Polaris Inc. (PII) Q4 2024 Earnings Report, Transcript and Summary

Good day, and welcome to the Polaris Fourth Quarter 2024 Earnings Call and Webcast. All participants will be in a listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. J.C. Weigelt. Please go ahead, sir.

Thank you, Chuck, 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 fourth quarter and full year 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 2024 fourth quarter and full year as well as our expectations for 2025. 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 the 2024 fourth quarter and full year actual results and 2025 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 the call over to Mike Speetzen. Go ahead, Mike.

Thanks J.C. and good morning everyone. Thank you for joining us today. Before we discuss our Q4 results and our expectations for 2025, I'd like to begin today's call by reflecting on the past year and our key focus areas. 2024 presented significant challenges across the powersports industry leading to a prolonged down cycle driven by various factors affecting OEMs, dealers and consumers. As Polaris navigated these challenges last year, I'm proud of how our team executed and stayed focused on the areas we could control. They maintained strong relationships with our dealers, launched innovation to consumers and enhanced our operational capabilities and efficiencies. Our goal remains to position Polaris to emerge from this down cycle even stronger. We concluded 2024 with a robust portfolio of new product innovations, including the new Indian Motorcycle Scout lineup, RZR Pro lineup, quality improvements in Ranger and new boats from Bennington and Hurricane. This commitment to innovation is unwavering as we continue to lead the industry, investing over 4% of sales into R&D. You've seen us ramp up our innovation productivity over the past couple of years with category defining vehicles and enhanced vehicle capabilities and comforts and we expect these trends to continue. Some of this innovation was showcased with championship race wins in RZR, Snow and Indian Motorcycles. This includes our RZR Factory racing team's recent first place finish at Dakar earlier this month in the Side-by-Side class. This is the second year in a row that our vehicle has outmaneuvered and outpaced everyone else in the field and walked away with the top spot on the podium. Our lean journey is in full swing with over $200 million in structural savings realized last year and additional opportunities identified for 2025 and beyond. I understand it's difficult to visualize the current impacts on margins given the negative absorption we're experiencing given reduced shipments, but we are making real changes that should be reflected in our stronger incremental margins going forward and help us achieve our long-term target of mid to high teens EBITDA margin. 2024 was hard for everyone in the industry, our dealers included. At our dealer meeting last summer, we committed to our dealers to have our – that they have our support in both good and challenging times. We executed on that commitment by reducing dealer inventory while also providing additional flooring support to help them navigate these challenging market conditions. We reduced ORV dealer inventory by 16% year-over-year through lower shipments, but this commitment came at a cost as we realized approximately $140 million in negative absorption from lower build levels and left the year with higher finished goods inventory than we would like. Although difficult actions like these are important as we adhere to our commitment to protect dealer health and maintain production in line with retail demand. While we executed well on the items we could control, it was a difficult environment to forecast and our strategic actions to protect dealers and compete led to pressure on our financial results. The retail environment didn't help as retail was down from our initial expectations for the year, but more impactful was our decision to cut vehicle shipments to help reduce dealer inventory. We also saw a higher promotional environment, adding almost 200 basis points of pressure to our EBITDA margins for the year along with negative mix, which accounted for more than a point of EBITDA. Headwind, the headwinds we experienced during the year were far greater than our original guidance, but we believe many of these are short-term in nature. I remain confident that we're taking the necessary steps to emerge stronger as we strive towards higher incremental margins to improve profitability and innovation to help drive share gains. Looking specifically at our fourth quarter results, North American retail was down 7% driven by similar trends we've seen throughout the year with the addition of a very weak snow season and strong youth retail. We achieved the updated financial targets we laid out in October. We also achieved our ORV dealer inventory reductions target established mid-year. As I mentioned earlier, ORV dealer inventory was down 16% year-over-year versus our goal of down 15% to 20%. We told you we'd anchor our financial results and shipment plans to our dealer inventory goals. We did just that with ORV shipments in the fourth quarter being reduced approximately 30% versus Q4 2023. This reduction caused negative pressure within our business but was necessary as we partnered with our dealers to help them navigate this prolonged down cycle. Adjusted gross profit margin of 21.1% was up modestly given realized savings from lean and operational efficiencies as well as a favorable compare due to a one-time warranty expense last year and on-road. Adjusted gross profit and EBITDA were pressured by negative absorption associated with the shipment cuts. Somewhat offsetting these headwinds was the reduction to our variable compensation plan, term profit sharing and executive bonus plan due to the financial results in 2024 as well as structural cost reductions made to size the business to current market conditions, which included salary headcount reductions. Adjusted EPS of $0.92 was down 54% as a result of the previously mentioned factors. Interest expense was in line with our original expectations and our tax rate came in slightly favorable. Breaking down retail further in off-road we saw similar trends across the portfolio relative to prior periods this year. Typically snow is an added benefit this time of year, but we are currently in the middle of another difficult snow season given the lack of snow in the flatlands. This is the second season in a row with below average snow resulting in elevated inventory at dealerships and sharply lower retail. We've already lowered our build schedule to account for this week's sales season to date and this is account for in the guidance given today. I think it's also important to call it our youth – to call out youth and our performance of recreational retail. It was up strong double digits in the quarter due to a positive holiday selling season and a favorable compared to last year. Outside of youth, recreational side-by-sides were down mid teens as we still see growth in crossover offset by pressure in RZR. Utility was down low single digits with modest pressure on both Ranger and ATVs. Sequentially, our Ranger retail decline was lower in Q4 than in Q3. Utility was down low-single digits with modest pressure on both Ranger and ATVs. Sequentially, our Ranger retail decline was lower in Q4 than in Q3. On-road retail in Q4 was again driven by softness in the heavyweight segment. We saw share gains and growth in our midsize bikes given the successful launch of our new Indian Motorcycle Scout lineup, however, this was muted by the challenging dynamics in the overall industry. At our motorcycle dealer meeting last week, we launched several new bikes including Sport Chief, Roadmaster Power Plus and Chieftain Power Plus. The Power Plus models incorporate our new 112 cubic inch version of the Power Plus engine, which we spent two years developing and refining through the Indian Motorcycle Racing program as demonstrated in our 2024 King of the Baggers Championship. The response from dealers was positive on new products and cautious on 2025. In Marine, retail was down modestly in a seasonally light quarter. And although we are entering the boat show season, feedback thus far has been positive. I commented last quarter on how we've seen other OEMs running at elevated promotional rates as they work through higher than normal non-current inventory levels. This dynamic remains ongoing in the market today and continues to drive short term share gains for those OEMs. We do not view this tactic as sustainable or one that can drive long-term high quality share growth. We believe these aggressive promotions are the result of over shipping into a declining retail environment, resulting in dealers being saddled with non-current inventory that cannot move without these elevated promotional dollars. If I could sum up dealer sentiment right now, I would say they are cautious. They are closely watching inventory across all categories and OEMs. Dealers are seeing OEMs take different approaches in this prolonged down cycle and are therefore choosing to keep inventory light as they continue to experience low retail. Just this last quarter, we've seen news of OEMs filing for bankruptcy or shutting down production for a prolonged period of time, as well as OEMs putting part of their business up for sale, which leads many questions – many to question the future of some brands. Dealer health is something we watch closely through our Polaris Acceptance joint venture and currently there are no alarming signs of an abnormal number of dealers and financial distress. Dealers are taking the appropriate steps to manage this downturn by surgically lowering inventory levels and focusing on growth areas such as service to improve cash flows. Throughout this time, we've worked hard to stay close to our dealers in order to be a strong partner. I think it's important to acknowledge that while we met our dealer inventory goals for the year, that does not necessarily mean shipments will begin to grow. We are going to continue to actively manage dealer inventory and given the most recent retail data, we're forecasting shipments to be down in the first quarter. Lastly, I want to comment on ridership and customer trends and interest as it relates to the offered portion of the business. According to our ORV ridership data, ridding remained equal to or slightly above pre-pandemic levels. Of course, we saw a spike in our ridership data during COVID, which peaked in 2022. That started coming down and seemed to have bottomed out in late 2023. Since then, ridership has steadily increased with our latest data showing a mid-teens percentage increase versus January of 2020. We also track short-term and long-term repurchase rates, all of which are in line with pre-pandemic levels. The five-year repurchase rate has been consistent for over four years unless the data tells us that this trend continues, we should expect a greater number of repurchases in the next several years given the higher retail levels in the early months of the pandemic. We believe this data around repurchases and ridership supports the notion that interest in the off-road industry remains healthy, and customers continue to enjoy being outside on our vehicles. Shifting gears to our focus on lean and operational efficiencies. We are in full swing with these initiatives, and the team is executing at a high level. This was always going to be a longer-term journey measured in years versus quarters. There were initial opportunities that we were able to capture in 2024. The team went above and beyond to deliver over $250 million in savings relative to our initial goal of $150 million, driven by the need to respond to lower volumes and taking an appropriate amount of cost out of our business. Our focus areas are commodities, parts, logistics and plants, and these will continue to be the areas of focus going forward. As you know from past calls, headwinds and absorption due to lower production in these current market conditions are masking much of the benefit, but the changes are real and sustainable. More importantly, we validated that there is a larger opportunity to improve within our existing footprint, given an ample runway to increase profitability as volumes return from cyclical lows. We now have lean lines up and running in Monterrey, Mexico and Huntsville, Alabama and are currently establishing a lean line in Roseau, Minnesota. Our efforts resulted in a meaningful drop in variable costs in our plants. However, this was offset by the negative absorption from lower production. Raw inventory was down 25% last year, and we plan on additional reductions to finished goods inventory in 2025. All of this should lead to lower working capital and increased cash flows. We will continue our lean journey in 2025, focusing on sustaining and building on the gains we've made so far. Our savings target in 2025 is approximately $40 million through these efforts. Given we are expecting lower production volumes in 2025, much of this will continue to be offset with negative absorption. However, we're executing on these items to build higher incremental margins for Polaris when volume does return. This work has always been about the longer-term value, and I am confident that we're taking the right steps to realize this goal. Now I'm going to turn it over to Bob to provide you with more details on the financials. Bob?

