Good morning, and welcome to Brunswick Corporation's First Quarter 2023 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 Neha Clark, Senior Vice President, Enterprise Finance of Brunswick Corporation. Please go ahead.

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 these factors to consider, please refer to our recent SEC filings and 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, Neha, and good morning, everyone. We started the year strongly, delivering record first quarter net sales of more than $1.7 billion and adjusted operating earnings of $262 million. Our business continued to leverage our investments in new products, technology, and innovation across the enterprise, high horsepower outboard manufacturing capacity, and premium boat manufacturing capacity, while taking significant actions to reduce structural costs in a macroeconomic environment that continues to be challenging. Our first quarter adjusted earnings per share of $2.57 highlights the robustness of our business and the strength of our portfolio. There were notable divisional highlights, including our Propulsion business, delivering outstanding net sales, adjusted operating earnings, and operating margin, and our Boat business, delivering double-digit adjusted operating margins for the fourth consecutive quarter despite increased promotion and discounting on certain product lines. Boat field inventory is at an appropriate level in most categories going into the core retail season. We exited the first quarter with 21,500 global pipeline units. Our boat and engine production levels finished above prior year, despite some supply chain challenges. We made significant gains in free cash flow, improving 55% versus first quarter 2022, largely driven by working capital improvements across the business. As the overall market and the leisure and recreation sector continued to see valuation pressures, we continue to be aggressive with share repurchases, executing $60 million of repurchases in the quarter. Before I move into the segment overview, let me provide a reminder regarding our recently updated segment reporting. We updated our reportable segments from three segments to four: Propulsion, Engine Parts & Accessories, Navico Group, and Boat. The previous Parts & Accessories reportable segment is now split into the Engine Parts & Accessories segment and the Navico Group segment. The Engine Parts & Accessories segment is inclusive of products comprised of parts and consumables, primarily related to our propulsion systems, such as oils and lubricants, electrical products, and boat parts and systems, together with our third-party distribution businesses. The Navico Group segment now represents the organizational integration between the legacy Advanced Systems Group business, with two key acquisitions that were completed in late 2021, Navico and ReLiON. We determined this was the right time to change our reportable segments given the continued integration of the Navico business and the significant restructuring actions completed in early 2023. We feel the change will provide better visibility into our company and more closely align with our internal operating structure. With that background, let me now turn to some of the segment highlights that facilitated a very strong first quarter, despite the record prior year comparison. Our Propulsion business continues to deliver outstanding results, with 7% top-line growth versus the first quarter of 2022, driven by increased shipments of high-horsepower outboard product to many international customers and OEM partners, enabled by the recent manufacturing capacity expansion. The increased shipments of high-horsepower products, combined with reduced production of lower-horsepower products, drove strong product mix, which, when coupled with operational efficiencies, resulted in record first quarter operating earnings and an operating margin of 20%. Our Engine Parts & Accessories business had a solid quarter, but as anticipated, experienced sales and earnings declines versus the record first quarter of 2022, although up 35% versus the first quarter of 2019. U.S. product sales were ahead of first quarter 2022, while our third-party distribution businesses were down versus 2022 as dealers and retailers rightsized inventories. As foreseen, Navico Group had a challenging start to the quarter, with lower sales into the retail channel and to RV OEMs and unfavorable currency, leading to top line declines early in the quarter, with notable improvements in March. Operating earnings declined versus prior year as lower sales, coupled with higher material inflation and temporary margin pressures related to a new product launch, were partially offset by the positive impact of major integration and restructuring actions and cost reduction measures. Navico Group announced the closure of nine locations and completed headcount reduction actions begun in Q3 2022, which impacted approximately 10% of the Navico Group workforce. Finally, our Boat business posted robust top-line growth, enabled by