Good morning ladies and gentlemen and welcome to the BRP Inc.'s FY '23 Third Quarter Results Conference Call. For participants who use the phone lines, it is recommended to turn off the sound on your device. And I would like to turn the meeting over to Mr. Philippe Deschênes. Please go ahead, Mr. Deschênes. Philippe Deschênes: Thank you, Julie. Good morning and welcome to BRP’s conference call for the third quarter of fiscal year 2023. 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 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 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. Our teams once again demonstrated incredible agility and resilience as we navigated through the unprecedented challenge of a cyber-attack which forced us to temporarily suspend operations early in the quarter and yet managed to deliver our strongest quarterly result ever. Driven by a strong product portfolio and our team ability to navigate the tight supply chain environment we continued to outperform the industry and delivered solid retail growth and market share gains. With this excellent performance, our financial results came in well ahead of expectations. Taking into consideration these exceptional results and in light of the cleaner visibility we have on customers demand and on the supply chain environment for the rest of the year, we are increasing our normalized EPS guidance for the year to a range of $11.65 to $12 per share representing a year-over-year increase of 17% to 21%. Let's turn to Slide 4 for key financial highlights. Revenue reached $2.7 billion, up 71% compared to last year, driven by solid growth for side-by-side, three-wheeled vehicles, personal watercraft and snowmobiles, as well as the introduction of the Sea-Doo Pontoons. Normalized EBITDA was up 94% to $488 million and normalized earnings per share increased 146%, reaching $3.64. Turning to Slide 5 for a look at our Q3 retain performance. The strong demand for our products and our ability to navigate the tight supply chain environment, allow us to deliver a strong retail performance across our product portfolio, our portfolio of products and in our geographies. In North America, our retail sales were up 42% or 39% when excluding the Sea-Doo Pontoons, compared to the industry which was up mid-single-digits. Our performance was also very strong in other regions with retail up 34% in EMEA and 41% in Latin America. As for Asia-Pacific, while our retail was down 3% in the quarter, it significantly outpaced the industry which was down in the low 30%. You can see the key driver of this strong performance on Slide 6. Our success over the years has been driven by our ability to constantly innovate as we bring new products to market that drive consumer interest and by our value proposition which motivates dealers to sell our products by maximizing their profitability. Through such initiatives we have been able to attract the best dealers and gain floor space within their showrooms. Given we were able, we were capable of leveraging additional products capacity, we have delivered impressive results. Our Q3 retail performance was our strongest ever for third quarter. We have gained over 2 percentage points of market in North American Powersports industry so far this year increasing our global market share to more than 30% and we have become the industry number one OEM in terms of the average number of units retailed per dealers, this makes BRP a must for any Powersports dealers. We are very pleased with our momentum and strongly believe that we have set solid foundation to continue to grow in the coming years. Turning to Slide 7 for a quick update of the state of consumer demand. As you can see with the strength of our retail sales, consumer demand remained healthy despite the ongoing macroeconomic concerns. More importantly, when we look at the different indicator, the trend remained positive. We continue to see a strong level of preorders. Over 40% of our expected North American retail for Q4 is already pre-sold to consumers. Cancellation rate remained low. We completed the international dealer booking following our August Club and dealer order came in above expectations. Retail financing metrics remained quite favorable, demonstrating that our customers are in a strong financial position with continued increase in FICO scores. Website visits and Google search for our brands remained higher than pre-COVID level. As you can see, customer interest for our products remained healthy. Turning to Slide 8 for a quick update on our manufacturing operations. In terms of the supply chain the situation during the third quarter essentially evolved as anticipated. This allows us to increase production throughput and progressively ship more units and components to our dealers. As the environment improved our strategy of shipping units that are missing a few components and quickly retro fixing them at the dealers delivered great results. Based on the current state of the supply chain and the healthier inventory levels, we are well positioned to have a strong Q4 and deliver on our guidance for the year. Now let's turn to Slide 9 for Year-Round Product. Revenues were up 74% reaching $1.3 billion in Q3. This was primarily driven by strong side-by-side shipment as we were able to further utilize our increased capacity and by delayed shipment of three-wheeled vehicles model year 2022 due to the supply chain issue earlier this year. In terms of retail, Can-Am side-by-side had its strongest quarter so far this year benefiting from the additional production capacity at Juarez-3 and from an improving supply chain. Can-Am gained market share in all industry segments, but more importantly made significant gains in utility, which is the largest segment. Our retail was up high 40% in the quarter and so far in season 2023 we are close to our M25 objective of 30% market share in the category. As for ATV, retail was down low single digit in the quarter due to the limited product availability as we made the decision to prioritize component for side-by-side. Still, Can-Am ATV continued to gain traction with customers and has gained over 1 point of market share so far in fiscal year 2023. With our solid lineup in additional production capacity, we are well positioned to sustain our growth momentum with Can-Am off-road. As for three-wheeled vehicles, we ended season 2022 on a strong note with Can-Am three-wheeled vehicle retail being up over 50% in the quarter driven by shipments later than usual due to supply chain challenges. For season 2022, Can-Am three-wheeled vehicle retail was down mid 20%. Though disappointed with our performance for the season as our retail was impacted by the untimely product deliveries, we strongly believe that the future is bright for three-wheeled vehicle business, since we continue to attract a high level of new end trend to the industry. We also continue to see strong traction with our rider education program for which course completion are up over 20% year-to-date. Historically, these completions have resulted in a strong conversion rate towards the purchase of new units. Turning to Seasonal Products on Slide 10. Seasonal Products revenue were up 133% from last year passing the $1 billion mark for the quarter. The strong growth was driven by late shipment of personal watercraft model year 2022 and the introduction of the Sea-Doo Pontoon. We also shipped more snowmobile than last year. Looking at the retail, our retail for personal watercraft in the quarter was up over 100% driven by later deliveries of model year 2022 product pre-sold to consumers. These pre-sold units have also contributed to maintaining a selling momentum in November, which retail have significantly. Looking at counter seasonal markets, we are only at the beginning of their season and retail was up mid-single-digit in the quarter. As for Snowmobile, we are still early in the season and retail is trending well being up mid-single-digit for the quarter. With the strong level of customer pre-order, we are well positioned to have a successful snowmobile season. Continuing on Slide 11, with the look at Powersports parts, accessories and apparel and OEM engines. Revenue were up 5% to $297 million. Our revenue continued to benefit from a growing product portfolio, which led to higher