Good morning, ladies and gentlemen. Welcome to BRP Inc.’s FY 2022 Fourth Quarter Results Conference Call. For participants who use the telephone line, it is recommended to turn off the sound on your device. I would now like to turn the meeting over to Mr. Philippe Deschênes. Please go ahead, Mr. Deschênes. Philippe Deschênes: Thank you, Julie, and good morning and welcome to BRP’s conference call for its fourth quarter and year-end results for fiscal ‘22. Joining me this morning are José Boisjoli, President and Chief Executive Officer; and Sébastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that the actual results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult BRP’s MD&A for a complete list of these. Also during the call, reference will be made to supporting slides, and you can find the presentation on our website at brp.com under the Investor Relations section. So with that, I’ll turn the call over to José. José Boisjoli: Thank you, Philippe. Good morning, everyone, and thank you for joining us. Please turn to Slide 4. I’m very pleased with our fourth quarter performance, which concluded an exceptional year, with delivered record annual financial results reaching the highest revenue and profitability in our history. Our team continue to gain market share in our product line in the powersports industry, while managing to supply chain pressure, demonstrating solid execution once again. In fact, our manufacturing and GDP allow us to better serve our dealer and customers alike. Moreover, during the year, we’ve delivered capacity expansion project on time and on budget. Our new Juarez 3 facility added about 50% of side-by-side capacity, and our Querétaro expansion added about 30% of personal watercraft capacity. In addition, we strengthened our industry-leading product portfolio. We introduced several new market shaping products in our product line. And the highlight of the year was the introduction of the Sea-Doo Switch, which extended our addressable market, positioning us well to continue to grow in the coming years. In short, we’ve delivered an exceptional year, despite the turbulence caused by supply chain disruption. Now let’s turn to Slide 5 for the key financial highlights of the year. We delivered record financial results on both our top line and bottom line, hitting historic high on several financial metric. Our revenue ended the year at $7.6 billion, up 28% over fiscal year 2021. This growth was driven by higher volume across all our product lines as favorable pricing. Likewise, our profitability reached new height. Our normalized EBITDA was up 46% to $1.4 billion, representing a margin of 19.1%. And our diluted normalized earnings per share grew 84% to reach $9.92, and being above our guidance range of between $9 and $9.75. Turning to Slide 6 for a look at our North American Powersports retail performance and market share for the year. As you know, fiscal year 2022 was marked by continued consumer demand for our product. However, our low level of network inventory, coupled with the ongoing supply chain constraint, limited our ability to fully meet demand. To fill in this context, our team allow us to outpace the industry. Our retail was down 6% for the year, compared to the industry which was down mid-teen. As a result, we ended the year with about 30% market share, gaining about 3 percentage point over fiscal year 2021 and about 10 percentage point over the past six year. The solid performance is a testimony of our continued agility to meet customer demand. Now turning to Slide 7 for a brief look at our Q4 retail performance. Our retail sales continue to be constrained by product availability in the fourth quarter. Still, we were able to outpace the industry in North America, representing over 70% of our revenue. We’re also able to outpace the industry and gain market share in snowmobiles as we prioritize the utilization of available components for that segment in Q4, its peak retail season. Let me elaborate further on this on Slide 8. Our modular design approach, combined with our diversified product portfolio, allow us to leverage the comments component across our different product line and according to seasonality. We have illustrated this on the slide. As you can observe, we have three model of gauge that come back the mid range and the high end, which are utilized across our different product lines. In collaboration with our supplier, we can prioritize the type of gauge we needed and our team can then decide on which product line it will be installed depending on seasonality. This modular approach is a competitive advantage. It provides additional flexibility to navigate to supply chain constraints, especially with the current limited availability of semiconductors. In Q4, we prioritized our snowmobile and this allow us to outpace the industry in terms of total retail performance. Turning to consumer demand on Slide 9. Consumer interest for powersports is not slowing down. The momentum with preseason customer deposits for personal watercraft and snowmobile is continuing and reaching record level. As of March 13, in North America, personal watercraft customers certificate for season 22 are up over 25% and snowmobiles spring unit booking for season 23 are up over 100%. In addition, there are many signs pointing to sustain strong level of consumer interests in powersport. There is a continued influx of new entrants, website traffic remain elevated and Sea-Doo Switch and Can-Am off-road vehicle are also seeing strong momentum with customer preorders. So all in all, we are well positioned to capitalize on continued interest in powersports. Now let’s turn to Slide 10 for a year-round product. Revenue were up 12% to $853 million in the fourth quarter. Let me provide a brief overview of our North American retail performance. Our retail slightly lag the industry in Q4 for all of our product lines, including side-by-side ATV and Three-wheel vehicles as it was limited by supply chain disruption and our decision to prioritize snowmobile production. However, season to date side-by-side and ATV outpace the industry. While it is still early in the season, Three-wheel vehicle lagged the industry also due to a change in production schedule covering snowmobiles. All in all, we are pleased with the momentum we are seeing in our product line and are well positioned to continue to gain market share, driven by our strong lineups. A quick update on capacity expansion project in side-by-side vehicle. We have completed the ramp-up of Juarez 3, which provides us with 50% more capacity compared to fiscal year 2021. In addition, remember that last quarter, we announced the start of the Phase two expansion of Juarez 3, which plans to effectively double production capacity at that facility. The production ramp up is forecast to start in the first quarter of fiscal year 2024. With this additional production capacity, we are in a solid position to gain from the strong side-by-side demand. Turning to seasonal products on Slide 11. Seasonal products revenue were up 56% in Q4 to $1 billion. Let’s start by looking at snowmobile. 