Good day, and welcome to the Polaris Fourth Quarter and Full Year Earnings Call and Webcast. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Richard Edwards, Head of Investor Relations. Please go ahead, sir.

Thank you, Matt, and good morning, everyone. Thank you for joining us for our 2021 fourth quarter and full year earnings call. A slide presentation is accessible at our website at ir.polaris.com, which has additional information for this morning's call. Mike Speetzen, our Chief Executive Officer; and Bob Mack, our Chief Financial Officer, have remarks summarizing the quarter and the full year and our expectations for 2022, then we'll take some questions. During the call, we will be discussing various topics, which should be considered forward-looking for the purpose of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements. You can refer to our 2020 10-K for additional details regarding these risks and uncertainties. All references to the fourth quarter and the full year 2021 and actual results and the 2022 guidance are reported on an adjusted non-GAAP basis, unless otherwise noted. Please refer to our Reg D reconciliation schedules at the end of this presentation for the GAAP to non-GAAP adjustments. Now I'll turn it over to Mike Speetzen, our CEO. Mike?

Thanks, Richard. Good morning, everyone, and thank you for joining us. Before we get started, I want to acknowledge that this will be Richard's last earnings call. Richard has been at the helm of Polaris' Investor Relations for 20 years, and I've had the privilege to work with him for almost seven of those years. It goes without saying that Richard has had an incredible and lasting impact on the company. You all will have the opportunity to see and talk to Richard at our Investor Day later in February. With Richard's retirement, we welcome J.C. Weigelt to the team. J.C. brings a wealth of experience and will be working alongside Richard for the next several months to ensure a smooth transition. So welcome, J.C. And thank you, Richard, for all that you have done for this company and me. You'll be greatly missed. From the start of my tenure as CEO, my mantra for Polaris has been focused execution, and 12 months in, I am proud to say that the team forged the path with dedication and ingenuity. While the supply chain disruptions dominated the headlines in 2021, we finished the year at record levels for both sales and earnings, and I couldn't be more appreciative of the effort the Polaris team made to achieve these results. As Bob will discuss, our record performance is anticipated to continue into 2022. That, coupled with a refined and focused strategy, has me incredibly optimistic about the future of this great company. But before I go too far with the future, let's look back at the performance of 2021. 2021 saw Polaris achieving several meaningful performance milestones. We delivered record level financial performance despite considerable supply chain headwinds, which impacted costs and our ability to deliver products. Our strong performance enabled us to return over $600 million to shareholders through our dividend and share repurchase. Despite the supply chain headwinds, our ORV business gained share reflecting our strong brand innovation and the ability to deliver on continued strong consumer demand. Our PG&A businesses, which includes powersports’ aftermarket growth, exceeded $1.5 billion in sales for the first time ever. That's a 24% increase in 2021, and we've more than doubled the size of our PG&A business over the last five years. Our International business exceeded the $1 billion mark, which was an increase of 34%. And lastly, our efforts to drive customer growth continue to pay dividends, as evidenced by our customers expanding 16% on a two-year basis, representing strong new customer growth, with more new customers added in 2021 than in 2020. Additionally, existing customers' repurchases remain solid. We introduced industry-leading customer and dealer-driven innovation and launched category-defining vehicles. We introduced over 30 new vehicles and nearly 500 new accessories in 2021. We didn't just incrementally innovate; we created and launched category-defining vehicles, reflecting our continued commitment to industry-leading innovation. The RZR Pro R and Turbo R reclaimed our leadership position in the wide open side-by-side category, delivering unprecedented performance straight from the factory. The RZR Pro R leads the way in power with the industry's first two-liter factory engine, coupled with unmatched control with all-new Dynamics DV, which is our dual-valve automatic adjusting suspension system. We pushed the industry forward with the introduction of our all-electric RANGER XP Kinetic, the hardest working, smoothest riding and quietest UTV ever built. It is safe to say we are just getting started, and I can't wait for you to see what we have in store for 2022. Our innovation doesn't end with our products; we introduced our industry-leading presold order program, which has been highly successful in attracting and maintaining customers in the supply chain constrained environment. The NorthStar reward dealer incentive program, where dealers are rewarded when they successfully apply the six critical activities of market performance, customer experience, education, PG&A service, and dealer financial results, has driven improved dealer performance and profitability. Our Polaris Adventures business has grown tremendously, and in 2021, completed over 400,000 rides through roughly 200 outfitter locations. In our subscription service, Polaris Adventures Select has launched in four states with plans to add several more in 2022. Finally, during 2021, we added capacity, improved product quality, and rationalized our portfolio. We added production capacity in Monterrey, Mexico for ORV; Elkhart and Syracuse, Indiana for Bennington and Hurricane; and Wilmington, Ohio for PG&A distribution. All of these reflect our commitment to organically invest in the business to support growth. As I speak, we're starting up production of midsized Indian motorcycles in Vietnam to accommodate anticipated growth in the Asian and Australian markets. Our focus on quality drove improvements that resulted in higher customer and dealer quality ratings while reducing costs. During the quarter, we completed the divestiture of GEM and Taylor-Dunn businesses as we continue to strategically review our portfolio with the goal of optimizing our business mix for future growth and profitability. As a result of these divestitures, we are realigning our segments in 2022 and eliminating the Global Adjacent Market segment. The remaining businesses that were in that segment will be aligned to other segments. Bob will give you further details shortly. 