Good morning, ladies and gentlemen and welcome to BRP Inc.'s FY20 second quarter results call. I would now like to turn the meeting over to Mr. Philippe Deschênes. Please go ahead, Mr. Deschênes.

Thank you, Louise. Good morning and welcome to BRP's conference call for second quarter of fiscal year 2020. Joining me this morning are José Boisjoli, President and Chief Executive Officer, and Sébastien Martel, Chief Financial Officer.

Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call that are subject to a number of risks and uncertainties. I invite you to read BRP's MD&A for a listing of these. Also, during the call, reference will be made to supporting slides and you can find the presentation on our website at under the investor relations section.

Thank you, Philippe. Good morning, everyone and thank you for joining us. I am pleased to report that we concluded the first half of the fiscal year on a strong note as our momentum in the quarter and we've delivered solid results across the board. The demand of our product remains strong as we achieved another quarter of double-digit retail growth for powersports. Although we had poor early spring weather, especially in certain regions like the North and Midwest portion of North America, we were able to catch up in June and July for all product lines.

From a financial standpoint, we experienced our best second quarter on record after delivering our highest revenue and normalized EPS diluted for that period. On the back of this solid performance, the successful completion of our substantial issuer bid and the closing of the Telwater acquisition, we are narrowing the range and increasing our year end EPS guidance to $3.65 to $3.85, an increase of 18% to 23% year-over-year.

Now, let's get into the highlights of the quarter, starting with the financial results on slide four. Our revenue reached a record level for a second quarter at $1.46 billion, representing a year-over-year growth of 21%, notably driven by year-round products. All regions contributed to the growth, with revenue up 21% in the United States, 32% in Canada, and 14% for international. Our normalized EBTIDA was up 16% to $168 million, resulting in a normalized earnings per share of $0.71, up 8% over last year.

Our retail momentum continued to be strong. In North America, our powersports industry remained healthy and continued to perform well, despite negative weather conditions earlier in the spring posting a mid-single-digit retail growth for the quarter. Our product continued to outperform in the region as we delivered a second consecutive of mid-teens retail growth.

Internationally, we continued to be affected by political and economic tension in certain parts of the world. Mexico had slowed down but still remain up mid-single digits, with retail remaining generally strong in Latin America overall and up 18%. In EMEA, we are performing well, with retail up 18% while the industry is down high single digits. For APAC, our performance in China has been flattish and China is impacting the rest of APAC, where our retail is slightly down 2% and the industry down about 10%.

Looking at the North American retail by product line on slide six -- again, this quarter in general, we outpaced the competition and delivered growth in our powersport product line. Side-by-side and ATV had a very strong quarter with retail up in the high 20% and low teen percent, respectively. Three-wheel vehicles continued their robust growth with retail up in the 90%, driven by the introduction of Ryker. Finally, personal watercraft was up low single digits, affected by weather conditions this spring, which is better than the marine business and in line with the rest of the industry.

Turning to slide seven, on June 4th, we introduced our model year '20 Can-Am off-road lineup, the most complete and competitive yet. The key highlights are the introduction of the Can-Am Defender 6x6 HD10, representing a significant addition to Can-Am utility lineup with its six-wheel traction, longer cargo box, and industry-leading torque.

This model was in response to a need in the industry for increased cargo capacity. The combination of the longer box and six wheels give this product incredible capability and the opportunity to create a new segment in the industry. The Can-Am Defender 6x6 is also the eighth new side-by-side platform introduced over the last four years, delivering on the commitment we made in 2015 of introducing a new side-by-side platform every six months for the next four years.

Now, the Maverick X3 Turbo RR offers the best performance in the sport segment with its industry-leading 195 horsepower and improved off-road maneuverability. Since its introduction in 2016, we continue to build awareness for the Maverick X3, our flagship side-by-side vehicle as the face of racing present and future.

For example, we occupied the top six place earlier this month in the highly regarded Best in the Desert race from Las Vegas to Reno. With our model year '20 introduction, we now offer a more competitive lineup across the price spectrum with the introduction of an entry-level high HP Maverick X3 package. We're very happy with those introductions.

For ATV, the upgraded Can-Am Outlander feature improved airflow with new inner-fender and side panel, making the temperature cooler and more comfortable for the rider. With the introduction of the Can-Am Defender 6x6 complete, we plan to continue the same pace of innovation, which allow us to more than double our side-by-side retail over the past four years. Our capability increase is completed and we are now running at full line speed.

