Polaris Inc. (PII) Q4 2015 Earnings Report, Transcript and Summary

Good morning. My name is Steve and I'll be your conference operator today. At this time, I would like to welcome everyone to the Polaris Q4 and Full Year 2015 Earnings Conference Call. [Operator Instructions] Thank you. Director of IR, Richard Edwards, you may begin your conference.

Thank you, Steve and good morning and thank you for joining us for our 2015 fourth quarter and full year earnings conference call. A slide presentation is accessible at our Web site at www.polaris.com/irhome, which has additional information for this morning's call. Today you will be hearing prepared comments from Scott Wine, our Chairman and Chief Executive Officer; Bennett Morgan, our President and Chief Operating Officer; Mike Speetzen, our Chief Financial Officer; and Ken Pucel, our Executive Vice President of Operations, Engineering & Lean. As usual, I want to remind you that during this call today we will be discussing certain topics including product demand and shipments, sales and margin trends, income and profitability levels and other matters, including more specific guidance on our expectations for 2016, which should be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements. Now I'll turn it over to, Scott Wine. Scott?

Thanks, Richard. Good morning and thank you for joining us. The fourth quarter was difficult and disappointing. Results fell short of our original expectations as we delivered the worst year-over-year performance Polaris has had in any quarter since 2009. A statement that unfortunately holds true for our record full year numbers as well. We will neither sugarcoat our shortfalls this morning nor ignore the significant impact of currencies and oil related demand decreases but the important part of our message will address how we will respond to regain confidence and consistency. We cited broad-based demand weakness when we dramatically cut shipments and revised our guidance in mid-December and saw only modest improvement in the final weeks of the year. Overall, Polaris retail sales were down mid-single digits for the quarter as poor show conditions and continued region specific weakness resulted in slow dealer traffic. Despite solid demand for the new GENERAL and improving interest in the RZR Turbo, we experienced a slight side by side market share loss in the fourth quarter, hurting our pride more than our P&L. Even motorcycle retail was below our expectations, although with the launch of the Scout Sixty and the opening of our 180th Indian dealership in North America in December, we are pleased with how Steve Menneto has positioned his business for growth in 2016. Fourth quarter sales were down 13% to $1.1 billion with net income of $110.7 million, down 18%. Nearly every business and every region declined as Indian and Slingshot were the only two businesses that exceeded both our budget and prior year comparisons. This significant sales and earnings miss was largely driven by our strong commitment to meeting our mid-single digit dealer inventory target as we chose to reduce a larger proportion of high margin RZRs and RANGERs to bring ORV dealer inventory down year-over-year for the first time in six years. Despite apparent strength in automotive retail, we clearly saw a more cautious consumer in our channel. We will invest more in brand building to expand our target audience and focus more energy and resources on dealer and consumer engagement in the year ahead. With the sharp drop in fourth quarter performance, full year results were notably muted. With sales of $4.7 billion and net income margin dropping to 9.65%, earnings per share grew just 2% to a still record $6.75. While we are appropriately focusing our attention on the many and major internal and external challenges we faced in 2015, I would be remiss if I did not congratulate the Polaris team for its sixth consecutive year of leading the power sports industry and share gain. A good reminder amongst the gloom that we still know the recipe for success. We combine the best products, the best brands and sell through the best dealers. From our AXYS snowmobiles, Indian Motorcycles and Slingshot to our armada of RZRs and RANGERs, we have demonstrated that we know how to win. But we must also forecast better, manage our inventories more aggressively, improve our advertising and use of promotion dollars and build competitive advantages beyond horsepower and travel suspension. Coming off of a disappointing year, we have taken a hard look at our strategy and long-term objectives. We have concluded that our strategy remains sound and our objectives achievable but our execution must improve. We are still the best in Powersports PLUS but neither our global market leadership nor growth through adjacencies has advanced enough to offset the inherent cyclicality of our core North American power sports business. Similarly, we have made insufficient progress towards creating a lean enterprise, although Ken Pucel and his team are now making major strides towards that objective. And with our factory build out nearly complete, we have an opportunity to better serve our dealers and customers while getting back to long-term margin expansion in the future. We do not anticipate a rebound in our core power sports market in 2016 so we will essentially operate with two key and competing priorities. An all out assault on cost and a renewed commitment to making growth happen. Each aligns well with our strategy, highlighting the aggressive steps we are taking to ensure we stay ahead of the competition and regain our momentum as a sustainable profitable growth company. Consistent with these two priorities, we recently announced three key leadership changes that give us increased capability. Dave Longren, who has excelled in every role he has held in his 13 years with Polaris, including wildly successful tours as our chief technology officer and most recently President of our off-road vehicle business, is starting to think about retirement. Selflessly, Dave agreed to work directly for me in a newly created role as Senior Vice President of Enterprise Cost, leading a cross-functional team to address several systemic cost opportunities which should lead to tens of millions of dollars in incremental savings over the next couple of years. I am equally thrilled that Matt Homan has agreed to resume ownership of a business that he has worked in and successfully led in the past. With Matt retaking the reigns as President of ORV, we get a proven global leader who knows our capabilities, markets and dealer network extremely well. Additionally, Craig Scanlon, VP of Slingshot, will add Chief Retail Officer of ORV to his title working closely with Matt to drive profitable growth in an increasingly competitive and possibly weakening market. Matt leaves his global adjacent market team and business in solid shape and we will continue to aggressively invest and growth that business. I will now turn it over to our President and Chief Operating Officer, Bennett Morgan, to provide additional insights into our operations and business unit performance.

