Good morning ladies and gentlemen. Welcome to the BRP Inc. FY22 third quarter results conference call. For participants who are using a 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 Deschênes. Please go ahead, Mr. Deschênes. Philippe Deschênes: Thank you Julie. Good morning and welcome to BRP’s conference call for the third quarter of fiscal year ’22. Joining me this morning are José Boisjoli, 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 actual results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risks 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 to supporting slides, and you can find the presentation on our website at brp.com under the Investor Relations section. With that, I’ll turn the call over to José. José Boisjoli: Thank you Philippe. Good morning everyone and thank you for joining us. Please turn to Slide 4. In the third quarter, our team once again demonstrated its ability to successfully operate in a tough environment. Their strong execution on multiple fronts over the past nine months positions us well to deliver on our guidance for the year. During the quarter, consumer demand remained at an all-time high across all product lines. Our recent product introductions, notably the Sea-Doo Switch, were very well received by consumers and the media. As a result, we registered record high pre-season consumer certificates for Sea-Doo personal watercraft and pontoons and presold…

[Operator instructions] Your first question comes from Craig Kennison from Baird. Please go ahead.

Hey, good morning. Thank you for taking my question. Obviously there are many consumers who show up at dealers that [indiscernible] choosing to do. Are they switching to another BRP product-- José Boisjoli: Craig, good morning. I don’t know if you hear us, but we don’t hear you.

Hello? José Boisjoli: Craig, we don’t hear you.

Hello? José Boisjoli: Can we move to another question and we’ll come back to him, Operator? Maybe Operator, we’ll move to another question and we’ll come back to Craig later on?

Your next question comes from the line of Martin Landry. Please go ahead.

Hi, good morning José, Sébastien, Philippe. It’s [indiscernible] on the line for Martin. You seem to be handing the supply situation quite well relative to the industry, getting units in the stores. Just wondering if you can shed any light on some of the initiatives [indiscernible] the facilities in Mexico with the fact that you have no labor [indiscernible] parts. Anything [indiscernible] would be helpful, thanks. José Boisjoli: Yes, good morning. I don’t know, guys, if you’re hearing me well, but as you know, our goal is to meet all dealer and customer orders, then basically we have improved on our process--do you hear us?

Yes, I hear you a little. There’s a little bit of background noise, but I can still hear you [indiscernible]. José Boisjoli: Okay. As you know, the goal is to meet all dealer and customer orders, and we have--basically we have improved our process over the years. The first one, we allocate product to minimize factory change, and basically we allocate product to dealers to make sure that we minimize the change that would come from them. Second, we have the chance to be--to have many product lines, and we have the possibility to prioritize certain products depending on their seasonality. I’ll give an example. In Q3, we prioritized components on ORV product and personal watercraft [indiscernible] season because they were in the peak retail versus three-wheel vehicles and snow because it’s the usage of the product for three-wheel and snow in August to October is limited. Q4, we’ll prioritize ORV and snow versus three-wheel and watercraft, and in Q1 all product lines will be prioritized. This gives us, I believe, more flexibility than some of our competitors. The other thing is we decided to run our assembly line doing some BOs, either we retrofit them in-house or we have the dealer to retrofit them, then when the dealer does it, it’s more people who can do the retrofit, and on top of it, it’s saving the shipping time. The last thing, you know that we have a high percentage of our production was made in Mexico, where we have no labor shortage versus what’s going on in Canada and the United States. The overall supply chain is still challenging, but with those initiatives it’s more manageable. Do you hear us? Operator?

Yes, Martin’s line is open.

Okay, so just a quick follow-up. You mentioned that we’ll see more product introductions over the next three years than the last three years, so how should we think about how that could impact some of your expenses, like research and development? Is there going to be any sort of step change or material change in how that is relative to your revenue in the coming three years? Sébastien Martel: Well, historically we’ve always invested around 4% to 4.5% of R&D as a percentage of revenue, and the expectation is that we’ll continue on that trend. Innovation is part of winning in this industry, and we need to continue fueling innovation.

Okay, thank you.

Your next question comes from Gerrick Johnson from BMO Capital Markets. Please go ahead.

