All right, good morning, everyone. Thank you for joining us. I'm Joe Altebello, Leisure Equity Research Analyst here at Raymond James. I'm very pleased to introduce our next presentation, our first presentation in the morning, Polaris. With us today, we have CEO Mike Spietzen and CFO Bob Mack. Welcome, gentlemen. Polaris is a leader in the power sports and marine industries with a presence in off-road vehicles and snowmobiles, as well as pontoon and deck boats, though it recently divested its Indian motorcycle business. The past few years have been challenging for both the company and the industry. It's how to navigate softening post-COVID demand, heightened dealer inventories, and very meaningful tariff headwinds. Before we dive into a fireside chat, I believe Mike has some slides he'd like to go over, and after that, we'll go into Q&A. With that, I'll hand things over to Mike.
Well, thanks, Joe. I wanted to do a few things this morning. I wanted to talk to you a little bit about leadership in power sports, the things that we're doing to improve the company. We're also introducing new segments now with the divestiture of Indian Motorcycle and we're going to be revising our guidance up slightly given a closing of Indian ahead of what our original schedule was. For those of you who are new to the player's story, just a little bit of who we are, we're number one in power sports, number one in off-road, number one in pontoon and deck boats, and then number two in snowmobiles, although I'd argue we're going to be doing our best to get back to number one in that category. We talk a lot about being the leader in power sports, and that's not just market share. As the leader, it's incumbent upon us to set the tone and the example, and we've done that from an innovation standpoint. You can see since 23, we've introduced 40 new vehicles, and we've also registered 800-plus patents. And so I think that really demonstrates our commitment to the category, and doing so in a pretty difficult time period with de-stocking and slowing in the industry. We operate through 3,300 dealers in North America and a similar set internationally, and we have 16 manufacturing facilities. Our primary manufacturing facilities are Monterey, Mexico, Huntsville, Alabama, and Rozo, Minnesota, as well as Poland for off-road vehicles. We're introducing new segments. It will not come as a surprise with the divestiture of India Motorcycle. We've essentially dissolved the on-road segment. Three segments are going to be Polaris Power Sports, Marine, and then Exum Gupil. Polaris Power Sports, maybe just a little context. The reason we set this structure up is we started with who our customer is, what they buy, and where they buy it. And so essentially our channel really informed how we wanted to structure the company. So, when you look at Polaris Power Sports, you now have off-road vehicles. You have seasonal, which is snow and slingshot. You've got our commercial business, where we sell rangers into the largest provider to our rental companies like United and Sunbelt. Our government defense business, as well as our parts, garments, and accessories. Then in our marine portfolio, we obviously have Bennington, Godfrey, and Hurricane. And then Exim and Goupil, which are probably new to some of you, are a small vehicle business that was acquired some time ago over in Europe. Exim is small transportation vehicles. They look like tiny cars. And then Goupil is small light-duty trucks used by grocery companies like Picnic, for example, for delivery in really small, confined areas. You can see the revenue breakdown. I mean, obviously, PowerSports makes up the bulk of the company. It's really the way we've organized ourselves. When you think about Polaris Inc. and the corporate, it's very small now. We have pushed our resources down into each one of the segments. That's not to say that there aren't things that reach across the segments. Clearly, you know, Bob holds things like treasury and tax. We're not going to replicate that in each of our segments. And then our standards for employee safety, for quality, for our operating systems, lean. Those types of disciplines do span all three segments, but the majority of the resources are down in each one of these segments to make sure that we can effectively operate, service the dealer networks that we have in each one, and make sure that we're executing for the customer. When you look at the way the segments break down, you can see the different vehicle classes that we have in each. And this really is the way we thought about how we wanted to organize the company, is that we needed to make sure that any of the internal complexity we have is just that. It stays internal to Polaris, and it doesn't show up as you walk into a dealership. The example I would give you is because we had the on-road segment and the off-road segment, Slingshot sat in on-road. It was a completely different sales channel going into the same dealers that the off-road and snow folks were going into. And so there wasn't as much coordination as you'd like to see. We've eliminated all that. Now everything goes through one sales channel. Our ultimate goal would be to have our North Star program, which we've talked to you about in the past that covers our off-road business, will ultimately include snow and then ultimately include slingshot so that the dealers are working through a comprehensive set of products that's all aimed at one dealer-managed program. And so I think it's a really good setup that we've got, and we can certainly get into more details during the Q&A. As I mentioned, we are introducing new guidance. We had effectively, during our initial guidance call back in January, we had said that we had Indian in for the entire first quarter. We obviously executed the divestiture, the separation on the 2nd of February. And so we're introducing new guidance. You'll see that we've updated revenue, obviously