Polaris Inc. (PII) Q4 2020 Earnings Report, Transcript and Summary

Good morning and welcome to the Polaris Fourth Quarter and Full Year 2020 Earnings Call and Webcast. All participants will be in a listen-only mode. [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, sir.

Thank you, Chuck and good morning, everyone. Thank you for joining us for our 2020 fourth quarter 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. Mike Speetzen, our Interim Chief Executive Officer and Bob Mack, our Interim Chief Financial Officer, have remarks summarizing the quarter and the full year and our expectations for 2021, then we’ll 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 2019 10-K for additional details regarding these risks and uncertainties. All references to the fourth quarter and full year 2020 actual results and 2021 guidance are reported on an adjusted non-GAAP basis unless otherwise noted. Please refer to our Reg D reconciliation schedules at the end of this presentation for the GAAP to non-GAAP adjustments. Now, I will turn it over to our Interim CEO, Mike Speetzen. Mike?

Thanks, Richard. Good morning and thank you for joining us. I am pleased to be speaking with you today as Polaris' Interim CEO. Before we review the results for the fourth quarter and the full year 2020, let me say a few words about my current role. I first want to thank Scott Wine on behalf of the Board of Directors and the entire Polaris team for his leadership over the past 12-plus years. Through his tenure, he instilled a sense of enthusiasm and a commitment to excellence across the organization has put our company in an enviable position to drive growth and profitability going forward. And I'm thrilled to build on that momentum. Our Board of Directors continues to work diligently through the process. In the meantime, I appreciate the Board's competence in Bob Mack our Interim CFO and myself. Our performance in 2020 underscores the outstanding talent and dedication of our team, which will allow us to continue to win going forward. I'm excited and energized to lead the best team in Powersports to another successful year. To say that 2020 was an exceptionally unusual year would be an understatement. The company started the year with very aggressive goals, both financial and operational, and the first couple of months were trending on plan. Then the pandemic drove an abrupt shutdown of international commerce in March, sending shockwaves through the global economy. In response, we quickly implemented our recession playbook and work to ensure the liquidity of the company. The agility and dedication of our team was on full display as we navigated incredibly uncertain times. We temporarily closed factories, cut non-essential expenses and shuttered underperforming assets. Within a matter of weeks, our retail sales turned positive and have only accelerated from there. I want to, again, thank the Polaris team for how they stepped up and leaned in to support our dealers and customers and protect this great company during such a challenging time. While we didn't experience sales growth in every business this past year, the momentum coming out of the fourth quarter was positive. Our fourth quarter sales increased 24% and adjusted EPS was up in astonishing 83%. Strong retail and corresponding revenue growth drove full year sales of 4% topping $7 billion. And we leveraged this growth to adjusted earnings of 22% for the full year. Market share gains continued for our Motorcycle business. And I'm proud to report that our ORV business gain share in the fourth quarter as our production velocity improved and we leveraged the competitive advantage of our scale in our retail flow management system. While the data for Boats is preliminary with a limited number of states reporting, the initial read is encouraging as well. Our manufacturing output improved substantially during the quarter, but constraints from various suppliers persisted, which impacted our ability to meet delivery plans. Improvements will continue into the third quarter of this year, and it will likely take us most of the year to improve dealer inventory levels. And finally, PG&A, aftermarket, global adjacent markets and international, all posted strong year-over-year growth in the fourth quarter, despite ongoing challenges with supply and COVID related economic shutdowns. Fourth quarter North American retail sales were up 20% continuing the unprecedented levels of growth as consumers continue to turn the Powersports as a socially distance outdoor activity. With improved product availability, our ORV business gain market share in the fourth quarter, as the industry grew in the high 20% range. And then in Slingshot fourth quarter retail remains strong, finishing up nearly 40% and market share up four percentage points. Boat retail was also strong for all brands during the quarter and year, tracking essentially in line with the industry for the year, which was up high teens percent. Snowmobile sales were strong as well, with retail up in the mid 20% range season to date through December ahead of overall industry growth trends. We're confident that the growing interest in Powersports along with our expansive product lineup and innovative products will continue to drive strong performance into 2021 and beyond. Our RFM system provided us a competitive advantage as we were able to outperform the industry in terms of delivering much needed inventory to the dealers. Despite this performance, dealer inventory remained at historically low levels, as demand continued at unprecedented rates. North American dealer inventory was down 58% year-over-year, with all segments trending below ideal levels. While inventory remains at decade low levels, we improved on our delivery metrics sequentially as we ramped production and move product around the channel to minimize customer wait times. Maximizing retail sales and filling order backlog remains front and center in this unique pandemic environment, while concurrently working to ease dealer inventory pressures as quickly as feasible. Supplier constraints remain the bottleneck, and we were working all available options to ease the supply chain strain as quickly as possible. As we project out dealer inventory levels for 2021, we have a couple of dynamics occurring that are meaningful. First, given improved delivery processes enabled by our refined RFM system, we believe that our dealers can successfully operate below their historical inventory profile levels. Secondly, as supply chain constraints abate, dealer inventory levels should improve through the year, but we still believe 2021 will finish below optimal levels targeted under this refined RFM system. During the early days of the lockdowns, it quickly became apparent that many people were seeking ways for their families to enjoy the outdoors, which positioned us quite well. As you can see, we added a considerable number of new customers. This new diverse customer base through growth across our Powersports portfolio is increasingly invited their friends and families to the sport. And important fact for you to consider is that historically approximately 65% of our customer growth has come from new customers. Then past year, new accounted for just over 70% of our growth, representing roughly a 30% increase versus 2019. Our existing customers grew to mid single digit rate versus 2019, reflecting the strength of our install base. Our Polaris Adventures business has further evidence of this increased attraction of first-time customers, with Adventures completing over 270,000 rides in 2020, a 95% increase over 2019. These are customers that have the potential to become Polaris owners in the coming years. As we've said in the past, Polaris is not unique in realizing the new customer growth, but we are taking active steps to engage and cultivate these important additions to the Polaris family. We recently introduced Polaris Adventures Select, the first ever monthly subscription service for the Powersports industry. This is yet another great example of how Polaris leads in innovative approaches to attracting new customers to the business. Polaris Adventures Select is a membership program that offers access to the Polaris family of vehicles, including ORVs, Indian Motorcycles and Slingshots through a monthly fee. Members can tailor their program either by picking up a vehicle themselves, having it delivered directly to their home or booking an experience at one of our Polaris Adventures outfit. The rollout of this unique service is currently being piloted in the greener Phoenix, Arizona market. First, I want to thank our manufacturing, supply chain and logistics teams around the world. They executed at levels never seen before and did so in an environment fraught with risks and challenges. Their effort and dedication made all the difference in Q4. Unprecedented demand has put considerable pressure on our plants. You will recall that during the peak of the pandemic, we had to bring most of our plan that worked down for a period of time. And while our plants have been at full production for some time now, we have work to do to meet both the ongoing retail demand and replenish dealer -- depleted dealer inventory. We've been ramping factory output to the extent our supply chain will allow. However, as we indicated earlier, some of our suppliers are not yet capable of meeting the rapid demand spikes. Based on our retail demand expectations for 2020 and anticipated supply chain improvement plans, we are likely to be running our plants above ideal capacity levels throughout most of 2021. Given the anticipated continue strong retail demand for our products and the robustness of our future product plans, we will continue to look at all options for meeting demand and customer expectations. We continue to make strategic investments in manufacturing, sourcing, distribution, digital and customer engagement, but we remain a product company at heart. In 2020, we introduced over 120 new products across our portfolio and over 900 new accessories in our PG&A and aftermarket segment. With the investments we've made in research and development over the past several years, our innovation vitality index, which is defined as the percentage of sales from products introduced within the past three years, was a healthy 90% in 2020. The cadence of new product introductions will continue to accelerate in 2021, including vehicles and technology that will make owning and using our vehicles more fun, easier to use and more intuitive than ever. Just last week, we introduced two new ranger vehicles, the Ranger Big Game, and Waterfowl Additions, three new Razor trail models and a new Sportsman ATV, and trust that this is just the beginning of a full year of new product news in all categories, including a new Indian Motorcycle that celebrates the 100-year anniversary of the original Indian Chief by launching a brand new Chief on February 9th with shipments beginning the spring. I'm not going to steal Bob slender, but rest assured we have the company poise forget another record financial year, and I'm very optimistic about our future. My role is to ensure that our strategic, operational and financial priorities are clearly understood across the organization. First and foremost, maintaining the health and safety of our employees is our top priority. Second, delivering on our financial targets, both near term and the five-year strategic goals is critical. Third, bringing dealer inventory back in line with targeted RFM profiles as quickly as possible. And finally, executing on our strategic initiatives, including quality, supply chain transformation, digital, and electrification. I can assure you that our entire executive leadership team has the experience and dedication and are fully committed to executing on these priorities. I'll now turn it over to Bob Mack, who will summarize our fourth quarter and full year 2020 results and our expectations for 2021.

