Polaris Inc. (PII) Q2 2024 Earnings Report, Transcript and Summary

Good day, and welcome to the Polaris Second Quarter 2024 Earnings Conference Call and Webcast. [Operator Instructions]. Please note, today's event is being recorded. I would now like to turn the conference over to J.C. Weigelt. Please go ahead.

Thank you, Rocco, and good morning or afternoon, everyone. I'm J.C. Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2024 second quarter earnings call. We will reference a slide presentation today, which is accessible on our website at ir.polaris.com. Joining me on the call today are Mike Speetzen, our Chief Executive Officer; and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing the second quarter as well as our expectations for the remainder of 2024, then we'll take your questions. During the call, we will be discussing various topics, which should be considered forward-looking for the purpose 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 2023 10-K for additional details regarding risks and uncertainties, all references to second quarter actual results and 2024 guidance are for our continuing operations and 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 will turn it over to Mike Speetzen. Go ahead, Mike.

Thanks J.C., and good morning, everyone. Thank you for joining us today. We saw an increasingly challenging environment in the second quarter, resulting in sales and adjusted EPS that came in below our expectations. We will take some time this morning to talk through those results, provide an update on our annual guidance as well as discuss the outlook for our long-term 2026 targets considering the current environment. First, I want to start with the second quarter results. Sales were down 12%, impacted by actions we took in response to macroeconomic and industry headwinds. These headwinds included persistent inflation in addition to a prolonged cycle with elevated interest rates. We've seen consumer confidence weaken, especially for larger discretionary purchases, and as a result, the industry has seen lower retail. Additionally, dealers are conservatively managing their inventory due to the higher flooring costs driven by higher interest rates and are reducing orders accordingly. As we said at the start of the year, dealer inventory was our anchor. And if we saw softer retail than we expected, we would adjust shipments accordingly to help protect dealers. We started that process in Q2 and have now adjusted our full year shipment outlook given a lower outlook for retail. As a result, we have revised our full year 2024 guidance down to reflect the current environment as well as the counter actions we have taken to aggressively manage costs. While this is disappointing, it reflects a more challenging retail environment than we or the industry expected. As I've reiterated several times, we are committed to maintaining dealer inventory at healthy levels, which is why we adjusted shipments and supported inventory in the field with increased promotional activity. We have also implemented more flooring support for dealers to assist with the cost of inventory they're currently carrying. On a positive note, we saw favorable results associated with our efforts to gain efficiencies within our manufacturing facilities, particularly with logistics and materials and were able to further reduce manufacturing spend in response to lower volumes. These savings partially offset the negative effects of lower net price and the loss of manufacturing cost absorption in the quarter. We also surgically reduced operating costs recently to rightsize our cost structure to better match the current demand environment and help streamline our business. Year-to-date, our actions have eliminated 8% of our salaried workforce and we have reduced certain discretionary spending areas such as travel. I was intentional with the word surgical. We took great efforts to make sure we were strategic in eliminating redundancies and preserving key R&D investments. We have seen this before and know that staying on the gas with innovation is key to emerging as a stronger company when the market stabilizes. We estimate these actions equate to over $100 million in structural changes that will be an ongoing benefit and help offset a portion of the headwind associated with lower volumes. Before I move on from this slide, let me close by saying that we were crystal clear at the start of the year. If retail played out below expectations, we would cut shipments to protect dealer inventory. Unfortunately, retail has proven weaker than anyone expected, and we acted to address the market dynamics, which has us bringing our full year guidance down. Bob will cover our guidance in more detail later. I want to spend some time today talking about the strategy we laid out in early 2022 and the progress that we've made. We continue to believe this strategy will help us generate profitable growth, strengthen our position within the powersports industry and generate positive shareholder returns. In fact, our focused strategy has guided choices from elevating the customer experience through innovation, to improving our operations and more recently, focusing on making our business more efficient. It has also guided our actions to carefully manage dealer inventory in a way that supports the profitability of our dealers while continuing to deliver the best customer experience. Despite significant progress on these strategic priorities, the timing to achieve our financial targets has become uncertain given the numerous external headwinds driving this downward part of the cycle. At the time we gave our 5-year financial targets in early 2022, we did not anticipate a powersports and marine downturn. We remain committed to our financial objectives to grow sales mid-single digits, expand EBITDA margins to mid- to high teens, grow EPS double digits and deliver attractive ROIC in the mid-20s. What is in doubt is the timing of achieving these goals. We anticipate providing additional information around the timing of achieving these targets when we see more clarity in our end markets and a return to a more normalized environment. We believe the work we are doing today will position us to have higher earnings power and even stronger cash generation when a recovery occurs. I think it's important to cover some examples about how we are executing change to emerge stronger. First, we made some big decisions early on in my tenure as CEO to prune our portfolio of distractions outside of powersports resulting in the divestiture of GEM, Taylor-Dunn and Transamerican Auto Parts. As a result, we are more aligned and focused on powersports, which has enabled us to be more disciplined with capital allocation and investments, ensuring we have a strong and aligned portfolio will continue to be a focus for us. Rider-driven innovation is the key driver to winning customers, and we have proven time and time again that we raise the bar with the products that we offer. From the notable quality, durability and design upgrades, we made recently to our RZR, RANGER and Indian motorcycle lineups to category-defining products like our all-electric Ranger XP Kinetic, the industry's only extreme duty [Audio Gap] Polaris XPEDITION. We've worked