volume of replacement parts and increased sales of accessories driven by the linked ecosystem. We are currently witnessing solid momentum for our new model year lineup of Snowmobile accessories and apparel both from dealers and consumers, which bode well for the upcoming season. Moving to Marine on Slide 12. Marine was the last business unit to restart operations after the cyber-attack. This, combined with some supply chain issue, impacted the ramp up of production for the new Manitou product, which affected Q3 and is also expected to affect Q4. As a result revenue were down 15% in comparison to last year, ending the quarter at $111 million. Looking at retail sales, in North America, our retail for the quarter was down low 30% for Alumacraft, which we believe is in line with the industry, but I would point out that we are no longer selling welded boat. Manitou was down in the low 60% due to the production ramp up issue as already mentioned. As for Quintrex, we are in the early part of the season in Australia and retail was down low teen percent in the quarter. We are in the off season for boating in North America, but we believe that with the new Manitou and Alumacraft product we are well positioned for the future. Our new boat and pontoon design are very well received. Notably Manitou's new MAX Deck platform won the top prize in the innovative Onboard Design Solution category at the recent 2022 Boat Builder Awards in Amsterdam where we were competing against high-end luxury boats from well renowned brands. Manitou is also featured on the cover of Pontoon and Deck Boat magazine, the segment's most influential publication with an impressive readership. The cover tagline says it all, "time to shake up the industry". With that, I'll turn the call over to Sébastien. Sébastien Martel: Thank you, José and good morning everyone. Thanks to the sustained robust demand for our products and the improving supply chain environment, we delivered results that came in well above our expectations leading to the strongest quarter ever in our history. The outperformance was primarily driven by higher deliveries of side-by-sides, stronger shipments of components to dealers in the quarter, resulting in a higher completion of unfinished units and the continued tight management of our expenses. Looking at the numbers, our revenues for the quarter were up 71% versus last year reaching $2.7 billion. We generated $655 million of gross profit representing a margin of 24.2%, down in comparison to last year's level as the benefit from higher volume, especially side-by-side mix and pricing was more than offset by the impact of inflation, supply chain inefficiencies, and cyber-attacks. Note that the cyber-attack represented a headwind to gross profit of about 90 basis points in the quarter. While continuing down the P&L, we generated record normalized EBITDA for the quarter of $488 million, representing a strong margin of 18%, and our normalized net income came in at $293 million resulting in a normalized earnings per share of $3.64, up 146% from last year's Q3. Moving to our network inventory situation on Slide 15, as we already mentioned, we have been able to increase our throughput during the quarter driven by better utilization of our production capacity and the improved supply chain environment. As a result, we have seen a healthy increase of 105% in our network inventory driven by side-by-side, ATV and snowmobile, which puts us in a better position to support the strong demand for products in the fourth quarter. We have also ended the quarter with a higher level of inventory for three-wheeled and personal watercraft resulting from the late deliveries after the summer season due to the supply chain challenges we had to deal with earlier in the year. The retail of these model year 2022 units is going well, especially with many of the PWCs already pre-sold to customers and we expect to be in a good inventory position with these units in the spring. While we have made good progress on improving the availability of our products in the network, there are still areas where we have a lot of inventory to rebuild to bring it to a more optimal level. In fact, despite significantly increasing ORV deliveries to dealers in the last nine months, we also delivered important retail growth and market share gains, which limited the inventory growth for that product category as it is still down 42% versus pre-COVID and it is still far from an optimal level at roughly 50 days of inventory. Bringing ORV up to our target of about a hundred days and optimizing our inventory for seasonal product still represents about $750 million of inventory to rebuild. But all-in-all things are trending in the right direction as we were able to make headway in improving unit availability to support our retail momentum. Now looking at the Slide 16 for an update of guidance for the year, while the year has seen its share of challenges, our teams have done an exceptional job to manage through these tough situations, allowing us to outperform our competitors and deliver results ahead of expectations. As we look to the rest of the year, we are well positioned to sustain our solid momentum as we continue to experience robust demand for our products and as the improvement in our supply chain is allowing us to better utilize our increased capacity and deliver more units to our network. As such, with two months to go in the year, we are comfortable increasing both our top line and bottom line guidance. We now expect our total revenues for the year to be up 27% to 32% as we are planning for increased production of side-by-sides and we are well positioned to hit the higher end of our seasonal products guidance, as snowmobile is off to a good start. You will notice that we reduced our guidance for Marine revenues as a result of the delayed ramp up in production for the new Manitou as José mentioned earlier. Going down the P&L benefiting from increased volume, we now expect our normalized EBITDA to grow between 15% and 18% and our normalized EPS to end between $11.65 and $12 representing a growth of 17 to 21 over last year. Our guidance calls for the delivery of another strong quarter in Q4, carrying our momentum into fiscal year 2024, which we expect to be another solid year for BRP given the strength of our product portfolio where structurally it is driving higher margins, the strong progress we made in terms of market share gains, especially with side-by-side, the continued momentum with new products such as the Sea-Doo switch and the new Manitou Pontoon, all of this supported by better utilization of our increased production capacity. And lastly, an improved cost environment with expected lower commodity rates and a reduction in supply chain related headwinds such as retrofit expenses, spot buys and special freight. On that, I'll turn the call over to José. José Boisjoli: Thank you, Sébastien. I am pleased with our multiple accomplishments. We are also making good progress on the CSR front. Earlier this year we committed to take corporate social responsibility even further with the launch of our new CSR25 program. It includes ambitious targets and concrete initiatives like the BRP Community Engagement program, ride out intimidation. We are very proud of this initiative and of all the BRP employees worldwide who are embracing the fight against intimidation and raising awareness for this important cause. In conclusion, I am impressed with our performance so far this year as we've delivered better than expected results in a challenging environment while continuing to progress on our strategic initiatives. This positioned us well to deliver on our guidance as we anticipate another record year. Looking ahead, the new product introduction, additional production capacity, as well as our momentum with dealers, and recent acquisition, put us in a strong position to sustain our growth trajectory. I sincerely thank all employees, dealers, and suppliers for their relentless efforts, especially given the numerous challenges and headwinds we have had to face. Without their hard work, resilience and dedication, it would not have been possible to achieve these exceptional results and we look forward to keeping our momentum. On that note, I'll turn the call over to the operator for questions.

