Good morning, and welcome to Brunswick Corporation’s First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer period. Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Brent Dahl, Vice President, Investor Relations.

Good morning, and thank you for joining us. With me on the call this morning are Dave Foulkes, Brunswick’s CEO; and Ryan Gwillim, CFO. Before we begin with our prepared remarks, I would like to remind everyone that during this call, our comments will include certain forward looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations. For details on the factors to consider, please refer to our recent SEC filings in today's press release. All of these documents are available on our website at Brunswick.com. During our presentation, we will be referring to certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP financial measures are provided in the appendix to this presentation and the reconciliation sections of the unaudited consolidated financial statements accompanying today's results. I will now turn the call over to Dave.

Thanks, Brent, and good morning everyone. Our businesses had a strong start to 2022, delivering record first-quarter sales, operating earnings, and EPS. Continued focus on operational efficiency and strengthening our supply chain enabled increased production levels, and our investments in technology, innovation, recurring-revenue businesses and capacity have shaped the enterprise portfolio for further success in any economic environment. Despite the inflationary backdrop, the pace of retail sales continues to be dominated by the twin supply-side challenges of very low field inventory levels and supply chain disruption. Global boat field inventory levels were 6% lower at the end of the first quarter of 2022 than at the same time in 2021, and down 12% in the US, and are likely exaggerated by a slower start to spring in the Northern US and Canada, which is resulting in delayed deliveries and registrations for many retail-sold boats. The percentage of our boat production that is already retail-sold continues to be at an all-time high. Early 2022 boat show performance is encouraging and there is no evidence of wholesale or retail cancellations. Field inventory of our larger boats in the US is currently at or near zero, and consequently, there continues to be very little advertising or promotional activity. With macroeconomic and geopolitical factors driving current financial market dislocation, we took the opportunity to issue long-term debt at favorable interest rates and complete $80 million of share repurchases in the first quarter, and are significantly increasing our 2022 annual share repurchase target to $300 million. Later in the call, Ryan will provide you with further details behind our updated guidance for 2022. Before taking a look at our segment performance for the quarter, I wanted to spend a few minutes talking about the external factors and influences we are monitoring and managing, some on a daily basis. First, I'd like to address boater sentiment in the face of the macroeconomic pressures and geopolitical issues currently at the forefront of many people's minds. Our internal surveys continue to indicate that intention to buy a boat remains essentially unchanged versus 2021, and that supply-side challenges are pacing retail sales. Clearly, our businesses have not been immune to the impacts of the inflationary environment on product cost. We take a long-term view and our overall strategy has been just to cover our costs of inflation through price increases on a dollar basis. As you know, around 80% of our boats sell for less than $50,000, and boats can be financed up to 15 years. Additionally, despite recent and forecast rate increases, on a historical basis interest rates remain low. In terms of boat operating costs, we estimate that for the average Brunswick boater, the rise in fuel prices since early 2021 will increase their seasonal fuel bills by less than $200. Turning to geopolitical events, the tragic conflict in Ukraine and our cessation of business in Russia, Belarus, Crimea and the disputed territories has had no significant direct financial or supply chain impact to our business. However, wholesale sales and production growth continue to be constrained, most notably now by the supply impact of the China lockdowns and associated freight and transportation delays, and the Spring boating season is getting off to a slower start than a year ago in Northern US and Canadian markets. We are monitoring long-range weather forecasts that currently show some improvement in May, which should translate into greater boat usage and increased aftermarket P&A sales in the second quarter. I'll now provide some highlights on the performance of our segments during the first quarter. Our propulsion business had strong results versus a historic first quarter 2021, with top-line growth enabled by increased production. Mercury Marine continues to expand outboard propulsion retail market share, gaining 310 basis points in the last 24 months, including over 1,000 basis points of share gains in engines over 300 horsepower. Production capacity for high horsepower outboard engines will be significantly increased by the previously announced capacity expansion in the Fond du Lac, Wisconsin facility, which remains on schedule for completion in the fourth quarter of 2022. Mercury has now delivered V12 600 horsepower Verado engines to more than 50 different OEM customers since its unveiling just over a year ago. Our parts and accessories businesses continued their robust performance, collectively delivering their highest ever first quarter revenue as both aftermarket and OEM channels prepare for the prime boating season. Our Advanced Systems Group, with the addition of Navico, delivered exceptional top-line growth in the quarter, with healthy margins despite continued supply chain tightness and cost headwinds. Our boat business posted outstanding top-line growth in the quarter, with operating margins slightly below double digits and increasing sequentially for the second consecutive quarter. Our Aluminum Fishing category had outsized revenue growth and robust operating margins, while our Recreational Fiberglass brands also posted a strong quarter. We are meeting our production plans for the year despite the headwinds, with global pipeline inventory levels remaining at the very low level at 19 weeks. Finally, Freedom Boat Club has had an incredibly busy start to the year with substantial growth in the US and Europe, and now has 350 locations and over 48,000 memberships network worldwide, while generating exceptionally strong synergy sales across our marine portfolio. Next, I would like to review the sales performance of our business by region on a constant currency basis, excluding acquisitions. As expected, most regions posted substantial sales growth in the quarter versus first quarter 2021, with Canada and Europe delivering strong sales growth in every business unit. Overall, international sales were up 11% versus the prior year quarter and US sales grew 8%. Sales in Asia Pacific were also strong when compared against the historical level achieved in Q1 2021, when that region saw a 31% increase versus first quarter 2020. As a reminder, the capacity initiatives across the enterprise, but especially in the propulsion segment, will allow us to better satisfy the immense international demand and backlog for our products. As we discussed during our January earnings call, the industry experienced more pronounced supply chain disruptions than anticipated in the second half of 2021, with continued strength at retail, leading to a more significant inventory-constrained retail environment. As expected, this trend continued into the first quarter of 2022. As mentioned, our indicators suggest the reported industry retail declines are being driven by a lack of product. We view the delayed deliveries to end consumers in northern boating markets as transitory, with deliveries expected to pick up when the weather improves, which will be reflected in future SSI reporting. US lead generation, dealer sentiment, and other leading indicators all remain very positive and we are essentially sold out of our 2022 wholesale production slots with some brands being sold out at retail for 2022. Ryan will provide some additional commentary on this point during his discussion of the pipeline. Brunswick's retail performance in the first quarter was broadly consistent with the overall market performance, with outperformance in recreational fiberglass products and pontoons. US outboard engine unit registrations were down 3% in the first quarter for the industry. On a rolling 12-month retail sales basis, Mercury continues to gain significant market share, capturing more than 400 basis points of share over the last 12 months in 200 horsepower and greater categories. I'll now turn the call over to Ryan for additional comments on our financial performance.