hard to deliver these products with the highest quality standards in the industry with continued pre- and post-sales surveillance to enable the ongoing performance of our vehicles to enhance the customer experience. This includes leveraging industry-leading connected vehicles through our RIDE COMMAND+ platform. We don't believe anyone's come close to matching the level of innovation we brought to the market over the last several years. Turning to Agile and Efficient Operations. We have doubled down on our efforts to increase efficiency within our manufacturing, supply chain and logistics to support margin improvements. While some of these changes took longer that we would have liked, we are now seeing the progress we need to enable us to improve efficiency in the earnings power of Polaris into the future. Some examples of the actions we've taken are driving the near-term shoring -- near shoring specifically from Asia in the North America for both our Mexico and U.S. operations, leveraging new dealer vehicle unloading capabilities to save on specialized equipment charges and improving our suppliers' operational requirements such as on-time ship and packaging standards. Most importantly, in our 2 largest plants, lean model lines are identifying methods to significantly reduce line downtime and improve productivity. The changes are resulting in dramatic improvements in manufacturing efficiency of 15% or more. We are now achieving well north of 90% of our production schedules, which is a massive improvement on the performance from last year. While there is still much more to do, we are seeing much needed progress and targeted improvements, which gives me confidence that we will achieve the desired level of operational efficiencies. Lastly, we continue to execute against our capital allocation objectives and remain on track to our targeted share buyback goal. There are several headwinds that factored into our decision to push back the timing of our financial targets. For example, interest rates, along with stubborn inflation, have had a negative impact on consumer sentiment and discretionary spending. The share of customer wallet for discretionary items today is less than it was prior to 2021. Debt-to-income levels have reached a peak and consumers either maxed out or banks are hesitant to lend at these elevated levels. All these factors have negatively impacted the industry retail environment and resulted in a need to lower inventory dealerships. Elevated interest rates are also impacting our dealers. Higher interest on dealer inventory, coupled with weaker retail and broad macro concerns as many dealers looking to lower their inventory and costs. Even though dealer inventory is below pre-pandemic levels, dealers want to further reduce their inventory given higher per unit interest costs. Not surprisingly, this mix of lower retail and higher inventory has also resulted in elevated promotions across the industry to entice buyers. This is made worse by the number of OEMs dealing with heavy, noncurrent inventory in the channel, driving additional promotional activity. Consistent with last quarter, Polaris is still one of the healthiest in terms of days sales outstanding and noncurrent when looking at CDK data on the health of dealer inventory in the channel. We believe these headwinds are temporary and the question is timing, which we are watching carefully. I want to be clear, we're not abandoning the strategy we laid out for 2022. We remain committed to the journey and the financial targets we laid out. I have never been more confident in our company and remain optimistic about the future. Let me go back to the quarter and discuss recent North American retail trends we're seeing. Within Off-Road, Utility was flattish, driven by a decline in ATV, which was offset by strength in RANGER side-by-sides. We expect ATV share to pick up in the back half of the year with the recent launch of our all-new 2-Up Sportsman and believe RANGER will remain positive for the balance of the year. Recreation remains soft, particularly within RZR. While RZR has been weak, we have seen continued strength in Polaris XPEDITION, especially the North Star Edition vehicles. We believe we took over 5 points of share in the crossover category during the second quarter. On-Road retail was driven by softness in the heavyweight segment given recent competitive launches and the industry weakness. We expect On-Road Retail to modestly improve in the third quarter as we see the impact of the newly launched Indian Scout lineup. In Marine, we continue to see consumers pulling back on more expensive discretionary purchases. Given more of the boat-selling season is behind us now, we await feedback from dealers during the fall ordering season to understand their outlook for 2025. But we do not see a meaningful improvement in Marine for the remainder of 2024. I do want to touch on innovation one more time because we recently started shipping new products that we believe will positively impact our third quarter. The all-new Indian Scout models began shipping late in the second quarter and should help offset some of the pressure we're seeing in the heavyweight side of the business. In Off-Road, we recently started shipping the new 2025 full-size RANGER and the 2025 Sportsman 570 2-Up, built for both work and play boasting unmatched comfort, strength and versatility in the 2-Up space. The other product worth watching an off-road is the 2025 RZR XP lineup. We completely redesigned the product last year and are bringing trim-level enhancements this year as well as new features and lower pricing across all trim models. Again, this should be proof that our foot remains on the accelerator when it comes to innovation, while providing customers with the experience and added value they're looking for. I'm also excited for our [ Auto ] dealer meeting that will be held next week in Las Vegas, where we will share more product news and talk to dealers about the state of the business and plans moving forward. As noted earlier, we're working with dealers to decrease their inventory in this current environment and have decided to provide dealers with several months of free flooring to help offset the increased impact of flooring interest on their business. The decision will have a negative impact on margins, but we believe it's a worthwhile investment to help ensure our dealers are successful. We aim to be dealers OEM of choice and believe in the long-term collective success of Polaris and our dealers. Overall, dealer inventory dropped 4% sequentially, and we've updated our SIOP and production plans such that we are targeting a 15% to 20% reduction in dealer inventory versus last year, which is a more aggressive reduction than we had originally targeted for 2024 at the start of the year. While we recognize this action negatively impacts our full year outlook, we believe this is a prudent decision that benefits the long-term health of the channel and provides dealers a bit of relief from softer retail while we await a cyclical recovery in consumer discretionary spending patterns. I'll now turn it over to Bob, who will summarize our second quarter performance and provide updated commentary around our guidance and expectations for 2024. Bob?