2021 was truly an all-around great year for Polaris. Through focused execution, we delivered industry-leading performance and continued to improve the fundamentals of the business. Building from those highlights, let me start by addressing demand. Overall, consumer demand remains robust with new customers entering the space at a steady rate, and existing customers exhibiting strong repurchase intent. Unfortunately, supply chain impacts on product availability, not just for Polaris, but for also the broader industry, negatively impacted retail in North America. Our full year retail sales for North America finished down 13% for 2021, driven by the supply chain disruption that impacted product availability. Our retail did end the year up 9% versus 2019, which further reinforces the point around the continued strong interest in the category. Lastly, fourth quarter retail was down mid-20% and down mid-single digits compared to 2019. Despite the headwinds, I couldn’t be more pleased with our market share performance, as we gained 120 basis points of share with side by sides up about 1 point of share for the year and ATVs up over 1.5 points. It was a similar result for Pulse, with our boat business increasing market share in North America and our motorcycle business finishing about flat to last year. You’ll notice that we’ve added international to the page; as a global company, it’s tough to talk market share without looking beyond North America. Given our strong focus resulting in retail performance, we gained over 100 basis points in ORV in motorcycles and about 60 basis points in snowmobiles. The continued interest in Powersports, along with our expansive product lineup, puts us in an enviable position to drive continued strong performance into 2022. Dealer inventory levels ended the quarter down 30% on a year-over-year basis and down 70% compared to levels in Q4 2019. Sequentially, total dealer inventory levels improved by approximately 5,000 units in North America. That said, the majority of those vehicles shipped in the final days of the year were already accounted for under our pre-sold order process. Our current view is that dealer inventory levels will remain below optimal levels for all of 2022, with modest improvements in the second half. The improvements come from slightly improving supply chain and delivery, as we anticipate demand will remain robust. Last quarter, I highlighted several modifications we made to our highly successful dealer presold order process. We implemented a new online order tracker for dealers and customers that improve the transparency of order status, a new reservation program for high-demand premium products, and we added limitations on the number of presold orders for certain products to minimize delays from long shipping lead times. These changes have been favorably received by both dealers and consumers as we continue to manage through supply chain impacts to production and delivery. As we made progress in accelerating vehicle production and shipments during the fourth quarter, presold orders declined slightly from the third quarter. We anticipate that dealer presold orders will remain elevated through the first half of 2022, with an opportunity to reduce that level beginning in the back half of the year as we see modest supply improvements materialize. The pressure points from component shortages have not changed significantly from my last update. We continue to experience parts variability for various components such as shocks, displays, certain plastics, seats, and semiconductors, among others. The reasons for these supply disruptions continue to be tied to logistics delays, labor shortages, and commodities, not unlike many other industries. We’ve developed a sophisticated process to manage through these pressure points, including forward buying for some long-lead components, giving suppliers improved visibility of our production forecast, establishing second and third sources for critical components where available, and assisting suppliers with accelerated payments and labor as needed. Predicting when the supply chain pressures ease remains difficult, but our most current view is that modest improvement should start to materialize sometime in the third quarter of 2022. Regardless, the supply chain remains a top priority, and I continue to be impressed with our team’s ability to learn, adapt, and execute, which has created a clear competitive advantage for Polaris. Earlier, I highlighted the launch of several category-defining vehicles, the RZR Pro R and Turbo R, and the all-new electric RANGER XP Kinetic. We are calling these vehicles category-defining because we believe there is nothing like them in the market today. While the initial production runs will be limited, the interest around these products was phenomenal. The stats speak for themselves: 450 million-plus impressions and 2.9 million video views for the RZRs. For the RANGER XP Kinetic, there were double the press impressions compared to our entire model year 2022 launch last year and over 280,000 video views. Both product allocation limits were reached shortly after their respective launches. And this is just the beginning. Stay tuned for more exciting news to come in 2022. With that, I’ll turn it over to Bob Mack, who will summarize our fourth quarter and full year 2021 performance and our expectations for 2022.

