Good morning, and welcome to the Polaris Industries Fourth Quarter and Full Year 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Richard Edwards, Vice President of Investor Relations. Please go ahead.

Thank you, Gary, and good morning everyone. Thank you for joining us for our 2019 fourth and full year earnings call. A slide presentation is accessible at our website at ir.polaris.com, which has additional information for this morning’s call. Scott Wine, our Chairman and Chief Executive Officer; and Mike Speetzen, our Chief Financial Officer will have remarks summarizing the quarter and full year expectations, and then we will take some questions. During the call, we will be discussing various topics, 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. You can refer to our 2018 10-K for additional details regarding these risks and uncertainties. All references to the fourth quarter and full year 2019 actual results and our 2020 guidance are reported on an adjusted non-GAAP basis unless otherwise noted. Please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments. Now, I'll turn it over to our CEO, Scott Wine. Scott?

Thanks, Richard. Good morning and thank you for joining us. While we were battling in December to close the year strong, I made time to see Navy football beat Army and then win the Liberty Bowl to finish the Season 11-2. Their recovery from 2018’s 3 and 8 record served as a good reminder of what can happen with a motivated team, experienced coaches and a good game plan. Of course, winning also demands execution and Coach Niumatalolo had that dialed in all year long. While I would grade our Polaris performance last year, a good bit better than 3 and 8 we share Navy’s strong foundation and focus on execution and I like our chances to make a Navy football like improvement in 2020. Retail and revenue growth in Q4 helped push full-year sales up 12% with half of that from organic growth and the remainder from our first full-year [with both] [ph]. Encouragingly, we had positive sales growth in every business segment during the quarter and for the full year, a true testament to our strategy and the execution of our Polaris team. We made bold price moves in 2019, which aided our topline, but at times challenged us competitively. Providing our best ever delivery performance and offering customer advantages through factory choice, our flexible and efficient operations were a key advantage that we will continue to exploit. With lean activities continuing to drive network wide productivity and strategic sourcing savings beginning to hit the bottom line, we delivered better than anticipated gross margin performance to finish the year. Our Powersports PG&A and related aftermarket brands exceeded 1 billion in annual sales for the first time, which is an especially significant milestone for one of our most important and profitable parts of our business. TAP’s four-wheel part business…

Thanks, Scott and good morning everyone. Our fourth quarter sales were up 7% on a GAAP and adjusted basis versus the prior year driven by higher sales of off-road vehicles and motorcycles. Average selling price was up 8% during the quarter driven by the mix of products both in off-road vehicles and motorcycles, continuing a trend we have seen throughout 2019. Fourth quarter earnings per share on a GAAP basis was $1.58. Adjusted earnings per share was $1.83, flat with last year's fourth quarter. The 2019 fourth quarter included approximately an incremental $0.06 per share of tariff and foreign exchange headwind along with increased promotions and warranty costs, which was offset by increased volume and mix, manufacturing efficiency and lower tax rate. For the full year 2019, sales were up 12% on a GAAP and adjusted basis versus the prior year. All segments grew for the year on a GAAP and adjusted basis. Full year earnings per share on a GAAP basis was $5.20. Adjusted earnings per share was $6.32, which was in line with our expectations. The full year EPS included negative impact of tariff and foreign exchange, as well as continued investment in strategic initiatives, which was somewhat offset by a combination of increased volume, operational improvements, a lower tax rate and lower share count. Gross profit margins on a GAAP and adjusted basis increased 40 basis points for the fourth quarter driven by favorable product mix and operating leverage, which was somewhat offset by tariffs, foreign exchange and higher warranty expense. We’ve provided more detail on gross profit margin performance for 2019 in the supplemental section of this presentation. Turning to our segment performance, ORV/Snowmobiles segment sales were up 7% in Q4 driven by ORV wholegood sales and PG&A. ORV wholegood sales were driven by increased unit…