broad-based gains across categories. Boat segment delivered strong earnings growth with double-digit adjusted operating margins for the fourth consecutive quarter despite higher discounts. Finally, Freedom Boat Club had strong same-store membership sales in the quarter and also benefited from acquisitions completed in Q2 2022. Freedom's growth trajectory continues with more than 380 locations and nearly 55,000 membership agreements covering 87,000 members network-wide, all while generating exceptionally strong synergy sales across our marine portfolio. Looking at external factors, cost inflation and interest rate increases have moderated or will remain a challenge for buyers of value products, with both loan rates recently stabilizing between 8% and 9% versus 5% to 6% immediately pre-COVID. Our supply chain environment has broadly significantly improved. However, an industry-wide supplier part recall impacted a large number of our sterndrive fiberglass units in production and in dealer inventory in the quarter. It was partially remedied in the quarter, and we expect it to be fully remedied in the early part of the second quarter, but it may impact SSI through Q2. As we wrap the bulk of our boat shows, results were better than expected, with Sea Ray and Boston Whaler, in particular, reporting strong sales and lead generation. Mercury continued to have record share of edges displayed on boats at the shows and in many cases, such as the recent Palm Beach International Boat Show, had more than 60% share. We believe these shows are a good signal of consumer interest, particularly in premium products. Our internal boater sentiment survey suggests boat participation and purchase consideration are above prior year, with Google search trends slightly down. Additionally, Freedom Boat Club is experiencing higher trips per member versus prior year. Discounting is present primarily on value models, but still below pre-COVID levels in most cases, while the percentage of boats being financed at point of sale versus all-cash transactions is lower than in 2022 and has returned to levels similar to 2019. From a dealer standpoint, inventory levels are healthy and very current ahead of the season. Dealers are considering the higher dollar value of inventory in addition to the number of units in many cases. However, orders remain on track with no signs of material wholesale cancellations. Dealer sentiment reflects macro concerns but remains cautiously optimistic as we move into the peak season. Shifting to a global view of revenue. Overall, we delivered 3% sales growth on a constant currency basis, excluding acquisitions, led by gains in our Propulsion and Boat segments. Our two largest regions, the U.S. and Europe, grew sales in the first quarter versus the prior year quarter by 5% and 2%, respectively. And Rest of World experienced significant growth, driven primarily by increased sales of high-horsepower outboard engines in those markets. Moving now to U.S. retail performance. Our internal new boat unit retail data reflected sequential improvement throughout the quarter, with declines in January and February shifting to growth of 4% versus prior year in the month of March. For the quarter, our internal new boat retail unit sales finished slightly better than expectations, declining 10% versus the first quarter of 2022. Overall, premium segments continue to perform well, while value fiberglass models experienced some pressure. Our aluminum brands had particularly strong internal retail performance as our planned promotions and marketing helped drive early season retail activity. Note that the preliminary first quarter SSI main powerboat data released earlier this week reflected a roughly 20% decline from 2022, a gap versus our internal data, which may close as industry reporting becomes more complete in the coming months. Outboard engine industry data was favorable, with U.S. industry registrations finishing up 12% for the month of March versus prior year and down just 2% for the first quarter versus first quarter 2022. Mercury performance continues to reflect gains in high-horsepower, with over 600 points of retail share gain in the 150-horsepower engines and above categories during the last five years. Turning to pipelines. U.S. unit inventory is generally well balanced as we enter the core retail selling season, and remains thousands of units below pre-COVID level. As expected, the pipeline of aluminum product has replenished to a normalized level. Value fiberglass inventory is also restocked, while premium fiberglass inventory remains more lean for some product lines. Our brands have done an excellent job getting our many exciting new products to our dealers ahead of the prime 2023 selling season, generating very positive momentum coming out of the early season boat shows. We also have appropriate programs, events, and discounts in place going into the primary selling season, and we'll continue to monitor and respond as needed through the coming months. I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.

