Good morning, ladies and gentlemen. Welcome to the BRP Inc.'s FY '26 Second Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes. Thank you, Joel. Good morning, and welcome to BRP's conference call for the second quarter of fiscal year '26. Joining me this morning are Jose Boisjoli, President and Chief Executive Officer; and Sebastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that the actual results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult BRP's MD&A for a complete list of this. Also during the call, reference will be made to supporting slides, and you can find the presentation on our website at brp.com under the Investor Relations section. So with that, I'll turn the call over to Jose.

Thank you, Philippe. Good morning, everyone, and thank you for joining us. We've delivered better-than-expected results in our second quarter in an operating environment that remained challenging. At retail in North America, we have gained further market share with our current Can-Am models, but as expected, we've lost market share in the noncurrent due to our low inventory. With a 20% year-over-year reduction in network inventory, we have reached a proper level across all our product lines, except snowmobile. From this healthier base, we are well positioned to benefit from our newly introduced product to gain additional market share. During the quarter, we also announced a definitive agreement for the sales of Manitou, which is expected to close in the coming weeks. Now let's turn to Slide 4 for key financial highlights. We ended the quarter with revenue of $1.9 billion, normalized EBITDA of $213 million, normalized EPS of $0.92 and solid free cash flow of almost $100 million. We are pleased with our results considering that Q2 is usually a transition quarter as we start introducing product for a new model year. Looking at Slide 5. Our North American Powersport retail decreased 11%. Canada continued to perform better than the U.S. with a 4% growth, driven by ORV as Can-Am side-by-side had a record quarter. This growth was offset by a 15% decline in the U.S. In the international market, Latin America continued to stand out through rapid and sustained growth. Retail was up 22%, led by a solid performance in ORV. In Asia Pacific, our retail grew 5%, representing a first increase in about 2 years, fueled by momentum in China. Meanwhile, demand remained generally soft in EMEA, with retail down 13%, in line with the industry. Overall, we are encouraged to see that the global industry trend has slightly improved from previous quarters. Turning to Slide 6 for a look at our retail performance by product line in North America. Our Powersport retail declined 11%. As in the previous quarter, Can-Am ORV market share was affected by a leaner level of noncurrent units and high promotional activity by other OEMs. In 3-wheel vehicle, personal watercraft and Switch pontoon, retail was weak early in the quarter due to soft trends and unfavorable weather, but conditions improved in July and early August. Turning to Slide 7 for highlights from Club BRP held in Boston earlier this month. The event was a success with close to 4,100 participants in person and virtually. We introduced several new models and upgrades across our lineup, including many industry firsts. Once again, we stayed true to our commitment of pushing technology and innovation to wow consumers. The highlight was the launch of the new generation of the Can-Am Defender. This vehicle received a ground-up overhaul further solidifying its position as the most capable, versatile, and reliable utility side-by-side on the market. The new Defender remained best-in-class in terms of technology, towing, and cargo capacity while also offering riders the largest cab in its category. The Defender was already the best product out there even with its original 10-year-old platform. Now with this new generation outfitted with the most advanced technology, we are setting an entirely new standard in the industry. Reactions to the new Defender were extremely positive. Dealer sentiment for the product was very good, while media who had a chance to test it were impressed and issued very positive reviews. I encourage you to read them. But that's not all. Let's turn to Slide 8 to look at some of the other product news. We expanded our electric vehicle offering by launching the Outlander electric, featuring industry-leading towing capacity, impressive off-road performance, and a very quiet riding experience. It uses our e-POWER unit, which also propels our electric monocycle and snowmobiles. This is another demonstration of how we leverage our modular design approach to optimize development across many product lines. In addition, we further surprised our dealers by introducing multiple model upgrades and enhancements. We've launched the Outlander MAX 6x6 designed to be the hardest working ATV in the lineup under extreme conditions. We added rock crawling capabilities to the Maverick R lineup with the XRC package and updated our Maverick X3. In 3-wheel, we continue the evolution of our lineup with new modern coloration. As for Sea-Doo, we introduced new connectivity features and improvements to the entire lineup. We also ramped up the Switch pontoon experience with a highly anticipated 300-horsepower engine on some models. We have also announced the repricing of some underperforming models, which was very well received by our dealers. As you see, we are the OEM who introduced the most product news for model year '26. Now let's turn to Slide 9 for a more detailed look at year-round products. Revenues were up 13% to $1.1 billion, driven by higher ORV shipments following last year's inventory reduction plan. At retail, side-by-side was down mid-single digits. We underperformed due to a high level of discounting on noncurrent units by other OEMs. We continue to outperform in current units, ending the '25 season with more than 3 points of market share gains, driven by our Maverick R MAX. In ATV, retail was down low single digits in the quarter, in line with the industry. That said, we gained over 3 points of market share in current units for the season fueled by our new Outlander platform. As for 3-wheel, retail was down mid-20% as entry-level consumers are struggling to get approved for financing. A few words on our electric motorcycle. The ramp-up of our retail sales is not as expected in the context of a slowdown in global EV adoption. However, it’s still early. We are proud to have set the bar high and put our electric motorcycle at the forefront. The excitement around this new EV has been felt in North America and Europe as a result of our efforts to generate media and consumer awareness. In addition, to further build the demand and drive traffic in dealerships, we have announced price reductions in response to market feedback. We aim to leverage our past investment to grow this industry, make our motorcycle accessible to more riders and position ourselves as leaders. Turning to seasonal products on Slide 10. Revenue was down 13% to $470 million, mainly due to a planned reduction of personal watercraft shipments. Our inventory is trending in line with pre-COVID levels, which is creating a more favorable environment for the arrival of our model year '26. Looking at retail, trends remained weak for marine products in North America. Personal watercraft sales were down mid-teen percent, slightly lagging the industry. Switch pontoon retail was down mid-20% as the industry is still undergoing a correction period. Sea-Doo had a better performance in the international market with sales holding steady in Asia Pacific and growing low single digits in Latin America. Moving to Slide 11 with parts, accessories, apparel, and OEM engine. Revenue was up 7% to $305 million as dealers replenished their parts and accessories inventories. Finally, we continue to bring new parts and accessories through our LINK system for customization, which would further stimulate this business. With that, I turn the call over to Sebastien.