Thanks, Mike. The resiliency of both the consumer and the broader economy remains a tailwind for the powersports industry and our 2020 plan anticipates those trends continuing. Recession risk is likely to rise throughout the year and we remain vigilant and ready with our contingency plans. Agility is key to navigating evolving market and competitive landscape and our deployment of lean tools drives us to simplify our product line up, while accelerating product innovation and introductions. Across the portfolio, expect us to be a more nimble and aggressive competitor. Strategic sourcing is gaining momentum and remains on track to be the most impactful productivity initiative ever undertaken at Polaris. Coupled with more efficient and accurately targeted promo spend and our ongoing tariff mitigation initiatives, increased operating leverage will be a noteworthy driver of this year's earnings expansion. Productivity is better with growth and our international strategy is helping to make that happen in 2020. With expectations for stronger growth in the Asia-Pacific region, our new finished subsidiary allowing us to go direct in all Scandinavian markets and our Vietnam JV driving improved margins, we have built a solid foundation for global expansion in 2020 and beyond. The Phase 1 trade agreement with China prevented additional tariffs from hitting Polaris and the more conciliatory tone of the negotiations provides confidence that progress will continue. Our exemption requests are beginning to appear and we are extremely pleased to have a lower overall year-over-year tariff impact in 2020. Our overarching goal of being a customer-centric highly-efficient growth company drives everything we do and governs our plans for the future. Investments in digital will continue to engage and delight customers giving Polaris products another mean to differentiating themselves from the competition. Consolidating our electrification efforts will accelerate the process of delivering innovative profitable vehicles to win in a rapidly changing powersports environment, and with the continued emphasis on safety and quality coupled with design to value, we will deliver the product quality and margin expansion our customers and shareholders demand and deserve. The future remains bright and I am confident with our team and our strategy as we lead the powersports industry into a new decade. With that, I’ll turn it over to Garry to open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Greg Badishkanian with Citi. Please go ahead.

Great, thanks. You know, first question is just broadly speaking you’re expecting the powersports market to increase low-single digit in 2020. I’m just wondering what you're expecting from a sort of macro environment? And I have one follow-up to that.

Well, macro environment, you know, we still expect GDP is going to be in that 2 to 3 range and, you know, the Fed continues to be very aggressive and that tends to help, you know, markets and consumer sentiment as well. So, you know, we think the overall powersports industry remains healthy, but you know, we’re coming off a reasonably good year and we believe that that low-single digit growth is good for us and the industry.

Okay. And then, specifically on ATV because you saw a really nice improvement there in 4Q. It’s up like mid-single digit versus the trend of down mid-single digit, so maybe just talk a little bit about that segment and what led to the improvement there?

Yes. You know, we are still proud to be the Number 1 player in ATVs in the global market, but, you know, we did lose some share last year. It is the most price-sensitive part of the market that we plan, and you know, we probably took more risk there with our price increases last year, and I think throughout the year, we learned from that, we made adjustments and I think we exited the year feeling comfortable that we know how to be very competitive and still make good money in the ATV market. I mean in the Sportsman ATV, the innovation continues to be strong. We like that aspect of the business. It’s just – it's not growing at the same rate as side-by-sides, which is where we put a little more emphasis, but you know, we don't lose sight that we need to remain competitive in that price sensitive market.

Yes. Alright, thank you.

The next question is from Jaime Katz with Morningstar. Please go ahead.

Hi, good morning.

Good morning.

I think I heard you guys say that the pontoon industry was expected to be up low-single – at a low single-digit rate this quarter, but you guys have about flat for sales and I think MarineMax put out some pretty interesting numbers last week, so I’m curious if you can sort of reconcile the current cadence of demand with the slowing market share gains?

Yes, so we – I guess a couple of things, Jaime. One, the low-single digits for the pontoon was for all of 2020. Bennington continued to gain share last year, and as I said in my prepared remains, you know, we’re protecting dealer inventory. We think we’re in a good spot, but similar to what we’re doing with side-by-sides in the first quarter is we’re making sure that we’re not shipping ahead of schedule. You know, it’s to be seen in terms of how the weather will work out as we get into 2020, but you know, we think we’re going to position ourselves to be in a good spot with the dealers having the right level of inventory, and if the market ends up better, we’re in a position to be able to ratchet up if we need to, and if the market is not quite as good, we’ve got dealer inventory in a good spot.