11 months into it’s Season 2022, the North American snowmobile industry is down in the low-teen percent, while our snowmobile retail is up low single-digit percent, significantly outpacing the industry. We reached a record high market share in North America in Q4 and this momentum continued in February. We are experiencing similar success in Europe, where we also reached record high market share in Scandinavia season to date. Turning to our model year 2023 lineup. To sustain our momentum, we continued the pace of innovation and introduced and now new rev Gen 5 platform available in trail and deep snow segment as well as new models significantly designed for new entrants and younger riders. Early trend in spring unit booking are very strong, which is positioning us well for success in season 2023. Turning to personal watercraft. While still very early in the season, the North American industry retail is down about 20%. While our Sea-Doo retail is down low-60% due to a lack of inventory in the network and our decision to prioritize snowmobile production. However, we have good traction in counter seasonal market. Sea-Doo is performing very well with over 10% page point of market share gain in Australia and New Zealand so far this season, and retail up over 20% for the fourth quarter in Brazil. Many signs are pointing to positive momentum for personal watercraft business. The track in counter seasonal market and the continued very strong level of customer preseason certificate in North America. Continuing on Slide 12 with a look at Powersports part, accessories and apparel and OEM engine. The segment experienced a similar trend as vehicle revenue are up 21% in Q4 and surpassed a $1 billion mark for the first time. This growth was driven by higher replacement parts revenue due to increased product usage, combined with strong unit retail, which generates an increase accessory sales. As you can see, our proprietary link ecosystem continued to be popper. Now turning to marine. Revenue were up 6% to $135 million in Q4. Looking at retail scale. Telwater is in the core of its retail season in Australia, and is performing very well, with retailer up mid-teen percent for the quarter and about 10% year-to-date. In North America, we are offseason, but our booking for season 2022 are complete. In a sense, we will be running at maximum production capacity all year. We are pleased with the performance of our bold brand. But the next big leap will happen this summer when we introduce new model year 2023 boats with the Project Ghost engine technology. With that, I will turn the call over to Sébastien. Sébastien Martel: Thank you, José, and good morning, everyone. We’ve completed fiscal 2022 with record results for our fourth quarter as we continue to experience solid customer demand for products and demonstrated strong execution in delivering on our production plan. And also we optimized the utilization of available components to maximize the final assembly of substantially completed units. With this, our revenues exceeded the $2 billion mark for the first time in a quarter as they reach $2.3 billion, up 29% over last year. Our gross profit margin ended at 26%, a slight decline from last year’s level due to higher logistics, commodities and labor costs related to supply chain disruptions. We generated $416 million of normalized EBITDA, up 33% from last year, and our normalized net income came in at $251 million, up $89 million from Q4 last year, driven by higher volume of unit deliveries and favorable pricing, which were partly offset by higher production and logistics costs and higher operating expenses. This resulted in a record normalized diluted earnings per share of $3 coming in ahead of expectations and resulting in a full year normalized diluted EPS that came in above our guidance range. With the strong results and a solid free cash flow generation for the quarter of $376 million, we ended the year with a robust balance sheet, notably with $266 million of cash and a no net leverage ratio of 1.2 times. Moreover, following the end of the quarter, we seize the opportunity to increase our revolver capacity by $300 million to bring the total available capacity to $1.1 billion, further improving the strength of our balance sheet and our financial flexibility. Moving to our network inventory situation on Slide 15. Year-over-year, our network inventory is up 21%, driven by strong shipments of missing components to dealer late in the quarter. Our strategy or retrofitting units at the dealership is bearing fruit as these elevated shipments of components to well towards the tail end of Q4 allowed us to deliver a strongest February in terms of retail. Still network inventory remains very low from a historical perspective being down 60% in comparison to the fourth quarter of fiscal 2020. Looking ahead, given the continued strong demand for products and the ongoing supply chain disruptions, we do not expect any meaningful inventory replenishment to happen until late in fiscal 2023 or even in the start of fiscal 2024. Now moving on to the guidance slide on Page 16. As we continue to experience very good consumer interests for our products, and it means we operate with low network inventory, we are well positioned to continue delivering growth in fiscal 2023, notably with total company revenues that are expected to increase 24% to 29%. Looking at the different product categories, year-round products are expected to grow between 30% and 35%, primarily driven by side-by-side with a continued robust demand for lineup the new product introductions and supported by additional production capacity for Juarez 3. Three-wheel and ATV are also expected to contribute to our growth. Seasonal products are expected to grow between 22% and 27%, driven by the introduction of the Sea-Doo Switch and by strong momentum with both PWC and snowmobiles as you saw with the high level of preseason orders we have for both of these product lines. Powersports PA&A and OEM Engines revenue are expected to increase between 17% and 22%, driven by the increase in use of vehicles, resulting in higher replacement parts sales and by the growing interest in our accessories lineup. And marine revenues are expected to grow between 12% and 17%, notably driven by the plant introduction of new boats in each of our boat brands with Project Ghost in the second half of the year. On the profitability side, our normalized EBITDA is expected to increase between 12% and 15%. Finally, we expect our normalized EPS to end the year between $10.75 and $11.10, representing a growth of 8% to 12%. Note that the share count does not account for any potential future share repurchases. Zooming in on profitability, our guidance calls for a slight contraction of normalized EBITDA margin, as