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Operator: Good morning, ladies and gentlemen. Welcome to the BRP Inc.’s FY23 Fourth Quarter Results Conference Call. I will now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

Philippe Deschenes: Thank you, Judy. Good morning and welcome to BRP’s conference call for the fourth quarter of fiscal year ’23. Joining me this morning, are Jose Boisjoli, President and Chief Executive Officer and Sebastien 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 the statements. The forward-looking information is based on certain assumptions and is subject to risk 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 Jose.

Jose Boisjoli : Thank you, Phil. Good morning, everyone. And thank you for joining us. Please turn to Slide 4. I am very pleased with our Q4 performance, which was our strongest quarter ever. It allowed BRP to conclude fiscal year ’23 with record sales, normalized EBITDA and normalized EPS. It was a very dynamic year, marked by our ability to respond to continued strong demand for innovative products, while showing tremendous resilience by working to supply chain pressure and a cyber incident. Our teams once again demonstrated its incredible activity. We adapted to evolving market condition and executed diligently in a challenging environment. As a result, we’ve delivered solid retail growth and outpaced competition by recording an exceptional five percentage point market share gain in North American Powersports industry.

During the year, we continue positioning the business for long-term success. We accelerated investment in product development, completed our side-by-side capacity expansion project at Juárez 3. And so there was multiple market shaping product, notably our new Howard winning pontoon generation and completed three strategic acquisitions. As you can see, it was a very busy year. That started to Slide 5 for key financial highlight of the year. With delivered record results on both top and bottom line. Revenues increased 21% from the previous year surpassing the $10 billion mark for the first time in our history. This was driven by higher volume and favorable pricing across the portfolio. Normalized EBITDA grew 17% to $1.7 billion, representing a very strong EBITDA margin of 17%.

Normalized EPS increased 21% to reach $12.05 above the higher end of our guidance. As for retail, our North American Powersports sales were up 6% for the year, or 5%, excluding the Sea-Doo switch Pontoon, compared to a decrease of about 10% for the industry. We ended the year on a strong note, as you can see, with our outstanding four quarter retail performance on Slide 6. In Q4, our North American retail sales were up 21% or 19%, excluding the switch compared to a low single digit industry decline. Our performance was also very strong in other market with retail up 36% in the EMEA, 32% in Latin America, and 16% in Asia-Pacific. In addition to strong demand, the solid performance was driven by our strategy to produce and complete units that were retrofitted at our plant or by dealers when missing components were received.

As the supply chain improved in the second half of the year, we will be able to rapidly convert units to retail allowing us to significantly outpace the industry in Q3 and Q4. You can see this outperformance on Slide 7. We ended the year with nearly 35% market share in the North American powersports industry representing a 5 percentage point increase for the year and a 15 percentage points gained since fiscal year ’16. Our performance was very solid across the product portfolio with important gain in off-road and snowmobile. We also maintained our leading position in three-wheel and personal watercraft, despite shipping more than 22 units at the peak retail season. This performance was driven by sustained strong consumer demand across our portfolio, which demonstrate the strength of our lines.

On this topic, let’s turn to Slide 8. In calendar 2022, we won 16 product awards, one of the best years for BRP. The Sea-Doo switch and the new Manitou pontoons were notably recognized in multiple competition. And just a few weeks ago, our new Rotax S outboard engine with cell technology won the Outboard Engine Innovation Award at the Miami Boat Show. On top of these product achievements, BRP was named Brand of the Year by Strategy Magazine. We celebrated the 100 year of success for Rotax. And we’ve launched a new corporate social responsibility plan with ambitious target. I’m proud of these milestones that show that our innovation mindset is not just applied to product, but also across all areas of our business. With these achievements, we gained further traction with dealer as shown on Slide 9.

Our success stems from our ability to constantly innovate, as we bring new product to market that drive consumer demand and by our unique value proposition which drive dealer to sell our product to maximize their profitability. To such initiative, we have attracted the best dealer and gain floorspace in their showroom. Early in fiscal year ’23, for the first time ever, we become the number one OEM in term of average retail unit per dealer, a position that we further extended in the second half of the year. Achieving this number one position was a great moment of pride for me. When BRP was launched almost 20 years ago, becoming the best OEM in the industry for consumers and dealer was one of my objectives. I can say, mission accomplished. Turning to Slide 10, for a quick update on consumer interests.

Like everyone else, we monitored the ongoing macro concern, but based on our indicator, consumer interests for our product remains healthy. In fact, we’ve delivered our strongest Q4 ever in terms of retail with growth across all our product lines. And looking at demand indicator to trend remain positive. Traffic at trade shows and a dealership continued to trends positively. Early season ’24 snowmobile booking is trending as expected. The influx of new entrants remain high, website visit and Google’s search for brands remain higher than pre-COVID levels. We are monitoring the used vehicle market and value segments that are slowing down. Retail trend also seems to indicate a return to more seasonal patterns. Finally, some OEMs and dealers are beginning to offer incentives on certain models.

But in general consumer interest for industry and more particularly for products remains healthy. Now let’s turn to Slide 11, for a year on product. Revenue were up 47%, reaching $1.2 billion in Q4, driven by strong shipments across all product lines. As far retail sales, Can-Am side-by-side and had its strongest Q4 ever, benefiting from additional production capacity at drive S3 and from an improving supply chain. Our retail was up high 30% in the quarter and season-to-date significantly outpacing the industry. I will get back to this category in a few moments. As for ATV, retail was up low 20% in the quarter driven by the momentum of the Can-Am brand and improved product availability. Looking ahead, we just introduced an all new platform for our Outlander mid-CC lineup.

This long awaited platform is our most significant upgrade in ATV in almost 10 years. It offers more performance, comfort, storage, and ease of ownership for the category at the competitive price. Moreover, we introduced specific pro package that cater to a more utilitarian consumer base for which the men tend to be less cyclical. With this new platform, we strongly believe that Can-Am is very well positioned to gain market share in the mid-CC category, which represents more than 50% of the ATV industry. Looking at three-wheeled vehicle. Although we are in the slow part of the retail season, Can-Am Retail was up over 150% in Q4, driven by improved product availability, following late shipment of model year ’22. We are pleased with the retail trend for three-wheel and we are well positioned for the upcoming season.