Thanks, Dave, and good morning, everyone. Brunswick delivered an excellent start to 2023, with record sales and EPS for any first quarter in our history. When compared to prior year, first quarter net sales were up 3% and adjusted EPS of $2.57 increased by 2%. As anticipated, adjusted operating earnings and margins were down slightly year-over-year, but both results exceeded our expectations for the quarter. Sales growth resulted from steady demand, new product performance, and pricing implemented in previous quarters, partially offset by unfavorable changes in foreign currency exchange rates. The steady earnings and margin performance benefited from the net sales growth and prudent cost containment efforts, offset by elevated input costs versus Q1 of 2022 and spending on growth initiatives. Lastly, although we are always in a net cash usage position coming out of the first quarter as we prepare for the primary selling season, our free cash flow improved by $135 million from Q1 2022, primarily due to less working capital usage. Now we'll look at each reporting segment, starting with our Propulsion business, which delivered yet another quarter of outstanding top-line, earnings, and operating margin performance. Revenue increased 7% versus the first quarter of 2022, as higher sales were driven by continued increased sales of high-horsepower outboard product, which more than offset planned reductions in smaller horsepower and sterndrive value. Operating margins were up 230 basis points and operating earnings up 21%, each enabled by the increased sales and manufacturing efficiencies. Note that segment margins and earnings also included the benefit associated with the timing of capitalized inventory variances. This benefit will reverse in the second quarter and have no net impact on the expected full year results. Our Engine Parts & Accessories business delivered a steady quarter, with sales down 13% versus 2022, but up 35% over the first quarter of 2019. Sales in our U.S. products business increased by 1%, but were offset by softness in international markets and in our third-party distribution business. Dealer and retail inventory levels are appropriate to start the season. And contrary to early season 2021 and 2022, where dealers were scrambling to take all the inventory they could get due to supply chain concerns, normal restocking patterns have returned and we anticipate normal seasonality in this business. Earnings and margins were down in the quarter as anticipated, with two additional drivers in addition to the sales declines. First, year-over-year material inflation created a challenging comparison to Q1 2022, as this business saw most of its input cost increases in the second quarter of 2022, leaving the first quarter of 2022 in a much better cost position. Second, we continue to transition our primary distribution hub from Fond du Lac, Wisconsin to our new state-of-the-art facility in Brownsburg, Indiana, resulting in elevated costs in the first two quarters of the year due to running both facilities to ensure sufficient product supply to our customers in the start of the boating season. Our Navico Group performance was similar to Engine P&A, with sales down 11% in the quarter. Sales to marine OEM customers were flat off a historic first quarter 2022, with aftermarket channels down low-teens percent due to the same restocking dynamics I mentioned on the last slide. Unfavorable FX impacts and a sharp reduction in sales to RV manufacturers, due to the first quarter production shutdowns, also contributed to the lower sales in the quarter. Note that point-of-sale retail remains solid across the retailer channel with strength driven by new products, including the HDS Pro, which was launched in February and has already proven to be extremely well received in the market. Navico Group earnings and margins were also negatively impacted by material inflation versus Q1 of 2022, temporary margin pressures related to a new product launch, and unfavorable FX impacts, but were helped by reductions in operating expenses as planned restructuring actions take hold, as Dave discussed earlier. We thought it would be helpful to provide some additional information on the various factors impacting our Engine P&A and Navico Group businesses. As anticipated, the first quarter was challenging due to historically strong comparisons to 2022, but we believe the remainder of the year remains materially on track as initially planned in January. This chart shows the first quarter earnings factors I discussed on the two previous slides, and also shows our thoughts on how we believe these factors will impact segment earnings for the remainder of the year. We believe retail and dealer stocking patterns will continue to be the most significant factor impacting earnings, but also believe that stocking patterns should improve through the boating season and into the off-season and holiday season. Inflation and currency impact should moderate throughout the remainder of the year as the first quarter had the toughest year-over-year comparison. The impact of the distribution center transition is only an Engine P&A factor, and should only impact one more quarter. While the impact of the RV manufacturing, which is only a high single-digit percent of sales for these businesses, is expected to improve during the remainder of the year as RV production has already restarted. There are many moving pieces in these segments. But as boating participation continues to be healthy, we believe these transient earnings factors will ultimately be resolved showing the resiliency of the earnings power of these segments. Our Boat segment had another fantastic quarter, delivering strong top-line and earnings growth, together with double-digit adjusted operating margins for the fourth straight quarter. The Boat segment reported a 17% increase in net sales and a 27% increase in adjusted operating earnings in the quarter. Segment operating earnings and margin growth were enabled by the increased sales, together with positive product mix, and from the substantial completion of production ramp-up activities in our new Boston Whaler facility, partially offset by continued cost inflation and higher discounting levels versus the first quarter of 2022, although discounting levels do remain lower than historical norms. Freedom Boat Club, which is included in business acceleration, contributed approximately 6% of the Boat segment's revenue during the quarter as it benefited from acquisitions completed in the first half of 2022, which will be substantially lapped beginning next quarter. Our 2023 outlook remains materially unchanged. While our first quarter performance provides a healthy start to the year, we are going to continue to be prudent with spending and cost actions in future quarters without sacrificing investments needed to drive our strategic plan. We remain optimistic on our ability to continue delivering historically strong financial results for our shareholders despite a turbulent macroeconomic climate. As a result, we are reiterating our anticipated full year revenue and adjusted EPS guide as well as holding our operating margin and OpEx guidance. We're off to a good start with free cash flow generation. While we have not changed the full year guidance, we expect to see continued positive movement due to the primary retail season. Finally, we anticipate a solid second quarter with revenue flat to slightly above Q2 of 2022 and adjusted EPS between $2.60 and $2.70. Our full year segment outlook remains mostly unchanged as well, with small adjustments to reflect first quarter performance and market conditions, along with providing updated guidance for our new Engine P&A and Navico Group segments. For Propulsion, we have raised the bottom end of the guided margin range, reflecting continuing operating strength at Mercury. We have also raised the bottom of the Boat segment's revenue guidance as relatively steady retail performance thus far in 2023 should support continued wholesale balance throughout the remainder of the year. The new guidance for our Engine P&A and Navico Group segments look similar to the former aggregated P&A segment guidance to start the year. In Engine P&A, we anticipate flat to slightly down revenue versus prior year, primarily anticipating softness in our third-party distribution business, with operating margins plus or minus 30 basis points for the prior year. In Navico Group, we anticipate flat to slightly increased sales versus 2022. Despite a challenging start in the first quarter, we believe full year operating margins will also be similar to prior year. Lastly, we have a small handful of full year assumptions that we have updated. First, given our strong cash performance and continued market and Brunswick share price dislocation, we are increasing our repurchase target to exceed $200 million of repurchases for the full year. Accordingly, our average diluted shares outstanding should be slightly lower for the year at 71 million shares. Finally, you would have seen that we increased our annual dividend in February to $1.60 per share, the 11th year of dividend increases, reflecting the stability of our operations, portfolio makeup, and overall financial performance. Please see the appendices of this presentation for additional information on other P&L and balance sheet assumptions for the year. I will now pass the call back over to Dave for concluding remarks.

