BRP Inc. ($DOO)

Good morning, ladies and gentlemen. Welcome to the BRP Inc.'s Fiscal Year 2026 Fourth Quarter Results Conference Call. [Operator Instructions] I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

Thank you, Julie. Good morning, and welcome to BRP's conference call for the fourth quarter of fiscal year 2016. Joining me this morning are Denis Le Vot, President and Chief Executive Officer; and Sebastien 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 and that the actual results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and are subject to risks and uncertainties, and I invite you to consult BRP's MD&A for a complete lease update. Also during the call, reference will be made to supporting slides, and you can find the presentation on our website at brp.com under the Investor Relations section. So with that, I'll turn the call over to Denis.

Well, thank you, Philippe. Good morning, everyone, and thank you for joining us. I'm truly honored to be here today as the new CEO of BRP. Although I've only been here in my role for 2 months, I can see how Jose Boisjoli and the team contributed to building an exceptional company and move our industry forward in meaningful ways. I am excited to lead the next chapter of this great organization built on solid foundation and deep rooted values. Since joining BRP, I have spent my time diving into the business. meeting our talented employees, visiting our sites and engaging with our dealers, distributors and partners. Last week, I had the chance to ride our side-by-side vehicle and personal watercraft in Palm Bay, and believe me that was quite an experience. My views will continue to evolve as I refine my understanding of the business. But so far, I am energized by the passion I've seen and the immense potential ahead of us. It is already clear to me that BRP has a proud legacy, a culture of innovation and excellence and a unique position as a leading part sports OEM poised for continued growth. I'm happy to share with you the solid results our team delivered, starting with a look at fiscal '26 highlights on Slide #4. Looking at the past year, I am impressed with how the company managed through a volatile tariff environment and challenging competitive landscape as the other OEMs were still looking through excess inventory. Despite these headwinds, we delivered financial results above our initial expectation for the year and continued prioritizing our business relationships with dealers by making great strides in rightsizing our network inventory. Additionally, several steps have been taken to strengthen the long-term prospects of our business. such as the introduction of several new key models, the divestiture of 2 of our Marine businesses and the introduction of our M28 strategic plan. BRP is in a solid position heading into fiscal '27. Now let's take a look at the year's financial results on Slide #5. We ended fiscal '26 with revenues of $8.4 billion, normalized EBITDA of $1.1 billion and normalized EPS of $5.21, all coming in above guidance. Additionally, we generated solid free cash flow of more than $900 million, ending the year with a strong balance sheet. Turning to more operational elements. We concluded the year with a healthy network inventory position, as you can see on Slide #6. In North America, our dealers inventory was down 17% from a year ago and down 28% over 2 years. We reached optimal levels for ORV and snowmobile following a good quarter at retail, and we are progressing towards these levels for the other product lines. We are now positioned to better align wholesale with retail in fiscal '27 and to capture market demand when the industry returns to growth. Now turning to our retail performance by looking at global trends on Slide #7. We had a solid quarter with our North American powersport retail increasing 12%, fueled by positive industry trends and market share gains in ORV and snowmobiles. Actually, we delivered a record Q4 performance in ORV in Canada. Let's look at the other regions. Markets in EMEA remain relatively muted with a slight growth in ORV and PWC, but offset by snowmobile trends in Scandinavia due to unfavorable snow conditions. As a result, we lagged the broader industry given our important snowmobile business in the region. Meanwhile, our retail was up 1% in both Latin America and Asia Pacific, primarily driven by a strong end of season for PWC in these markets. This notably led our strongest retail quarter ever in Brazil. Overall, we saw global trends continuing to improve in Q4 with industry growth in all regions. Now turning to Slide 8 for a look at our North American retail performance by product line. As mentioned, we had a very strong quarter with our retail up 12% and market share gains across the portfolio. The side-by-side industry remains healthy, up low single digits in the quarter, driven by the utility segment, reflecting the growing adoption of CAB units. Can-Am performed remarkably well with retail up high single digit, thanks to the success of the new Defender HD11. For ATV, the industry was down mid-single digits, but up when excluding used models. Can-Am significantly outpaced the industry again with retail up low-teen percent, driven by market share gains in the high-cc segment following recent product introductions. As for the snowmobile, the industry was up mid-teens from a weak Q4 last year. Even though we were competing against high level of discounted and aged network inventory from other OEM, we again outpaced the industry in the quarter. Moreover, a few weeks ago, we launched our new Ski-Doo and Lynx lineups for the upcoming season. Once again, we are by far offering our rider and dealers the most innovation in the industry with improved performance, comfort and features. With our strong retail momentum per the end of season inventory levels and exciting new lineups, we are well positioned to further extend our leadership in the snowmobile industry. Finally, Q4 was off season for 3-wheel vehicle, personal watercraft and [indiscernible] tools. Retail trends were softer than last year, notably due to an extended winter season. We will get to a better picture of market demand when core retail season begins in late April. Before concluding on retail, I want to further emphasize the strong impact of our new ORV models on our retail momentum on Slide #9. As I said earlier, we significantly outpaced the ORV industry in the fourth quarter, a trend that began in October when our new models were reaching [indiscernible] showroom. Since then, our SSV retail has been up about 10%. In fact, we have achieved our highest third and fourth quarter market share ever in utility, the largest and fastest-growing side-by-side segment. We had also announced the repricing of certain model [indiscernible], and this decision is paying off so far, resulting in a market share gain of almost 4 points for this model in Q4. As for ATV, the Revamp Outlander platform and recently introduced high-cc Models led to a market share gain of almost 9 points in this category. These achievements show the importance of innovation, which has always been part of BRP's DNA and the driving force behind its continued success. On that, I turn the call over to Sebastien.