Okay. And then, can you comment on what gives you guys some confidence that some of these issues in the Global adjacent market’s category begin to alleviate? I think there were a couple different factors you pointed to for weakness now because it looks like we have that or you guys have that picking up pretty significantly last year, and with respect to that, what are you seeing for the European products as far as demand is concerned things like Aixam and Goupil? Thanks.

I don't think we've underperformed nearly to the degree you're referring, Jaime, but I will tell you we’re – we’ve made good product moves and leadership moves in our Global adjacent market. You know, the fleet continues to do very well at Aixam, and you know, they’re continuing to do – take share in that duopoly, and you know, we feel good about the outlook for that business. Our GOUPiL business and their partnership with PicNic continues to serve us well and we’ve got good, you know, electric products continuing to flow into that market, and, you know, as we consolidated production of Jim and Taylor-Dunn last year, we started to see the benefits of that move later in the year. So, you know, obviously the Polaris government and military sales has – it's a bit of a lumpy business, but, you know, we like where we are positioned there. So, overall, Global Adjacent Markets is solid and got a good outlook.

Okay, next question.

The next question is from Craig Kennison with Robert W. Baird. Please go ahead.

Hi, good morning. Thanks for taking my question. I think well, the question is on RFM and I think you mentioned early in the call that you plan to lower stocking profiles. What motivated that decision to lower profiles?

You know we – as I also pointed out in the call, our turns are better than anybody else in the industry, so we're feeling good about that. What – part of our RFM plan is a regular ongoing dialogue with our dealers and I mean as we did that, we just realized they were certain models as we are improving our delivery performance that they don't need as much stock up. So, part of what you're seeing is just a reflection of how much better our delivery performance is getting, really nothing more than that.

And then, sort of on a related note, with respect to side-by-side market, maybe walk through the priorities for Steve Menneto as he takes over there? Is it product, is it dealer relations, supply chain market share, what’s the mandate there?

You know – I mean the mandate is pretty simple, market share gains and profitable growth, and I really don't know that there's anybody in the world that I have more confidence in to be able to deliver that in our off-road vehicle business. You know, Chris Musso did a nice job and I think Steve Menneto comes in with just tremendously relevant in experience and, you know, internally I call it a glass eating focus because I mean he really has a relentless focus on results. You saw that in Indian and already he's making a positive impact. So, I think really its retail execution market share gains and profitable growth is what we expect and, you know, I said in my prepared remarks, not only did Indian become a half billion dollars business pretty quickly, when he left the business, it had the highest customer satisfaction scores in the industries. So, I think dealer and customer satisfaction will also improve and just really the execution of our sales force, I think, you'll see a market improvement there.

Thank you.

I could go on.

The next question is from Scott Stember with C.L. King. Please go ahead.

Good morning and thanks for taking my questions.

Good morning.

Good morning.

Mike, just talking about first quarter guidance, did I hear correct that at the end of the day we’re talking about half of what we did in the first quarter of last year, and maybe if that was true, just walk through again some of the mechanics behind that.

Yes, so it’s probably just a little better than half. You know I think it really comes down to mix just playing a big factor. You know, we’re – essentially, it’s typically a pretty low quarter from a side-by-side shipment perspective and we’re dialling that back given what Scott referenced in terms of RFM, as well as just making sure that we protect were we see dealer inventory, but we are ramping pretty heavily from a motorcycle standpoint. You can imagine with the new slingshot out, as well as the success we’ve seen with Challenger that gives us a little bit of a mix challenge from a GP standpoint. And then, although we’re not increasing our operating expenses substantially year-over-year. The run rate we left Q4, when you add that to the mix headwind that we’re continuing with is really the challenge, but you know, look we’ll push the team hard to make sure that we, you know, drive that performance in Q1 and we think it’s going to position us really well given the work that Steve and team are doing around retail execution within ORV.

And last just on tariffs, it looks like you guys have had some good success with getting some exemptions and I think you said that there was some retroactives in there as well. Maybe just give us – can you give us a feeling for, you know, the level you think that still could come or benefits that could come next year?