Thanks, Mike, and good morning, everyone. Mike summarized the year earlier, so my comments will be brief regarding the fourth quarter and full year, and we’ll provide more details on our thinking around 2022 guidance. First, our fourth quarter results. Fourth quarter sales were up 1% on a GAAP and adjusted basis versus the prior year. ORV snow sales were down 2% given the supply chain constraints and the difficult comparison of a nearly 30% increase in ORV in the fourth quarter of 2020. Motorcycles, Global Adjacent Markets, and Boats all increased sales during the quarter. Aftermarket was down 2%, again, due to supply chain disruptions. Fourth quarter earnings per share on a GAAP basis was $1.40, which includes the loss on the sale of the GEM and Taylor-Dunn businesses. Adjusted earnings per share was $2.16, down 35% from last year’s strong performance and negatively impacted by the increased supply chain pressures in 2021. For the full year 2021, sales were up 17% on a GAAP and adjusted basis versus the prior year. All segments were up for the full year 2021, driven by pricing and volume. Full year earnings per share on a GAAP basis was $7.88. Adjusted earnings per share was $9.13, ahead of our expectations, in spite of the supply chain challenges, and driven by positive product mix and increased pricing along with nearly 100 basis points of operating expense leverage. Turning to our segment performance. The ORV, Snowmobile, and Aftermarket segment sales declined during the quarter compared to 2020 as the supply chain shortages constrained our ability to ship to demand. GEM, Boats, and Motorcycle segments increased sales in the fourth quarter, primarily driven by product mix and pricing. The supply chain put pressure on all of our segments’ ability to significantly grow sales. However, our Adjacent Market Businesses did grow the number of units sold, primarily driven by Goupil and Aixam in Europe. Reported fourth quarter segment sales were as follows: ORV and snowmobile sales decreased 2%. Motorcycle sales increased 2%. Global adjacent market sales were up 23%. Aftermarket sales were down 2% and our Boat segment sales increased 12%. As I indicated, average selling prices were up for all segments for the fourth quarter, driven by price increases and the mix of products produced. On a full-year basis, all segment sales were up on a year-over-year basis for both sales and units sold, given the continued strong demand for our products. International and PG&A sales, which were also strong, are embedded within each respective segment. International sales increased 4% in the fourth quarter and 34% for the full year 2021, over 2020. All segments and categories grew sales for the full year 2021. Our parts, garments, and accessories sales increased 13% during the quarter, 24% for the full year. The supply chain constraints was the theme you heard throughout my presentations in 2021. Unfortunately, you'll hear that theme again in 2022. However, we will realize increasing benefits from the price increases in 2022 that we implemented throughout the back half of 2021, along with some anticipated slight improvement in the supply chain, sometime in the back half of the year, which we expect will drive another record year of sales and earnings for 2022. Turning now to 2022 guidance. Total company sales are expected to be up in the range of 12% to 15% versus 2021. The 2022 sales growth includes the following assumptions: while consumer demand for powersports products is expected to remain robust in 2022, we expect the overall North American powersports market and Polaris retail sales to be relatively flat versus 2021, driven entirely from the ongoing supply chain constraints expected for much of the year. We anticipate share gain trends continuing for Polaris in 2022. The pontoon industry is expected to be flat to up slightly on a year-over-year basis, with our pontoon business expected to continue its share gain for the full year. We anticipate average selling prices will again be positive in 2022 as the price increases we implemented throughout 2021 provide a tailwind into 2022. We are prepared to continue to increase prices to match any further supply chain cost pressures, but anticipate that these costs have peaked and will begin to moderate in late 2022. Adjusted earnings per share for 2022 is expected to be in a range of $10.10 to $10.40 compared to the full year 2021 adjusted EPS of $9.13, an increase of 11% to 14%. We anticipate that adjusted gross profit margins will be down 80 to 100 basis points for the year, with the first quarter realizing the most margin pressure as we have a sizable backlog of presold orders that we purposely did not increase vehicle pricing on given previous communications to customers, along with purchased raw materials at the peak of commodity prices working their way through our factory inventory. Operating expenses are expected to improve as a percentage of sales, down 90 to 120 basis points for 2022, primarily as a result of our ability to leverage our general and administrative infrastructure as the company grows revenue. Mike talked about the number of new products introduced in 2021, and we expect another wave of innovative product introductions in 2022. While operating expenses as a percentage of sales are improving, we are not backing off our commitment to being the leader in product innovation, as our research and development investments are increasing on a year-over-year basis. The income tax rate is expected to be in the range of 23% to 23.5% for the full year 2022 as our rate reverts back to a more normalized level. Share count is expected to be down approximately 2% in 2022, which is a combination of expected dilution from compensation plans, more than offset by the continuation of share repurchases, given our strong liquidity position. I will talk more about our capital allocation priorities in a moment. In 2022, we are introducing a new metric that we will be tracking and reporting on each quarter going forward, which is familiar to all of you listening today, and that is earnings before interest, taxes, depreciation, and amortization. Historically, we have been giving you guidance on net income and adjusted earnings per share, and we will continue to do so in 2022. But we believe reporting EBITDA quarterly will give investors a greater appreciation of the baseline profitability opportunity at the company by removing the nonoperating impacts unique to Polaris. For 2022, EBITDA is expected to be approximately 12% of sales, similar to 2021 and up 12% to 15% on an absolute basis. Given the unique events of 2020 and 2021, the quarterly sales and earnings cadence to which we are accustomed has significantly changed. Historically, the first quarter is our lowest quarter in both sales and earnings with the second, third, and fourth quarters being relatively equal in both sales and earnings per share. That said, the past two years have varied significantly from our historical cadence. 