Thanks, Scott. Good morning, everyone. Polaris retail sales in North America decreased 6% in the fourth quarter. The North American power sports industry was weaker, declining 7%, so Polaris again gained market share. For the full year 2015, Polaris further extended our number one market share leadership position with Polaris North American retail sales increasing 5% with the industry flat. North American dealer inventory was up 5% versus 2014, driven by elevated levels of snowmobiles and improved availability of motorcycles and Slingshots. Specially, ORV inventory levels are now down mid-single digits with ATVs down low double-digits and side-by-side's up just slightly. Existing models at side-by-side's are down low teens percent, offset by model year '16 RZR XP Turbo and GENERAL additions. Snowmobile levels are higher than we would like, due in part to the fourth quarter snowfall up over 25%. Motorcycle levels are improved, now up over 50% including Slingshot. Order backlogs while not eliminated, will reduce significantly in all brands for Q4. Victory inventory remains down low double-digits. Now moving on to business unit performance. Off-road vehicles. Fourth quarter ORV revenue decreased 20% with declines in all product lines as we prioritize dealer inventory health. For calendar year 2015 ORV revenue decreased 2% with modest side-by-side growth more than offset by reductions in ATVs and international sales. Polaris ORV market share performance Polaris ORV market share performance in 2015 remained strong. Polaris extended our market share lead in the North American ATV industry in both the fourth quarter and in 2015 for the fifth consecutive year. 2015 retail sales were up low single digits in an industry that declined low-single digits for the fourth quarter and the full year. We did lose a bit of side-by-side share in the fourth quarter. Facing double digit percent growth comparables, Polaris fourth quarter North American side-by-side retail declined mid-single digits in an industry that grew slightly. The GENERAL began shipping in limited quantities in December and has received positive initial dealer and consumer response. To give you some more color on the impact of oil, Polaris ORV retail in oil producing states and provinces was down about 10% for 2015 while the balance of our North American retail was up mid-single digits. For the fourth quarter, oil areas weakened further, down upper teens percent. For the full year 2015, Polaris again grew side-by-side market share. Side-by-side retail sales increased mid-single digits in a side-by-side industry that we estimated grew slightly slower. For 2016, we expect the ORV industry to be flattish and Polaris to hold share in a tougher more competitive marketplace. But remember, just like in 2014, last year Polaris gained share in spite of significant new competitive product introductions and increased competitive promotional spending. Our new product innovation pipeline remains the industry's broadest and fastest to market as witnessed by the new RZR XP Turbo 4 and GENERAL launches in November and a handful of new limited editions and colors that we announced earlier this month. Camp RZR in Glamis, California had an all-time record attendance, over 17,000 strong, which was up 45% with participants from over 30 states and four countries and well over 5 million impressions, demonstrating the expanding reach of our powerful lifestyle ORV brands. So we remain confident in our long-term ability to deliver both growth and share in ORV. Snowmobiles. Fourth quarter snowmobile revenue decreased 25% as expected, due entirely to early and improved shipment timing to our dealers throughout the year. For calendar year 2015, snowmobiles sales were flat with low single digit declines in snowmobiles offset by Timbersled revenue. Polaris has gained the most share season-to-date in a challenging industry environment due to the poor snow conditions. Polaris fourth quarter North American retail sales were down upper teens percent and season-to-date are down mid-teens percent in an industry that is down over 20% for the quarter and season-to-date. Elevated industry dealer inventory positions will require reductions to our model year 2017 build, dampening our snowmobile outlook but there are some reasons for optimism. Snow conditions have improved in the first quarter and for Polaris our new AXYS RMK models have moved back to the top share position in the mountain segment. Motorcycles, Polaris fourth quarter sales increased 43% with solid contributions from all of our brands with the full year 2015 motorcycle sales which include Slingshot, increased 74%. We continue to gain motorcycles share. Polaris fourth quarter motorcycle retail grew low single-digits as we encountered very tough comparables from the launch of our Roadmaster and pre-deposit retail sales for both Scout and Slingshot last year in what is typically a low seasonality quarter. The fourth quarter North America mid-size and heavy weight motorcycle industry declined upper single-digits percent. For 2015, the industry increased slightly with Polaris significantly outperforming with retail sales up over 60%. Q4 Indian retail increased mid-teens percent with share gains in both heavyweight and mid-sized segments for the quarter and for the year. Full year 2015 Indian retail increased approximately 80%. We began initial shipments of our Scout Sixty during the quarter with our most appealing price point yet at just $8,999. Indian dealer distribution continues to expand right on plan. We are now at 180 dealers retailing and our per store retail performance is very strong. The new Victory Empulse electric bike began initial shipments but Q4 Victory retail sales declined mid-teens due mostly to low inventory levels. Q4 Slingshot retail increased upper single-digits against last year's pre-deposit comparables and low seasonality. With our overall state and provincial regulation position much stronger versus a year ago, aggressive 2016 marketing and product investments, improved quality and our dealer count right on plan, we are looking forward to a strong second year of Slingshot growth. We expect the 2016 motorcycle industry to remain flattish but with product availability greatly improved on existing motorcycle products, new product introductions just like you saw with Scout Sixty, can begin in earnest and we are confident we will continue to grow and expand market share. Global adjacent markets. Global adjacent fourth quarter revenues decreased 21%. For the full year 2015, revenues decreased 4%. On a constant currency basis, 2015 revenues increased 6%. Q4 North American work and transportation revenue decreased low 20s percent as we came up against our Ariens partners launch comparables, and GEM sales declined due to our new transition to a completely redesigned GEM product platform during the quarter. Initial orders for our first new GEM platform in over 15 years are solid and we are looking forward to a strong 2016. Fourth quarter European Work and Transportation revenue declined low single-digits percent due primarily to currency weakness and some softness in Goupil and Mega. Aixam sales grew high single digits and the European quadricycle industry grew in both fourth quarter and for full year 2015, up low single-digits with Aixam retail up slightly more building on our number one market share position. Fourth quarter defense revenue decreased over 50% as Congress's stop gas government funding measures stalled the Department of Defense's ability to purchase resulting in delayed Dagger and GSA sales to key customers. Entering 2016, our order backlog is healthy but based on the fourth quarter delays 2015 defense revenue declined single digits for the year. Parts, garments and accessories. PG&A fourth quarter revenue decreased 7% with weakness in snow and motorcycle related businesses offset by modest growth in ORVs. All geographic regions declined. We recently added 509, a leading brand for snowmobile helmets and goggles to our aftermarket brand portfolio. 509 is expected to add 1% to 2% to PG&A revenues and be slightly accretive to our earnings in 2016. For 2015 PG&A revenue increased 5%. International. International revenue declined 8% in the fourth quarter as weakness in ORVs, adjacent markets and snowmobiles more than offset growth in motorcycles. For 2015, international sales decreased 5% and on a constant currency basis, we actually increased 10%. EMEA fourth quarter revenue declined 13% due to weakness in snow and ORV products and weak Russian and middle eastern markets. The European ORV industry grew mid-single digits in the fourth quarter and for the year. Polaris gained share in the fourth quarter, our retail was up mid-teens percent and for the full year retail increased mid-single digits. Polaris fourth quarter motorcycle retail sales grew over 150% and for 2015 we are up in excess of 70% in a European industry that declined mid-single digits for the year. So we are gaining a lot of motorcycle share and with Slingshot now shipping this should help further in 2016. European snow retail is off to a very good start with the exception of Russia with season to date retail up over 30% in Scandinavia and Polaris up well over 60%. Asia Pacific revenue increased 3% in the fourth quarter and 6% for 2015, driven by strength in both India and China. Multix, our three-in-one personal transportation vehicle from our joint venture in India is retailing vehicles. Customers are satisfied although currently our retail ramp remains well below our expectations. We expect to accelerate in 2016 with key product improvements and further distribution expansion. Latin America regional revenue continues to be a bright spot with fourth quarter revenue up 26% in Q4 and 43% for 2015. Our Mexican subsidiary sales are very strong and recently we have added Indian and Slingshot which should further increase our great momentum in Mexico. And with that, I will turn it over to our Executive Vice President of Operations, Engineering & Lean, Ken Pucel.