Yes, we’ve made good progress. I'm really proud of the work that our team has done on all aspects tariff. You know remember it’s both mitigation and an exemption request and I think for most of the year, exemptions lag to the mitigation efforts. Towards the end of the year, you know, as I talked about on the third quarter call, we were starting to feel more confident and that is starting to flow through. Given how that part of the government works, I'm not about to guesstimate what else can happen from here, but we’re pleased with where we are now and we don't expect to get worse throughout the year, so that gives us a level of comfort going forward.

And, Scott, just – I mean just to put some of the numbers in perspective because we didn’t spend a lot of time in the call talking about it, you know, we ended 2019 with tariffs being around $90 million, so that’s – obviously came in lower than we were expecting. Part of that is, you know, we have lower volume in fourth quarter than we were originally anticipating, but given, you know, where Phase 1 deal is shaking out as well as the continued effort by the organization to push tariff mitigation, we were able to drive that number down. And then, as I reference in my prepared remarks, tariffs will be down slightly year-over-year and that includes the exemptions, as well as the recovery. The recovery processes is a bit cumbersome. We essentially have to gather up everything that we’ve paid, and then, essentially submit that customs. And so, we’re trying to figure out the exact timing of that. We’re assuming that the majority of that will happen in the first half in terms of the way we’ve got our guidance built, but as Scott indicated, the government can be a little bit fickle on this and the exemption process is still relatively new. So, we’ve got as much as we know built in there and I think the key message is that we’re managing what we can manage and we’ve driven the number down year-over-year.

Got it. That’s all I have, thanks.

The next question is from Robin Farley with UBS. Please go ahead.

Thanks, I was going to ask on the tariff situation as well and I know you got some exemptions late in the year, but it’s still obviously a significant amount of tariffs that you're paying. I guess how much longer would you be fine paying that $90 million a year before you would say, you know, let's move production to Mexico so that we’re competitively on the same ground that other manufacturers are?

Let me be clear, we’re not fine paying $90 million. I mean, we accepted and we can deal with it, and you know, the fact that it's not increasing year-over-year. It gives us, you know, operating leverage that we’re pleased with. You know, we are constantly evaluating where we manufacture and what makes sense for our customers and our employees and our shareholders, and I’d tell you right now what’s baked into our plan is that we will continue to assemble vehicles where they are, and you know, our expectation is, we’re going to see continued improvement in the tariffs environment, and you know, we’ll continue to evaluate if that doesn't become the case, but right now, we’ve got a reasonable plan baked in and I think, you know, 8% to 12% earnings guidance in spite of the significant tariffs is pretty darn good.

Okay. And then just one follow-up on the comments about Q1, just to clarify, you talked about the margin impact because of lower mix of side-by-side, but I just want to clarify is that – you're also talking about because of the RFM adjustment actual lower side-by-side unit shipments in Q1, right, not just lower mix, but actually, you know, in absolute terms, lower year-over-year as well, just want to clarify that because I think there was just some confusion about that. Thanks.

Yes, there would be lower side-by-side sales shipments.

Okay, thank you.

The next question is from Michael Swartz with SunTrust Robinson Humphrey. Please go ahead.

Hi, good morning guys. Mike, just clarification, I think in your statements you mentioned that maybe – just want to make sure I heard this right, in the quarter, side-by-side ASPs were up 10% or were you talking about overall ORV?

Overall ORV was up 10%, but it’s clearly being driven by side-by-sides.

Right, okay. Thank you it. And then, just with the 22% growth in core aftermarket sales this quarter, I may have missed it, what was behind that? And then, did you say what your outlook was for wholegood revenue growth for 2020 in ORV?

Yes, we didn't talk wholegood growth, you know, we obviously talked about what our segment sales margin growth is and we talked about the low-to-mid singles for ORV and obviously with PG&A being up that can give you a sense of the unit sales and probably towards the low-end. For aftermarket, the growth in the non-TAP portion was really driven by snow sales, snow related sales. We saw really good performance, you know, everywhere from the Midwest to the mountains, and so, that really drove, you know, the climb in 509 sales in that business. The piece that we didn’t mention is, you know, TAP was up, which was good. The retail side of TAP was up anywhere from mid-to-high single digits. And so, we continue to see really good performance there and more contraction more on the wholesale, which tends to be the lower margin side of the business, and you know, that’s more intentional than it is unintentional.