On Slide 12, let me come back to side-by-side vehicle which has been a key growth area in recent years. We have been growing retail and gaining market share at the fast pace since introducing the Defender in 2015. During that period, our annual retail volume has increased by almost four times. The Can-Am brand as gaining traction with consumer, as we experienced a significant boost in brand awareness over the past years. Their perception of the brand is also improving. As you can see on the right side of the slide, despite rapid growth and sudden momentum, we still have plenty of market share gains opportunities, especially in the utility segment. We believe our store lined up and had production capacity will support our growth in that profitable business.

Turning to seasonal product on Slide 13. Seasonal product revenue were up 26% from last year, reaching $1.3 billion, driven by higher volume of personal watercraft and the introduction of the Sea-Doo switch. Looking at the retail, our retail of personal watercraft in the quarter was up over 300% driven by late deliveries of Model Year 22 product, most of which were presold to consumers. The trend is also very good in counter-seasonal market, which season-to-date retail about 10% in Asia-Pacific and mid-20% in Latin America. As for snowmobile with most of the season behind us we are pleased with our performance as our retail is up low-single digit, outpacing the industry which is about flat. With this achievement, our global market share now exceed the 65% mark.

Turning to our recent snowmobile news. For model year ’24, we further strengthened our lineup by extending the REV Gen 5 platform to more models and introducing new key technologies, notably the industry-first water injection system for high performance model. These addition were well received, and early trends in spring — in spring unit booking are as expected, which is providing for season ’24. Furthermore, we introduced our initial electric model this Ski-Doo Grand Touring and Lynx Adventure Electric. For the first year, these snowmobile are designed exclusively for guide tour operators. These are the first electric model to be introduced following our commitment made two years ago to launch electric models in each product line by 2026.

We are proud of this first step, which is a testimony of our market leadership. Snowmobile industry experts have tested the product and they were impressed by our technology, the riding experience and the fit for the segment. You can expect more product introduction along these lines in the coming years. Moving on Slide 14, with powersport parts, accessories and apparel and OEM engines. Revenue were up 22% to $378 million for the quarter driven by our growing product portfolio. In our part and accessories growth strategy, every new product is designed to be highly customizable with our accessory portfolio. For example, the recently introduced Can-Am Outlander platform is compatible with 125 LinQ accessories. We are pleased with the performance of this highly profitable business segment.

Moving to marine on Slide 16. As mentioned last quarter marine was the last business unit to restart operations after the cyber incident and combined with some supply chain issue, as impacted production ramp up for the new Manitou into Q4. As a result, revenue were down 8% compared to last year, ending the quarter at $124 million. Looking at retail sales in North America, Q4 is up season for boating with typically less than 10% of the annual retail. While our retail performance suffered primarily due to the supply chain factor, we remain positive about our plan and prospect for that business, as evidenced by the announcement of the new facilities in Mexico. As for Australia, retail was down about 20% in the quarter in line with the industry.

We are excited about the future of our marine business. For instance, our recently introduced Manitou Pontoon and Rotax S outboard engine with cell technology continued to win recognition from the media and the industry and consumer demand is very improvising. With that I turn the call over the Sebastien.

Sebastien Martel : Thank you, Jose. And good morning, everyone. We completed fiscal ’23 with another record quarter, as we continue to experience solid customer demand for products and demonstrated strong execution in delivering our production plan. Looking at the numbers, our revenues for the quarter were up 31% versus last year, passing the $3 billion mark in a quarter for the first time ever. We generated $788 million of gross profit representing a margin of 25.6%, slightly down in comparison to last year’s level primarily due to inefficiencies related to the ramp up of production of the new Manitou pontoons in some overhead investments. Worth noting however, for the first time in many quarters, the pricing actions that we took over the last few months offset the inflationary costs that we were subjected to.

And we expect this trend to continue into next year. Continuing down the P&L, we generated record normalized EBITDA for the quarter of $528 million, representing a margin of 17.2%. And our normalized net income reached $309 million, resulting in a normalized earnings per share of $3.85 for the quarter, ahead of expectations and resulting in a full year normalized diluted EPS that came in about our guidance range. Supported by the strong results, we ended the year with a robust balance sheet with over $200 million of cash and a healthy net leverage ratio of 1.5 times, providing ample flexibility for further investments in the business and capital distributions. One thing I want to highlight about our financial performance, is the structural improvements we delivered in the recent years that significantly enhanced or normalized EBITDA margin profile.

You can see this on Slide 18, in fact, our normalized EBITDA margin is up 370 basis points over the last three years, primarily driven by sustainable improvements, such as the wind down of the Evinrude outboard engine business, which helped by about 60 basis points. The positive impact generated by volume mix in cost improvements coming from our volume growth, especially as we leverage our Mexican manufacturing footprint. Our richer product mix notably driven by the growth of our SSV business, and the development of our modular design across more models. These elements helped our margin by about 110 basis points. And we gained about 300 points coming from a much more efficient operating structure driven by our ability to leverage our marketing, R&D and administrative spend across more product lines of meaningful size.

For instance, we gain efficiency in R&D by being able to develop technologies, components and engines that will be leveraged across multiple product lines. All of this unlocked by our modular design approach. We do the same on marketing by leveraging our website technologies CRM dealer event and our teams across multiple brands. We gained about 470 basis points driven by the structural improvements bringing our normalized EBITDA margin to about 18%. Now there were also elements that were more temporary in nature that impacted our margin over the last three years, notably, the lower sales program driven by the low product availability and the network and the tight supply chain environment which drove higher inflation and turbulence costs, especially in fiscal ’23.