illustrated on Slide 17. In fact, over the last few years, our normalized EBITDA margin has improved by almost 600 basis points, driven by strong volume growth and favorable product mix, a low level of sales program, the leveraging of our efficient manufacturing footprint in Mexico as most of our growth has been produced in these factories, and our ability to gain leverage on operating expenses. These elements were only partially offset by the inefficiencies and additional costs resulting from ongoing supply chain disruptions, which were mostly felt starting in the second half of fiscal 2022. While we have proceeded with price increases and surcharges to offset such additional costs, it remained a headwind to our margin percentage as the price increases do not cover potential margin on these additional costs. Looking ahead to fiscal 2023 and beyond, we expect to continue benefiting from positive volume and mix impact and the leverage of our manufacturing footprint. However, we do cautiously assume that we will see a return to some sales program activity at a certain point as OEMs start rebuilding inventory. Moreover, we expect that ongoing inflationary pressure and supply chain disruptions will weigh more on fiscal 2023 as we expect these elements to impact us for the full year. We do plan to continue utilizing our strategy of building substantially completed units and retrofitting them when components are received. While this strategy is accretive from a revenue and profitability standpoint, it is less efficient from a margin perspective. With this, our guidance calls for a normalized EBITDA margin about 17% in fiscal 2023, a level that we believe is sustainable longer-term for our business. Now turning to Slide 18 for a look at the expected normalized EBITDA split between the first half and the second half of the year. We expect fiscal 2023 to be more similar to fiscal 2021 with over 60% of our normalized EBITDA being generated in the second half of the year. In terms of year-over-year growth, we expect our first quarter normalized EBITDA to be down in the 40% to 50% range, as we operate through supply chain and inflationary pressures, notably resulting from Omicron-related disruptions of the start of the year, and as we lap a very strong first quarter last year where such pressures were limited. We’re also planning – we’re also expecting our product mix to be negatively impact in Q1 as we are planning to ship higher end SSVs and PWCs in Q2. While these supply chain challenges and their impacts are difficult to predict, based on the information we have today, we are comfortable with our plan and expect to return to strong roles starting in Q2, as the Omicron-related issues subside, and we start lapping a more comparable environment. Finally, looking at our return of capital to shareholders on Slide 19. As you know, our business generates significant free cash flow and we have always been diligent in managing our capital allocation decisions, prioritizing organic investments in the business and returning excess capital to shareholders. And as the business grew rapidly in recent years, we have returned over $2.3 billion of capital to our shareholders over the last seven years, and notably returned over $700 million in fiscal 2022 in the form of dividends and buybacks as we repurchased over 6.7 million shares. We believe these actions are a strong way to enhance the return we provide to our shareholders. And given our solid outlook on the business and the strength of our balance sheet, we are well positioned to continue applying the same capital allocation recipe in fiscal 2023. This is why we announced this morning a 23% increase of our dividend per share and the launch of a $250 million substantial issuer bid. We will not be taking these actions if we did not believe in our ability to continue growing the business in the coming years, and we look forward to providing you with updated M25 financial targets as we are planning an in-person Investor Day in June. On that, I will turn the call over to José. José Boisjoli: Thank you, Sébastien. Please turn to Slide 21. Before I conclude, I want to highlight the exciting announcement we made this morning regarding Can-Am, which has been highly anticipated and expected from our customers and dealer network. With the motorcycle industry shifting to electric, we saw an opportunity to reclaim our motorcycle every day, and we enter the market with an electric offering. I’m thrilled to confirm we are launching a family of electric two wheel motorcycle under the iconic Can-Am brands. Our new product are being developed with many different riders in mind. We expect these models to be available to the market in mid-2024. With the two-wheeled motorcycle, we are entering a new global market. This first family of products will address about 40% of the North American and European industry, representing an estimated 600,000 units per year. We firmly intend to grow in this market like we have done so many times in the past with new product introduction. We are known for generating growth by leveraging our technology called know-how, our strong brand and our manufacturing footprint, and we are confident we’ll do it again. What’s more with this new product line, we are further solidifying our dealer value proposition and expanding our addressable market. To conclude, we have an exceptional fiscal year 2022 We’re able to achieve these results. Thanks to robust demand for our product and our team ability to successfully manage to supply chain disruption. We expect to build on this momentum and deliver another record year for fiscal year 2023. Our guidance calls for solid growth ranging between 8% and 12% in diluted normalized EPS. However, the first half of the year would prove to be more challenging, as the Omicron variant impacted several of our supplier in the early part of the year, creating increased lifetime in the supply chain already under pressure. That said, we are confident we can achieve this guidance based on sustained consumer interest in powersports and marine, our strong product portfolio, including recent product introduction, additional production capacity from Juarez 3 and Querétaro and the upcoming significant inventory replenishment cycle, which is now expected to start in the back half of fiscal year 2023 at the Juarez and will last for about 12 to 18 months. We are well positioned to outpace the industry, given our strong brands, manufacturing agility and the benefit from additional production capacity. In addition, we have multiple levers to suspend growth in fiscal year 2024 and beyond. We look forward to sharing more detail with you in June. Finally, I would like to thank all our employees for their relentless effort during this challenging period, our suppliers and dealers for their collaboration and resilience and our customers for their loyalty. On that note, I will turn the call over to the operator for question.