Thank you, sir. [Operator Instructions] And your first question will be from Joe Altobello at Raymond James. Please go ahead.

Thanks. Hey guys, good morning. First question I guess is on your retail and the share gains that we've been seeing in previous quarters, obviously this quarter very strong again particularly in side-by-side. I guess what are you guys doing that the competition isn't that's enabling you to get more units to dealers and how much of that improvement is product availability versus some other driver? José Boisjoli: Yes, good morning, Joe. Listen, I believe that the fundamental of our business, our strategy is very strong. First, we have very innovative and competitive products. We have took the call a few years ago to increase capacity in Juarez and now with the supply chain that is getting better, the supply chain is definitely helping and we can use the capacity which we could not use in H1. The third element is the BO strategy. We decided to ship incomplete product to dealers with little thing to repair or to add on to the unit, a few parts to add on to the unit and we using their service to PDI the product, then in Q3 we had excellent -- we had good supply chain. We were able to accelerate our throughput in production, ship more units to the dealer, but also ship components to the dealer. Then I think it's a combination of all this and we have great momentum with the dealers. We've been working hard to improve the value proposition and it's paying off. Then I think it's a combination of all this. I don't think there is a silver bullet, but this is what is making a difference and the beauty is Q3 was strong and we see November continuing with that trend.

That's very helpful. May be just a follow up for Seb. I believe you mentioned earlier the pipeline refill opportunity was $750 million and I think that was $1.4 billion last quarter, so maybe help us bridge that difference? Sébastien Martel: Well, one of it is timing related. As you saw, we have more inventory for personal watercraft and three-wheeled, this is really timing related because we had supply issues and so we delivered these units later. So that means there's more inventory of that unit, which should correct itself in the next few quarters. But obviously what we want is to make sure that the product availability is there for the consumers, for the dealers, and so it's our goal to replenish inventory. We always said that it would happen at the tail end of fiscal year 2023 and at the beginning of next year. There's still $750 million to replenish. Some of it is going to happen in Q4. It depends on obviously production and how strong retail is. But my expectation is that by early next year we should be in a good inventory position level at the dealer network where there's enough product there for the dealers to meet consumer demand.

Got it. Okay, thank you guys. José Boisjoli: Thank you.

Next question will be from Robin Farley at UBS. Please go ahead.

Great, thanks. I wonder if you could comment on some others in the market have talked about seeing some softness in recreation units and you did mention your release, the return of some sales program, so I don't know if it was related to that? And then also just a quick clarification on when you used to talk about dealer inventory down 20%, and I know it's on the slide as well, is that including the substantially completed units that technically are not in your shipments yet, or is that excluding the substantially completed? Thanks. Sébastien Martel: Good morning, Robin. I'll take the inventory one first. It does include the units that the dealers have on hand, which are incomplete, but also have the parts. So if you were to look at the increase in inventory, we said it's about 200%. If you exclude the units for which the dealers have and the dealers have the parts but are not yet installed, that would be up only about 100%. So there's still quite a bit of units that still need to be retrofitted by the dealers in their networks. As of where we stand at the end of October, obviously the dealers will repair them as the season progresses. But that's in a nutshell what the inventory is. In terms of programs there we've seen a bit more programs happening from various OEMs, but far from the extent where they were pre-COVID. So there's a bit of money being put towards their products. I think it's more a getting customers through the doors, attracting them at the dealership. It's not caused by excess inventory, definitely not.

