PII - Earnings call transcript Q3 2017

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Operator

Good morning. My name is Kristina, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Polaris Third Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator of Head Investor Edwards, Relations. Richard

begin may your conference. You

Richard Edwards

is our thank good our Scott and and www.polaris.com/irhome, Speetzen, morning Thank slide third you, call. for which from and you good And presentation A for Officer. call. Executive for Chief Financial Mike Kristina. has everyone additional website this comments you joining Chairman will earnings Officer; be conference Wine, at Chief prepared information our accessible our quarter morning’s at XXXX Today, us hearing

During XXXX from we Act considered Reform the will projections those which comments including the of be call, forward-looking Litigation materially be discussing guidance, on of in the topics XXXX. various forward-looking should preliminary purposes Securities updated for Actual the and statements. results some Private differ XXX, could

adjusted our to presentation Throughout uncertainties. otherwise wind-down and expenses, XX-K XXXX actual XXXX XXXX costs. non-GAAP risk more associated results to Victory and quarter for the the these are innovation reported of detailed with third refer and basis the can TAP You discussion and refers today, on noted. to manufacturing references results our all unless a an guidance impact excluding GAAP Adjusted realignment

non-GAAP a quarter Slide to provided the here appendix numbers. in results reconciliation have for shown of the X which is We and GAAP third adjusted on and the year-to-date

Wine. CEO, turn I’ll Scott to over Now, our it

Scott Wine

able thank to morning, Good morning. and for we you better talk about joining pleased results are Richard. Thanks I'm us. that this

ago Our the earnings of and third depressed year posted well we was ahead quarter a expectations. from markedly improved

good a quarter not a just one. was this better However,

well profitable free and we end. but and the pet course earnings A and errors delivering that two that to penalties with we again we quarter, these win the in will return good many too not sustainable to growth expect. had played we aments good eliminate until be won As off we again challenges and third and overcome. football few is with the In game issues

that this this our on market and to and the of was retail we NDN consumer discuss and growth this, was are certainly mark overall expansion. to share We American encouraging and needed return North will retail highlight ahead and The quarter RZR journey up XX% morning. demand double-digit progress throughout With making the much quarter.

to takes floods. and It that successful quality XXXX, XP of issues I and concern RFM were argument must reach customer supply-chain Scott not requirements. exasperated innovation. continue to we our and regularly this we in significant benefits EPS up with ramping deliver launches to innovation and plants With and higher Turbo New can the is of on meet As improved transition the to generate Barber pool third improved performance higher deliver ability our Huntsville quarter and dealer had by at RZR and created operating retail that refute nicely moderating industry that level we drive challenges we leading shipments our all quality safety demonstrated logistics to to improvements too Ranger will and A our our simultaneously. many and XP impact hurricanes our hear words and continue instance supplier products dynamics in Conversely, quality meet corresponding holds objectives and quality. in which we factories

than combine gain integrated as efficiency. You earlier to our internal quarter move third the event in may ever. year their on primarily This delivered productive most impactful our factory business change this validated authorized off-road have noticed to team more team an vehicle clearance the sales and with was

global from we Defense. Government maintain increased solid momentum PG&A saw world growth also and we Polaris markets volume in Axum, sales the region our with of portfolio. unit higher aftermarket adjacent and strong performances in to International in were addition In every [Indiscernible] and

an the easy certainly among top first to September want While the facts, that. some slowly three. played to two role high results these retail history were was were a attribute highest much August than year-over-year numbers comp. Consider actually the will was better That surely the retail improvements month top-line and Polaris but the in

Second, quarter of third an definitely off-road were compared Polaris retail not up sales to comparable. and also vehicles was XXXX the which easy

quarter All of aided September up quarter and for the the an carried industry and by were improving lead we share market in our crowded these market Provide prepare low in results ORV and market were how of retail three players sport retail the number side-by-side have gains I rack Momentum plays, share. a Of throughout in ATVs insights promotions to the market and we for the significant we also in ATVs three but three we got promotions In a out on highest second utility boosted where impacted will the RANGER spent of side-by-side it. primary industry in we the RZR analytics launch for both where gained double-digit. more half first were color promotions was the more to in by bit lagged the rewarded were side-by-sides. share that team. market the ORV from

down India their retail market share share more in overall in throughout transition dealer after to was XXXX year-end fourth ORV history. than is him back Moving and top. levels. as business September. our choosing making RFM set, to its would ride retail inventory wish year than we guiding past in we command industry go on most Slingshot Matt the ATV be to road motorcycles, the quarters quarter. down some marketing positions of his of and growth to We're season. India gains modestly fit half Homan as through to areas for to the an for highest when service XX% leadership was to finish and progress to success. return strong Equally quarter color fitting leading down inventory like be from the leaving of down new higher generated fourth to off decade Polaris expect inventory and to just [technical and market campaign, It drag players transition industry difficulty] aggressive really best retail XX% on and out sincerely from XX% in I was the it able third the in If us peak the his Between all Matt a quarter and with riding remains with heavyweight with most good like with to of during profile X% for ORV lower third started both ever drove and with of continued performance XX dealer continued years sluggish. the with Slingshot. would With Matt with one dealer schemes he's to improve the thank ATVs. growth Slingshots quarter and side-by-side Icon expect dealer vehicles we launch