Hey, good morning guys. Last quarter, you talked about growing revenue and earnings by double digit percent in fiscal ’23. I did not hear that this time. Are you backing off of that guidance? Sébastien Martel: Good morning Gerrick. No, we’re not backing off of that guidance. Obviously assuming the supply chain continues to improve and it remains manageable as we expect for Q4, you know that we have a lot of growth opportunities for next year. José alluded to them, but obviously we have added capacity for side-by-side, personal watercraft, the Switch, the Ghost, the restocking of inventory in the network, and also we will have a few surprises next year in terms of product introductions. If you take the midpoint of the guidance range on EPS for fiscal year ’22, we are confident in our ability to deliver again double digit EPS growth for next year.

Okay, great. Thank you for that. In the quarter with revenues lower, what was the profitability surprise? Was it--I think you said it was operating expense. What there surprised you to be a benefit? Sébastien Martel: Yes, well we came in lower than what we were anticipating. Obviously with the low level of network inventory that we have in the field and continued strong consumer interest, we scaled back on some of the marketing spend that we were planning to do.

Okay-- Sébastien Martel: [Indiscernible].

Okay. I have one more and I’ll jump back in queue. If you ship an incomplete unit, when do you recognize that revenue? Sébastien Martel: Very important question. We recognize revenue only when the final components are shipped to the dealer, so as I said in my call, any retrofit units or incomplete units that we ship to the network are actually excluded from network inventory because we haven’t recognized revenue, and we’ll be recording revenue when we ship the components, so that’s why now that we’re sitting with--well, if you compare year-over-year, minus 14% of total inventory, including incomplete units, obviously it bodes well for wholesale plan for the fourth quarter.

Okay, great. Thank you very much.

Your next question comes from Cameron Doerksen from National Bank Financial. Please go ahead.

Yes, thanks very much, good morning. Just to follow up on that last question, I guess that’s largely--you know, especially on the snowmobile side, but largely explains the fairly significant implied sequential revenue growth in seasonal products in Q4, is the fact that you’ve got these units at the dealers that are basically kind of ready to ship? José Boisjoli: Yes, this is--yes, exactly. Sébastien Martel: And as José mentioned as well, purposefully we prioritized other product lines versus snowmobile in Q4, so that’s why you’ll see a heavier lift in wholesale in Q4 for snowmobiles.

Okay, perfect. I guess sort of a related question for me, just on the working capital in Q4, I guess presumably you’ll have a significant--obviously we’ve seen inventory increase sequentially the last number of quarters, is your expectation that we’ll see that decline in Q4? I guess maybe my other question is we saw a fairly big jump in accounts receivable in Q3. I’m just wondering what kind of explained that. Sébastien Martel: Well, if you look at the overall investment in working capital year to date at the end of Q3, it’s about $855 million, and my expectation is that will go down in the fourth quarter, probably to the tune of $200 million to $250 million, so positive cash generation. Yes, AR has increased obviously with the shipment of goods to dealers in the last period of the month, so that obviously increases overall AR.

Okay, that’s very good. I’ll jump back in the queue. Thanks very much.

Your next question comes from Joe Altobello from Raymond James. Please go ahead.

Thanks. Hey guys, good morning. I guess first question on supply chain constraints, you did mention earlier it’s improving in recent weeks. I was hoping you could elaborate on that a little bit. Is it on the logistics side or components procurement, or was it pretty much across the board? José Boisjoli: Good morning Joe. I would say on the semiconductor, we see some improvement. We have better visibility of what’s coming. This is definitely a plus. The logistics are still difficult. With the Christmas high season, there is a shortage, as you know, of containers, boats, planes, all of it, and this is creating some disruption. That being said, and that’s what I tried to explain, the process that we put together to better manage the volatility, I believe is good for us. Again, I’m not sure if you heard well, but we allocate product to dealers and we ask them to pre-sell those product, not what they don’t know if they will get it. Because we have multi product lines, we have the possibility to prioritize certain product lines versus others, depending on the riding season. We decided to run our assembly lines, some with BO that will retrofit here or at the dealer level, and this is another lever that expedites units at retail. The last thing is because we have quite a high level of production in Mexico, where there is no labor shortage, we feel it’s helping. All of this is helping us to better manage the high volatility of the supply chain.

