Good morning, and welcome to the Polaris Second Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now let you turn the conference over to J.C. Weigelt, Vice President of Investor Relations. Please go ahead.

Thank you, Gary, and good morning or afternoon, everyone. I'm J.C. Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2025 second quarter earnings call. We will reference a slide presentation today, which is accessible on our website at ir.polaris.com. Joining me on the call today are Mike Steetson, our Chief Executive Officer, and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing our 2025 second quarter, as well as our expectations for 2025. Then we'll take your 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 2024 10-K and our other filings at the SEC for additional details regarding risks and uncertainties. All references to 2025 second quarter actual results and future period guidance are for our continuing operations and are reported on an adjusted non-GAAP basis, unless otherwise noted. Please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments. Now, I will turn it over to Mike Steetson. Go ahead, Mike.

Thanks, JC. Good morning, everyone, and thank you for joining us today. Before we walk through our second quarter results, I would like to begin by acknowledging the outstanding work of our team. While there is plenty of external noise, tariffs, interest rates, a dynamic and often unpredictable macro environment, I'm proud to say Polaris is winning where it counts. We've exceeded expectations for the quarter, gained share across our business, mitigated a portion of the tariff impacts, generated strong free cash flow, and have dealer inventory at healthier levels across most product categories. Our plants are running leaner and more efficient than ever, surpassing even pre-pandemic benchmarks, all while maintaining the highest levels of quality that our customers and dealers come to expect, and we are bringing industry-leading products to the market. I'm more confident than ever that we'll emerge from the cycle stronger because the Polaris team is focused and executing on what we can control. Today, Bob and I will walk you through our Q2 performance and update on our tariff mitigation strategy and how we are positioning players for long-term growth, stronger earnings, and higher returns. In Q2, sales were down 6%, reflecting the ongoing power sports industry downturn and increased promotions. For the quarter, shipments were down just 4%, which was better than our expectations in April. Additionally, retail was flat, and we had share gains across every segment. Dealer inventory has continued to be a focus for us, and we remain in a much better place compared to last year. Year over year, inventory is down 17%, excluding snowmobiles. You will recall we planned for fewer shipments of snowmobiles later in the year to help address elevated inventory in the channel due to too bad snowfall seasons. Margins were pressured by negative mix, incentive comp, and elevated promotions. However, we're seeing real progress from our lean and quality initiatives. The team is building on the incredible efforts that started last year, and for 2025, we are on track to deliver an incremental $40 million in operational efficiencies. Additionally, the continued focus on quality has led to lower warranty costs in the quarter, and we expect these efforts to provide a benefit for the full year. Adjusted EPS came in at $0.40, which was down year over year, but well ahead of last year's of the latest consensus expectations. Our decision today to not reinstate full-year guidance stems from the fact that there remains an abundance of uncertainty around tariffs and the potential impact on consumer spending. We continue to actively monitor developments and will reevaluate our decision on providing full-year guidance once we have greater clarity. Like last quarter, we've decided to provide more assumptions for the business in the third quarter, which Bob will walk through shortly. That said, our commitment to navigating these challenges and positioning Polaris for long-term success remains unchanged. Retail was flat year-over-year in Q2, driven by growth in Ranger, Crossover, and India Motorcycle. In utility, ATV was flat, while Ranger sought mid-single-digit growth. In recreation, Crossover vehicles grew mid-single digits, although Razor was down mid-single digits. In the crossover segment, the Polaris Expedition has been a standout story since it launched a little over two years ago. It has helped us grow our crossover market share from under 35% pre-pandemic to about 55% today. That's one of the biggest share shifts in ORV in over five years, and it underscores the power of innovation. We gained share across all segments during the quarter, including ORV, despite aggressive promotions from other OEMs. We always said these aggressive promotions would likely be a short-term issue, and we believe we remain well positioned to gain back share with our innovative product line across ORV once industry levels normalize and industry retail stabilizes. In on-road, Indian motorcycles gain multiple market share points, especially in the heavyweight category aided by the launch of our Power Plus lineup earlier this year. Marine also gained share driven by our new entry-level Bennington pontoon, which has resonated well with non-cash buyers, as well as our all-new M-Series Bennington, which has performed well with more luxury-oriented buyers. We also wrapped up our annual dealer survey with over 800 participants. The key takeaways are dealers are largely comfortable with their Polaris inventory. They want us to stay focused on innovation as it drives traffic and share, and uncertainty remains high, which is impacting their willingness to order more inventory. We're listening, we're staying close to our dealers, supporting them through the downturn, and preparing for an eventual market rebound. Turning to tariffs, the landscape continues to change at a rapid pace. Consistent with our April call, we want to provide you with a snapshot of the impact given current tariffs in effect. The biggest change from what we spoke about in April would be the tariff on our China spend. This all-in rate is currently at approximately 55%, which is lower than the 170% that was in place in April. That alone reduces our expected 2025 tariff impact by over $150 million. While this reduction was welcome, we still believe the current tariff structure puts us at a competitive disadvantage given our heavier U.S. manufacturing footprint versus competitors that also source from China, but manufacture in countries like Mexico or Japan. For tariffs that have been enacted, we now expect full-year gross tariff costs of $180 to $200 million, with less than $100 million in incremental tariffs hitting the P&L this year after mitigation and inventory deferrals. That's $125 million lower than our April estimate. These amounts exclude potential impacts from tariffs that have not yet been enacted. This remains a fluid situation, and we are already implementing actions that can reduce our tariff exposure over the short and long term through our four-prong mitigation strategy as we continue to reevaluate our supply chain, manufacturing footprint, pricing, and market priorities. These are tough decisions, but we're making, we're taking a data-driven approach to protect our long-term competitiveness and profitability. Our proactive approach is already proving successful as we expect to have relief from most of these new tariffs over the next couple of years. We're targeting to reduce source parts from China to the U.S. by 35 percent by year-end, which is slightly higher than what we had initially thought as the teams have identified even more opportunities to reduce exposure. Of this amount, almost half is already complete with parts sourced from different regions being received at our plants. Further, the team expects to have a transition plan for 80 percent of our China-sourced parts by the end of the year. The timing of the actual moves is still being determined, but the progress here is real with the goal of creating a supply chain with minimal tariff exposure relative to today. We have also negotiated with suppliers to mitigate pass-through costs, saving over $10 million to date through our efforts. I'm confident in our tariff mitigation strategy and execution to date. I also remain confident that we're taking the appropriate actions to drive our long-term strategy to increase shareholder value. Over the short term, we will continue to take a prudent approach to our cost structure as we position Polaris for market recovery. Given our cash preservation playbook, we will be thoughtful about evaluating discretionary spend and capex over the near term, and we'll focus on maximizing our cash generation. Our approach is proving to be successful as we cut inventory and generated approximately $290 million in free cash flow in the second quarter. Share gains and innovation are helping drive sales performance above industry results. Our focus on lean is driving tangible results within our plants, which should translate into greater earnings power. When the power sports cycle begins to improve, we believe Polaris will be in an even stronger position at the dealership, with higher margins and greater earnings power. Ultimately, the goal remains to generate above-average returns for shareholders, and we believe we are taking the appropriate steps to meet this goal. I'm now going to turn it over to Bob to provide you with more details on the financials. Bob?