Thanks, Mike. And good morning or afternoon to everyone on the call today. Fourth quarter sales declined 23% compared to last year. Similar to the third quarter, the main factor for our sales decline was our decision to actively reduce dealer inventory in the second half of the year by shipping less product to dealers. Retail performance was slightly below our expectations during the quarter due to a challenging snow season. Mix was also negative as we are lapping some difficult comparable periods when we were still filling the channel with new products such as RANGER XD and Polaris XPEDITION. In addition, we are shipping fewer premium products to provide more attractive entry points for consumers and help dealers manage their flooring expenses. Lastly, as Mike mentioned, the environment remains highly promotional. Our international business was down 7%, driven by a drop in shipments as we have adopted a similar strategy in the international markets as in North America to help dealers manage their inventory. PG&A sales were negatively impacted by the lower factory shipments and slower whole goods retail. Going back to Mike's comments on ridership, we did see growth in items like parts and oil outside of our snow business. Historically, these are good indicators that our customers are out enjoying their vehicles. Gross profit margins were negatively impacted by volume and mix as well as the negative FX impact from a strengthening dollar. Somewhat offsetting these headwinds were savings within our operations and the cuts we made to our employee profit sharing program associated with the subdued financial performance in 2024. A little background on our profit sharing program as it differs from what many companies refer to as a bonus plan or annual incentives. At Polaris, we maintain an equitable approach while both sharing in the success of our efforts and the challenges during downturns. Our profit sharing program is not exclusive to executives or limited to a specific job level. Instead, it is deeply rooted across the organization and even extends to the majority of our U.S.-based factory employees. This program is a cornerstone of our culture, helping us attract, retain and engage strong talent. It is also slightly larger than similar programs at other organizations, reflecting our commitment to shared success. The program adjusts based on financial performance with lower payouts when results fall short of targets. That was the case in 2024, which provided a benefit to our financial results. However, this dynamic will reverse in 2025, which I will address when discussing guidance. Turning to Off-Road, sales were down 25% due to lower volume and negative mix, snow had an oversized impact in the quarter given sales in retail were both down over 30% versus the prior year driven by the lack of snow across many important regions for trail riders. North American ORV retail in the quarter was flat with weakness in RZR offset by strength in use in the crossover category. We believe retail in the ORV industry was up mid single-digits for the quarter. Promotions and discounting from other OEMs primarily on noncurrent products are driving most of the share dynamics in the industry today as they work to clear out aged products. Gross profit margin was positively impacted by operational efficiencies partially offset by negative mix and financing interest. As we look at the first quarter, we expect shipments to remain down in Off-Road as we continue to manage dealer inventory in a declining retail environment and we have a difficult comparable period where we were still filling the channel with RANGERs. We also expect margins to be a headwind with unfavorable mix partially offset by net price. Switching to On-Road, sales during the quarter were down 21%. There continues to be a divergence between our midsize and heavyweight business. In midsize, we are winning with the all-new Indian motorcycle Scout lineup we launched last year and continue to hold the number one market share position. In the heavyweight segment, we are [indiscernible] from competitive launches in a more challenging market environment as these motorcycles are positioned at higher price points. We also saw elevated competitive promotions during the quarter that negatively impacted sales. Indian motorcycles gained modest share during the quarter driven by the success of the Scout launch. Adjusted gross profit margin was up 235 basis points driven by an easier comparable quarter last year when we booked a one-time warranty expense. Outside of that margin would have been pressured given the mix headwind in heavyweight bikes and elevated promotions. In Marine, sales were down 4% in what is typically a very light seasonal quarter as the industry ramps up for boat show season. The latest industry data we have shows the pontoon industry was down 11% in 2024 as OEMs continued to work down inventory and consumers decided to forego larger discretionary purchases. We have received positive innovation on our feedback in Marine this year from dealers as we head into boat show season. Order flow of these new boats has been encouraging as dealers want to showcase the innovation to consumers in person on their dealer floors. Gross profit margin in Marine was down given unfavorable absorption from lower volumes. Moving to our financial position, we have a strong balance sheet and continue to prioritize maintaining investment grade metrics. Our capital deployment priorities start with investing in our core business. Our second priority is preserving our dividend as we have raised the dividend for 29 consecutive years. In 2025, we intend to put a higher priority on paying down debt. As we focus on working capital improvements and plan for lower capital expenditures, we expect 2025 to be a strong year of cash generation. Last year, we made progress on lowering raw material inventories but also built finished goods balances as we work to rebalance our production line. In 2025, we will execute a plan to drive down this high level of finished goods inventory. We expect this to be accomplished with improved planning, a reduction in rework and lower unit production levels. Accordingly, we expect to start seeing finished goods inventory decline later in the year. By lowering our working capital needs and planning for lower capital expenditures, we believe we can generate approximately $350 million in adjusted free cash flow this year. We remain confident in our financial position and are driving our teams to improve working capital in this part of the economic cycle. Next, I would like to discuss our 2025 full year guidance and the assumptions that led us to these guidance metrics. First, sales are expected to be slightly lower than last year. The two biggest factors driving this decline are lower expected shipment volumes and the continued strength of the U.S. dollar. Regarding the volume drop, we've accounted for a sizable cut in production in our snow business given the second season in a row of poor riding conditions in the flat lands. It is also worth noting that we expect positive net price with some moderate price increases. Mix is expected to be a headwind during the year, but more pronounced in the first half as we have difficult comparison periods given channel fill and strong RANGER NorthStar sales in the first half of 2024. By segment, Off-Road sales are expected to be down low single-digits. Again, our decision to reduce no inventory is the biggest factor driving this segment's lower-than-anticipated sales. We expect a flattish year in ORV. In On-Road, I've already noted that we are taking down shipments due to a weak industry. In Marine, we are expecting low single-digit growth from a market share capture and the innovation across our three brands of boats. We expect EBITDA margin to be down year-over-year for the following reasons: first, the reset of our employee profit sharing program, which is expected to have the biggest impact. Second would be the mix headwind I noted earlier as well as lower volumes to actively manage dealer inventory in a challenging industry. Third, the lower production targets also put added pressure on our margins through negative absorption. Somewhat offsetting these headwinds, we continue to expect savings within our operations as we make progress on our lean journey. We also expect net price to be positive with modest price increases being marginally offset by promotional dollars. Putting all this together, we expect adjusted EBITDA margin to be down 170 to 200 basis points. Given these pressures, we expect approximately $1.10 for adjusted EPS this year. Cost headwinds are driving lower earnings despite some of our mitigation efforts. The reset of our employee profit sharing program, the expected drop in volume and lower mix plus negative absorption are expected to be a headwind of almost $3 to adjusted EPS. We are working hard to offset some of these pressures with continued savings expected within our plants as well as the benefit of our cost reduction efforts last year. Costs such as depreciation and interest expense are also eroding EPS since there is no additional volume to offset and these are somewhat fixed year-over-year. Note that our guidance does not assume a change in regulatory policy, which includes tariffs. Some quick thoughts on the first quarter, sales are expected to be down over 10% due to a difficult comparable as last year we were still filling the channel with product. As I noted when discussing Off-Road, we are expecting some material year-over-year headwinds from mix and FX in the quarter, where we are planning to continue reducing shipments to manage dealer inventory. We expect this drop in volume, coupled with the specific margin pressure I mentioned will result in adjusted EPS loss of $0.85 to $1 in the first quarter. Our expectations are for earnings to improve and turn positive in the second quarter. Importantly, we believe the innovation we have brought to the market and the work we are doing with our dealers put us in a very strong competitive position in this industry. We expect to gain or hold market share with this innovation and look forward to being the partner of choice with our dealers as we navigate this market. We believe our proactive efforts on cost and efficiencies will set us up well for a strong recovery when the industry returns to growth. We are also taking actions to generate more cash this year with specific actions around inventories. As Mike shared consumers are still riding and we view this as a positive indicator for the longer-term viability of this industry. We are bullish on powersports over the long-term, understanding this is a cyclical business. We know these are challenging times for consumers in our industry. It’s easy to take a short-term view. However, I am confident we are taking the appropriate steps today and are focused in the right areas to navigate the current environment while still executing towards our longer-term initiatives around growth and stronger earnings power. Our ability to execute this year should have a direct impact on our ability to emerge stronger. The Polaris team is aligned on what needs to be done in order to define success for all of our stakeholders. With that, I will turn it back over to Mike to wrap up the call. Go ahead, Mike.

