BRP Inc. (DOO) Earnings Call Transcript & Summary

[Audio Gap] The risks, uncertainties and other factors that could influence actual results. BRP does not undertake any duty to update forward-looking statements. In addition, some of the financial measures discussed over the course of this presentation are not recognized measures under IFRS. You can refer to BRP's management's discussion and analysis for the fiscal year ended on January 31, 2025, and for the first quarter of the fiscal year ending January 31, 2026, for a complete definition and complete reconciliation of such measures to the IFRS measures. [Presentation]

[Interpreted]. Good morning. Welcome to BRP's Annual and Special Meeting of Shareholders. My name is Jose Boisjoli. I'm the Chair of the Board of Directors and the President and CEO. If I may, I will just quickly communicate with our English-speaking audience, and I'll get back to you in French shortly there after. Please note that for the portions of the meeting held in English, you can benefit from translation into French at any time by clicking on the language icon on the right side of the webcast platform. Welcome to BRP's Annual and Special Meeting of Shareholders. My name is Jose Boisjoli, and I'm the Chair of the Board of Director and the President and Chief Executive Officer. Please note that for the portion of the meeting that will be held in French, you can always benefit from the English translation by clicking on the language icon on the right side of the webcast platform. And if you have any question, you can submit them in the language of your choice. In accordance with BRP's general bylaws, I will act as Chair of the meeting. I would like to introduce the people who are with me here today, Sebastien Martel, Chief Financial Officer; Martin Langelier, Chief Legal Officer and Corporate Services; and Barbara Samardzich, Independent Lead Director, who will conduct the formal portion of the meeting in English. Before beginning the formal portion of the meeting, I would like to say a few words. As some of you saw this morning, I'm announcing my intention to retire between now and the end of the fiscal year, while a successor is being named. After 36 years with BRP, 22 of which as CEO, the time has come for me to turn over the reins. I'm thrilled that in 2003, I was selected for this role, and I'm specifically very proud of what BRP has become a diversified innovative company well positioned for sustainable growth. You can count on me to ensure an effective transition supported by a seasoned management team dedicated to BRP's success. On this, Barb, the floor is yours.