Thanks, Mike, and good morning or afternoon to everyone on the call today. Second quarter adjusted sales declined 6%, primarily due to planned shipment reductions and elevated promotional activity. However, results exceeded our expectations, driven by higher-than-anticipated shipments in off-road. International sales were down 5%, reflecting similar dynamics. PG&A sales declined 1%, impacted by lower whole goods shipments, partially offset by strength in parts and oil. Gross margin was pressured across all segments due to unfavorable mix and heightened promotions, particularly in off-road, though we saw some benefit from ongoing manufacturing efficiencies. We also had incremental tarot costs of $10 million hit the P&L in the quarter, which was within our anticipated range. Adjusted EBITDA margin also faced headwinds from incentive compensation. As you saw in our press release this morning, we recognized a non-cash goodwill impairment charge during the quarter associated with our on-road segment due to the continued decline in financial performance and prolonged deterioration of industry conditions. We also had an impairment related to a strategic investment recorded in other expense. Within the quarter, we generated $320 million in operating cash flow, supported by continued focus on reducing networking capital, especially inventory. This marks the highest second quarter of operating cash flow since the height of the pandemic in 2020. This translated into approximately $290 million in free cash flow for the quarter, a testament to the strength of our recessionary playbook. Off-road sales declined 8%, driven by lower whole goods volume and increased promotions. Industry-wide dealer inventory levels improved during the quarter, suggesting a potential return to healthier inventory positions. Our data shows all OEMs except one now have DSOs below 140 days, compared to three OEMs above that threshold last quarter. Polaris DSOs remain around 110 days, well below historical norms, reinforcing our confidence in our positioning. Gross margin declined 55 basis points due to mix and promotions, with the lower year-over-year mix within the side-by-side shipments. Operational efficiencies and lean initiatives continued to support margins, and warranty expense remained a tailwind, where we continue to see an improvement in model year 2025 claims as a result of our commitment to quality. Moving to on-road, sales during the quarter were down 1%, driven by ongoing softness within our slingshot business. This was partially offset by mid-single-digit sales growth in Indian motorcycle. Adjusted gross profit margin was down 83 basis points, driven by a year-over-year mixed headwind within our European EXIM business. In marine, sales were up 16%, driven by positive shipments of new boats, including the new entry-level Bennington pontoon. Recent SSI data reflects share gains for our pontoon brands in the second quarter, supported by our competitive positioning in the entry level of the premium segment. However, the broader marine industry continues to face pressure from elevated interest rates and macroeconomic uncertainty. Gross profit margin declined due to unfavorable operational expenses and negative mix in the quarter. Moving to our financial position, we generated approximately $320 million in operating cash flow this quarter, translating into $289 million of free cash flow. Much of this was derived from a focused effort to reduce working capital, including an initiative to lower inventory at our plants, given our ability to operate more efficiently today versus a year ago. We remain committed to our recessionary strategy until economic policy and demand stabilizes. In June, we proactively amended our existing credit facility and prepaid senior notes via revolving loans. The amendment extends the maturity of our $400 million, 364-day term loan and provides a covenant relief period to allow incremental flexibility in this dynamic environment. We intend to be prudent with capital until we return to a more predictable environment. This approach includes the ability to continue the normal payout of our dividend, which the board will review later this week. We also have approximately a billion dollars of liquidity available through our revolver. Our net leverage ratio ended the quarter at 3.1 times EBITDA, and we believe the additional flexibility allowed under our amended credit facility mitigates downside risk. With the strong free cash flow generation year-to-date and enhanced financial flexibility, we are well positioned to emerge stronger from this prolonged downturn. As with our April call, we are not providing formal guidance, but will share key planning assumptions. First, we expect third quarter sales to be between $1.6 and $1.8 billion. We are planning on fewer shipments and net pricing to be neutral year over year with price offsetting promotions. Retail is expected to be flattish year over year. We estimate the P&L impact of incremental new tariffs to be between $30 to $40 million net of inventory deferrals. We estimate this level of tariffs to be a fairly accurate run rate going forward from enacted tariffs and deferrals from the first half of this year. Again, this assumes no change in current enacted tariff policy or mitigation efforts as of Due to tariff impacts and the incentive compensation headwind, we do expect adjusted EPS for the third quarter will be negative. We continue to believe the ultimate impact on the consumer from these tariffs is not known and thus we remain hesitant to provide longer-term guidance until we have a clearer picture. In closing, while the macroeconomic environment remains uncertain, our disciplined execution, strong cash flow generation, and proactive financial management position us well to navigate the current challenges. We remain focused on operational efficiency, maintaining a healthy balance sheet, customer-driven innovation, and supporting our dealer network as we prepare for a return to more stable market conditions. Our long-term strategy remains intact, and we are confident in our ability to emerge stronger and deliver value for our shareholders over time. With that, I'll turn it back over to Mike to talk about a new product launch and wrap up the call.