Okay, great. Thank you.

The next question is from James Hardiman with Wedbush Securities. Please go ahead.

Hi, good morning. I just wanted to make sure I understood a couple things that you’ve said. So, ORV [indiscernible] was up 10% in the quarter. Help me sort of connect the dots between that and ATVs were actually stronger than side-by-sides. It sounds like you're saying mix was a positive, but at least there that mix is a negative, so what’s the other type of mix that’s driving such a big ASP?

Well, yes, so I mean the thing you got to think through is we have at pretty high attachment rate from a PG&A standpoint. So, when you put that against the side-by-side versus an ATV, even with ATV having a stronger retail quarter, it just can’t move the needle.

Okay. And I guess bigger picture how do I think about that for 2020? You're basically telling us that at least in the first quarter side-by-sides are going to be down in terms of shipments. I'm assuming that won’t be the case for the year, but ultimately as I think about a low-single digit ORV number for the year, what’s – how do I think about ASP in that context?

Well I mean the ASP as I mentioned in my prepared remarks, will be positive, but it’s not going to be anywhere near as much. I mean, I think there was a pretty substantial mix calibration that happened within 2019. You know, if you have to remember that we came in pretty heavy with our factory choice around our Ranger product line up in North Star. Ranger has been incredibly successful. We don't expect that to change in terms of growth year-over-year. You’re just not going to get as much of a pop, and then, when you add into that that we had raised prices anywhere from 3% or 3.5% and we don't anticipate that being the case in 2020. In fact, we’ve taken some of the MSRPs down. It will be positive, but just nowhere near as much as we’ve seen so far.

Okay. And then…

And really the first quarter, James, is also is that reset, if you will, of dealer inventory, but we ended it plus 5, and, you know, I said that that’s the higher end of our comfort zone and we’re going to adjust the profiles. So, really, it’s positioning us for a much better last three quarters of the year. Don't read anything more into it than that.

Right. But you ultimately expect side-by-sides to continue to outpace ATVs for the year, right?

Forever.

Yes.

Forever. Okay. And then, just to clarify on the tariff question. So, if I'm hearing this right, you’re – the recovered tariffs that you paid in 2019 are included in the 2020 gross profit numbers in terms of the exemptions that you’ve already gotten. I'm assuming that that’s going to continue to be the case. So, as we move forward here, for every exemption that you get, let’s say you get another $50 million taken off, that’s going to be $100 million of gross margin benefit, is that how to think about things?

Well, I’m not going to comment on those numbers you just used because [indiscernible].

[Indiscernible].

But I’m going to notionally – notionally you’re correct. As we get exemptions, the way it works when we’re notified, our team goes through and takes a week or two to figure it out because it is not an easy process. There’s a lot of stipulations and parameters in there. Once we've identified that our components are exempt, we take an immediate revaluation in our inventory so that helps profit immediately for anything that we have inventoried as well shipping. And then, anything that we’ve paid to customs, that's when we start aggregating that up and we’ll put in an application, and then, we'll essentially get reimbursed for any of the tariff expense that we've had. It is a long and cumbersome process both in terms of gathering the paperwork as well as the filing and getting the cash. That's where we – you know we have very little experience. We’ve gotten some money recovered and it came in the form of a lot of different checks and a very long process. So, given how much money we’re talking about, as I mentioned in my script, just over $10 million, we’re going to be working aggressively to try and get that in as soon as we can.

Okay. It’s helpful. Thanks guys.

The next question is from Joe Altobello with Raymond James. Please go ahead.

Thanks. Hi guys. Good morning. So, first question on strategic sourcing, you guys have not quantified this in the past, but I’m curious about how much savings you’re expecting in 2020 and how much of a driver that’s going to be or is expected to be for margin expansion this year?