Polaris bright both and Chris business surely as take to November sustainable includes processes manages motorcyclist we the experience passionate Chris Matt off-road is as avid somehow our and X Snow with an development benefit of for well. and offered and industries new earlier variety will humble solving remain vehicle implementing month, is from As reported Polaris. product the will designing familiar which extensive incredibly well problem now enthusiast Chris as His competitive. complex a ridiculously a and Yet industry. Musso reins on intimately lead expanded this and our legacy portfolio. is

We leadership you and introducing him forward are soon. to the excited team Polaris join look him to have to

performance Given goals. our range extra long targets we investing developing set XXXX, improved proper in to are time our we ensure financial the

sustainable XX% objectives, targets net our reaffirming back XX% followers revised XXXX. our to may provide $X XXXX, growth. longer XXXX turn keep, recall, led commitment our our our income Since business have original been to reset to targets productivity us we the by would in will that, to when needed net to detailed With January XXXX. more more goals introduce X% with company on compound billion revenue set exceeding focus goals it progress growth become $X rates targets through by in As no these us billion Speetzen. achieve those guidance become annual net our realistic, to hindsight, Mike to After CFO, we our than a XXXX. Expect again $X income for profitable goals long-time we in these strong our sales, to become over an a we company. I'll good to seem billion but In raise income

Mike Speetzen

Thanks, Scott morning. and good

the stated, quarter. Scott improved are we our during were quarter despite sales retail results, which As very third strong pleased driven headwinds some execution and with and by

than and sales from were down $XXX average added and an for TAP for Parts, of prior quarter QX which the GAAP the adjust the on by million and sales the well quarter, of loss year. growth of international wind the Transamerican versus half offset adjusted as and as $XX during quarter driven selling strong a prices which including in reported mix the was sales, Organic quarter. up company in the of during XX% XXXX. most basis Auto million vehicle revenue Victory businesses PG&A more positive Third Victory growth approximately improvement

complexity was growth which and margin few cost by basis those although in manufacturing to supply there gross impacted natural remarks. highlight minimally sales delays were Our and quarter for a quarter. of only recent disasters added on later the production the the I'll my a

realignment Victory cost by chain was per wind in taken a leverage the cost us $X.XX. GAAP tax added adjusted basis the natural TAP to operating tax The rate. when EPS was share combination manufacturing of and earnings to from per lower disaster gross supply a quarter on increase The share a was and improved headwinds. combination Third a driven earnings enabled and of a for contribution expense margins, integration, down, offset quarter. Adjusted $X.XX rate

guidance in Given to raising overall total be XX%. We range company our momentum we year. the for our and sales the to are up top-line sales expect now of performance year-to-date XX%

and ORV/Snowmobile sales guidance again expects digit now performance in and increase PG&A. the year-to-date our given strong are mid-single range international We increasing the ORV, year-over-year, in to

and We are adjacent our strong up businesses. market double-digits increasing of low our the given guidance sales most adjacent global to percent markets

in which and to X% revenue the range, total which expected motorcycle offset business remains sales full-year. And TAP, year. as our up the strong defined X% Our the of finally, remains sales improved the unchanged. motorcycle is more to for the expected previous guidance our exchange with for India guidance. The effects to momentum than for foreign expected sales be of sales the Slingshots the organic full-year and aftermarket has TAP is lower excluding is addition continue from company's Victory

XXXX year per a range Lastly be of given to by now on to $X.XX. the XX% is $X.XX above inventory down year-end. be date single-digits EPS to changes, guidance the basis to account earnings adjusted in low year-over-year compared up XX% Taking to to the adjusted of full into now we share our progress dealer expect expected $X.XX,

Given to in and our our range applied sales fourth year-to-date quarter to in growth guidance, EPS EPS and the and $X.XX the sales of up is $X.XX range revised of and XX% results share. per is X%

Let Last quarter of our fourth lapping acquisition a me points as relates million QX it walk to through QX TAP some late the revenue. expectations. TAP of began the We in XXX key XXXX. year's included

We sequential key sales RFM drivers been versus more through also expect QX remain but we sales to as retail which closely I down slightly expenses sales expected sales margin. XXXX, line will similar Warranty and anticipated be the and QX sequentially will behind we and that our improvement retail year-over-year spending implementation. in experienced to QX. the overall shipments down at with would shipments be level anticipated retail and more one lower be ORV due was Promotional in of to our sequentially with to have down of through motorcycle shipments seasonality be will given what gross aligned also lower note

of a Now includes improved down of points in GAAP which cost gross wind the XX.X% realignment turning manufacturing gross XXX and optimization million third margin. to network Victory On to and basis quarter, $X.X cost. basis million margins $X.X

a combination somewhat cost and promotional gross anticipated added adjusted margin XX.X%, and and offset savings, positive higher product reflecting lower of expense, mix headwinds. disaster cost supply warranty basis natural chain increased Our cost by XXX points from to