Okay. Now that's very helpful. And if I could just fit one more quick one in please. I'm just wondering with the PWC did you mention there were some later than normal deliveries than you expected, is there a way to quantify were there some of those units where there were deposits on them that then were canceled due to how late they arrived and were dealers able to adjust their orders for next summer to sort of factor in that they would maybe have a little bit more inventory than they thought when they thought those units would have retailed? Thanks. José Boisjoli: Yes. On this Robin, first, when we met the dealer at Club in August, they knew that those units would be delivered to them in August basically, then the booking that we took from the dealer for model year 2023 dealer knew that it was there then this is done. What we're hearing, and again, we don't have a hard debt on this, but most, all those units were pre-sold to consumers and there was some cancellation, but very, very little. And when you have a cancellation, you find a customer who is ready to take it because those units are at the dealer and they will be there next spring for the snowbell. And what we're hearing is a portion of the customers take it now because they want to secure the delivery and everything, but many customers say, we will stick to our 2022 and we will take it when spring comes in the snowbell. Then to be honest, we're not worried about those units at all. And if in the spring we see that the retail is not going as expected, we could reduce or adjust model year 2023 or convert 2022 to 2024, we'll adjust depending the retail trends. But right now, those 2022 for us is a non-issue.

Great. Thanks very much. Thank you. José Boisjoli: Thank you.

Thanks so much everyone. I guess the -- I was wondering if you could comment on just working capital and then free cash flow, because you mentioned some of the changes in production and getting stuff to dealers, and I know working capital has been an issue really all year long. Should we expect some relief to begin in the fourth quarter or is that really more of a next year phenomenon at this point? Sébastien Martel: Yes, good morning. Well, if you look at the numbers at the end of October, nine months that we've invested over $500 million in working cap coming from all the items that you've listed, and it's a strategy that's paid off for us in building more retrofit units and you see it in the retail numbers. I do expect a small relief happening in Q4 as the supply chain is improving, but nothing too material. And we're still going to be running with high levels of working cap in Q1, Q2 of next year and as we get more comfortable with our suppliers delivering to the levels we want with the logistics headwinds that we saw around the world, obviously we’ll encourage the teams to reduce the working cap. If it happens, it’s probably going to happen in the tail end of next year. So the second half is when we should see improvements.

Okay. Thank you. And then maybe one more since you delved into next year a little bit. I know interest expense was guided up a little bit here. Obviously, we know your capital structure, but with the floating rate. But I do think you have a good amount of cap contracts as well that limits your exposure there. So how far out do those go? I mean, I think you’re continuing to roll those. And I guess, considering where rates are now and the contracts is, is that like $130 million interest expense like a good level for next year? Sébastien Martel: Well, the caps go out to 2025. So we’ve got -- probably we’re hedged for about 60% or as a 1% cap. Obviously, we’ve seen rate -- and that’s on the term beat. We’ve seen rate increases quite a tenor two rate increases since we talked one in September, one in November. We’ve also obviously done a few acquisitions. So we’ve used the revolver more and so that’s what’s driving the increase in interest. Next year, probably expecting in the range of 110, slightly higher as well because obviously, we’ll have a full year effect of higher rates, and especially the Fed is calling for further rate increases as well. So at a minimum, 110, but it could go higher as well.

Thank you.

Next question will be from Martin Landry at Stifel. Please go ahead.

Hi, good morning. You’ve touched on next year and you expect sustained momentum and I was wondering if you can talk a little bit about industry retail sales in North America? Wondering what’s your assumption for industry retail sales to do next year? Sébastien Martel: Well, again, it’s a tough call, Martin, and I guess my crystal ball is probably not better than your crystal ball, but there’s a few things that make us optimistic if I just look at the industry side. If you take side-by-side, the industry is down rolling 12 months. And even if we were to have a flat industry next year, I mean it’s down versus the peak of COVID, probably 25% down versus the peak of COVID. If we were just to maintain the market share that we have in Q3, it would represent almost a 10% volume growth just next year for us. So even with a flat industry, we’d be able to generate growth with market share gains that we’ve experienced. If you look at the personal watercraft industry, the season that just ended, it was the weakest season for personal watercraft since 2017. Snowmobile also had weak season. So our expectation is that for main seasonal products, the industry should be higher than what we’ve experienced this year. But despite all of that, with flat to modestly increasing industries for seasonal, we are comfortable in our ability to generate growth next year.

Okay. That’s helpful. And I’d like to just touch on Europe or EMEA. Your retail sales there were up 34% year-over-year, significant outperformance. I was wondering a little bit, was that related to preorders or are you still seeing new orders coming in? Just trying to get a bit of understanding of how the consumer is living the economic and political challenges? José Boisjoli: Yes. Good morning Martin. What we’re hearing from dealers, and it’s even the case in North America, but more in Europe, there is less traffic in the dealership. That being said, worldwide we do less promotion because we don’t want to attract dealers -- customers to the dealership, and they have nothing to see. Then we slowed down the promotion. There is less traffic. Also customers are trained right now. If they go in the dealership, they don’t have a new product out there, then there is -- except for the traffic at the dealership and maybe specific country like UK, where it’s more difficult, retail is still strong. Like you said, North America without Sea-Doo pontoon was 39 and EMEA was 34. And dealer orders, we had our Club in August, and we gave to the dealer three months, I think, to complete -- two months to complete their booking for model year 2023, and the booking of the dealer came out stronger than what we were planning and they are the front line. They are the one who meet the customer really. Then we’re hearing like you do, like everyone do the tough situation with energy and all this in Europe, but it don’t show in our numbers.

Okay, that’s it from me. Thank you. José Boisjoli: Thank you.