You know, like I said, the long-term outlook for that is still the highest productivity product we've ever had. The 2019 and 2020 numbers are significant, but it's not increasing much year-over-year. We exit 2020 with a very big and helpful number, but the process of getting there; it doesn't really ramp up until the second half of the year. So, you know, we’re – it's just unhelpful to get into quantifying the exact dollar amounts because then you start to compare it year-over-year what not, but it was a good number last year. It will be about the same amount this year, but exit on our ramping rate, that’s probably 3x what we’ll gain this year.

And I think, Joe, that the key component is we’re still heavy in the investment cycle and what I mean is that, as Scott indicated, the savings are on the right trajectory. We have a pretty heavy team internally that’s being dedicated to this as we work through wave 2 and there's obviously several waves of this, as well as the engineering work that’s associated with doing the validation around the initial parts that will go through that where we’re moving suppliers or changing the supply base. So, the encouraging thing is that the savings are on pace. It's encouraging that year-over-year, it’s adding to both gross profit and operating profit. And as Scott indicated, we start picking up momentum as we get into 2021.

Got it. Okay. And then just switching gears to the [Polaris' leadership] change back in December, I’m curious how it impacts, you know, your go-to-market strategy. I think Scott you sort of talking about this earlier, but it seems like the MSRP roll-back, for example, on razors was a part of that and I guess should we expect you guys to be more proactive on pricing promotion on the ground given that change going forward?

No. Remember what I talked about Steve backgrounds. His family owned a dealership. He ran sales, so his ability to listen to understand and then react and implement changes based on input from the field is unparallel. I mean, he’s just really, really good at it and – but he’s also really good at focusing on the bottom line. So, I think what happens is, you get a mix of listening to reacting to the dealer and the sales force, but also being very protective of what we do with margins. You know, Mike talked about one of the things we’re doing is actually decreasing ORV promotions a little bit and shifting some of that over to operating expense in marketing and brand messaging, and ultimately, Steve knows that if you drive that right brand awareness, you don't have to give us a way as much as on price. So, I think you’re going to see just overall excellent execution by the sales force and team and giving them better tools to compete.

Okay, great. Thank you, guys.

The next question is from David MacGregor with Longbow Research. Please go ahead.

Good morning. It’s Colton West on for David MacGregor. Thanks for taking my question. So, I guess just to start off, given the – some of the recent media coverage of the new slingshot, everyone seems excited for the new auto drive transmission and I'm sure you guys are too. Can you update us on the production and subsequent channel fill timeline for that new model?

Yes, we’re ramping up production now. I think, we’ll start shipping, you know, early part of March, and you know, I was at the reveal in Vegas and there's a lot of excitement about it and as there should be. It's a really refined excellent fun to drive vehicle and I think, you know, the team’s done a nice job and, you know, the dealers that I’ve talked to are really excited about it. We’ve got – you know we’re not betting the farm on this one. It's an aggressive plan, but certainly something we feel like is quite reasonable given the benefits of the product and the year-over-year comparisons as we’ve tried to, you know, exit the LE9 products throughout most of the year. So, we’re encouraged, but it really will be a second quarter play for us.

Okay, thanks. And then just a follow up speaking to the broader motorcycle category, the motorcycles were up – Indian motorcycles, excuse me, were up low-single digits driven by Challenger, so I guess the progress is going well there. Are you – can you say or give any detail on whether or not you believe you're taking share from other players in the heavy touring category despite it being a seasonally small quarter for motorcycles? And then, also are you seeing any signs of cannibalization of the Chieftain line following the Challenger intro?

Yes. Well, you remember it's a very, very low quarter, but as we said on the call, we did take share in the fourth quarter and we expect that to continue in 2020, but, yes, it – we first – we expected a little bit of cannibalization, but they're very different product. That fixed bearing liquid cooled engine, I mean it's a tremendous bike, but it's not for everyone, and I think there’s still a good partner portfolio for the Chieftain product and we expect Challenger, obviously, to outperform this year as it approaches a very large segment of the market that we hadn’t previously played in.

Okay. Thank you so much.

The next question is from Gerrick Johnson with BMO Capital Markets. Please go ahead.

Hi, good morning.

Good morning.