Thanks, Dave, and good morning, everyone. Brunswick delivered yet another fantastic quarter, with record first quarter sales, operating earnings and EPS. When compared to the prior year, first quarter net sales were up 18%, with adjusted operating margins of 15.8%. Operating earnings on an as-adjusted basis increased by 10% and adjusted EPS of $2.53 increased 13%. Sales in each segment benefited from higher prices implemented since the first quarter of 2021 and increased sales volumes, partially offset by supply chain inefficiencies and unfavorable changes in foreign currency exchange rates, while each segment's operating earnings continue to be impacted by increasing inflationary pressures and spending on growth-related initiatives. Turning to our segments. Our propulsion business delivered yet another quarter of strong top-line growth, with a slight earnings increase versus a historically strong first quarter of 2021. Revenue increased 7% versus the first quarter of 2021 as strong global demand for all product categories continued to be enabled by increased production levels. Operating margins were lower by 110 basis points as higher sales and favorable absorption were more than offset by higher manufacturing costs, primarily caused by inflation and continued investments in capacity and product development. Note that although we have been taking price in certain markets and product lines, the majority of the propulsion price increases occur from this point forward in the year. Our parts and accessories businesses saw a 34% increase in sales and a 19% increase in adjusted operating earnings, due in large part to the 2021 acquisitions of Navico, RELiON, and Semahtronix. Excluding the impact from acquisitions, organic P&A revenues grew by 2% against a very tough 2021 comparison, despite sales and earnings being impacted by supply chain constraints leading to increased sales backlogs, together with a slower start to the boating season in northern markets due to unfavorable weather conditions. As anticipated, adjusted operating margins of 18.9% were down when compared with the prior year quarter, primarily due to the impact of recent acquisitions and increased input costs. Our boat segment delivered strong top-line growth and solid earnings increases despite continued supply chain disruption and cost inflation. Sales were up 18% and adjusted operating earnings were up 6% when compared with the first quarter of 2021, with five of our brands exceeding 10% operating margins for the quarter. Sales increases in the quarter were led by particular strength in aluminum freshwater, including our pontoon businesses, and our recreational fiberglass brands. Increased volume and pricing enabled solid operating earnings growth, which was also impacted by higher costs due to manufacturing inefficiencies resulting from supply chain disruptions, and ramp-up costs at Boston Whaler's Flagler facility. Freedom Boat Club, which is included in Business Acceleration, contributed more than 3% of the boat segment's revenue during the quarter. Turning to pipelines, we produced and wholesale sold more boats in the first quarter than we did in the first quarter of 2021, a remarkable achievement given the current supply-constrained environment. Supply chain challenges, including delays in receiving certain components, continue to result in the deferral of shipping certain nearly completed boats to subsequent quarters. Dealer pipeline inventories decreased from the first quarter of 2021 by about 1,000 units to a historically low 13,600 units. This translates to just over 19 weeks of inventory on hand measured on a trailing 12-month basis, which is about half of where inventories typically stand at the end of a first quarter. Drilling deeper, of the 13,600 global pipeline units, only 7,000 of those units are located in the United States, with only approximately 5,000 of these units actually available for sale. The remainder of the units are already retail sold, most of which are held by dealers in northern US boating markets, to be delivered to customers in the second quarter as the weather begins to improve. Inventory levels also differ by brand, with certain fiberglass products including Boston Whaler, having on average, less than one boat in inventory per US dealer. As a result of these dynamics, and despite increased production in 2022, we expect that inventory weeks on hand in 2022 will follow a similar trajectory to that experienced last year. Moving to our outlook for the remainder of the year, despite the current headwinds Dave and I have discussed, our Q1 operating outperformance puts us in a position to raise full-year EPS guidance, even after accounting for the $0.25 of additional interest expense related to our first quarter debt issuance. In addition, our accelerated and additive share repurchase strategy provides incremental benefits for the year. These benefits, when taken together with a slightly improved view of full-year top-line growth, results in us raising our full-year adjusted diluted EPS guidance to between $9.80 and $10.30. Note that the M&A completed and announced here in April has been included in this outlook, providing a very small benefit for 2022, with a more meaningful revenue and earnings contribution in 2023 and beyond. I'll finish my comments this morning by highlighting certain P&L, cash flow, and capital strategy assumptions that have changed versus our original full-year 2022 guidance. As Dave mentioned earlier, the issuance of additional long-term debt in the first quarter has increased our estimate of full-year net interest expense to approximately $95 million. As part of the debt offering, we retired the remaining $57 million of our 2023 term loan, which as of now likely completes our debt retirement activity for the year. In February, we also increased our dividend to $1.46 per share. Our decision to increase share repurchase target given the current market dislocation will result in our average diluted shares outstanding for the year to decrease to between 76 million and 76.5 million shares. As a reminder, we repurchased $80 million of shares in the first quarter and another $10 million thus far in April, and we anticipate second quarter repurchase activity to be no less aggressive than our first quarter cadence. Additionally, we anticipate slightly greater working capital usage for the year, primarily related to our businesses holding higher levels of inventory to ensure consistent production levels. Our anticipated earnings impact due to tariffs has improved by $5 million due to certain China 301 exclusions being reinstated in March, but still results in an estimated $60 million headwind, primarily due to the 40 horsepower to 60 horsepower engines we produce in our China facility still being subject to the tariffs.