Thanks, Ryan. Before we close out, I wanted to share an update on some recent awards and recognition for our company, brands, products, and people. We were delighted to be named by Newsweek through its 2023 list of America's Most Trustworthy Companies, where we ranked in the top 20 companies within the Manufacturing and Industrial Equipment category. We were also, again, named by Forbes as one of America's Best Large Employers, ranking second in the Engineering and Manufacturing category. In addition, we've won a record number of product and innovation awards in the first quarter, and look forward to winning many more during the balance of the year. On the subject of sustainability, 12 of our facilities have now earned zero-waste-to-landfill designation with more planned this year. Combined, they diverted 9 million pounds of waste from landfills in 2022. Our MSCI ESG rating was improved from BBB to A, a reflection of our dedication to conducting our business sustainably. We were recognized by Sustainalytics as a top-rated company for ESG, both in the region and industry. These and many more developments in sustainability will be documented in our 2022 sustainability report, which is scheduled to be released shortly. Turning now to innovation, a key to our future and one of my favorite topics to highlight. We had an outstanding start to the year across our businesses. Earlier this year, we launched the Mercury Avator electric outboard family. Recently, the first group of Avator 7.5e electric outboards shipped to global customers. This award-winning product, the first of a large family of electric products, has been met with an outstanding reception from customers and supports our commitment to being the industry leader in both internal combustion products and electric propulsion. The recently launched Mercury V10 outboard engines had a strong presence in the key boat shows during the quarter and have seen very strong demand. We also launched the exciting new Mercury Racing version of the engine, the 400R, at the Miami International Boat Show. Expect more exciting product news from Mercury in Q2. In addition to the Fathom II ePower system, our Navico Group launched its new state-of-the-art fish finder, the Lowrance HDS Pro, and demand in the initial weeks since launch has been very strong. We also debuted the next-generation Sea Ray SLX 280, with new Sea Ray design DNA. Powered by Mercury engines and with Navico Group Electronics, it's another great example of cross-divisional synergies and technology, benefiting Brunswick and our customers and consumers. Building on the success of its award-winning M-Series boats, Bayliner unveiled the all-new Element M19 at the Miami International Boat Show. The M19 is an outstanding boat, which delivers on the versatility this series is known for, with a focus on expanding boater participation through its intuitive design, ease of maintenance, and affordable price point. Freedom Boat Club continues to advance its presence globally, with the recent expansion into Australia. Three additional locations were recently announced, providing direct access to waterways north of Sydney, as we begin the process of expansion in the Asia Pacific region, replicating the successful model in North America and Europe. Thank you for joining the call. That concludes our prepared remarks. We'll now open the line for questions.