2022 is following a similar pattern, driven by ongoing supply chain issues and the fact that ship and retail are so closely aligned. While the timing and magnitude of supply chain improvements remains challenging to forecast, I will give you our view on how we currently see the year playing out. The supply chain bottlenecks accelerated in the back half of 2021 as both costs and disruptions escalated. We believe that many of those costs have peaked, but they will take time to work through our raw material inventory and we expect them to slightly improve on a sequential basis throughout 2022. Therefore, the first half of 2022 is expected to look a lot like the second half of 2021 in terms of earnings per share. Sales for the first half of 2022 are expected to be up in the high single digits percent to low double digits percent range, both sequentially and when compared to the first half of 2021. Earnings per share for the first half of 2022 are expected to be up slightly sequentially to the second half of 2021, although they will be down when compared to the strong first half of 2021, somewhere in the mid-teens percent range. The second half of 2022 is expected to be very strong on both a sequential basis from the first half of 2022 and when comparing to the second half of 2021 as pricing is fully implemented and the cost premiums realized in our P&L begin to ease. Before I provide our expectations for sales by segment, let me explain some changes we are making in our reporting segments beginning in 2022. As a result of the sale of GEM and Taylor-Dunn and to better leverage the activities occurring in each segment, we are eliminating the Global Adjacent Markets segment and moving the remaining businesses into other established segments in our portfolio. Aixam and Goupil will move into our Motorcycle segment, and the combined segment will be renamed On-Road. Government and defense and our commercial UTV businesses will be included in our ORV snowmobile segments, and that reconstituted segment will be renamed Off-Road. Polaris Adventures will be allocated into the respective segments based on the vehicles utilized. Our Boat segment remains unchanged, but is being renamed Marine to both better describe the current portfolio as well as broaden the segment should future products or services, both organic and inorganic, be added to the marine portfolio. Lastly, our aftermarket segment remains unchanged. We believe these revised segments will provide better focus and leverage resources for future growth and profitability improvement. They will also create a simplified reporting structure under our new strategic framework that Mike will cover shortly. We will provide some historical sales data under the new segment reporting structure for modeling purposes on our website later today. Now moving to our sales guidance by segment. We expect all segments to grow sales in 2022 as we drive to meet the ongoing strong demand and the supply chain volatility begins to slowly stabilize. The expectations by segment are shown on the current slide. Operating cash flow finished 2021 at $294 million, a 71% decrease over 2020 given the increase in inventory due to the supply chain disruptions and our deliberate decision to forward buy components to minimize the impact on plant operations. We anticipate 2022 operating cash flow will improve from 2021, in line with improved results and less cash needed for working capital. Let me summarize our capital deployment priorities and expectations for 2022. Our first priority is organic investments, which includes capital expenditures of approximately $350 million for 2022, a 17% increase over 2021. Approximately one-third of the $350 million is earmarked towards capacity expansion in 2022, including an expansion of the distribution center in Wilmington, Ohio, the completion of our Monterrey, Mexico facility expansion, and a variety of other capacity and capability improvements. These capacity investments, along with increased investments in research and development and tooling, will support new products and customer-centric innovation, including digital, electrification, and further demand creation. Our second priority is dividends. We obtained dividend Aristocrat status two years ago, which is defined as 25 years of consecutive dividend increases, which we are very proud of. We believe dividends are a critical part of the attractiveness of Polaris stock to our shareholders. Later this week, we are asking our Board to approve the 27th consecutive annual dividend increase. We will announce any increase subsequent to Board approval. Third, share repurchases and M&A, in that order. We currently have $840 million remaining on the recent $1 billion authorization approved by the Board last year. As Mike noted earlier, we have returned over $600 million to shareholders in 2021 via the dividend and share repurchases, and we expect to return at least an additional $500 million in 2022 for a two-year total in excess of $1.1 billion in returns to shareholders. While we have no current plans for any acquisitions, we will consider small tuck-in transactions in our core segments if financially and strategically attractive. With that, I will now turn it back over to Mike for some final thoughts.