As you see on this slide, we still have a lot of room to grow in the utility, sport, and recreational segments. Over the years, we have set a solid foundation that position us well to capture market opportunity and continue our growth trajectory.

Now, let's turn to slide nine for the year-round product highlights. Revenue were up 33% for the quarter, driven by a higher volume of side-by-side and ATVs sold and the introduction of the Can-Am Ryker. On the retail side, the North American side-by-side industry ended its season 19 on June 30th with retail sales up mid-single digits.

Can-Am side-by-side had a very strong end of season, with retail up in the high 20% for the quarter, driven by our continued pace of innovation, strong momentum with our dealer network and greater availability of product. For the full season, our retail was up 20% and for the first time, we ranked second in the industry. Our side-by-side business also continued to grow rapidly in international markets, notably in EMEA and Latin America, where retail sales grew about 25% in the quarter.

Turning to ATV, the North American ATV industry also ended its season 19 on June 30th with retail down low single digits. For the same period, Can-Am ATV retail was up high single digits and ended the season with the number three market share position in North America. We have a very strong momentum with ATV as we continued to gain market share in both the mid-CC and the high-CC categories. Our ATV growth is also a result of our growing Can-Am off-road offering, our dealer value proposition, and overall improved brand awareness.

We have similar success in Latin America and in Europe, where our retail grew 15% and 37%, respectively, in the quarter. I am very pleased with our off-road vehicle performance and confident we can continue our momentum.

Now, looking at the three-wheel vehicle business -- nine months into season 19, the North American three-wheel motorcycle industry is up in the mid-30% range. Our Can-Am three-wheel vehicle retail sales are up over 100% for the same period and now, in our line up is driving the industry growth so far this season. We are pleased with the momentum we have with Ryker. We are seeing strong consumer demand, especially in North America and in Europe and the awareness for the product continued to grow, as it is attracting a lot of attention from the media and the online community.

We have made good progress with our rider education program, which is now offered in 189 schools in 50 states and provinces and close to 17,000 courses completed with a conversion rate that is trending above our 15% target. All in all, we are pleased with the launch of Ryker and the progress we have made in the first year of our two-year plan as well as with the different initiatives taken to unlock the full potential of our three-wheel vehicle business. As you know, our goal is to replicate the Sea-Doo Spark success story and we seem to be on the right path.

Now, turning to seasonal products on slide ten -- seasonal product revenues were up 11%, primarily driven by favorable product volume and mix for personal watercraft. Looking at retail sales, historically, retail sales have always been strongest for Sea-Doo in the North America East and Midwest versus the competition, which tend to perform well in the South. With the poor spring weather conditions and sustained flooding, we were disadvantaged in these markets.

Despite this, because of our strong lineup, we were able to catch-up in June and July and finished the quarter in line with the industry. The industry ten months into the season 19 is up low single digit percentage and Sea-Doo North America retail is also up low single digits over the same period.

It is a similar situation in EMEA, where the market was slightly down, driven mainly by Scandinavian weather conditions, although Sea-Doo continued to gain market share. The Sea-Doo Fish Pro is also performing well in its first season with very good sell-through in all our key markets around the world. In fact, the Fish Pro won an Australian Good Design Award for the quality of our design and its innovative features.

For snowmobile, the Scandinavian industry ended its season 19 on June 30th with retail up low single digits. Ski-Doo and Lynx combined retail was also up low single digits for the season and they maintained the number one position in the industry.

Continuing with a look at powersport, PAC, and OEM engines on slide 11 -- revenues were up 18% in the quarter driven by continued solid momentum for our parts and accessory business across all of our powersport product line. Our accessory business continued to experience strong growth with a 32% increase in revenue for the quarter, notably held by the success of the Ryker accessories lineup for which sales continued to trend above target.

The core of our success is our strategy to develop accessories in parallel with the vehicle, resulting in an extensive lineup of accessories that are already at the launch well-integrated into the vehicle and compatible with multiple models across all brands. The Defender 6x6 is a great example of this, as we already introduced over 150 accessories available for this vehicle.

On the Rotax front, during the quarter, we opened the first Rotax MAX Dome in Linz, Austria, close to our manufacturing facility in Gunskirchen. It is an innovative concept that combines indoor electric go kart racing with gaming technology, augmented reality, and virtual entertainment. Karting is the perfect product for electrification because the distant range per charge in the control environment is not an issue compared to other product lines.