Next question will be from Fred Wightman at Wolfe Research. Please go ahead.

Hey guys, good morning. I was hoping you could just sort of put the 3Q results into context. I know if we go back last quarter, you had given us some guide rails about where you thought EPS would sort of shake out 3Q versus 4Q. So the 4Q -- like was 3Q just much stronger? Is there anything that’s giving you a little bit of caution about 4Q or did the Street just sort of have things modeled inappropriately? Sébastien Martel: It’s very much modeling. Obviously, when we talked in September for the Q2 results, we were coming on the cyber incident. We were also looking at the supply chain. So there was some, I guess, cautiousness or we were gun shy on the Q3 numbers maybe a bit. But the teams outperformed, both on the recovery from the cyber incident, on managing supply chain, on the utilization of capacity. And so we were able to deliver more units than expected in the third quarter. So these are units that were planned in Q4 that now are carried forward or carried earlier in Q3. And also expenses as well, we continue to manage them tightly, and that came in lower than expected as well, so helping deliver the strong Q3 results.

Makes sense. And then just on the Marine segment, you touched on sort of the supply chain impact and then also the cybersecurity impact. I get why the cyber ramp would hit 3Q, but can you just dig into the 4Q outlook? Is the supply chain just worse than you expected there? And if there’s anything in particular that's holding up the Marine segment of the business, it would be great to hear a bit more about that? José Boisjoli: Yes. On the cyber, what happened is, and I think we disclosed this, the hacker came in through a third party to our system. And obviously, when all of this happened, we shut down all those third-party, and we’re able to ramp up after that, giving them access to our system. But at Manitou, it’s the whole system that the previous owner had and there is more third-party involved managing the business. And because of this, we were able to restart production, but there were many systems that were not operational because of too many third-party, like I see in the kitchen, and we were very cautious to reopen those access and they suffer most than the other product line or division and that’s in a nutshell, what happened. We were cautious about reopening access to third-party. And that’s why Q4 will be -- deliveries will be -- and this combined with some supplier issue. We -- with our delivery for Q4 will be lower than what we had planned in September, and that’s why we reduced our guidance.

Makes sense. Thanks a lot. José Boisjoli: Thank you.

Next question will be from Benoit Poirier at Desjardins. Please go ahead.

Yes. Good morning everyone and congratulations for the good quarter. Could you talk a little bit about the success of the zero financing for 60 months that you offered on select 2022 Sea-Doo models in order to lower the sold units at the dealer level? And when we look at your inventory, dealer inventory is still down 20% versus pre-pandemic levels, but if you were to remove the units that are substantially completed, and also the 2022 Sea-Doo models, what -- how down would be the dealer inventory and what would be kind of the inventory replenishment opportunities? Sébastien Martel: Yes, I’ll take the interest question and I’ll try to give you a bit of color as well on the inventory. We actually had an opportunity with our retail financing partner to offer a program with a very low cost to BRP, again structurally with this floor plan, that’s financing partner that we have. In the last few years, we kind of accumulated credits with them that we could use and so it was a good opportunity for us to use these credits and offer an attractive financing package for consumers on the retail side. And that’s been successful, obviously, we have strong retail. You saw the retail in Q3, and Jose commented on the momentum that we have in November as well, that is certainly helping. And from the inventory perspective, as I said, if we were to exclude the incomplete units, their inventory would be up only 100%. And the personal watercraft, I don’t have the number, Benoit and we could come back to you on this on what the impact of personal watercraft is, but it is quite sizable on the inventory growth just for the quarter.

Okay, perfect. And the other question, we saw Polaris struggling with recalls over the last three months. Just wondering if you have seen benefits so far in terms of new entrants, whether they are looking more closely at the BRP brand or do you see opportunities to gain additional revenue with those recalls? José Boisjoli: Yes. We -- definitely, if you talk to a dealer that is Polaris and BRP, and there is 40% of our dealers that are Polaris and BRP, then those dealers, obviously right now are overwhelmed because in the snowmobile PDI, I mean delivering all those units in a short period of time is always a heavy period. They have to retrofit some of our deals, but also they have all those recalls from Polaris. Then for those 40% of the BRP dealer that are also Polaris, for sure, it’s a difficult fall. We’re lucky in the sense that 60% of our dealers are not Polaris, then those have an easier fall than the first one. And there is definitely, I think, Benoit an advantage in the dealership that are not -- that are only BRP, not Polaris, but it’s very difficult to quantify. Sébastien Martel: And Benoit, if you were to take the total inventory and just remove personal watercraft and three-wheeled, the inventory would be up 120%.

Okay, perfect. That’s great color. And for fiscal year 2024, you gave great color about how should we be looking at the revenue, the pluses and the minuses. What about the margin side, Seb, could you maybe provide some color about the key elements that will impact the margin going into fiscal year 2024 and whether a 17% is still something that should hold up? Sébastien Martel: Well, absolutely. Yes, the 17% is something that should still hold up. And if you look at BRP, there structurally, we’re a very different company than what we were just a few years ago. And there were a few things that obviously are helping us. So one, our modularity approach that we’ve implemented over the last several years is obviously paying off benefits for sustained gross margin. Two, we have a better asset utilization as well with the volume growth that we have. Three, our footprint is, as you know, the growth that we’ve invested in Mexico and so very cost efficient. So structurally, that brings good margin improvement. And from a product mix point of view, our side-by-side business has grown a lot in the last few years. Just a few years ago, side-by-side represented 30% of our revenues. This year it will be just almost 40% of our revenue coming from side-by-side in the parts business that goes with it. And that business drives better margin than the average portfolio of products of BRP. And so that obviously is helping to sustain strong gross margin. And then if you look at fiscal year 2023, we’ve obviously had a lot of headwinds from inefficiencies, from retrofits, from doing spot buy from microchips, from air freighting components from suppliers to our assembly plants just to get the units out the door. We probably have a 250 basis point headwind this year, just coming from those inefficiencies. Now not all of those will go away next year because the supply chain is still fragile in some pockets and logistics has not yet been reestablished completely, but we’ll certainly get some gains coming from better efficiency .So when I look at next year, I talked about the top line elements, a lot of optimism, but also from a cost efficiency point of view as well, there are some great opportunities.