Thanks, Bennett, and good morning to everyone. Last year we dealt with major paint capacity challenges in our Spirit Lake, Iowa facility. Throughout the second half of 2015, we made significant progress improving operational performance and shipments. In the fourth quarter, our total heavyweight motorcycle output increased another 20%. Our overall order to build time for heavyweight Indian motorcycles and Victory decreased 70% and 35% respectively. As part of our ongoing paint capacity expansion plans, we just completed a significant conveyor upgrade to our new Spirit Lake paint system, providing an incremental 30% capacity boost. And our new Spearfish, South Dakota facility began production on November 30. This site plays a key role producing our more complex paint schemes and helping us manage overall mix. From a cost perspective, we expect approximately half of the incremental Spirit Lake paint cost incurred in 2015 will not repeat in 2016 due to significant process, quality and in-sourcing improvements. But we will incur added cost and investments related to the new Spearfish facility as well as Spirit Lake system upgrades and capability improvements, overall our cost per unit will decline as motorcycle volume increases. In summary, we are in a good position entering the riding season from an overall inventory and capacity perspective. Now turning to Huntsville. Our new Huntsville, Alabama plant is on schedule to start production in Q2, supporting our strong customer base in the southeast U.S. Huntsville is a key enabler for our lean enterprise program and it will provide capacity to manage our plant network more efficiently, eliminate costly overtime premiums, access a capable regional supply chain and facilitate future growth. Huntsville will initially produce RANGER side-by-sides and will add Slingshot production in the third quarter. Transferring Slingshot from Spirit Lake to Huntsville will support Slingshot growth while increasing available capacity in Spirit Lake for our growing motorcycle business. From a Lean perspective, the Huntsville sight incorporates our most advanced Lean flow and state of the art manufacturing technologies, improving its throughput times by approximately 80% versus our existing facilities and enabling us to execute retail flow management for side-by-sides with less overall inventory and significantly better delivery service to our dealers. Huntsville startup cost will be more than offset by a significant increase in value improvement projects that we have planned for 2016. Now I will turn it over to Mike Speetzen, our Chief Financial Officer.