By adding the aspect of gamification, it created a whole new customer experience. During the year, we will continue to improve the MAX Dome model, but our mid to long-term plan is to expand this concept to other cities and countries. This is our first venture in the direct to consumer experience and it provides us a useful learning opportunity, both to define this model and to potentially offer other experiential concepts in the future.

Now, looking at the margin category on slide 12 -- revenue were up 1% in the quarter due to the acquisition of Alumacraft and Manitou last year, offset by a lower volume of outboard engines sold. The marine industry was the most impacted by the unfavorable weather conditions we experienced during the spring and the early summer. On top of that, one-third of Evinrude and Alumacraft business and 50% of our Manitou business is in the Great Lakes region, the area hardest hit. Because of our current geographical concentration, we were especially impacted.

Looking at retail, the North American outboard engine industry ended its season 19 on June 30th, with retail about flat compared to the previous season. Evinrude retail was down high-teen percentage for the season. In the marine business, boat industry data is delayed and it's not reported the same ways as for the engine and powersport.

Regarding the boat retail for the period of April to June, for Alumacraft, the aluminum fishing boat industry was down low-teens and lowered down high-teens. For Manitou, the pontoon boat industry was down high-single digits and were down mid-teens for the same period.

Finally, following the end of the second quarter, we completed the acquisition of Telwater, the leading manufacturer of aluminum boats in Australia. Our marine strategy is ongoing and the Evinrude, Alumacraft, and Manitou teams are all working together to integrate the next generation of engine with the next generation of boats. We are looking forward to sharing more detail on our strategy with you soon.

Considering this is our first year into the boat business, this is not exactly the season we would have asked for. However, we are satisfied with the progress the team has made on the integration of our acquisition. And as a reminder, this is a mid to long-term strategy and we are confident in our ability to deliver its high potential. On that note, I will turn the call over to Sébastien.

Thank you, José. Good morning, everyone. Our momentum continued in the second quarter as we delivered solid financial results that came in in line with our expectations. Our revenues grew 21% to reach $1.5 billion for the quarter, representing a record for a second quarter at BRP.

Our gross profit margin ended at 22.5%, a decline of 70 basis points from last year's second quarter as a favorable impact coming from volume and pricing was more than offset by higher sales programs, production costs, and unfavorable product and region mix. The normalized EBITDA was up 16% to $168 million and the normalized EPS reached $0.71. We generated $75 million of free cash flow and invested $67 million on capex.

We were also quite active in terms of capital deployment over the last few months, as we successfully completed the $300 million SID, effectively repurchasing 6.3 million shares and we completed the Telwater acquisition. To support both initiatives and to preserve our financial flexibility going forward, we raised a new term loan tranche of $335 million during the quarter.

Our balance sheet remains solid and our strong financial flexibility allows us to continue to invest in the business, all the while maintaining the ability to opportunistically deploy different capital allocation initiatives.

Turning to slide 15, our quarterly normalized net income was up about $3 million compared to last year, as it ended the quarter at $69 million. In terms of year-over-year variations, we saw an increase of $72 million driven by a favorable impact coming from volume, mixed, pricing and sales programs.

These elements were mostly offset by higher production and distribution costs and higher depreciation expense, for a total negative impact of $23 million. Higher operating expenses for $41 million to support our different projects, notably the launch of new products, such as the Ryker, increased R&D cost for future product launches, and higher SG&A notably associated with IT investments, higher financing costs in tax expense and FX for $6 million.

Turning to slide 16 for a look at our network inventory position -- our network inventory position is up 16% versus last year's first quarter, primarily driven by the continued strong demand for our off-road lineup, for which retail percentages were up low-teens for ATV, and high-20s for SSV in the quarter.

Remember that we had capacity constraints last year which limited our ability to shift to meet demand and now, with the completion of capacity expansion, we have greater ability to ship products and sustain the retail growth. Our contributors to the growth of network inventory are Ryker, for which retail is very strong in its first season and we are seeing some dealers already out of inventory, and snowmobile, as we ended the season with slightly more inventory than previous year, and we also started shipments earlier this year compared to last year. We have always been diligent in managing inventory levels with our dealers.