The net of these temporary elements were the negative impact of about 100 basis points. As these temporary or elements normalized over time, the structural changes will mean that we will be well positioned to continue delivering strong normalized EBITDA margin of at least 17% in the coming years. Moving to Slide 19, for an update of our network inventory situation. Driven by the better utilization of our production capacity, and the improved supply chain environment, we have been able to continue increasing our throughput in Q4, allowing us to further replenish our dealers’ inventory. As a result, we have seen a healthy increase of 66% in product availability at the dealership driven by SSV, ATV and snowmobile. And when you account for a slightly higher than usual inventory for three-wheels and personal watercraft for this time of the year, due to the delayed shipments of model year 22 units of the fall, or overall network inventory is up 130% from last year’s level.

Still, given our significant market share gains over the last few years, our network inventory remains below optimal levels. So as unit availability continues to improve across our product lines over the next quarter, we will be in even better position to serve our dealers and customers and support our market share momentum. Now moving to the guidance, starting with a bit of context on Slide 20. As we build our guidance for fiscal ’24, we are cognizant of the environment in which we operate with inflation remaining above historical levels, and higher interest rates. While it is difficult to forecast how these factors will evolve throughout the year, and how they will impact the industry, based on our current environment, we expect our industry to remain about stable when compared to fiscal ’23, representing a decline of low-single digit from pre-COVID levels.

But despite all the momentum, we have new entrants, and the fact that we were not able to fully meet customer demand over the last year due to limited product availability. Still, in this context, we are well positioned to continue to grow as we enter the year with significant momentum. We’ve gained 5 percentage points of market share in fiscal ’23, driven by the robust demand for our product lineup especially in side-by-side. We have strong momentum with our dealers driven by a unique dealer value proposition which allowed us to reach the number one position in the industry in terms of number of units per dealer. We have key new products such as the Sea-Doo switch switch and the Manitou pontoons that have won multiple awards and are still in the early stage of their growth phase.

And we have demonstrated our ability to adapt and execute in a challenging environment to outperform the industry, although while maintaining strong margins. As such, we are well positioned to continue our growth trajectory in fiscal ’24 with expected revenue growth of 9% to 12%, driven by continued market share gains in our products as we further gain traction with the Can-Am brand, benefit from our increased production capacity for side-by-side, leverage our new mid-CC platform for ATV and sustain our momentum with Record . Moreover, we expect our role to be supported by the first full year of production of the Sea-Doo switch and the Manitou pontoons and by the continued momentum in PA&A and a driven by a growing fleet of units and usage and the continued innovation in our extensive lineup of accessories.

And to put things in perspective, while some may perceive fiscal ’24 to be less predictable than typical, we are comfortable with our guidance given that full year impact of price increases we did last year is expected to contribute to our revenue growth by low to mid-single digit. As usual, we have been conservative in our assumptions for the upcoming snowmobile and personal watercraft season. Over 50% of our expected revenue for the year are coming from more predictable sources, such as utility products, new introduced models, and PA&A. And we also have a strong pipeline of exciting products coming out this year for which initial shipments in our network are expected to support our growth. On the margin side, our guidance assumes a normalization of the supply chain environment.

And as such, we expect the following impact on the normalized EBITDA margin. A reduction in turbulence costs for a benefit of 150 basis points, the positive impact from pricing net of inflation for about 100 basis points, which will be offset to a return of sales program for about 200 basis points, and a slight increase in OpEx as a percentage of revenue for about 50 basis points. As a result we plan to deliver normalized EBITDA growth of 9% to 13% and to maintain our strong normalized EBITDA margin of 17%. Continuing down the P&L, the increase in our normalized EPS is expected to line normalized EBITDA growth due to higher depreciation and interest expense. The increase in both expenses is expected to represent an incremental $1.35 per share.

Still, we believe the fundamentals of our business continue to be very strong as demonstrated by expectation of solid growth in normalized EBITDA, providing us with the means to offset these elements over time. Moreover, fiscal ’24 is expected to be a solid year in terms of cash generation driven by a strong normalized EBITDA in the expectation for solid positive working capital contribution, as we reverse some of the investments we made in fiscal ’23. In fact, we are very well positioned with the flexibility we have to consider multiple capital allocation options in fiscal ’24. Turning to Slide 21, for capital allocation priorities. For fiscal ’24, our priorities remain to continue investing in growth projects and to return capital to shareholders.

As such, we expect to allocate between $750 million to $800 billion to CapEx, focusing our investments on growth projects that have attractive expected returns. Our ability to identify and execute on these projects is at the core of our success, and is what is allowing us to outperform our industry, as you can see from the chart, which shows our track record of delivering very high return on invested capital. Furthermore, we plan on continuing to provide strong returns to our shareholders in fiscal ’24. And as such, we have announced the increase of our dividend by 12.5%. And we are planning to be active or share buybacks as we still have 3.5 million shares available under our current NCIB program. Note, however, that our guidance does not factor in any share repurchases.

Now to wrap things up a summary of our guidance on Slide 22. As mentioned, we expect fiscal ’24 to be another solid year for BRP with revenue growth of 9% to 12% and normalized EBITDA growth of 9% to 13%, sustaining or strong normalized EBITDA margin of 17%. Our normalized EPS is expected to end between $12.25 and $12.75, representing a growth of more than 300% over the last three years, and making continued progress towards our M25 objective of reaching $13.50 to $14.50 of normalized EPS by fiscal year ’25. Finally, while we expect to deliver solid quarters throughout the year, note that a stronger growth is expected to come in H1, notably with Q1 EPS up between 40% and 50%, as we are lapping your quarter that was significantly impacted by supply chain challenges last year.

On that I will return the call back Jose

Jose Boisjoli : Thank you, Sebastien. I am very proud of our team achievements in fiscal year ’23. We are now looking forward to a promising future, and we are well positioned to deliver solid growth in the years ahead. In fiscal year ’24, we will continue to progress on our strategic initiative. We are confident that our investment in innovation in R&D will lead to further market share gain in the marine and powersport industry, more particularly in side-by-side vehicle supported by additional production capacity. Furthermore, in the past two years, we prioritized output over efficiency. Now with the supply chain stabilizing, we are focusing again on execution and efficiency. Over the midterm, we remain on track to deliver our M25 objectives.