Thank you, Denis, and welcome to your first BRP earnings call, and good morning, everyone, driven by robust consumer demand across our lineup and solid execution throughout the organization. We closed the year on a strong note, delivering results ahead of expectations. Looking at the numbers. Revenue grew 16% to $2.5 billion, with solid double-digit growth across all product categories. The increase was primarily driven by [indiscernible], snowmobile and ORV shipment a favorable product mix and positive pricing net of sales programs. Before moving into the profitability metrics on the following slide, I want to briefly address the impairment charge recorded this quarter. As discussed in the past, we entered the EV and light mobility markets during a period of rapid expansion, investing in these areas with a long-term mindset. Since then, adoption has slowed and market dynamics have become more challenging. Given the reduced outlook for returns on our investments, we recorded an impairment charge on our EV and liability assets during the quarter. Still, as previously mentioned, our intention remains to continue selling EV products we have already developed while limiting the annual financial impact to $25 million. Looking at gross profit. Excluding the impact of some of the EV write-down classified as cost of sales, the gross profit was $582 million, representing a margin of 23.7%, up 380 basis points from last year. The improvement was driven by better capacity utilization, lower sales programs and favorable pricing, partly offset by tariffs, higher warranty expense and the return of variable compensation. Normalized EBITDA increased 47% to $364 million and normalized EPS more than doubled to $2.21. These results translated into robust cash generation as shown on Slide 13. In fact, we delivered our strongest year ever, generating over $900 million of free cash flow from continuing operations. With these strong results and the proactive steps we took last fall to strengthening our debt structure, we ended the year with a solid balance sheet, including over $400 million in cash and a net leverage ratio of just 1.8x. Combined with our strong retail performance and solid outlook for the business, this positions us well with the financial flexibility to continue investing in our growth while accelerating capital returns to shareholders. As such, we announced a 16% increase to our dividend and plan to be active with buybacks with over 2.6 million shares still authorized for repurchase under our NCIB. Now turning to Slide 14 for an outlook for our guidance. We entered fiscal '27 with strong momentum, supported by solid retail growth in Q4 and continued robust demand for our newly introduced models across the portfolio. In addition, with our network inventory rightsizing largely behind us, we are well positioned to benefit from the improved alignment between wholesale and retail. With these factors in mind, we are on an even better trajectory than we thought we would be when we reported our Q3 results back in December, and entered fiscal '27 positioned to deliver north of $6 of normalized EPS. However, as you know, events in the recent weeks have increased uncertainty around the broader environment, making it more challenging to anticipate how market conditions may evolve. While we are not seeing any material impact on the demand for our products at this time, we have elected to introduce a wider than usual guidance range to reflect potential outcomes should conditions change as the year unfolds. Consequently, looking at the different scenarios, we expect our revenues to grow between 5% and 8% and our normalized EBITDA between 6% and 16% and our normalized EPS to end between $5.50 and $6.50. Now looking at how we expect the year to unfold on Slide 15. Retail and fiscal '27 continues to perform well and is tracking in line with our initial plan for the year. This positions for a strong top line growth in the first half driven by continued market share gains and supported by shipments that are expected to be more aligned with retail following last year's significant network inventory right size. Revenue growth is expected to moderate in the second half as we lap the initial shipments of last year's significant product introduction and as typical at this time of the year, we take a more conservative view of the snowmobile business for the upcoming season. Assuming demand continues to track with our plan and incorporating the impact of the recent increases in oil, energy and commodity prices for the full year. We expect to deliver results in the upper half of our guidance range with normalized EPS of $6 to $6.50, representing a 15% to 25% growth over fiscal '26. While we cannot predict how current events will unfold or whether they may ultimately affect our business, we recognize that they could lead to more uncertainty in the broader economy. As such, we have assessed what it could mean for the business in an alternative scenario where demand gradually softened towards a mid-single-digit industry decline later in the year. In such a case, we expect that the impact on our first half results would be limited as most of the planned volume is already backed by dealer orders. Any required adjustment would therefore occur primarily in the second half. Factoring in lower volumes, higher sales program and the impact of lower variable compensation and alignment of overhead spend to that environment, we expect that our normalized EPS could land within the lower half of our guidance range. Still, based on what we see today across the business, most importantly, with retail trends and dealer orders, we continue to track towards the upper half of the guidance range, and we are trending towards a strong first half of the year, including normalized EBITDA growth in the 40% range for Q1. All of this supports our confidence in continuing to invest in our long-term growth while accelerating capital returns to shareholders. On that, I will turn the call over back to Denis.