production note, suppliers several force overcome have which quarter important we during in required delays. impacts that declared to to majeure increased the citing it's hurricane Additionally, who efforts

mentioned expenses year-over-year earlier, a warranty quarter while to basis. year-end on down As date and

chain higher higher Sequential with historical well percentage and as is by trending gross supply the expected, our mentioned the these margins as cost disaster than headwinds impacted As average. earlier. were warranty expenses associated natural the still

a margin sequential full year for by an year, positive fourth XXXX, and the product the mix. improvement quarter For cost gross adjusted XXX-basis driven to we quarter improvement and gross continue the range point versus in expect in which third improvement margin from implies last the savings ongoing

given driven to Adjusted growth be full due in year, guidance percentage be P&L. issued down operating higher is favorable recognized the XXXX. based of from points year as cost. share are given related retail primarily is year-over-year The legal down standard X% and sales about in R&D improvement in and be increase approximately financial acquisition employee the previously increased audits XX repurchases higher expectations. now of expected lastly more The expenses, earlier count TAP, now the services XXXX. compensation items, from for in now performance. ratio the expected XXXX is by the to issued expense to favorable aggressive operating guidance to better and Moving range is to we tax mirrored Income share And tax last accounting to rate XX primarily a XX% the new previously variable expected increased basis down are the as income expenses share about year from in versus from to for quarter benefit the sales expected third certain of adoption the X%

shares have at million. $XX We total a of cost year-to-date X over just million repurchased

remaining We have under authorization. board's million shares approximately X.X current the

Now increased business improved XX% were in reported sales Full sales for the decreased mid-single higher be X% over our Average worldwide sales. sales improvement along on few previously cost. provide percent, segments. up increase issued are promotional strong X% sales with segment related let anticipated highlights by year Snowmobile QX. prices selling a our positive momentum XX% a guidance ORV/Snowmobile driven up segment higher ORV Motorcycle QX an PG&A side-by-side on despite QX. of in shipments and given in and me brief to and mix expected improved performance digits adjusted year-to-date into

revenue Indian quarter during products in of the expectations including Dark in Victory market and XXXX reported Limited sales results XX% in QX. plans sales up significantly our to sales Roadmaster million was with approximately sales. due Elite other decline aftermarket sales TAP X% global range increased as forma Lines digits government Slingshot of sales in with in driven The primarily $XX brands given low third the sales includes Victory the the the driven TAP along line Aftermarket well of Global up year the remained addition and were low-double Motorcycle sales year slowed the up was Pro the million although year-to-date rate $XXX third motorcycles XXXX, the of in for growth for QX. businesses. business XX%. on integration unchanged new full XX% quarter. Classic. the up QX, quarter primarily now to company defense TAP sales Excluding and the Horse of The by new market segment [indiscernible] track. new expectations as adjacent excluding the quarter. were as aftermarket up growth at were sales, in down third anticipate performance. mid-single which motorcycle by full of for to and are our be the were We segment the adjacent Chieftain compared digits in and were

cash working of flow operating year-to-date to improved the capital performance. through September through was XX% period Our XXXX up same compared performance

for to final than improved to the for cash and costs. $XXX a and million. Net improved of us XXX prior it cash second EBITDA. is I’ll wind year-over-year as by Scott our debt rate with operating to With approximately faster ratio Victory sequentially be promotional Net flow originally in some unchanged. The X.X to just quarter enabled improved remain now million for down performance anticipated. flow at over In cash has to our and debt QX, outlook the pay down and to low over decline third improved from manufacturing double-digits. accruals our outlays Our continues turn realignment our Timing down debt quarter warranty drivers down to times back that year approximately associated expected decline thoughts. leverage

Scott Wine

Mike. Thanks,

be already finishing for This is in the as year believe and a weakness political motorcycles. to the improving is and on expected management power projects we primarily and we throughout on of well industry environment encouraging are reform progress [relic] said to expect scenario drive Transamerican strong our begin synergy growth ORV helpful years flow NAFTA inventory the in our network Retail sports are our the as plant is than continue regulatory of we to not modest leverage into savings is We synergies. XXXX. trajectory uncertain will the targets. tax expect The in many underway. fully even recent XXXX do discouraging. With customers business will the focused forthcoming growth planning relief the that our growth current of Parts reality this with improve planning We more or resulting as a through. aftermarket While aiding ahead. with around which obtain both continued XXXX in corporate RFM year we Auto plan the industry be tax profitability and and generate Washington and our savings to rate in to market do the implemented fall shift that a major likely optimization above expect harmful reduction overall we in

much-needed We the percent in ahead. also decrease in operating a expenses anticipate of sales year as a

tremendous for cost quality two have reduce We onetime expect that been past and will the to years. continue and a earnings drag investing the to enhance significant safety on

tell It future. focus our multi-fascinated will operating us be year or path a a increase to put productivity margins approach XXXX will on We is record to too improving rest focused accelerating for a the using whether Polaris that, Kristina good on satisfaction, growth. profitable productivity early in the questions. but With I’ll the line turn will and team to to on assured entire driving over it better be customer open and to simply

Operator

first David comes Beckel from Bernstein Your instructions] question from [Operator Research.