Looking beyond we are maintaining our focus on the three addressable market that we have presented last June at our Investor Day. And we are committed to growing sustainably as we make further progress on our journey toward electrifying our product lines. In conclusion, I want to thank all our key contributors to our success. This includes all BRP employees whose dedication, resilience and constant effort are second to none. I also acknowledge the strong support of our dealers and suppliers who helped us get to market the industry leading product that forge our reputation. On that note, I turn the call over to operator for the questions.

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Operator: Thank you. Your first question comes from Mark Petrie from CIBC. Please go ahead.

Mark Petrie : Good morning. We’re hoping that you can just shed some more light in terms of the commentary with regards to consumer demand. And I guess specifically, those areas where you are monitoring and momentum and used units and value segments, as well as some OEMs and dealers returning to more typical levels of in incentives. If you could just share a little bit more detail on that be helpful. Thanks.

Jose Boisjoli : Yeah, good morning, Mark. On consumer demand, obviously, like I said in my intro, and I will try to give you a bit more color. There is many, many positive, our Q4 our retail was up high numbers. The traffic shows and dealers are still good and better than what some were expecting. Our snowmobile booking with dealers is as expected and our preorder sales, and we’re looking at the trends on a daily basis is tracking to pre-COVID numbers and very strong and snowmobile, about a third of our production typically is presold to consumers. And our website traffic and Google search are again above pre-COVID numbers. Now, on other element that we’re watching the used market has slowed down. Obviously dealers still own used units that were trade at high value, and dealer — a tendency to maintain their pricing right now then the retail has slowed down on the used unit.

The seasonal pattern is coming back to a more normal, I would say pattern. And some OEM and dealer have started to give some incentive. Then, when you look at all this, there is a lot of mixed signal in the industry, but we feel confident that we can continue to grow despite that macroeconomic situation. And if I could have, the unemployment rate are still very low compared to many years ago. And also access to credit is pretty good.

Mark Petrie : Okay, thanks. So yeah, I wanted to follow up on that last point, you mentioned is I mean, like some of the recent developments in the U.S. around liquidity and access to credit, I’m just curious to hear your perspectives on the availability of financing for your customers. And any views on that in 2023, or maybe any recent conversations with some of your finance partners that you could pass on. Thanks.

Sebastien Martel : Good morning, Mark, it’s Seb. If I look at the Q4 numbers, they were in line with what we were seeing in Q2 and Q3, so no slowdown in terms of availability. What we are seeing quarter-to-date is that the actual number of applications is going up significantly. And so people are curious and assessing what the credit market is. And overall their closure rate that they created is higher than what we’ve seen pre-COVID. So one interesting trend that we see is that yes, obviously interest rates are higher, so the cost is higher. But what we’ve seen is that people have extended the financing term. So instead of doing a 54-month, they’ll go to a 60-month. And we’re seeing that trend across all of the product lines. So some of them are shopping for a monthly payment and the way to achieve their monthly payment with higher interest rates is to extend the financing term. But FICO scores are still trending higher than pre-COVID as well.

Mark Petrie : Yeah, excellent. Okay. Well, thank you for all the comments and congratulations on the great year and the market share wins.

Jose Boisjoli : Thank you, Mark.

Operator: Your next question comes from Robin Farley from UBS. Please go ahead.

Robin Farley : Great, thanks. Also questions on kind of some of your mentions of what competitors are doing with sales programs. Would you describe the types of programs out there as being just kind of typical what they were to pre-COVID or maybe even not quite that aggressive? I wonder if you could characterize this. And then also, are you seeing that from some of the newer entrants in the market, or is it really more the sort of more entrenched OEMs maybe responding to some of the newer entrants from a market share intrusion perspective? Thanks.

Jose Boisjoli : Good morning, Robin. Obviously, it’s a very wide question. I would say, programs are not as aggressive as they were pre-COVID, but more than last year, obviously. And I would say it depends of the dealers and the OEM, but I would say it’s about maybe halfway to what they were pre-COVID. And we don’t see more program from some of the new OEMs that are more present in North America.

Robin Farley : So you’re saying you’re saying you’re not seeing it from the newer entrants? So I just want to make sure I understood.

Jose Boisjoli : No, we don’t seeing it.

Robin Farley : Okay, great. Thanks. And then just for my follow up question, can you just remind us on your side-by-side capacity, with Juárez 3 kind of what, how ramped up are you and what additional capacity you would have sort of by the end of the year, or any other new future planned additions, just kind of remind us of your capacity? Thanks.

Sebastien Martel : Yeah, under side by side, on Juárez 3, if you remember, Juárez 3 Phase 1 was having 60% more capacity. And Juárez 3 Phase 2 was another 50%. Basically compared to — with Juárez 2 and Juárez 3 together, we have doubled the capacity than we had with Juárez 2. And right now, it’s up and running.

Jose Boisjoli : And we’ve had twice the capacity growth for side-by-side Robin in the last several years since we’ve been more targeted on side-by-side. And every time we’ve added capacity, dealers have given us the support base. We’ve obviously gained market share. So this new capacity, obviously, coming online is another great opportunity to key role.

Robin Farley : And I knew that the capacity the facility has strong, but is it fair to say that you’re not you still have room to go in terms of actually utilizing all the capacity that is available in this new phase? Is that fair to say that that’s still kind of incremental?

Jose Boisjoli : Absolutely, we were probably running at fiscal ’23, with the supply chain constraints at 80% capacity. And the plan is here is to run now this — with this new capacity, probably running between 80% and 85%. So we’ll have more room to grow if the market shows there.

Robin Farley : Okay, great. Thank you.

Operator: Your next question comes from James Hardiman from Citigroup. Please go ahead.