Go ahead, Mike. Thanks, Bob. Before I wrap up our prepared remarks and move to Q&A, I'm excited to share details around a new product that is launching later today. You've heard me talk about the opportunity that exists for us in the entry and value segment for our products. We're incredibly proud of the home runs we've delivered in the premium space, vehicles like Polaris Expedition, the Ranger XD1500, North Star Editions, and the Razor Pro-R. However, we also recognize the opportunities that exist in the entry or value space and have been focused on expanding our vehicle portfolio to better meet the needs of customers we are not currently reaching. There's a segment of customers that want the quality, the dealership service, the brand leadership that Polaris offers, but we're not at the right price level for them. Later today, we're launching the Polaris Ranger 500. We believe this is the right product at the right price to address a customer base that makes up approximately 50% of all utility vehicle purchases. We expect the new Ranger 500 will allow Polaris to capture more volume and share, as there are many potential buyers of side-by-sides that are looking to unlock the value between fund and productivity at a lower price, and we believe we have the right product here. Starting at $9,999, the Ranger 500 is built for customers who are looking for a vehicle that has the features needed to get more done around their yard or property while being easy to use and easy to own, as we expect these customers will be newer to the ORV ownership experience. And we're designing it all at a more accessible price point. It comes standard with 1,500 pounds of towing capacity, a 300-pound gas-assist dump box, a 2,500-pound winch, and over 30 accessory options. Dealers who have previewed it are excited about the customer acquisition potential. We'll begin shipping in just a few weeks. This launch adds to the most innovative and updated product portfolio on dealers' floors. We made this innovation leadership commitment to you in 2022 and have continued to deliver year after year. We plan to stay on the offense to deliver rider-driven innovation and the best customer experience in the industry. Now, let me close with this. We're doing a great job controlling what we can control. Dealer inventory is largely within our control, and the vast majority of our product lines are in a healthier place versus last year and aligned with demand. Innovation is alive and well, as demonstrated by our share gains in the quarter. The Ranger 500 is an exciting new launch for us, and if dealer feedback on the vehicle is any sign, we believe the Ranger 500 will be a big success story for us. Plus, there's more to come on the innovation front. We're on track to deliver $40 million in operational efficiencies this year. Approximately half of that has already been achieved through deeper penetration of lean at our factories as well as other initiatives. On tariffs, we are executing on our mitigation strategy and not only taking costs out this year, but creating a transition plan for the majority of our China spend to further reduce our exposure to tariffs. When the power sports market recovers, and we believe it will, the work we've done will shine through. I've never seen our plants run this efficiently, and we know there's more improvements to be done. Our innovation calendar is packed, our dealer relationships are strong, and our culture is resilient. Altogether, we believe this is a recipe for unlocking long-term value for our shareholders through higher sales growth, greater earnings power, and stronger returns. We appreciate your continued support, and with that, I'll turn the call back over to Gary to open up the line for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. if you are using a speakerphone please pick up your handset before pressing the keys to withdraw your question please press star then two at this time we will pause momentarily to assemble our roster our first question is from craig kennison with baird please go ahead hey good morning a question on usmca it feels like you're aligning for a new world order for global supply chains that is less dependent on China and more optimized for USMCA.