Your line is open.

Dave Beckel

could hoping driving related quarters. wide retail were the of other driven Scott, you two to Is demand? what I demand upward helped and believe last gas sort sort there in rebates I frame of what strength industry by you was the call sales FAC the sort the industries if and to extent over versus of recent ORV would any inflection natural QX

Scott Wine

sentiment from good quarter and for we mix improved higher I in are lot and are much in seeing it hearing. I a of high but and I the would put so our Dave is that say stopped issues think but gain not that prepared Polaris drag that market we customers and promotional work. of And it's oil demand on the you're weight is Yes, political the good part there the And in seeing consumer too my despite in less to just throw course, gas, of is in we there remarks, a I with trend products it's said us you just we're industry rhetoric where I Overall, all really question. an industries, turnaround. the feel we're overall where upward good Also, overall the the for traffic wouldn’t that's for also good and environment it's about helping regard. many where not And out how just recipe competitors. of share it. think the a part from with companies but regulatory our is significant consumer improved stringent went our market an able being leading pleased our

Mike Speetzen

low-single the we of were to around David, oil to Hey that and markets add gas that. specifics track digits. The kind up just

recovering numbers past And saw bit strong some the little pretty Ag although we've of growth. up actually pretty it's from quarters. So, bad that couple over we was actually seen a of

Dave Beckel

it. as to are us disaster natural and the specifically on quarter you relative it it follow Can quick didn't effects sales a FX offsets this sales the And relates help Got of that I guidance, to sort like. last in despite some have as benefits? it And FX obviously to and just a looks of frame gross benefits just up quarter? to leverage Mike, question increase margin what maybe increase

Mike Speetzen

benefit. suppliers of down. we the math I'd our in is up made about quality. some I in Yes, saw promo year-to-date XX%. Couple do, benefit going prepared gross we tax the as somewhere sequentially, relative be fourth we're doing quarter $X.XX remarks, the of That's as reflective disaster the that depending around comment you that sitting on well things my The XX. a headwinds talked the shy the we're supplier lingering tax from fact between offsets effects And the look that and picked effects third natural margin to that just out, wise guidance $X.XX we as to you largely at of imply the point impacted that that quarter would what costs the if of are well the as

sits think seeing the we're of help. number head We then quarter. are a into as most dollars accounting We of our actually just benefit improves a that picked mix And a the will in fourth the we up hedge other couple the of bailment from a little of which through business analysts which bit line of but overall a million standpoint had there in favorability on. exchange coming getting income I foreign the down of is

warranty to we've to through improved although gross relative that indicated as on mix margins. down able the year the be some we've to cost our that's the we'd offset well higher so in actions. weight around productivity as calls expected that last than continues pushing So, guidance been But versus past hard volume put

Operator

Tim from comes from question next Wells Conder Securities. Fargo Your

Your open line is

Tim Conder

clarification on What the you implied and or there also, here on And Thanks Mike, here on of your side. looking balance the I have both gentlemen then the FX. QX your expectation do top-line guess and a for just congrats into on the clarification year. statement here. on everything tax

in the is guess you in what $X.XX for What about are some and the I to QX all comp out the other good. called offset stock full you issues building to $X.XX which year net that particular here? So, related that. But of

Mike Speetzen

Yeah at page, notice foreign we summary exchange, gotten you so showed down million from million for at $XXX what you'll last foreign Victory headwind. about quarter. exchange about That's wind look our down/ we've guidance if $XX that

a about offsetting $XX significant business picking split effectively our million on place the we're We're top whole of off So, line. or where that the picking between And the are positions portion QX. evenly not We've so that's feel losing up in we and up exposure the derivative QX hedging line. about say lot that. I'd transactional bottom with been on we're in good so gaining about we that pretty we've put a

a detail numbers. think I incentive that didn’t know performance help relative to get last into stock-comp a As positive we we at looking for done the in to work and little very detail was it's a executives the upon I were flow is be standpoint couple about that XX% are so items it had onetime there. lowered position that and the We've a relates to bonus. that of fourth to of are certainly we obviously senior you that'll cash of we that the lot in our terms headwind encouraged to is would guidance don’t the the from XX% just the a going get comp had quarter bit of the full-year the but imply from tax a the with year XX% at going fact

Tim Conder

to the on but mean that comp there tax the there mean come no, stock and I how tax have back understood normally benefit? Mike, I on I portion

Scott Wine

I your I'm Tim. not follow sure question

Tim Conder

implemented. Just from that’s new the scenes been

Scott Wine

Yes, I it's to sorry. issue I'm XXXX-X memorize had one. that

essentially, tax the sales that equity through third years. recording execute and $X our opposed stated and the in by larger on options audit it in favorable favorability stock end So, was IRS saw we we've had our prior to us benefits small million going employees up such we've rate quarter. a changed QX, they outcome that it from the driven R&D really benefits quarter, when QX you The as picked probably up was the in bulk of so for from credits through around your