Thanks, Bob. During 2021, the management team and Board spent considerable time evaluating the business as well as looking forward in terms of what Polaris should strive to become over the long term. There were three critical questions we asked ourselves: What can we be best in the world at? What are we deeply passionate about? And what drives our economic engine? As a result, going forward and in line with our mantra of focused execution, we are refining our strategic framework to refocus our investments in the core, both organic and inorganic, improving productivity and expanding margins, and growing our leadership position in powersports. Along with this, we will embrace a balanced and strategic capital deployment strategy that provides for organic investment, portfolio alignment, and return of capital to shareholders. To drive this strategy, we have identified six strategic pillars for the business: best customer experience, inspirational brands, rider-driven innovation, agile efficient operations, best team, best culture, and safety and ethics always. We believe these six pillars executed effectively will drive significant value creation. Best customer experience refers to providing our current and future customers with the best possible overall experience, including dealer interactions for service and delivery, the most desirable, most satisfying, and trusted products and services in the industry, and providing a business model that encourages more diverse groups of people to experience the outdoors. By inspirational brands, I'm referring to brands our owners are not only proud to be associated with but are excited to showcase and share with friends and families—brands that continue to be viewed as authentic, unique, engaging, and just fun to experience, supporting our 'think outside' tagline. Rider-driven innovation means exploring new products, services, and experiences that matter to our customers: electrification, connected initiatives like Adventures Select and Ride Command are just a few recent examples of the opportunity we have here. Agile and efficient operations take lean operations a step further by aligning processes, tools, and people to deliver the most responsive customer-centric service levels in powersports while leveraging our scale to drive industry-leading productivity. All of this is only possible by having the best team and best culture in the industry. We strive to hire, develop, and retain the best, constantly challenging them with new opportunities and high expectations and rewarding those who achieve and exceed those expectations. And finally, and by no means least, safety and ethics always is core to our belief system and reflects our strong bias to protect our teams and resources while driving our stewardship of the industry for our riders and the outdoors through our Geared for Good program. I couldn't be more excited about the prospects of this great company. With focus, we can grow our global leadership in powersports and drive tremendous value creation for all of our stakeholders—customers, employees, and shareholders. We'll provide more details around these six key areas at our upcoming Investor Meeting in Las Vegas on February 24, including a quantification of the financial opportunity we believe is possible over the next five years. Let me wrap this up. 2022 is expected to be another record year for Polaris with revenues growing 12% to 15% and net income increasing at similar levels. That, coupled with our new and more focused strategy, provides incredible opportunities for growth and value creation. We anticipate demand to remain robust as customer interest in the category remains strong. That said, the supply chain will remain constrained at least through the first half, and any improvements after that are anticipated to be modest. Let me close by saying thank you again to the Polaris team for all that they've done and all that they will do as we forge ahead as the global leader in powersports. With that, I'll turn it over to Matt to open the line up for questions.