At the end of the second quarter, our inventory at our dealerships is in line with expectations and it is down 9% versus Q1 following a strong powersport retail performance in the second quarter. So, overall, we are very comfortable with the level and the quality of our network inventory.

Now, looking at slide 17 for an update on guidance -- as I mentioned, we ended the first half of the year with solid financial results, in line with our expectations, and our outlook for the year remains generally unchanged. Our industries are behaving as we had anticipated with the exception of the marine business, for which, as José mentioned, suffered the most from the unfavorable weather conditions.

Given the strong momentum we have with SSV and the competitiveness of our new lineup, we are reviewing upward the lower end of our year-round products revenue guidance and the range is now up 16% to 19%. As for marine, the addition of Telwater for the second half of the year is expected to offset the softer results we experience with our current North American marine business due to the weaker industry TAM. So, our record guidance for marine remains unchanged. This results in a total company revenue guidance above 10% to 13%. As a result, the lower end of the normalized EBITDA guidance range has been increased and we are now expecting growth of 21% to 23%.

We have adjusted upward our net financing cost to reflect the additional debt, the share count downward, following the completion of the SIB and reviewed upward the depreciation expense. These three elements result in a net positive impact of $0.05. Following these adjustments and the strong results with SSV, we are tightening and increasing the normalized EPS guidance range to $3.65 to $3.80, representing an increase of 18% to 23% over last year.

The normalized EBTIDA cadence between the third and fourth quarter is forecasted to be similar in size for both quarters. Our guidance calls for a strong second half of the year as the demand for product remains solid and we have good visibility in our shipment volumes and operating expenses for the remainder of the year. We expect fiscal year 20 to be a record year for BRP and our business fundamentals are solid, giving us the confidence in delivering these strong results.

Thank you, Sébastien. We have had a record performance for a second quarter and I'm very pleased with the results and progress on our key strategic initiatives. We are experiencing continued momentum by product line and region and I still see lots of growth potential for our business, especially in year-round segments. I'm also pleased with the conclusion of the Telwater acquisition the fact that it marked an important milestone in the advancement of the marine strategy.

Despite talk of an economic slowdown, our industry remained healthy, our dealer traffic is good, and we continue to observe strong retail trends in August. Our team continued to execute well on all fronts and I want to thank them once again for their hard work around the world. We are looking forward to our next Sea-Doo and Can-Am dealer meeting in a little over a week in Las Vegas and the innovation of more innovative products and hope to see you there.

Finally, as I mentioned earlier, we are confident that given our positive performance, we will be able to deliver on our improved guidance. I will now turn the call over to the operator for questions.

Thank you, Mr. Boisjoli. Please press *1 at this time if you have a question. There will be a brief pause while our participants register and we thank you for your patience. Our first question is from Robin Farley from UBS. Please go ahead.

Great. Thanks. Two questions -- one is just looking at the commentary about the off-road being up mid-single digits, I guess others in the industry have talked about the June quarter being up high single digits. I wonder if you could say if you saw a deceleration in the growth rate in July or perhaps did not, any color on that. Obviously, of course, how August is also relative to that just in terms of acceleration or deceleration from those trends. Thanks.

Good morning, Robin. Obviously, we cannot comment on the others, but what we saw in Q2 was ATV was basically flattish when side-by-side was up high single digits. Obviously, side-by-side has a big place in terms of volume in the second quarter. Then I cannot comment on the off-road numbers that you heard in other calls.

But July was not soft for us. It was a good retail quarter. We're seeing, as José alluded to in his earlier remarks, again, we don't see the industry for August, but we see our numbers and the trends are positive as well in August.

Okay. Great. There are obviously concerns out there about broader macro factors in the last two months. Then just a longer-term question -- with shipments more falling into Q2, I guess [inaudible] ramped up maybe faster than what you had initially guided or what expectations were for what shipments would be in Q2. So, given that higher shipment rate, could second half shipments also move up from these levels if it was a supply constraint issue in your original shipment guidance that maybe is now behind you?

Yeah. Well, we've adjusted the guidance for year-round products driven by side-by-side off the strong demand that we saw in the second quarter. So, the guidance now reflects what we anticipate is going to happen in the second quarter. Obviously, if demand is continuing to be robust, could we adjust our shipments? Obviously, yes, we have that possibility of adjusting shipments if need be and increasing capacity before the end of the year.

Is there a percent capacity that's being utilized now versus what potential is still there? I don't know if that's something you can quantify.