Thanks, Mike, and good morning or afternoon to everyone on the call today. Second quarter sales declined 12% versus last year due to a client due to a decline in volumes and elevated promotions. Partially PG&A continued to post strong results with 7% sales growth due to the greater volume of accessories on products like Polaris Expedition and Ranger. Northstar gross profit margins were primarily pressured by lower net pricing related to a higher promotional environment, removing the impact from promotions, our progress against our target of realizing 105 million in operational savings more than offset the impact of lower volume on absorption. Year to date, we have realized approximately $50 million in operational savings related to materials, logistics and planned spend. We continue to work towards the $150 million savings target, which would be expected to have a positive impact on the earnings power of Polaris once industry conditions. Now analyze in off-road sales were down 6%, mainly driven by volume decline, razor as well as a headwind from elevated promotions. Share within our RV was flat year with gains in side-by-sides, including Ranger and crossover. Polaris expedition continues to provide a tailwind and crossover helping to drive five points of share gain in this category. During the quarter, promotions in the channel on ATVs as OEM.s work to clear inventory leading share losses in this subcategory during the quarter. However, our data reflects almost a point of our RV share gain on a dollar basis. While we did see margin pressure in the quarter, driven by the factors already mentioned, I remain pleased with the progress we are making within our factories that are driving real changes to our cost structure are helping to mitigate the impact from unabsorbed overhead from volume reductions. As we look towards the third quarter, we expect shipment volumes to be down meaningfully given the decisions we have made around prioritizing dealer health and inventory levels. In this challenging environment, promotions are expected to remain elevated as the industry continues to use promotions to stimulate demand and clear non-current inventory. We expect further pressure on margins given these lower volumes in the impact on plant overhead absorption. Switching to On-Road sales during the quarter were down 19% lower shipments, particularly in the heavyweight segment. Indian Motorcycles lost market share during the quarter, driven by weakness in the heavyweight category. We believe fundamental consumer retail was weaker than what the industry experienced in the quarter as industry retail was stimulated by competitive process launches. We began shipping our new Scout Indian Motorcycle in June and expect that to improve in the back half of the year as these spikes arrive at dealerships. During the third quarter, we continue to expect lower retail as the industry grapples with the consumer that seems to have cut back on larger discretionary purchases. That continues to be a lot of excitement around the new Indian Scout models. However, this is expected to only somewhat offset industry pressure. In marine, sales were down 40% as the industry continued to deal with elevated dealer inventory levels and higher interest rates impacting the consumer's decision to purchase our shipments in the quarter to decline with dealer inventory down approximately 18% versus a year ago and in line with 2018 levels, which we view as a viable baseline for the industry. Ssi data through May reflected a decline in year-over-year retail and what would be held share in pontoons. We ceded some share and direct votes. Gross profit margin was down, given the top line pressures driving less fixed cost absorption. We continue to be agile with variable costs, which is demonstrated with gross margins remaining above 20%. Despite the significant reductions in volume, we are continuing to see a challenging environment across the industry during the third quarter as dealers work through current inventory levels and consumer purchases are hampered by elevated interest rates. The next big data point will come early this fall and dealers begin to make ordering decisions as we head into the 2025 selling season. Moving to our financial position, we are lowering our expectations for cash generation this year due to our updated thoughts on our business performance. With this update, we have realigned CapEx and are driving working capital efficiencies to improve our use of cash during this period. Given the change in volume expectations, it will take us time to flush through working capital. As a result, we expect cash performance in the fourth quarter to be better than cash generation in the third quarter. We maintain our goal of offsetting dilution from stock-based compensation program this year and well ahead of our target of reducing the basic shares outstanding by 10%. During the quarter, we used cash to continue our investments in innovation and key capital projects and returned over $100 million to stockholders in the form of dividends and share repurchases. We remain confident in our financial position and are driving our teams to improve working capital in this part of the economic cycle. Ladies and expectations for 2024. We have lowered our financial targets for the year, given the soft retail trends across all product lines in a misalignment that has deteriorated relative to our expectations at the start of the year. With these factors at play, we have decided to right-size shipments and increased our promotional efforts, underscoring our ongoing commitment to prioritizing the health of our dealer partners heading into the second half of the result of this decision will be lower shipping volumes leading to lower absorption at our plants, which is expected to negatively impact our Q3 results more heavily than the fourth quarter. These cuts are happening across each segment. However, they are more pronounced in off-road, given reductions already taken in on-road and marine for sales, we now expect us to be down 17% to 20% versus a year ago. In addition to lower volumes, we expect headwinds from criminal activity as well as finance interest, both of which are expected to be larger than our original guidance. As Mike noted, the added finance interest is in part due to our decision to help dealers manage the elevated costs there see from carrying a higher value of inventory relative to the past few years. As it relates to our decision to curtail shipments further, you can see our initial push inventory on top of our current revised plan. Recall that we started going down this path last year with Marine and razor due to what we were seeing in the channel as well as trends in retail. We began this year with Sun retail based on current trends and macroeconomic forecast within this plan, the beginning of the year, we were targeting a reduction of approximately 10% in shipments versus 2023 to help dealers lower their inventory levels. Fast-forward to today, and we have seen interest rates stay higher for longer, along with elevated inflation rate, inflationary pressures, which have impacted consumer discretionary purchase patterns on larger ticket items, coupled with the feedback from our dealers and how flooring cost that quickly ramped up and are now one of the dealers largest expenses. Based on this, we have made the decision to step in and hold the value proposition with our dealers by supporting them with additional floor rate as well as reducing our shipments further in the back half of the year versus our original plan, we now expect to end the year shipping to levels. Secondary inventory is down 15% to 20% versus last year, helping to put our dealers and ourselves on better footing going into 2025. Moving to EPS, we are now expecting adjusted EPS to be down over 50% and in the range of three 50 to $4. Importantly, the magnitude of the volume drop we are dealing with has an oversized impact on margins due to lower absorption of overhead at our plants and other fixed costs. Various items impacting sales volumes, additional promotions and unfavorable mix represented $5 EPS headwind. From a manufacturing perspective, we are seeing approximately $0.5 of net headwind with negative absorption accounting for $1.90 of the EPS takedown in overshadowing $1.40 of APN. The great work our teams are doing on the targeted operational efficiencies to mitigate these pressures. The bright side is that these operational efficiencies are expected to positively impact the earnings power in a normal operating in macro environments. Additionally, within OpEx, we have cut spending and noncritical areas and completed a headcount reduction earlier in July. We believe these necessary as we right-size the organization for the current environment. As noted before, these cuts to do not impact our investments in growth and innovation, which we may long-term strategy. From an EPS and net income perspective, it is important to note that percentage reduction is significantly more than the percentage reduction of revenue, gross profit and EBITDA due to the relatively fixed nature of depreciation and debt interest for the third quarter. A few things to note given how our plan looks today, the result of cutting shipments is expected to have a more meaningful impact. The third quarter results versus Q4. Retail expected to remain down, although we expect to gain market share with innovation. Before I turn it back to Mike, I want to emphasize that many of these headwinds are not typically small operating environment or an industry that has historically grown low to mid single digits. We wouldn't implant absorption tailwinds in an environment where we are growing at or near historical levels and shipping to retail plus our business. Typically mix mixes up with the introduction of new innovation and technology, as well as the progression to side-by-sides from a current promotional levels are elevated for many reasons associated with the macroeconomic factors and specifically specific industry dynamics overtime, we see an opportunity for these to come down, which we believe would benefit margins. Additionally, the operational efficiency gains we are making are still expected to have a positive impact on earnings. So while the environment is challenging, we have a positive outlook on the future powersports MLRs. We believe the decisions we're making today are in the best interest of all our stakeholders, including customers, dealers in place and our stockholders. We intend on emerging stronger with a robust pipeline of innovation, leaner operations and a healthy level of cash with the ultimate goal of delivering strong stockholder returns. With that, I'll turn it back over to Mike to wrap up the call. Mike?