Okay. That’s great color. Thanks for the time. Sébastien Martel: Thank you, Benoit.

Next question will be from Xian Siew at BNP Paribas. Please go ahead.

Hi, guys. Thanks for the questions. I just wanted to ask a little bit more about inventory levels. So you’re expanding capacity and you’re gaining a lot of share. I’m just wondering, is it possible that, I guess, in the future or when the dust settles that you can have structurally higher inventory levels than pre-pandemic? Anyways, and that the pre-COVID, I guess, compare is maybe less relevant as you get the bigger -- the business becomes bigger? Sébastien Martel: Well, from a dollar perspective, yes, because our business has been growing, we’ve been gaining market share. We’re adding new products as well and some products are bigger ticket items as well. If you look at the Switch, you look at the side-by-side. So from a dollar point of view, yes we can have more inventory than in the past, and there’s been inflation and price increase, et cetera. But from a number of days, we were trending and sometimes in the 150, 180 days of inventory in the past and we want to operate with lower levels of inventory. We said 100 days-ish would be a number that we'd like operating with, dealers like operating with. There’s enough product there. So that they can quickly execute on quick retail, but lower the total cost of operations for us and the dealership as well. So that’s the targeted number.

Okay. Got it. Makes sense. And then maybe just on the NCIB, it sounds like working cap may be a couple of quarters before you really see the big benefit, but just wondering how are you thinking about stepping into the market. Is it when the working cap kind of unwinds or how are you thinking about, I guess, share buybacks? Sébastien Martel: Well, we’ve always -- our priorities has always been investing in the business. CapEx has been one priority where we’re investing quite a bit this year, investing for growth as well. So that obviously required some working cap investments. We did $300 million of buybacks this year, of which $250 million is on SIB. And so -- and we’ve also done acquisitions, so investing in the business as well. So our priorities remain growth, and we are a business that generates good free cash flow and increasing the dividend modestly as well is part of our priority. But then with excess cash, returning that capital to shareholders is a good way to provide good returns and that’s something that we’ll continue to investigate, especially in this context where, obviously our expectations for the business is very good, and the valuations currently are at very attractive prices.

Okay, very helpful. Thanks guys and good luck.

Next question will be from Mark Petrie at CIBC. Please go ahead.

Yes, thanks. Good morning. I was wondering if you could just give a bit more color on the topic of dealer engagement and just sort of how you’re gauging that the impact of that. Obviously, it is difficult to quantify in totality, but any commentary just with regards to sort of floor space or the pace of renovations or updated dealerships, that would be helpful. José Boisjoli: Yes, good morning Mark. I don’t have any hard fact, but definitely we’re growing at a fast pace. We’re taking more and more floor space in dealership. And at the same time, like you said, you say people, we like to have the BRP space in the dealership space. This is one of the strategy we put together, we want when you enter in a dealership, you have the BRP DNA flavor. But right now, we’re forcing dealers give you an example of the Sea-Doo Switch when we gave to the dealers the switch line, they needed to committed to a certain amount of space of floor to display the product. Then this is a type of thing we’ve done, and we will continue to do. But this is part of our strategy, first to sign the best dealers and second, to continue to gain floor space. And to be honest, because we have a strong product line because we have a good value proposition, they’re making money, more money with our product than most of our competitors. I would say it’s a good value proposition. It’s a business discussion and it’s not too complicated to convince dealer.

Yes. Okay, helpful. And then, Seb, I was wondering if you’re able to or willing to quantify how much of the revenue in the quarter recognized was from retrofit units that were sort of brought to salable condition? And are you able to quantify sort of the level of retrofit units at the dealer today compared to last quarter or earlier in the year? Sébastien Martel: I don’t have the numbers with me. Obviously, these numbers have been going down every quarter. At the end of Q3, the number of units remaining in the network is a very small percentage of our total annual production there in the super small, almost nothing left in the network, but it was relatively – wasn’t that much as well in the second quarter. And what happens is that the dealers convert them quite quickly or we ship the parts quite quickly. So we might ship, I don’t know, we can replenish easily in a quarter of 100% of what we ship. So things turn around quite quickly. Usually, it’s just a few week window between the time we ship the unit and we shift the parts.

Okay, that’s helpful. Thank you.

Next question will be from Cameron Doerksen at National Bank Financial. Please go ahead.