But USMCA is subject to renegotiation too. So I'm curious how you are preparing for those scenarios and what might be the optimal scenario for Polaris?

Yeah, thanks, Craig. Yeah, you know, look, there's still a lot of trade deals to be negotiated. And we are aware of, you know, USMCA potentially being one that could go through a phase that I think all parties have to align on what those changes could be. At the end of the day, the China tariff rate is likely to be the highest, at least based on the rhetoric we've heard from the administration. And so while we're still incurring tariffs from other countries that we may source from, China is obviously the highest. And so, you know, we've ramped up our efforts to continue to pull that level of sourcing down. Sometimes we're working with existing Chinese suppliers who are moving to different locations or just migrating to new suppliers. We do have a pretty heavy push to try and get sourcing back to either the U.S. or Mexico because we know that under a USMCA environment, that's probably going to be the most advantageous. And I would tell you that we are probably positioned better than any of our competitors with regards to that, because we do have a nice manufacturing footprint in Mexico, but we also have a nice manufacturing footprint in the U.S. with Rozo, Huntsville, and Spirit Lake. And so, you know, it gives us the ability to flex volume between the two, depending on the tariff regime, and if they end up aligning USMCA to have an inbound tariff against China or any of the other countries for any inbound materials that would go into, say, Mexico. I think the good news is, you know, we've got a team that's been going through and running the scenarios. You know, we've got alignment, as I talked about in my prepared remarks. We've taken quite a bit of exposure out. We've also been working directly with our suppliers to get short-term relief on pass-through as well as with migration of their production out of places like China. And I think the real message is, you know, we're agile and we're prepared and we can react. I think we've demonstrated that. We've been able to pull our exposures down pretty quickly. You know, quite frankly, I'd rather have the teams focused on some of the other things that we're seeing value created from in the business. But the reality is, you know, we're able to do those and deal with these tariff exposures at the same time. So we think we're positioned well, and we're going to continue to stay close to it. We've got a great government relations team. We spend a lot of time interacting with the administration. And so, you know, as we see things developing, we can pivot pretty quickly.

Yeah, Craig, I mean, it's, you know, as we look at, as we look at these parts, as Mike said, where obviously our first focus is on the parts that come from China into the U.S., but, you know, a lot of those same suppliers supply parts that go to Mexico for other types of vehicles. And so as we develop that supply base to take those Chinese parts that are coming to the U.S., we're developing that supply base for the future also, which I think positions us well if USMCA, the targets in USMCA change, or as Mike says, there's some kind of tariff regime that gets applied on Chinese parts in Mexico. The other thing we're doing is, you know, just given the posture of the administration, as we look at new products, you know, we're pushing for a higher level of USMCA content than the current regulation, just because, you know, if it's going to go a direction, it's likely to go up, not down. And so, you know, we're also making sure that we're planning for the future as we develop new products.

That's really helpful. If I could sneak in a follow-up, Just looking at the Ranger 500 you just announced, I'm curious, do you think you can win at lower price points given, you know, the current trade policy and the impact on your cost structure relative to competitors at lower prices?

Yeah, in fact, we are making a higher margin on this Ranger than the one that it essentially replaces. The Ranger 570 just wasn't the vehicle that these customers wanted. It was too high a price. It didn't look good, didn't have the features. And so we put a small team together, told them they had to innovate this quickly, and they did an excellent job. And they, you know, used some technologies we've used in the past, and they found a way to get this vehicle at the price point that we think is going to be very successful at the dealership. We previewed this with our dealer council, which is essentially representatives from across the dealer network that Bob and I meet with every few months. And we brought the vehicle in, let them walk around it, and they basically said, look, you guys, this is going to be a home run. We've got a lot of customers that come in and buy cheap vehicles that really want a Polaris, but it's too high of a price point. We're making the vehicle down at our Monterey facility. So at this point, it really isn't carrying the drag of tariffs. And obviously, you know, we're working that supply chain hard in the event that USMCA regulations change so that we can make sure that we continue to qualify. So, you know, it's a big market. It's 50 percent of the utility market. And we know that not all these customers are going to migrate up, but a good portion of them are going to eventually start to move into the 1,000, the XP, 1,000, or North Star. And these are customers we want to bring into the family. So we're really excited about it. The PG&A offering of 30 accessories also provides margin uplift for us and for the dealers as customers get comfortable with the vehicle and start putting more accessories on it.