I will now turn the call back to Ryan for concluding remarks. As anticipated, our Business Acceleration team has had a very busy start to 2022. Freedom opened its 350th global location in Denmark, which is the first location in the Nordics, a strong boating region. Freedom also continued the expansion of its corporate footprint in key markets by acquiring four locations in the Atlanta area, and continued to transition the branding of its recently acquired boat club locations throughout Spain. Business Acceleration also acquired J&R Marine, a portfolio of marine assets in the southern United States, including the greater Atlanta area, to expand shared access, advance its Boating-as-a-Service ecosystem strategy with subscription-based models, and fortify plans to establish a regional marine operating center that will support Freedom Boat Club and Boateka. Before we close out our comments this morning, I wanted to leave you with a few more updates. On March 7, we launched our second consecutive virtual Investor Day and held a follow-up Q&A session with the investor community. If you haven't done so already, I would encourage you to view these materials, which highlight the company's strategy through 2025. The materials can be found on brunswick.com. In late March, we published our third annual enterprise-wide Sustainability Report, highlighting the company's industry-leading sustainability achievements, and announced the hiring of Jennifer Koenig, the company's first Chief Sustainability Officer, furthering Brunswick's ongoing commitment to advancing our enterprise environmental, social, and governance strategies. Navico announced its first major capacity expansion since joining Brunswick in October 2021. The expansion is expected to create more than 100 additional jobs at its Ensenada, Mexico facility, and will increase vertical integration and production capacity to deliver the necessary volume growth, in addition to increased supply security, to fulfill record demand for Navico's award-winning products. Mercury continued its string of successful early season saltwater boat shows that included Miami, Dubai, and Palm Beach, at which it captured record share of outboard engines on display, particularly in high horsepower applications. Brunswick also continued to receive recognition for innovation by winning seven Boating Industry Top Products awards spanning our businesses and product portfolio. Brenna Preisser was featured on CNBC, highlighting the company's leadership in DEI, and we also received recognition from Forbes as a Best Employers for Diversity for the third consecutive year. Before I finish, I want to thank all our global employees who, once again, continued to deliver outstanding business performance and advance our Next Wave strategy despite the very dynamic external environment. Thank you. We will now open the line for questions.