pulling out two months worth of what we had anticipated would be Indian sales, and we now have guidance flat to up 2%. You can see that our EBITDA margins improved as a result of extracting Indian out earlier, and then we've raised the earnings per share on the low and the high end by $0.10. sense. The one thing I wanted to point out here, and I'm not going to go back through all the details that we provided when we gave guidance because nothing's changed, but I wanted to emphasize when we talked about build equals ship equals retail, there's a lot of noise in these numbers. We had Indian in all of last year. We had Indian in for one month this year. When you strip all that noise out, our revenue is growing 8%, and that's with a flat retail environment flat industry we have undershipped the channel for a couple of years to get our dealer inventory down you know we've talked about that being a priority we have our dealer inventory at less than 100 days of supply that's the lowest it's ever been since i've been with the company and i'm pretty sure it's the lowest it's been outside of the covet time period in the history of the company and the reason that's important is we're now playing more offense in terms of being able to see some growth inside the business and that's showing up in the margins it's tough to see we got a lot of noise in here tariffs are you know essentially doubling year over year when you strip tariffs out and you look at the organic performance of the business our incrementals are up almost 40 percent i've worked in industrial a long time we have ever rarely have i ever seen 40 incremental margins and i think that's just a testament to the amount of work we're doing inside the business to improve our operations improve quality and really get the business on a better trajectory i'm going to talk a little bit about that here in a second one of the things that we talk about is the consistency of our strategy aside from removing a motorcycle picture off of this picture on the left nothing has changed this is the same strategy we're playing the same playbook and this is what's really going to put this company in a better spot it's already put it into a better position and i think as we see the industry start to stabilize in 26 and hopefully improve into 27, I think you're going to see this business in a much better spot. One of the things that we talk about is we're going to focus on what we can control. I can't control whether or not President Trump puts tariffs in place. I can't control economic policy. I can control the things within our own company, and that's exactly what we've done. We've done it from an operational efficiency standpoint. We're seeing significant progress. us you know three years ago we spent a lot of time talking about our plants and their inability to execute against our build plan we don't even talk about that anymore we get updates and the updates are usually around very high percentages of execution against the production plan the other is innovation we made a commitment you saw it on that first slide since 23 40 new products over 800 patents we are committed and as the leader we can't back off of that and we're not going to back off of that working capital we already have world-class working capital performance but we know we can be better and that's a big focus area that bob is driving inside the business and then dealer health if we don't keep our dealers healthy we're not going to be successful and we recognized that about a year and a half ago and we made that commitment that we were going to get dealer inventory down and we were going to make it easier to do business with polaris and we were going to stay on the gas with innovation and we were going to improve quality and i feel really good about the fact that we've executed on all those so our vision is clear on how we're going to win we're going to stay focused on the customer we're going to advance our number one position and that's not just market share it's all the things i talked about earlier in terms of setting the tone and the cadence with innovation and quality and we're going to position this company to excel long term i've used this slide internally with our employees i've used with our board of directors we've talked with investors about this but for me it's it's really the compelling investment opportunity with Polaris. And on the left-hand side, I could have probably put 2014 or 2015 instead of 2019. But there's been a series of things happening. You know, the industry was slowing. We can pull COVID out because it essentially was a near-term bump, and then we've essentially given back as an industry all those gains that were made during that time period. For us specifically, our warranty performance was not great, and that showed up in warranty costs and product liability exposure. We talked a lot about being great at manufacturing. The truth is we were not great at lean. Obviously, the onset of tariffs that started back in 2018 and then accelerated in 24. And then we had a number of money losing businesses, Transamerican, Jim, Taylor Dunn, India Motorcycles, and a number of other businesses that we won't even talk about publicly, smaller businesses that we've restructured out of the business. And then, obviously, you know the focus. We've talked about it for four years now in terms of improving operations, improving quality, staying on the gas with innovation, and making sure that we go after the portfolio. And, you know, essentially, as we look forward, we think 26 is kind of the bottom. We've seen a lot of indicators. I mean, the recreational markets still are tough to predict. You know, I think consumer uncertainty, Certainly, the Iran developments are going to inject new challenges. Consumers are just a little bit nervous relative to a product that they may like to have but don't necessarily need. And for us, that makes up about 40 percent of our