Thank you. [Operator Instructions] Our first question comes from Mark Petrie from CIBC. Please go ahead. Your line is open.

Yeah. Good morning. I just wanted to follow-up on the discussion with regards to margins for fiscal 2023 and then sort of the longer-term outlook. How much of the compression this year do you think is structural versus more temporary with the supply chain? And then could you just talk about the dynamics with regards to pricing? How much of that is in the market today and what you think the opportunity is as we progress through the year? Sébastien Martel: Yeah, good morning. When I look out for next year, we did talk about like a 200 basis point decline in margin. The volume is going to be a positive tailwind for us, probably 100 basis point increase and margin coming from volume, I talked about programs being more conservative as we expect some inventory to build up in the network. And so obviously, we want to make sure that the right level of programs are set there. That’s about 100 basis points of a headwind. And the structural event coming from inflation and then efficiencies, we believe will be with us for most of fiscal 2023, and that’s about the 200 basis point headwind for us. In terms of pricing, we’ve done pricing adjustments in January, and obviously that’s reflected in our guidance. And we do anticipate as well to adjust pricing further come the next model year change. So that happens usually in the late second quarter period. Usually, we do a 1% price increase, but this year, we anticipate that the price increase will be obviously higher than the standard 1% to account for higher inflation.

Understood. Okay, that’s helpful. And José, you highlighted the strong growth that you guys continue to see in terms of new entrants or new customers entering the powersports industry. But wonder if you could just talk about sort of what you’re seeing from existing customers, I think there’s been some ups and downs with that cohort just based, I think, mostly on limited product availability. So what’s your perspective for this year, either versus last year or versus sort of pre-pandemic levels? José Boisjoli: Good morning, Mark. To be honest, not much change. Again, for new entrants, we’re tracking – we’re still tracking about 30% versus historically 20% and repurchase and then it’s remaining, the – then not much change with the existing customers. One trend is up there is the customer more and more are ready to preorder a unit to give a deposit to secure the delivery. And we saw, like I saw in my my notes, snowmobile presales is 100% above last year, watercraft is about 25% above last year, and it’s – it was too very successful year last year, then we don’t see much change in existing customers except the customer is more ready than ever before to secure their purchase sooner than never before.

Okay, understood. I appreciate the comments and wish you all the best. José Boisjoli: Thank you.

Our next question comes from Robin Farley from UBS. Please go ahead. Your line is open.

Great, thanks. Two questions. One is any talks about inventory being down about 60% versus pre-pandemic? And I think you’ve also talked about that in there probably doesn’t need to go all the way back to those levels. How should we think about what amount of shipments would you need just to restock dealers to kind of whatever that new normal will be, if you could help us quantify that as a percent of retail or shipments or something just kind of how we should think about what that restocking amount is? And then basically, the second question on the electric bike market and by the way was that introduction in 2014 is that – fiscal or calendar 2024, the market that when you refer to the 600,000 sort of addressable market, is that like combustion engine motorcycles today that you think become electric? Or can you talk about how big the electric bike market specifically might be in, let’s say, calendar 2025? Thanks. Sébastien Martel: Good morning, Robin. I’ll take the first question and José will take the second one. On the restocking opportunity, there is a big opportunity for BRP to just replenish the inventory. Obviously, the industry has grown – our market share has grown as well. But to put it in simple terms, when I look at the restocking opportunity, it’s about a quarter’s worth of wholesale revenue. That’s how big of an opportunity it is. So – and when is that going to happen? Most likely, as I said, it’s going to happen next year in fiscal year 2024. So with that, I’ll turn it over to José. José Boisjoli: Yeah, good morning, Robin. And then just to make sure, I will repeat a bit what I said in my note in the intro, then first what we’re introducing this morning, it’s our first family of products. And basically, we’re targeting at the beginning North America and European market, then it’s the industry that we are addressing with that family of product in North America and Europe is about 600,000 units a year. This is combustion motorcycles today. That being said, we believe that the motorcycle industry will might shift faster to electric than other product line and a few reason. First, those products run above 0 Celsius, then it’s easier to electrify. There is less drag on the motorcycle than any product line. And obviously, sees your access to rechargeable patient. And if you can project the – what’s happening in the car industry, many city or countries are restricting access to downtown with combustion engine cars. We believe this could happen also on two wheels. Then because of all this, we felt that it was the right thing to do to launch Can-Am two wheel. And I would like to highlight again that it’s leveraging our know-how, the electric power pack that we’re developing for all our existing product with the modular approach will fit this lineup motorcycle, it’s the Can-Am brand, the existing dealer network, we might have to open up new dealers in Europe, but in North America, most of our dealer would – could carry the two-wheeled vehicle. And obviously, it’s leveraging our manufacturing footprint. That for us, it’s a, I would say, a very good addition to our plan and is the way we continue to intend to grow.