Okay, that’s very helpful. Then maybe thinking about fiscal ’23, you did mention earlier you’re still expecting double-digit EPS growth. Your EBITDA margins this year are looking around 18% to 19%, and I think you said they should be flattish next year, so could you help us understand sort of the puts and takes in fiscal ’23 in terms of margins? I assume you’re expecting some normalization in sales programs, and I would think that that would be offset largely by cost savings and other drivers. Sébastien Martel: Yes, when we gave you some color on EBITDA margin for next year, what we said was our expectation is that would be in line with what we had in fiscal year ’21, which was a phenomenal year in terms of profitability and EBITDA margin. Obviously the pluses are--the volume is going to be a big plus for next year, pricing is also going to be a plus, but the headwinds that we’re seeing, obviously we’re benefiting this year from a very favorable commercial environment on the sales programs. We’re expecting a headwind on the sales program, we’re expecting a headwind on mix as well. This year, we’ve tended to favor higher margin products because production was limited, so that’s what we’ve put on the top of the list. And also, commodities are going to be a headwind. We’re seeing it this year, we’re expecting it to continue being high next year. Probably less disruption in the--we’ll call it the weekly management of operations, so less cost there, but certainly an inflationary pressure from a commodities point of view and a salaries point of view as well.

Got it, good. Thank you guys.

Your next question comes from Brian Morrison from TD Securities. Please go ahead.

Thank you, good morning. Seb, I want to go back to the pre-builds with your whip about $500 million. What percentage of that is snow, and do you expect that elevated whip to normalize all in Q4 or could this be ongoing with this supply chain visibility? Sébastien Martel: Well, if I look at my overall retrofit situation, Q3 was the quarter which for us, we believe is the peak in terms of units retrofit. We are about 2.5 times higher than where we were at the end of Q2, and our expectation is that number is going to go down in Q4 by about 25%. We’ll still be at high levels, higher than we would like, but still very manageable. The expectation is in Q1 and in Q2, we will be depleting that retrofit inventory. Obviously the beauty with our business is that we have multiple product lines so we can prioritize units, and that provides us with a lot of flexibility, and that’s what we’re doing.

Okay, and then maybe for José, you made comments here about Phase 2 already with Juárez 3. What market share and unit volume does that imply? By my math, that looks like you’re going up to about 200,000 units of capacity and 40% market share. Is that correct? José Boisjoli: Yes. I mean, obviously we felt that at the rate that the market is growing and the way we’re gaining market share today, 30% is a lot more than what we saw three years ago. Our Juárez 3 factory was designed to be built in two phases, and when I look at the overall picture, if you take the peak of the off-road vehicle market in 2006, this industry, if you combine ATVs and side-by-side was 1,350,000 units. Now, it’s still 85% of that volume. Obviously side-by-side is growing faster and ATV has declined, but we still are 15% below the peak of 2006, and when we see all the new products that we are bringing in, we believe that there is still runway for the industry to grow. Again, our target is to go at 30%, and we won’t stop at 30. When the 30 is reached, there will be another goal.

Okay, and last one - Seb, very quickly, the days outstanding at your dealers, you usually provide that number. I assume it’s still sort of in the mid 20s? Sébastien Martel: Yes, that’s correct.

All right, thank you all.

Your next question comes from Robin Farley from UBS. Please go ahead.

Great, thanks. I just wanted to clarify one of your comments on the call about shipping incomplete product. Did I understand you to say that the amount at dealers is equivalent to a full quarter of shipments, and does that--is that true for off-road or was that mostly a comment about snow? Sébastien Martel: Just one clarification - when we talked about the full quarter of production, I was referring to the whole inventory replenishment opportunity, as we see inventory down sequentially significant versus last year and versus two years ago even more so, so that’s the color I provided, Robin.