Thank you. And ladies and gentlemen, at this time we will be conducting a question-and-answer session. Our first question comes from Xian Siew with BNP Paribas. Please go ahead.

Hi, guys. Thanks for the question. You mentioned a slower start to the season with maybe poor weather, but can you talk about trends exiting the quarter and into April, like for example, the parts business was only up, I think, 2% on an organic basis. I was curious how that evolves for the quarter, and if you saw any kind of acceleration into April?

Thank you for the question. It was up 2% compared to a significant previous year and an earlier spring. We're quite satisfied with the state of the business. There might be some timing differences, but it's important to view this as a timing issue. The parts and accessories business has a sales pattern where people prepare their boats for the season each year. It's really a matter of whether that happens a week or two earlier or later, depending on when spring begins. There’s also a usage pattern and a winterization phase. Overall, we're very confident in the performance of parts and accessories and their inventory levels. We're comparing against a strong year last year, and we are experiencing a slightly delayed spring. I view this as a very positive environment for us.

Okay, got it. Thanks. And then you talked about how '22 retail is essentially sold out, you're not really seeing any cancellations, but can you help give us some more color on how solid the backlog is? And how hard it is for consumers to cancel orders? I think you're taking the pause and you have all the customer information, but maybe some more color there? And also, within that, if you're taking pricing over the course of the year as costs are going up, are you retroactively taking the price up for boats that have been pre-sold? Thanks.

In terms of cancellations, it varies depending on the type of boats and somewhat on the individual dealer. For large boat pre-orders, there is usually a deposit of about 10% that might be at risk, although if someone plans to order in the future, that risk is minimal. For smaller boats, the cancellation penalty is quite low. The encouraging news is that we're not seeing any indications of cancellations at either the wholesale or retail level. Our dealers are primarily asking if they can obtain more boats; there's no negative trend—just a strong demand for more inventory. I do not believe there are cancellations at the retail level, as the focus is solely on consumers wanting to get their boats. Regarding retail pricing, dealers currently have some leeway within their contracts to adjust prices accordingly. Although we do not directly manage retail pricing decisions—that is up to the dealers— we are actively monitoring inflation trends to adjust wholesale pricing more frequently than we have in the past.

Thank you. Our next question comes from James Hardiman with Citi. Please go ahead.

Hey, good morning. So, I wanted to actually dig into that last point about pricing a little bit. There have been a number of price increases, and maybe just as significantly promo being eliminated. But if I were to look at your three segments, where are we in terms of total sort of realized price versus '19? And maybe, can you speak to the different levels of pricing power in those respective segments? Obviously, everybody is concerned that we'll see the reintroduction of demand elasticity. Where would we see that first, where would we see it last?

Good morning, James. It's Ryan. I'll start with that and then Dave can add on. We have indeed implemented price increases across all three segments. Looking at Propulsion, the increases so far have been relatively modest compared to pre-COVID levels, likely in the low to mid-single digits up until now. We expect to see a slight rise as we progress through the year, especially in the US Outboards sector. For parts and accessories, the impact varies between the aftermarket and the OEM side. The aftermarket has seen increases, generally in the mid to high single digits, while the OEM side might experience a bit more, closer to low double digits. Regarding boats, we have consistently communicated that cumulative price increases are likely around the mid-teens to 20% over the past couple of years, with an expectation for more pricing flexibility as we move into model year 2023. Pricing strategy is a long-term consideration for us. We are using price increases to manage inflation, which is a notable factor in the current market, but we remain mindful of not pricing out our customers. We've addressed pricing across various components of the boating ecosystem, including engines and parts, careful to implement these adjustments gradually to manage inflation without overstepping what is necessary.