Thanks. Good morning. I just want to talk a bit about the side-by-side market. You sort of called out the market share gains that you’ve had so far this year for the Defender. Are you able to give us some color around what percentage of your SSV, I guess, sales now are related to the Utility segment? José Boisjoli: Yes. We used to be behind the segment or the proportion of the segment. As you know, Utility is about 60% of the industry and we use -- the Defender used to be below that in our numbers. But like we said on the -- in Q3, we’ve gained nine-point market share in that segment. And right now, we are about in line with the industry. And the utility represents for us about 60% of our retail in Q3, which is a great -- which is a great accomplishment. The other thing I would like to highlight to give you more colors, we always also measure the premium product versus the value product. And about 75% of our side-by-side sales are premium, where the industry is 55%, then we’re gaining share. And on top of it, we’re gaining on the high end which all -- which has been our trademark in the sport with the X3. Then we’re very, very happy with the momentum we have in the side-by-side business this fall. And again, it’s a combination of we added the capacity and now the supply chain is getting better and the momentum is there.

Okay. No, that’s really good information. And maybe just secondly for me, obviously the dealer retail for you guys have been really exceptionally strong. I guess my question is, are there any signs for you that are sort of cautionary? I mean other than sort of the macroeconomic indicators that we all see. I mean, is there anything that you’re seeing out in your markets that would give you, I guess, any reason to be incrementally more cautious than, say, three months ago? José Boisjoli: Again, it’s a bit in line with the question I answered for the European market. When you talk to the dealer that will tell us that the traffic is not as much as it used to be, but at the same time, we don’t do as much publicity. And when the customer show in the form, there is not much to see then there is a reason for that. But when you look at our numbers, I mean, our retail in Q3 was exceptional. The net new trend in Q3 was over 30% when typically it was 20%, and it’s about in line since the COVID 30%, 35%. Our web traffic is higher than what it was pre-COVID. The other thing also that change into the COVID period is the household income, 65% of the population in U.S. household income is below $100,000. And all our products are significant – not significantly above, but our lowest product is ATV with $115,000, and all the others are above that. Then when we look at – and 40% of our Q4 retail is presold to consumer. Then when you’re adding all those elements, we’re hearing like you do about the macroeconomic concern and the slowdown and the interest rate except for the traffic at the dealership, we don’t see that in our hard numbers. Sébastien Martel: And the traffic is down compared to COVID, where it was obviously at an all-time high, but in line with what it was pre-COVID.

Okay. No, that’s very helpful. Thanks very much. José Boisjoli: Thank you.

Thank you. Next question will be from Derek Dley at Canaccord. Please go ahead.

On the cost side, obviously, you had some really strong cost control this quarter. Can you just give us the idea... José Boisjoli: Derek, could you reask your question? We missed the beginning at least here.

Yes. Sure. Sorry. Just wondering on the cost side, you guys obviously had some strong cost control this quarter. And historically, we used to think about R&D as a percentage of revenue in the 4% range, and it’s been tracking a bit below that over the last three quarters. Should we expect a change in that algorithm going forward? Sébastien Martel: Well, obviously, we’ve had very strong growth in revenues this quarter. And so that’s why when you look at overall OpEx, they are just a little shy of 10% of revenues for the quarter. R&D trending at 3%, some of it is timing related. Some projects were pushed into Q4. But our expectation is that we’ll continue investing in R&D in the range of 4% going forward. That’s the expectation. So a lot of it this quarter is very much related to the strong growth in revenue that we’ve experienced. Look at in absolute dollars, the OpEx spend is increasing. It’s been increasing sequentially there over the last several quarters.

Yes. Okay. Got it. And then you mentioned the new entrants, still 30% of product sales or revenue, but if we go back to like the COVID period when you had a big jump in new entrants, can you just comment on any of the buying activity from those? I know it’s still relatively early days, but have you seen those new entrants trade up by a second product? What kind of purchasing patterns are you seeing there? José Boisjoli: Yes, we’re following five things about the new entrant phenomena. First, the numbers, like I said, in Q3 is above 30%. And typically, historically, it was 2020 and 2021 in fiscal year 2021, 2022, it was 30%, then we are above 2021, 2022. What is interesting is 55% of those saying that they are in the Powersports for a long time, which is a good number. Many have already repurchased another product. They are younger. The number of people who are 18 -- between 18 and 44 years old have increased by 10 point, more women, seven point and more family six points, and the household income is higher than what it was pre-COVID. Then when you addition all this, it’s difficult to say one plus one plus one equals three, but all those things are positive. And the momentum or the statistics didn’t change since, I would say, is this far even if the macroeconomic environment is unstable.

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

Thank you. Next question will be from Gerrick Johnson at BMO Capital Markets. Please go ahead.

Good morning. Thank you. So on the Alumacraft and Manitou product that you’ve been shipping, I see it at certain dealers. What’s the consumer reaction been? You’ve given us metrics before on Switch and so forth and what’s been presold and sell-through. So can you talk about the end consumer reaction? José Boisjoli: Excellent, Gerrick. I mean the people are very happy with the new Manitou, like you saw, we’re winning many price. Alumacraft, it’s a different market. We’ll see in the Midwest, the Minneapolis Board show. But we don’t have any preorder system for the boat. I can tell you we sold out for our production capacity until next summer. But we don’t have any preorder number to give to you. And again, I would like to highlight, we’ve done a tour, a North American tour with the boat. That’s where we get the feedback, but we don’t have any preorder system with the Marine business, yes.