Thanks, Bob. Our key focus areas for 2025 are not all that different from 2024. I believe these focus areas set us up to be a strong partner with our dealers as we navigate the prolonged down cycle in the powersports industry and strengthen our operations become more efficient and position Polaris to emerge from this down cycle even stronger. We continue to value our long-term partnership with dealers striving to be their OEM of choice. We’re actively working with them to navigate the current environment and we expect shipments to be down in the first quarter as we continue to manage dealer inventory levels. We have worked closely with dealers to align their inventory and RFM profiles to an industry that is expected to be pressured by a recreational consumer dealing with elevated interest rates, inflation and higher debt. Turning to innovation, it’s been several great years of innovation from Polaris. We expect to continue marching forward on innovation in 2025 and beyond. I’ve already discussed the new Indian Motorcycles launch last week. In off-road, we currently have one of the most innovative and diversified portfolios in the industry and we look to strengthen our position in the [indiscernible] segment later this year. In Marine, customers will get their first look at the upcoming boat shows at the completely redesigned helms and Bennington pontoons as well as the new Series M. We feel this next wave of innovation can continue to deliver on what customers want while leaving our competition in catch up mode. As noted earlier, we expect to remain on the lean journey we began a year ago. The results we saw last year are real and encouraging. We will build on those results in 2025 knowing there is still more work to do and additional savings to be created. I am proud of the team’s dedication to changing their behavior and embracing this lean initiative. Lastly, we are highly focused on working capital, specifically inventory, to help improve our cash generation. We made progress last year on raw materials but grew finished goods as we adjusted production schedules to protect dealer inventory. For 2025, we reduced our build schedule to drive down finished goods inventory and generate more cash. This should be more evident during the back half of the year, but the initiatives internally have begun. Similar to dealers, we remain cautious about the industry. Retail trends have not given us a reason to change our outlook, nor do we see much change for the consumer in 2025. We have committed to dealers that we are going to actively manage their inventory with the cadence of production leading to lower shipments as we start the year. I do want to be clear that our teams are closely watching the data for any type of change in trends and we are ready to shift into high gear if we see demand improving. This is certainly a dynamic time in the history of powersports and we stand willing and able to partner with our dealers as we navigate toward better times together. As has been the case, we remain on offense with our investment innovation and our cadence of new vehicle launches. This is deeply rooted in our DNA and a key driver of our global leadership in the powersports industry. The decisions we make today are not made with short-term results in mind. We continue to build a company that we believe can emerge stronger and we remain committed to the mid-cycle financial targets we gave in 2022, when we talked about driving shareholder value through mid-single digit sales growth, mid to high teens EBITDA margin, double-digit EPS growth and mid-20s ROIC. Until then, we’re focused on items with – that are within our control, we have a strong balance sheet, a robust innovation pipeline coupled with great dealers and a team of Polaris that is willing and able to tackle any challenge. I am confident that there are better times ahead for us, our dealers and customers and also for our investors. We appreciate your continued support and with that, I’ll turn the call back over to Chuck to open the line for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Fred Wightman with Wolfe Research. Please go ahead.