Tim Conder

then a And contract called on think helpful. and you then had and benefit next you maybe that's the contract recently a XX you have great how side. year about I you'd another had. out should military this Scott, year million Okay, here that follow-up

Just give on into in a military half the what's color back here looking then happened the 'XX. of year little the more for and

Scott Wine

that business Tim to get this total the John and of over military Yes, has million just point ahead leadership at we brought XX since good leading feel M-RZR Olson ultra what we and well. and platforms, advance technology is Dagger we defense are vehicles is yourself, about really doing was positioned some utility team entire good in don’t about still the where really are stepped our role -light as space but do feel platform with this in what he exceptionally

well, get level. the too as things let's are the for military internationally on military do so not the company and what we ahead the us about U.S. size with happening at far business bullish but good that not lots can of it only So, of but overall

Operator

next Your from from question UBS Farley comes Securities. Robin

open. line Your is

Robin Farley

to to you to Maybe slides digit and in off allude the you fair suggests. shipment your is it retail QX with than clarify. the ATV the retail ship in share say of expect is to side in line announcements that was within maybe Thanks. like how think kind that? just gain and share side ATV side, gain with or about I'm the just it side road of in to so And also mentioned at you is two specifically that offered in you line by like things for least then One then kind guidance growth looks by high-single expect just what wondering was what bigger then market off some

Scott Wine

considerably third remarks in major somewhat back were were I've in Robin probably We and share more board way. ATVs share that was across the a share our market third that though where all promotional the some and were and us. RZR, able are also targeted segments, spending As we the been share gains, the we versus market rack had now. major but significant sport up across gained we my in market, with of year-to-date in even most garner the led to in of the RZR said but we three But both players for probably spending say prepared three spending would in on we had that were ATVs board gains quarter. the lagging I the

Scott Wine

Hey, to X sales talked guidance my up about the XX. on I in the somewhere prepared fourth Robin quarter being remarks, year-over-year between

refer was quarter coming of XXX X% If that's to you you X% you probably organic sense comments thinking. in only get out, would sales for kind and of the an I to as TAP cadence to you'll the partial retailer a number back at the give well sales we're had of ship factor what we last pretty looking as we're much which year of Victory that to then

Robin Farley

Okay, you When Scott. market Sport clarify mean make all segments share, were up of side-by-side, to three and great. terms or mentioned for what. utility trying Rack kind And then understand side-by-side just just that that in something I to does ATV

Scott Wine

Yes.

Operator

Your Capital question comes Markets. from next RBC from Joseph Spak

line open. is Your

Joseph Spak

of the to One still by margin I the is XXX little a maybe guess which million. just about quarter bridge last confused bit in question, third points two First you through came I want gross year, said year-over-year. basis I'm things. $XX to go I think about warranty

down had we gross if year-over-year. points out XXX margins that adjust then you back basis So, still

I'm of guess the the you what there? a to on a get then positive offsets a are mix was better year-over-year sort of somewhat product basis? so mix better out little given confused And called commentary, a positive, but ATV as I And related, just sense so why want

Scott Wine

a a ATV retail shipment of Well growth had standpoint, of company with One, where favorability things. of so couple I'd from look the that's when heavier shipment we side-by-side, register, level say in. within the even we mix a comes

As it that levels. last relates warranty you around made see we What warranty, year. is what right, $XX we've tell to you're million the to we continue I comments elevated would is disclosed

It's to So of of XX% not all assume away. that went plus remained. that probably XX safe that

of hurricane lot the EPS from in profit. work impacts tax company those inside And of do through VIP. benefit, that So, impacts really to from related, an offsetting essentially with all that we the came a we offset drive have a to suppliers at related standpoint gross then all of the

Joseph Spak

Okay. that new of can [Multiple or overtime sort factor. is the that you something think Speakers] XX% that is sort improve of And that

Scott Wine

you look rate year year I X% we're somewhere at X if last X around of between X.X%. and warranty bounced to our plus, X% No, mean sales, this registering

that be couple should able we us down to been going But years it's we've to that. take historically. a is through to work view where of to get Our

Joseph Spak

flow. then And free Okay. on just cash

is typically the flow think this So, strong free this margin quarter. the quarter, cash I

anything of use And the was there think sort cash because And guess change I know TAP wondering last all just in lot high-teens. of I profile historically it's on. was think a like I can't the flow year But XX%. nature at sort or? the been specific, is margin did the I'm we there going I free of

Scott Wine

we obviously maybe and the of this end impact is so No, even got time this of I of part tough a going amount what don’t we've place but while around with dynamics we've a next that income that through I the mean and of doing put through the bit accruals in net period think impact been the year of many down cash cash year least year flow on sense year, Joe, little fourth we're and the quarter. number is up quarter that's when the anticipating at in anticipated here that which than the we thing for later others get talk for can there flow pretty yet through a those are items about happening we warranty operating some move the occurring bit had of is double-digits that third cash outlays originally of why through is being impacts quickly a little flow a longer so cash you taking are but that we the

Operator

Your Michael comes next from from Schwartz SunTrust. question

open. Your line is

Michael Schwartz

margin I My related have supply-chain guess just the Would in quarter gross sequentially improved some an impacts, wanted the you of costs first question, versus basis? related of terms second adjusted excluding actually out on called to impacts. the clarify, hurricane

Mike Speetzen

to a the second We been have closer would lot quarter.