Is there a percent even if it’s very ballpark of what you think that markets? What percent of what’s internal combustion engine today would be electric by 2025? José Boisjoli: Yeah, this is a tough question, Robin. The – how fast the customer will accept electric is very difficult to predict. We see right now in the car quite a very fast acceleration of those trends. Obviously, there is more offering than ever before. On top of it, there is some restrictions that are coming in many country then and it is trendy, a lot more people want to ride electric, then we don’t have much hard data on this. But we want to be in front of the wave to make sure that we are one of the first to benefit off this trend in terms of consumers and we believe it is the right thing to do and a very good opportunity for us.

Okay, great. Thank you very much.

Next question comes from Martin Landry from Stifel GMP. Please go ahead. Your line is open.

Hi, good morning, everyone. My first question, Sébastien, on your revenue guidance of a growth of 24% to 29%. I’m wondering if it’d be possible to break down the growth between units and pricing? Sébastien Martel: Yes, is that your only question or?

No. No, I have another question. Sébastien Martel: When you have about introduced in terms of pure pricing there for next year, full year compared to this year, you have about a 4% increase coming from pricing,

So, okay. Okay, that’s helpful. Thank you. And then, I believe you mentioned that 17% EBITDA margin implied in your guidance for fiscal 2023. It’s a level that you see how sustainable on a go-forward basis for future years. It’s much higher than your EBITDA margins that you had before COVID, which were around 12.5%. So wondering if you could bridge for us the difference, what are the the puts and takes that explains that uptick in your profitability? Sébastien Martel: Yeah, if you go to Slide 17, which I shared this morning, obviously, there are several Whitsundays, but the main one is, obviously, our business has grown compared to what it was pre-COVID. And also, our footprint – our manufacturing footprint has also changed. We are leveraging our Mexican operations, we have grown in Mexico, and that obviously provides us with a huge opportunity to improve margin through the more efficient and better cost operations. And also, the third element, I think, is the overall environment around sales programs. There were a lot of learnings that came out of COVID, that we will continue applying going forward. And so there’s a few 100 basis points that will be coming from a, I guess, a more, a better managed retail programming environment, better managed inventory as well at the dealer network, these would be the three main elements that would drive sustained margin growth. And when you look at other OEMs, in the past, many of them have been able to sustain these types of margins as well. And one of the big drivers was the volume that came with their businesses. So that’s obviously something we’re benefiting from.

Okay, that’s helpful. Thank you, and congrats on the great results. José Boisjoli: Thank you, Martin.

Our next question comes from Craig Kennison from Baird. Please go ahead. Your line is open.

Hey, good morning. Thanks for taking my questions. Looking at world headlines, they’re certainly troublesome to say the least you’ve got war, oil, inflation, and then central bank policy. I guess first, have you seen any change in consumer trends since the outbreak of war? And then secondly, if we do enter a recession, what are the key pages of your recession playbook for management? José Boisjoli: Good morning, Craig. First, we didn’t see since the beginning any change in customer interests or behavior for our product line. As you know, we stopped delivery in Russia. But for fuel price, a lot of people talk about your price, but the increase in fuel costs is quite high. But this is a low impact in the cost of – for customer, and I’ll give you some number. A snowmobile customer and this is coming from our warranty data. The average customers on snowmobile spend about $500 season average on fuel. Then if you increase 30%, that’s $150. ATV customer is $200 a season, then that 30% translates to $60 more for a season. Then the fuel price, obviously, nobody liked it. But it’s like a minimal impact on the customer ownership for a season. The rate of inflation is – not the rate of inflation, interest rates are quite low. Then when you combine all this, we didn’t see yet any slowdown on any of customer interests. Sébastien Martel: Then if I talk about your question on recession, obviously, we’re a much different company than we were 10 years ago at the last recession. From a just a pure balance sheet point of view, obviously, we have a very strong balance sheet with low leverage at 1.2 times. And when you look at the overall powersport industry in the environment, there is very low inventory in the network. That means no need to put promotions and you’re able to continue to ship units to dealers, so you don’t have to shut off operations so drastically that what happened in 2008, 2009. Obviously, as a business, we’re much more diversified as well. Our product line, more product lines, we also have different product offering in terms of price points, entry level models that are there that weren’t there back in 2008 or 2009. Our business from a geography point of view, as well as well diversified with over $2 billion in revenue and international. Two other points, obviously, our manufacturing footprint in Mexico offers us with a lot of leverage opportunity in terms of efficient manufacturing. And I guess the last point and the key point is that it’s our lineup. We have a super, super good lineup that is very competitive. And so as a player in the market, we believe that we would come out very strong, as demand for the innovations that we’ve introduced recently is very good, then we expect that it would continue to outpace the industry, if a recession were to happen.