Thanks Mike and good morning, everyone. I'm excited to be joining Mike and leading the company and I look forward to working with all of you. I also want to reiterate Mike's comments earlier that this was an unprecedented year on a number of fronts. The team remained focused and drove record performance in 2020. The ongoing robust demand for our products has generated strong sales and earnings results. Our fourth quarter sales were up 24% on a GAAP and adjusted basis versus the prior year, with all segments growing sales and most growing double-digit percent. Volume growth was the main driver with average selling price up only about 3% during the quarter. Fourth quarter earnings per share on a GAAP basis was $3.15. Adjusted earnings per share was $3.34, up 83% from last year's fourth quarter, benefiting from a combination of increased volume, positive mix, lower promotional and flooring costs, partially offset by inefficiencies from freight and rework at the factories brought on by the supply chain challenges. Additionally, our fourth quarter operating expense leverage improved compared to last year's fourth quarter due to both continued prudent spending along with $12 million of stock compensation and reversal benefit related to the CEO departure. For the full year 2020, sales were up 4% on a GAAP and adjusted basis versus the prior year. All segments, except ORV, were down for the full year 2020 due to the impact of COVID-19 in Q1 and Q2 when the country, our business were impacted by the related economic shock in our factories, dealers and 4WP stores were closed for several weeks. Full year earnings per share on a GAAP basis was $1.99. Adjusted earnings per share was $7.74, well ahead of our expectations. As Mike indicated, the unprecedented growth in retail sales from new customers coming into the market and existing customer repurchases exceeded our optimistic assumptions as we moved through the year. Similar to the fourth quarter, the full year EPS benefited from a combination of increased volume, positive mix, lower promotional and flooring costs and operating expense containment, partly offset by inefficiencies from freight and rework at the factories, driven by the supply chain challenges. Adjusted gross profit margins increased 95 basis points for the fourth quarter, driven by favorable product mix, higher average selling prices due to lower promotions flooring costs, which was somewhat offset by logistics and plant inefficiencies. You can find more detail on gross profit margin performance for 2020 in the supplemental section of this presentation. Turning to our segment performance. All segments grew sales in the fourth quarter, driven by a combination of continued strong retail demand, new product introductions in the second half of the year and the significant order backlog at dealers. Reported fourth quarter segments sales were as follows: ORV and Snowmobile sales were up 29%. Motorcycle sales increased 23%. Global adjacent market sales were up 18%. Aftermarket sales were up 8% and our both segment sales increased a strong 20% on a GAAP and adjusted basis in Q4. Average selling prices were up for all segments for the fourth quarter, except for Motorcycles and Boats, which were both lower due to the mix of products sold in the quarter. On a full year basis, with the exception of ORV, all segments sales were down on a year-over-year basis due to the pandemic dynamics I described earlier. While ORV sales were down in the first and second quarter, the outstanding retail demand acceleration for our vehicles worldwide complimented by our ability to quickly restart the supply chain and manufacturing plants allowed us to overcome the slow start to finish up 9% for the year. International and PG&A sales, which were also strong, are embedded within each respective segment. International sales increased 24% in the fourth quarter, which includes approximately five percentage points of benefit from foreign currency rates. All regions grew sales double-digit percent for the quarter, as the vehicle supply improved. Full year International sales were up 1%, with Latin America and Asia-Pacific realizing sales growth. EMEA sales declined for the year due to vehicle supply constraints and sporadic COVID related shutdowns in various countries throughout the year. Our parts, garments and accessories sales increased 31% during the quarter and 19% for the full year. Turning now to 2021 guidance. With the strong momentum coming out of 2020, we are anticipating a record year for 2021. Our guidance for the full year 2021 is as follows: Total company adjusted sales are expected to be up in the range of 13% to 16% versus 2020. The 2021 sales growth includes the following assumptions. The overall North American Powersports market and Polaris retail sales are expected to decline from 2020, given the strong new customer growth we and the industry enjoyed most of last year. We anticipate the industry will be down high single digits for the year, with share gain trends continuing for Polaris into 2021. The pontoon industry is also expected to decline slightly on a year-over-year basis, with our pontoon business expected to return to share gains for the full year. While we expect full year 2021 retail to be down from the incredibly strong 2020 market versus 2019 levels, 2021 retail will still be up 15%, which I think gives you a good perspective on how strong our end markets remain. We anticipate average selling prices will be slightly positive in 2021, but less than 2020 as we mix more to the mid size and value oriented vehicles and boats, and expect promotional spending to increase from 2020 levels as the overall Powersports market begins to normalize in the back half of the year. Adjusted earnings per share for 2021 is expected to be in the range of $8.45 to $8.75 compared to the full year 2020 adjusted EPS of $7.74, an increase of 9% to 13%. However, our performance is better than our guidance suggests beginning with gross profit margins. We anticipate that gross profit margins will be up slightly on a year-over-year basis, driven by a number of pluses and minuses. On the plus side, our manufacturing plants are expected to have a smaller backlog of vehicles needing rework as supplier constraints begin to abate likely beginning in Q3. On the pricing side, beginning with the ORV product introductions announced two weeks ago, we are pricing for added features designed into our vehicles. In addition, savings from our supply chain initiative now in its third year are