Michael Schwartz

quarter enough. about kind the mix said heavier you -- of towards something were in we think ASPs the think the X% run the as just Okay, then rate with just up forward it was being And fair during should RZR quarter? is that ASPs that going I or you the

Mike Speetzen

will move in remarks spend X% of I through prepared so don’t bit so came can think ORV mean promotional indicated tell down Some as a my the fourth that were changing alleviate I here forward we be you in a of quarter. Obviously coming up third year-to-date was as lot terms of little in that that we much the of mix it our I the mix. pressure. really in dynamics within quarter see ORV. will

So, I pretty a think decent probably marker QX now. for is

Michael Schwartz

and in looking much just growth just Okay, that's the think that then thoughts you finally explicit some that guess XXXX terms said general made year. of cost reduction comments how operating And I you are just programs? for on helpful. in of versus improvement or I expense your early Scott is comments, that revenue driving next you

Scott Wine

both as obviously and so obviously we've talked sales percent operating bit we taking but the to it a the business. us headroom it up, are of steps of of a expenses go is across a It mix about reduce also little gives reducing sales

get and going a next us opportunity take be that this that more an forward operating going the we year believe spent need what and throughout spend, to obviously to literally we're levels will continue sure and for to we we productivity steps make expect spend business, play we but major spend and performance that quality our liberally is year to indirect see expenses. to safety have do to we our we both taking the will efficiency for improve Our we there includes

Operator

from comes question Badishkanian Citi. next Greg from Your

open. Your line is

Greg Badishkanian

you. two Thank have I questions.

at the stringent the heavy higher little when the why think reasons you you demand, retail bit that about weak? pick-up market consumer being do less been First regulations, talked weight has motorcycle

Scott Wine

too on weakness weight I down. competitors, Greg, I industry there pulling believe is industry their about that a to and but the very, player don’t that very much our heavy the motorcycle want weighs is really large talk

Greg Badishkanian

all Okay, right.

of So just look do big at would one -- any improvement sales player retail that's you it a done? [waiting] different of way is the if have let's or say and have because of independent would seen you even how actually market that kind would have it that were your think you industry? flat

Scott Wine

launched we we've Brand gained share. the Indian since Greg, have market

What we're and market we bikes the work improves quality it's really dealer and out, better of as the corresponding for networks the is I be of that we the improve riders the all about basis. built on don't seem that the to talk want be So, will brand, more in And a we done we the the industry, better. expanding the launching, us. good of industry if to bringing had to we're encouraged strength seem would done

Greg Badishkanian

Do lost those And think do much just you've sales because But finally, lean. you've inventories you you having low [indiscernible] affected if then inventories? negatively it that of Okay. being about all? talked dealer at and too think any retail it versus

Scott Wine

we that more across Great. we have lost the availability. results the they suggest that I'm better I'm but we've a if sale certain not could been at to had somewhere country, all had, going significantly

Operator

MacGregor from from Longbow next question David Your comes Research.

Your line open. is

David MacGregor

as [factor November talk from just December, that the promotional quarter, up through was October. out] activity. the and balance through clearance business you you I It all? strong from extending guess third of first on end at was pulling thought about just so process the And what first behind can question

Mike Speetzen

David, every do think we year. Yeah I that

So maybe once out of five we don't do it.

look we calculation it our had. be we hadn’t and of outlier. versus we're And going better authorized and think rid being more to we to clearance what would make in if it think a the outlier [aged] sale do it's just I event sales consistent and and than rather for get to whether us it is inventory take factory holiday on extended I more So, the when at whether we field an

David MacGregor

guess just regard through decreasing for volumes concentration. the able to question that more dealer I a to weaker And dealers qualify rebates? increasing second are contributing was it And fewer or to dealer guess concentration that so is gross margins, is volume factor better is Okay. and I with moves

Scott Wine

so. tell the movements. think offset dealer the track I don't And year. much deletes adds I have and pretty you all mean I we would

one-off gross with promotional items a mentioned level fully do to here with from more the that results. well the what earlier margin, quarter had standpoint I had mentioned that into dealt the I in of as and built As we've elevated the as we anticipated just third

Operator

next James Wedbush comes from from Your Hardiman question Securities.

open. is line Your

James Hardiman

if And morning chain that going talked issues first there just you but you do, the maybe guys. disaster I -- about and the my thing, the not hurricanes anyway, helpful? in would were so, call. supply the natural and there? what you can can clarification, maybe was Thanks in quantify attached quarter, Good that disasters on guess Were to natural supply it's taking headwinds. for to difficult be

Scott Wine

I demand the of which production, as hurricane trucks of I James had quality think up tell were the of the able there work some that of catch you put challenges we supplier offsetting the high up at and to around in same the backed quantify that at given able we to supply think the we some being just and EPS of to time resolve being it, so so tax against impacts up Yeah, EPS the to issue vehicles to for running associated as the trying the effects travel was that production, states. get terms chain. through from would impacted a well actually on were constraints both shipping with through

James Hardiman

supply offset those both about the Okay, but chain is the That’s tax -- predated so benefit. way made hurricanes, worst, it right it? that essentially are by the to the issue hurricanes think offset things the of

Scott Wine

Correct.