Yeah, and Craig, if you think about it, you know, a lot of these competitive products that fall in this category are made either in China or Vietnam. And so, you know, they're going to be subject to a fairly heavy tariff. So that's going to, I think, change the dynamic at the lower end of the market, at least for a while. And, you know, a lot of those companies don't offer a lot of dealership service. And so I think we'll be the first OEM to deliver, you know, a really good product in this price range with backed by accessories, service, dealer, warranty, all those good things. So, you know, we're excited about the opportunity and look forward to how that rolls out.

Great. Thank you.

Thanks, Greg. Excuse me. The next question is from Noah Zetskin with KeyBank Capital Markets. Please go ahead.

Hi. Thanks for taking my questions. I guess first, maybe not to find a point on it, but I think guidance implies roughly $50 million tariff impact in the fourth quarter. So just trying to think through kind of the run rate as we look out to next year, you know, is it as simple as kind of multiplying that by four? Or I know there are some deferrals as well embedded in 3Q. So just trying to think through how you're thinking about the annualized tariff impact next year and understand that you're still doing work around the China piece of the supply chain.

Yeah, I'll let Bob get into some of the details. We think, you know, inclusive of the 301 tariff, we think we're probably around $230 million on an annualized basis. Now, I've recognized that that number would have been probably north of $300 without the mitigation efforts. And what I would tell you is that we're not done. We're still working on that $230 million to bring it down. And it's all the things that we put on the page, you know, everything from the sourcing location to working with our suppliers. We are not giving up on our efforts with the administration, albeit we haven't made much progress. but we've met with everybody from the Department of Commerce to USTR to the economic advisor for President Trump. So we're going to continue to advocate for ourselves to see what we can do. But, you know, we're working that number hard. And, you know, we're committed to getting it below that 230 million.

Yeah. So, Noah, the way I would think about it, you know, we talked about a run rate of 30 to 40 million in Q3, and that that's, you know, relatively accurate as an ongoing run rate, you know, Q3 is a little bit of a tougher calculation because you've got some stuff that's at the higher tariff rates that came in in Q2 that'll roll in in Q3, and, you know, and then obviously the tariff rates moved in the quarter. So, you know, I think if you think about a run rate of 40, you're going to be pretty close, and obviously that's subject to, you know, new tariffs coming in. The new European tariff won't have any major impact, at least as we look at it right now, but obviously we can't contemplate really what else is going to happen, and it also doesn't include any further mitigations. The one thing I would caution you on if you look at slide five, you know, you can't just take the previous version of that slide and this version of that slide and kind of back solve the volume coming out of China because, you know, in the current slide, that $60 million to $70 million includes some carryover that's from the higher.

Got it. That's really helpful. And maybe just one more, you know, obviously you made some comments around maybe you guys being more impacted than some of your competitors in terms of tariffs. And maybe part of it is the Ranger 500 offering, but could you kind of talk about how you're thinking about maybe offsetting some of that pressure, whether it's price or just how you're thinking about staying competitive there?

Yeah, I mean, I think, look, it's all the things we've talked about. I mean, we know we're not in a strong industry right now, so price is not a big lever. I will tell you some of our competitors have done things like tariff surcharges, which we are not going to do. We're likely to see, you know, price increases that would be more typical as you see model year changeover. You know, think low single digits, very low single digits. and you know the reality is we've got the ability to flex production between you know the U.S. and Mexico where we need to and you know we're not going to do anything significant long term at this point because there's too much trade policy up in the air so we need a little bit more stability around exactly what the ground rules are before we start you know making any decisions but But, you know, we'll keep working with our suppliers. You know, we'll obviously keep working the administration to see if we can get some relief for, you know, the largest and really only U.S. power sports player. And, you know, ultimately, at the end of the day, what's going to win is innovation. And that's what I think we're proving right now. You know, we've got the most innovative product lineup in power sports across the board. And, you know, even the second largest competitor in the industry is working hard to try and catch up to us. And when you look at what we've done with the XD-1500, you look at what we've done with the Pro-R, you look at what we've done with Polaris Expedition. We have products in categories that our competitors aren't even present. And so they've got to spend a lot of time catching up. And so we're going to press that advantage and continue to gain share and work to make customers happy with the best product on the market. Thank you.

Thanks. The next question is from Joe Altobello with Raymond James. Please go ahead.

Good morning. I guess first on retail, could you speak to what you saw in terms of the cadence throughout the quarter and what you're seeing here in July? We get the sense in talking to our dealer checks that it was fairly volatile from quarter to quarter, so I'm curious what you guys saw from month to month.