company. The utility side remains strong, and we feel good about that. But as we look into 27, we know that there's got to be a replenishment cycle likely coming at that point on the wreck side. These vehicles are getting long in the tooth. people, you know, they're still using them. We talk a lot during our earnings calls about the fact that we're tracking things like repair order activity, spare parts, tire sales, oil sales, you name it. And it is all indicative of the fact that people are out using their products. So there's going to be a replenishment cycle at some point in time. And when that happens, and we start to get a little bit of growth back, you're going to see some pretty good things happening in the business. We're going to leverage off of all the operational efficiencies we've made, the improved quality we've made in the business you know our quality for two years now has improved we've saved you know well over 20 million dollars in warranty our net promoter scores are at the highest level they've ever been in the company and that's really a marker that not just the quality is improving financially but it's showing up with the customer and the dealer as we move into 27 we have taken our own efforts to reduce our tariff burden you know we talked on the call about pulling our cost goods sold for materials that we buy from China down from a high of 18 by 27 it'll be sub five percent and then we're really going to be focused on highly profitable segments you know by divesting tap Taylor done Jim Jim and India motorcycles we pulled out about a billion and a half worth of revenue and probably close to a hundred million dollars worth of negative earnings and that allows us to really focus in on profitable segments now not everything's perfect I'm sure I'll get questions about slingshot or snow but that's that's the business we're in and it allows us to be focused on those segments and then go in and make sure that they're operating at the level that they should be generating the profit that they should be rather than spending time on businesses that are losing money or non-core and so I think we've really positioned this company well it actually shows up you know you think about that eight percent incremental margins and you think about the earnings per share growth that we've got that's over a hundred percent and that's with tariffs effectively doubling we are we are working hard to generate the the returns in the business and i think as we get past some of the noise that we've got here in the near term we're going to position the company really well for the long term as we look at 26 a lot of what we talked about on the call you know we think that the retail environment is going to be flattish you know we've seen retail now for two months i'd tell you it's just largely consistent with what we anticipated. We are going to stay focused on innovation. You're going to see that again this year. That product count of 40 is going to continue to go up. We remain committed to making sure our dealers are in a good spot, so this whole build equals ship equals retail is going to continue to be our mantra. We think price is going to be positive given a slightly lower promotional environment. With our competitors largely getting inventory in a better spot than it has been, I won't say that everybody's perfect, but it's better than it has been. That's going to take some pressure off as the industry starts to stabilize. And then our operations are in a good spot to be able to meet demand fluctuations as we move forward. Talked about it on the call. We've got a significant number of transition service agreements between us and the new Indian motorcycle business. Those largely expire between six and 12 months. and so the teams really moved from executing the separation to now executing on these various agreements and working with their team. And there's nothing there that would tell me that we're going to have any issues with that. We're going to continue to stay focused on lean and operational improvements and then obviously working to execute our tariff mitigation approach. So let me just wrap up by saying, you know, look, we're advancing our leadership position. You've seen it in terms of the market share gains that we made in every one of our segments last year. Our new segments, I believe, align us to be able to execute against the brands and the channel that's most important. And we've removed all the distractions out of the business so that we've got ourselves really focused. And then we're going to stay focused on the things that we know we can do great, which is margin expansion, generating cash, and then being disciplined about where we deploy our capital. And then as we look forward, as I mentioned on the prior chart, I think we're really setting the foundation up. You know, the operational improvements, the quality improvements, staying focused from an innovation standpoint. We're putting ourselves in a really good spot to be able to get the incremental margins as we see the industry. And we don't even need the industry to return to significant growth, just low single digits. And I think you'll see some pretty incredible performance. And then we're committed to making sure that we reduce our tariff burden. I mean, we're not giving up on our efforts in Washington, but we're not going to count on that. We think we've got a compelling proposal to the administration, but we're not going to wait. It's been a year almost, and we really haven't seen much movement. And so we're just going to continue working the things that we can to mitigate our exposure. So I appreciate you guys listening to me, and obviously we're going to open it up for some Q&A at this point.
Great. Thank you, Mike. We are very excited to be rebuilding our models very soon. So with that, in the three new segments, maybe explain to the audience why you chose the segments or segregated them the way you did.
