BRP Inc. Common Subordinate Voting Shares 2027 Q2 Earnings Call

Thank you. Good morning, and welcome to BRP's conference call for the second quarter of fiscal year 2027. Joining me this morning are Denis Le Vot, President and Chief Executive Officer, and Sébastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that the actual results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult BRP's MD&A for a complete list of these. Also, during the call, reference will be made to supporting slides, and you can find the presentation on our website, brp.com, under the investor relations section. With that, I'll turn the call over to Denis.

Well, thank you, Philippe. Good morning, everyone, and thank you for joining us today. Before getting into quarterly results, I want to say a few words about Sébastien's retirement announcement released earlier this morning, as you could see. Sébastien had shared with the company his objective to retire some time ago, and he has since supported the succession planning process. I want to thank Sébastien for his outstanding contributions over more than two decades at BRP. He has played a key role in many of the company's significant milestones, including its initial public offering on the TSX in 2013, named at the time IPO of the Year. Sébastien's strong leadership, strategic vision, and financial discipline contributed to making BRP what it is today, with a proven track record and solid financial performance.

This is Sébastien's last quarterly call as a CFO, but he will stay with us for a while as an executive advisor. Effective October 1st, Minh Thanh Tran, who is with us today, our Executive Vice President, Global Corporate and Product Strategy, who some of you already know, will become our new Chief Financial Officer. Minh Thanh Tran joined BRP in 2017. Over the years, he has demonstrated leadership excellence across corporate strategy, merger and acquisition, transformation, and product strategy. He has spearheaded several initiatives that have driven BRP's success, including leading the implementation of our new North American ERP system, developing our Mission 28 strategic plan, and paving the way for the company's manufacturing footprint in Asia. Prior to BRP, Minh Thanh Tran built deep expertise in investment and corporate banking with Lazard and BMO Capital Markets.

His strong financial acumen, sharp business insight, and extensive powersport industry experience position him as the right person to lead our finance organization. Minh-Tan and Sébastien will work together to ensure a smooth transition until Sébastien officially retires in April 2027. Now to our quarterly results. We delivered another solid performance with financial results ahead of our expectation, sustained ORV retail momentum, driving further market share gains, and meaningful progress on our key strategic initiatives. We also continued to further improve our net tariff exposure while protecting our competitive position and long-term growth prospects. In this context, at our recent dealer events, we unveiled new models that demonstrate our solid commitment to innovation, further expanding our product offering, and adapting to the current tariff environment.

Our team's ability to manage the business in this volatile geopolitical and macroeconomic environment, combined with our solid performance in ORV and overall strong execution, reinforce our confidence in the outlook. As a result, we are increasing our full-year guidance. Sébastien will provide further details later in the presentation. Now, let's take a look at the second quarter results on slide number 4. We delivered revenues of CAD 2.2 billion, normalized EBITDA of CAD 139 million, and a normalized loss per share of CAD 0.18. It is important to note that these results include an incremental net tariff impact of about CAD 145 million compared with the second quarter of last year. Despite this headwind, our performance came in ahead of our expectations, driven primarily by sustained momentum in ORV retail demand and the benefit of a reduced tariff rate on ATVs.

We also generated a strong free cash flow of CAD 193 million, further strengthening our balance sheet and enhancing our financial flexibility as we navigate this volatile environment. Let's turn to our network inventory on slide number 5. Dealer inventory remains healthy, being up only 2% year-over-year. We increased ORV availability and further optimized the mix of current model year units across our product lines. Together, these actions position us well to capitalize on market opportunities in the second half of the year while supporting sound profitability for both BRP and our dealers. Turning to global retail trends on slide number 6. In North America, market dynamics remain broadly consistent with recent quarters, with modest industry growth led by continued strength in SSV. Against this environment, our retail performance tracked the industry with ORV market share gains offset by softer PWC conditions.

Internationally, EMEA market condition continued to improve, particularly in ORV and PWC, notably supported by strong demand in Eastern Europe and Scandinavia. Our year-over-year retail performance was up low single digits, trailing the industry due to softer trends in the three-wheel vehicles. In Latin America, retail declined 4%, primarily reflecting softer SSV demand in Mexico. In Asia Pacific, industry retail grew low single digits, driven by continued strength in ORV. We outperformed the industry with retail increasing 8%, gaining further market share in SSV. Overall, we are pleased with our retail performance, particularly in ORV, where we delivered strong results across most region and continued to gain share in several key markets. Now let's look at our North American performance, beginning with a side-by-side on slide number 7. We ended season 26 on a strong note with second quarter retail up mid-single digits, outpacing the industry.