Just one additional comment. We've said for a long time about 80% of our boats costing less than $50,000 and that used to be over 80%, but we checked it just a couple of months ago and it was 78%. So, over this whole period, we still have a huge portion of our portfolio aimed squarely at middle-income consumers and still extremely affordable. So, that still gives you a good idea of what the kind of pricing look like, even though we've certainly been forced to elevate some pricing. We are in this for the long term.

That's great color. And then just one more from me. The $300 million in projected share repurchases now seems to be a pretty big signal about where your stock is trading relative to what you think intrinsic value is, maybe speak to that, and whether or not you might lean into that even further if the stock continues to be depressed? Thanks.

Yeah, thanks, James. Yeah, I think, obviously, we're trading at a discount and obviously, the sector has had a significant pullback and we believe that we are significantly discounted by any measure of intrinsic value. So this is a good time for us to deploy capital. We have a very strong balance sheet and are able to deploy capital very flexibly. And we certainly think that this is a great time to be repurchasing shares and could we lean more into it, yeah, absolutely, we could lean more into it. We think that that's a good target for now, but we will see how the year develops and whether that continues to be the right value place to put our dollars.

That's fair to say though it would, James, very likely only go up, not down, if that's what you're asking.

Perfect. Appreciate the color, guys.

Thanks.

Thanks, James.

Our next question comes from Mike Swartz with Truist. Please go ahead.

Hey, guys. Good morning. I just wanted to touch on your retail outlook for the year and maybe as it pertains to your prior outlook of, I think you said, low single-digit growth and understanding that retail and wholesale are fundamentally separated for the time being, but could you give us a view of just what some of the supply chain issues that you've seen? How, or I guess, has your retail outlook for the year changed at all?

Hi, Michael. We discussed whether we should take any action, but right now it's early in the year and our production is strong. There are some specific timing issues this season that are crucial. We don't have enough new information to update our outlook at this time. If there are any developments, we will address them, but we don't feel it's appropriate to make any modifications given the current lack of information.

Okay, fair enough. I apologize if I missed this, but regarding boat production expectations for the year, I believe you previously mentioned about 40,000 units. Since you've updated your guidance, is that still the correct number, and should we consider the increment to be related to pricing or something else?

Yeah, that's still the right number for us. I think the Boat Group and the teams in our individual plants and brands have done a great job in the first quarter of the year. I expect they'll continue to do a great job in the balance of the year. So, yeah, that's a good number.

Okay, great. And then, maybe just a final question, just at a very high level, maybe just give us some color or just qualification of maybe how the supply chain looks today relative to two months ago?

It migrates. The area that seems most disruptive is the COVID-related lockdowns in China. Other areas have generally seen improvements in availability. However, inflation persists, and there are new inflationary pressures from global events. As COVID has diminished, particularly for our domestic supply base, we are observing improved performance, although not uniformly. Right now, we are particularly focused on engineered components coming from China, as that poses the greatest potential for disruption. Nonetheless, we have managed to navigate these challenges so far, and we expect to continue doing so.

Thank you. Our next question comes from Anna Glaessgen with Jefferies. Please state your question.

Hi, good morning. Thanks for taking our question. And thanks for giving the color on the expected change in fuel costs for the average boater. Could you maybe give some perspective on what you're assuming in terms of usage, maybe versus historical averages given participation has benefited over the past two years?

Yes, that's a good question. We calculated the average usage based on our typical boats and reliable data from third-party sources. For instance, the EPA releases annual average boat usage data, indicating that boats are typically used for about 35 hours each season. There is seasonality to consider, especially in northern regions where the boating season is shorter. If we take our average outboard horsepower, around 140, and account for the boat type and fuel consumption, along with the difference in fuel prices between earlier this year and last year, which was about $1.50, we estimate the cost at around $160. To simplify, we rounded it to $200. For boats with more power or multiple engines, the costs would be higher, but we aimed to provide a typical estimate for the average boat we manufacture, based on established usage profiles. It's worth noting that there's a different estimate for wake sports boats, which consume more fuel due to their higher power and torque demands. However, for our average boat—keeping in mind that roughly two-thirds of our boats are aluminum fishing models—the fuel consumption is quite low, comparable to about a quarter of the annual fuel usage of a compact car.