Yeah, when we take youth and snow out of our ORV business, it was actually up all three months. Granted, it did move around, and we've seen that performance continue into July. So the utility segment is obviously holding up the strongest. On the rec side, you know, as I talked about my prepared remarks, Expedition continues to perform really well. Razor has bounced around a little bit more. The good news is we continue to see the evidence that our customers are using those vehicles in terms of repair order activity, miles ridden, consumables like oil and tires. And we know from the survey that I referenced in the last earnings call that, you know, while they are using the vehicles, they are just not ready to drop back into the market yet. I think if we were to see some broader economic stability, and I think as these trade policies get set, that's helping, as well as we start to see interest rates move, I think you're going to see these customers start to move off the sidelines. They've had these vehicles for a long time, and that's why we're making sure that we're prepared with the right inventory at the right location at the right time. So, you know, at this point, we feel good. We feel like retail has started to stabilize, I guess, would be the way I would articulate it. But, you know, there's still a lot of uncertainty in terms of what are the trade deals going to ultimately do from an economic standpoint. It certainly feels like people are getting more optimistic than pessimistic. And it's also going to be dependent on what we see happen from an interest rate perspective. So, you know, as both Bob and I indicated, we're not prepared to go out and give guidance at this point because we still have those two variables moving around, and they're obviously very closely linked.

And once we start to get a little bit more clarity, I think we can start to give a little bit more forward guidance around where we see retail going. one yeah one thing to keep in mind joe as you get into q3 um you're into model year changeover for most of the manufacturers too you know it makes q3 retail tends to be a little bit lumpy you know it'll it'll it'll go up and down just because you got customers some customers are waiting on new model year stuff that's been announced other customers are trying to get deals on old model year so uh q3 is always a little bit more volatile from a retail standpoint but inventory is pretty clean in the channel.

Well, that was my next question. So you've got a cleaner channel from a competitive standpoint. You've got to model your changeover. So are you starting to see some easing on the promo front, or are your competitors still pretty aggressive?

A little bit. But consumers are still looking for a deal. I think interest rates being high doesn't help. You know, while we do see promo easing a bit in the second half, I don't think it's going to be anything significant. You know, I think aside from the fact that we've got the best product out in the market, it is helpful that many of our competitors have started to draw that dealer inventory down. I would tell you that we still have one bad actor out there that, you know, that while they are better than where they have been, they are still high. Frankly, they're higher on a DSO basis than we or BRP or any of the others were at the worst point. So while they have improved, they still are high. And, you know, obviously, they'll have to contend with that with the dealer base. I think the dealers, given that, you know, we and the other large player in the industry have gotten our dealer inventory levels down to a very respectable level. I think that's putting a lot of pressure on primarily the Japanese OEMs to get their inventory levels down to, you know, give the dealers some breathing room.

Got it. Okay, thank you.

The next question is from James Hardiman with Citigroup. Please go ahead.

This is Sean Wagner. I'm for James. I guess, can you help us bridge last year's 2Q with this year's? retail was flat but eps down almost a dollar how much of that was under shipping the channel which um would in theory return next year if you guys are feeling good about where your inventory stand which it seems like you do um and then how much has increased promo or pricing differences or other factors yeah so i can give you a little bit of color um q2 versus q2 last year from a profitability standpoint uh mix was was a headwind um last year we were we were still having channel fill on expeditions and XDs and Northstar.

So that went against us a little bit. You know, promo, really the elevated promo started really in the second half of last So Q2, there's some promo headwind. Incentive comp, which we've talked about. Tariffs, you know, was $10 million in the quarter. I said that earlier. You know, on the plus side, our operations performance continued to improve. Our warranty rates are coming down, and we're seeing really good benefit from that and also, you know, much better customer satisfaction as the focus we've put on quality the last few years really starts to play through. And then a little bit of benefit from flooring. You know, we had a lot more dealer inventory last year. I mean, we did do some extended flooring in Q3, Q4 last year, but we'll start to lap that. And with dealer inventory down, we got some benefit of that in Q2, and we'll have a little more as the year progresses. Those are the big pieces.

I guess to piggyback off that, how should we think about 3Q margins?

You've given us the tariff headwind there, but I guess how should we think about the other moving parts? yeah i mean obviously we're not giving guidance but um you know i think uh the the big things i mean tariff is is a is a big driver um relative to to last year um you know price promos relatively flat uh a little bit probably better warranty um and better operations performance so kind of a continuation of the story, um, really from, from Q2.

Well, and the other thing to keep in mind, if you remember last year, we, uh, we cut our, our, what we call our bonus and profit share program, uh, which goes across the entire company. And so we started picking up benefits in the third quarter of last year. And that program is being funded at full value, uh, given the execution that teams, uh, been realizing this year. So that's going to create a little bit of the headwind from a margin standpoint as well.

Okay. And I guess just to take you back and off, I think you mentioned that promo should be improving in the back half. At some point, does it even out year over year and ultimately become a tailwind? Or I guess when do you expect that to happen?

Well, I mean, it's tough to say. I mean, it really depends on, you know, what happens with interest rates. I mean, we're spending, you know, a fair amount of money doing interest rate buy-downs. The flooring costs are tied to interest rates, so the flooring period that we've got product out there. And then ultimately, consumer demand is obviously tracking with what's going on with trade policy and some of the broader economic stuff. And when you look at some of the stats that have been coming out lately relative to home sales as well as capital goods being purchased by businesses, they would indicate a little bit of a slowdown. And we know that, you know, if the economy starts to slow, people may start to back off. But, you know, at this point, it's tough to predict where all that's going to go. You know, I'd like to be optimistic that as these trade deals get done and if the Fed were to make an interest rate move, I think that that would bolster confidence in the broader economic. And I think that could bode well for us. But at this point, it's difficult to predict, which is why we're not guiding.