Hey guys, good morning. I just wanted to start with the EPS guide and if we go back last quarter, Mike, I think you sort of hinted that something flattish versus the 2024 guide was a reasonable starting point and then obviously the formal outlook today came in flat a bit below that. So I’m wondering if you could just walk us through what, if anything changed. Did we sort of misinterpret what you were trying to convey? How should we think about that?

Yes. Thanks, Fred. I guess, I’d start with obviously we were in October, so we were trying to avoid making too many comments about 2025. My comment was specifically, you got to start at $3.25 and that was deliberate because we had a number of analysts that were projecting much, much higher numbers that we knew were just not where the business was headed. And the key word there was start with – key words start with, I also made comments about the fact that you’d have to adjust for some of the moves we’ve made in incentive comp. And we obviously didn’t provide a lot of details about that at the time. But as Bob just went through the incentive comp adjustment and profit share adjustments pretty sizable. And then the reality is we were watching what was going on with retail in October, November and December. And that was in performing and instructing the trajectory that we saw things going into 2025. And at the time, we said the $3.25, that was based on the revenue we were delivering in 2024. And the reality is our revenue is going to be down 1% to 4%. And as Bob indicated, given softer retail in the fourth quarter, we ended up holding back on some shipments and now we have a higher finished goods inventory. So you’ve got a lower revenue base, you’ve got a lower production base. So we’re going to be producing less than what we’re shipping into the channel, and that’s going to create some deleverage that we have in the business. And then as I commented on my prepared remarks, the snow industry is under pressure again. We met in early January based on seeing how things closed out in December and given where dealers were and made the decision that we were going to pull our production down even further and work to get dealer inventory down even further in the first half. And then in the Marine segment, obviously, given continued weakness from a retail standpoint, as you all saw in the recent notes that came out on SSI. We’ve made the decision to keep pushing dealer inventory down there. So there’s a lot of factors, which is why we would prefer to steer clear from trying to give guidance for the next year in October of the prior year. There’s more factors that build in. We shipped a lot of premium vehicles in, in 2024 as we pushed the XPEDITION and the RANGER XD into our dealerships. And so there’s going to be less of those shipping in. And then as I mentioned, we’re going to have some value products coming in later in the year that are going to create some mix headwind. And then Bob pointed to foreign exchange. So there's a lot going on. What I would come back to is, as we emerge from this, and we were very deliberate, both Bob and I, about the indicators we're watching to make sure that people are still active in our segment and they are and they're riding more than they did before the pandemic. We're gearing this business to have a lower fixed cost base and the efforts we're making from a lean standpoint are going to mean we can get more throughput through the factories with less input, meaning that the incremental is coming out of this and the performance for our business will generate higher EPS. And that is what we are focused on right now. Bob and his finance team have done an excellent job from a treasury standpoint, making sure that we're in a good spot for investment grade rating and protecting our debt position with our banks. And when you look around at the field of folks in our industry and the struggles and problems that they're having and businesses going out of business and solvent, businesses being sold, I think we're managing through this as best we can. Bob, is there anything you'd add to that?

Yes, just a couple of things, Fred. As you guys saw in CDK October retail looked probably the best of the quarter. And unfortunately, we've seen that dynamic a few quarters in a row now where the first month starts off well and then it tails off. And we saw that again in the fourth quarter. So that drove a more conservative view of what we think 2025 retail will look like. And then to Mike's point, there are a number of other factors. Interest will be relatively flat for the year. We're going to start paying down debt. We'll prioritize paying down debt after we invest – make the necessary investments in innovation and in our factories and pay our dividend. So we'll start to bring that interest cost down, but we're not factoring in any substantial interest rate cuts as obviously everybody has seen. The market seems to think that that's going to not be much of an opportunity in 2025. So there's some of that is just sort of adjusting the size to the – size of that to the new size of the business. And as we work through that, those things will continue to be less of an impact, but we're going to have to deal with it in 2025.

Okay, thanks. And then just on the free cash flow outlook, you guys are guiding for a pretty nice year-over-year improvement despite the EBITDA and the earnings outlook. CapEx is coming down, you've mentioned some potential tailwinds or expected tailwinds from finished goods, but can you just sort of walk us through the big moving pieces there, please?