Sean Wagner: Hi, this is Sean Wagner on for James Hardiman. I guess going back to sort of the market share things. Now that shipments in the powersports industry are a little more normalized across industry. How confident are you in your ability to protect, particularly those side-by-side share gains? And what’s the risk of competitors being more aggressive than they are even now on pricing and promotions to regain that lost share?

Jose Boisjoli : Yeah, first, the industry is still healthy. And we gained share with the strength of our product, obviously, that’s the basis but also with our momentum with the dealers. And we will continue to bring new products to the pipeline. We investing quite, we investing a lot in R&D and partially on side-by-side, then we are confident to continue to grow market share with our product innovation and the momentum that we have with the dealers, plus the capacity that we just had.

Sean Wagner: Okay, and I guess the follow up on that, obviously, you’ve spoken about momentum, and utility being a main driver for 2024. New products as well, your biggest competitor, I guess has also identified those same two drivers, particularly sort of increased shipments from them, due to sort of their supply chain issues improving. I mean, is there room for both of those to happen? Or is it just a matter of you have confidence in your business and your products and the execution that you’ve had and that we’ll see how it shakes out from there.

Jose Boisjoli : I mean, it’s our confidence in our execution. Last year, we were quite aggressive to run production at higher rates with the producing unit with missing part that we either retrofit ourselves for the dealer or retrofitting it. And I think it gave us a head start versus our competition. And this combined and this is mainly one reason why we gained so much hair last year for all our product lines. Now we continue on this, in the sense that now supply chain is stabilizing, but we have the production capacity. And again, we have very competitive lineups very innovative competitive lineup, and we have the dealer momentum. Then when you put all this together, we’re confident that we can continue to grow.

Sean Wagner: Okay, can you can you quickly remind us sort of what level of market share you would need to take with that expanded production capacity to be margin neutral, given a higher overhead?

Sebastien Martel : Well, it’s obviously as you saw, in the margin bridge that I gave on the call, our expectation is the FTS volume is going to increase we’re going to see a positive coming from pricing, we’re going to see a positive coming from reduction in tournaments. We are going to invest in sales program this year. And so we are planning to be about up 50 basis points on gross margin and also higher investments in OpEx by 50 basis points. So from an EBITDA down margin point of view, neutral. Yes, we are expanding the plans from these costs are absorbed with the additional volume that we’ll be producing.

Sean Wagner: Okay, thank you very much.

Sebastien Martel : Thank you, Sean.

Operator: Hey, yeah, next question comes from Martin Landry from Stifel GMP. Please go ahead.

Martin Landry : Hi, good morning. My first question is on the on the industry and your guidance. It looks like from what I read on your slides, the North American powersports industry was down low-single digits in 2022 in North America. And I think in your guidance, you expect stable industry growth in ’23. So am I reading this correctly, that you’re expecting some sort of an improvement year-over-year in the industry in North America this year?

Sebastien Martel : No, what we said, Martin in the prepared remarks was a flat industry and flat industry was actually so flat year-over-year and that would be down versus pre-COVID, down single digit. So flat industry is the assumption.

Martin Landry : Okay. And I know it’s a tough question to answer. But what gives you a confidence that given the macroeconomic environment that we’re not going to see the industry decline this year?

Jose Boisjoli : Yeah. First, if you look at the new the dynamic, I mean, you see the demand as I just answered to their first question about the consumer demand, but also give you some other data. The new entrant is still about 40% up versus pre-COVID, 70% of those people are saying that they are there to stay into the industry. And those customer are more wealthy, healthy. Basically the household income of our customers is 30%-35% higher than they were pre-COVID. This is an incredible number. And on top when you look at our — that we are more high end and entry level. And when we look at our customers, a third of the population in U.S. earn household income below $100,000. And our customers two third or above that’s $100,000. Then new customer higher household income. And we are more high-end obviously than low end than some of our competitor. And I think we are well positioning to the industry to continue to grow.

Martin Landry : Okay, that’s helpful. Thank you.

Jose Boisjoli : Thank you, Martin.

Operator: Your next question comes from Xian Siew from BNP Paribas. Please go ahead.

Xian Siew : Hi, guys. Thanks for the question. Maybe following up a little bit on that. You guide for flat industry for calendar ’23. Can you help us think about how much share you think you can gain? Is it you gained 5 points of share this year, ’22. Is it the same level again in ’23? And are there any kind of different areas we should be thinking about a highlight utility, but are there other kinds of areas or where you should be gaining more share?

Jose Boisjoli : Yeah. Good morning. Well, the first thing is from a shared growth perspective on the on a seasonal product business that we’re not expecting share growth. We are planning for consumer industry which would be down versus pre-COVID. And we’re already at 60% and above market share for these products around the world. So on that segment, we’re not expecting any market share gains. On year end products business, if you were to look at where is the growth coming from just maintaining our market share in side-by-side, the market share that we’ve gained in fiscal ’23 would bring 7% revenue growth. The pricing impact is a 4% revenue growth. And obviously, we will not stop at the market share that we have in ’23. So our expectation is to gain further market share.

And that could be another 5% to 10% revenue growth driven from those gains. As we said, obviously, we have a solid line up, but we also have exciting product introductions that are coming this year, which will obviously help the fuel — further fuel market share gains and growth in business.

Xian Siew : Okay, got it. Thanks. And then maybe on the OpEx de-leverage, you mentioned 50 bps. Maybe can you just talk about some of those investments, is it just the fixed costs from the increased capacity? Are you investing more in kind of sales and marketing and or R&D? Any color there would be helpful.

Sebastien Martel : Well, as you saw on our return on capital slide that we showed this morning, obviously, we have a solid track record. And that doesn’t come by magic, it comes through investments, and obviously talented people. And so will continue investing in R&D, continue investing in marketing, in order to drive future growth for this business. We’re in this business for the long-term. And so business — or the secret of our success. And we’ll continue doing that. So as we grow the business, we expanded to new segments, obviously comes with higher investment.

Xian Siew : Okay, thanks, guys. Good luck.

Operator: Your next question comes from Craig Kennison from Baird. Please go ahead.