Thanks, Ken and good morning everyone. Before I begin my remarks I would like to comment briefly on some of our thinking that went into the 2016 guidance and remind you of how we work forward in 2016. First, let me remind you of our new segment reporting for sales and gross profit which began in our Q3 2015 10-Q filing. We now have three reporting segments. ORV/snowmobiles, motorcycles and global adjacent markets with PG&A included in each of these respective segments. The 2016 guidance I discuss today will be based on these new reportable segments as well as some supplemental data to give you clarity and insight. Second, our 2016 guidance ranges are wider than in recent years. As Scott indicated, there is heightened concern about the pace of global growth and the possibility of a sharp economic downturn sometime this year. Given these uncertainties and their impact on consumer confidence, we are planning for another unpredictable year. Our guidance assumes a number of scenarios from a low growth economy in North America to a slight slowdown in global economies. Foreign exchange continues to be a major headwind to revenue and margins and as a result we are providing a bit more information about constant currency performance which allows you to better assess our assumed operational performance. Now moving to the 2016 guidance detail. Total company sales are expected to be in the range of down 2% to up 3%. On a constant currency basis, this equates to total company sales being flat to up 5% compared to 2015. Embedded in the sales guidance are the following assumptions. We maintain market share in ORV and snow and continue to grow share in motorcycles and global adjacent markets. And dealer inventory levels are assumed to be flat or better by year-end at the upper end of our range. Earnings per share for 2016 are expected to be in the range of $6.20 to $6.80, down to 8% to up 1% compared to full year 2015. On a constant currency basis, earnings per share would be flat to up 9%. Embedded in the EPS guidance is the following. Gross margins are anticipated to be down 90 to 140 basis points. On a constant currency basis, gross margins would be flat to down approximately 50 basis points. I will provide more detail on gross margins in the next couple of slides. Operating expenses as a percent of sales are expected to improve while the actual dollars are up slightly year-over-year, primarily driven by incentive compensation. We are making the necessary trade-offs between preserving critical growth investments and improving or eliminating unproductive processes. The income tax provision rate for the full year 2016 is expected to be approximately 35% spread evenly across the quarters. The tax rate is up slightly from 2015 as a result of R&D credits booked in 2015 for prior year amended returns. Let me provide more detail on our expectations for revenue in each of our reporting segments. ORV/snowmobiles is anticipated to be flat to down mid-single digits. Motorcycles up high-teens and global adjacent markets up mid-single digits. Embedded within our segment guidance is the expectation that international sales will grow low to mid-single digits reflecting market share gains and PG&A sales are expected to grow faster than the overall company growth rate. Our gross margin percentage decreased by 77 basis points in the fourth quarter and declined 108 basis points for the full year 2015. On a constant currency basis, gross margins for the fourth quarter and full year 2015 were down approximately 50 and 60 basis points respectively, primarily driven by significant volume reduction as well as mix and elevated promotional spend which more than offset continued progress and product cost reductions and VIP program savings. As I have mentioned previously, we anticipate gross margins in 2016 to be down 90 to 140 basis points, we expect gross margins to continue to benefit from product cost reductions, VIP savings and lower commodity costs but that unfavorable currencies and mix will more than offset these benefits. On a segment reporting basis, ORV/snowmobiles gross margins are expected to decline due to currency and mix shifts. Motorcycle gross margins are anticipated to improve from higher volume and product cost reductions and global adjacent markets gross margins are expected to be about flat with 2015. 2016 will be the third straight year of negative currency pressure. In 2015, currency negatively impacted revenue by $160 million and pretax income by $70 million with a 40% to 50% drop through on gross margins. The most significant exposure for Polaris is the Canadian dollar which moved almost 20% in 2015 with other currencies moving significantly as well. For 2016 and less than one month into the new year, the spot rate for the Canadian dollars declined even further. Our 2016 guidance assumes a rate of approximately $0.70 Canadian to the U.S. dollar. As a rule of thumb, a one cent move in the Canadian dollar represents about $5 million move for both full year sales and pretax profit. Currency is anticipated to negatively impact full year 2016 sales at the high end of the range by about $80 million or about a 2% decline in sales and negatively impact pre-tax profit by approximately $55 million, with gross margin impacted at about the same level of sales given the Canadian dollar impact. We have taken a more aggressive position in hedging our exposure in 2016 and while this dampens the cash flow impact from transactional activity, the company is still exposed to the translation effects of currency movement as well as the un-hedged portion of transaction impact. Our financial position and cash flow generation continues to be solid. Cash flow provided by operating activities was down 17% for full year 2015, driven by higher inventory levels. We ended the year with $710 million of factory inventory which was up $144 million versus last year and off our plan significantly given the pullback in shipments in Q4. While the company's ROIC remained at industry leading levels in 2015, we did have a negative impact from the higher levels of inventory at year-end. We expect cash flow from operating activities to improve significantly in 2016, primarily driven by much improved levels of factory inventory in the second half as a result of ongoing operational improvements and implementation of retail flow management for our side by side business in the latter half of 2016. In 2015, we spent $249 million in capital and tooling and we anticipate spending a slightly higher amount in 2016 as we complete the Huntsville plant and make critical investments in our Spirit Lake motorcycle factory. Lastly, given our share price levels, we were more aggressive in our stock buyback program in 2015. We repurchased 2.2 million shares for $294 million and as we head into 2016, we expect to repurchase an additional 2.9 million shares which would expend the remaining board approved share repurchase authorization. This repurchase activity will reduce share count by approximately 1% to 2% depending on timing of execution. Financial services finished 2015 in record territory with financial services income up 12% for the year. In 2016, financial services income is expected to grow in line with the company revenue. We have extended our Sheffield and Synchrony retail financing agreements through 2020 and we also extended the Polaris Acceptance joint venture agreement with GE through 2022 and are excited to begin working with Wells Fargo as our partner after the transaction with GE closes. Before I hand it back over to Scott, I want to make a few comments around our upcoming 2016 first quarter. Typically, we do not comment on quarterly sales and earnings expectations but we are making an exception for what we expect to be atypical results in Q1 2016. Therefore I want to give you some data points for consideration when thinking about our first quarter expectations. First, foreign exchange will be a significant headwind in Q1 as we lap more favorable currency rates across the board in Q1 of last year. We anticipate this to be about a 2% headwind to the top line and a substantial impact to the bottom line with the majority of the year-over-year impact coming from the Canadian dollar weakness which has a significant impact on gross margins. Second, while slightly improving from Q4 levels, we do anticipate weaker retail trends relative to last year. This coupled with more conservative dealer inventory levels means we anticipate company sales for ORVs and snowmobiles to be down in the high single digit to mid-teen range year-over-year. Historically, our first quarter is the smallest quarter for sales and earnings, so minor adjustments in volume are quickly magnified at the bottom line. Also in the first quarter last year, we shipped ORVs to dealers ahead of the heavier retail selling season. Taking these two points into account, gross margins are expected to be down potentially 300 basis point in the first half with the gross margin reduction more heavily weighted to the first quarter given historically lower volumes. Although we are constraining operating expense growth in 2016, we are however lapping a lower first quarter of last year and anticipate our operating expense could be up as much as 10% in Q1 of 2016. Taking all this into consideration, earnings for the first quarter of 2016 are projected to be about half of the earnings reported in the first quarter of 2015. With that, I'll turn it back over to Scott for some final thoughts.

Thanks, Mike. As we discussed this morning, you have heard in the news and witnessed the market volatility since the first of the year, we are not anticipating a leisurely ride through 2016. Currencies will once again have a large impact and competition will be relentless. But we have the talent, resources and disciplined plans to make improvements off of our bad 2015 baseline. I mentioned slowing markets on our October call, and with almost every indicator worsening since then we see an increasing threat of one or more quarters of negative GDP in the United States and other key international economies. We again expect a weak ag economy and no recovery in the oil producing states. But our plan does not assume a recession, although we will be ready should one arrive. We will plan to make our own growth in power sports market that will likely be flat, placing a premium on share capture. Matt Homan's stewardship of ORV will bring new energy and positive change and Steve Menneto will use his new bikes, more dealers and major improvements in production output to win with Indian and Victory. Craig Scanlon will build off his success and learnings with Slingshot as more accessories and better delivery increase growth potential. Steve Eastman's PG&A business will get a small boost from the 509 acquisition which I really like and will drive for growth with many new offerings and better go-to-market plans. Mike Dougherty will focus on profitability more than growth in EMEA and continue to seek the right acquisitions and partners to expand our Asia-Pacific and Latin America business. Our significant investment in innovation and capacity makes us an outlier among a great number of companies who in uncertain times favor financial leverage and significant share repurchases. We will of course take advantage of our low valuation but I am much more excited about our product pipeline and the major Lean transformation boost our business will get from the completion of our Huntsville plant in the next few months. In a true testament to results focused Lean initiatives, we will target a significant inventory reduction to offset much of this year's plant investment cost. Ken and his team have a long list of value improvement projects that will drive margin expansion and Dave's additional focus on enterprise cost will add to our effort to bend the cost curve. We will seek efficiencies in every aspect of our business and have recently taken actions to reduce overall employment cost by approximately 7%. We will continue to invest in R&D and new products, and even new service offerings. Some of that R&D will flow through Tim Larson's customer excellence team, where making our products and services better for customers and dealers is a passionate endeavor. We learned a great deal from the trials and failures of 2015 and are a better company with improved plans as we start the battle to resume our winning ways in 2016. With that, I'll turn it over to Steve to open the line for questions.

[Operator Instructions] Our first question comes from the line of Jaime Katz with Morningstar. Your line is open.

I'm curious about the increased revenues in Indian and whether or not Scout has taken the lion's share of those gains? And what that really means for average selling prices going forward and maybe how we should think about the mix in that segment?

I'll jump in, Jaime. From 2015 Scout was certainly a significant catalyst of the overall Indian revenue and retail growth. We did see very nice gains in heavyweight as well. I think Mike's kind of searching for ASP here so I'll keep rambling until he comes up with that number.