Yes. I mean CapEx will be down to the low 200s. We've had a fair amount of capital build in 2023 and 2024 as we built those, the new facilities in Mexico and Vietnam, that work is substantially complete. And those – as you recall, those are mostly back shop facilities in Mexico and then a motorcycle assembly facility in Vietnam. We'd also updated paint facilities and other things like that in the factory. So we're kind of through that cycle. We're going to focus on the capital side on tooling. So we're driving innovation and then high return projects in the plants, things that we need to do to support lean investments for quality and safety obviously. . :

Hey, Fred, back, back to your first question, if you look at our 2024 EPS results and you adjust for the two big things that Bob mentioned, the incentive comp plan, where we essentially cut the plan in half given the performance and then a recalibration of foreign exchange. It really would say that 2024 EPS was more like $1.69. So you're really bridging from $1.69 to $1.10. And – because we're planning on paying out the full profit share and incentive plan in 2025 and that's where you can really see the effects of volume and the deleverage. But I think that probably helps bridge the difference between 2024 performance and where we're expecting 2025 to play out. That incentive plan which Bob did a great job of highlighting why we do what we do and it's been a cornerstone of this company since its founding in 1954. That'll help kind of bridge why the performance looks so dramatic on a 1% to 4% revenue decline.

Okay, really helpful. Thank you guys.

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

Thanks. Hey guys. Good morning. So I guess first question on the industry. You mentioned a few times here this morning that you do expect to continue challenging environment here in 2025. So I assume you're expecting another down year from an industry standpoint, but are you guys assuming we're going to start to see some growth in the back half of the year?

Yes. I mean, right now, we view the industry as probably down low single digits in 2025 and a lot of that is really being driven by motorcycles, marine and the snow categories. And I think it's tough, Joe, certainly for us from a retail expectation standpoint, we think the first half's still going to be continued challenges. And that really is just reflective of the trends we've seen coming into the fourth quarter. And as we exit the fourth quarter, there is anything magical about the New Year. And as Bob indicated, right now, we're – who knows how many interest rate changes there will be this year. But consumers still are carrying a lot of debt. Inflation is kind of stalling out in the mid-2s, which would signal that there may not be that many interest rate cuts this year. And as we've talked about in the past, it's going to take time for this to work through. The interesting thing is, as we look at the performance in the industry, kind of the 2024, 2025 combined to pre-pandemic levels, it's really the rec areas that have struggled the most. All of which are either flat to down to before the pandemic. And we think that's largely being driven by interest rates, discretionary spend pullback. The utility category has held up low single digits growth and I think that bodes well in terms of at least being a little bit of a shock absorber. And as I talked about in my prepared remarks, we know what the repurchase rates are. We know people are using these vehicles. But it's a tough environment. They paid full MSRP, they're got a low finance loan, trade in values are going to be lower than what they would have expected when they first bought the vehicle. They're trading into higher interest rates. So it's going to take a little bit of time. I would hope that things start to improve in the back half. Certainly, that would be encouraging for us in terms of forward momentum. But I think we're going to steer clear of making any big prognostications right now.

That’s very helpful. Maybe just to follow up and I’m hesitant to ask about it. But tariffs, you mentioned this morning, you’re not assuming any additional tariffs in your outlook. But obviously it’s been discussed. So I’m just curious, I think last year tariffs were about $70 million to $75 million. Given what’s been discussed, how much incremental tariffs could we potentially see in 2025?

Yes. We’ve got about, call it $60 million to $70 million of tariffs in the business today. And that’s largely the 301 tariff List 1, 2 and 3 that were put in place under Trump’s first administration. I’ll just give you – I’ll give you some basic data. We’re going to steer clear of trying to forecast where this is all headed. We’re obviously watching it very closely. We have some excellent government relations folks out in D.C. who are staying very close to this. As you know, it changes by the hour. As of yesterday we were hearing that it’s far more targeted around specific areas like semiconductors. But there’s no telling where things could go. I’m sure there’ll be some short-term things that may get pulled back because they’re being used as a negotiating tactic. So at this point we’re staying focused on the things we can control within the business. If you look at China, we procure about $0.5 billion of components out of China. About half of that goes into the U.S., about half of that goes into our Mexico facilities. Obviously the stuff going into the U.S. is where we’re paying tariffs today on all the applicable items that hit in List 1, 2 and 3. We have a couple billion dollar worth of revenue that comes out of our Mexico manufacturing facility. It’s about a third of our production in terms of sales that come into the U.S. and we have less than $100 million worth of revenue that comes out of the U.S. into Mexico. We’re less than $0.5 billion worth of revenue into Canada, and we import less than $50 million into the U.S. What I would tell you is, for China, we have been working since the original set of tariffs were put in place. We’ve pulled down considerably by about a couple hundred million dollars the amount that we’re procuring out of China. The team has plans in place. As we’ve talked about, this is not stuff that you can do overnight. These supply chains have been established for decades. But we’ve been working with our Chinese suppliers. Our sourcing organization has worked aggressively to find alternative supply. We’re going after an aggressive amount during 2025, and then we obviously have plans identified for 2026 and 2027. The list gets harder and harder as we get lower and lower into the components that we would be going after. And that’s what we’re going to be focused on. I would say that, we have relative to the rest of the powersports industry up until this point, been incredibly disadvantaged. We’re the only U.S. manufacturer, yet we’re the only ones paying tariffs. Some of our competitors, three of them specifically, have pretty heavy manufacturing bases down in Mexico. And obviously, we would be impacted, but they would be more impacted, some of which have almost all their manufacturing coming out of Mexico. So it’s a volatile environment. We’re going to stay focused on the things that we can control as it relates to how much we’re procuring out of China, and we’re going to do what we can to help influence policy where appropriate.

Understood. Thank you, guys.

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

I was hoping to follow up on the tariff topic and then also the dividend. But with respect to tariffs, Mike, and the last point that you made, do you have a sympathetic year in Washington that appreciates, frankly, that you build more units in the U.S. and also pay the highest tariff? Just feels like whatever policy is not editorialized, but whatever policy they’re aiming for feels to be missing the mark in powersports in a fairly big way? And I’m wondering if you have a sympathetic year there.

Yes and no. We were successful during Trump’s first administration. If you remember, we got a pretty considerable list of exemptions, but the exemptions were short lived. So, yes, they were sympathetic, they listened, but the message at the end was get out of China. And they gave us some time, although it was not anywhere near as much as, as we would need. The reality is, we’re kind of going at it alone because the rest of our industry is not facing some of these same challenges. We did make the point loud and clear that we are the only American powersports company and we are the ones being disadvantaged both against the Japanese as well as the Canadian competitors and Chinese. There’s new players involved, but there’s still some consistent ones that will be there. We have attempted to make some inroads, but they are not at a point where they’re willing to engage with industry at all. As you can see from Trump’s first week in office, he’s had a number of priorities that have been largely outside of this. But when we have the opportunity, we’ll continue to fight the good fight. And for now, we’re just going to run the business. And as I said multiple times, control what we can control.