Craig Kennison: Well, hey, good morning. And thanks for taking my question. Slide presentation has been great. So thanks for that as well. I guess I wanted to ask about first time buyers, because I know you mentioned that that metric had stayed strong. I’m curious if you’ve been able to track first time buyers from early in the pandemic purchase cycle, and whether you’ve seen any behavior trends evolve in terms of trade in cycles, or their willingness or desire to upgrade?

Jose Boisjoli : Yeah, but wanting, Craig. Obviously, we doing a lot more data, we looking at that more research about this on the quarterly basis. But basically, before COVID, and we’ve said that number before, new entrant — our products sold to new entrant was about 20%. And now like I see, in fiscal year ’21-’22, it was slightly above 50% and now it’s 42%. And it’s very, very healthy. And what is interesting is intent to stay in the industry have increased. Now it’s at 70%. And the other factor is the household income that we watching carefully. And I think that explain also reason why access to credit remain high. Then when you combine all this together, I know there is a lot of macroeconomic concern and the macroenvironment, but we feel quite good where we stand in the industry.

Craig Kennison: Thanks. And I wonder if I could just follow up and ask about the health of your dealer network. Clearly, you’ve gained shared dealers and you’re now the most significant brand in many of those dealers. Just didn’t comment on the health of those dealers given that are they face tighter margin and some rising costs in terms of floorplan expense.

Jose Boisjoli : I mean, overall, we were at the dealer meeting for the snowmobile and the new ATV a month and a half ago now. And the dynamic is excellent. And dealer like OEM that push and we introduced again on snowmobile, a lot of novelties, the electric snowmobile, they see that transition to this new technology coming in and they see the first product are reaching to the market. They were very impressed with the new ETV like I said in my remarks. We were like more than 10 years before — since we invested in this — we found that new platform. Then when they look all of this, how dynamic we are and how pushing we are, and they making more money with our product line. Then the relationship we have with our dealers is the highest I never saw.

Then when you sell this, we feel happy, obviously. They would like to keep the margin that we had in the peak of the demand during the COVID. But they are realistic that this time is probably pass and it will come back. I will not I hope it won’t be to what it was pre-COVID, but then in between of pre-COVID than what we had last year.

Craig Kennison: Great, thank you.

Jose Boisjoli : Thank you, Craig.

Operator: Your next question comes from Jonathan Goldman from Scotiabank. Please go ahead.

Jonathan Goldman: Hey, good morning, guys.

Jose Boisjoli : Good morning.

Jonathan Goldman: So I just wanted to circle back to the macro, I guess it seems to be the toughest for sure . Some investors and at least myself are looking to analog to compare the current environment to past cycles. You guys obviously have a much larger sample size with the company and with the industry. But maybe looking at where we are right now and obviously a lot of uncertainty, but in formulating your guidance, how does the current environment compared to past cycles? And maybe what ways that the industry changed, obviously, the GFC was an extreme event but even the cycles before that any changes structurally in the industry, would be helpful.

Sebastien Martel : But like we said in the remark, we see some slowdown into the used market, but I think this is a temporary thing. Everyone is on the fence right now to maintain high value or high cost. And I think when the spring will come, some dealer will start to reduce their MSRP for used, and this will come back to a more normal level. The other thing is a lot of OEMs and dealers talk about the slowdown into the entry level. We have the spark in the right curve which is preorders is a bit lower than on the high end watercraft and high-end three-wheel vehicle, but it’s still higher than pre-COVID on the pre orders. And we are not much into the entry level segment. Most of our product line we selling high-end product with better margin for the dealer and thus I believe it will be less affected than the others. Then when I look all this, I think overall we are in a good position.

Jose Boisjoli : If I would just add obviously, the unemployment rates are still very healthy. And that’s obviously people have a job. And that that is good for our business and that’s been the biggest indicator of a slowdown. When the unemployment rates go up, but as a ERP, obviously if I were to look versus other cycles that we’ve had, we are a very different business and much more diversified from a product line point of view, from a geography point of view as well. And from a manufacturing effectiveness our cost structure is not the same with the Mexican manufacturing footprint. So I’d say a much more resilient business than we were 10 years ago. And that obviously is a big plus if we were to face a certain economic slowdown.

Jonathan Goldman: Now I appreciate that. That’s very helpful. And then maybe one more please if I can on the working cap. I think last quarter you mentioned you start to see some unwind as the build up at $500 million in the second half of this year. Has that timeline or a quantum that, obviously trend can get the full 500, has that quantum changed since the last call.

Sebastien Martel : Well the timing of it has not changed yet. But as we’ve invested a lot in working capital last year due to the supply chain turbulence and having more raw material inventory as a buffer and having submitted units. In terms of overall opportunities I’m looking for this year, obviously with a growing Q4 guidance that we’re expecting to grow again this year. It is going to require some investment and working gap. But I do expect that we will recover some of the investments we made last year so north of $400 million cash benefit that I’m expecting to see this year coming from better management of working capital.

Jonathan Goldman: So just to clarify that the 400 gross before investments, growing top-line.

Sebastien Martel : So it will be a net.

Jonathan Goldman: Perfect, thanks very much, guys.

Jose Boisjoli : Thank you.

Operator: Your next question comes from Fred Wightman from Wolfe Research. Please go ahead.

Fred Wightman : Hey, guys. I just wanted to come back to the EBITDA margin bridge. It sounds like you’re baking in 200 basis points of incremental headwinds from promos next year versus this year. But I think that that was a 300 basis point tailwind. So what gives you the confidence that you’ll be able to hold on to some of that favourability, especially just inventory is normalizing and competitors starting to promote again?