That’s very helpful. Thank you. And then just a follow-up on the electric motorcycle strategy, could you give an indication for what you think the margin profile of that business might be when it’s fully mature versus what maybe your core business performs at? Sébastien Martel: Well, obviously, we’re entering in this business because we believe it’s one, a good opportunity for us into what’s the profitable opportunity. And all our businesses, we have, obviously, multiple product lines, and they all have varying degrees of profitability. And we’re not entering into this business because we believe it’s going to be an underperformer versus other product lines. We are leveraging some of the obviously our footprint or supply chain or leadership, or brands. And so that provides us with an opportunity to be cost-efficient. And as you know, and as we’ve said, in the past, we are insourcing the technical know-how, as we’ve done for internal combustion engines, we’re doing the same thing with electric – electrification of our products. And so that also provides us with a cost competitive advantage in order to own this know-how, obviously, you’re – you make usually better profit. So overall, we’re excited about the opportunity. And it’s – it could be a sizable opportunity for us down the road. José Boisjoli: I also would add to Sébastien, you know us, we like to push technology and innovation. I mean, we intend to come with the product that will wow, the customers, we came up with some idea that we believe will make a difference. And we feel it’s a good opportunity.

Great, thank you.

Our next question comes from Xian Siew from BNP Paribas Exane. Please go ahead. Your line is open.

Hi, guys, Sean here. Thanks for all the details. Maybe on market share gains. How are you thinking about that for 2020 – or for fiscal 2023? You mentioned some limited availability hurt, maybe share in some categories for the quarter. But then you maybe that catches up and then you have strong volume expectations. Maybe some help on how you’re thinking about that for next year. And within that, I guess, what are your expectations for resale sales in fiscal 2023? José Boisjoli: Then on the retail, our market share gain, right now, the demand for product and the presales unit are so high that the market share gain depend more on our ability to supply in which product line in which quarter then I give an example. In Q4 because we’re getting into the peak of the snowmobile season, we favor snowmobile at the defend of watercraft in North America because in the North – in the snow belt, you don’t need a watercraft in Q4. Now we are shifting in Q1. And in Q1, obviously, the snowmobile production is done and we’re shifting to watercraft. Then starting from probably for the next 12 months, you need to be careful not to look at the retail by product line, by quarter because it depends a lot more what we prioritize versus the need for the industry and the supply chain constraints we could have. And that’s why I gave the example of the gauge family to better explain the idea. Then in term, obviously, I cannot give you this morning the market shared with planning by product line, but you see the type of growth we’re planning on the top line. Then this will obviously reflect on market share gain. That’s the extent I could answer your question.

Okay, got it. Yeah. And then that makes sense. And then maybe on the retrofit, this quarter you had a nice increase in the units kind of driven by that as you gave them the parts. I guess how many more units are out there in terms of retrofit? I know you’re adding more, but how many more – how do you think about that retrofit evolution to the year maybe? Sébastien Martel: We will continue using that strategy for the year. it will vary depending on the product line and the quarters in the month. But just to give you an appreciation of what it meant for Q4, the retrofit unit, the impact on revenues was about slightly above 5% impact on revenue. It’s our ability to accelerate the retrofitting of units that were there in Q3 that we retrofitted in Q4. Well, that’s the magnitude of it, and I’m not expecting it to vary that much quarter-to-quarter. José Boisjoli: But again, the strategy is to run the factory at maximum capacity. And when we have a missing part that is easy to retrofit, we prefer to ship it to the dealer because that’s easier to ship the component and you have a lot of theater repairing the unit then to serve our customer to deliver a unit to their customer in the season way faster, and this is a strategy that dealer prefer that we do this versus reducing our production and reducing their orders.

Okay, got it. Thank you.

Our next question comes from Brian Morrison from TD Securities. Please go ahead. Your line is open.

Hey, thanks very much. A couple of softballs, José. Just within those retrofits, can just break down by product line? Is that mostly ORVs at this point in time? José Boisjoli: It varies – we ship – we are in the peak personal watercraft season. So if we’re missing components on watercraft, and it’s something that could be refitted at the dealership, we’ll ship personal watercraft, it’s going to vary.

Okay. And then in terms of your working capital, you got a pretty big tailwind. I’m wandering in dollar volumes, what do you think the unwind will be this year? And if I look to fiscal 2024, should I expect CapEx still in that $700 million range? José Boisjoli: For CapEx, yes, you should expect it in that range going forward. And, yes, this year, the working cap should be a tailwind probably in the range of $200 million to $300 million.

Okay. And then last question, just with – kind of you alluded to a previous question this morning, just with world events. Is there any change to your geographic allocation? Like is Europe still going to be a 15% to 20% of your forecast revenue? Or is that what’s in your outlook? José Boisjoli: Well, obviously, we’ve reflected the – our decision to exit Russia and our guidance, and Russia was probably a business over $250 million, or 5% of – less than 5% of our revenues, call it, $200 million to $250 million. Ands so obviously, we’re not expecting a lot of revenue to be generated from that market this year. But the good news is we’re able to reallocate these units to other markets that are in need of units. So we’re not expecting a negative financial impact from our decision to pause shipments in Russia.

All right. And then just the cadence of switches that still $500 million target over three years and and how you should get there is kind of linear? Sébastien Martel: It’s still the target.

Thank you.

Our next question comes from Joe Altobello from Raymond James. Please go ahead. Your line is open.