Great, thanks. That's really helpful. And then glad to hear the Mercury capacity expansions are still on track for 4Q. As we think about that incremental capacity and higher horsepower, can you give some perspective on the product and mix and channel shift impact to margins as we see that ramping?

Yeah. Well, first of all, I can tell you it's all spoken for already. So, which is really exciting. So that's really good. I think we've said before, it's aimed at the higher horsepower engine ranges, so 175 horsepower and above, and we're adding around 60% capacity in that horsepower, in that set of horsepower nodes from 175 horsepower upwards. It is all on track at the moment, and we're very excited about being able to bring those additional customers on board.

And then also, from a margin perspective, we have certain large customers that often take a big chunk of the available inventory. The additional capacity will enable us to sell more engines internationally to the repower dealer channel and to other OEM customers that may not be receiving engines today. Those channels often have higher margins, and that will allow for a bit of margin expansion, which you can see in the latter half of the year, especially in the fourth quarter and into '23 as we look at our strategic plan through 2025.

Great. Thanks very much.

Thank you. Our next question comes from Kevin Heenan with JP Morgan. Please go ahead.

Hey, guys. Thanks for taking my question. I guess on the boat segment revenue, with the retail side coming in a bit softer year-to-date, your production is on track. I guess, what is driving the increase in your full-year revenue outlook? Is that pricing or more confidence in underlying demand?

Thanks for the question, Kevin. As we review the year ahead, we recognize there are still many uncertainties. When we assessed the full-year segment numbers back in January, the level of uncertainty was even greater, particularly regarding inflation and supply chain issues. Currently, we haven't made any fundamental changes to our assumptions; however, we have completed one quarter and our production is up compared to last year, which we expect to continue. As Dave mentioned, the boat segment has faced challenges due to inefficient manufacturing linked to supply chain delays, often stemming from the need for just a couple of parts to finalize a boat before it can be sent to dealers. The boat sector has certainly dealt with these issues, but there are signs of improvement. With production increasing in the first quarter, we anticipate maintaining this pace throughout the year. We are now closer to the year's end and have a clearer understanding of what the business can achieve.

Got it. Thanks, that's helpful. And just a follow-up kind of dovetailing on Anna's question on the Propulsion segment, I guess, with the capacity expansions coming on in 4Q, just trying to bridge the gap between the mid-teens revenue outlook this year with the 8% CAGR you've laid out longer-term, is there any reason you can't sustain the double-digit growth into next year as the capacity comes online? Or is there something else to consider in that trajectory? Thanks.

No. Another good question and Dave can chime in as well. When you do a long-term projection, and we did four years this year, there are so many puts and takes, not only pricing and production capability, but where those engines go, what the market performs. If the question is, could there be outperformance? The answer is, yes, there absolutely could be. But as we look year in and year out, the CAGR is exactly what it is on average, and coming out of this year and looking ahead, it certainly will have the ability with more engines and a better mix potentially to outstripe that estimate.

Thank you. And our next question comes from Fred Wightman with Wolfe Research. Please state your question.

Hey, guys. How are you? Could you just give a little bit more detail on what you're seeing out of Europe from a retail perspective, any of the geopolitical situation rubbing off on people's willingness to spend on some of these discretionary products?

Thank you for the question. So far, sales in Europe are performing well across all our categories. There may be differences among countries that are farther from the immediate conflict compared to others. Despite ongoing inflationary pressures and sentiment issues in Europe, we are managing to hold steady. Similar to the US, we are experiencing more demand for our engines in Europe than we can meet, resulting in a significant backlog. We also have a similar backlog for our parts and accessories. Currently, we are not observing any decline in sales, but given the situation in the region, we are staying alert.

Makes sense. And then can you just talk about the J&R transaction, and how getting more involved with the dealership channel sort of fits into your longer-term strategy? Is there something that we should sort of expect a little bit more capital allocation to go to going forward, is it a one-off, how should we think about that?