Thank you, Jose, and good morning, everyone. Once again, our team did an exceptional job navigating a dynamic and volatile environment. We remained focused on our plan, continuing to be disciplined in managing shipments to further improve our network inventory position, while maintaining a strong emphasis on operational efficiency. As a result, we closed the second quarter with financial performance in free cash flow generation and a network inventory position, all ahead of our expectations, positioning us well as we enter the second half of the year. Now looking at the numbers. Revenues were up 4% to $1.9 billion, primarily driven by stronger ORV shipments and offset by lower PWC deliveries. Gross profit came in at $398 million, representing a margin of 21.1%, down year-over-year, mainly due to lower capacity utilization and unfavorable product mix and the impact of tariffs. These headwinds were partly offset by cost efficiencies in our manufacturing operations, favorable pricing, and lower floor plan costs resulting from our leaner network inventory. Normalized EBITDA ended at $213 million and our normalized earnings per share at $0.92, which includes roughly $0.35 coming from tax credits recorded in the quarter. Free cash flow from continuing operations reached $100 million, and we ended the quarter with over $270 million in cash, maintaining a solid balance sheet and strong financial flexibility. Turning to Slide 14 for an update on the network inventory. As mentioned last quarter, our plan was to further rightsize our network inventory in Q2, and we delivered on that objective. In fact, our dealers' inventory ended the quarter down 20% year-over-year and 13% sequentially from Q1. All product lines for which we had inventory in the network last year saw double-digit declines compared to the prior year. Also, to put things in perspective, on a comparable product line basis, our dealers' inventory is down 1% versus pre-COVID levels, including a 5% decline in ORV, even as our ORV retail is up about 50% over the same period. With these leaner inventory levels, our dealers' credit line usage ended the quarter at just above 60%. This is an excellent position to be in as it not only reduces floor plan financing costs for both us and our dealers, but it also provides significant capacity for dealers to take on new products, particularly with the introduction of the all-new Can-Am Defender, which addresses the largest segment in the side-by-side industry and is a key driver of dealer profitability. Looking ahead, aside from snowmobiles, where some work remains, the rightsizing of our network inventory is largely complete. This positions us to better align our wholesale with retail as we move into the second half of the year. More importantly, these leaner inventory levels help protect the value of our brand, strengthen the dealers' financial health, and enhance the competitiveness by enabling the rapid distribution of new products across the network, and by ensuring that we are best positioned to capture demand upside when market conditions improve. With this, let's turn to Slide 15 for an update on fiscal '26. We are pleased with our execution so far this year. Quarterly results came in ahead of expectations. Network inventory levels have been diligently reduced, and we continue to drive efficiency gains across the organization. Combined with the significant innovations we have introduced to the market, these achievements position us well for a strong second half. While the macroeconomic environment remains uncertain, and the industry dynamics continue to be volatile, we now have better visibility on expected deliveries for the remainder of the year versus what we had in previous quarters, given that the rightsizing of our network inventory is mostly complete, and these leaner levels provide us with more flexibility in managing our shipments based on retail trends. We have snowmobile orders on hand following our spring booking, and we will be fueling the initial demand of our newly introduced products with the receptions from the dealers being very positive. These factors give us the confidence in our volume outlook for H2. And consequently, we are comfortable issuing guidance at this time. Obviously, this assumes that the tariff situation remains as is for the rest of the year. Note that based on the information we have today, we have factored in our guidance about $90 million of gross tariff impact. This is up from the previous estimate of $60 million to $70 million, reflecting the increase in steel and aluminum tariffs to 50%. New tariffs on copper and the expansion of steel and aluminum tariffs to additional products, including some of our vehicles. All in all, our guidance calls for revenues of $8.15 billion to $8.3 billion, normalized EBITDA of $1.04 billion to $1.09 billion, and normalized EPS of $4.25 to $4.75. More importantly, it calls for solid growth across the board in the second half as highlighted on Slide 16. From a top line perspective, our guidance implies growth of 8% to 12% in the second half, driven by the elements I previously mentioned. Benefiting from the stronger revenues and the ongoing focus on operational efficiency, we expect to be able to more than offset the impact of higher sales program, tariff costs, and the return on variable compensation to deliver significantly improved profitability. In fact, our guidance calls for H2 normalized EBITDA to be up between 22% and 31% over last year, resulting in a normalized EBITDA margin in excess of 14%, well above H1 levels. And this all results in normalized EPS that is expected to grow between 28% and 51%. From a cadence perspective, given the lower shipments planned for snowmobiles and the lower RV shipments in August ahead of the new product launches, Q3 normalized EPS is expected to be roughly stable versus last year with the bulk of the H2 growth coming in Q4.