Okay, great. And then on the model year 2022, personal watercraft and three-wheeled vehicles that you’ve shipped, what proportion of those are presold? I’m just concerned that you have 2022 backed out there after the season is over and how that might affect the flow of 2023s coming in for next season? And then also the discounting probably you needed to move those units because really who wants a 2022 personal watercraft in December. Well -- so just if you could talk about how much of that is presold? And what you have baked in your guidance in terms of what you need to discount to move those units before the 2023s come out? Sébastien Martel: Yes. As I said, we do have a retail incentive program out there offering a zero interest for six – for five years to our consumers. And so that’s then – that’s helping with our strong retail performance we’ve seen in the last few months. Obviously, we would have preferred to ship these units in May and June and get them to consumers because, as you know, the level of preorders from consumers was very high. The season last year in the industry ended at an all-time low in the last five years. So there’s still a high level of unfulfilled demand. And the other reason why we’re comfortable and obviously, we don’t like it, but we’re comfortable with the situation is the level of preorders at the dealership was high. So dealers are telling us. I’m not getting cancellations for these units. Customers are going to take ownership of these units in the spring. And the other thing is that there will be price increases on model year 2023 that we’ve announced, 3% to 4% increases. And so customers, they have an option of taking a model year 2022 at a price lower than a model year 2023, and that’s something that will also incentivize them not to cancel their order and take the units.

Okay. So to be clear, what’s embedded in your guidance right now or your thought process is the finance offer, not additional rebating? . Sébastien Martel: Yes.

Okay, great. Thank you.

[Operator Instructions] And your next question will be from Jamie Katz at Morningstar. Please go ahead.

Hi, good morning. I was hoping that you guys would elaborate on maybe where you’re seeing supply chain shortfalls that might lead to opportunities for further vertical integration given the recent acquisitions you’ve made? And then sort of adjacent to that, it looks like in the financials today; you guys have carved out this low-voltage human listed group and to facilitate your growth strategy and I’m curious whether that’s just electric or if there’s something else we should be thinking about to figure out what the total addressable market of what you’re trying to do there might include? Thanks. José Boisjoli: Yes. First, on the vertical integration, we are happy with the acquisition in Austria and basically, what we acquired is talent. It was a group of about 50 people that are deeply competent into electric technology that now is part of our R&D Group. Kongsberg in Quebec, we were the biggest customer of that division. And for us, those components are key and they will be even more key going more electric and Pinion is a different thing. Pinion, it’s a compact gearbox that we can implement, obviously, on bike, on electric bike, but also on other product lines or new type of product line. Then right now, there is no plan for additional other vertical integration or activity. We were opportunistic with those. And we are very happy with those acquisitions because over and above, and those are not big acquisitions, but it’s – we acquired a lot of talent that will be key for the future. On the LVHA, right now, the name is an internal call name, but low voltage, our motorcycle and our Powersport electric vehicle will be high voltage. We are right now working on low-voltage product that will be electric. And obviously, HA is Human Assist and the Pinion gearbox is key for the Human Assist product line. And all of this is a strategy to enter when we’re presented at the analyst meeting – investor meeting in June in Florida. We had the $34 billion bubble of Powersports where we have about 30% market share. Marine is $36 billion. We are a small player. We intend to grow there. We had Motorcycle Europe and North America, $15 billion. We have a plan with our electric motorcycle. And we’re talking about $70 billion urban mobility or new type of market, and those acquisitions are key to enter in those markets.

Okay, that’s helpful. Thanks.

Thank you. Next question will be from Brian Morrison at TD Securities. Please go ahead.

Hello, good morning. Just very quickly. So when I look at the working capital unwind next year, I know we’ve spoken about this a bit, but it looks like it should be north of $500 million. And I just wonder if that would be correct. And then with the rising cost of debt, would you plan to allocate some of your free cash flow towards debt rather than the NCIB? Sébastien Martel: Well, when you look at the overall number of days of working cap and what we’ve invested here year-to-date, I’ve said we’ve invested about $526 million. Obviously, this is a growing business. But from a number of days perspective, if you will compare it to, let’s say, fiscal year 2020, if you were to come back to the same number of days there it’s about a $500 million opportunity of reduction in working cap. When is that going to happen? As I said, some of it is going to happen in the back half of next year. How quickly do we come back to the previous levels we were? Obviously, we’ll be stretching our teams to make sure we optimize the working cap investments and run our plants efficiently. But yes, you’re right, ballpark, it’s a $500 million opportunity that we have. Now how we use the cash next year? Obviously, it’s something that we look at continuously. We have discussions with the Board. Our leverage is relatively still low and the overall cost of financing, yes, rates are going up, but it’s relatively still accessible. We have interest rate caps, which are making the overall cost lower for us as well. But we do want to make sure that we optimize returns to shareholders. And obviously, these decisions are based on where the stock is trading and how much cash we have to deploy either through reduction of debt or through doing buybacks.

Okay. One housekeeping question. Just in terms of the pack high-margin business, it seems to have realized growth in Q4 and what is driving that? It looks like it’s going to be a very record quarter in the fourth quarter. I’m just not sure what is the key contributor there. José Boisjoli: Well, the Snowmobile business is always a big parts business and obviously we’re shipping a lot of units in the fourth quarter, both from an ORV point of view, from a personal watercraft point of view as well. And so there are some deliveries to the dealers as well for upcoming season products and getting ready for the season as well. So there’s a bunch of factors that are helping with the strong growth impact.

Thank you.

Thank you. There are no more questions. I would like to turn the call to Mr. Deschênes to close the meeting. Philippe Deschênes: Super. Thanks, everyone, for joining us today and for your interest in BRP. We look forward to speaking with you again for our Q4 earnings call in March. Thanks again everyone, and have a good day.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again thank you for attending and at this time we ask that you please disconnect your lines.