Okay, great. That’s helpful, thanks. Then in terms of the capacity increase that the Juárez expansion from--not the new one you’ve announced, but the one that came online in August, can you just quantify for us the capacity increase that that would represent, but then where you are--the fact that, I guess, the supply chain--like, what percent of that increase, I guess is what I’m trying to get to, are you not able to hit because of the supply chain? Just trying to get a sense of what it’s actually adding today versus what it can add when the supply chain issues are normalized. Sébastien Martel: Well, obviously you’re right - with the supply chain issues, we’re not able to benefit from this full added capacity in the third quarter, but we do have an aggressive capacity ramp-up plan and the expectation is that, come February 1, we would be able to use that additional capacity. Now, Juárez 3 Phase 1 offered an additional 50% of capacity increase versus what we had prior to opening that facility, so as supply chain normalizes, the teams are working to make sure that we’re able to benefit from that added capacity as soon as possible.

So Seb, when will be what percent increase off of last year’s, or the pre-August ’21 [indiscernible]? Sébastien Martel: Well, the target is to be at 50%. Obviously the supply chain needs to normalize. Will we be there? Time will tell, we still have a few months to go, but that’s the target.

That’s what I was trying to understand, whether you were saying that February 1, that you thought your supply chain issues would be normalized, but you’re not saying that-- Sébastien Martel: I’m not saying that it’s going to be--. Obviously it’s a weekly management - visibility improves, we’re better at managing it, but we saw a few hiccups over the last 12 months that many companies have, so time will tell.

Okay, great. Then maybe just a final thing, you mentioned the new dealer order program that was started in November. Do you have any way of quantifying what--you know, without having had that formal order system, what dealer deposits, so not your P&L but the dealers taking deposits from consumers waiting for product, any way to quantify how that looked at the end of Q3 versus the end of Q2, kind of just sequentially? José Boisjoli: You know, Robin, we’ve been having those preorder systems for snowmobile, watercraft, and three-wheel for many years, and I would say the most successful one was snowmobiles because this is part of the history of snowmobiles, and customers like to reserve their special model for the upcoming season. But lately all product lines are going--with the shortage of product, all consumers--many consumers are placing more orders. On snow, watercraft and three-wheel, it exists for many years. Now we introduce it on the ORV, but different than some of our competitors. We said to the dealers, pre-sale only units that have been allocated to you. Right now, the dealers know how many off-road they will receive in December-January-February, and they are allowed to pre-sell those units, not the thing that they believe they will sell in July, because we want to give to the consumer a good idea of when they will receive their unit. That’s part of customer satisfaction. Then obviously on snow, watercraft and three-wheel, we have the data to compare, but it’s brand new that we just started on November 8. I can tell you it’s going very fast right now. Dealers are somewhat securing the consumer to make sure they get their unit in the next three months, but we don’t have any specific number.

But that’s--the new system that started in November is still only allowing dealers to pre-sell the next quarter of shipments, is that right? José Boisjoli: Exactly, exactly.

Okay. Thanks very much.

Your next question comes from Fred Wightman from Wolfe Research. Please go ahead.

Hey guys, good morning. The 14% decline on a year-over-year basis for the semi finished inventory, can you put in the context of where that was exiting the second quarter? Sébastien Martel: As I said, the total number of retrofit units is about 2.5 times higher than when we were at the second quarter, but what’s important to note is when I look at the total units shipped to dealers this quarter, that’s including the complete units and also the semi finished units, total deliveries are equal to where we were last year. Obviously wholesale is impacted because we have more retrofit units than we had last year, but the good news is we’re on plan in terms of production, we’re on plan on overall shipments to our dealers this quarter, it’s just the mix that’s a bit different versus what we had initially anticipated.

Perfect, and as we think about that new entrant mix or the new customer mix, you guys quoted a year-to-date figure of 36%. I think that was in the low 40s last quarter, so is there anything to call out from a timing perspective or anything unusual going on there? I know it’s still above that 20% pre-COVID, but any other color? José Boisjoli: Yes, the new entrant ratio varied depending on product line. The two highest products that had the highest new entrants is watercraft and three-wheel, and because it’s going more in the off-season in Q3 and Q4, that’s why we had a slight decrease in new entrant level. But if you look at it on a 12-month basis, we’re pretty well in line with what we were last year.

Great, thank you.

Your next question comes from Jaime Katz from Morningstar. Please go ahead.