Thank you, Sebastien. I am proud of our accomplishments so far this year. Despite the macroeconomic environment, we've delivered results ahead of expectations through solid execution and operational excellence. The timing of our model year '26 launches could not be better. We are the OEM with the most product news, which we are bringing to market as our network inventory is healthy and dealer sentiment is improving. When I was in Boston for Club BRP, I felt a significant upswing versus last year. Many dealers appreciated that we were the OEM who supported them the most from day one during these challenging times. Since we are starting to see the benefit of our actions and despite ongoing volatility, we are comfortable issuing guidance. We are confident that the momentum generated by our new product introductions will allow us to deliver a stronger second half of the year. With the most complete product offering, strong brands and a solid dealer network, we are uniquely positioned to come out on top when the industry fully recovers. As I said many times in the past, our goal is to consistently wow consumers with market-shaping products over the long term. We remain committed to pushing technology and innovation to capitalize on market opportunities and sustain profitable growth. On that note, I turn the call over to the operator for questions.

Your first question comes from Craig Kennison with Baird.

For the updated guidance, I wanted to ask about trade policy. What are the tariff scenarios that you're contemplating? I know we have USMCA that is subject to renegotiation and Mexico has suggested plans to raise tariffs on Asian imports. So I think you're well positioned for the current landscape, but what are the scenarios you're thinking about down the road?

Yes, obviously, over the years, and you know that we optimized our manufacturing footprint and our supply chain, and all our products made in Canada and Mexico meet the USMCA. Today, about 2/3 of our content comes from North America. I won't give you the detail between Canada, U.S., and Mexico for competitive reasons. But 2/3 of our content comes from North America. Obviously, we are in constant dialogue with the Canadian and Mexican government and authorities to try to follow very closely what's going on. I believe that beyond BRP, the USMC agreement is critical for North American companies to be able to compete worldwide. Then to be honest, we're not working right now on any scenarios. Like I said many times, we always found ways to adapt to any regulation. If the new USMC rules are clear and we have lead time, I'm very confident we will adapt to any situation. But we're following that closely, and we're ready to act when we know better.