Thanks. Hey, guys, good morning. Just a few questions on the outlook. I guess, first, you talked about EBITDA and how that’s going to progress throughout the year? Can you get a sense for what the cadence is for revenue, particularly in Q1? I’m trying to understand if a decline in Q1 EBITDA is mostly margin-related, or is there some revenue impact as well? José Boisjoli: Some of it is revenue-related as well. We expect revenue to be probably in line with what we had last year. Obviously, deliveries impacting by – impacted by the supply chain mix as well. But obviously, we’ve had a few price increases compared to last year, which should compensate, but flattish revenue.

Okay, that’s helpful. And maybe secondly, the implied EBITDA declined in Q1, it sounds like it’s mostly supply chain. Is there some commodity unpack there as well? And then secondly, I assume this is industry-wide, it’s not the ERP-specific in terms of what you’re seeing in this quarter? José Boisjoli: But what happened is beginning of the year, a few of our supplier, mainly in Asia was hit by the Omicron variant and some were operating at, let’s say, 50% of capacity. And that created like a whole into the supply of their components, which will reflect in the beginning to Q1. And this is why we give you some guidelines on how the Q1 will be affected.

Okay. But it’s up to the commodities, right? Are you taking any commodity inflation? José Boisjoli: In the, as I said in my question I had earlier, it’s about a 200 basis points impact coming from commodities and efficiencies this year.

Got it. Great. Thanks, guys.

Our next question comes from George Tome from Scotiabank. Please go ahead. Your line is open.

Good morning, guys. Congrats on a strong quarter and outlook. Seb, can you maybe quantify the dollar value that we’ve incurred in terms of costs for supply chain in fiscal 2022? Sébastien Martel: Well, obviously, the math is pretty easy to do, I’ll just pull out my numbers. If you look at the overall margin impact coming from cost efficiencies, or I’d call it at 300 basis points impact coming from inflation and inefficiencies.

Okay. Go ahead. Sébastien Martel: And obviously, most of them happen, I would say, probably in the last eight months of the year. Earlier in the year, it was more tempered in terms of inflation.

Okay, got it. And if we were to look beyond fiscal 2023 with the restocking, can you maybe quantify some of the margin pressures or headwinds you can face from future I guess, unfavorable mix and sales programs kind of coming back? Sébastien Martel: Obviously, we’ve introduced a lot of new products with a richer mix, so I’m not expecting mix to significantly impact us negatively. I’m expecting programs to increase. Obviously, we’ve benefited from a low promotional environment. And my expectation is that next year, we’ll probably have 100 basis point negative impact and that’s going to continue on in the years to come after.

Okay, thanks. And maybe for José, is that $500 million in revenue goalposts that you guys put out for Switch, and when you maybe care to put a venture out there in terms of when – how many years you think we’ll need to attain that number? José Boisjoli: But like I said, when we introduced Switch, we’re targeting to be North of $500 million within three years, and we’re tracking to be there.

Okay, awesome. Thanks a lot, guys. José Boisjoli: Thank you.

Our next question comes from Benoit Poirier from Desjardins Capital Markets. Please go ahead. Your line is open.

HI, good morning, everyone, and congrats for the good quarter. Just coming back on the electric to will market, could you talk about where do you see the revenue opportunity three to five years down the road? How sizeable it could be? Any thoughts about the potential market share and the average selling price overall? José Boisjoli: Yeah. Obviously, Benoit, we are two-year – the production was started in mid – the delivery will start mid-2024, then we are two-year in advance and we don’t won’t, for competitive reason, give too much color on all this. What I can say is, again, phase one off product and phase one of market strategy is North America and European market 600,000 units a year. And you can expect that in time. We couldn’t introduce that family in other region, but we don’t know yet. We need to better do the analysis. And the other thing is there could be other family of product to come. But for this first family of product in North America and Europe, introducing it in mid-2024, we would be disappointed if we will not be not affected billion-dollar in sales by 2030.

Okay, okay, that’s great color. And would you be willing to disclose where those units will get manufacture, José? José Boisjoli: Yeah, Querétaro.

Okay. And now if we look at PWC, obviously, there are some peers – some of your peers that’s troubled in 2021. You were able to gain some market share and one of your biggest peer announced that production costs of 30% in production for 2022. So could you talk a little bit about how views the differentiate from your peers and whether you’ll be able to grab further market share gain for PWC in the upcoming season? José Boisjoli: Like I said, Benoit a few minutes ago, the retail – the demand is so strong and there is so many units presale, that the market share depends more on our ability to supply the product, then our strategy have been to run our factory at maximum capacity. And then if we have backorder, either we retrofit them or the dealer retrofit it. That’s a different strategy than some of our competitors have done who they prefer reducing their production. But our goal is to run Querétaro with maximum capacity and to deliver as many units as we can and physically in season 2022 and season 2023 – fiscal year 2023 because that’s a great opportunity. On top of it, I would say that our product is extremely popular. Watercraft is benefiting of a lot of popularity. Right now, the FISH PRO is doing extremely well. And we will introduce in fall other new products, then we are right now in the I would say a very exciting period for watercraft and we’ll try to benefit as much as we can from it.