Yes, so we're definitely, Jaime, seeing some pressure from an ASP perspective as we've seen more rapid share increase in the Indian, Scout line. It's putting about a 10% pressure from a ASP perspective.

Okay. And then for North America dealer inventory, you guys have done a really spectacular job cleaning up units in the channel. But I'm curious how you feel about some of the competitors and how well they've been able to respond to the new economic environment?

Jaime, frankly we don't have visibility to our competitors' inventory levels. My sense overall is that the industry is fine. Obviously, the industry was slower than people would like in the fourth quarter particularly but in the second half of the year. And we know a number of our competitors have made significant bets with new products and we're used to that. And I'm assuming if they don't hit their retail rates we'll deal with that, as we always do, with potentially promotion as we move forward. But I don't see anything in the marketplace right now other than there's a keen battle for share of shelf in our dealerships that has us overly concerned that there's a glut of inventory in the industry at this point.

Thank you. Our next question comes from the line of James Hardiman with Wedbush Securities. Your line is open.

Just to clarify, the mid-December pre-announcement that you guys did when we talked about things getting modestly better. It seems like this is materially worse than that. Can you sort of break out how much of that was just FX? Obviously, the Canadian dollar has gotten worse since then. And how much, if any, is coming from sort of the underlying fundamentals of your business and where would that come from?

James, this is Mike. Let me cover at least some of the question. I think we use the word modest in terms of the underlying organic performance of the business. And certainly foreign exchange which is something that has been moving quite significantly and as I indicated in my prepared remarks, we've seen the Canadian decline quite precipitously coming out of the end of the year and that puts some pressure. But I think we're also trying to calibrate to what we're seeing in terms of more recent retail performance coming out of the month of December and making sure that we've got the range covering that. When you look at it from an organic perspective, we're essentially calling it flat to up 5%. So modest kind of gets you right in the middle of that, ex foreign currency.

Great. Very helpful. And then talk a little bit about the slowdown in the motorcycle industry. What do you think is driving that? And then as we think about 2016, the guidance for that segment seems a little bit lighter than the way that you were previously contemplating growth there, especially assuming -- and correct me if I'm wrong, that you're going to be playing a little bit of catch up from a shipment perspective over the course of 2016? Talk a little bit about that and does Victory finally begin to grow again in 2016 after being down for a while now?

James, is this your idea of one question?

I had to fit them all in there.

So just to answer your last question first. We absolutely believe that '16 will be a year of growth for Victory. We have a lot of exciting product news. We're excited about the marketing position with the American Muscle branding and we believe that with what we have coming it should be a good start to the year and full year for Victory. With Indian, obviously the production problems that we had in the first half of last year constrained our ability to meet demand and with broader dealer networks finishing the year at 180, we feel pretty good about it. But the overall market is weak. And we don't know that there will be growth in the market. So what we get will have to be share gains in what you know is a very competitive heavyweight motorcycle industry. So we feel extremely good about where the business is but we're trying to guide to what we believe is very achievable performance. And as you know, we will work like heck to beat that.

Thank you. Our next question comes from the line of Greg Badishkanian with Citigroup. Your line is open.

Just a follow-up to that, Scott. So you mentioned you're going to try hard to beat that. Of the two components, the flat industry growth and maybe a little bit of market share that you're assuming or flattish market share, which of those two components do you think you're likely to see upside? And do you see one as downside, maybe the industry not slowing down a little bit from here from that flat you're expecting?

Greg, I apologize if you heard one of us say we might not be able to gain much market share in motorcycles. That is absolutely not the...

I'm talking overall. I'm sorry.

Overall.

Yes.

Well, I think what we said is overall in power sports, including all aspects, we expect to gain share. ORV's going to be extremely competitive. We know that. We've factored that in. We saw it in the fourth quarter and we're modeling that we're going to hold share. And I think with Matt and Craig and the team, the way that they'll battle with better inventory positions and again continued new products, we feel good about our ability to do that. I think the risk is in the industry and that's what we're modeling closely. It was the weakest the industry has been in quite some time in Q4 and we're just protecting ourselves to ensure that we're not relying on gargantuan share gains to be able to hit our guidance.

Right. And how much exposure do you have relative to the industry in terms of oil markets? So if the oil markets continue to be weak or get worse, will that have more or less of an impact in the overall ORV market, power sports market?

Greg, this is Bennett. On the ORV side, key oil-producing states are somewhere in the neighborhood of just north of 15% of sales. So there's some exposure. Obviously, as by far the leading manufacturer, we're exposed. I would tell you if there's any reason for optimism, oil markets were weak year over year pretty much all year long. We have talked about ag weakness, and ag was I think weak most of the year. But ag had been weaker in '14 and so frankly we did not see the declines in ag nearly to what we saw in oil. So if there's such a thing of encouragement in that the year-over-year performance in oil may be less bad in 16, I think that's very much a possibility. So we're exposed but I don't know that we're going to take a much bigger blow year-over-year than we did here in '15.

Thank you. Our next question comes from the line of Trey Grooms with Stephens. Your line is open.

Question is on the side-by-side share. So you guys lost some share in the 4Q in side-by-sides and that's the first time we've seen that, that I can remember. Is this mostly coming from the more performance side, RZR, or is this on the Ranger side? And what has changed? What was causing the market share losses specifically in 4Q? Because I think from your guidance it implies that you guys are -- that that's no longer going to be the case and you'll hold onto share. Is there something unique in the quarter?

Trey, Bill could provide really good color on this. But as we talk about share in side-by-side, let's make sure we're grounded in where our position is. You realize that we are three times combined the share of the next three players. So we're coming from a pretty good position. And the amount of share loss that we're talking about, I don't want to call miniscule, immaterial, I mean not a very large amount. So we're not going to overreact, although we are very focused on maintaining and gaining share. But let's not -- we are not panicked over that and we feel very good about how we'll deal with it going forward.

Let me just add on. Again, I think you get sometimes in quarters, as Scott's alluding to, there can be a little bit of timing. What was unique in the fourth quarter I think are a couple of elements. As everybody well knows, there was a number of new competitive introductions that frankly started shipping and had probably some initial pent-up retail sales that we saw in the fourth quarter for the first time coming off of zero comparables. The industry was weak. So the industry was less able frankly to handle that The other thing we had is we had a recall due to some quality issues with vent lines on our RZR product in October, and October was our weakest performing month of the quarter and we think that that had some impact as well. And that's a shame on us. But we seem to have powered through that as we go forward. Then again, the other thing I said in my remarks is we were coming off some really sporty comparables in the fourth quarter where we were up double digits percent, which again I don't think we see frankly in the '16 model. We don't have those kind of comps that we're going up against. So I do think there is some unique aspects about the fourth quarter. But as Scott said, it will be a competitive environment and we're going to have to be at our very best. And we're going to have to be better than we were in '15 if we're going to hold and ultimately do what we expect to do, which is gain some share.