Hi, good morning. I’m hoping first we could dive a little bit into three-wheel vehicle performance, because I think the commentary surrounded share gains for the year, but it looks like for the quarter they were down, so was there anything time-wise to see into that, or was there something else leading to that ceding share? José Boisjoli: Yes, two things. We had no inventory. We had almost no inventory left in the network, then obviously level is very, very low, the lowest we’ve ever had in the three-wheel vehicle business history. Second, like Sébastien explained, in Q3 we shipped--we produced some three-wheel that we shipped to dealers, but we prioritized ORV and watercraft counter-season model versus snowmobile and three-wheel, and this is why the--we missed units on the last, I would say, month and a half of the quarter because of inventory levels.

Does that prioritization continue then as we move into the next quarter or two by product line, and then normalizes into the middle of next year when the supply chain starts to un-strangle? José Boisjoli: The way we prioritize is always depending on the riding season. In Q3, like I said on my remarks, we will prioritize ORV and snowmobile because snow is here, and three-wheel and watercraft and ORV will be heavily prioritized in Q1.

Okay, and then for capital expenditures next year, since there is more investment looking like it’s coming up, should we expect that that figure should remain elevated through fiscal 2023, sort of at a similar level, or should that start to decelerate? Sébastien Martel: You should expect it to be at a similar level as what we have this year in the updated guidance.

Thank you.

Your next question comes from Benoit Poirier from Desjardins. Please go ahead.

Yes, good morning everyone, and congrats again. With respect to the three-wheel vehicle sales, obviously you tripled the sales over the 2018 season, so now that you’ve reached initial expectations, what should we expect for this segment throughout the fiscal year ’25? José Boisjoli: Good morning Benoit. Like we said, we’re very, very proud of what we have accomplished with three-wheel with the Ryker introduction, because when Josée Perrault and the team launched the Ryker, we came out with new initiatives, new focus on the rider education program. Like I said, 44,000 people have taken advantage of the program in the last three years, and I’m pleased with the ratio of new entrants at 55%. Women, 38% of the people come to three-wheel are women, and the ratio of customers under 55 and the minority is very high then. For us, we learned with Spark and we learned with Ryker how to talk to a different customer, and now we’re applying those, I would say, recipes to other product lines, and we’re quite optimistic about the future. Again, we believe that three-wheel has good potential to grow. I will not this morning give you any target number for fiscal year ’25, but we believe that there is more runway on three-wheel to grow going forward.

Okay, that’s great color. Could you--with respect to the opportunity to purchase two manufacturing plants in Mexico, could you talk about the reasons behind this capital deployment? Sébastien Martel: Yes, well first, we had a right of first refusal to buy these buildings, and the owner of the buildings put them on market and so we decided to exercise that right and match the offer. There is definitely a cash flow benefit as the borrowing cost is obviously much better than the cap rate on these leases, but strategically we’re in Mexico to stay in Mexico. These sites were purpose built for us, our intention was not to move out of these buildings when the lease term would expire, so from a long term perspective it was a good thing to do as it provides us with more flexibility. We’re continuing to invest in these sites and grow these sites, so long term-wise, it was the right move to make.

Okay, and through the pandemic, obviously a big trend has been towards digital. Could you talk about your ability to capitalize on the strength of your website to potentially drive ecommerce sales? Just wondering how you’re progressing with this initiative. José Boisjoli: Yes, I believe we’re doing very well. You saw our website visits going up 60% versus last year on off-road, but more and more we have great ambassadors that promote our brand, and we’ve learned that this has a lot more benefit when an ambassador talks about our product versus us. That’s why we’re using a lot of the ambassadors to promote our product, and on our side we try to guide them well that they do well. This is one. The other thing we do well is the how-to video, where we show the customers how to ride the product, where to ride the product, and this is impressive. We’ve done more than 90 videos how to ride and use the product. Obviously we promote more and more the experience and we have right now 58 rental operators in the U.S. doing on charter society, and we’re building the community, building strong community. The Women of On-Road community with 12,000 members after one year is very impressive. I believe there is definitely a trend there. We are very happy with all those initiatives and the results.