If I give you some color -- just to remind you what we said before, in H1, basically, our capacity was similar to last year because we shut down the factory for two weeks to remodel it. We had a slow ramp up to ensure that quality was right. Then overall, our H1 capacity was similar to last year and in the second half, Q3/Q4, we had like a 50% capacity possibility and right now, we're running because Q3 is all the way -- we introduced the model year. Q3 will be a strong quarter. More to come on Q4, but this is the type of capacity that we have. Then on the full year basis, overall, if we will be using the full capacity, it will be about 25% up versus last year.

Yeah. Good morning, gentlemen and congratulations for the good results. When we look at the retail inventory, it was up 16% year-over-year. Would you be able to quantify how much was weather-driven and what should we expect in Q3 in terms of inventory level?

When I look at the inventory, as I said, we're very comfortable. Retail was only softer for personal watercraft and that was impacted by weather. But it was, again, very strong for ATV and super strong for side-by-side. Are we talking a few thousand units in inventory because of weather? That's probably the size of it. So, it's not very material.

Okay. Perfect. For the Ryker, you've been able to ramp up successfully the product. Could you maybe provide more color about what you've learned from them related to the brand, the desire to have a two-wheel vehicle and also, how do you see Ryker as opposed to the Spyder in terms of commuting?

That's a loaded question, Benoit. It's a bit early to conclude on the Ryker. We're super happy about the reception of the unit. As you know, today, our RT industry owners are on average 59 years old. We're targeting a consumer between 35 and 55. Right now, it's very preliminary, but the average Ryker user or buyer is about ten years younger than the RT industry. Then we're attracting definitely younger people.

That being said, it's a bit early into the season. You have early adopters. You have people who always wanted to have a three-wheel and could not an RT or an F3 that decided to buy a Ryker. Then it's very difficult to conclude at this point. The intent is to finish the season because there is still retail going on. We started shipping the model year 20 in August and there is still some retail going on. We'll have a complete analysis of the season later in December and when we meet you at the analyst day in October and we'll be able to conclude more at the end of the next year.

That's great color. When we look at marine, you're over-indexed to the US Northern and Midwest region. Could you talk a bit about your dealership expansion strategy, how it goes so far?

Yeah. Basically, there are three types of expansion. There is Alumacraft or Manitou or Evinrude to take another brand. There is conversion to Evinrude, Alumacraft, or Manitou dealers who take Evinrude, and there is whitespace. Again, we will share with you more about the detail of our strategy in October. Basically, we had a goal this year in fiscal year 20 to have about 120-150 roof and it can be an Alumacraft dealer taking Evinrude or an Alumacraft taking Manitou or whitespace. We are about halfway there. We're tracking quite well.

Obviously, like I said in my remark, Manitou is very, very Midwest and Alumacraft is East. We had a more difficult season than what we had hoped for. But again, the marine strategy is a long-term strategy. I'm very happy with the work that the team has done so far on developing the next generation of boat with the new generation of Evinrude. We feel confident in the future.

Okay. Last one for me -- from a capital deployment standpoint, the stock is down significantly since the completion of the substantial issuer bid. I was wondering if you could tell more about the room to perform further NCIB and given the valuation right now and the strong outlook.

Yeah. Obviously, we are very disappointed with where the stock price is trading. Obviously, it's not reflective of the performance that we've had over the last several years and last quarters. As you said, the momentum is there. So, the valuation is attractive for buybacks and obviously, it's something that we will consider and entertain in the next two quarters.

Gentlemen, any commentary that you can give us relating to the promotional activities that you may have done during the fiscal Q2 or that you're seeing in the market right now? Again, maybe across the product lines on the marine side and then maybe the ATV and side-by-side product lines.

Good morning, Tim. If we start by off-road, I would rate it yellow. ATV was very similar to the last few years. On the side-by-side, you need to understand that it's the first year where we have some product availability and it's the first season where we had some non-current at the end of June. We had for the first time some normal promotion on the Defender and Maverick family. Some of our competitors complained about it, but the rebate we were giving is in line with what every OEM is doing at the end of this season.

I would consider off-road yellow. Watercraft, we reacted on the back end of the summer because we were behind. Then last year was green. This year, we invested a bit more than last year, not ridiculous but a bit more than last year. Three-wheel, I would consider it green. If you remember, we readjusted our pricing in RT industry last year and our promotion for model year 19 started only in August like it should be. This is over all the retail environment. On the boat side, we were a bit more generous than in the past two years, but again, in line with the other OEM.