Thank you, Jose. I'm honored to be hosting this meeting for the third time as BRP's Lead Director. I regret that I am unable to address you in French, but if you have any questions, please feel free to submit them in the language of your choice. Of course, I cannot start this meeting without addressing a few words to you, Jose. I know you will be around in the next few months for the transition to a new CEO, and I know we will have the occasion to express our gratitude during that period. But I just wanted to thank you on behalf of the Board for guiding BRP on a tremendous path of growth and diversification over the past 22 years and for your stewardship of the business. You have led with purpose and vision, implementing impactful strategies that have resulted in strong value creation and significant returns for our shareholders. So once again, thank you. On this, let's get back to our main agenda. BRP shareholders have been invited to attend this meeting live via webcast, a method that has allowed us to reach as many shareholders as possible for the past 5 years. We would like to remind you of a few rules to ensure the orderly conduct of the meeting and to allow you to participate fully. As described in the management proxy circular, only registered shareholders and validly appointed proxy holders registered with our transfer agent, Computershare, may attend, ask questions and vote at the meeting. All other persons who wish to do so may attend the meeting as guests. Persons entitled to participate will have the opportunity to submit questions to BRP at any time during the meeting electronically, directly on the webcast platform by following the instructions online. If we haven't received any questions by the time we reach a specific topic on the agenda of the meeting, we will wait a brief moment and then proceed to the next item on the agenda of the meeting. Registered shareholders and proxy holders were also given the opportunity to transmit questions to BRP prior to the meeting by e-mail. For today's meeting, all matters will be voted on by a single electronic ballot. Registered shareholders and proxy holders will be able to vote until the last item of business is voted on. I now call the meeting to order. In accordance with BRP's bylaws and the authority delegated by Jose as Chair of the meeting, I will conduct the formal part of the meeting, and Martin will act as Secretary. I confirm that Martin has provided me with proof of mailing of the notice of meeting, the proxy form and the management proxy circular. In the absence of an objection, I am appointing representatives of Computershare, BRP's transfer agent, as scrutineers for the meeting. They will count the proxies and votes cast online today. The report provided by Computershare prior to the meeting confirms that we have the prescribed quorum for both the multiple and subordinate voting shares. I also have with me the certificate of Computershare indicating that the notice of meeting was properly given in accordance with the Canada Business Corporations Act and the bylaws of the corporation. Accordingly, unless there is any objection, I will dispense with the reading of the notice of meeting. I now declare the Annual Meeting of Shareholders of BRP duly convened and validly constituted to proceed with the items on the agenda. I will now present the agenda of the meeting and the voting procedure, which are described in further detail in the management proxy circular. We will begin the meeting with an overview and vote on the matters formally identified in the notice of meeting, followed by the preliminary voting results. Presentations will then be made by our President and CEO, Jose; and by our CFO, Sebastien. Finally, there will be a Q&A session during which BRP's management will answer questions submitted in advance of the meeting or electronically through the webcast platform during the meeting. Note that this year, BRP is holding an Annual and Special Meeting of shareholders given that we are asking certain shareholders to vote on an additional matter relating to a special long-term incentive program as further laid out in the management proxy circular. Based on the preliminary count of proxies received and votes counted, the scrutineers have informed me that approximately 231 million votes for multiple voting shares and 228.6 million votes for subordinate voting shares are represented here today. For those of you who are entitled to vote and have not already done so at the appropriate time, you will see the electronic ballot appear on the left side of your screen, allowing you to vote. In order to facilitate the deliberation since the meeting is being held in virtual form, I would ask Martin in his capacity as a shareholder, to move all motions. Let's start with the first item on the agenda. I now submit the consolidated financial statements of BRP for the year ended January 31, 2025, and the related auditor's report. As these documents have been sent in accordance with the provisions of the Canada Business Corporations Act to all shareholders who have requested them, I will dispense Martin from reading them. We will now proceed with the election of BRP directors. BRP management proposes 12 nominees for election as directors of BRP. You have been provided in the management proxy circular with a short biography and other relevant information about each of them. I would now ask Martin to introduce the proposed nominees as directors.

[Interpreted]. I am happy to nominate the following persons for election as a director until the next Annual Meeting of Shareholders or until his or her successor is elected or appointed. Elaine Beaudoin, Pierre Beaudoin, Joshua Bekenstein, Jose Boisjoli, Charles Bombardier, Ernesto M. Hernández, Katherine Kountze, Hildegard Maria Wortmann, Nicholas Nomicos, Edward Philip, Michael Ross, and Barbara Samardzich. You undoubtedly noticed when reading the management proxy circular that Ms. Hildegard Maria Wortmann is applying as a Director of BRP for the first time. [indiscernible] whose term will begin as of July 1, 2025, the term of office of all the other elected directors will begin today and continue until the next Annual Meeting of Shareholders or until their successors are elected or appointed. On that note, Barb, the floor is yours again.

Thank you, Martin. Are there any questions from the participants about the nominations?

No, there are none.

Thank you, Martin. Since we have not received any questions from the participants about the nominations, we will proceed to the vote on this matter. I declare the nominations closed. You may vote for or against each of these candidates. We will give you a few seconds to enter your vote now or you may vote and change your vote until the ballot closes, which will be when the last item on the agenda is presented. We will now proceed with the appointment of the auditor. I would ask Martin to make a motion to appoint the auditor.

Thank you. So pursuant to the recommendation of BRP's Board of Directors, the Audit Committee and Management, I propose that Deloitte be reappointed as BRP's auditor until the close of the next Annual Meeting of Shareholders of BRP.

Thank you, Martin. Are there any questions from the participants about the appointment of the auditor?

No, there are none.