Our first question comes from Xian Siew with BNP Paribas. Please proceed.

Hi, guys. Thanks for the questions. Maybe to start, can you talk about the strength in the engine retail and why it's outperforming maybe powerboat retail so much? Is it really the repower business that's starting to take off? Or what's going on there? And how are inventory levels from an engine perspective?

Thank you for the question. There are several factors that contribute to the difference between outboard retail and boat retail. As you mentioned, we have successfully serviced the aftermarket and dealer channels. There is particularly strong demand for high-horsepower motors, which has been limited in the aftermarket channel. Additionally, international sales have also performed well, with an increase in boats featuring multiple engines. This shift is part of the difference we're seeing. You may have noticed that the sterndrive product has declined this quarter, as we're moving away from sterndrive products towards outboard ones. There is also some latency in this transition, which we typically do not address within a single quarter or month, but these are some of the major factors at play.

Okay. Helpful. Thanks. And then maybe just on the Engine P&A, you talked about the retail stocking levels. I guess can you remind us how it usually works? So as usage starts to pick up maybe in the season, the retailers start to sell through and then they reorder. When should we start to see that? And are you seeing any kind of pickup in sell-through maybe in March, April?

Yes, we are noticing an increase in sell-through during March and April. Typically, the stocking process follows a seasonal pattern that has not been as pronounced in the past two years. Usually, there is an inventory build-up prior to the main season. Last year, due to supply chain disruptions, retailers stocked up more than usual, leading to an earlier phase of wholesale restocking. Currently, with improved product availability and a more stable supply chain, we anticipate a return to a more seasonal pattern. Importantly, we continue to see strong demand for new products at the wholesale level, which are also performing well at retail. For instance, Navico’s new HDS Pro product from its Lowrance brand has been in high demand, selling quickly at retail. This situation is not entirely uniform, but the right products can lead to solid wholesale orders and excellent sell-through. Overall, we are experiencing a process of destocking or right-sizing of inventories, which makes us optimistic for the upcoming season.

Yes. And the only thing I would add to that, Dave, is that our U.S. products business was actually up in the quarter. And so kind of your reliable, annuity-based P&A sales that we talked about pretty regularly showed that here in the quarter even in the off-season.

Our next question comes from the line of Joe Altobello with Raymond James. Please proceed.

Hey, thanks, guys. Good morning. I guess first question on boat trends. You mentioned that improved significantly as the quarter progressed, particularly in March. We did not see that, obviously, in the industry trends. So, what's driving that dichotomy, if you will?

Hi, Joe. Yes, it can be challenging to identify these trends, especially at this point in the season. However, I want to emphasize that as dealers prepare for the season, they are quite busy and handling many tasks. Consequently, we tend to see a surge in registrations throughout the month. Additionally, SSI has not yet received full reporting from all states, which we believe is due to industry reporting delays. We are confident in our registration numbers. There may also be some renewed strength in aluminum compared to earlier in the year and late last year, which has worked in our favor with marketing and promotions. This might have an effect on some of the states that are currently reporting. Generally, over time, these figures align, and we have confidence in our numbers while feeling positive about the trend.

Got it. That's helpful. I have a second question regarding the guidance for the second quarter. It appears to be slightly below our expectations. Are there any factors or shifts that we should consider that might have moved into the first quarter? Additionally, how significantly did the timing of capitalized inventory variances affect propulsion profit?

Joe, I'll take this one. Yes, that's a good place to start. It's about a dime, so about $0.10 on the capitalized variance issue. So a good guide in Q1 that will reverse in Q2. That's part of it. The rest of it, I think, is just a normal seasonality. Compared to last year, you're just going to see more normal sell in and sell out, whereas last year, we saw, like Dave said earlier, just a real rush of restocking in our P&A business. But otherwise, there's no real factors. Still looking for growth on the top line, right, flat to slightly up, with strong pull-through on the EPS line.

Our next question comes from the line of Mike Swartz with Truist Securities. Please proceed.

Hey, guys, good morning. Just a quick question following up on retail. I think in prior calls, you had mentioned your kind of outlook for the year was for industry retail to be down high single digits. Obviously, it was down more than that in the first quarter, particularly for the industry. Have you changed that view for the full year?