Yeah, I mean, it was pretty simple. I mean, you know, sometimes businesses can get wrapped around how they want to do things, and the reality is you have to meet the customer where they are. And you need to make sure that how you meet that customer is as friction-free as it can be. And so we started with customer, then we went back through the channel, and that really informed how we wanted to organize the business. Now, I'll tell you, the marine segment, that's how they've been operated. You look inside of Ben Duke's business, he's got a Bennington leader, and he has a Godfrey Hurricane leader, and that is because that's how that business goes to the channel. And there are shared resources in certain areas. I will tell you there are distinct differences between Bennington and Godfrey, so they don't necessarily share their engineering resources because they want to remain distinctive from a brand standpoint, but allows them to share other things, but stay focused on going into their channel and meeting their dealers and their customers where they are and we really just get it getting we're just really getting polaris back to its roots um over time because we brought all these other businesses in we started losing that focus and really pulling us back to being heavily concentrated on power sports has allowed us to really say okay we've got to make it as seamless as we can for the dealer and we need to make sure that when the dealers thinking about power sports they're thinking about blue so you
talked about several divestitures you've done over the past few years including Indian is the portfolio where you want it now or you do you anticipate any more
changes I would say it's largely where we want it now there are some things within the portfolio that aren't necessarily performing like we'd like and so we're now putting focus and attention around those areas that isn't anything out of the normal and you know I think the difference is is that they're very small relative to the company as opposed to the things that we've dealt with over the past four years have been very large and I think that's just allowing us to get ourselves refocused and make sure that you know we don't give up on something that really should get the time and attention the other thing I would tell you is you know we have talked about this over the last year or so but it allows you to focus on things that you didn't pay attention to that are actually really important on that chart I had commercial we have an incredible commercial business where we've taken our Ranger we have a derivative that's hardened to be in environments construction environments through United Rentals Sunbelt Rentals the vehicle that business has grown exponentially and that's because we've got a really seasoned and talented leader in that business but it did so without any focus from us and now we're looking at that business and saying hey there are some different things we can do, it never it never saw the focus because we were spending so much time working on things like Indians return to profitability. And so I think it's just a very good case study and the importance of focus around what you do best and being able to allocate your resources to that.
So on the subject of tariffs, I think you mentioned that they're doubling this year. Give us a sense for how much that how big that number is for 2026.
Yeah, so at the beginning of the year when we gave guidance, we talked about $215 million in tariffs. About $90 million of it is incremental, given we really didn't see much tariff impact until the second half of 25. Fast forward to today, I think the question everybody's sort of wondering is, you know, what happens with, you know, what happened with the Supreme Court last week? we've paid about $125 million in IEPA tariffs. Right now none of the accounting firms are agreeing or signing off on booking receivables because there's no process really to go collect that money yet. There is a fairly standard process with Customs and Border Patrol to do it. That's what people are starting to do. So I think in the long term we're going to get that money back. The timing of that I think is is anybody's guess right now. It needs to play out a little bit further. But we're doing everything we can to make sure we're in the best position to get that cash back it hasn't all gone through the P&L obviously some of its hung up in inventory and then you look at so the IEPA tariffs came out and the 10% tariff went in and let me be really clear it is a 10% tariff not a 15% tariff they're sort of what the president says on truth social and then there's what actually ends up in federal law and in this case what's in federal law today is 10% 15% he has threatened a lot, but it's not what we're paying. We're paying 10% today. The difference for the full year, or the difference for the remainder of the year for us for that is about $30 million, so $30 million benefit. We are not updating guidance for that benefit because these tariffs are only in place for 150 days. He could go to 15% tomorrow. He has the authority to do that. That doesn't extend the 150 days. It would just be what it is for the remaining of the 150 days, And then he has said he's going to bring in other tariffs at the end of that 150 days or sooner. We have no idea what those are going to be. So we're not going to run out. We don't want to be in a position of trying to update guidance every time he changes his mind on tariffs. If we get to something where it's stable, we'll look at that. But right now, just giving you the benefit, it would be $125 million in cash if we could get it all back, what we've already paid, and our tariff burden would be about $30 million less this year if the tariffs hold exactly where they are today, which I don't think is going to be the case.
What's the process of getting that money back?