accelerating as we move into phase three of the program. On the negative side, tariffs are expected to be a larger detractor in 2021 at the rates in place today. Our tariff costs ended 2020 at approximately $60 million, which is net of one-time exemptions and refunds received last year. If nothing changes under the Biden administration, our total tariff costs are expected to increase by approximately $40 million, which factors in both volume increases and the lack of the exemptions and refunds received in 2020. The bulk of these tariffs are from the China 301 list one through four with a modest amount of retaliatory tariffs included. Also, as I mentioned earlier, we anticipate the promotional environment to start to normalize as we go through 2021, which will be a gross profit margin headwind. In total, if you were to exclude the impact of tariffs and supply chain disruptions, our gross profit margin rate would be approximately 200 basis points higher. We will continue to focus on mitigating these items as the year develops and the newest administration begins to address state policies. Adjusted operating expenses are expected to be about flat as a percentage of revenue with 2020. Remember, during the height of the pandemic last year, we canceled or postponed all non-essential expenditures and undertook employee related cost actions to reduce expenses and conserve cash. Given the significantly improved company performance expected in 2021, we have added back select operating expenses in certain strategic projects to remain competitive and continue to innovate in our respective market segments. The reinstatement of the previously postponed expenses and projects equates to about half of the mid-teens dollar increase in operating expenses in 2021. Income from financial services is expected to be down, given lower retail assumptions impacting our retail financing income, partially offset by an increase in wholesale financing income as dealer inventory levels increase throughout the year. Retail financing availability remains at acceptable levels. Interest expense is expected to decline about 20% in 2021 from lower debt levels as we modulate between debt reduction and share repurchase throughout the year. I will talk more about our 2021 capital allocation priorities shortly. The income tax rate is expected to be in the range of 23.5% to 24% for the full year 2021 as our rate reverts back to a more normalized level. Share count is expected to be up 1% in 2021, which is a combination of expected dilution from compensation plans offset somewhat by the reinstitution of share repurchases given our strong liquidity position. After first focusing on organic investment and returns to our investors via the dividend, our capital allocation plan pivots to our share buyback program, as we view our own stock as an attractive investment. Lastly, the currency rates for both the Euro and Canadian dollar, which have the largest currency impact to our financials, are assumed to be above 2020 average levels, which we anticipate will have a positive impact on results. We expect currency will be a tailwind to pretax profits of approximately $10 million. We have planned 2021, assuming the average Euro/U.S. dollar rate at $1.18 and the Canadian/U.S. dollar rate at $0.76. While currency rates have recently been trading above these, we are seeing a somewhat offsetting impact with the commodity markets. Given the unique events of 2020, the quarterly sales and earnings cadence was far from normal given the pandemic impact. Let me give you some clarity on how we see this year playing out, given those nuances. In a normal year, our first half/second half results are split approximately 40% and 60%, respectively. In 2020, that split was 20% for the first half and 80% for the second, given the pandemic impact on demand and production. For 2021, we are anticipating the first half/second half split to revert back to a more normal cadence of approximately 40%, 60% split. Looking a bit deeper into the first half of 2021, I'd also add that we anticipate the cadence of for EPS between Q1 and Q2 to also be more in the normal cadence range with Q1 EPS in the 40% range and Q2 about 60% of the first half of 2021 expectations. Sales in the first half are expected to be about evenly split between the first and second quarter on a percentage change basis. We expect sales increases in the second half will be weighted more towards the third quarter. Now moving onto our sales guidance by segment. We expect all segments to grow sales in 2021, as we drive to meet the ongoing strong demand and replenish dealer inventory levels. The expectations by segment are shown on the current slide. On a gross margin segment reporting basis, we expect all segments gross profit margins to be flat or slightly improve over 2020 on a comparable basis. See the supplemental section of this presentation for additional details around our gross profit margin expectations. Operating cash flow finished 2020 at $1.019 billion, a 55% increase over 2019 and a new milestone for Polaris of exceeding $1 billion in operating cash flow in a given year. We anticipate 2021 operating cash flow will be down from 2020 as we rebuild finished goods inventory to more acceptable levels. Let me summarize our capital deployment priorities and expectations for 2021. Capital expenditures are expected to increase from 2020 levels to approximately $250 million, which includes tooling required to support new product introductions, the supply chain transformation program and various strategic initiatives. Dividends remain a key priority for the company, with our 25-year track record of consistently increasing dividends to shareholders. And we expect to continue that trend for a 26th year. Our debt to total capital ratio of 56% is down from the 2020 ratio of 60% as anticipated. Our focus in 2020 was on cash preservation and debt reduction for obvious reasons. But in 2021, given our cash position and the outlook for the year, we will pivot to a combination of debt reduction and share repurchases given market conditions. Our long-term goal is to keep the share count at least flat, but we were out of the market in 2020 for the previously noted reasons. For the full year 2021, we are currently planning to spend approximately $250 million on share repurchases to help offset the dilutive impact of the stock compensation plans. We will adjust our thinking as market conditions dictate. With that, I will now turn it back over to Mike for some final thoughts.

