down only 2% and up 12% compared to the industry.
• Global retail trends showed softer demand in EMEA and Asia Pacific, but strong performance in Latin America.
• Priority is to tightly manage network inventory to protect dealer profitability entering fiscal year ‘25.
• Invested over $580 million in CapEx on high-return growth projects, returned over $500 million to shareholders with a 13% dividend increase and share repurchases.

In fiscal ‘24, revenue increased 3% to reach $10.4 billion, a record high. Normalized EBITDA was stable at $1.7 billion, and normalized EPS was down 8% at $11.11. Free cash flow was a record over $1 billion. For the fourth quarter, revenue was $2.7 billion, down 12%. Year-round products revenue in Q4 were up 9% to $1.4 billion, primarily driven by favorable product mix and normal shipment pattern for three-wheel vehicle. Powersports accessories and apparel and OEM engine revenue worked down 23% to $291 million. Marine revenue was down 32% to $84 million. North American power sports sales were up 8% for the year, with retail 35% higher than pre-COVID level. Fourth quarter North American Powersports retail was down 10%, but excluding snowmobile, retail was down only 2%. Global retail trends saw softer demand in EMEA and Asia Pacific, but strong performance in Latin America.

• Fiscal ‘25 revenue expected to be between $9.1 billion and $9.5 billion.
• Normalized EBITDA expected between $1.37 billion and $1.47 billion.
• Normalized diluted earnings per share expected between $7.25 and $8.25.
• Expect to generate in excess of $750 million of free cash flow for fiscal ‘25.
• Focus on tightly managing network inventory, adjusting snowmobile production by about 30% for next season, and taking a cautious approach due to global demand trends.

• Macroeconomic uncertainties affecting the industry, leading to softer market conditions in EMEA and Asia Pacific.
• Unfavorable winter conditions impacting snow-related business.
• Elevated inventory levels for dealers, with dealers’ inventory for the fourth quarter up 36% from last year and 30% from pre-COVID levels.
• Soft demand in the boating sector affecting marine revenue.

Q: Can you help us think through how you view calendar ‘25 playing out and the industry evolution beyond this year?

A: Jose Boisjoli said retail trend in February and March in North America without snowmobile is up mid-single digit, with ORV and three-wheel doing well; international is soft in EMEA and APAC but strong in LATAM; planning North America to be down low single digit in fiscal ‘25 with ORV and three-wheel outperforming snowmobile, watercraft, and marine, and international lagging North America.

Q: Was the entirety of the guidance change just inventory draw down or also market related demand weakness?

A: Sebastien Martel said the $1.25 change is from snowmobile-related products, and the 2.50 includes inventory management and protecting dealer value proposition; Jose Boisjoli added the main reason for adjustment was retail falling off mid-January and not catching up.

Q: What's the retail increase in inventory for snowmobile year-over-year and how long to flush out excess inventory?

A: Jose Boisjoli said snowmobile industry is resilient, varying between 95,000-105,000 units per year in North America and stable in Europe; after a bad year, industry typically remains stable as there's non-current inventory and customers buy at discounts.

Q: How are you thinking about within the guidance the EBITDA margin?

A: Sebastien Martel said it's mainly related to volume impact and revenue decline, but still expecting mid-15 percentage points EBITDA margin, significantly higher than pre-COVID.