All right. Thank you, Martin. Since we have not received any questions from the participants about the appointment of the auditor, we will proceed to the vote on this matter. All right. We will now proceed with the next item on the agenda. Shareholders or their proxies are asked to vote for or against the adoption of the advisory resolution on BRP's approach to executive compensation, which can be read in the management proxy circular. BRP's approach aims at maximizing its overall performance by relying on the individual performance of its executive officers. Its objective is to retain, motivate and reward executives for their performance and contribution to the long-term success of the corporation in order to improve BRP's performance and enhance value for shareholders and other stakeholders. The Board of Directors of BRP recommends to vote for the adoption of this resolution. Since this is an advisory resolution, the results of the vote will not be binding on BRP's Board of Directors. However, the members of the Human Resource and Compensation Committee will take it into account in their future review of the principles, policies, programs or arrangements relating to executive compensation. I would now ask Martin to make a motion to approve this resolution.

Thank you. I propose in an advisory capacity without diminishing the role and responsibilities of the Board of Directors, that shareholders accept the approach to executive compensation disclosed in the management proxy circular.

Thank you, Martin. Are there any questions from participants about the advisory vote on executive compensation?

No question, Barb.

All right. Thank you. Since we have not received any questions from the participants about the advisory vote on executive compensation, we will now proceed to vote on the matter. Okay. We'll now proceed with the next item on the agenda. Shareholders other than insiders benefiting from this program or their proxies are now asked to vote for or against the adoption of the resolution to approve the implementation of a special long-term incentive program and the proposed grants of special restricted share units under BRP's existing share unit plan. The special long-term program is intended to be a reasonable and balanced approach to allow BRP to retain and motivate its key talent who hold stock options, which were granted in the calendar years 2021, 2022 and/or 2023 and which are currently significantly out of the money and may, therefore, have limited perceived value for their holders. The text of the resolution and details of the proposed special long-term incentive program and the proposed grants of special restricted share units can be found in the management proxy circular at Pages 38 to 40. The Board of Directors of BRP recommends a vote for the adoption of this resolution. I would now ask Martin to make a motion to approve this resolution.

So pursuant to the recommendation of BRP's Board of Directors and of the Human Resources and Compensation Committee, I propose that shareholders vote to approve the resolution on the implementation of the special long-term incentive plan and the grant of special restricted share units as detailed in the management proxy circular.

Thank you, Martin. Are there any questions from the participants about the special long-term incentive program and the grant of special restricted share units.

There are no questions.

All right. Thank you again. Since we have not received any questions from the participants about the special long-term incentive program and the grant of special restricted share units, we will proceed to the vote on this matter. So if you have not yet voted on one or more of the items on the agenda, please do so now before we declare the vote closed. [Voting]

Okay. There being no further business to conduct, I declare the voting on all items of business closed. The scrutineers have completed the preliminary vote count for each of the items on the agenda, and I would, therefore, invite Martin to share with us the preliminary results of the vote.

[Interpreted]. Barbara, thank you. I'm pleased to report that according to the preliminary scrutineers' report, all due 12 nominees for election as directors were duly elected between 93.32% and 99.99% of the votes cast in their favor. I would like to thank the Board of Directors for its strong governance and oversight. Thank you for your input and wise counsel. in ensuring BRP's continued leadership in the powersports industry. Deloitte's nomination was supported by more than 99.86% of the votes. I congratulate them on their reappointment, which testifies to your confidence in them. The advisory resolution on BRP's approach to executive compensation was passed with 99.56% of the votes in favor. The resolution on the special long-term incentive plan and the grants of special restricted share units was passed with 93.45% of votes in favor. A press release regarding the official detailed voting results will be published on BRP's website and on SEDAR+ following the meeting. On that note, Barb, the floor is yours again.

Thank you, Martin. I would now like to invite BRP's President and CEO, Jose; and BRP's CFO, Sébastien, to make their presentations.