Thanks Bob. 2020 is now behind us, but the impact of the pandemic is far from over. We expect the overall economic outlook will be tenuous as the country resets from the events of 2020 COVID-19 social unrest, contentious elections, new leadership in Washington DC, and the list goes on. However, the company has never been positioned better with innovative products, leading technologies, state-of-the-art plants and the best team in Powersports to lead us through 2021. While we anticipate the North American retail demand profile to moderate from the 25% growth realized in 2020, we expect a continued healthy retail environment driven by new customers and the demand for our core Powersports consumers. Also, as we've demonstrated this year and throughout our history, we have plans in place to rapidly respond to changing demand signals. For 2021 our path is clear. Continue to keep our employees safe, work relentlessly to improve supply chain, to meet demand and replenish dealer inventory, and continue to focus on our strategic priorities, delivering high quality vehicles, leveraging our strategic sourcing initiative, amplifying our digital offerings and preparing for the foreseeable shift to more electrified vehicles. With that, I'll turn it over to Chuck to open the line for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Robin Farley with UBS. Please. Go ahead.

Great. Thanks. Obviously, great results and guidance. Just looking at the guidance for 2021 and you addressed some of this in how 2020 was kind of an unusual split, it looks like, if my math is right, that your implied guidance is actually an acceleration in the second half growth rate versus the first half growth rate. If you compare it to 2019, like a normalized year, that there's an acceleration actually in the second half. And I guess, I still though would like to think about upside. So, the question is, how much potential is there, if you -- if supply constraints were able to be fixed sooner, if you could sort of think about what range potentially could be in terms of upside there. And then also, even though your guidance already implies this acceleration in the second half, how much of the $40 million of incremental tariff is actually falling in the second half, right? In other words, I'm wondering if your underlying guidance, if it weren't for tariffs, we'd love to kind of be able to see what the acceleration implied in your guidance is if it weren't for the tariffs. So, is the $40 million all a second half, or is that spread out from your lot -- look like a lot of it may be in the second half. Thanks.

Well, Robin, let me address the question around the acceleration. Certainly, from a production standpoint, we're doing everything we can to accelerate. I mean, you can see from the chart around capacity utilization, things are getting better as we go. And part of that is, we're relieving a fair amount of the -- starting with parts in Q2 and then really our vehicles in Q3. That's when we anticipate we're leaving the bulk of the supply chain constraints, and then we'll be off and running. As you can see on the chart, we actually fall below the utilization. And as Bob indicated in his prepared remarks, we've got an expectation that retail's down. I can tell you that for January retail is running stronger than we expected. And so to the extent that retail holds up at a higher level, we can obviously pivot later in the year to be in a position to produce. The other thing I'd point out -- I made this comment in my prepared remarks -- even though our dealers are more capable now, given our enhancements to RFM to operate at lower dealer inventory levels and say they were in 2019 or 2018, we still anticipate being short of where they need to be by the end of the year. So there's still going to be factory -- or I'm sorry -- channel filled. It's going to have to happen as we get into 2022 predicated on the forecast we have for retail. So, certainly, if things end up playing out better from retail standpoint, we've got a little bit of flexibility in the back half to work through that and enhance delivery. And we're going to continue to keep an eye on that. We planned, I would say, relatively conservative in terms of that back half from a retail expectation standpoint, just given how strong retail performance was starting in Q2. And there's just a lot of unknowns in terms of how long will the COVID shutdowns and sputtering starts go on for. And so, we'll keep an eye on that. What I would say is from a supply chain management standpoint, the team has done an excellent job. I mean, you think about the fourth quarter, we were able to gain share and we were facing a lot of these same constraints. And while we weren't able to get as much inventory into the channel as the dealers would have liked, relative to our competitors we did a much better job. Bob, do you want to handle the tariff question?

Sure. So, Robin, to think about tariffs, the bulk of the tariff impact will happen in the first half of the year, because that's when we received a lot of the refunds and exemptions from last year. So that moderates in the second half, that's offset somewhat by promo and flooring, which kind of are the opposite. In the first half, promo and flooring are a bit of a tailwind given the strong retail environment. And then we see the Powersports markets returning more to normal in the second half. So then promo becomes a headwind as you look versus 2020.

Okay. Great. Thanks very much.

Thank you.

Our next question will come from James Hardiman with Wedbush Securities. Please, go ahead.

Hey, good morning. Sounds like the CEO stuff, isn't that hard? Hi, Mike. God, great quarter here.

Thanks.

So, as I think about this guide, and I know you guys don't -- or have never given really sort of quarterly retail guidance. But just maybe order of magnitude is I think about this high single digit Powersports industry decline for the year, can you help get us on the same page in terms of what that looks like over the course of the year? Obviously, in the second quarter, you're going to be comping this monster 60% ORV number. I would assume that the assumption is that we're down, I don't know, 30%, 40%, 50% in the second quarter. But maybe just -- it'd be just corral us so that we're on the same page and we don't have any massive surprises as we work our way through the year from a retail perspective.

Yeah. James, I think you're thinking about it the right way. I mean, if you look at the slide number five we had in the deck where we show the quarterly profile, I mean, retail was down 8% Q1 up 57%. I think that's probably going to be the most exaggerated year-over-year comps. And then, clearly, with an assumption that we're going to be down high single digits for the year comping 15% and 20%, we're going to be likely down in Q3 and Q4. But I think the more dramatic shifts is Q1 would likely be up this year and in Q2 would obviously be down probably pretty significantly just given a pretty high comp and then things will start to level out from there.

Got it. And then, I wanted to circle back to the capacity utilization slide, which seems to be conveying an awful lot of information. Just want to make sure I'm looking at this right. I guess, first off, it sort of looks like the first half -- just eyeballing, it looks like it's up a lot more than 30%. Maybe I shouldn't be translating that into sort of sales. But then, to the previous point about the fourth quarter production being down year-over-year and sequentially, I guess, why would that be the case given the fact that you still don't expect inventories in the channel to be back to where you liked them to be by the end the year? And I know you said you're leaving yourself some room in the back half, but I guess, even in this base case scenario, it almost seems like you would want to improve inventories once you get into the off season next year.