On your – good morning. On your retail page, you showed side-by-side retail, the growth is coming from Ranger in general and you didn’t call out [the Pro XP]. Wondering what the status of the Pro XP is, the rollout of the Pro XP and where it is and how much more you have to go and how it’s performing? Thank you.

Yes. Well, you know, the consumers that have bought the Pro XP absolutely love it. They see it for the excellent performance, the refined product that it is. You know, it did – as I mentioned in my prepared remarks, you know, we did – our model year 2020 is – were slightly below our ramp expectations, but improved in December, so I think the more our dealers, and you know, we’re able to tell people what the product is, the better they feel and I think you'll see us make some improvements in that razor lineup throughout the year that should be very helpful to us, but certainly as it was in the fourth quarter, you know, Ranger in general continue to be the key drivers of side-by-side growth, but, you know, we’re very optimistic about the razor portfolio as we move throughout the year.

Okay, great. And then – and lastly for me, litigation expense in 2019 that was behind your guidance and the guidance grows in 2020. So, what’s the outlook for litigation and when does that – you know that call out start to go down? Thank you.

Yes, I mean it’s tough to say. You know, we – it’s obviously public information in terms of some of the legal cases that we’re dealing with and we obviously don't comment directly on those, but I think the message is, we are putting the right money behind it. We’ve got the right team both internally and externally in place. We feel confident in our position and we’re going to defend organization that and that's – you know we’ll keep the street status as we work through that.

Okay, thank you.

The next question is from Tim Conder with Wells Fargo. Please go ahead.

Hi, gentlemen. Just a couple things, I want to circle back on the ATV, the 500CC and below, what – again it seems like you’re maybe shifting away from that segment of the market, is that the right interpretation to have or maybe just deemphasizing I guess is maybe a better way to put it? And then, from the supply chain perspective, some things in the news, unfortunately, I had asked the question here, but any impact from the coronavirus impact on the whole supply chain? I know, it's again – it’s only been a couple of weeks, but anything at this point that you’re hearing, seeing or concerned about?

Yes. It is not correct to assume that we are deemphasizing the 500 and below segment. It is – again as I said earlier, it's the most price sensitive part of the market and when we did our price increases last year that by definition took the biggest hit. So, we had some adjustments we needed to make and I think we feel comfortable with how we've navigated that. You know we’re working with our dealers to make sure that, you know, they’re competitive with that segment of the market. You know it's not going to drive profitable growth forever, but it's important for the brand and it's important for our dealers. So, we feel good about where we’re position there, but we’re certainly not walking away. It was just the early – actually the first three quarters of the year, the impact the price increases that hurt us more in that segment. The coronavirus is, you know, something we’re watching closely. We have limited our – actually stopped travel to China right now, while we sort through that. You know it's no secret that, you know, we have a strong team and business there and we do source some parts there and we don't see a disruption from that. It's really, you know, the restrictions that they have are more on people moving not parts moving, so we feel good about our supply chain being able to continue to function smoothly.

Okay. And then lastly, gentlemen, granted small quarter and so forth, and then the Challenger launch from that, but the motorcycle operating loss in the quarter, anything of note there beyond those points?

Yes, so it’s a couple of things, Tim. One tariffs, you know, we continue to have inbound tariffs, and then, you know, obviously with the ramp of Opole producing the retaliatory has started to come down, so that took a little bit of pressure off the fourth quarter. Really the issue was, as you well know, we’ve had a couple of recalls that were announced both on our Indian heavyweight, as well as the Slingshot in fourth quarter and the heavyweight recall extended to all heavyweights. It was an easy fix, a small fix, a quick fix, but it was still substantial in terms of dollars on a relatively small quarter of income.

And Mike, can you quantify just that collective recall expense in Q4?

Yes, we haven't provided that publically, Tim.

Okay, okay. Thank you.

The next question is from Joseph Spak with RBC Capital Markets. Please go ahead.

Thanks. Scott, I was wondering if you could just talk a little bit about the decision to create the SVP of electrification. Is that something driven by – something you’ve seen from the consumer or dealer portion, something you’ve seen maybe evolve with the technology? Or is it a response to maybe something you’ve seen from some competition?