[Interpreted]. Ladies and gentlemen, shareholders, BRP Partners, I'm pleased to report our performance for fiscal 2025. Once again, BRP showed its leadership and agility by adapting quickly to changing market conditions. We were the first manufacturer of powersports machines to adjust production and shipping levels when it comes to reducing inventories. As expected, this decision led to a short-term decline in our market share, but protected our dealer network and our value of our brands. As a result, our revenues fell by 21.4% to hit $7.8 billion, while normalized net earnings amounted to $349 million or $4.68 per share. Fiscal 2025 was also marked by our decision to sell our group -- or our Marine group activities in order to focus on efforts and investments in the powersports business. We believe that this decision will allow us to optimize our growth opportunities to improve and to improve our profitability profile, thereby strengthening our competitive position over the medium and long term. Since the announcement, we finalized the sale of Alumacraft and reached a definitive agreement for the sale of Telwater. The sale process for Manitou is also ongoing. It's been a difficult year for the powersports industry. Consumers are more and more hesitant when it comes to the uncertainty in the economic world and because of high interest rates. This was something that we noticed at the beginning of the year, and we were proactive. We concluded the year with a 13% reduction in the number of units in our North American dealer network compared to the end of the previous year. As expected, lower inventories affected our market share, as we were less competitive in noncurrent products, so models from previous years. Our retail sales in North America fell by 15% in line with our expectations. On the other hand, we outperformed the off-highway vehicle industry with our current models, testifying to the appeal of our product ranges. These market share gains give us confidence when it comes to our capacity to bounce back when market conditions become favorable once again. We have maintained our leadership position in motorsports in North America, gaining 6 points of market share over the last 5 years before the pandemic. Our strength in current models stems from our constant efforts to enrich our product ranges by innovating and pushing back the boundaries of technology. First and foremost, our iconic Can-Am brands continue their momentum in the off-highway market by expanding its reach in new niches. In the side-by-side vehicle category, we have capitalized on the Maverick R's popularity in the high-end segment by unveiling the 4 passenger MAX version with unrivaled comfort and the roomiest rear seats in its class. On the ATV side, we introduced our new Outlander platform in the high displacement category with the launch of 2 models offering unrivaled power being the Outlander 850 and 1000R. In the 3-wheeled vehicle category, we launched Canyon, aiming at the fast-growing adventure touring market. The model was well received in the industry and is generating interest. Finally, we launched our first 2 electric motorcycles, Can-Am Pulse and Origin. These brands are a return to 2-wheeled vehicles by targeting an entirely new niche. In terms of seasonal products, we capitalized on the popularity of fishing by unveiling the CD FishPro Apex, a powerful watercraft in its class and the Switch Fish Pontoon, the first model of its kind for fishing enthusiasts. When it comes to Ski-Doo and Lynx snowmobiles, we have the most complete and extensive range in the industry in all market segments with multiple cutting-edge innovations. Buoyed by these product launches this year, we remained the powersports manufacturer selling the most units in North America. Over the course of the year, as a matter of fact, we celebrated a number of important production milestones, 1 million vehicles assembled at our Juarez 1 plant in Mexico, 500,000 vehicles, side-by-side vehicles in Juarez 2 and 500,000 snowmobiles produced in Finland. As you know, innovation is at the heart of our DNA, whether it be in terms of design or technological development. I'm always very proud of when our achievements are rewarded. We concluded the year with 17 international design awards in several categories. These honors motivate us to continue to redefine our products to offer our consumers, the most memorable experiences. Before continuing, I would like to highlight our progress in terms of corporate social responsibility. Firstly, we had our best year when it comes to health and safety with an overall accident rate of 0.4, down from 0.8 in the previous year. We remain committed to our zero accident objectives. We also reached our target of reinvesting 1% of pretax profit in our communities. Over $7.7 million was donated to nonprofit organizations worldwide, more than half of which went to our challenge bullying program. A concrete example of our impact is our partnership with bikers against bullies. This year alone, they raised awareness among 43,000 students when it comes to the importance of overcoming bullying. I'd like to take this opportunity to thank our employees, dealers and suppliers who have been rallying to support our global cause for the past 3 years. On the end of environmental targets, we made progress in energy efficiency and renewable electricity. 73% of our facilities use at least one renewable energy source, and we are committed to further reducing our carbon footprint. While the environment remains challenging, we remain committed to making the necessary efforts to progress towards our targets. In conclusion, for fiscal 2026, tariff volatility is indeed creating uncertainty, which is limiting our short-term vision of time. Over the course of our history, this said, we have often had to deal with changing business requirements across the world. Given enough time to adapt, we have always managed to find solutions. In the medium and more long term, our strategic decision to focus on our motorsports business should enable us to strengthen our leadership position. We will continue to invest in R&D to push back the boundaries of innovation and create a wow effect with consumers in this respect. The next few years look very promising. In closing, I would like to sincerely thank our employees for their dedication. Thanks to them, we are well positioned for the market's recovery. I am also grateful to our network of dealers and distributors in over 130 countries. Their commitment to our brands makes us the leader in the powersport industry. Thank you to members of the Board of Directors for their support and their enlightened recommendations. I would like to take this opportunity to thank Ms. Estelle Métayer, who resigned last fall after more than a decade on our Board of Directors. Her strategic contribution, governance leadership have guided the company through some very big times. Furthermore, I would also like to welcome Ms. Hildegard Maria Wortmann to the BRP Board. Ms. Wortmann has over 34 years of experience in leadership roles, notably in the automotive sector and as a director on various boards. She will bring her extensive expertise and in-depth knowledge of international markets to BRP, and she will join the Board on July 1, in July. Thank you very much to our shareholders for their continued confidence. With that, I turn the floor over to Sébastien for a review of our financial performance for fiscal 2025.