Yes. I think, Craig, we have to sort of focus on the positives, we have a really good balanced footprint. We have production in Mexico, in the United States, in two facilities for off-road and then obviously others for marine and motorcycles and then, another off-road plant in Poland. So we’ve got a pretty balanced footprint which is a little bit different than other players in the industry. And you can’t leverage that immediately to move things. But I think we’re well set up for the long-term and as Mike said, we’ll continue to push that issue with regulators around how the industry actually works.

Yes. Thanks. And thanks, Bob. I’m wondering, Bob, maybe on the dividend, I know it’s important to you, you’ve got the aristocrat status. But if I look, I mean, earnings are going to be well under half of the dividend payment in 2025. So maybe just help us bridge that gap and help us understand the levers you can pull to generate the cash to get to your 30th consecutive year of dividend growth.

Sure. Yes. Look, I think as we talked about earlier, I think we feel good about our free cash flow for 2025. Obviously we have looked at the dividend. The yield is pretty attractive right now for investors. And as Mike and I were on the road, I guess late November, early December, we got a lot of feedback from some newer investors that they were looking for their entry point or had found their entry point. And they liked the dividend yield because they felt like it gave them protection and a good stream of income while we're waiting for the industry to recover. So we didn't want to make a sudden change. We believe this is short-term in nature. We got through the dealer inventory, the bulk of it in 2024. Obviously, we'll have to manage a little bit depending on what happens in the market in 2025. In 2025, we're dealing with the knock-on effect of that with our build being lower than our ship to get dealer – to get finished goods inventory right and drive cash. And we feel like it makes sense to use that cash to continue to pay the dividend because we do see, as Mike said, customers are still writing their products. We're not seeing people leave the industry. We're not seeing a lot of used products in the market. So it's not that people aren't writing. It's just this delayed replacement cycle, particularly in the recreational focused products. And we think that's going to continue to get better as consumers work through their balance sheets over the next couple of years. And so we don't want to make a sudden change to the dividend that then sort of is a takes us off the track we've been on for a long time based on a one-year dynamic, which is similar to the decision we got during COVID. We felt like that was short-term. And unlike a lot of companies, we continued our dividend and that turned out to be the right decision. So that's where we are here, too.

Great, thank you.

Thanks, Greg.

The next question will come from Megan Clapp with Morgan Stanley. Please go ahead.

Hey, good morning. Thanks for taking our question. I wanted to jump back to the EPS guidance. So Bob, I think it was in your prepared remarks, you said that the various cost headwinds you talked about where you said incentive comp volume mix absorption were around $3 in earnings. Is there any way to quantify of those headwinds? And of that $3, what is more short-term or transitory in nature? It seems like the absorption just given all the commentary around finished goods inventory and production not necessarily turning on immediately when shipments pick up is the biggest driver, but any sort of contextualizing around what's transitory or structural in nature would be helpful?

Yes. I mean that's a deep question. Let me break it into a couple of pieces. As Mike said, a very large chunk of it, if you took out profit share, returning the profit share and things to a normal level. And then FX, you would have effectively gotten the $3.25 we made this year down to roughly $1.70. So when you proceed from there, I mean, I think the big things there's volume and mix. We've talked about we'll be down $100 million in revenue. Mix is negative, again, because we did ship a fair number of XDs, Expéditions and Ranger NorthStar into the channel in the early part of 2024. Now we'll be shipping more to retail because we don't have to build any inventory. So that's probably the next largest chunk after the profit sharing stuff. Volume is a little bit of a smaller impact. The plant deleverage is mostly offset with other cost improvements at the plants. And then the other big items are really just price and promo. We think we are taking a little bit of price this year, which we haven't done in a couple of years, been very selective price increases as we models. And also, there's some kind of carryover benefit from promo. Obviously, as we were working to clear our side of the channel, we had elevated promo on certain models. Some of that won't repeat now that we've cleared the channel. I don't think the promotional environment is going to change a whole lot. It's been relatively aggressive, at least don't think at least in the first half of the year that will continue. The other big kind of negative, and it's a negative and a positive is our earnings from financial services will be down, and a lot of that is driven by our earnings from PA. And players acceptance, our wholesale finance JV. And the reason the earnings are down is that the dealer inventory balances are down, and so the amount of dealer interest paid to the JV is down. And that's something we wanted to see, but that's a $0.20 plus headwind from an EPS perspective in the year also.

Hey Megan, the other thing I'd maybe put a little bit more context is, obviously, as we refund the profit sharing incentive plan, I don't want to say that, that number doesn't really move upward. It can move up a little bit if performance is better, but the performance has to fund obviously an incremental payment, but it's capped at a certain level, right? So almost view it as a cost base that you can leverage off of – the other thing is, obviously, we're not going to be spending a lot on share repurchase in the near term. So as you come out of this and we start to improve earnings, you've got the ability to get back to share repurchase and drive that share count number down. And then the last thing is we're going to be pivoting here in the near term to paying debt down. And obviously, as we come out of this with improved cash flows and we drive that debt level down, that drives the interest cost down. So I think when you take all that and you couple it with what we've done to our fixed cost structure, we took almost 10% of our salaried workforce out last year, and it was oriented at the higher level of the company. VPs were the heaviest impacted because we restructured to simplify the business. And you combine that with the lean work that we're doing in our factories. I mean, you can really see where we can get a lot of leverage out of this business on a little bit of growth when we get to a point that the industry has recovered.

Okay. That's really helpful. And then I'm sorry to ask another tariff question. But Mike, you gave a lot of numbers there in terms of your exposure. I think I kind of added up to maybe $1.5 billion of COGS that could be at risk between Mexico and China. Correct me if I'm wrong, but you do even 10%. I know our President's talked about 25%. So you do the math there, that would be a really large headwind. So, again, I understand you don’t really want to theorize on what would happen. But in that kind of scenario, if we’re doing the math right, what would be the strategy? Would you kind of look to price? Is there an ability to pull some of the supply from Mexico into your plants in the U.S., understanding that would probably be at a higher per unit cost too? But just trying to kind of understand what the strategy would be, given it does seem like it could be a big number?