Okay. And José, any color geographically, whether you want to look at North America collectively or Canada versus other US and basically, the rest of the world, Europe, just broad geographic regions as far as promotions or collectively or if you do want to break them down by product categories.

Yeah. What I gave you, Tim, is applying to Canada and the United States. The situation was about the same in both countries. The weather was the weather. We catch up in June/July on the retail front. At international, it's a lot of moving pieces. Scandinavia was similar to what we saw in North America in terms of weather. Then we had a slowdown in the watercraft in Scandinavia. Off-road was not affected. That being said, in the western Europe, watercraft have done extremely well because they had a warm summer and were very happy with the overall. Other than that, some adjustment in APAC, but overall, I would say very similar to last year except North America and Scandinavia.

Good morning. Looking at your own inventory, up 22%, can you discuss the puts and takes there? Thank you.

Good morning, Garrick. As you probably saw, the second half of the year implies a very strong H2, a strong volume growth as well and strong profitability growth. We have produced some of the units for shipment in Q3. So, that is the main driver of the increased inventory and the SSD business is going strong. We have also a strong international business with longer transit times and that business is growing as well. And so, that needs to be accounted for in our planning as well. Therefore, that results in higher inventory levels.

Okay. Thank you for that. One more thing you don't seem to talk about that I'd like to hear about is your initiatives in Texas and how that new office is going and some update on what's going on with your stuff in Texas. Thanks.

Overall, we are on plan. We ramp up the number of people in Dallas. We change a bit the structure of the management team. We divided the United States in three regions and we have a leader in each region that give us -- in the past, we were managing the United States a lot east to west, south to north, and now, we have more regional focus, which gave us an opportunity to ask some tactical focus on different region or different opportunities. Then overall, very happy with the Dallas office. We believe we have a lot of people there that are better connected to the US market versus when we were managing the United States from Canada.

Good morning. I just wanted to ask about the dealer base in the US and I guess specifically mostly on the side-by-sides. I think you're at relative maturity in terms of dealer count but gaining floorspace and mind share. I wonder if there are any metrics you can share that would help us gauge that and how you continue that momentum. Obviously, there's a combination of factors. But is the focus in continuing that momentum more on just generating demand or is there still more to do around engagement, improving systems, and that sort of thing?

On the number count, we believe we have about the right number of dealers. If you remember, we signed a lot of dealers in the last few years and now, we have about 1,250 in North America. There is always some turn, 25 to 30 a year that is happening, but the focus is more on what you said, continuing to gain space into the dealership and gain in efficiency, better engage with our dealers, help the dealers to become better retailers. We work with them hand on hand. This is the focus. We're doing, I believe, a pretty good job to have business discussion with dealers and helping them to raise the bar.

Do you think broadly speaking, obviously there are a lot of different factors, but in terms of the engagement, is it more a matter of continuing to create consumer demand and then obviously the dealers are going to respond to that or is it in terms of how you engage with the dealers, manage their profitability, improving systems, ordering systems, inventory, supply, and those types of levers?

We're trying to help the dealer to order the right product mix and we're monitoring more and more their inventory, helping them to understand their retail and make sure they have the right model at the right time in the dealership. Also, the service part is getting more and more important. There is a lot of money tied into the service part. Some dealers do it extremely well, others not as well. Then it's working hand on hand with the dealers to help to be more efficient in what they do.

So far, we don't see the need to increase the number of dealers. It might happen if we continue to grow in the side-by-side business where we have some. Maybe today, we have a dealer supporting a big region and maybe in time, we need two. But for this year, the focus is more working on the efficiency of the dealer.

Good morning. Thanks for taking my questions. I wanted to ask about your view of the US consumer. A lot of talk about maybe a slowdown, maybe that's especially true with wealthier consumers, but you have an interesting perch on the world. What are you seeing?

Good morning, Craig. Again, there is a lot of talk about slowdown. You know the thing that we're watching that we believe could affect our business. I'll give you some statistics. The US unemployment rate in July was 3.7%, very low. The housing slowed down a bit but it was up 0.6% in July versus a year ago.

The US consumer consumption remains strong. It was up 3.3% in June and 3.4% in July. To be honest, we don't see a slowdown in our powersport business. Q1, the industry was up high single digits and in Q2, we were mid-single digit up. We're not economists, but this is the thing that we believe is affecting our business and so far, we're very happy with the state of the economy and the consumer.