And could you shed any light on your plans to mitigate the tariff exposure you forecast in your guidance?

Again, the $90 million is the growth. Basically, it's sourcing. We move depending on the regulation and where the goods are coming from. Sometimes we move the production or the supplier from one country to another. I saw some ideas from our team where a supplier was doing an assembly from a part coming from Asia, and now we're doing it ourselves in our factory. Then there are many things that we do to minimize the impact of those tariffs. To be honest, I'm impressed by how fast we react and how good we are, but we're learning every day.

Your next question comes from James Hardiman with Citi.

I would like to discuss the current versus noncurrent situation in the industry. It's noteworthy that your overall retail, especially in ORV, has declined. However, if we differentiate between current and noncurrent, the narrative changes significantly. Looking ahead to the third quarter, much of the answer will depend on when your competitors will address their noncurrent inventory and possibly reduce promotions. I'm interested in your perspective on how your retail will progress in that framework.

Then obviously, we are in the quarter. Q2 is a quarter where many OEMs transition from model year '25 to '26, then there are some estimations in our forecast. But basically, we saw in Q2 that most of the OEMs are more cautious versus shipment. We are happy where we are, except in snowmobile, that we intend to deplete in the upcoming season, but we saw positive signs like in the ORV. The ATV inventory was down by 20% in Q2, and side-by-side was down 10%, in the industry, not us. Watercraft is a bit on the high side. One OEM has shipped quite a lot of '25 late into the season. But overall, the noncurrent versus current inventory ratio has improved over the quarters. That is why we are encouraged for H2, and we are comfortable issuing guidance as we have good visibility on what we will be shipping and also see that our inventory is low. We have very good product news.

Got it. And just to clarify, it sounds like you're saying you think retail is going to be up in the second half. Maybe just confirm or deny that. And then just early thoughts on 2026. Obviously, as I think about puts and takes, there was some inventory drawdown this year, assuming we're back to sort of 1:1 wholesale retail, what does that get you? And then the tariff piece, right? I think you've said in the past that we shouldn't think about next year being double this year. But with the new $90 million number, any sort of initial thoughts on what that might look like for '26?

I will give you color on our forecast for the industry in H2 and Sebastien will talk about fiscal year '26. Then obviously, there is a lot of volatility in the macroeconomic. But basically, we're planning for the industry H2 similar to Q2. Just to give you a sense by key countries, U.S. was down mid-single digit in Q2. Obviously, we believe tariff uncertainty and inflation still affect consumer confidence. Canada has done well with low growth in the low single digits. I'm talking about the industry. LatAm is doing very strong with over 20% growth in Q2, driven by the ORV momentum in Brazil and Mexico, and we believe this will continue. EMEA was down in Q2 by mid-teens, but it has improved versus the previous quarter.

On tariffs, as I mentioned in the prepared remarks, this year is a headwind of a gross headwind of $90 million. There are some one-time elements that we've incurred this year that will not come back next year, probably in the range of about $10 million. If we do nothing, and obviously, that's not how we operate. The teams are always there to optimize and minimize the impact. You could see with the same tariff base that we have, maybe a headwind of $120 million, $130 million. But obviously, we're going to keep working on optimizing and working with our suppliers to reduce as much as possible the tariff risk, but that would be the, let's say, the run rate on a steady basis.

Your next question comes from Brian Morrison with TD Cowen.

A question for Seb or Jose. You have called the $1.3 billion revenue headwind or so a big number from the destock over the past year, with the industry inventory being closer to rightsize now. How do we think about the revenue profile outlook of this alignment of wholesale and retail? Should it be a straight-line recovery over the next 12 months? How do you think about that?