It is absolutely not a response to anything. What it is, is just a reflection of what I've learned over the last decade in this. You know we've had a number of runs at the electric portfolio and, you know, if you think about the powersports industry and how it tends to lag, it’s a five to 10-year lag of automotive in almost every aspect. I mean, if you just think as what’s happened there, what’s happened here, and you know, we feel like there's a bit of an inflection point now not because what our competitors are doing, just from what our knowledge is about how we lag the auto industry, and, you know, so we’re looking at what we’ve got in the portfolio and it's not shabby. We have some very decent electric products in there and our Global Adjacent Markets has some good capability there, but if we look at the next, you know, three to five years, we know that we’re going to have to be much more competitive in our core powersports market, and, you know, Chris' experience to help us do that was just too good to pass up. So, you know, we’re already seeing, and, you know, just six weeks in the role, he’s making good progress and, you know, it’s going to take some investments, and we want to be really, really wise and smart as we go down that path, and you know, Chris is the perfect person to help us do that. But, you know, the Board is excited about it. I'm excited about it, and I was really clear in my remark, this is still about adding to our profitable growth. It's not about entering into a segment where we’re going to lose a bunch of money where a lot of other people have done.

Alright. And I know you mentioned you’ve got some interesting electric product there. maybe it’s early, but has Chris been able to sort of give a range of, you know, investment needed over the next three to five years in order to, you know, achieve that profitable growth?

He’s given us – or actually I mean he’s working very closely with, you know, Menetto and Dougherty and the rest of the team. We have some general ideas and it's kind of in line with other investments we’ve made. I don't think you'll see it be an outsized investment that spikes compared to other stuff we've done in the past.

Okay, thank you.

The next question is from Mark Smith with Lake Street Capital Markets. Please go ahead.

Hi, guys. First off, can you walk through or give us any breakdown on the Slingshot impact to the 2020 guidance within motorcycles?

Well, it’s obviously a big portion of the low-double digit growth that we indicated. You know, if you think about it, there's this whipsaw effect where we intentionally were bringing shipments down throughout 2019 as we were draining out the LE9, the prior power plant inventory and trying to get the channel set up for, you know, recharging it with the new auto drive Slingshot, our new Slingshot. And given the ASPs that we have on that, I mean if you look at, you know, the average retail in somewhere in the low 20 to high 20s. That gives you a good sense that, you know pushing that unit volume up year-over-year is obviously driving a decent portion of that. Now, it’s not all of it, you know challenger, we anticipate we will continue to have strong growth as we head into 2020 as will FTR.

Okay. And then last question from me. Just kind of broad based, Scott, as we look at the competitive environment, people continue to come out with good product and it is a competitive environment, how much of the future do you see really come in from, maybe not as much product, but kind of telling your story whether it be digital and how much that comes down to your new hires and helping kind of expand customer base and tell the story of who you are and what your products are?

You know Mark, one of the things that I still love about the Powersports industry is, how it’s just great for capitalist like me, I mean it is a very, very competitive market. And it always has been and I think it always will be and I like betting on our team to win the competitive battle over the long-term. I mean, it was not easy working through some of the recall issues we had and the tariff issues we’ve had, but I feel good and it’s going to be a less – there is not drama in our plan this year. It is a pretty straight forward year. I feel really good about our ability of the teams execute. Make no mistake, we still expect to win with product. I mean, whether I have said, 6 years ago, I told our team, we are not going to win with horsepower and travel suspension forever. So, it is one of those deals where we are going to make those investments and, I mean I think you are going to be thrilled when you see the products that come out this year across the portfolio, but what we expect Vic to do and his Chief Digital Officer role and Chris to do leading the electrification aspect, you know those are going to be key contributors and don’t underestimate what’s already happening with players adventures is we give people a different way of enjoying the players brands. So, I think across the portfolio you’re going see us better with customer engagement, better with safety and quality, better with our brands, but continuing to expect to win with product.

Great. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Richard Edwards for any closing remarks.

Thank you and I just want to thank everyone again for participating in the call this morning and we look forward to talking to you again after the first quarter. Thanks again. Good bye.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.