I mean, I think you hit on it, James. We're trying to play this careful, because we're going to keep a watchful eye as retail continues to play out. You're right. I mean, when you look at the first half of the chart, I mean, when you look at the additional capacity, we need to be able to meet demand in the spikes that we've got in our production. We're doing everything we can. And we're only as good as what we've seen in terms of -- we still continue to have a number of suppliers who are behind schedule. The port situation quite frankly is actually getting worse by the day, not better. And so we know that we're going to be fighting that. And then you just have an overall backdrop. I think you've probably heard this from many other companies in terms of absenteeism rates that hit into the 20% range, which makes it incredibly difficult from a factory management perspective. And the team is doing everything we can. I think if retail ends up playing out a little bit better than we're expecting, you can certainly expect to see that fourth quarter bar moving in a much different direction. But for now we've got time to think through that. And we also want to be mindful of A, getting enough inventory into the dealer channel, but we also want to not put ourselves in a position where we're outpacing retail and get the dealers into a tough spot come 2022.

Makes a lot of sense. Thanks, Mike.

You bet.

Our next question will come from Brett Andress with KeyBanc Capital Markets. Please go ahead.

Hey. Good morning. Congrats on the interim roles. Following up on James's question under the plan or the guidance that you laid out, I mean, where do you think dealer inventories would be at the end of 2021? Just to kind of frame up the 2022 channel fill. And then any more color on what level January retail is running at so far this month.

Yeah. So, dealer inventory will be up versus where we finished 2020. We're probably right now going to be 20% to 30% shy of the dealer inventory levels that we would like to have in the channel. Obviously that has a lot of variables, right? It's the cadence of retail. It's our cadence of production. So, that -- you got to be careful with that number. And certainly, we'll continue to monitor that and drive to improve the level of performance. What we've seen so far with January is, is substantially better than we were expecting, but I would just caution you, January is always the smallest month we have. We do know that a number of you go out and do surveys of the dealer network and we do our own survey work. And the interesting point is, is that January usually has a very low foot traffic time for the dealers and they've actually reported that's not the case. So, I don't think it's a surprise. I think people were anticipating that the current pandemic environment and the stay-at-home orders and the real pivot to wanting to be outside is probably going to continue into the foreseeable future just in light of a slower than anticipated vaccine rollout and just given the current state of the economy.

Got it. Okay. And then just one quick one here just. How were you thinking about the new product launches? So, 2020, obviously unique year, 2021 probably going to be just as unique. I mean, but do you plan to stick to the usual July launches for ORV, or has all this caused you to maybe rethink when and how you put new products into the market?

I think as we've demonstrated, I mean, we -- as I mentioned in my prepared remarks, we just launched a couple of new Ranger models and the completely refreshed trail lineup, which -- I mean, they look great for the Razor. I think we've seen that having a cadence that gets information out when it's ready, probably works a lot better than trying to wait to do everything in July. And as I said in my prepared remarks, we got a lot of great stuff coming and we're really excited about it.

Thank you.

Our next question will come from Scott Stember with C.L. King. Please go ahead.

Good morning and congrats on a great quarter guys.

Thanks.

Thanks.

Mike, maybe just to frame things out a little bit or even more from a demand standpoint and versus your capacity. If somebody was to walk into an ORV dealer right now one of yours to buy a Razor or a hot selling Razor, what's the lead time to actually get it right now. We talked about being able to get it in a reasonable amount of time within the season. And how will that improve as the year progresses with your capacity plans?

Well, I'll answer the second part. It's going to improve substantially, but I would tell you is Steve Menneto and his team have done a really outstanding job of working that specific issue. And they've done it through a couple of different things. One, we've gotten -- I would say we've made it a core competency in terms of being able to identify inventory in different pockets and be able to move it between dealers to ensure that the dealer can make the sale. The other thing is, is that we have increased our pre-sold vehicles. So, vehicles coming out of the factory essentially six fold from what we had historically been doing. And so what that does is that enables the dealer to capture the sale and give the visibility to the customer of when that Razor's going to show up a Ranger whatever product they're looking for. So, I didn't answer it generically, because it's tough to just throw a number out, but it's longer than we would like, but at the same time, I think the team's managing incredibly well. And I think, we're -- as evidenced by the fourth quarter where we were facing a fair amount of demand and a lot of constriction in the dealer inventory levels. We were in a better position than many of our customers or competitors.

My last question, in aftermarket, obviously the stuff that's tied to your unit sales, certainly killing it. But TAP still seems to be about flattish. I know you've been discontinuing, I guess, some lower margin sales there. Is that still going on? And maybe we just parse things out about how things -- how we should look at TAP for 2021.

Yeah. I'd say a couple things. One, TAP guys, obviously, severely impacted much more than our Powersports business in the first half, and we've seen a steady improvement over the course of the back half of the year. The -- your question around exiting some of the non -- unprofitable parts of the business, I think we're largely done with that, but that certainly impacted 2020's revenue. What I would say is on our retail side, whether that be in the e-commerce channel or through our four wheel parts retail stores, we actually saw single digit growth rate here in the back half. And we're encouraged with that. And we think that those levels of performance are going to continue into 2021. Craig and the team have done a lot of work to restructure that business. And we feel like it's poised for much better performance in 2021.

Great. that’s all I have. Thanks, guys.

Thank you.

Our next question will come from Joe Altobello with Raymond James. Please go ahead.

Thanks. Hey, guys. Good morning.

Good morning.

First question, just want to discuss some of the efforts that you guys are making with your suppliers to ease some of these constraints given that most of the issue or most of the bottleneck is really out of your control.

Yeah. We've actually tried to take control where we can. I can tell you that we've had a couple of suppliers where we've actually jettisoned our team in either to be on site or to -- from a virtual perspective help manage the facility. We've also made investments, financial support where we've had suppliers that either couldn't afford to make the investment they needed to keep up with capacity or just needed help in the near term, given the substantial ramp. And then, we're doing a lot of work around prioritizing whether that's making sure that we have people at the ports, making sure we're prioritizing as the containers come off or working with the logistics providers that we have to make sure that we get prioritized. I mean, thankfully -- and I'll give a shameless plug for the supply chain work that we've been doing. Thankfully we were about 35% to 40% of our way through that. And the reason that's important is the familiarity we have with our customers, including our logistics provider was so much better than it was before. We started that project. And given everything that's going on, being able to leverage those relationships is incredibly important. And I can tell you the team is managing it every day. The other way we're working around it from a manufacturing standpoint is, we're producing vehicles that may be missing one or two components. And then we have the teams go back in and rework that in a very careful manner. And so, we're finding every avenue we can to keep the cadence and the tempo up and that team is executing at a level that is far beyond our expectations right now.