It's likely too early to predict what next year will look like since we've just provided guidance for the next six months. However, comparing next year to this year, a significant factor will be the alignment of retail and wholesale. This year, due to our destocking efforts, we experienced a revenue impact between $400 million and $500 million. We hope to resolve this by year-end, although we still need to make progress on snowmobile. That challenge should be behind us next year, and there will also be some volume opportunities to consider. We've been losing market share in ORV now for the past year or so, mainly due to the noncurrent dynamic in the industry. Now that the inventories are cleaner, there's a bit more work to be done for a few OEMs, but my call is that they should be done by the end of the year. We're back from Club, as Jose mentioned that in his remarks as well, a lot of excitement. You were there as well, Brian, last week, and you saw the dealer engagement. You saw the great products we have. And that obviously helps next year. And from the market share perspective, I trust that Sandy and his team will be working on turning the tide, and we should see market share improve next year. So that obviously will be a plus, from a top line perspective. When considering profitability, we are consistently working to enhance efficiencies. Our teams are focused on optimizing the bill of materials and plant operations. We may choose to invest in additional sectors. Despite the slowdown, we have continued to invest in innovation and plan to maintain that commitment next year.

Your next question comes from Robin Farley with UBS.

Great. I have two points. First, regarding your expectations for the second half of retail. You mentioned that it would be similar to what we experienced in Q2, noting a mid-single digit decline in the U.S. and a low single digit increase in Canada. If we focus solely on your ORV expectations, considering the seasonal variations in your product lines, would you say that you expect North American ORV retail in the second half to increase by low single digits, as seen in Q2? In other words, I assume the numbers you're sharing were influenced by those other product lines. Is it accurate to say that your expectation for second half trends, similar to Q2, also applies specifically to ORV?

When I look at Q2, every month sequentially ORV retail improved. And so from May to June to July. We're seeing these sequential improvements as well happening in August. As Jose mentioned, the industry is cleaner in terms of current and noncurrent. Yes, some OEMs have higher noncurrent than where they were historically. But I think we'll be competing in a better environment. Obviously, we're transitioning to a new model year. So I'm hoping to see better numbers than what we saw in Q2. Early in August, the trend is in the right direction. And so obviously, we're working to make sure that continues.

Okay. Great. And then my other question is when we look at your inventory compared to pre-COVID levels being up only 2%, down 1%, including new product lines or excluding new product lines. And I guess, specifically for ORV down 5%. With your retail volume so much higher than pre-COVID levels, how is that down 5% the right number? And especially because I'm assuming that's an aggregate and your dealer base has probably grown, so that would suggest that like on a per-dealer level your ORV inventory is even further below. Just wondering why that is the right number for you.

The dealer count is fairly stable versus where we were pre-COVID. And so it's on a same-store basis. Were we to a bit too high during pre-COVID? Some could say yes. The dollar value of units is significantly higher. And so dealers are more cautious in taking inventory when the dollar value was almost up 50%, i.e., MSRP increase, but also a combination of better mix. There is a benefit in where demand for cab units is still very strong and supply is slightly lower than where we were in historical levels for our other product lines. That’s one of the reasons driving lower ORV inventory for us, but also other OEMs.

Your next question comes from Sabahat Khan with RBC Capital Markets.

Just in light of some of the comments around the inventory position and sort of the outlook, can you get a little bit deeper into sort of the retail evolution you expect into the back half of this year and into next year? Is this sort of just sequential improvement in the retail uptake on the consumer side? And sort of how are you factoring into your outlook some of the macro factors that you talked about and how they might impact the consumer uptake? And if there's any color across categories on the retail uptake outlook?

Yes. Again, we don't have, let's say, a black box that gives us the full industry and retail trends. But obviously, we need to appreciate that there are many variables such as tariffs, interest rates, and consumer sentiment. It’s difficult to forecast the industry at the moment. But all in all, despite all the noise that we've seen in the industry and the market, the industries have held up decently, this year being down low single-digit percentage overall. Yes, some of that was helped by the noncurrent promotions, that's fair. But we're transitioning now to a model year. There’s going to be noncurrent, the model year '25 will be noncurrent. Our base case for the rest of the year is a continuation of the trend we are seeing. Even with volatility, we're confident in the guidance we have today because, again, even if there is a slight movement in the industry and retail, our inventories are low. Dealers want our new units, the new innovations. We have orders for snowmobiles. Turning to the balance sheet in the 2.5x range, is it a bit of a wait and see regarding capital allocation, especially as you look ahead? And presumably, production might pick up, which could necessitate some investment there as units start to improve. Can you just walk us through your views on capital allocation, the balance sheet and maybe reinvestment into the business as we potentially move toward an upcycle here? Our priority in terms of capital allocation has always been investing in the business, growing the dividend, and also doing buybacks. Given the context and the uncertainty around tariffs and the economy, we've been on the sideline regarding buybacks, and we'll probably continue being on the sideline until we see that clarity when we see the cash flow come in. The priority has always been protecting the financial flexibility of the company, and we are fortunate to be in a good position.