Thanks. With respect to Telwater, I apologize if I missed it, but could you frame the revenue and margin profile of that business and detail what's included in guidance?

Yeah. So, in guidance, we have six months of revenue built in there. On an annual basis, Telwater is, let's say, an $80 million to $90 million business. Margin profile is very similar to what you see in other companies in the US. So, lower gross margin, lower level of operating expenses, but similar EBITDA margins.

Thank you. Then finally, again, with respect to Telwater, to what extent do you intend to run Telwater, Alumacraft, and Manitou separately versus trying to leverage any commonalities among those businesses in terms of R&D and other factors to get efficiency.

Absolutely. We are working right now on the metrics organization where obviously there will be a leader for each bold brand, but you have cross-functional function like design R&D operation, where a company will share the best practice. What we like about the three acquisitions is the three of them are involving aluminum boat construction and there is definitely synergy between each of them to be gained in comparing the way they do things.

On top of it, in terms of product development, we have a team right now working on the next generation of boat and engine to make sure that we have a perfect integrated product. Then basically, it's a metric structure where there is a responsible for each brand, but you have some cross functional function to help the synergy.

Good morning. I think I understand the increase in inventory in the powersport industry. I'm content with that, but maybe with the inclusion of Telwater and the flat revenue guidance in marine now, maybe you could walk through and help us understand the marine inventory both in the dealer network and internally and potentially with the industry softness that you're going through right now, albeit potentially temporary, whether your appetite for M&A might be heightened or whether you're content with your current portfolio.

Again, the Evinrude inventory has decreased by 10% into the quarter. We are comfortable with our level of inventory. On the boat side, the two brands that we manage in North America are very different. In Manitou, it's a high-ticket item and they used to have five to six months of inventory at the dealership. They turn their inventory typically a bit more than two times a year. And right now, we have about six months of inventory out there, about 10% higher than typical. We're comfortable with that.

Alumacraft is a lower ticket item. Their normal inventory is more in the 12 months, about the same than the industry average. We are a bit maybe 5% to 10% more than typical, but we are comfortable on both brands on the boat inventory at the dealer. At our factory, very minimal. A boat is a big piece of equipment and we have minimum inventory in our yard at both Manitou and Alumacraft.

For Telwater, it's about the same. Again, we've done officially the acquisition on August 1st. It's the same pattern, not much inventory at the manufacturing facility. I believe they turn the inventory quite high, but I don't have enough data to answer your question.

In terms of acquisition in the boat space, for the time being, we are happy with those three boat companies and the focus in the next 12 months will be to make sure that we maximize the synergy and maximize the integration in how we can maximize the work between the three boat companies and BRP to, again, deliver on the boat strategy. Don't expect boat acquisition in the next 12 months.

Just to clarify, in terms of the inventory, should we expect promotional activity in the back half of the year? I can only presume that's factored into your current guide.

Yeah. Promotional activity should be similar year-over-year. Obviously, sometimes our promotional activity may be influenced by weather, especially when we look at the snowmobile season that is upcoming. The guidance reflects what we believe is appropriate promotions in order to drive the retail that ultimately drives our wholesale numbers.

One last housekeeping item, in terms of your net income adjustment, could you maybe just clarify -- it's modestly change, but it includes an FX change. Maybe just on a normalize basis, can you tell me what's changed here?

Yeah. The only FX change that you see in our normalization of net income and normalization of EBITDA relates to the long-term debt. So, as our debt, which is denominated in US dollars gets revalued every quarter, that creates a non-cash FX variation in the P&L and given the materiality of the debt and the swings that we often see in currency, it does create noise in the P&L and that's why we normalize that item.

Well, the net income as per the bridge is up $3 million at $69 million if you look at the bridge that we have in webcast.

Oh, the guidance. Sorry. The normalized net income is up to reflect the EBITDA adjustment that we did on the bottom end of the range.

Hey, guys. It's actually Fred Wightman on for Greg. I'm just wondering if you could talk about what, if any, impact you're seeing in terms of the supply chain, either product disruptions or pricing changes just given the tariff and trade back and forth we're seeing in North America and then what that means for the implied back half increase in output that you guys are expecting in guidance.