Yes. I think first and foremost, I mean, if that were to happen, I think we as American Systems would have bigger issues in front of us because I think there would be a larger economic implication given the trade flows between Mexico and the U.S. and even between Mexico – the U.S. and Canada. So I think there’s going to be a tempered approach is my guess, and I think it’s going to be very specific and there’s going to be negotiations. I think you saw that play out with the President of Colombia relative to immigration. So that’s what I’m hopeful for, but – if we get to a point where it’s a reality, as Bob pointed out, I mean, we’ve got the most diversified footprint. And I’m not suggesting that we could flip a switch and move everything today. It would take time. But we do have a footprint. We have a presence that we would be able to leverage. If we view this as a more permanent situation that we needed to move content back into the U.S., we certainly have footprint. But I think we’re a long, long way from being at that point. Trump understands how the economics work, the automotive, the appliance industry, agriculture, powersports, obviously, everything has a heavy presence in Mexico. I think he’ll probably use some short-term tactics to get an earlier bite at negotiating on USMCA as well as driving some of the other things around immigration and drugs and those types of things to get them higher up on the agenda. But they’re an important trading partner, important part of the U.S. economy. And I just don’t see us doing anything that impairs that long term.

Okay. Thanks, Mike.

Yes.

The next question will come from Steven MacGregor with David MacGregor [ph]. Please go ahead.

Yes, good morning. Thanks for taking my questions. I guess, I wanted to just drilling a little bit around the discussion on incremental margins. And you highlighted with the progress that’s being made is always not really visible, I guess, given the absorption issues. But you’ve been quite a bit of progress made on incremental margins. Can you just open that up a little bit for us and give us some context for what we should expect in the recovery phase of the cycle?

Yes. I mean, it’s going to depend obviously where the volume comes back in the products. But we have taken a substantial amount of indirect and salaried cost out of the plants. To Mike’s point, we’ve done the same at the corporate level with the reductions we had in salaried head count of about 10% last year. So I think we’ll see incremental EBITDA margins of – in the 30% range if we start to see volume come back. And then to Mike’s point, you – in addition to the sort of leverage on the manufacturing, the profit share is – it’s not fixed, but it’s relatively fixed. It will only go higher incrementally if earnings are well above targets. And then interest is sort of at a flat base right now, and we’re going to continue to work that down. So you’ll see even greater leverage on the EPS side than you will on the EBITDA side as things start to recover.

Got it. Thanks for that. And then just within your guidance, can you talk about how far into the year, you’re assuming the production curtailments extend obviously, a first quarter issue you discussed that already, but are you contemplating that extending through 2Q? Or how should we think about that?

Yes. So the way the build, we’re going to ship more than we build this year and as to take down finished goods. The – it will be more pronounced in the first half, but it will continue through Q3 because we’re not trying to shake the system too much. We’ve got to still maintain level production down the lines that we’re still running. We’ve been working to take off second shifts and rebalance lines for slower flow rates to account for the lower volumes. So we’re not trying to upset the whole system and do it all in the first quarter. And I would say it’s most pronounced in the first quarter, and it will continue into Q3, but at lower levels.

Thanks very much and good luck.

And some of that too is snow because snow we only build certain times of the year, and we are taking a big production cut in snow just given the lack of snowfall two years in a row to drive down dealer inventory. So that’s part of what that drives the dynamic into the back half of the year.

Great. Great. Got it. Thanks.

Yes.

Your next question will come from James Hardiman with Citi. Please go ahead.

Hey, good morning. Thanks for fitting me in here. So just focusing on the critical ORV segment. Inventories were down 16% to finish the year, which was in line with what you had targeted. Any way to help us out with that – the numbers on a – from a terms perspective – and then as we move forward from here, I guess I’m a little unclear as to whether or not the job is done there. Should we expect wholesale to equal retail in 2025? And if not, how much further should we expect that to come down? Thanks.

Yes, James. From a DSO standpoint, think of the number of hover somewhere around 100, obviously, well below where we’ve been historically. So really proud of the work the team did and for the patients our dealers had to work through that. We led the industry as we look at all the metrics around current versus noncurrent days of supply. So I feel really good about that. I think we set the right tone and hopefully others will follow. From an inventory standpoint, the two biggest areas we’ve got left to work on are really snow, which, obviously, we couldn’t see until we were in the middle of it in December/January. And we're going to continue with that through the year. And then we got a little bit more work to do from a marine standpoint. I mean, we have been making huge cuts, so that's nothing that the team didn't work hard to do. It's just as you guys saw in the boat note, marine continue to weaken through the fourth quarter. And so there's a little bit more that we have to do there. Within ORV, in aggregate, we're pretty good. The issue is, as we've got some buckets where we think the rec side is going to continue to be weak, so there's going to be more to do. And as you know, the way the whole inventory works is as you're dealing with declining markets, you've got to take out kind of on a ratio of 1.25 units to 1.5 units of inventory to retail, because you're trying to pull the inventory down on a forward basis and account for declining retail market. So there's a little bit more to do in those markets and we've committed to the dealers that we're going to watch the rec side and make sure that we're adjusting shipments down. That said, on the utility side, we see some pockets of opportunities where they could use a little bit more inventory. And so, we'll be very surgical in the way we do that. But I would view ORV as largely just kind of more tweaks, nothing order of magnitude on the scale of what we had to contend with this past year.

Got it. And then, obviously, this is going to be a pretty lean year in terms of financial performance. I just want to make sure that we're good from a debt perspective. I think you have a couple of covenants, interest coverage and a leverage ratio covenant. Maybe help us with the math there. It seems like those could potentially be in jeopardy. Is there an opportunity to renegotiate some of those credit agreements? Or am I just looking at that the wrong way? Thanks.

Yes. I mean, so we did renegotiate those credit agreements in the fourth quarter. And obviously, our forecast was evolving, but we did take that into account. And so we harmonized the EBITDA coverage between the private notes and the credit facility, which gave us more room in the private notes because they had historically been a lower coverage ratio. And then we changed from an EBIT interest coverage ratio to an EBITDA interest coverage ratio. And so we feel like we will be okay with those going through 2025 from the way we've looked at how orders unfold. But obviously, we maintain a great relationship with our bank group, which is what allowed us to be able to refinance the debt in the Q4 and reset that credit facility going through 2029. It's also why we're focused on debt pay downs to try to give ourselves more room. And so we're aware of it. We don't see that being an issue. Obviously, if the industry changed and was dramatically different than what we think will – we'll work with our bank group, which we've historically not had any issue being able to work through challenges during times like COVID and the sort of things that have happened over the last year. So I feel good about where we are and the team has done a nice job getting us set up better than we were prior to the renegotiation in Q4.

I mean, James, we're fortunate we have a fair number of the same bank group, lender group and management team that were here during the early parts of COVID where we did it very similar. We got out ahead of what we saw as a potential issue and started renegotiating. And so I give Bob and the team a lot of credit for proactively working to mitigate the risk. And I think if you step back and look at the rest of our industry there's a number of folks out there struggling pretty mightily right now, and knock on some wood. I think we – I think we've tried to gear the business appropriately steer through some of the choppy water and now hopefully we've got everything set up for when that recovery starts in the industry. I think we'll be in a really good position to take advantage of that.