James Hardiman

about how maybe really just to third the talk share unfair third detail, comparisons maybe this And at quarter messy last has looked the maybe the in relevant market ago. of watermark. up, I but of were And that some you mean another about selling haven't quarter after I to year's margins two to gotten do 'XX versus think good Maybe think given obviously I think a marketing of then costs question and how high was. we these at relative back share where down, really if where as seem we years then about quarter gross

out today figure trying years warranty to the I stuff how more guess maybe am things stuff. I versus much promotional think I the warranty are two exclusive get but of ago? we

Scott Wine

relevant, go since us. look for the things if increase very not in than I obviously that a significant we issues and is will X started that time. recall 'XX is But relevant tell are points because was quarter fourth when what the of side-by-side share third environment, quarter had you to fair at south our about you of we've of that competitive interestingly the 'XX talked down quarter in a 'XX very share we've is say market third more to I'd

but in third work So, outcome that out have if a I you mean that the are the to have we at that mind doubt of look still share we third stemming you as so all good a are and market lot market points? quarter basis would points, down should we do. we of share the But are in a X be my nowhere was no can losses helpful in we I as never near couple be. reversed on predicted is somebody year there and or we're for if playing scenario, was glad but in down I trend quarter want to different they down

Mike Speetzen

back market at our down in prices we're we of bit probably back in looked parity but a were of XXXX still that's I X% level not XXXX relative and we've at and I we James, back are to so challenged to more little to average where X.X% reflective and recovered ORVs but a think went amount selling fair competition. to higher

James Hardiman

and that so ASP I should all bunch helpful I up data And last the Does all? that marketing the factor point I a selling encapsulate how Mike is really just was promotional mean understand in spending point.

Mike Speetzen

we just ton XX% about you tell year-over-year. would promotional because our in I there so TAP. it's A it because that the so event in, thing sales bought to up keep marketing hear built sale. is or a [contra] got in all XX% you mind our increase in all of FAC is cost is that we and layered and Yes, holiday to when remember business because is that factors of a

Operator

Your comes from James. Altobello Raymond Joe question from next

line open. Your is

Joe Altobello

weaknesses X% were ASPs all couple a was quick I that motorcycle in due I given was So Slingshot, that first guess of of what assume items. of the number in down mix alone? Indian to housekeeping but the the quarter.

Scott Wine

had a the scout we strength like Well and history anything midsized as launch Indian by highest drove pleased our of lower. of that [indiscernible] which because really market more [indiscernible] talked so we was was continued about, wasn’t and share than so driver probably the were successful in cannibalize

Joe Altobello

XX? it And And for to all XX, does wasn’t Slingshot. at Okay, excludes the it rate back tax tax obviously does go it year reform. stay next any this corporate

Scott Wine

Yeah. from as potential what you the point takes initiative I we've reform implications when work At tax puts the impact more mean and will around side. credit for understand tough this this be? look all as is year well the the look, starting stage perspective have to typically tax around R&D at had done our XX%. for it's This us

Joe Altobello

a little of you similar we to seeing gross terms picture promo, a bigger R&D has a next related With in parts, lower a us higher year can about cetera. lot of think This with but just this, And recall a the improvement and we're coupled understood. next from expenses? that a got a drive margin least comp frame obviously help obviously you will operating much Okay for with volumes moving lot expense, see this and you've of of had with higher lot question. but margin in how year recovery higher at mind Could et directionally? operating margins costs very year variable improvement as year been less

Scott Wine

Yeah. not this on that provide I more details prepared to remarks provide my going point. at any XXXX We're

Operator

Your comes next Stephens. Drew Lipke from from question

open. Your is line

Drew Lipke

the about 'XX, 'XX for RZR we've Can curious look And with higher inventory year I'm rates factory year how model clearance. so year mentioned with you model if you so at the opportunities pricing seeing. the up-sale strategy cleared far that 'XX this coupled RZR authorized trends order the And lot may pricing talk curious, traffic then a that, the we're the new are through strategy? seeing up-sale opportunities new your model for you I'm or of be you products?

Scott Wine

in Yeah. as would make vehicle the anticipated. sure talking time are through offered I being back we've pricing disclosed to turbos up the Huntsville, Reiterating lot working about of we what intended. that order tell levels being things you a new in new we XXX%. group RANGER working our structure as Dynamics spend we XXX%, the were is up had when that exactly

are dealers very the enthusiastic. So,

clear number want to a units through of have We XXXX we retailed the not inventory. significant out yet,

the hands as dealers. we got the now RANGER Dynamics as both of in well So, the products new

happy For we far. seeing those we've have very been we're with that so what retail,

highly we stand. with where we're So, encouraged

Drew Lipke

dealers, space all? Okay. of over And that that much Was then space? floor benefit ORV Victory a of the at converted was noticeable to how actually

Scott Wine

No.