Jose Boisjoli : Well, we’re not. Obviously we were already a few months in the New Year. And yes, there’s a bit of promotion, but we’re not seeing the levels of promotion that we’ve seen in the past. And what we are seeing as promotion is much more targeted towards interest rates, or we’ll call it subsidizing interest rates for retail financing. So what we’re seeing now, and providing some contingency for the end of the year, we believe that holding at least 100 basis points of sales program saving is certainly feasible. And also we’ve gotten more sophisticated in how we manage programs over the last few years. And that sophistication is helping us to be much more targeted. And when you’re targeted you get some savings because you’re not spreading the money. The money in regions that is not needed. So that’s another reason why we are confident on that ability of protecting 100 basis points.

Fred Wightman : Make sense. And then just to come back to the used commentary, it sounds like you guys are expecting used pricing to come down as we move into the spring. And I know that trade in values maybe aren’t quite as important to how are some other vehicle categories. But do you think that that is going to result in more negative equity and potentially impact the trade in cycle as we move through the spring or not?

Sebastien Martel : I think this will go over a minute that the dealer will start to redo their MSRP. I think the trade in will restart at the faster pace.

Jose Boisjoli : But the trade in is kind of protected as well. There has been a very, very high pricing increase that have been done over the last two or three years something like 14%-15%-16% in some product lines. And so some of the used value will be protected by those increases in MSRP as well. So yes, they are very high. Today they use values, there will be a normalization happening. But I’m not — because of those price increases, I’m not seeing a significant devaluation in used. That would be equal to what it was pre-COVID.

Fred Wightman : Okay, thank you.

Operator: Your next question comes from Joe Altobello from Raymond James. Please go ahead.

Joe Altobello : Thanks. Hey, guys. Good morning. I guess first question is on the inventory. I’m trying to figure out how much below optimal your network inventory situation is? I think you mentioned it’s about 8% below where it was in fiscal ’20. But given your retail growth, where should it be or maybe act another way where a dealer turns today? And where should they be? It seems like there’s still a channel fill opportunity. So any color, you can provide, that’d be helpful, thank you.

Jose Boisjoli : Then if we give you, and that’s always at the end of Q4, then it’ll give you a sort of some colors. On the ATV side, we’re about 20% in units, we’re about 20% below COVID pre-COVID. But in days, because we’ve been growing so much during the COVID. During the last two years, we’re — in days we’re minus 40% versus pre-COVID. On side-by-side we somewhat equal in units, but we still have a number of days 50%. Because then when we look at the growth we had, you just need more inventory to fuel the retail. For watercraft entry wheel, we slightly above pre-COVID volume because of the model year ’22. But the preorder for watercraft is like four times the COVID numbers and three-wheel three times pre-COVID number around slow.

Season ’23 will end at the end of March, we believe it will be at about the pre-COVID volume. Booking with the year is on plan and the tracking for preorder to consumer is also tracking to more normal. And when we look up all this, we feel confident that we are in the right position with inventory by product line. And in terms of the filling the pipeline should be done by the end of Q1.

Joe Altobello : Thank you, very helpful. Maybe a follow up on M25. You mentioned earlier, that you’re tracking well there. Is that still — even with the higher interest expense and higher depreciation and you mentioned a $1.35 per share, are we still looking at a $14 number in fiscal ’25?

Sebastien Martel : Yeah, obviously, we have solid momentum. We have exciting product news coming out this year next year. And so we’re in line to deliver on our ’25 commitments of $13.50 to $14.50 EPS in fiscal ’25.

Joe Altobello : Okay, great. Thank you, guys.

Sebastien Martel : Thank you, Joe.

Operator: Your next question comes from Jamie Katz from Morningstar. Please go ahead.

Jamie Katz : Hey, good morning, have just one quick one. I know it was mentioned in the prepared documents that there were still production efficiencies and higher production costs. And I’m curious how you guys expect that to play out over the course of the year, given that the hands could be sort of lumpy laughing the introduction of the switch? And then also the closures or this slower manufacturing maybe at certain points in fiscal 2023. So I guess how does the expense leverage or pressure sort of play out over the course of the year?

Jose Boisjoli : Well, we seen some favorable results in the fourth quarter coming from the turbulence. So year-over-year that was favorable. So that’s expected to continue in Q1, because Q1 last year was the more challenging quarter from a supply chain point of view. So we’re expecting some benefits to materialize this quarter already.

Jamie Katz : But the back half, theoretically, could be much weaker on the top-line. And so maybe there is a little bit more pressure at least from a growth perspective.

Jose Boisjoli : There could be a bit of pressure, but overall, we’re expecting solid quarters throughout the year. And so, again depending on how the end of the year materializes, but there’s obviously going to be a big benefit coming from the lower turbulence in all fiscal ’24.

Jamie Katz : Thank you.

Operator: Your next question comes from Derek Dley from Canaccord. Please go ahead.

Derek Dley : Yeah. Hi, thanks. Just a clarification on you keep mentioning flat industry, but is that volumes you’re referring to? And then on top of that, you’re expecting to get the low-single digit, mid-single digit benefit from pricing?

Sebastien Martel : I’m sorry, I didn’t hear your full your question there.

Derek Dley : Yeah. Sorry. Just on the flat industry expectation that you have. Is that volumes that you’re referring to? And —

Sebastien Martel : Yeah.

Derek Dley : Okay. Okay. Good. And then just coming back to the to the cash flow statement a little bit, the incremental CapEx this year is 750 to 800. Given that the business has gotten bigger, and it seems like you have a material innovation pipeline. Is that level sort of what we should expect it as a new normal for the next few years?

Sebastien Martel : Yes, it should be the new normal.

Derek Dley : Okay, thank you very much.

Sebastien Martel : Thanks.

Operator: Your next question comes from Cameron Doerksen from National Bank Financial. Please go ahead.

Cameron Doerksen : Yeah, thanks. Good morning. I just wanted to follow up on the, I guess the working capital guide. You mentioned the $400 million tailwind. Can you give us any kind of sense as to when we might see some of that unwind? I’m sorry, if that’s more of a second half of the year? Or is that something we might see in the next couple of quarters?