Understood. Thanks for the color there. And then just as a follow-up. You mentioned, and I'm sorry if I missed this, but you mentioned 15% kind of in oil- and gas-related markets. What is your outlook for oil and gas markets as far as that 15% goes? Are you guys expecting or modeling any kind of a bottom here as we look into '16? Just kind of what's your base assumption going into the guidance there for those markets?

Our base assumptions on oil is, it's going to remain weak for the full year 2016. We don't see any miraculous improvement or recovery in oil prices. And so we expect that those markets will remain repressed. But what I do think, again as I alluded to, is a likely possibility based on what we saw in ag, is we saw big declines throughout '15. And off of the much weaker comparables it's possible that while we expect them to continue to shrink, they won't shrink as much.

Thank you. Our next question comes from the line of Scott Stember with C.L. King. Your line is open.

Scott, could you maybe just go over the first half or first quarter expectations once again? If I heard correctly, you guys said that the earnings in the fourth quarter of '16 would be less than half of the first quarter. And in order to get to the $6.20 to $6.80 that would assume that the back half of the year things are going to rebound pretty significantly. Can you maybe just talk about that a little bit? And then maybe just go through the couple of the puts and takes for the first quarter once again, just so we could get our hands around that?

Yes, Scott, this is Mike. Let me kind of just hit some of the key points. The foreign exchange dynamic, just to kind of give you the high level, most of that lapping occurs in Q1 and Q2 and somewhat in Q3. So through the course of 2015 the Canadian dollar had held up relatively well until we got pretty much into the third quarter. And so for the first and second quarter that's going to be a pretty substantial impact. And as I mentioned in my prepared comments, that's going to be as much as 2% to the top line. And as I mentioned in my discussion about gross margins, it's a very heavy hit to the gross margin line because we're essentially exporting into that market. We do have some hedge position that helps us offset the transactional impacts but it's still going to be pretty heavy. So that's the first item. The second is, as I indicated, we're going to be down from an ORV and a snow shipment perspective. We're comparing against first quarter last year where the company had about 16% growth. So we're going to be shipping at a much lower level, just given what we're anticipating will be the industry dynamics in terms of weaker retail environment. And so that's certainly going to put a lot of pressure because that business, ORVs and snowmobiles, is our more profitable segment. And then as I mentioned, our operating expenses, even though from a full-year standpoint we're going to have a very modest increase, when you start looking at the quarters we've got about $20 million-ish of headwind when we compare the first quarter of 2015 against the first quarter of 2016. So essentially the exit rate we have coming out of the end of last year, taking into account some of the cost reductions that Scott mentioned in terms of the headcount and salary reductions that we've made, we're still going to be facing a little bit of headwind when we start looking at that. So as you look at the year as it plays out, obviously there's an assumption that things improve into the second half. Some of that is just purely the foreign exchange dynamic, some of that is just purely the comps when you get into the fourth quarter comparing against what we did in terms of the pretty substantial shipment reduction.

But there's also an element too, and we referred to it I think several times in our remarks. The work that Ken has been doing for the last year around building these value improvement project plans, they build momentum over time. So by the time we get to the -- really, it's going to build throughout the year but really getting into the second half of the year, we will see the lion's share of those projects really taking hold. Lot of material cost reductions, a lot of the platforming we've talked about in our vehicles. And we'll get the benefit of that in conjunction with currency so it's reasonably powerful. Now, we clearly recognize that we thought the same thing this year and that didn't happen. So we've calibrated our plans to ensure that it's much more achievable.

Okay. And as far as just on the cost side. Scott, you talked about an assault on cost. Is there some number that you guys are willing to put out there basically encompasses everything that you guys are looking for, whether it's from a headcount reduction or just from becoming leaner and just streamlining things?

Well, Scott, the number is embedded in the guidance we just gave. And I think most of what we're doing, honestly, is to offset the currency headwinds we face which are, I mean honestly, just brutal. But I don't want to -- what I did say in my prepared remarks is that Dave Longren -- now remember, Dave is arguably one of the most talented people we have in this business. The last time we went through a downturn, Dave led the effort to just rip cost out of our vehicles and help us get turned around. He's taking a much broader approach with this enterprise cost role now. And with a couple of major buckets we have said he's going to give us an incremental $10 million to $20 million over the next couple of years. I think the way to think about this is we've said that there's 300 to 500 basis points of gross profit margin that we expect over the next five years and all of this is going towards that.

Thank you. Our next question comes from the line of Kevin Milota with JPMorgan. Your line is open.

I've got two for you here. First, on the balance sheet. Looking at inventories up 26% year-over-year, what's driving the increase on the inventory front? And then secondly, maybe you could just talk through, I know we just spent a lot of time on the quarterly cadence. But specifically as it relates to gross margin, if you could talk by segment where the incremental expenses are actually hitting [indiscernible]. Thank you.

Yes. The biggest driver of the inventory, we probably should have been more clear on this, is we cut dramatic shipments out at the middle of December. Those products were built. So our finished goods inventory was up dramatically and that drove most of the increase. It was just not a good year. We're doing a couple things as we go into '16. We're going to have a significant improvement in our [indiscernible] process to make sure we get better at this overall forecasting and management of inventory in general. But we're also adding inventory to one of the incentive comp metrics that our senior executives have. So It won't be just a balance sheet miss. It will be a personal P&L miss if we don't get significantly better quickly at inventory.

So I think, Kevin, Scott hit on a couple of the key points. But I think the gross margin improvement will start to materialize more in the second half. One, it's sheerly about volume. Two, it's about the foreign exchange headwind starts to abate a bit, assuming the rates hold at the levels that we've seen today. You also asked about the segment performance. We do have a chart in the deck, but just to kind of recap. The ORV margins will be down, largely on the back of foreign exchange as well as just some of the mix shifts in the lower volume environment that we have, as well as what we anticipate will be slightly elevated levels of promotional activity. Motorcycles, we anticipate to continue to see improvement. As Ken alluded, the Spirit Lake facility enhancements is allowing us to get more motorcycles through. So the per unit cost is improving there. And the global adjacent market is going to be about flat but isn't as big a impact to the overall company performance.