Thanks, Bob. We're expecting the same macro issues that impacted our second core performance to persist throughout the year. Your resulting in subdued consumer demand for power sports and a cautious dealer network for the second half of the year, we will continue to draw down through a combination of lower shipments as well as seed the market with strategic promotions to help dealers move inventory. I'm confident in our strategy and believe that we're on the right path to ensure Polaris's global leadership in powersports while generating strong shareholder returns. We're working hard to navigate these curves trends while remaining vigilant to emerge stronger than ever when retail demand returns. Our recent customer metrics point to continued interest in the category. With elevated levels of search and organic traffic to our site. People are shopping for Polaris, and we will be well positioned when those shoppers feel more confident. There's innovation remains at top priority, and we've begun to see real transformational efficiencies within our operations. So while the journey might take longer than originally anticipated to realize the financial targets we laid out, our determination and passion our unwavering to grow this business mid-single digits, expand EBITDA margin to mid to high 10s, improve ROIC to mid 20s and grow EPS by double digits. I'm confident and his team and the great work we've already begun will set us up to emerge stronger with greater earnings, power and cash generation capability, so maintaining maintaining our leadership in powersports. We thank you for your continued support. And with that, I'll turn it over to Rocco to open up the line for questions.

[Operator Instructions]. And today's first question comes from Joe Altobello with Raymond James.

Thanks, guys. Good morning. First question on the outlook of a 1520% this year. What sort of retail is that baking in and what product segments do you think require the greatest cuts?

Yes, the um, obviously we're anticipating the retail environment to be weaker than we anticipated. I don't know, we're going to get into a lot of specifics, but safe to say it's down from where we had thought the industry was going to be on the reduction by segment is somewhat proportional to the segments. Proportion of Polaris, obviously, meaning off-road is the lion's share of the reduction. And within that category, there's a lot of dynamics. Obviously, the rack space is more heavily impacted. You heard from my prepared remarks that the utility side, specifically around Ranger has held up, although lower than we expected, it is still generating Punt Hill performance. So obviously, the cuts have been a little bit deeper dive. And we obviously, as the proportion of what we expect retail to be in the second half, we went a little bit heavier than some of our higher ASP. vehicles, which obviously will provide some relief to dealers having to carry that inventory in the cost associated with that.

Yes, Joe. I mean, it we started this effort last year with Marine and razor, um, so if you look at the full, if you look at Marine versus last year, cuts are a little more significant versus our plan, expected marine to be down. So we'd already factored some of that in the same thing with razor. So like Mike said, if you look at it relative to our original expectations is pretty proportionate across all the categories.

Got it. Very helpful. And just to follow up on that as we turn to page on 24 and think about 25, which I think you're probably happy to do. If we look at slide 13, how much of the EPS guidance cut is sort of one-time in nature? And how much of that with you expected next year?

Yes. I mean, I'll let Bob kind of get into some of the puts and takes. But I mean, first and foremost, we're our bearings around the dynamics that are more leverage through Q2. So having a position on 25, we're a little ways away from that. And so much of this is going to hinge on what the retail environment is. And obviously, for to a more stable retail environment where we're back to shipping in line with retail, there's positive dynamics because of the reset that we took this year where we're under shipping retail as well as the snow season and how that ultimately works out. And then obviously, we put the brakes on a lot of calm, and we've been very successful within the operations. We talked about 150 million at the beginning of the year. Obviously, we're now targeting significant more than that given how slow the operations are or how low the volumes coming in. So you start to get into a position to be able to annualize the structural improvements we've made in only benefited from partially this year as Joe.

If you're looking at slide 13, the way I would think about it, I mean, we're not going to get into giving guidance for 2025 yet in a long way to go here in 24. But yet the main drivers are the volume and mix. And it's about two thirds volume of third mix. If we were shipping to if retail was flat and we were shipping to retail, some of that would come back because obviously we took the big cuts this year on the lower volume that would come back depending on where retail goes at the the elevated promotions, it's really hard to say what promo is going to look like in 2025. So I don't have much to say there flooring interest. You know, the goal of the flooring is to help the dealers as the as the inventory wind itself down. So how far will depend on where inventory goes and where rates go? And then when you look at it as Mike's we were targeting and targeting 150 uses a bridge versus our initial guidance for the initial guidance assumes the one to 50 it. So I don't have much to say there flooring interest. You know, the goal of the flooring is to help the dealers as the as the inventory wind itself down. So how far will depend on where inventory goes and where rates go? And then when you look at it as Mike's we were targeting and targeting 150 uses a bridge versus our initial guidance for the initial guidance assumes the one to 50 it. So this is incremental additional plant material labor and overhead spend savings. And so that should carry forward. And we're continuing to make good progress there with we feel good about how the factories are operating. Obviously the it's not enough to overcome any of plant absorption hit, but I think a really good effort by the team to offset that. And then as you think about OpEx at about half of this, we'll come back because it's primarily related to the Company's various bonus programs, which obviously will be significantly lower this year, given the performance of some of that will come back. But we'll have some carryover from the headcount reductions and other things. There is some temporary, you know, stuff in their travel and that the normal things you do with when times get tough. And then one thing just to keep in mind for Q. three Q. three as our dealer yet. So Q3 OpEx to be a little higher than Q4 because of the dealer meeting.

I think, Joe, what I would want to just come back to because it's really at the base of which we reacted aggressively in Q2. When you think about the volume that we're pulling off for the year, we pulled about 25% out in the second quarter. That was the chart that Bob went through that right behind the guidance chart from him also, although we took the time to do it right with aggressively after our cost structure and yes, there are certain pieces that will be more short term. But the point I drove with the team is that we've got to really focus on rightsizing this business. And then as Bob indicated, you know, not only do we have line of sight to getting the one 50 and more given lower volumes. But I'm really encouraged with what I hear from our operations team in terms of we really just have not been a truly leading environment, inefficient environment, a significant opportunity. And you can see just from the work we're doing, we're already driving some of that efficiency. But team comes back into the market, and we're in a more positive that gives us the ability to really leverage our cost structure. So whether that's 25 to 26, um, there's a lot of other factors at play, but I feel really good about about how we're sizing the cost structure and our ability to finally get after the margin improvements that we've talked about for so long.

And our next question today comes from Megan Alexander with Morgan Stanley.