Your next question comes from Joe Altobello with Raymond James.

So just want to go back to the guidance for a second. And I think, Seb, you mentioned this earlier. If I look at first half versus second half, it's quite striking. The revenue midpoint, I guess, is up 10% or around $400 million. So I'm just trying to understand how much of that is simply lapping last year's under shipping demand? And how much is innovation like Defender, for example? I'm just trying to assess the risk of that outlook.

Last year, the second half was easy to compare to because the focus was on reducing seasonal product inventory. Our shipments in the seasonal product category were actually down. This year, our guidance for the second half shows that seasonal revenue is relatively flat compared to last year, as there is still work needed on snowmobiles. However, we plan to increase year-round product offerings. Last year was decent, but we expect the second half of this year to align more closely with what we achieved in 2023 and 2024. In terms of delivery, we have new products that are generating some volume, which we believe will also drive retail. Additionally, the product mix will be more favorable in the second half of this year, whereas it was more challenging last year due to reduced shipments of seasonal business with high margins. We are also incorporating cost efficiencies and lower sales programs in the second half. Overall, it is worth noting that last year was an easier comparison, and the results were significantly below what we believe the company's earning potential is. This year should provide a better indication of BRP's true earning capacity as we adjust our wholesale and retail shipping balance. Yes, net of the mitigation efforts we've put in, we're probably ending at a, let's say, $0.25 to $0.30 negative impact on the P&L. Most of the mitigation efforts have been that we've taken higher pricing. Usually, we do a 1%, 1.5%, but we've taken pricing higher, mainly in the parts and accessories business. But that's how we've mitigated the impact.

Your next question comes from Martin Landry with Stifel.

Sebastien, regarding earnings potential, I would like to discuss this further. A few years ago, the company projected an EPS of up to $14, but now the guidance is for an EPS between $4 and $4.70, around $4.50. How long can we expect this trend to continue, and what kind of earnings potential can we anticipate in the next two, three, or four years? I realize that returning to $14 is likely unrealistic in the near future, but I would appreciate your insights on the company's earnings capacity in the coming years.

Well, I mean, I like where BRP is sitting today. I've been with the company for 20 years. I've seen how the company has grown and evolved. I believe that BRP can continue growing in the industry? Absolutely. We've talked about ORV market share, being able to grow it. Obviously, not only the side-by-side, but ATV. It all depends on the industry. So BRP has the resources and capacity to continue growing. We need to drive the industry as well. The industry is based on the macro environment, interest rates, consumer confidence, unemployment rates, et cetera. There are many variables. It’s very dependent on how the industry behaves. If the industry grows and the economy is robust, then yes, we can reach the numbers from the past. BRP has become an innovation machine and a profitability machine as well for the dealers. These are the key factors that are going to drive growth in the future.

Your next question comes from Mark Petrie with CIBC.

I just want to clarify maybe a couple of things. You talked about 2 figures from the destock headwind, the $1.3 billion and then the $400 million to $500 million. Could you just square up exactly what those are referring to? I think the $400 million to $500 million is the potential tailwind into next year. But could you just be clear on that?

Yes, the overall impact, when we consider the accumulation, involves destocking in fiscal year 2026. The combined effect is likely close to $1 billion. The figure I mentioned to Brian was an impact of $400 million to $500 million when I compare the destocking we experienced this year. This destocking is projected to result in a revenue impact of about $400 million to $500 million just for this year. When I look at this year, just for H2, I'm expecting gross profit to increase probably 300 basis points easily versus where we were last year. So let's say, low 300 basis points to whatever, 250, 300 from an OpEx, it will be higher in the second half of the year versus last year, probably 500 basis points, mainly coming from variable compensation. From an EBITDA margin perspective, you're probably going to see 150 basis points net-net there when you do the pluses and minuses on the EBITDA, a positive growth. So well above 14% EBITDA margin in the second half of the year.