Good morning, Mike. No, we haven't really changed the view for the full year. Obviously, we're super early in the season still. March is beginning to be more important, but as we go into second quarter, we'll understand a lot more how things are going. I would say just across the industry, we're actually pretty pleased about the resilience of the consumer so far. They're clearly looking for promotions. So they're shopping around a bit more. But there isn't a sense in which they're really backing away in large numbers. The behavior is just more normal. Nothing really suggests that we should modify our expectations for the balance of the year at the moment. We think we have the right products. We're very excited about the new products that we've launched, which is always generating excitement. We have the right promotions in place. We have the right events in place. So early in the season, but no real reason to change our perspective.

And Mike, as you probably know, the first quarter comps were the toughest. As we go throughout the remainder of the year, we're kind of right in line, maybe a little bit better than where we thought we'd be here three months in.

Our next question comes from the line of James Hardiman with Citi. Please proceed.

Hey, good morning. So just a point of clarification. The difference between the SSI being down, call it, 21% for the first quarter and your internal number suggesting down 10%, do you think that's more in tune of the industry number is wrong rather than you're just gaining that much share in the first quarter? The reason I asked that, as we thought about sort of your industry or your benchmarks for retail, I don't think you were assuming a ton of market share increases this year. Can you clarify?

Hi, James. We were expecting some market share growth in certain segments this year. It's possible that some differences related to market share increases are influencing this. Sea Ray and Whaler had a strong start to the year, which was evident in the boat show results. We also noticed good performance in aluminum products in March, which was encouraging. However, market share is unlikely to be the sole reason for such a significant difference. More likely, the main factor is that we are experiencing accelerated growth early in the season. It’s probably more about the number of retail registrations reflected in the industry data and the states that are reporting. There’s just a short period between the end of the month and when we receive the SSI data, and it’s clear that there is partial reporting.

Our next question comes from the line of Fred Wightman with Wolfe Research. Please proceed.

Hey, guys. I just wanted to follow up on that disconnect between the internal registration data and what we're seeing from SSI. I get it for 1Q, but if we look at the March numbers specifically, I mean, down 20% versus up low to mid-single digits is kind of a different story. Was there anything specific in March? Did things get better in March per year data and into April? It just seems like we're kind of getting some mixed signals on the retail side.

Yes. I agree that we're getting some mixed signals on the retail side. We can report only our retail. And there is partial reporting of the industry. Our retail has sequentially improved through the first quarter. Not entirely sure what the source of the disconnect is. But I would say that, once again, retail registrations tend to come in somewhat late in the month and later in the quarter. If there is a delay in reporting or partial reporting of end of quarter retail, we would likely capture it, and they may not. That's about the best I can say at the moment. Things will become clearer as we go more into the second quarter when things stabilize. We're just in a period of extremely rapid sales acceleration at the moment. This is the inflection point in the quarter as you go through March and into April.

And Fred, just a reminder, I mean, percentages here, we're talking a couple of hundred units, give or take, on various brands because of where we are in the early part of the season. It doesn't take a lot to move the numbers, especially when SSI is only reporting 52% or so a little bit over half of the sales.

Yes. Okay. That's fair. But I guess to summarize, Dave, what you were just saying, the inflection that you saw throughout the quarter, that trend has sort of continued into April?

Yes, I believe we're observing a solid trend. We'll have a clearer picture of April once the month is complete, but I would say we remain encouraged. Navico's operating margin for the month was around 11%. In March, it was in the low to mid-teens, which aligns more closely with last year's full-year trends. Several factors are currently impacting Navico. We implemented significant restructuring actions that mainly affected March compared to the earlier part of the quarter, and we will see the full effects in the upcoming months and quarters. The launch of the HDS Pro, an important product for us, had a slower ramp-up than expected. We found ourselves in a situation where we were transitioning from a lower-margin product that we were discounting to a higher-margin product without discounts, but this process took longer than we anticipated. We had initially been in the market with a lower-margin product that was supposed to be replaced by a higher-margin one. Now that the launch is complete, we expect to see the full impact in Q2.

Our next question comes from the line of Eric Wold, a private investor. Please proceed.

Hey, still would be Riley Securities. Just a heads-up. So, two follow-up questions. I guess one on the propulsion capacity expansion now being complete, can you just kind of update us on where you are with manufacturing lead times on the higher-end products versus where you ultimately want to be maybe kind of towards the end of the year?