And just to follow-up on that. How are you feeling versus competitors? Are you guys able to leverage your scale to sort of get in front of the line, so to speak?

Yeah. I mean, I think four quarter speaks to it. I think part of our share loss issues earlier in the year was -- we had forcefully been pushing our dealer inventory levels down and when the pandemic hit, we had a number of our competitors that had bloated inventories. And I think that they were able to bleed those off and it played to their advantage when we were essentially trying to recover from lower inventory levels and manufacturing they'd been shutdown. The fourth quarter is probably one of the best comparison points. It was kind of even level playing field. And I think everything from the competency we have in supply chain and logistics and manufacturing to the work Steve Menneto was doing with what I think is the best dealer network out there to make sure that we were pulling on every lever we could. And I think the results speak for themselves.

Great. Thanks guys. Appreciate it.

Our next question will come from Greg Badishkanian with Wolfe Research. Please go ahead.

Hey, guys. It's actually Fred Wightman for Greg. Mike, could I just follow-up on that last comment. You guys are guiding to gain share for the year. Are we in a situation where product is really driving share in retail, or is it really still whatever's on the dealer lot is what's selling. And if that is sort of the second case scenario, could we see some volatility on the market share side from quarter to quarter? Or do you think that we'll see four quarters of market share gains here?

Yeah. I mean, I guess the way I would characterize it is there's probably for the next quarter or two there, there's certainly going to be a component of availability. But I would argue that with the innovation that we've announced and that we have coming, that is certainly going to drive a significant amount of demand. And I think it's demand -- consumers are going to be willing to wait for. I do think that relative to the competitive set, we're in a really strong position. We're able to prioritize and get the production into the channel. We're working hand in hand with our dealers to make sure that we're prioritizing the products and we're very confident that we'll be in a good spot. It's tough to say from a market share standpoint. I think overall, yes. We are targeting to continue to gain in Motorcycles and gain in Off-Road vehicles. Giving a view by quarter is a tough one, because we don't know what's laying in front of us. You can have a supplier issue. You could have certain shutdowns in certain regions. At this point, Steve and the team are pushing to gain share. I can tell you that coming out of the gates in January. They've got very strong performance on that front. And we like to play from a position of offense versus defense. So, we're going to do everything we can to keep that momentum up.

Makes sense. And then could you guys just touch quickly on the ag market outlook for 2021? It looks like crop prices are much stronger than they have been in a long time, but can you just give us an update on where that is in terms of percentage per mix within ORV? How exposed do you feel like you guys are to that and what sort of tailwinds we could be thinking about this year?

Yeah. I think our ag mix is around 11% of revenue, give or take. Strong growth last year. We see big opportunity. Steve and the team are heavily focused. Texas is one of our largest opportunities. It is our largest market for the company and specifically around Ranger. And I think when you look at the product and you look at the introduction that we had this year, you know that -- they're using those vehicles not only on their property, but they're also using them to recreate. And so when we announced things like the Big Game and the Waterfowl Edition, those are really aimed at the heart of the market. And we're confident with the innovation that we've got in that business that we're going to do quite well this year.

Great. Thank you.

The next question will come from Craig Kennison with Baird. Please go ahead.

Hey, good morning and thanks, and congratulations Mike and Bob on your new roles. First question is on RFM. I'm just wondering, are you setting RFM parameters in the same way you did pre-pandemic? Or you think you might be able to run with lower structural inventory in ways that might protect dealer profitability and make your dealer network stronger?

Yeah. Craig, I'd actually made a couple of statements in my prepared remarks because I wanted to try and get that out there. So, I'm glad you asked. Yeah. We have recognized through this process that there are ways for us to be better at how we deliver. And so, we are targeting inventory levels that are below say where we were in 2019. And if you think relative to where we were back say in 2015 or 2016, that's a -- it's a pretty improvement. Because what we had targeted back in the 2018/2019 timeframe was much improved over 2015. So, it comes back to the agility we've got in our supply chain. I think a lot of the work we're doing around getting vehicles essentially pre-sold so that gives you better demand identification. I think the work that Steve Menneto and his team are doing, we've got much better linkage in terms of how we're coming up with demand forecast, this feedback we're getting out of the salesforce and working with the dealer. I think all those pieces are coming together to put us in a position to be able to run the business and run the dealers with a leaner level of inventory. All that said, as we're looking at it for 2021, we're still not even going to be able to get to those levels unless some of these suppliers issues abate faster. And it also hinges on what happens with retail.

Thanks for that. And then maybe a bigger picture question on inflation. Just given the excess liquidity and the overall economy and the way things have played out, how has your business set up to handle inflation?

It's a good question. I think we've planned for what we can see. I think Bob made the comments that we planned our foreign exchange rates a little bit conservative knowing that the typical offset is commodities and quite frankly, we're seeing that play out. I wouldn't say perfectly, but pretty close. I think from a pricing standpoint, certainly, we've built in as Bob indicated more promotional costs in the back half of the year recognizing that we and our competitors are going to get better in terms of getting inventory into the channel. And as inventory improves, that puts more competitive pressure into the marketplace. And I think from a wage and labor standpoint, we -- as we always do, we've got a pretty good process to make sure we capture that. So, I think we have everything in. Tariffs is the big question is the big question mark for us in terms of the major year-over-year cost increase. And we're optimistic. We're obviously working every angle we can with the new administration, recognizing that they've only had feet on the ground now for little over a week or so. And the good news is that the USTR nominee Katherine Tai is -- she's tough on China. So, I don't suspect we're going to see any change in stance. And certainly that hasn't been the rhetoric coming out of the administration. But they are on the record suggesting that the tariff approach hasn't been the most optimal. And so, I don't expect things to change overnight, but we're going to keep a close eye on that. We're not going to wait. We're obviously off advocating for ourselves as we did over the past couple of years. But that would probably be the biggest area of opportunity in terms of what I look at as year-over-year cost increase.

Great. Hey, thank you.

Thank you.

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

Hey, good morning. Thank you. I just want to touch on the …

Hi, Gerrick.

Hi, guys. I just want to touch on the tariff question a little bit more closely. What is your ability or say probability to get those exemptions back, or is that the share?

I think our general counsel would say zero because there is no process. Obviously, as we're advocating for ourselves, we're pushing on every angle we can. But at this point there is no process. And so, I'd have to assign a very low to no probability around that. I think, we've got a really good case. And so, we're continuing to plead that with the administration. I think they're going to be willing to listen to that, but I'm hopeful that maybe they'll take a different approach. They've been on the record talking about the negative impacts that tariffs have had on U.S. employment and given their mandate I think they're going to listen to that.