Your next question comes from Benoit Poirier with Desjardins.

Yes. Jose, just in terms of retail sales between Canada and U.S., there's been a discrepancy. Canada was up low single digits. U.S. was down low single digits. I was wondering if you have any thoughts on what's driving this? I've seen some comments from dealers in Canada pointing to greater interest for BRP products, given the geopolitical issues. Or I'm just wondering if it's a matter of having a much lower of noncurrent units in Canada. So any color on the discrepancy between both countries would be great.

I believe that in the U.S., there is still tariff uncertainty, and prices change frequently. Inflation remains high, and there has not been any reduction in interest rates so far. As a result, U.S. consumers appear to be more uncertain about the overall economy. We are seeing high rejection rates from individuals wanting to purchase a Ryker in the U.S. In contrast, the situation in Canada is somewhat different. Dealers there are very loyal to BRP, and the overall economy is strong. I have not personally heard from dealers indicating that the tariff situation has increased interest in BRP products. I think some U.S. companies may be facing challenges due to the exchange rate between Canada and the U.S.

Okay. That's interesting. And with respect to the pricing adjustment that we just announced at the Club, we've seen some of your peers that were able to drive stronger sales on the back of lower pricing. So I was wondering whether you're seeing any positive impact following price adjustments made at the Club, Jose?

It's too early to call because right now, Benoit, we have orders on hand for all the ORV products for deliveries in August and September. We are doing next week the booking for deliveries in October. But what I can tell you is, it's normal that from time to time, you readjust your pricing. During COVID, a lot of OEMs increased their pricing more than others. We were somewhat not competitive in 6 categories. We took the timing right now, now that our inventory is low and the situation seems to be more stable, to readjust our pricing in 6 categories because we want to continue to gain market share in the off-road business and every category needs to grow. The timing was perfect for us. It's too early to tell you, but in our internal planning, we're definitely planning to grow volume in those categories for product.

Okay. And maybe last one for me. You've been quite successful ramping up the fishing offering in the Sea-Doo category. We’ve seen Yamaha that came with the new fishing PWC called the Crosswave. So I was wondering, Jose, if you have any thoughts on this new product from Yamaha and whether you've seen some impact on the Sea-Doo Fish Pro offering so far?

First, the product, nobody has seen it physically yet. It's scheduled to be delivered next spring, then we'll see how it goes. But definitely, in the watercraft industry, recreational products for recreational-only activity are still good, but we've been very good at having specialized vehicles, and that's what we've done with the WAKE PRO, Explorer, and Fish Pro. This is tailored to activities, which brings new customers to the industry. Yamaha took a different approach, but it will be interesting to see how it grows. At the same time, it’s pushing us to be better and to be more competitive. We like competition. If they can accelerate the development of people who fit into the watercraft category, I welcome the initiative. If we are the two main players growing the industry, I think it will be better for both of us, and we're not afraid of the competition.

Your next question comes from Luke Hannan with Canaccord.

Most of my questions have been answered, but I need clarification on some previous questions. Regarding normalized earnings power, you have mentioned EPS in the past, but you have also talked about a normalized EBITDA margin of about 17% as a mid-cycle target. Has that number changed at all following the marine divestments? What should we consider as the long-term margin potential?

No. If there's anything, it's probably even more achievable. I mean, we've delivered high EBITDA margin percentages in the past with the marine business up to 19%. I think when you exclude marine pro forma, you would be at 21%. So is the 17% still achievable to an earlier question from Martin Landry? Again, as the business grows, as we get to these higher revenue numbers, for sure, EBITDA margin will grow as we leverage the investments we've made in the past and as we leverage the existing manufacturing capacity. I do believe that it's a number that's still very much achievable. It is very healthy. Dealers see it as well in their monthly financing costs or floor plan costs. So it is very healthy. As I said, it will move, yes, because there's seasonality in our business. There's inventory buildup before a retail season; sometimes retail does not go according to plan, sometimes it's better. It did go up quite significantly in the last 24 months. We also rightsized lines of credit. We talked about this as well. Our business has grown significantly. MSRPs have grown as well. We need to bring dealers along to acknowledge that their lines of credit also needed to be tailored to the new reality of the Powersports industry and BRP's business. So that's another factor.