[Interpreted]. Thank you, Jose, and hello to all. I will briefly review our results for fiscal 2025. As Jose mentioned, this was a big year, and we were able to adapt quickly to changing market conditions. BRP thus concluded the 2025 financial year with results below those of the previous year, but in line with our expectations given the new dynamics. In addition, sound management of working capital enabled us to generate good free cash flow and return substantial sums to our shareholders, reflecting the drop in shipments. Our revenues reached $7.8 billion, representing a year-over-year decrease of 21%. These declines are due to lower unit sales volumes in our network across all product lines and with more aggressive sales programs. These factors were partly offset by an improved sales mix, favorable pricing across all product lines and favorable currency fluctuations. Normalized EBITDA was $1 billion compared to $1.8 billion in the previous year. This decline reflects a lower gross margin attributable specifically to lower sales volumes. Importing expenses remain stable. Normalized net income was $349 million or $4.68 per diluted share compared with $957 million normalized or $12.17 per diluted share in the previous year. Despite the lower profitability, we generated free cash flow of $454 million from continuing operations. We returned $277 million to our shareholders through share buybacks totaling $215 million and the payment of $62 million in dividends. In March 2025, we announced an increase in the quarterly dividend to $0.215 per share, demonstrating our confidence in our ability to maintain sound cash management. To conclude my review of fiscal 2025, our long-term debt stood at $2.9 billion at January 31, 2025. And thank you to all of our shareholders for their support and confidence in BRP. I'd like to turn the floor back over to Barbara Samardzich for the rest of the meeting.

Thank you Jose, and Sebastien for this overview of the past year. We are now at the Q&A session. If you have not already done so, please submit your questions online by clicking on the messaging tab and following the instructions that appear. I would like to remind you that your questions should be of interest to all shareholders and not of a personal nature. If your questions relate to your personal situation, a BRP representative will contact you after the meeting if you have provided your contact information. You can ask your questions in either French or English. Martin, have we received any questions?

So far, we don't have any questions. So let's maybe wait for a few more seconds. No question, Barb.

Okay. Since we have not received any questions, we will now close this part of the meeting. All the subjects on the agenda have been exhausted, and we have reached the end of the meeting. Martin will be filing all documents mentioned today with the minutes of the meeting, including the proof of mailing of the notice of the meeting, proxy form and management proxy circular, the report and certificate provided by Computershare and the consolidated financial statements and related auditor's report. I declare the meeting closed, and I thank you for your presence and participation today. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]