You know, what's interesting, so most of it's been paid in the last 300 days. Under the rules of the Customs and Border Patrol, you can amend your filings within 300 days. So that's what most people are doing. That's certainly what we're doing, is going back and saying, well, these tariffs, we shouldn't have paid these. They're not legal. We want our money back. CBP has not announced a process by which they're going to refund that money. They may have to take it, you know, may have to go to court, but we're going to wait and see. But, you know, we're certainly doing everything we can. Some of it's indirect, you know, where a supplier imported it. We've got, we were really good about tracking all that and making sure we have invoices specifically for the tariffs so we can go back and get that. If a supplier paid it and we paid them, then we can go back and get it when they get their refunds. So I feel good about where we are and our ability to go get the money. it's just a matter of when the federal government puts a process in to let us go do it you mentioned
the focus on dealer health so with that where do inventory stand at this point in the season
yeah so our uh our inventory as i mentioned earlier is sub 100 days um and i would tell you that we and the next largest competitor uh pretty much right in the the same realm um the balance of the industry has improved over the last couple years they're still not at the levels we are the But the thing I think that's most important, and it's true of us and our next largest competitor, the health of the inventory is important. So having current versus noncurrent in a much better position, so the blend of that inventory. And then we've worked hard over the last year, year and a half, largely with our dealer council to get honed in on how to make sure that we're delivering the right vehicles so that we don't just have a focus on, hey, we want 100 days of inventory, but, you know, you have a bunch of pro r razors sitting up in minnesota in december that's probably not a good use of those vehicles so we have worked hard to refine our rfm profiles which essentially are the delivery profiles for each of our dealers and you know remove vehicles that are slow moving make sure that they're getting more of the vehicles that move at a higher rate and so the feedback we're getting is that you know and it's going to take time for the broader network but the feedback we're getting through uh our sales team is that you know we've made huge improvements in about a year and a half uh dealers are never going to be 100 happy but they are much happier than they were and how is snow snowmobiles yeah i mean you know look we the the snow in the mountains has been somewhat challenging but the snow in the midwest the upper midwest the east coast has been good uh trail sleds make up the bulk of of the portfolio uh it's been good because it's helped us clear a lot of the non-current inventory that dealers had given two years of really bad snow conditions on top of that you know Jenny knack who runs that business has spent in the last three years really going after the quality you know you don't have to look back too far and see some pretty big recalls and warranty costs in that business and we have flipped that around 180 degrees and gone from a negative to a positive snowmobiles is our highest net promoter score business at over 80, which is almost unheard of. And I think it's just a testament of what she's done. We're excited. I was just in Rozo last week with a few members of my management team and Ginny's team. We were riding some of the new sleds that we'll be introducing in the next year or two, and I'm really excited about where we're taking that business.
So you launched a couple new Rangers this year, the 1,000 and the 1,000 XP. Talk about why they're important to the portfolio.
Yeah, I mean, look, it's the continuation of what we recognized a couple of years ago that, you know, as the industry grew, and given that the industry grew rapidly from, call it 2007, 2008, and changed a lot during that time period, I think we and some others chased ourselves up to the high end. And I'm really proud of what we have. You know, the North Star Rangers that we have, both the 1,000 and the 1,500, I mean, these are some of the best vehicles on the market. you look at our expedition you look at our razors the problem is when you step back and you look at the market given the vehicles that we had we were only servicing kind of the higher-end 50% of the market and we really left ourselves exposed on the lower end of the market the Ranger 500 was a prime example of that a sub $10,000 price point it's proven to be very successful you know 80% of the customers that are coming in are new to Polaris we think that's really important. Not all of them, but a good portion of those customers are going to either remain with Polaris and or continue to trade up through the vehicle class. The moves we made here recently with the 1000 heated cab was primarily around a segment that we saw emerging that we didn't have. Dealers could probably configurate that vehicle on their own, but it takes labor, and labor at dealerships is incredibly constrained right now, given a shortage in technicians. And so we worked quickly through our UpFit capability, which is where our commercial business comes to play, to essentially create a new product offering. And then on the North Star that we brought down, so essentially we brought a cabbed HVAC vehicle down at a much lower price point. We just knew that there were people who wanted to get into a premium vehicle, but just couldn't afford it. And so we went through, we think we've got compelling features on that relative to our competitors quite frankly this ends up shutting down some of our Chinese competitors who have come in on the low end and are trying to encroach on the higher end of the business because now we're competing with them at the low end and at the mid-range of the segment so team move fast and proud of what they did and it doesn't mean that all of a sudden the mix of the company is going to go to value I've seen that published a few times that isn't the case it's just allowing us to open up the aperture and bring customers in that we know will eventually move up into higher price
vehicles well great I think we're just about out of time so Mike Bob thank you thank you everybody for joining us and enjoy the rest of the conference thank
you thanks Joe