Sebastien Martel : Yeah, good morning. Obviously, as I said, we’ve invested in keeping some unfinished inventory on the books last year and also higher raw material as we wanted to have greater safety stock to adjust for any unforeseen changes in supplier capacity. We will still run with some buffer in H1. And so my expectation is that the benefits of the working capital will happen in the second half of the year, once we work with our suppliers, stabilize their production and adjust their capacity as well to ship obviously, the logistics is improving. So that’s why we’re seeing an H2 benefits happening with that.

Cameron Doerksen : Okay, that’s helpful. And just on, I guess, sort of debt and interest expense. I mean, obviously, you’ve had this big investment in working capital. So you guys have more and more money here to fund that. But I mean, free cash flow profile looks quite strong for at least the next couple of years. I’m just wondering, what can you do, I guess, to reduce debt and by extension, reduce your interest expense, because I think your guidance assumes a fairly healthy increase in net interest expense.

Sebastien Martel : Well, from a balance sheet point of view, first I mean, we are at a healthy point. I mean, our leverage is 1.5 times at the end of the year. So it’s a healthy leverage. Obviously, we’ve experienced higher interest costs coming from the adjustments in the base rate. We have the advantage that some of our debt is hedged. So overall, we’re assuming an average LIBOR of 5.6%. And even if the race was to go up an extra 1%, that probably have an impact I would say $5 million on the P&L. So the priority is not to deleverage at some points, the interest rates will come back down. And obviously, we have strong EBITDA growth, which is allowing us to offset more than the increase in interest expense and depreciation that we’re seeing.

Cameron Doerksen : Right. So from a capital deployment priority, I would — I guess what you’re saying is that maybe NCIB is a higher priority item than deleveraging.

Sebastien Martel : Absolutely, the returns are much higher to do with the NCIB. And we plan on being active on the NCIB this year, as we have in the past years as well. It’s a much better return of capital to shareholders and being done.

Cameron Doerksen : Okay, makes sense. Thanks very much.

Sebastien Martel : Thank you.

Operator: Your next question comes from Brian Morrison from TD Securities. Please go ahead.

Brian Morrison : Thanks. Good morning. I want to follow up on Cameron’s question. With your financial guide and your reversal of working capital, that’s $1 billion of free cash flow. The last two years you’ve done an SIB. Now what’s the trigger point historically, to proceed with this form of return as opposed to NCIB?

Sebastien Martel : Well, obviously, we’ve been active in both in terms of NCIB, and SIB. The NCIB, there’s a certain maximum you can do within a 12 month period. The current NCIB, the maximum shares we can buyback is 3.5 million shares. So as we said, our expectation is for solid free cash flow. And we’ve always executed opportunities to be on the SIB. Obviously, today, our multiples are low when you compare to our historical averages. And so any option is on the table, but we plan on being active with buybacks this year.

Brian Morrison : Okay. Just as you’ve reiterated your ’25 targets, valuations probably flipped at 2025. Any granularity on the details there, it’s been changed here $7 billion in year round, and you’re $1 billion on marine, it looks like your EBITDA margins a bit higher than your high-60s earlier. Any granularity on changes within that guidance.

Sebastien Martel : No, no material change. Obviously, the plan is what we communicated about six months ago, in June and at the investor meeting. The good news as some of the momentum we were planning to have over the three year period up to 2025 happen more quickly, in side-by-side. So given us the confidence that we can achieve our ’25 target, with the more rapid than that than we saw in certain product lines. And obviously from a dealer value proposition point of view, dealers like doing business with us and they see that we’re bringing new business to them. And just if you look in the last few months, we’ve announced the switch that’s a brand new product line for them, we announced the Sea-Doo rise as well gets a lot of markets and dealer excitement. So everything is lining up from a product line dealer point of view for us to be able to deliver on our product .

Brian Morrison : And you increased your $500 million target on the switch?

Sebastien Martel : No, not for now.

Brian Morrison : Thanks very much.

Sebastien Martel : Thank you.

Operator: And your next question comes from Sabahat Khan from RBC Capital Markets. Please go ahead.

Sabahat Khan: Great, thanks. And good morning. Just a quick question, I guess on the marine progress. Obviously a big growth number you’re giving for next year, but it seems like called out some supply chain issue. Maybe you can share some color on what specific kind of parts or areas you’re having issues and maybe the cadence of this ballpark 50% growth that you’re wanting for this year?

Jose Boisjoli : Yeah, good morning. Obviously. I mean, I won’t go into detail because it’s between us and suppliers. But I won’t go into detail, but basically it’s a brand new platform. And we were quite innovative the way we designed the product to obviously reduce costs and give to the customers some features. And with one supplier particularly it’s more difficult than what obviously we had planned. And we are in the middle of resolving it then we believe that things will, will improve in H1.

Sabahat Khan: Great. And then just a quick one on kind of the powersports PA&A side. There’s a view out there that feels that this segment could go up during the downturn as maybe people spend on lower cost periphery items. If there is a macro slowdown, is it some sort of — that sort of expectation built into your number here for the guidance for fiscal ’24? How are you thinking about the evolution of that segment through the cycle, at least over the next year, year and a half?

Sebastien Martel : Well, obviously, you’re right that when there is a slowdown, it is a business that is, is more sustainable, because people still are still writing and or still need to maintain and repair their vehicles. But again, in our assumption that we’re not building — we’re not building an assumption for an economic slowdown and the guidance. The growth is obviously coming from a higher number of units that are out there being used by our customers. And also the introduction of new models like the Can-Am ATV that were launched — that we’ve just launched, obviously has a high accessory attachment rate to it. And that’s obviously drawing accessory sales up. And so that’s where their growth is coming from with pricing.

Sabahat Khan: Great, thanks very much.

Jose Boisjoli : Thank you.

Operator: There are no further questions at this time. I will turn the call back over to Mr. Philippe Deschenes to close the meeting.

Philippe Deschenes: Thank you, Judy. And thanks, everyone for joining us this morning and for your interest in BRP. We look forward to speaking with you again for our Q1 earnings call. Thanks again everyone. And have a good day.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for joining. And you may now disconnect. Thank you.