Okay. And then on ASPs for Indian. I know you noted that they were down 10%. Is that more mix driven or what's really driving that ASP result at Indian?

It's completely mix, Kevin. I mean you built out the Scout. Now you've got a new Scout Sixty at $8,999 that we expect is going to be a significant volume play. So that's really all it is. We're going to see growth in all of our products within the thing. It's just no comps on some of the mid-size.

Our next question comes from the line of Joe Spak with RBC Capital Markets. Your line is open.

I got two questions as well. The first one I guess is a little bit more of a technical question, understanding the guidance. I thought I heard you say you're trying to account for a wider range of currency and end market risk. But it does look like your FX assumption is consistent at both ends. So are you just accounting for some of that risk in the volume or if currencies were to be wildly different than end of year, is that further risk to your outlook?

Yes, you're right, Joe. The range is purely about the organic. If you look back at our Slide number 20 and we talk about our constant currency revenue performance of flat to plus 5%. So we're assuming the same level of currency. The reality is there are going to be dynamics that happen within that. But for the ease of modeling this and being able to give ourselves a clear shot at what we want to do organically in the business, we pegged the foreign exchange rate. As I mentioned, we've got a pretty substantial level of hedge activity in place. So we think we can mitigate a fair amount of the transactional impacts that we've got and we continue to increase those positions as we go. The translation could pose some risk to us but at this point it's tough to tell where that will end up.

Okay, great. And then the other one is, I guess, the second question is a little bit more strategic. So I was wondering if you could expand a little bit more about the Slingshot move to Huntsville, which I don't believe was part of the original plan, at least communicated to the Street. So is this to help with some of the absorption, given now that it looks like there may be some excess capacity? And should we read this as a signal that maybe your forward view on ORV demand is not what it was, I guess, when you originally started the build-out of Huntsville?

I mean, Joe, you just answered your own question. When we started Huntsville a year and half ago, ORVs were still growing at double digits, and we still need to plan. Obviously, as Ken I think fairly well articulated the benefits we get from it, but clearly demand is down from when we originally started the project. So moving Slingshot there makes sense on many, many levels. We built the plant to have extra capacity because we recognize the strategic location of it with the local supply base, the strong engineering base there, the proximity to our customers. But really it also augments our ability to continue to fulfill the growth that we know is coming with Indian and Victory. There's limited human capacity in the Spirit Lake area. There's limited paint capacity in the Spirit Lake area. So by moving Slingshot out, we get two benefits. One is eating into the absorption in Huntsville, taking advantage of that labor pool but also ensuring that we have a long way to run with our motorcycle business in Spirit Lake.

Thank you. Our next question comes from the line of Robin Farley with UBS. Your line is open.

I have two questions. First is on your projection, your assumptions for 2016. You have off-road combined with snow and you talk about sales being flat to down mid-single digit. Is that kind of what we should think of your expectations for retail for ORVs specifically, separate from snow? And then also just given the color that you gave on Q1 being down much worse than that, does that mean you're looking for positive ORV at retail in the second half of the year? And then I have a question about motorcycles.

All right. Let me see if I can get one question there. So with the new segment reporting, as I said in my remarks, Robin, it's a pretty tough environment in snowmobiles and we're going to do the right thing as we always do. And so we're expecting some pretty notable reductions to our build in snowmobiles. So I think when you see the implied guidance, there's a dampening effect that is certainly snowmobile. Don't look at the minuses as an expectation of where we see our retail for ORV. Again, we're modeling a flat industry essentially and that we're going to hold share. So I think the implied retail guidance on that would be somewhere in the flat range, not down. And again, I think as we come up against more muted comps in the second half, I do think we expect that our retail performance should strengthen as the year goes on in ORV, at least directionally.

Okay, great. Thank you. And then for motorcycles, I just wanted to make sure I understood when you talked about retail coming in below expectations in Q4. Was that really more of a supply or a demand issue? Because the slides show that motorcycle, that the throughput of the paint facility kind of met demand by Q4. But in your comments, the comment was that the backlog hadn't been eliminated yet. So I guess I'm just trying to understand how much of it was a supply issue.

Robin, I think it's primarily a demand issue. Again, we're very pleased with the progress we've seen out of Spirit Lake. And while there are still some backlogs within niches of products and probably Victory's been the most adversely impacted. Really what I think you saw on us missing our retail expectations was that the industry was weaker than we expected, being down high single digits. We didn't expect that. We expected it to be closer to flat or down low single-digits. So that's primarily where the retail miss was.

Again, fourth quarter is fairly low seasonality for us. So much better that we're positioned as we head into '16. And as I indicated in my remarks, we're very comfortable with how Steve has that business set up.

Thank you. Our next question comes from the line of Jimmy Baker with B. Riley & Company. Your line is open.

So the North American ORV industry, pretty solidly positive through at least the first 9 or 10 months of the year and then went negative here in Q4 when a lot of the continent isn't weighing in much due to seasonality. So I guess how concerned are you that as Canada enters its retail season it could actually drive the industry substantially negative in 2016? And I guess separately, Scott, in your prepared remarks you highlighted the disconnect between continued strength in auto sales. I guess we could also say that about some recreational products like boating. What do you think is driving the disconnect in power sports outside of oil and gas regions?

Jimmy, let me take -- this is Bennett. I'll take Canada. Again, Canada was weak, Jimmy, all year long. And particularly in side-by-sides, it's a much smaller percentage of the marketplace than it is with ATVs. So we don't see what I would call material headwind year-over-year in Canada coming off of weak comparables, particularly with us being very heightened focused on side-by-sides. So I don't think we should worry about a seasonality impact there in Canada. You want to comment on that?

Yes. And as it relates to the automotive, and then you threw in the boat segment being reasonably strong. As you know boats are notoriously cyclical and I think they're just benefiting from an up cycle in that industry and we know how that ends typically. On the auto side, I think Mike Jackson, Auto Nation, just described the situation in auto retail extremely well. The record sales, what, $17.5 million, was fantastic. But the dealer inventory fundamentals aren't good. The length of the financing is not good and we believe that that is really not going to last over time. But it's certainly not helpful to us when we see those products selling and ours not. There is an element. I have to admit, as much as I like to talk about the work value of our products, there's a little bit more of a necessity need to an automobile than a RZR. So we'll live with that.