Our momentum continued, driven by the success of the new Defender HD11, which fueled utility cab retail growth of more than 30%. We delivered our strongest ever second quarter for utility SSV retail. For the full season, ending in June, our SSV retail grew by high single digits, outpacing an industry that grew mid-single digits. More importantly, we gained more than three points of market share in current model year SSV units, achieving an all-time high in this category, with Can-Am capturing nearly one-third of units sold. To leverage higher than expected demand, we are expanding capacity within our existing manufacturing footprint. This should enable us to sustain our growth trajectory through the balance of the year and beyond. These positive trends also extended to ATV, as shown on slide 8.

While the industry declined low single digits during the quarter, our retail increased mid-single digits, significantly outperforming the market. This strong performance moved us into the number 2 position within striking distance of the leader. For the full season, our retail grew low single digits, outperforming an industry that declined low single digits. We gained share in the key mid and high CC segment, demonstrating the success of our products. Retail of current model units increased by nearly 20%, allowing Can-Am to finish the season as the number 1 brand in the category. Overall, we are pleased with our ORV performance, which reflects Can-Am's industry-leading product lineup, the effectiveness of our innovation strategy, and the disciplined execution of our business plan. Turning to PWC, our retail declined low single digits during the season's key quarter in line with the industry.

From a market share perspective, elevated levels of discounted carryover inventory from other OEMs continued to pressure non-current units. However, our current model year performance remains strong, with market share increasing by more than six points, ending the quarter above 60%. Given softer than anticipated industry demand, we have proactively decided to further reduce shipments for the balance of the year. This disciplined approach will optimize network inventory, support retail execution, and position both our dealer and BRP for a stronger start to next season. Let's turn to slide 10 for an overview of our retail performance in North America in other product categories. In three-wheel, retail declined mid-single digits, with premium models continuing to account for most sales, underscoring resilient demand at the higher end of the category. As for twos, retail declined almost 30%, reflecting softness across the marine industry.

That said, we made solid progress in reducing non-current inventory. Finally, snowmobile retail was up more than 20% on low off-season volume. Overall, we are pleased with our second quarter performance. While PWC continued to face softer industry condition, our ORV business remained very strong, and we delivered solid results across several higher-margin segments, particularly in current model year units. Moving on to slide 11 for a recap of key announcements from our recent Club BRP. Attending this major event for the first time since joining the company, I had the privilege of meeting several dealers and business partners. The energy and engagement were remarkable. With nearly 3,000 participants present in person, representing more than 90 countries. On the commercial side, we launched BRP Financial Services, our new U.S. retail financing program.

It is designed to provide customers with a seamless financing experience while giving us greater flexibility to support retail growth and build stronger direct relationships with our consumers. In line with our objective of strengthening dealer engagement and experience, we also enhanced our commercial programs to strengthen our dealer value proposition and support profitable long-term growth across the network. From a product perspective, our focus is clear: delivering more value to customers while reinforcing our leadership in innovation. In PWC, we announced our fiscal 2027 Sea-Doo lineup, which includes the all-new Spark X model, more powerful than ever and packed with premium features. We also launched the Sea-Doo RXP-X Senna 350 as a tribute to F1 legend Ayrton Senna, who inspired the world to push boundaries on the racetrack and beyond. Our collaboration with the Senna brand is already making waves, elevating Sea-Doo's global visibility.

This limited edition is powered by the all-new 350 horsepower Rotax 1630 ACE engine, the most powerful factory-installed engine ever offered in the category. This engine is also available across the other Sea-Doo performance models. In three-wheel vehicle, we introduced the most significant evolution of the Can-Am Ryker since its initial launch, improving handling and overall riding experience. It will be the first model manufactured in our new facility in Vietnam. Finally, meaningful upgrades across our ORV lineup, including new models, added feature, and stronger value proposition, set us up to sustain our momentum and drive further market share gains in both ATV and SSV. More importantly, we strengthen our position in what we see as the industry's most attractive growth opportunity, utility SSV cabs, shown on slide number 12.