Yes. I think as we've gone into the quarter, we've really now kind of shaken off the few remaining supplier constraints that we would continue to deal with. We feel in good shape both internally in terms of operations and also are well supported by the supply base now with a really good flow of product. We're working through making sure that we fully supply our existing OEM customers, and we're beginning to prepare to take on new OEMs, and that transition is already occurring and will begin to be seen more clearly as we go into the model year. So yes, good progress with improving delivery, particularly of the high horsepower engines. I think we'll be in really good shape as we get into Q2 to take on those additional OEM customers and continue to supply aftermarket channels.

Perfect. I have a follow-up on the Engine P&A segment. In addition to the retailer returning to more inventory restocking patterns and the improvement in retail sell-through that you mentioned for March and April, can you provide more details on what is selling through? Are these primarily upgrade products being added to boats, or are you noticing a shift towards deep maintenance and replacement products that suggest people are holding onto their boats longer, possibly waiting for replacements?

Yes. Well, as Ryan mentioned earlier, on the Engine P&A side, we were actually up slightly on our product sales in Q1 of this year versus Q1 of last year. Those are the kind of products that you mentioned that are the more essential maintenance or brake fix type products. It's great that we comped really well in that area given that last year and the first quarter of last year, in particular, was a banner quarter in that area. We definitely say that the kind of willingness to restock depends, to some extent, on the product category. Technology-related products continue to be extremely strong. We've said before that people are willing to hold a boat a bit longer, but they don't want last year's electronics on it. When we launched the HDS Pro from Lowrance, we were extremely pleased. The pull-through was really strong. If you have a superior product, it's going to get pulled through right now, especially as we go into the season. We talk about saltwater shows a lot because it correlates really well with high horsepower. One of our Pro anglers, Jeff Gustafson, who's a Lund Pro and Mercury Pro, won Bassmaster this year with a Lund boat and with a Mercury engine on the back. Why is that relevant? The top 10 finishers had several powered by Mercury, and that attracts a lot of attention, but there are tens of thousands of people attending those events, looking at the Mercury engines and Lowrance electronics on those boats, which will gain a lot of traction and pull-through. We're very excited about the technology that we're bringing to market, and it's really getting a strong pull-through. So we're seeing technology being pulled through. And of course, as you mentioned earlier, consumables and kind of brake fix parts will continue to get pull through.

Our next question comes from the line of Scott Stember with MKM Partners. Please proceed.

Good morning, and thanks for taking my questions.

You're welcome.

Going back to Engine P&A, could you talk about the POS? I know you said it was improving in March and April, but was it up in the first quarter?

We don't have the accuracy needed for that kind of answer, to be honest. We collect bits and pieces of information from some of our channel partners, but not enough to determine whether we were technically up, flat, or slightly down in that area. However, we can see from wholesale ordering patterns that the wholesale orders are increasing. We can conclude that retail has been solid and steady, and we expect that the channel will clear up, with wholesale and retail working closely together again.

One thing we can say is that one of our biggest partners holds a lot of events at this point in the year. They have been extremely well attended and generated a lot of pull-through, but we only have partial data.

Got it. And then, looking at Freedom, I know you've had this for three-plus years, maybe a little bit longer. We've gone through a very nice growth cycle coming out of the pandemic. What are you seeing as far as retention rates of people that either are just renting a boat or deciding to trade up and actually buy a boat? Can you talk about how Freedom is helping that narrative?

Yes, that's a good question. There is no change in retention rates, which remain very strong, especially for a franchise subscription business like this. In times of inflation and higher interest rates, Freedom members or potential members are not as concerned about increased pricing and interest rates do not seem to deter them. As a result, Freedom becomes an even more appealing option. We have experienced a quarter-over-quarter growth of 13%. The current quarter shows a growth of 23% versus 22%, translating to approximately 6,000 net new members. Growth continues to be robust, likely benefiting from the appeal that Freedom offers, alongside the minimal impact that pricing and interest rates have on Freedom membership.

Our next question comes from the line of Gerrick Johnson with BMO Capital Markets. Please proceed.

Thank you. Good morning. Ryan, you're raising the low end of your Boat revenue guidance and the low end of your Propulsion margin guidance, along with increasing your share repurchase. Why doesn't the bottom end of your consolidated guidance reflect these changes?