Okay, that’s great. And last question with respect to capital deployment, obviously, if we take into account your SIB, NCIB and upcoming free cash flow generation for fiscal year 2023, you’re going to end the year with still, what I would say, a very strong balance sheet. So any thoughts about the capital allocation and whether the two time leverage is still level you would target the longer-term? Sébastien Martel: As we said, we’re comfortable operating within a range of 1.5 to 2 times. And as you’ve mentioned, yes, we have obviously a strong balance sheet and good financial flexibility continue returning capital to shareholders. As you saw this morning with the SIB is a good indication of this. Obviously, we have confidence in the business, we have confidence in the growth as well that we’re able to deliver. And we believe that announcing SIB today is a good step in that direction.

Perfect. That’s great color. Thanks for the time. José Boisjoli: Thank you. Sébastien Martel: Thank you.

Our next question comes from Derek Dley from Canaccord Genuity. Please go ahead. Your line is open.

Hi, and I’ll echo congratulations on a great quarter and outlook. Just as it relates to the R&D spend, historically, it’s been in the sort of 4%, 4.5% range as a percentage of revenue. Should we expect something similar next year? Or will that be going up with the electric motorcycle project? Sébastien Martel: We should expect something very similar next year when you look at the overall decline in EBITDA margin, and that will come from gross margin. But from an overall operating expense, as a percentage of revenue, should be very similar to what we have in fiscal year 2022.

Okay, that’s helpful. And then just in terms of – and I know this is a tough one, but in terms of the – you guys are calling for supply chain issues to relent in the back half of the year, the back three quarters of the year. I mean, what is kind of giving you confidence that that’s going to be the case? Are you seeing some incremental improvements on the hedges today? José Boisjoli: I would say, right now, the main difficulty is semiconductor. The rest there is always some ups and downs, but it’s more manageable. Then right now is semiconductor that remain more difficult. Our supplier – our main key supplier believe that it will get better in the back half of calendar year 2023. And the other one that is a bit difficult is the shortage of container and transit time that sometime is not unplanned. But this is why because our supplier of semiconductor believe it will get better. We believe it will get better in the fall of 2023.

Okay, great. Thank you very much. José Boisjoli: Thank you.

Our next question comes from Cameron Doerksen from National Bank Financial. Please go ahead. Your line is open.

Yeah, thanks. Good morning. I guess just to follow-up on the supply chain question. Is there any, I guess, incremental risks that you see to the supply chain just from this war in between the Ukraine and Russia? I mean, is there any European suppliers that are cause for concern? Or is there any incremental risks around semiconductors that you’re, I guess concerned about? José Boisjoli: Yeah, first, we have no supplier either in Russia and Ukraine, then that’s at least positive. And obviously, a lot of people talk about neon, we know that Ukraine was a big producer of neon for semiconductor company and electronic company. But it seems right now to the – it seems to have found ways to manage that. Then so far, no big supplier or supply issue caused by Russia and Ukraine.

Okay, perfect. And just my second question, just going back to the, I guess, the EV motorcycle, I mean, you sort of touched on some of these points. But obviously, there’s, quite a few other manufacturers and startups trying to build electric motorcycles. So I just wonder if you can maybe detail a little bit more, what is going to differentiate BRP in that market, which right now looks to be a pretty crowded market? José Boisjoli: And obviously, at Can-Am, we won’t disclose too much this morning. We are two year before shipment. But I mean, it’s – you know our track record with product like SPARK, product like the Ryker, product like Sea-Doo Switch. And, again, the new Can-Am electric motorcycle will leverage the existing power – electric power pack we’re developing for the other product lines. And for us, you’re benefiting of a modular electric power pack that will build in-house. And we found ways we believe to come out with some interesting innovation into the motorcycle industry, leveraging, again, the brand, manufacturing footprint, the dealer network done for us, it’s an additional product line that is continuing to build our product portfolio that makes a ton of sense. Then we believe, and this is, I mean, our track record proven, we believe we will become a legitimate OEM into the motorcycle industry.

Okay. And just to follow-up, I mean, I guess obviously, your original plan was to roll out electric vehicle versions of basically all your products over the next several years. This is obviously the first announcement here. But is it still your expectation that you’ll keep to that timeline for electric product introductions across the product portfolio? José Boisjoli: Yeah, our product line will be – will offer some electric model by the end of 2026.

Okay, great. Thanks very much. José Boisjoli: Thank you.

Our next question comes from Fred Wightman from Wolfe Research. Please go ahead. Your line is open.

Hey, guys, I just wanted to follow-up on this semi finished inventory commentary. I think last quarter, you gave us sort of a bridge from the reported dealer inventory number to what that would look like with the semi finished units. Is there any chance that you could do that again this quarter? Sébastien Martel: Yeah, if obviously, we had very little inventory in the dealership that was unfinished. Obviously, what occurred is that we were able to ship a lot of components in the back half of Q4. Just to give you some color, if we had not shipped these components in the dealership, the inventory over a year would have been down in the 20% range, instead of up 21%. So obviously, it had a big, big play in Q4 in terms of inventory availability. And as I said, it obviously helped retail in February as we had a record month from a retail point of view, this past February.

Perfect, guys. Thank you.

We have no further questions. I would like to turn the call back over to Mr. Philippe Deschênes for closing remarks. Philippe Deschênes: Super. Thank you, and thanks, everyone, for joining us this morning and for your interest in DRP. We’ll look forward to speaking with you again for our first quarter conference call on June 3, and we hope to have you with us at our upcoming Investor Day later in June. Thanks again, everyone, and have a good day.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.