Thank you. Our first question will come from Robin Farley with UBS. Please go ahead.

Great. Thank you for taking the question. And Richard, I just want to say best wishes. It's been great working with you. I'm glad we'll get to see you at the Investor Day in a few weeks. For my question on the retail commentary, kind of expecting the industry and Polaris to be flat in retail because of supply constraints, given what you expect to ship, how much inventory rebuild at dealers will that get you sort of halfway there in terms of where dealer inventory needs to be? Or kind of how does that shake out given the constraints, and it sounds like demand would be higher than flat if it weren't for those constraints?

Yes. Our expectation is—as I mentioned in my prepared remarks—we really don't anticipate dealer inventory moving up substantially. There will be some improvement; it will be relatively modest. I mean, at this point, as we look forward, as we talked about, we think the supply chain issues that we saw in the second half are obviously kind of carrying forward as we go through the first half. Then there are going to be some items that are going to continue to govern our ability, as well as the rest of the industry, and frankly, into automotive and electronics, and it’s around semiconductors. Semiconductors continue to be a significant issue. It feels like every time the industry takes a step forward, they take a step back by having a typhoon that hits and floods source factories and things like that. So we do anticipate that there's going to be some aspects that are going to continue to limit our ability to ramp up. Now the minute we see improvements in the supply chain, we can react very quickly. As I mentioned in my comments, our team has continued to outperform. I'm confident that if we start to see green shoots that are better than we expect, we'll be able to leverage that into better performance. I suspect, though, given the strong demand that we expect and are seeing from consumers, that most of what would happen in terms of improvement would just improve retail, not necessarily improve dealer inventory.

Okay. Great. And then my follow-up question was going to be about the supply chain disruption. You just mentioned a little bit about it with maybe not having great visibility on semiconductors. My question was going to be how much of the sort of improvement in the second half is actual visibility? And like you said, it's already getting better, and it just as the prices and the expenses that have to run through in your inventory versus that you're sort of hoping it will be better in six months, but you don't necessarily have visibility? Just trying to guess...

Yes. I mean, it's tough to have visibility that far ahead. But I will say that we've learned a lot over the past, call it, six to seven months. I think our ability to navigate the current industry dynamics is better. We do anticipate that things like logistics and some of the labor shortages and things like that are going to start to improve because the industry simply has the time to deal with it as opposed to when this all happened quickly in 2021. So we think there are definitely opportunities there. So we're basing it on markers that we're seeing today. But I'll keep reemphasizing it: we're not expecting a substantial uplift. When we look at our off-road vehicle business, we're not expecting a substantial improvement in year-over-year shipments, for example. So it is an improvement. It tends to manifest itself in a lot of our other businesses, like Boats, for example. But at this stage, that's the level of visibility that we have. Bob, anything that you would add?

Yes. I think you brought up a good point, Robin. When you think about supply chain improving, you kind of have to take it into two pieces. One is cost, one is actual availability of components. As Mike said, the availability of components side, we don't see meaningful— we'll see a slight improvement we think through the year, and the visibility there is not as nice as we'd like it to be. On the cost side, a big part of the cost is commodities, and there is a little better visibility into that. We do see that improving as we get through the inventory we purchased in Q4 and burn through that and then start buying commodities at lower prices in the back half of the year.

Okay. Great. Thank you.

Next question?

Our next question will come from Craig Kennison with Baird. Please go ahead.

Hey, good morning. Thanks for taking my questions. And Richard and JC, congratulations to you both. Mike, this is a bigger picture question for you ahead of your Analyst Day in February. I'm sure you're saving the numerical goals for that time. But I'm wondering if you could look back at the last several years. When you look at that EBITDA as a percentage of sales percentage, it was—I think you're saying 12%-ish in 2022, but that was 18% years ago. If you could diagnose what happened between then and now, at least to frame what the opportunities might be, that might be helpful.