Hey, good morning. Thanks for taking my question. I just wanted to maybe follow-up on Joe's first question a bit there. So higher retail overall, I know it's different by segment, but retail overall, it does look like it's down, you know, maybe high single digit so far in the first half. I don't want to necessarily put words in your mouth, but just based on your comments, it seems like maybe some things expected a lot in the second half from a share perspective. Maybe some things stay the same. But I guess kind of there's no reason to believe retail could maybe be down high single digits, which would be in our high single digits and worse than your original expectations. So in the context of that 10% additional cut to shipments, is it really just the change in your retail extensions or As Dan said, implied additional destocking? I just want to make sure I'm understanding maybe it's just that it's kind of it depends on the segment that maybe you could just help us on that to understand not allocate.

Yes. I mean, I mean, you're you know, it is just from dynamics on became into the year, I mix on inventory down because I'm now talking about 15% to 20%, which basically signals that in addition to the retail reduction that we're seeing, we are taking the position because we need to make sure that we've got this business positioned to play a lot more offense. We move forward. I will tell you that as we look at our second half retail versus first half, we do not have any hurricane securely enrollments built in. We have some very specific areas around we know midsize motorcycles will improve because of the launch of the new Scout. We know that the new ATV. two up, which is the first redesign vehicle we've had in the market and a lot long time and something the customers have been looking for. We have some small areas like that, but we are not banking on some massive improvement. We really are expecting the the environment that we've been experiencing here in Q2 that really got we had a tough April. Things got a little bit better in May, a little bit better in June, but still ended up being well below. And with those being peak seasonality times for us, Tom, you miss that window with both motorcycles, you're pretty much set as well as in some of our rec market. So we've tried to build that in and calibrate. We've communicated with dealers with those new profiles. Look like the team still working through it. I'm going to be not only at our dealer meeting next week, but we have a dealer K before we'll I have some of our top dealers than there that represent the network. And that will give me first 10, um, view to how they're feeling about the to the new profiles on balance due to adjust a bit how the macro environments cover a couple of other.

And as you think about H1 versus H2, half of the year has really no snowmobile normally, I mean, most of that's been kind of it is a lot of it's in Q4, but this year we had some as in Q1 and we didn't really have any in Q1, and we're expecting a relatively more normal snow season. So there will be snow retail in Q4 that was in the first half. And then Marine has been one of the most pressured segments. And the reality is there's not a lot of marine retail in the second half so that that negative impact to kind of slows down. But to Mike's point, we're not expecting a herculean improvements other than things where we know we've got new product or or some changes in the US industry.

That's helpful. And then maybe just a follow-up maybe to add more pointed question. How do you view each end market each segment upfront on on brain kind of the channel inventory position today versus where you'd like to be at year end? It. It seems like off-road, there's still the most work to do that behind. What would appreciate you confirming I guess, how does that in the context of five, your comment on promising? And we have no idea next year, is them or sell on the comment of not knowing if a channel will be cleaner and more just about kind of the consumer willingness to purchase vehicles start there and work backwards.

I mean, one, it does depend on what the macro is, but it also depends on the competitive environment. I mean, one of the things that we were probably caught EBIT-R than we expected in Q2 was delivery of which there was non-current inventory still being pushed into the channel on. We do believe that a lot of that it's getting resolved and was handled through Q2. Hopefully, we do have CDK. data that covers a significant portion of the market. We know that we are the healthiest by far from current to noncurrent as well as being either number one or number two in terms of the day sales outstanding at each of the bidders on a rolling six and 12 month. So there are compared of dynamics that we obviously don't have a direct influence on. But I know that our dear putting a lot of pressure as many of you know, because of the surveys and the discussions you've had, although with a very nice the dealer network, I think that sentiment is shared. The uncertainty in the marketplace is driving a reluctance to carrying more inventory than they think they need to have. And that's essentially what we're responding to. I think your point around each of the segments is pretty accurate. Off-road probably needed the most correction, although we did make corrections to motorcycles and marine, we've been working on them marine side in earnest since last year, reacting to the current environment. And I think the dealers have been appreciative that models, it's weak industry, but some competitive dynamics. There was some new products that came in off-road is really in obviously the lion's share of it, given the magnitude of the business as well as with the majority of our dealers, it's the largest line that they've got high. And as a result, that's where we really needed to make the most moves. But I'm going to come back around. I said it last time, I'll say it again, this time we monitor the data. We know that we're the best in terms of the current to noncurrent mix at the dealerships. We also know the age of our segments where we stand in two days sales outstanding on the floor. And I can tell you we're either number one or number two in the majority of those segments. I wouldn't say that we haven't got work to do closely with the guidance change that we have. We're working through that. And I'm going to be in front of dealers next week at the first half and view to how that's all going to be in pursuit, I think.

And our next question today comes from Fred Wightman with Wolfe Research.

Guys. Good morning. And maybe just to follow-up on the last question. Can you talk about the plans for the whole are the leader going forward? Mike, I know the press release last week mentioned you were going to take a little bit more of a hands-on approach to that going forward. But can you just fill us in on maybe how you see that being managed longer term?

Yes. I mean, lower, um, we're in a challenging environment. And I think given that it's now 75% of our revenue and pretty much all of our and probably not a bad thing for me to spend a little bit of time with the with that team, what I would tell you, he's got an incredibly strong corporate team of folks who have been with our company for a long time, very talented that I can rotate the corporate level. And then with Andy off-road business, we've been staying very close over the past several months. We've made a number of organizational changes to really simplify and streamline from. We have very good for very strong business leaders for Orbi, snow, commercial and government defense, who have a lot of industry experience. And so to me, to work more closely with them, and then we'll decide down the road what that means in terms of ultimately any organizational decisions and we need to make. But in light of the current environment we're in, I think we all benefit for me being a little bit closer. And like I said, I'm excited to have the opportunity to be with the dealers next week meeting that I would normally attend, but obviously play a larger role in given the changes we're continuing with.

Okay. That's fair. And then you guys also mentioned some planned cuts to higher ASP. product. I think Bob also gave some color on the mix headwinds that are baked into that EPS reduction. I'm wondering if you're seeing any signs of incremental pressure and sort of that higher end consumer or for that matter of dealers are kind of tapped out from floorplan perspective. Just don't one the higher dollar product on a unit per unit basis?