I think there are a couple of important points to consider. Firstly, we made two transactions: one with J&R Marine and another involving the boat clubs on Lake Lanier. The Atlanta area presents a substantial growth opportunity for Freedom, as it currently lacks a sufficient number of clubs. These transactions represent a clear chance for us to significantly increase the number of Freedom clubs in the Atlanta region. Additionally, J&R Marine has four marinas, but only two of them currently feature boat clubs. This provides us with an opportunity to better promote and expand Freedom within that acquisition. At our Investor Day, we also discussed our strategy of developing a Boating as a Service ecosystem, sometimes referred to as Build Around the Boater. Freedom has proven to be an excellent business with great margins and growth potential. We've been intentionally integrating more engines and boats into the Freedom platform, utilizing more parts and accessories there, and we've established the Boateka pre-owned boat sales platform to enhance our margins when boats exit Boateka. This presents a significant opportunity for synergy. We are exploring additional ways to increase synergistic margins and growth within this ecosystem. The J&R Marine acquisition will help us validate some of these ideas. While we will provide more specific details in the future, it's crucial for us to develop operational capabilities and test these concepts in real-world scenarios. Essentially, this is an extension of our Boating as a Service ecosystem strategy, and as we develop it further, we will share more information on the specifics.

And maybe on your capital strategy point, Fred, it's a modest play, in line with the kind of small bolt-on deals we've done, year in and year out; it’s kind of embedded in our existing capital strategy for the year. So, that's how you should think of it from a spend perspective.

Thank you. Our next question comes from Joe Altobello with Raymond James. Please go ahead.

Hey. Thanks, guys. Good morning. I guess, first question, I want to say on the retail outlook for you guys and the industry, given where field inventories are, how much is retail coloring your financial forecast for this year? And maybe how you're thinking about next year? And, I guess, what I'm trying to ask, if the trends that we saw in Q1 persist where the industry is down 11, is there downside to your guidance or is it almost independent at this point?

No, not really. At those levels, as we've mentioned, our backlogs that are very high were sold for the year on boats, and backlogs for engines and P&A are very high. So, I would say that we are extremely robust to most foreseeable developments. Yeah, it's not really coloring our 2022 thoughts at all. And as we get further into the year, obviously, we'll be developing a view on what that looks like for 2023, but at the moment, we have literally not changed anything that we're doing on capacity expansions or any of the other initiatives that were part of our overall strategy.

And, Joe, I’d also point out that according to the pipeline slide we presented today, there are about 4,000 retail sold boats currently with dealers, waiting to be delivered. Those are not accounted for in the SSI. So, it’s reasonable to say, as it often is this time of year, that the actual retail figures are likely even more misaligned than what SSI indicates. At this point, it’s uncertain how things will unfold, but as Dave mentioned earlier, if the wholesale remains strong, we have no doubt that the retail will follow suit.

It’s very helpful. To follow up on that, looking at your Q2 guidance, there seems to be a discrepancy in earnings flow-through compared to historical data. Are you anticipating any worsening in the supply chain? Does this indicate higher interest expenses? What accounts for the lack of earnings flow-through in this quarter?

Yes, Joe, this received more attention this morning than we expected. There is no change in our outlook for the second quarter since January. We will incur about $0.08 in additional interest due to the debt we've taken on, and the benefits from share repurchases will not offset this, as those gains are more weighted toward the latter half of the year. Essentially, we are facing more interest costs than we had planned for. To be fair, it's still early in the second quarter, and given the uncertain environment, we have allowed some room for flexibility. However, the fundamental assumptions regarding market strength and our capability to deliver and perform remain unchanged since January.

Okay, great. Thanks, guys.

Thank you. Our next question comes from Eric Wold with B. Riley. Please state your question.

Thanks. Good morning. Just my follow-up is kind of on the comments around the boats price, $50,000 and below, obviously, the majority of what you sell. I guess, going to the pricing strategy to cover cost increases, is that across the board kind of evenly with all boat price points? Do you tend to lag somewhat or could you lag somewhat on the lower end not to lockout buyers or does that strategy not change by price point?

In the end, what buyers experience is the retail price. Our price is part of that, but not the whole picture. Generally, we aim to cover our costs, but there are times when we fall behind. We may be lagging in some areas. For instance, in terms of Propulsion, it represents a larger portion of the cost for smaller boats compared to larger ones. The engine is typically the most advanced part of an aluminum fishing boat. Considering what Mercury has achieved by maintaining reasonable pricing, as Ryan mentioned earlier, it helps manage inflationary costs for small boats better than for large boats, where other components contribute significantly to the total cost of materials beyond the engine. As a result, we are likely managing costs for smaller, more value-oriented boats more effectively than for larger ones. Given the demand for larger boats, there is less immediate concern for alternative strategies.

Thank you. And our next question comes from David MacGregor with Longbow Research. Please go ahead.