Yes. Craig, you kind of nailed it. Bob and I spent a lot of time, both internally and externally, kind of working through the dynamics of what happened from the past. And it's not one particular thing. We’ve talked in the past that you have an onset of things like tariffs or certain aspects of our portfolio where the profit really ends up being dramatically lower than was originally expected. There are just a series of different things. But what I’ll tell you is that we’re surgically going after it. We talked a little bit about it in my prepared remarks. We’re obviously looking at the portfolio and will continue to work that aspect. And that doesn’t necessarily mean you jettison things out. It also means that you focus on the areas that aren’t demonstrating the level of profitability that they should or that they need to, and you work those. If we get to a point where they can’t get to the levels we need, we’ll make a different decision at that time. There’s a significant amount of focus. The supply chain transformation work that we’ve been working on in earnest for the past several years is starting to yield pretty substantial savings. That helps us deal with whether it’s the tariffs or the supply chain cost. Then just the pricing actions we’ve taken to help us at least be in a position to counter those. But as we look forward, we hope that those pricing moves we made will retain a portion of them because if you remember, we didn’t go after big price moves; we tried to do it in bite-size chunks so that we weren’t pushing consumers out of the market. At the same time, we know we’re starting to see things like the commodities come down. We know that over time, the logistics costs and some of the other expedite fees we’re paying are going to come down. To the extent we can continue to hold on to the pricing, I think we’ll be in a good spot. So it’s going to be the levers inside the business, it’s going to be dealing with the portfolio, and then, quite frankly, just driving growth in the business and being very focused on the success we’ve seen over the past several years in being able to drive customer growth. What we’ll talk about in Las Vegas is that combination: we need to get our margins up—that’s our internal mandate— while continuing to grow our return on invested capital. We think that’s going to create a pretty compelling investment opportunity.

Perfect. Thank you, Mike.

Thanks, Craig.

Next question?

Our next question will come from Brett Andress with KeyBanc. Please go ahead.

Hi, good morning, guys. Is there any way to frame up pricing a little more? I guess how much price did you end up passing on in 2021 in ORV? And then how much do you expect to take in 2022?

Sure. It's Bob. I think the way you have to think about pricing: our goal, as Mike said, we have been trying to drive price to cover the increased cost in the supply chain. A lot of our—if you look at 2021, prices —costs for us escalated through—from the first half through the second half. So our pricing actions lagged that a little bit. Our last price increases came in November 1. Those are starting—you'll start to see that fully implemented in early 2022 in Q1. We'll work through the presold in Q1. The price-cost dynamic starts to get better as you go through the year. But basically, we’re pricing to cover our costs. We'll get a little bit more than that, but we're not getting the margin, and that's really where you see the hit to the GP.

Got it. Okay. And then I guess, I think last quarter, you called out I think it was over $300 million. Maybe that number was closer to $400 million of supply chain input cost pressure that you expected in 2021. Do you have an updated number for 2022 as you think about the guide?

So for the full year, it's close to $500 million versus 2020, if you look at 2022. So it continues to go up in 2022 versus 2021, and we see that starting to moderate as we get towards the end of the year as we can start bringing in commodities at the new lower prices that you're starting to see in the futures curves in the market, and we think with some of the logistics costs will start to abate as well.

Got it. Thanks, guys.

Our next question will come from Fred Wightman with Wolfe Research. Please go ahead.

Hey guys, good morning and thanks for the question. I was hoping you could just sort of juxtapose or rationalize the comments that show up a few places in the release and the slides just about particularly on the presold percentage, talking about an improvement in component availability towards year-end. Then this notion that we won't really see a big uptick on the supply chain side until 3Q. Was there something specific in 4Q? Why sort of the six-month lag until that really shows up on the earnings side?

Well, what we characterize, Fred, was that we expect the first half of 2022 to look an awful lot like the second half. There were certain dynamics that happened in the fourth quarter. Some relate to our snow business. Obviously, that's a very seasonal business, and you're not going to see that repeat after we get through the month of February, March timeframe. We’re taking each one of these components one at a time. As I said in my prepared remarks, it tends to move around. We'll get a good couple of weeks on shocks and then we'll start to have some issues, and we'll have to pivot and refocus to get those caught up and then go work on other areas like plastics, etc. So it's not one particular item. Our suppliers are continuing with all the same things we are in terms of the logistics and labor challenges and all the different things that ultimately impact our ability to deliver. Our view is that it's just—it isn't going to get fixed overnight, this supply chain issue onset over a period of time. So it's going to take some time to work itself through the system. There isn't one thing in particular, other than what I would say is semiconductors, which will continue to be a governing supply on the company as it is with just about every industry right now. Aside from that, most of the other issues, we're able to work constructively through with our supply base.