Yes, it is more of the second comment. Now we launched XD. and Expedition and obviously had a lot of channel fill and retails were good at the high end of those products will be a little slower at the lower end of those products. So, you know, North Star cap cab units tend to do really well. And I think that you're seeing across kind of most industries, right, high, high dollar cash buyers are still buying and there buying premium product. And so really, our decision was more around those premium also expensive for dealers to carry on floor plan and so in place to go to correct inventory. And so we chose to do that and we are seeing decent strength there. Somebody is correcting the mix and just getting the mix to where the stuff that's really selling well is what they have and the stuff that's been a little slower CapEx that's on it and call out.

And as you can imagine, it's a delicate balance. I mean what we don't want to do is overcorrect ourselves in a position where we started seeding showroom floor and share and the fact that in the second quarter we held our own from a share standpoint on a year-to-date basis, we've gained share in side-by-sides. When you think about some of the dynamics in that market, but specifically around non-current to current inventory and frankly, the significant discounts in financial promos that are that we're battling against. I'm pretty proud of the team being able to put ourselves in a position like that to say we held our ground and in side-by-sides actually gained share it with expedition.

You know, we talked about cross in crossover. We gave five points share, and that's driven by expedition. So the certainly the at the high end of the Expedition product selling really well getting great reviews, but really enjoying the product. And so we'll continue to drive our leadership position. But we're going to be careful to make sure the balances right to make sure the dealers get that relief on their floor plans that are looking for.

And our next question today comes from Craig Kennison with Baird.

Hey, good morning. Thanks for taking my question. Is really a follow up, Mike, to the last comment you made, but I know part of the cost of reducing inventory is that you could open the door of tours that want to show maybe less disciplined in how they stock dealers. I'm curious specifically, how do you protect your flank for tie that floor plan coverage, promo to reorders? Just curious how you strike that balance.

Yes. I mean, it's a good there's always some level of exposure from what I would tell you that I think there's a couple of things that kind of self-regulate. I mean, certainly in an environment like this, the dealers are going to play a significant role in making sure that they're putting the appropriate pressure. And I think without going into a lot of details, you've heard that from some of our other competitors for they will literally discontinue Align. We've seen that in the marine space where dealers got stuck with a lot of inventory from short lines and they obviously put a focus on it in the near term to move it, but there are no longer carrying those brands. So there's that in our off-road business, obviously the North Star program that we have, um, which is essentially how we rate our dealers and then they get rewarded in terms of everything from hold back to other incentives that they participate in. That's going to play a key role. Our team has done a lot of work over the past several quarters. The business reviews that we talked about in the last meeting, were there some they're talking through mark share market share targets out of the dealers business. I think those are all going to serve us incredibly well. Like I said, we're going to have an opportunity to be in front of dealers next week and hear first hand how they're feeling and make sure that we're addressing those concerns. As I said in my prepared remarks, we want to be the partner of choice. May. I know that they have my commitment that we're going to be working that, you know, I'm going to be their first hand, and we're going to continue to work it through the balance of the year and into 25 to make sure that we're demonstrating through action consistently with the words.

Thanks, Mike. And if I could sneak in another question, just to get your comments in a different topic related to tariffs. But certainly to the political environments really tough to read just doesn't seem like there's an anti tariff candidate in the race right now. So I'm wondering where you see the most policy risk understanding you really can't respond to changes that haven't yet been formed?

Yes, I'm going to I'm going to actually committed debate, and I'm actually going to go back to the prior question for a second because I realize that I was talking I was specifically about all the tactical things. Ultimately, it comes down to some of the things I talked about in mice, my prepared remarks, it comes down innovation and products. That's what's going to protect our flanks AG couldn't be more impressed and proud of what the team at us over the past three years across every single one of our categories. And we're not done. We've got more coming out. I was very clear we've cut in this business, but I can tell you we are still spending over 40% of our revenue on R&D. We continue to be the leader from an innovation standpoint. And so while those other pieces are interesting in terms of how we run the back end of the business and partnering with the deal, innovation is really going to make sure that that's where we keep our foothold in those dealerships. I just wanted to come back to that. As it relates to tariffs, it's anyone's guess, um, we do know that at some of the news that's come out recently, there's nothing that impacts our business. We're obviously going to be watching it. I think there's an awful lot of rhetoric right now around elections. And so we've got to put that in context of that's exactly what it is. But we agree with you that the sentiment is not shifting, certainly given some of the geopolitical dynamics that we're dealing with. I've made some comments up front. We're doing what we can to near shore, where we're pulling things out of China and moving that into either other parts of Asia or into Mexico and North America, where we have less constraints from a tariff inbound tariff. And we've also reshuffled some things between plants that helps us content with that. So we're obviously planning for things did not get any better from where they are, and we've been in that environment now for some time. And then obviously, the new tariffs come into place, we'll have to have to react to that. We've got a great government relations function that stays on top of everything. So we know where things are headed will react accordingly.

And our next question today comes from David MacGregor with Longbow Research.

Hi, good morning. This is Joe Nolan on for David. You mentioned that there are more meaningful impact from lower shipment 3Q, but you also have the benefit of shipping the new scouts continuing into the third quarter. So just wondering if there's any further detail you can provide on the cadence there? And then with the operational savings of $50 million year to date, is it fair to assume fair to assume that we see a larger balance of that remaining benefit in Q3 versus Q4 as well?

Yes. So I'll take the first part of the question. So they will have Scout shipping in Q three. We did start shipping them in Q2. So, you know, but as Mike said, the cuts are a little bit weighted towards ORV. So just given the magnitude of that business relative to motorcycles, that will that will sort of offset the benefit of Scout. Q3 is not going to be dramatically lower. It's just going to be the lower of the next two quarters. Some of that's driven by snow shipments in Q4. In terms of the margin, obviously, though our VP of being down hurts more than Scott, that has helped being up helps. And in terms of the cost savings, we got 50 million through the first half. We're still targeting to get the 100 million that was embedded the other 101 hundred and 50 that was embedded in the original guidance in the second half, plus the additional overdrive that we talked about on slide 13, that will be a little more Q4 weighted than Q3 weighted just because all of those actions take time to flow through the system as we as we work through the factories. In addition to the headcount reductions from an OpEx standpoint, we've had significant headcount reductions at the factories as we've gotten more efficient, both in direct labor and direct labor and then obviously cuts related to the volume as well. So part of it's been out just the efficiency improvements we've been working on. And then some of it's just purely volume takeout, but that that impact will be a little bit more beneficial in Q4 than Q3, which is why Q3, we think it's going to be the lower quarter.