Gerrick, I think the other thing to keep in mind is that we've obviously done -- the team's done a great job of working hard to mitigate the tariffs as much as they can from a sourcing perspective. And obviously, we'll keep that effort up as we move into 2021.

Okay. Great. And then on your capacity constraints or your supplier constraints, I should say, is it more oriented towards a specific line or a specific a facility?

I would say it's more oriented towards our Off-Road vehicles. And that's not to say that Boats and Motorcycles don't have their own set of issues, but I think it's compounded with the number of parts that come together to make an Off-Road vehicle as well as just the diversity of the supply base that and the size of that business that really created a lot of the complexity.

Okay. So, it doesn't matter if it's Mexico or Alabama, you just -- you're getting the supply constraints in either facility.

No. I'd say the geographies probably more based on the COVID dynamics and how that's impacting absenteeism and things like that. But the supply issues are pretty common amongst all.

I think the only geographic dynamic would be that the Boats business has a much more local supply chain than the rest of the -- rest of our operations. So that one is less impacted by outside the U.S. activities.

Okay. I don't know if I'm allowed three questions, but I'll try anyway. Your confidence in Motorcycle. So your inventory is only down 2% in the channel, how is going to be shipping again this year? So what's your -- why are you so confident that you're going to grow high 20% range?

Well, I mean, I think there's a couple of things. One, the innovation that we've got -- our Slingshot business is doing really well. The auto, manual -- automated manual transmission is a homerun, not to oversell it. We've got new product coming out. As I teed up in my script, the release that will start. In fact, there was a teaser out on Instagram yesterday. we're confident that's going to do well and then continued success with challenger and the scout lineup. Quite frankly, we think is going to be as well. And that's been a business that really has seen great success. We think the competitive setup works well for us in terms of -- our major competitor having reduced the number of models they have. They've increased the price on their entry bike. And we think the setup is really good for us going into the year.

Okay. Next question.

And our next question -- our next question will come from Joseph Spak with RBC Capital Markets. Please go ahead.

Thanks Mike. Just on capacity and I guess, you talk about retail down high single digits here. If we think about you exiting this year, is that I guess absolute level of demand? What you think you're properly capacitized for recognizing that getting the dealer inventories will still take a little bit longer. But the reason I ask is because you mentioned you added 600,000 new customers and assuming you can keep a good portion of those over the years to come like, can you actually meet that future demand with your current capacity?

Yeah. I'd say a couple things. And remember when we talk about the new customers that's across the entire company, and that includes things like Polaris Adventures, which obviously doesn't put necessarily a direct demand. It obviously does because we need more vehicles in the network to support it. It is a good question. And it's why in my prepared remarks I made the comment that we're going to continue to assess it. Ken has an organization that is continually looking at our network and making sure that we're optimizing it. Given the increase in demand and where we see things going, we don't think things are going to slow down into 2022 and beyond. We're going to continue to evaluate that. And we'll probably have a better perspective come the middle of the year.

Okay. And then just second, went there early and I realized, this is a sensitive question, Mike, so sorry for putting on the spot. But do you want to be CEO if the Board decides that way, is your hat in the ring, so to speak?

Well, look, the -- as I mentioned the Board's got a lot of work in front of them and a big decision to make. I love the company. I love the role, and certainly would be thrilled to have that opportunity. But at the end of the day, the company and the Board has to make the decision that's right for the current times.

Thank you very much.

Yeah.

Our next question will come from David MacGregor with Longbow Research. Please go ahead.

Yeah. Good morning, everyone and congratulations on really strong quarter. I guess I wanted to talk about gross margins. And in your appendix to the slide deck you present each your categories and Motorcycles clearly stands out as the -- sort of the anomaly. You in response to a previous question sort of walk through the individual successes that you've been able to achieve there, particularly on the automotive -- automatic transmission for Slingshot, which has been a huge homerun. But I guess, the question with regard to Motorcycle gross margins is just what's realistically achievable in the way of upside here over the next one to two years. And can you just talk about kind of the drivers behind that?

Yeah. So, obviously, Motorcycles is a business we've been building for several years and have really been focusing on driving improvements in those gross margins. Mike Dougherty and the team are very focused in both launching new bikes and obviously profitability improvement. We expect those to improve in 2021. And I think long-term, we see those getting closer to company average, so closer to the 20% range. But that's going to depend on how new products rollout in the cadence of that volume growth.

Is it more a function of product growth or is it product mix or just trying to get a greater sense of just the path to those 20% kind of numbers?

Sure. It's a mix of both. I mean, obviously, the volume helps on the leverage through the factories and with suppliers, but also mix challenger is a positive, and as that continues to build out the heavyweight segment tends to have higher margins. But also the mid-sized segment grows a little faster. So that creates a bit of a headwind right now. So, it's a mix of both.

And I'd also add David that we've talked about the PG&A level for the business as blow, where many competitors are and they've -- we've made a lot of great inroads over the last year and obviously that'll help out from a profitability. The volume level going through the factory certainly helps. And there's a lot of work being done around design to value as we look forward on the product. And so, it's not any one thing. It's all those things coming together. And I think Mike and the team have a great plan and understand the importance. We've spent a lot of capital getting that business setup, getting the products into the market, gaining share, setting up world-class distribution. Now, it's about scaling that and improving profitability.

Great. Okay. Thanks for that. Second question is just on Polaris Adventures. I guess, just how significant is this in the future plans for growth in revenues and profitability? Is this a standalone sort of profit center that you see developing? Or is it more just kind of a means of creating a segway for consumers into your existing product offering and ownership?

Well, I think it's both. I mean, the priority right now -- although I will tell you that Adventures actually made money this past year. The priority is really to take advantage of the opportunity we have. And if you look at the fact that we've got over 160 locations and that's growing rapidly and the number of customers that are touching our product, and again, these are relatively new products. So, they're getting exposed to the best that we have. And we know that we're able to convert customers. And we've done that with probably very minimal effort to end up buying product. And as I mentioned in my prepared remarks, we've now moved that -- I've always characterize it as we have everything from buying. We have buying a product and renting, and there's a big space in between. And Adventures Select which we're piloting down in Arizona right now, affords kind of a little bit better model where they're not just going and running a product. They've actually got ownership or membership in the company. And it gives them the ability to get access to different products depending on the time of year. And they can tailor that to meet the needs that they have. And again, this is all about how do we bring more customers in to Polaris because the one thing we know is that there's a stickiness and customers tend to trade up and this becomes an integral part of their family architecture, if you will. And so, Polaris Adventures becomes an incredible entry point for customers who may not be at a stage of life where they can afford our product or have the property or space to store it, but may in the future. So, a little bit of a long-winded answer to it, but a little bit of both.