Yeah, I think the thing that's changed and will continue to impact the industry is last year and even earlier this year, a lot of the promo spend, particularly last year, was targeted at, you know, inventory clearance. And, you know, as we move into Q3, as we said earlier, most of the manufacturers have relatively cleaned up their inventory. And so, you know, there's less inventory clearing promo out there, and the promo spend that everyone has in the market is targeted more at moving retail. So, you know, if retail stays solid, interest rates come down, you know, there could be an opportunity there, but I think it's way too early to call that ball because there's a lot of factors that aren't in our control and are really unknown at this point.

Okay. Makes sense. Thanks, guys.

The next question is from Tristan Thomas-Martin with BMO Capital Markets. Please go ahead.

Mike, I know you called out the Ranger 500 having a better margin profile than the 570 it replaced. How should we think about the 500 margin profile relative to some of your more premium products?

Well, I mean, look, it's not going to be as high as our more premium products. I mean, you think about a North Star Edition, you know, XD-1500, that's got every bell whistle. and quite frankly, you're not going to be able to make that kind of margin on a product at this category, but it is a very good respectable margin, and we think it's not going to be an overwhelming portion of the product portfolio, and quite frankly, it's customer acquisition, so we bring these people in, and they create significant lifetime value over the timeframe of the product, and frankly, these are sales that we weren't getting most likely before, and we think it's going to become a big competitive issue for some of the cheaper players that come out of Asia.

Okay, got it. And then just switching to Marine really quickly, pretty big kind of delta between kind of sales and shipment performance relative to retail. And we've kind of consistently heard that entry level is still weak. So if dealers are ordering some of your more entry-level products, are they seeing any signs of improvement at that price point, or are they restocking anticipated improvement at the entry level?

Well, I mean, there's a couple things. One is, you know, we've got that price-protected lower-end boat that it is selling well, you know, and it's enabling dealers to move it at those, you know, lower price points. And then we've also got new products. You know, we launched a number of new boats across the lineup, the Bennington M-Series, the Hurricane 3200 deck boat, the Hurricane 24-foot center console, and dealers have ordered those because they see, you know, a path to be able to retail or they're retailing them as we speak. The thing I'd also remind you is we spent two years – we were well ahead of the other marine players getting our dealer inventory healthy. And so some of it is just the year-over-year compare dynamics that you're seeing relative to our business versus the broader industry.

Great.

Thank you. Thanks. The next question is from Alex Perry with Bank of America. Please go ahead.

Hi. Thanks for taking my questions here. I guess first, just to start, can you talk through the share dynamics in on-road with Indian Motorcycles, a low double-digit percent versus industry-download teens? What do you think is driving that? And any particular color on certain segments within the on-road business, if it's your more value-oriented units that are outperforming, would be super helpful.

Yeah. Look, with Indian, I think it's pretty simple. I mean, we've got an excellent product. The Power Plus was a home run. The next, you know, the largest player in the industry really doesn't have that entry-level bike like we do with the Scout lineup. And those, you know, I think those two coupled together has really put us in a strong competitive position. Obviously, they are also distracted with some other issues that have been going on with their business. So that certainly doesn't help them. But I'm going to give the credit to the team. You know, we've built the best distribution both in North America but also globally, and we have the best product on the market, everything from the entry-level, you know, Scout Series to our heavyweight bikes. And I think that's what's winning in the marketplace right now.

Really helpful. And then just a follow-up on the ORV retail trend. So pretty significant improvement there, up 1% versus the down 11 last quarter. and pretty significant improvement in utility. Is it fair to say we're, you know, moving off the bottom of the cycle? How much of it was sort of promo versus the easier comps versus, you know, organic? And then as we look at 2H retail, any color on sort of how you're thinking about that by segment? Is it, you know, fair to assume that sort of ORB and on-road are expected to outperform? Thank you.

Yeah. I mean, look, I don't want to necessarily get into trying to predict forward. I mean, we clearly have some internal assumptions, but, you know, we're not providing forward guidance because of the uncertainty out there. You know, it's tough to say if we're seeing things stabilize. It's certainly less volatile than it has been. The utility segment has continued to hold up quite well. You know, we saw that pretty consistently through the second quarter. We are seeing that continue through July. And so we're happy with that. And, you know, we're really keeping an eye on the rec space specifically around the razor business as well as the marine portfolio. You know, those are higher ticket price items, and consumers are, you know, really just reluctant to go spend right now unless they really need to or they're fortunate enough to have the financial flexibility to do that. And so I think it's going to take a few things happening over the next, you know, whether that's two quarters, four quarters, not entirely sure. But the good news is the utility segment holding up well. We just added, obviously, with the new Ranger 500, we just added another weapon in the arsenal for that category. And so we feel good about it.