And our next question today comes from Alex Terentiew with Bank of America.

Hi, thanks for taking my questions here. I'm just had one in any way to sort of contextualize how sort of retail played out throughout the quarter. Is it fair to say, you know, may have decelerated through the quarter and then any significant sort of deviation segment that that is worth calling out? And then is it fair to say that the guidance it's sort of assume a run rate of retail continues, but some upside in on on-road due to due to the incremental launch? Thank you.

Yes, we from Q2 was interesting in April of was was pretty weak. And we've seen that before we've seen, yes, sometimes it's just a late start to the season. And obviously, we're watching intently and our retail improved demand and improved again in June, but obviously, well short of where we wanted it to be. And that was really because the industry were sent through the quarter. So obviously, we were playing a lot offense in there to to improve retail. I think it's a big part of why we ended up in the share position that we did come, but we certainly saw weakening. And we obviously, as we got into late May and ended, started looking at the production plan and some of the decisions we have needed to make, we were making real-time adjustments to promo. There was a pretty heavy correlation with the industry starting to turn down in Q2 due to what was going on with consumer confidence, consumer. And so there were just a lot of factors. I think it's also important to go back in time and realize that that was also when the reality around inflation was still persistent. You remember, we were getting north of 3% prints with the Fed have and the reality around any kind of interest rate move expectations starting to dwindle. The mantra of higher are really starting to come back into into view. And I think the reality that customers were stretch from balance sheet standpoint. So all those factors kind of came together through the course of Q2. And we think, again, the team, a lot of credit, we reacted quickly to be able to get shipments out of the system and to start heading down the path of cost corrections as we look into Q2. Yes. I mean, we talked about earlier variance in the question. I mean dynamics around snow create a second half difference to first half where there was really no snow retail, some midsized motorcycles being driven by our Scout business that we didn't get those in the market until late in June. And the ATB. dynamics that I talked about in terms of some of the new products that we've got out, those are really the largest factors that would create any difference between first half and second half retail.

And our next question today comes from Noel Atkinson with KeyBanc Capital Markets.

Thanks for taking my question. Maybe one that's maybe hit on a bit less frequently. But just wondering if you could kind of speak to how retail is trending internationally, Tom, and kind of provide any updates on kind of the state of channel inventories overseas?

Yes. I'd say weak inventories were probably a little bit better position than we had in from some of the dynamics we had with the broader business. But I would tell you that it's pretty weak internationally, not that every country is exactly the same, but we've seen pretty much a I would say, across the board, not necessarily consistent, but a fair number of dynamics that have the good part is the international component component of our Company is still less than 15%. So the vast majority of the correction that we've seen has really come out of North America, but we certainly have seen shall have to downshift as well.

Very helpful. Maybe one that's kind of slightly a housekeeping question on. But on the $1.40 and kind of the EPS walk versus the 150 million that you've kind of laid out, how should we think about kind of the differences there in terms of maybe categories or buckets?

Yes. The categories are pretty similar similar actually, you know, the the incremental dollars 40, which is kind of roughly $100 million, is really split pretty evenly between material and logistics plant over plant overhead spend and direct labor. Obviously the direct labor detail on that in the first 150 million, and that was really driven on efficiencies and lean. And the things we're doing in this incremental, it's more driven by volume and just taking out direct labor to ship less volume going through the factory. But we've made good progress on materials and we think we'll I build of in logistics, bill that will drive some there. And then the plants have done a really nice job on overhead spending and and controlling that volumes have come down. So I would say that the first 150 million is more efficiency related. Additional is probably got a little bit more volume impact built into it, just taking those costs out in line with the volume drop.

And our next question today comes from James Hardiman with Citi.

Good morning. So you may have already answered a portion of this. I wanted to focus on our views just because segment and I my brain can't keep up with all the moving parts with all the different segments and beyond from what retail wasn't back, right down 4% for the for the second quarter. Maybe speak to the exit get meaningfully worse. And should we be thinking about July? Is any better or worse?

You know, are aware of the business actually picked up a little bit on through the quarter, but I would tell you it was it was short of our expectations and it was consistent with what the of the comments we made, which was the rec side continue to see weakness, um, we were in competition and we were encouraged with what we saw from Ranger. Obviously, Ranger remaining positive through the call, Mr. Waybright five, but it was still below our expectations. So as we look into the back half, I mean, it really is as simple as that things we laid out. I mean, it's we've kind of assume it's also a little bit more of what we've seen exception of a couple of products around snow and midsize motorcycles and the new ACV launch, they're going to move numbers, is it substantially, but they're going to move numbers relative to how they performed in the first half.

As you think about the RE. retail, I mean, it's at right at retail, you know, being down and relative to our expectations with the whole industry to being down. But also it's this adjustment of dealer inventory is a big driver in the second half. And when we were looking to take in dealer inventory down 10% for the full year and now we're going to take it down and an incremental 5 to 10 points, the second half of the year that has a bigger impact on second half shipments.

Got it. That's a perfect segue to my second question. So for or the should we be thinking about inventories also being down in that 15% to 20% range on the whole company sort of target? And is there any way to think about just sounds like inventories are going to be down a lot more than whatever you're assuming for RV retail, I guess, is that accurate? And is there any way if we zoom out to then think about those numbers versus pre-pandemic? Right. Inventories are down X in retail is whenever it is versus about time. Just want to make sure that as we exit this year, we're in a we're in a healthy place relative to history.

Yes. I mean, look, we're already below pre-pandemic. We will be at the lowest point. They've been, I think, probably since I've been with the Company, um, we are pulling down further and what we expect retail to perform in that business. And it's for the reasons you outlined, we're making sure that we're getting this positioned. I think if you talk to the dealers, they would say we like the plan, we'd like them go faster. So we're obviously trying to to make sure we can train adjust as best we can. But we're reacting in a down market a lot faster than we reacted in that market because we largely can control a significant number of factors now that we've made a call on where we see the retail environment going. But our goal is to get this thing back to a point where we've got dealer inventory on a days sales outstanding perspective. Obviously, I'm not going to give that number, but we're going to have that at the lowest point. It's been a long time to make sure that dealers are healthy and we're in a position to play out in defense moving forward.