Drew Lipke

historical a to relative maybe in normalization we And model 'XX, to and still Okay. on RFM levels. me, you about be as factory then with on factory and speed high natural and a comes side-by-side to should How gets about fully in historical How last the 'XX? through should inventory a impacts RFM, to we shipping moving and perspective? think level Huntsville up levels inventory think mentioned just line, year from with the from to one little looks delay

Scott Wine

the increase underlying thing to look inventory the Drew, down When was business, encourage in business year-over-year by at at underlying TAP. X%. driven our is through our quarter Yeah to that actually I'd is, pull a the we take third look you out

ready make RFM. were to to improvements Inventory continue the through So, support we it getting initiatives, lean turns up.

from an but make right certainly continue now, trajectory and change not from feel what inventory direction we're seen pretty perspective the good where about historically. So, to we we we improvements, can that at we've

Operator

Katz comes next Jamie Morningstar. Your from from question

open. is line Your

Jamie Katz

about directionally Thanks, costs little it. it appreciate good morning, last there with is feel, high nice that elaboration talked know like you where more about a quarter guys. I you promotional bit sounds going guys Can if would on engagement, are working talk I dealer you you and any Slingshot?

Scott Wine

us with market. of with level Slingshot. into brought new It a we innovation Obviously the where pleased is getting

vehicle bear refinement working capability a new not and and quality of are to and enhancements. drive the performance improvements you terms in know and we Icon of can, of and technology with I and the brings lot reliability said, has as team quality We will we the line happy the that the been to the new driving in is tell series quality diligently execution Huntsville had we production is extremely that I

growth going opportunity but year will work But Icon right feel 'XX work we do through good next and profitable get year. have series we do for coming that’s future sustainable early to that of we in rid the that the So, business we the in platform. in believe about some fourth the model field, with products with quarter the growth out back to we can the that profitable focus get to the

Jamie Katz

and that bit it's of down Is years? the for over guys just more business of a quite way of the in year. G&A efficiencies squeezing Okay, a has about from out think last or then come maybe leverage think item out because this there, there line I naturally you that sort you of folded few than improves as historically the have scale it is it been higher businesses that

Mike Speetzen

make people that the that the we to comes efficiency for the little sure need just that we sure company earlier, Well there supporting models on is you they little cutting growth as what that to spur revenue is we TAP SG&A tell we word. a because make don’t are key bit bit cost that so are overall our have. the mean at going interpret I are efficiency the that. a with want would higher mentioned driving to Scott same we and in time I given

to looking leverage to as for continue really as can much we will as Scott opportunity we of outlook. to ample got forward be XXXX So, the cost going base do train suggested think we've that and that

Scott Wine

little on outlook our color more little talk January initiatives focused that provide category. XXXX that more the about will we detail productivity bit in talk in will we of when about a Yes, some be to

Operator

last question Woolf Northcoast Seth comes Your from from Research.

is line Your open.

Seth Woolf

quick questions. of Real couple

then you have mentioned things October that events there been wondering about out of some carryover of besides of inventory, First the far? the some we retail FAC thus promotions what helped provide one has past could really the is was actual you if work like changed And financial incentives. of that by to I in improved compared execution. and the some now FAC think talk was years line that I looked could kind kind looking any Scott of you so has through

Scott Wine

approach competitive was way and of we going we resources about think not focused I I the is on think you Yes, the you some be our I'm and much tell better to talk and how yielded provide obviously retail. about that detail will FAC. October with and results targeted that too Scott our what advantage to integrated we executed our I know the able were the more team willingness in answer to digital

Seth Woolf

to because I way last I it's volatile. a of this with the like XXXX had best shot. the the market ATV guess yo-yo to bigger take to of the get question been along a what's ahead you guess I year and want think know picture I but same the just very kind about really yourself vein, don’t

super would helpful, be on So, any thank thoughts that you.

Scott Wine

are business. it Well, of long-term. look have if we decade And big talked where you and industry the from is before say at the so again, that than half going not flat forward they were about mean said I'll that at believe I picture, ago. look just different a less Snow relatively ATVs you've we

little some when not as I gain side-by-side happens in a a becomes much of of and as and share that is think innovation ATVs So, it is happens. it nearly innovation bit happening

So I therefore, ATV, with what's environment volatility. think the of got most driving driven and that's your you've promotional

major thousands just player slightly industry. believe dollars it's flat I volatility that the give up a some long-term had sale, But we know of where you to no-brainer and off, drove call they As a a market. it over

Seth Woolf

Okay.

all driven it's side-by-side got assumption. a and discussed, you've growth ORV modest the you So, safe

Scott Wine

Have been be. and will

Scott Wine

again morning. your I want thanks. Thanks quarter. we And talking thank and to look bye. and next again everyone to forward participating Okay interest for to you good this

Operator

today's call. This concludes conference

disconnect. You may now

Polaris (PII) 24 Oct 172017 Q3 Earnings call transcript