That's a good question, Gerrick. I'm not surprised to hear it from you. We’re still here, and you know us very well. It's early in the year, and we still have about 90% of the retail season ahead. We're dealing with an uncertain marketplace and macroeconomic environment. We believe that we can achieve scenarios where both ends of the range are possible. I think we’re a bit more optimistic given the good first quarter, but it didn't make much sense to change the guidance with so much of the year still to come.

Okay. I didn't think that question would come. I figured James would ask it first. How about a softball for you, Dave. When I was at the last addition of the Palm Beach show, I looked at the Chris-Craft Calypso 32. I was impressed that it had dual Mercury engines, Navico touch screen, Fathom e-Power. Can you start talking about your content per boat from a supplier side? Any metrics you can share?

Thank you for your question, Gerrick. As we've mentioned, about 50% of the bill of materials for Brunswick boats comes from our own products and brands. We have strong brands that influence market expectations significantly. We're focused on developing relationships and enhancing our capabilities with third-party collaborations. Mercury's strong market presence provides an excellent foundation for this work. Our ability to offer integrated system solutions is crucial for builders, particularly as they are very mindful of costs. We can provide them with services that other suppliers cannot, including aspects of their engineering needs. It's encouraging to see independent customers trusting us more, and as brands like Chris-Craft engage with us, it tends to attract others as well. We’re doing similar things for various customers and anticipate expanding this further, as we're a strong partner in this area. Our Fathom e-Power system is unmatched in the industry. We have unique offerings that will keep being appealing. You saw it featured in the Chris-Craft, and we expect to see similar interest in the RV sector as it recovers, allowing us to provide more engineering solutions beyond the marine industry.

Our next question comes from the line of Craig Kennison with Baird. Please proceed.

Hi, thanks for taking my question. I appreciate it. This hopefully is not a tough one. It goes back to your 2022 Analyst Day. One of your P&A slides had the goal in 2025 for your P&A business to achieve, I think, $3.25 billion in revenue, excluding acquisitions. I know you don't have the deck, but I’m wondering if you can give us a split between Navico and your Engine P&A business as you try to achieve that $3.25 billion goal? What are the key drivers if you still think that goal is attainable? We've had that question a few times.

Yes. Thank you, Craig. It's a good question. We have another Investor Day in the third quarter. We'll be trying to answer more of those questions in detail at that point in time. If you look across our P&A portfolio, there's a real kind of confluence of a lot of factors at the moment. There's the strong increase versus 2019. There’s restocking phenomena that we're experiencing this early in the season. We still have weather-related factors. There's a lot of time between now and 2025 to get to those targets. Ryan, I don't know if you have any more specifics.

In terms of the two now new segments, they are basically the same size, give or take a couple of hundred million in top-line. You would anticipate Navico to be a bit of a faster grower. That's just the kind of business that it is, more technology. It’s more channels including RV. Engine P&A has always been the steady business that continues to drive margin growth and be very recurring and annuity-based. The kind of CAGR there, the long-term target CAGR, is more low- to mid-single digits of revenue growth. You can envision Navico growing a little faster, Engine P&A continuing to be very steady. But I don't think anyone is taking those targets off the table.

This concludes the question-and-answer session. Dave, back to you.

Thank you very much, indeed. Thank you for joining us. Thank you for your questions. As you have seen, despite the extremely dynamic environment, we delivered another very strong quarter, record revenue and EPS for any first quarter. I think having the strongest brands in the market matters, particularly at the moment. Our recent investments in products and capacity have been right on target in the most resilient parts of the market, high-horsepower engines, premium boats, technology, and Freedom Boat Club. All of these represent the strengths of the market at the moment. We're also maintaining strict cost control, and you have seen the restructuring actions that are completed already in Q1 of 2023 in the Navico Group, which will flow through to the rest of the year. As Ryan said earlier and relative to the question, we maintained our unusually large guidance window entirely because of the external environment, which is very dynamic. We have a clear path to build to the upper end of that guidance range. As we go through the year, clearly, the upper half becomes more likely and the lower half becomes less likely. We didn't think it was appropriate so early in the year to adjust the guidance, but we continue to be excited for the prospects of the company. Nothing has changed about our understanding of what's possible for the company in the year. We are, in the end, to a large extent, a product-based company, and you can expect some very exciting new products from us in Q2. Please look forward to that. Thank you again for joining us. I appreciate it very much. Bye for now.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.