Yes, I think this environment is is an area where our RFM. model versus most of the rest of the industry that just shifts in sort of takes orders and shifts in truckloads. We hear the feedback from the dealers, they like our model better. It adjusts better once we get the profiles. Right. So, you know, really what you're seeing is us in dealers resetting the profiles to get dealer inventory down to, as Mike said, the lowest levels, excluding the pandemic, obviously in quite awhile while and then the impact of that you now on what we think we can ship in the second half of the year. But that should allow us to exit the year with the profiles and the dealer inventory set up at a level that everyone's comfortable with. And even if retail is there's muted growth or no growth next year, will we ship into retail and will be in a good position.

And our next question today comes from Sabahat Khan with RBC Capital Markets.

So you shared a lot of coloring. Maybe just more from a, I guess, how much of into this we've seen a bunch of guidance cut. So obviously not a unique phenomenon. When you were having these discussions ongoing, how much of US do you think you built and given sort of the uncertain macro backdrop in the consumer here? Thank you.

Well, I mean, I guess I'll cover a different way. We tried to take a very realistic assessment of where we believe the market has had on. We're going more deeply after dealer inventory, which gives us a little bit of room if we see a small portion from Arete tail on, we've been very deliberate where we see a second half is first half improvement that has got to be clear and simple. We've articulated that around mid-sized motorcycles and ATVs, and we've rightsized our cost structure. So I mean, look, I'm not I'm not going to sit here and trend provide a forecast of what's going to happen with interest rates and where the we are trying to deal with the trends that we've seen. We believe we've got the business and a good position, but we're going to stay true to what I said at the beginning of the year is what guided us in Q2 to do the actions that we had that we were going to work tirelessly to make sure that we're protect dealer inventory and we're going to continue to keep the gas on from an innovation standpoint. And between the combination of those two s hould put us in a really good position once this market stabilizes a little bit of growth.

Okay, great. And then I guess under the focused cost reduction initiatives already undertaken, and I guess is there sort of room to sort of add those back as the market changes where you think look, we can permanently OpCo without some of these costs? Don't understand how much buffer there is to both sides given the evolving macroeconomic. Can you add quickly, if need be and or and optimize a bit further if needed? Thank you.

So the original guidance included the 150 million of operating cost efficiency improvements. And this will continue in the guidance original guidance and they're in the revised guidance and those would continue forward. The 105 of ops efficiency in the plants, some of that's permanent. Some of it is just volume driven. Where do you have less labor, less overhead, you're running less through the factory. So that'll will will will stay Some will, you know, will not. And then I talked about OpEx where you know that there will be the carryover from the restructuring, but then there will be a share next year, which will be a headwind.

And our next question today comes from Robin Farley with UBS.

Great. Thank you. And I'm wondering if you go back to slide 13, just to think about thinking would be helpful to home kind of manage expectations a bit beyond just the mix. And you talked about any opening remarks about your long-term growth rate for the top line being kind of low and to mid single digits. So you're cutting 15% to 20% this year and maybe we get back to that long-term range optimistic, but just a normalized year at some point on take what does that mean that you will? We look at some of the room expense drag here, like Kaplan assumption that the reality is that I think if you go back to 3% to 5% growth after that 15, 20% drop that that actually you won't get most of this pack, right? Like in other words, these are not generally have one-time cost buckets or is that just sort of thinking about a reasonable expectation that if you're only getting back three to five points to 20 point of time, that a lot of this on time kind of fine expansion person, you don't necessarily get back to that. Is that reasonable to think that just kind of keep expectations in check?

Well, I think, Robin, um, so if we got back to 3% to 5% growth off of off of this year's retail, that would assume that next year, absent some other change in dealer inventory thinking we would be shipping flat to that. We will be shipping to retail this year. We're shipping well below retail to pull dealer inventory down. So if we're shipping to retail and we have a 3% to 5% growth, then yes, a lot of this would come back in terms of the year, the volume mix and the absorption because we would be shipping at levels that were consistent with prior years. The piece that, you know, it's hard to guess is, is where promo goes longer term. Some of that, as Mike said earlier, is going to depend on what competitors do and just where where things go in the market. And so I think that that's not unreasonable to expect that the majority of those volume driven costs will come back. If we are shipping at more historic levels that the challenges, we don't know what's going to happen and what's really going to look like? I mean, obviously, the industry has grown at 3% to 5% historically, and we expect that to return once things normalize. That question, as Mike said in his remarks, is we don't we don't know happens.

Yes. I mean, I think Robin would some of that points we're trying to drive is we were targeting substantial operational improvements on lot wider now relative to the opportunity that we have in our factories in terms of really to be able to lever them as we get into a growth. So these cost reductions plus the volume leverage that we will get when the market returns are coupled with the fact that the reductions that we made to our operating expenses all come back to the word surgical, we were very specific, um, I think evidence of that and the response I had around the off-road business that we've taken a lot of complexity out of that organization and really tried to streamline and simplify things things. And we believe that when we get back to growth, we will be able to live with that cost structure. That doesn't mean you don't have small things you do here or there, but we've essentially reset the cost structure for this Company as we move forward. And I think that's going to put us in a spot to really demonstrate volume leverage and get back to showing a pretty steady cadence of improvement as we get towards that mid to high 10s EBITDA target that we've got.

Okay, thanks. And then just a quick follow-up. Tom, in terms of obviously elevated versus last year, but it seems like they're kind of 2019 levels. So should we think about this level of promotions is actually kind of a normal level going forward to continuing pre pandemic that wouldn't necessarily to sort of what we saw during the pandemic. And it seems like this is the level of promotions that have been normal before the pandemic?

Yes. I would say that the promotion levels are getting closer to 19. They're not fully back to 19, but they're getting a lot closer. At least they they were on a percent of sales. You know, I think going forward, I do think that as the industry, assuming the industry all adjust to operating at a lower level of dealer inventory, which had been the goal coming out of the pandemic, I think that you'll see start to moderate right now. There's a lot of promo out there to clear 2023 models. There are certain manufacturers that still have a lot of non-current inventory. Some have cleared a lot about. We believe we have the cleanest inventory. I think as that stuff subsides and dealer inventory comes down, is there an opportunity for less promotions? Sure. We know what's going to happen now because it's obviously a pretty dynamic environment, and we're only one player in the industry do so. But I think to your question, I do think that they are relatively close on a percent of sales to 19.

Thank you. And ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We t hank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.