Yes, good morning. Thank you for addressing my questions. Regarding the Parts and Accessories business, could you explain how dilutive the acquisitions have been to the margins?

Hey, Dave. These acquisitions we talked on?

Both from last year. Okay.

Yes, in line with our guidance for the year, Navico has strong gross and operating margins that are slightly dilutive to the segment, but still beneficial for the overall Brunswick. In the first quarter, we observed that operating expenses were better than expected, exceeding our internal forecasts. We are aligning SG&A at Navico with the overall organization, and you will see this trend continue throughout the year and into the next. While there are areas for improvement, this is our perspective. Navico, RELiON, and Semahtronix together remain beneficial to Brunswick, though they have a slight dilutive effect on the overall Parts and Accessories operating margins.

Okay, got it. Thanks for that. And then, I guess, just get back to this whole discussion today around 78% of the boats are less than $50,000. I'm not sure if you have access to data through your dealer partners, but any sense of what percentage of sales are based on credit or incorporate credit into the purchase? Of the credit transactions that we see, about 50% are bought with credit. But there may be some of the financing that goes on behind the scenes that we're not aware of, but of the ones that we can see, about 50%.

Thank you. And our next question comes from Derrick Johnson with BMO Capital Markets. Please go ahead.

Hey, good morning. Thank you. So, when you talked about the delayed deliveries, retail sold boats in some Northern markets, what exactly does that mean? I just want to definitionally because you said it's not an SSI, so they're not registered. So are these just deposits, and really what I'm getting at, are these cancellable?

No, these are boats that have been bought, but not put in the water. And so, yeah, that are not cancellable, they're fully paid up boats that, for example, in Minnesota, and to a large extent in Canada, there's still ice on the water, so they won't register them until they go in the water. They're fully paid up boats, completely sold, just not registered yet.

Okay. Okay, got it. Great. And then in terms of your boat business, you talked about aluminum freshwater and recreational fiberglass outperforming the quarter. Reasons behind that, and should that continue?

I think the reason behind it, we have a very strong boat portfolio in that aluminum category. And I think our production has been very solid. So, if you think across our aluminum product lines, Lund is a really premium aluminum freshwater boat, really just almost like the Boston Whaler of the aluminum world, if you like. So sales of that have been really strong and continue to be. And I would say that we have also been particularly strong in pontoon, which is a part of our aluminum Boat Group as well. That is a category with extremely high demand and our productivity has been very good despite the backdrop. So, we have a good product range. We've done a lot of product development in that area, which makes our product very fresh. Our production capability has been sustained very well. So yeah, just a combination of good operating and fresh product performance, I think.

Derrick, from a finance perspective, I am particularly interested in their ability to manufacture the product according to design specifications. I want to highlight Sea Ray and Bayliner, as they have both excelled in not only producing products that consumers want but also doing so at the right cost. This has resulted in impressive top-line growth and margin expansion from both brands, contributing to the positive results we have discussed regarding fiberglass products.

Okay, thanks. And maybe if I could ask just one more, you talked about shows like Miami and Palm Beach, but what about the other shows, say, interior shows like Cleveland or in Minneapolis, how are shows like that going?

Generally good. When I last checked, our show sales this year were slightly ahead of last year's show sales. We focus on the biggest shows for a couple of reasons: many regional shows are primarily dealer shows, and dealers often have no inventory to sell. This sometimes leads to dealers not attending shows at all. You'll notice considerable variability from one regional show to another based on dealership inventory. If dealers aren't making additional money, they tend to skip the show. In contrast, major shows like Miami are better organized, with original equipment manufacturers having a more significant presence with our boats, not dealer boats. This makes for a more consistent representation in this environment compared to regional shows, which can vary greatly depending on inventory availability.

Thank you. And at this time I would like to turn the call back to Dave for some concluding remarks.

Thank you all for being here and for the great questions. As you've seen, despite the challenging external environment, our business continues to perform exceptionally well from an operational standpoint. We are also making significant progress with the strategic initiatives that support our 2025 plan, including capacity expansions, new product launches, and mergers and acquisitions. In the second quarter, we anticipate remaining in this dynamic environment, but with the diverse portfolio we have built over the years, including high levels of recurring revenue, strong growth potential, and structurally higher margins, we are very well positioned for both the second quarter and the rest of the year. We are extremely optimistic about the year ahead, fully aligned with our plans for this year and our 2025 objectives, and we are very excited about what lies ahead.

Thank you. Bye-bye.

Thank you. All parties may now disconnect. Have a great day.