As we've shared with all of you in the last few quarters, the whole tariff dispute between the US and China is having minimal impact on our results. We're probably looking at worst a $5 million impact for us. So, all the tariffs, when you combine them all for the full year, so, from wave one to wave four, you're probably looking at $15 million for full year. If that were to be applied for a full year basis, you're looking at maximum $20 million.

Again, we source very few of our components from China. When we look at our whole supply chain and product quality, it doesn't necessarily always fit the source in China because we're not necessarily all meeting the specs that we want to meet or the lead times are not there. So, that's why we source very few of our components from China and we're not as impacted as other companies.

That's really helpful. There is a callout in the slide specifically for the Maverick sport dealer inventory impact. How much is that specifically on a percentage basis?

Off the top of my head, I wouldn't be able to give it to you. I'll probably give it to you offline, but last year, we had very little Maverick support in the network with a new product and as we were, obviously, capacity constraints, we privileged the shipment to the Maverick X3 and the Defender, which are higher-margin products and that's why this year now with the capacity we have, we ship more into the network.

Hi, guys. Good morning. Following up on that question in terms of dealer inventory, there's also a comment in there in terms of snowmobile sales having earlier shipment. So, should we expect some sort of a timing adjustment between Q2 and Q3?

No. Again, it's at small volume. This year, our snowmobile volume shipments are expected to be higher than last year. So, given the season and the production schedule, it is very condensed. You have the abilities to either produce earlier in the second quarter or later in the fourth quarter, depending on when engineering release are ready. That's going to impact when we ship. Therefore, this year, when we ship, because of those factors, we ship more units in the second quarter.

That's helpful. Sébastien, I think in the past, you've provided more color in terms of the puts and takes and the magnitudes on each of the impacts of gross margin that you've called on the press release to commodity production distribution. I'm wondering if you can give us that bridge again?

Sure. So, as you all saw, margins are done 78 basis points this quarter. Volume was a positive impact, as you saw the revenue growth year-over-year. That's almost a 200-basis point plus to the margin. Mix was unfavorable and sales programs as well were unfavorable. The mix, driven obviously by Ryker and also, we did ship less X3s in the quarter as we knew that we weren't coming out with the new X3 at 195 horsepower. So, we kind of held back on some of the shipments of X3s.

That was a negative combined with the mix and the sales programs 140 basis points. Production costs, negative 80 basis points, half of it coming from added depreciation. The other half was coming from obviously now, we're running a bigger plant. We've kind of done two waves of increases on a year-over-year basis. So, that's being reflected in our operating costs. So, that's 80 basis points. And then the last item, FX for 50 basis points.

Thanks very much. I wanted to clarify the question earlier on some of the inflationary cost headwinds and the tariff impact. I think in the past, the number that you talked about was kind of $35 million in inflationary cost, some of that was tariffs and some other things. What's, I guess, the equivalent number now on a full-year basis?

Well, we talked about a $35 million impact in the pasts for -- we call it inflation, freight commodity, and tariffs. You can add an extra $5 million to that.

That's great. Just on the side-by-side business, thinking about the product portfolio now, you've introduced the eighth platform which you had been targeting over that period. I'm just wondering if you can talk a bit about on a product basis where you think you're still underrepresented or is it just really more of growing market share in the subsegments that you're in now? Is there anything you feel you need to increase the product portfolio to continue to grow?

Yeah. In the last four years, basically, we introduced new platforms in almost every segment into the industry. There is still white space for us in the side-by-side business. You can expect in time other new platforms, not at the pace of one every six months, but you can expect variations of models trying to create new segments like, for example, the Fish Pro, the watercraft were good to create new segment in the product category. That will be our main focus.

Still, if you look at our product portfolio, today we have the base but we can continue to expand our offering to the consumer and delivering a new trend or new request for consumer. Some investor is always asking the question, "Will you stop there?" For sure not. We intend to keep the same pace of investment that we've done in the last four years forward. Obviously, like I said, it's not necessarily a new platform every six months, but you can expect we will continue to push in the side-by-side industry.

Thank you so much. This was our last question. I will now return back over to you for closing remarks.

Thank you, Louise. Thanks everyone for joining us this morning. We invite you to join us at our dealer event in Las Vegas on September 10th and 11th and at our investor day on October 28th and 29th. Thanks again, everyone and have a good day.

Thank you. Your conference has now ended. Please disconnect your lines at this time. We thank you for your participation.

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