Our next question will come from Jamie Katz with Morningstar. Please go ahead.

Hi. Good morning. I guess another way to ask that question is what do you think the total addressable market of that Adventures Select offering is? How many consumers would you try to reach as you scaled that across the U.S.?

Well, I mean, look, it's substantially own. We went after Adventures -- we looked at not -- what it's interesting is because of these models, we're not just looking at the Powersports market, we're now looking at travel and tourism and vacation because you're now competing with those same dollars. So, you're talking tens of billions of dollars in potential opportunity out there to be able to draw a consumer. And they're not going to be outlaying tens of thousands of dollars. They're going to be outlaying $100 or $200 a month to have access to an incredible vehicle. And so, from our standpoint that becomes very attractive, not only in being able to bring them in, but the future potential that -- they get to a point that they want to stop either renting or having a subscription and eventually own a vehicle.

Okay. And can you talk a little bit about working capital intensity? It looks like payables went up pretty significantly at the end of the year. And I'm wondering if the working capital demands are going to remain similar or maybe go up again.

Sure. So, we had a really good year from a working capital standpoint. As you noticed, payables were pretty heavy at the end of the year. And that's primarily from the switch in mix of inventory from lower finished goods and higher raw materials as we look to rebuild. So, as we think about 2021, working capital will go up as we continue to refill finished goods inventory and build that through the course of the year.

Our next question will come from Billy Kovanis with Morgan Stanley. Please go ahead.

Thanks and congrats on a strong result. As we look ahead here, can you give us a view on what levers you have as a company to grow revenues organically in a more steady state period post COVID such as 2022 when inventory is normalized? I think you alluded to a few of these growth drivers in your opening remarks, such as tapping into international, looking at the customer expansion, new technologies that you could summarize, it will be very helpful. Thanks, guys.

Yeah. I mean, you actually did a good job of teeing it up. I mean, I think, one, with the growth in new customers, right, it opens the aperture in terms of folks that not only would be in repurchase or an upgrade cycle. But the one thing we do know from our new customers that come in is that they're very enthusiastic and they tend to bring family and friends in. And I think we've seen that playing out through the course of this year. I think the other -- the second is around innovation. We've -- we're known for innovating and you look at the number of products that we brought out this past year. 2021 is set up to be a similar year of strong innovation in new products and continuing to hit segments that maybe we don't currently have products in. So, I think there's tremendous opportunity there. I think the third is the offerings that we have outside of the vehicles. So, when you look at our aftermarket and you look at our PG&A, the number of accessories we have, and obviously, we have people who have vehicles that may only be a year or two old by the time you get to 2022, but we've got plenty of options for them to continue to customize and make those vehicles unique. And then also as you pointed out the geographic opportunities, we had parts of Europe that although they rebounded in the second half. We're still down year-over-year. And so, we do think from a geographic standpoint and what I would say is a far more targeted international growth strategy that Mike Dougherty is put in place over the past several years. I think, we're poised to really take advantage of that.

Great. Thank you.

Thank you.

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

Hi, guys. I'll just keep it to one. Electrification strategy, you called it out as a big emphasis here in 2021. And I know it's tough to speak to it for competitive reasons. But can you just talk about, do you have the organization in place that you need today, and then maybe how we should be looking at the goalposts for this business?

Yeah. I'm glad you brought it up, because it's an important part of the strategy. We talked, I believe at the last call about we transitioned with Chris Musso leaving the company and going back to Consulting. Mike Donoughe has taken that over. Mike has an incredible background, both in Electrification and technology around automotive and Off-Road vehicles. We have an incredible team in place. It's one of the things we've spent the past couple of years is making sure that we had the talent internally. And then quite frankly, it's why we set up the partnership with Zero. They have a proven track record. They have powertrains that hit the sweet spot. They can help us work through a cost-effective way to put those powertrains into our Off-Road vehicles. As we indicated, I think the biggest goalpost -- well, I'll say there's two. One, how much money did we put aside? And I can tell you that we're investing around $20 million this year to further this forward. So, we're putting the money behind it. And then the second is, we're going to be essentially launching a new product at the end of the year. And so, I think that will really show the traction that we're making. I'm excited about it. The team is energized. And we think this is going to provide a nice alternative as well as again, expand the market to customers that that may not be comfortable owning a internal combustion engine today.

Great. Thank you.

Last question.

Yes, sir. The next question will come from Shawn Collins with Citi. Please go ahead.

Hey, great. Thanks. Hey, Mike, Bob, Richard. Good morning. It's nice to speak with you.

Good morning.

Morning.

So, I wanted to ask quickly further about supply chain constraints. I know that's a well covered subject, and I know that challenges are largely across the board and include a lot of labor tightness. But are you experiencing any particular issues with sourcing semiconductor chips? If you can comment on this.

We are -- I don't know that I would isolate it out separately. It’s like -- I would tell you we've got a list every day and the teams knocking things off the list and things come on and they're just proactively working in.

Gotcha. Great. That's helpful. Just maybe a quick second question. We're in the midst of winter, so I wanted to ask about the Snowmobile vertical. 4Q, industry is up 15% roughly, you guys were up roughly 22%. Can you just offer some color around your outperformance and also the industry in general around Snow? Thanks.

Yeah. I would tell you that we've invested a lot of money in Snow over the past several years and the new products that are either out in the market or will soon be out in the market have met incredible reception. Our SnowCheck was up substantially versus where we were last year and the team's done as good a job as any making sure we're overcoming some of the supply chain issues to make sure we were getting those sleds into the hands of our consumers in a timely fashion. You can imagine those are even more time sensitive than our Off-Road vehicles right now. And the receptivity in the marketplace has been very positive. And I think given some of the new products that we have yet to come, we've got a dealer show that will be a virtual coming up here in March. And we're excited about the product that'll be coming out at that show as well as later in the year.

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

Yeah. Thanks Chuck. And I just want to thank everyone for participating in the call this morning. We certainly appreciate it. And we look forward to talking to you again next quarter and have a good day. So, thank you. Goodbye.

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