Okay, that’s it. Thank you very much. José Boisjoli: Thank you.

Your next question comes from Craig Kennison from Baird. Please go ahead.

Hey, thanks for coming back to me. Hopefully this connection is better. I was going to ask just a follow-up to Robin’s question on product availability at the dealer level. Consumers are showing up, the product isn’t there. Do you have any data on what that consumer is choosing to do? I mean, their choices would be to switch to another BRP product, to buy another brand, to buy used, to buy a production slot now, or just walking away. Do you have any sense of what that consumer who’s unable to get product today is looking to do? José Boisjoli: Yes, good morning Craig. A lot clearer than the first call, the first question. I’ll give an example. We informed some customers who had purchased a spring break snowmobile that we’ll have about a month delay on the delivery of their unit. We offered to those customers to transfer their deposit on next year’s model, but most of them held to their orders. We hear a few customers decided to move to next year to wait, but most of them, so far what we’re hearing are holding to their orders, waiting for the product.

Great, thank you.

Your next question comes from Mark Petrie from CIBC. Please go ahead.

Yes, good morning. Thanks for all your comments thus far. I just wanted to ask, Seb, you highlighted how you adjusted your marketing spend and approach in Q3, and I think we had heard that earlier this year as well, so just wanted to ask about how you were thinking about marketing plans for fiscal ’23. Does that--do you think that looks a lot like fiscal ’22, or is it more like pre-pandemic? Sébastien Martel: Certainly not pre-pandemic. Obviously we’ll modulate along with our inventory [indiscernible] retail forecast, but for sure we want to make sure that we stay relevant in the minds of the consumers, and so investments in marketing and brand awareness and product awareness are required, and we’ll certainly continue investing, so that’s why when I look at my overall operating expense next year as a percentage of sales, it should remain in line with what we saw this year, so a good percentage investment probably in the range of 6% to 6.5% of overall marketing spend would be a fair estimate.

Okay, appreciate it. Thank you.

Again, if you’d like to ask a question, press star then the number one on your telephone keypad. Your next question comes from Gerrick Johnson from BMO Capital Markets. Please go ahead.

Great, thanks. I’m curious about price increases and the MSRP. Are you--what was the average price increase if we take your entire portfolio, the average price increase implemented, and how does that break out between the increase in MSRP and additional freight surcharges? Sébastien Martel: Well, when we look at how we approach pricing, obviously in this environment we look at it in three ways. One, the short term disruptions that we’re seeing from production, i.e. we need to pay overtime, we need to pay special freight, these are costs that we’ve decided to absorb as a company because obviously we don’t want to be knee-jerking with pricing. If it’s a midterm impact, i.e. higher freight costs from either maritime or outbound freight for our units, special price increases that we’re getting from suppliers because they are incurring higher costs and they say, well, it’s going to be for three or four months, so these midterm inflationary pressures we’re seeing, we’re addressing it through surcharges, and that’s where the majority of the price increases are happening. Then the latter, which are more longer term inflationary trends that we’re seeing, that we’re addressing through pricing, so I’d say probably two-thirds of the pricing increase that we’ve done have been done through surcharges, a third have been done through permanent pricing increases. We’ve announced some pricing increase in the middle of the summer, about 1.7% overall increase in pricing surcharges, and an additional 1% coming from pricing, and we’ll be announcing more in the next month as we are continuing to see higher inflationary costs, Gerrick. José Boisjoli: One key thing, Gerrick, to complete Sébastien’s answer, if you go on our website, you will see we’re displaying now for each model the MSRP and the commodity surcharge, and the dealers know that it could go up or down depending on the cost. But since we display the commodity surcharge, customers are--most of the customers understand and they accept it.

Yes, I noticed that. I think that’s a great idea. Thank you very much. José Boisjoli: Thank you.

There are no further questions at this time. I will turn the call back over to the presenters for closing remarks. Philippe Deschênes: Thank you Julie, and thanks everyone for joining us this morning and for your interest in BRP. We want to take the opportunity to wish you all a happy and safe holiday season, and we look forward to speaking with you again for our fourth quarter conference call on March 25. Thank you again, and have a good day.

This concludes today’s conference call. You may now disconnect.