One dynamic for everybody to keep in mind is, you know, youth, our youth business has been kind of volatile. We had previously made youth product in high-tariff markets, and so we're in the process of moving that, which has impacted supply, which we'll get sorted out before we get to the holiday season, but it has created a little bit of a noisy dynamic in youth, depending on what inventory positions are. So that will probably continue through Q3. Not a big driver of profitability, obviously, but it's in the math.

Perfect. That's incredibly helpful. Best of luck moving forward.

The next question is from David McGregor with Longbow Research. Please go ahead.

Hey, good morning. This is Joe Nolan on for David. You just talked about the share gains. Good. Yeah, you just talked about the share gains in on-road, but you also saw share gains in ORB despite the heavy promotional environment. Just was hoping you could talk about some of the factors driving those gains. And you also mentioned competitors implementing some tariff surcharges. Does that also play a factor in maybe expecting some expected share gains in the second half of the year as well?

Yeah, look, I think there were a few factors. I think one, you know, as I talked about in my prepared remarks, you know, the competitive set has started to get inventory in a better spot. So, you know, that levels the playing field a little bit. But, you know, I think the reality is when you look at where we're seeing strength in our business, Polaris Expedition, Ranger 1500, nobody has a product to compete with that, and they're great products, and customers love them. And so, you know, as I mentioned in my prepared remarks, we've taken that crossover segment from just under 35% share up over 55%, and so that certainly helps. But even in the Ranger core lineup where we have North Star, we're seeing strength there in that utility segment, And we've got a superior product customers want, and so we continue to see success from a retail standpoint. You know, I think on the tariff surcharge, you know, that certainly isn't going to help some of our competitors who are doing that. But quite frankly, where they're doing it, I don't know that I would say they've got an overly competitive product to what we have anyway.

Yeah, I mean, it's a little bit – the math gets complicated because people are putting tariff surcharges on and then promoing them back out. So I'm not sure what the real impact is or what that strategy is going to get anyone. But, you know, like Mike said, I don't know that it's on products that are going to have a big impact on what we're doing. We just continue to see really good strength in the utility side of the business. And, you know, and hopefully REC is starting to – will start to level out. You know, we've seen a little bit better performance on REC. We're certainly not ready to call a bottom, but it would be good to see that market just get flat for a few quarters and see if we can get that going again.

Yeah, okay. That's helpful detail. And then mix with a bad guy in the quarter against a tough year ago compare, facing some channel load for Expedition and other products. Just how should we think about mix into the second half?

Mix will be flat to up a little bit. You know, it's a little hard to say right now. But, you know, I don't think it will continue to be as much of a headwind. You know, we were lapping, kind of filling the channel on some of those bigger products. And, you know, we continue to see good, strong performance really across the line in the North Star versions. And so if that continues, you know, that usually provides some positive mix. But we won't be lapping the channel fill anymore because by Q3 last year we had all that.

Okay, great. Thank you, guys.

The next question is from Scott Stember with Roth. Please go ahead.

Good morning, and thanks for taking my questions. Yeah, on tariffs, it doesn't sound like the second quarter had, you know, all that much in there. But turning to – you talked about the third quarter having negative EPS. Is that strictly driven by the full boat run rate of tariffs coming through, or is there something else in the cost side or in the revenue side that would drive that?

Well, a couple things. So, yes, I mean, you know, we said $30 million to $40 million of impact kind of run rate for tariffs. In Q2, it was $10 million, so that's certainly part of it. But, you know, in terms of headwinds, you know, if you look at the center of the – or the midpoint of the guidance for revenue, you know, that would have us down about $150 million relative to Q2. And that's just, you know, the cycle of inventory and not wanting to get ahead on dealer inventory. So, you know, obviously that will have an impact depending on where that lands, you know, in that range. You know, most of the other factors are relatively flat, not hugely impactful. And we'll continue to see better performance on ops and warranty like we have through the quarter or through the last couple quarters.

And then just last, on the consumer credit side, are you seeing any tightening of lending or any deterioration of credit through your lending, you know, arrangements that you have?

No, not really. I mean, credit continues to be a challenge. You know, consumers are – they struggle a little bit in terms of debt-to-income and cash flow is what the lenders are really focused on. But availability of credit has been good, and, you know, we're getting good penetration. Rates haven't really changed in terms of, you know, our financing rates relative to approvals. Write-offs kind of peaked last year and have been relatively stable this year in the industry. So, you know, that feels good. What we really need is for rates to come down. And, you know, that's the biggest thing, and that will help us because it will help our buy-downs, lower the overall rate of financing. One thing I wanted to add to my previous answer is you also have, if you're thinking year over year in Q3, you've got the impact of incentive comp and there's a little more incentive comp in Q3 than there was in Q2 so that's another one of those dynamics.

Could you quantify how much that would be in the third or fourth quarter the comp?

No but the run rate will be just a little bit higher than it was it won't be dramatic the more dramatic is you over the year.

Thanks so much Thanks This concludes our question and answer session and the conference is also also now concluded. Thank you for attending today's presentation. You may now disconnect.