Your next question comes from the line of Craig Kennison with Baird. Your line is open.

Mike, with the new segment disclosure, how should we think about incremental gross margin in your three business units excluding currency?

Excluding currency, from a ORV standpoint, incremental margins are probably going to be in the, call it 40% range, as we grow a very high profitable business and Ken's organization continues to execute on the Lean initiatives. Motorcycles is a tough one. We're registering right around 13%, 14% margins right now. The incremental will be not quite at the company level, but we're going to continue to see that improve. So you're probably talking about numbers that would be up in the 20% range. And then global adjacent markets is going to be slightly north of the overall gross margin level that they have.

Thank you. And then Scott, I think you recommitted to the 2020 plan on the last announcement. But you have had some changes at the top of your business development team. Does that signal any change or delay in any big transactions that would help you get to that number?

No. Todd gave us plenty of notice that he was planning to leave. So we had a lot of time to prepare for that. One of the many things that he did is he built a really good team underneath of him. So we've got a strong pipeline now. The transactions are continuing to flow through. There's actually zero impact on the business. Because Todd gave us so much notice, we've had a lengthy search going on and we believe we can attract a really strong candidate to help us continue to drive our strategy through M&A. So don't read anything into that at all.

Your next question comes from the line of Joe Hovorka with Raymond James. Your line is open.

Two quick questions. First, the motorcycle industry data that you gave, the down high single digit. Does that include or exclude Slingshot in that number?

That includes Slingshot, Joe. So that essentially is anything the segments we compete in. So mid-size and up, cruisers, bagger, touring and three-wheelers.

Okay. And then the metrics, what did they look like from a share perspective in the fourth quarter? Were they gaining share still in the fourth quarter?

In our segments, no. In the broader based motorcycle market, I won't specifically comment but I think they did just fine in that. And frankly, some of the lower end motorcycles were relatively a little bit better than the big stuff.

Your next question comes from the line of Drew Crum with Stifel. Your line is open.

I wonder if we could talk about the level of promotional activity, discounting you're planning for in 2016 relative to your recent experience and the impact that has on gross margin outlook?

Yes. So we definitely saw an elevated level throughout the course of 2015. And you can see in the press release the balance that we have exiting 2015 versus last year were at an elevated level. As we get into 2016 we anticipate that that will continue. It will have an impact on gross margins, but when I stratify it against all the other things like foreign exchange and the other impacts that we have, it's relatively small in the overall scheme of things.

Got it, okay. And I know there's some questions on moving Slingshot to Huntsville. By doing that, do you discontinue outsourcing the paint and are there any related savings there? I think longer term you guys have talked about a $300 million to $500 million business for Slingshot. Does that still hold?

Yes. That's part of the plan is that we will sequentially start in-sourcing Slingshot paint once we get it down to Huntsville. And it may not be all of it but it would be a substantial portion of that going forward. And yes, we have not changed our $300 million to $500 million outlook for that business. The year too is pretty exciting with what Craig and the team have planned.

Your next question comes from the line of Michael Swartz with SunTrust. Your line is open.

Bennett, you made the comment earlier in the call just about some of the wholesale reductions in the fourth quarter being more tied to some of the higher ASP vehicles within the Ranger and RZR portfolio. Could you just give us a broader sense of, are you starting to see some price sensitivity in terms of the consumer with some of those products?

I think, Michael, that as the economy gets a little tougher and as we've raised ASPs, particularly in some of the high end stuff, we're watching that very, very carefully. I would tell you, we had what I would call significant bets on the high end of our line. So that's why you saw -- that's why we primarily took the reductions in those products. But we're watching that dynamic here as we go forward in a tougher economy. And I think you can expect to see us in '16 be sharper on our value premium plays as we go forward.

Your next question comes from the line of Tim Conder with Wells Fargo Securities. Your line is open.

Clarification on the 15% related to oil. Is that North American ORV sales, if you could clarify that? And then Mike, any further sensitivities you can provide us related to currency on a go forward basis here?

The 15% does relate to North America. So that's essentially key states and provinces in North America.

Yes, and Tim, on the currencies, I had mentioned in my prepared remarks the Canadian moving about a penny is going to be about $5 million to the top line. It's close to $5 million to the gross margin line. For the euro, about a penny move is going to be about $3 million to the top line and about $1 million, $1.5 million of income.

Okay. And any of the other currencies, Mike?

Yes, but I mean they're small enough that they're not the ones moving the needle. The CAD is the number one and then the euro obviously presents a pretty big challenge from a translation perspective if we get significant movement there.

Certainly. Your next question or your last question rather, comes from the line of Mark Smith with Feltl and Company. Your line is open.

First off, just looking at snowmobile inventories up 25% plus at the end of the quarter. Can you give us any insight into where that maybe sits today, given that we saw better snow conditions, or how bad is snow today?

Well, I think, Mark, this is Bennett. Snow is improving as we've gone through the first quarter. Fourth quarter there was just not a lot of snow. And I would tell you generally the inventory that we're most concerned about is in the flatland areas. We had a poor snow year last year in the Midwest, good snow in the Northeast and then we had poor snow in both areas in the fourth quarter. So we're watching the flats very, very carefully. We have great product everywhere but particularly in the mountains and we feel good about where we are there.

And then looking at ORV and your guidance there and competition, maybe two things there. Are we seeing more foreign competitors get more aggressive on price, just given advantages in FX? Or is it maybe more of a consumer issue where customers are moving to maybe lower priced items? How much is mix hurting within ORV?

Well, that's a good question, Mark. I would tell you, we've seen the phenomena with currencies helping our competitors for well over a year. I think as we made the remark, this is the second or third year in a row of significant currency swings. So we've been facing that problem for some time. It's certainly helpful for them. I think as the economy toughens, there is heightened focus on value. And we have a number of value offerings, and I think you'll see us sharpen that. And I think we're going to watch, to the earlier question I think that Mike had about making sure we have our price sensitivities right on the high end. I will tell you, on the side-by-sides, when you think about entering the crossover segment with GENERAL, which is a $30,000-plus segment where we have 0% share, and that is a very compelling product and has been well received along with a full year of Turbo and a number of other things. We feel we got ammo on the high end and we expect those products to do well. I'll put those products up and they'll kick everybody's butt, not to sound cocky. So we still feel good about the strength of the Polaris armada and we'll take our chances.

Okay. With that, we've got to end it there. I want to thank everybody for participating in the call this morning. And we look forward to updating you in the first quarter. Thanks again. Good bye.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.