Can you guys share those updated covenants? I mean, obviously tariffs are pretty big swing factor. So just, or at least point us in the right direction where those might be?

Well, so James, I don't want you guys think that we had tariffs as part of that conversation. Nothing's happened yet, so there's nothing to talk about with the banks. Obviously, if we get down that path, we'll have to go back and have some of those conversations with them, because you could model tariffs about 95 different permutations at this point, and there's just no point in having that discussion with them until we know what we're dealing with.

Yes, I mean they're both 3.5 times coverage, both of the two major covenants, but all the details around how the calculations actually are done are in all the debt-filings that we have already published.

Got it. Thanks guys.

Thanks.

The next question will come from Tristan Thomas-Martin with BMO Capital Markets. Please go ahead.

Good afternoon. Just a point of clarification quickly; I think you said powers – overall powersports retail for the industry down low single digits in 2025. Is that right? And if so, what does that imply for offered vehicle? I think you said motorcycles, marine and snow down?

Yes. I mean, we're not going to sit here and try and prognosticate about every element of the industry, but I think you're going to see more stability in off road, given the utility component. It's much larger than the rec components within ORV. And then obviously motorcycles, boats, those areas we think are going to continue to be down from an industry standpoint.

Okay. And just on marine specifically, I think you called out early season boat shows being positive. So are we just assuming it's going to weaken a little bit as we progress through the year? Maybe the shows are a little bit of that head fake?

Could you repeat that? It's a little quiet on our end. We couldn't quite – it couldn't quite catch the light as part of the question.

Yes, just trying to square early season boat shows being positive versus marine retail being down for the year?

Yes, I think we're – look, when we say positive it's more – it's a sentiment driven thing. So we've got a lot of new innovation in the market, particularly with Bennington and Hurricane. The reaction of dealers from the dealer show and then customers at the boat shows that we've seen have been – have been good. People like the product. We think interest has been good at the boat shows. I mean, attendance at boat shows has been a little bouncy. Atlanta, obviously, they had snow, which is not conducive to getting good attendance at a boat show. And this cold snap, it probably hasn't helped some of the southern boat shows either. Minneapolis seemed pretty good. Haven't gotten final numbers yet, but so I think, I think we're seeing positive sentiment from consumers in terms of their interest in the boats. I think we're just being cautious around whether that turns into stronger retail. We do feel like we've got some opportunity to take share this year in marine because we do have a lot of innovation in the market, a lot of really new product and we'll be focused on that. And I think the industry itself is probably going to be down a little bit. I don't know that it'll be a continued double digit down like it was in 2024, but I think I don't see a massive recovery coming either in Marine in 2025.

Okay, if I could sneak one more in really quick just on the off-road vehicle side, is there any thought to maybe continuing to go even lower either through mix shift or kind of pricing on the affordability spectrum just to kind of offset some of the headwinds to the consumer?

Yes, I mean, I kind of tip my hat to it a little bit in the script. I mean it’s; it's been an area we've been focused on and if you step back and look, I mean, Indian motorcycles with the Scout Sixty, that's really more about getting a bike that's sub $10,000. You look at what Bennington did with the SSV lineup, completely refreshed. That's really an entry level for the pontoon. And we're focused from an off-road vehicle standpoint in a couple different areas. And, I think you'll see us making moves later in the year. It's an area that's, it's, an incredibly important entry point for consumers. And when you're in more stressed economic times like this, it's important to make sure that we still have an attractive lineup of products to bring customers in because we know that whether they come in through a Value RANGER or a Trail RZR or through an ATV, they tend to stick with the brand and we can move them on up through the category. So, I think it gives you a pretty good idea where we're thinking we need to head.

Okay, awesome. Thank you.

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

Thanks. I wanted to ask about the U.S. dealer footprint. It seems like even at higher volumes than this, even at the volumes you have been out that there was a fair amount of dealer overlap. Is there any thought to maybe having a smaller dealer footprint?

Yes, Robin, we've. Starting a few years ago, we've been really actively working what the optimal footprint is. You know, the NorthStar program has gone a long way, and we have pulled the footprint down ever so slightly over the past few years, and we'll continue to work it with the optimal. It's what I've told the team. And, I think there's broad alignment. It's less about the number, it's about the coverage and whether we want to have individual points, which are vital, especially in some of the rural markets, or look at contiguous rooftops where we have a dealer who has more presence across an MSA to be able to better manage inventory, provide really good customer service and the best customer experience, and they come into the dealer. So, I'm really happy with what the teams done. I think our dealers are in a good spot. One of our best weapons outside of innovation is our sales team. I just sat with our sales team last week and talked about priorities as we head into this year and reinforce to them that when we go out and talk to our dealers, the first thing out of their mouth is, typically, we have the best sales team in the industry. And so, we're really focused on not necessarily the count of dealers, but how we support them, making sure that they're running optimal.

Yes, there's been some talk in the industry around our footprint. I just want to clarify some things. I mean, we take a very sophisticated look at the footprint. Ours is larger, and certainly that does create some points of overlap. But we work with an outside firm that advises all the major sort of retail companies to do a very scientific look at population relative to where our stores are, geographic issues like rivers and bridges and traffic patterns and where people will go and not go. So, it's not. It's not an unsophisticated analysis, and we continue to work to optimize that. But there's been some discussion around the footprint, and just because we have more than others, that that's the cause of the overlap, and it's a much more sophisticated view than that.

Okay, great. Thank you. And then just one…

Sorry, Robin, you had another question?

Oh, yes. Lastly, it's just a very small clarification. Just because you guys have given lots of color And I really appreciate that. Just in terms of when you mentioned the industry, you'd be expecting the industry to be down low single digits, especially because of snow and marine and motorcycle. And I think you said you'd be shipping flat ORV, and I know you said rec down, more utility felt like would stabilize. Was the bottom line your expectation for retail for either yourself or for the industry, for ORV in total to be slightly down, or was that closer to flat, maybe slightly down based on your comments?

Yes, I mean, we think ORV is going to be slightly down for the industry. And obviously our effort, our goal is going to be to hold share. I do think share will be bouncy as we go through the year as we continue to see some of these OEMs discounting certain products that are aged out in the channel. Hopefully that will correct itself over the next couple quarters. But we don't have perfect visibility into what they're sitting on. But yes, I think the industry will be down slightly on the ORV side.

All right, thank you. That's it for me. Thanks.

Thank you.

Thanks, Robin.

This concludes our question-and-answer session as well as our conference call for today. Thank you for your participation. You may now disconnect.