Same ratio for us, 2/3 of our volume is utility. Obviously, we've always been stronger in the report. There is more opportunity in the utility, and that's why we're so optimistic about the new Defender. We have the best ATV with old technology. Now we have established a new standard with the new technology.

Your next question comes from Cameron Doerksen with National Bank Financial.

I guess a question on the tariffs. You mentioned that the new tariff estimate for the year includes the recent announcement of the expansion of products on steel and aluminum tariffs. It doesn't sound like that affects all of your products. Can you just maybe detail that a bit more and whether there's any risk that there could be, I guess, further tariff impact, if there's, I guess, another expansion of that steel and aluminum to more products?

Yes, there's always a possibility of the rules changing. This came into effect on August 18, where steel aluminum now at 50%. The vehicles that are impacted are mainly ATV, side-by-side; however, some models of side-by-side are excluded. It's really on the steel content that are in the vehicle. The secret is obviously providing what the weight and pack is. Steel is obviously a big part of the vehicle, but it's low cost in the vehicle. Thus, we prefer not to have it. It’s an impact, but it’s certainly something we can absorb and adapt as we always do. It’s difficult for me to call what could be the impact if I were to apply X percentage tariff on X and Y products.

Okay, no, that's helpful. And maybe, I guess, second question, not that we're rushing to see Jose accelerate his retirement, but just wondered if there's any update on the new CEO search at this point.

No update. The search is ongoing, and I was with the HR committee this week, and there should be a transition by the end of the year, no change.

Your next question comes from Tristan Thomas-Martin with BMO Capital Markets.

I don't know if I missed this, but did you guys disclose where you expect your channel inventory levels to be at the end of the year? And then also anecdotally, I'm curious if you've heard anything about how dealers are planning on ordering the new product? I understand the reception has been very positive, but just curious how dealers are kind of thinking about the back half and then early next year in terms of planning their orders?

From an inventory perspective, there are no significant changes from our current position. We still have some work to do on snowmobiles, which will be our main focus in the latter half of the year. Overall, our inventory levels for various product lines in the second quarter are what we anticipate will be maintained by the end of the fourth quarter. Regarding your second question, I missed it, so I believe Jose will address it.

On another note, as Sebastien mentioned, we have orders in place for snowmobiles scheduled for delivery in fiscal year '26. Regarding watercraft, we are finalizing the bookings. Dealers have seen the product at Club, assessed it, and adjusted their model mix. Overall, we are on track, and for off-road vehicles, we have dealer orders ready for delivery in August and September. We are consistently taking orders every month for delivery in two months. We are very confident in our off-road lineup and the new offerings, and we believe we will achieve our targets.

It's still centered around the Powersport industry.

Your next question comes from Jonathan Goldman with Scotiabank.

I apologize if I missed this, but just going back to the guidance, the second half implying a plus 10% at the midpoint. I think you called out retail being aligned with wholesale and retail being similar in the second half to Q2, which was down low single digits. So to bridge the delta, is it pricing, share gains, new product launches? Any other elements in there?

It's a combination of factors. As I mentioned, the favorable product mix is going to be a factor. The fewer programs as well as another factor will help revenue. These would be the two big items that are, let's say, not volume-related.

New entrant numbers in Q2 were at 23%, which is the same level as before COVID. It appears we have returned to the pre-COVID situation. Regarding the industry, the trend observed in the last two quarters continues. There is pressure on lower-income customers due to inflation, high financing rates, and uncertainty. The premium products are selling well compared to the value items. Spark and Ryker are performing below traditional watercraft and fuel vehicles. In the side-by-side category, the premium products are selling well, while the value products are struggling. Utilities are performing strongly, although their exports are decreasing. The trends we noticed in the past two quarters are likely to persist, but we are in a strong position.

There are no further questions at this time. I will now turn the call over to Mr. Deschenes for closing remarks.

Thank you, Joel, and thanks, everyone, for joining us this morning and for your interest in BRP. Before we go, note that we will be hosting an Analyst and Investor Day on October 8 and 9 in Valcourt. Stay on the lookout for more details. Thanks again, everyone, and have a good day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.