Great. You sort of touched on, Bob, I think the pricing outlook for the year, but could you guys just give an update on sort of the promo and then the mix tailwinds on the margin side?

Yes, sure. So mix, similar to a lot of industries, mix is positive just because consumers are gravitating towards and dealers are ordering and consumers are ordering higher-end products given the scarcity of product availability. So that helps on the mix side. And promo, we don't anticipate significant promo, but we have factored in small amounts of promo returning in the back half of the year, should we start to see the competitive environment change or supply chain improve. But right now, we think that will be pretty minor.

Great, thank you.

Our next question will come from Joe Altobello with Raymond James. Please go ahead.

Thanks. Hey guys, good morning. Just wanted to go back quickly to Robin's line of questioning earlier. I know it's a tough question to answer at this point in early 2022, but would you expect your inventory levels to normalize sometimes next year? Or does the refill opportunity extend possibly into 2024?

Tough to say because there are a lot of variables in there. Our view based on what we've seen through this whole thing is that consumer demand is going to remain solid. Against that backdrop, I would suggest it's probably going to be sometime into 2023 before we're going to see the inventory levels get up. We're not going to target getting inventory back to the levels we were before all this started when COVID initially onset. We found ways to run the business more efficiently. So we're going to target inventory levels at the dealerships that will be below historic, but it's probably going to take us well into 2023 to get ourselves there. It's early days, so it’s tough to make a call in 2023 or 2024 at this stage.

Understood. And just a follow-up on that. It looks like obviously gross margin pressures this year being offset by pretty nice operating leverage. It looks like most of that or all of that really coming from G&A. Where are the reductions in G&A coming from?

It's a mix. I mean, we've obviously—going through COVID, we looked hard at our cost structure in 2020 and made various staffing and spending reductions. Just the growth, we've kept really those investments pretty flat and have been able to leverage that. We’ve done a lot of work to get the centralized structure in the company to the right level and really pushed a lot more out into the GBUs, and we benefitted from that.

Got it. Okay. Thanks, guys.

Thank you.

Our next question will come from Gerrick Johnson with BMO. Please go ahead.

Hey, good morning. Thank you. I want to talk about Monterrey and the expansion there. I think in the past, you mentioned it could expand RZR and GENERAL output by 35% by the end of 2022. Is that still the target? And how is the ability to staff and supply that expansion?

Yes. We were actually—Ken Gersel and Stephen and I were down there a couple of months back. They were already running the first prototypes through the line. The line is in good shape. The labor shed is very healthy there. Our Monterrey facility is an excellent factory with a great workforce. Essentially, it's attached to the same campus, so we're going to benefit from the great leadership that we have down there. It's on track. There's going to be some really good products coming out of there. Obviously, the Pro R and Turbo R will be coming out of that factory, but there are other products that have yet to be announced that will be coming out of there as well.

Okay. Great. And then on off-road dealer inventory, are you still shipping incomplete units? If so, what would the field inventory look like if those incomplete units actually had all the components in them?

Yes. We actually did very few. Our snow business probably saw the most, maybe just over 1,000 units where we had some strut and RIDE COMMAND modules that were coming in late. We want to at least get the vehicles to the dealership. Obviously, we hold back the revenue recognition on that because we're not going to recognize when the unit is not capable. We did have some ATVs that went out without a front brush guard. But again, it was a very, very small population. We've had this discussion with our Board several times; we're on the side of holding the inventory in our own hands so that we can affect the rework. We think that’s a better thing from a quality standpoint, frankly, and puts less burden on the dealer. We’ve got the ability to move those vehicles very quickly, like we did in the fourth quarter, and make sure we get them in the hands of the dealer, using the presold process to keep the customer orders on track. I don't know if Bob would add anything to that.

Yes. To Mike's point, we've focused on the quality, making sure that the dealers are getting inventory they can sell immediately, because in our view, it's not beneficial to have inventory sitting at the dealer that the customer can see, but they can’t take it because it’s waiting on dealers. The dealers are busy, and they’re struggling with labor too. So we’re trying to make it as easy on them as we can.

Okay. Thank you very much.

Yes.

Okay. I want to thank everyone for participating this morning, and look forward to seeing many of you at our Investor event in Vegas on February 24. We have a great event planned and some really good riding on some of our new products. So I look forward to seeing many of you in Vegas. Thanks again. Goodbye.

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