Thank you, Sebastien. Before concluding, I would like to provide an update on our M28 strategic plan. The team has already progressed on many key strategic initiatives, notably by gaining market share through our new ORV products, growing our North American dealer network, expanding our international business and improving efficiency by unlocking lean value. I look forward to working on further progressing on our targets. On the heel of a successful fiscal '26 and fueled by our Q4 retail momentum, we are stepping into fiscal '27 with a solid alignment and ready to deliver on our commitments. As mentioned in my introduction, I have met with many of our stakeholders since joining BRP, and they all have this in common, the passion for our products and willingness to contribute to our success. Visiting some dealers allowed me to witness that the network is engaged and healthy and that our efforts to improve the dealer sentiment are paying off. And this is only the beginning. I had a chance to meet with some of our design and engineering colleagues, and I am convinced that we have a strong lineup coming up and an exciting pipeline. Everyone is looking forward to invading new innovation later this year and beyond. While the geopolitical environment remains uncertain, we are confident in our ability to adapt and execute on what we can control to continue outpacing our industry. In the longer term, we aim to strengthen BRP's position as a leading global powersports OEM, drive sustained growth and deliver lasting value for shareholders. I look forward to having the opportunity to further engage with you in the near term. And on that note, I turn the call over to the operator for questions.

[Operator Instructions] Your first question comes from Benoit Poirier from Desjardins.

Welcome on board, Denis. So obviously, very impressive engineering background in the automotive industry and in a few companies around the globe. So could you give us your first impression? And where do you see the greatest opportunities to bring value on the back of your strong experience?

Well, thank you, Benoit. Thank you very much, and hello, everyone. We are very happy to join. I've been in the car industry and the auto industry for decades. That's true in Europe as well as in North America, was ahead of Japanese brand in the U.S. a few years ago. And I think that when you look at motor sports, there are 2 folds to your question. The first one is the similarities, there are similarities. This is a big volume, industrial business, in which, of course, you have the same challenges, the value of the brand relationship with the network, the quality of the product, the competitiveness of the company this is very, very similar. And on that one, I guess, I have a huge experience. The second fold of course, is the differences. These are the products. Though I've been writing motorbikes all my life, you don't come to this job like you come to any job. You have to be attractive and I am fully attracted by the products of the company. These are great, great, great products. These are dream machines to me, and this is another part of the game, which I think is very important, especially on positioning the brand on the marketing positioning, and I'm really excited to be here.

Okay. That's great color. And just for the follow-up question, looking at fiscal year '27, Obviously, we saw the forecast, the guidance for fiscal year '27. Could you talk maybe about the assumptions from a tariff standpoint also in terms of promotional activities? And given on what you're tracking so far in terms of market share gain, if there is room to exceed the fiscal year '28 targets in terms of side-by-side and ATV.

Yes, I think it's -- I'll start with the last part of your question. I think it's too early to call out whether or not M28 target that we will exceed it. We're certainly focused on delivering it. And as you saw Denis's prepared remarks, he covered the accomplishments we've achieved on '28. One thing for sure is we're happy with the reception that our products have gained in Q4 and with the retail momentum. And as I said in my prepared remarks, we're actually ahead of where we were -- where we thought we would be when we talked back in December. So that's a good news. The snowmobile season went well. For the puts and takes for next year. Obviously, we expect EBITDA margin expansion. That EBITDA margin expansion will come from gross margin. I'll start with the overhead and the OpEx. We're planning for little leverage on OpEx as we are making targeted investments in order to achieve M28 objectives, the elements that we covered during our investor meeting in terms of product and also dealer network. But the margin growth is going to certainly come from the added volume now that retail is more balanced with wholesale. The lean initiatives that we have, and there is some tailwind as well coming from programs. What we did build in our guidance, which we have not forecasted initially was the oil barrel going up from $60 to $100. So our assumption initially was at $60 and going to $100 from a freight perspective commodity is an impact of about 60 basis points that we baked into our guidance.

Your next question comes from Robin Farley from UBS.

Great. Just wanted to get more clarity around your guidance. It sounds like you're saying that what you're seeing is actually in the top half of your EPS range and that the sort of entire bottom half would be a change from what you're seeing. But I just want to clarify, you just mentioned that you already do have higher fuel price baked into the top end of guidance, right? In other words, the current fuel price still puts you in the top end of that guidance? And then also, if you could give us some color around just what's baked in for your expectation for ORV retail for this year? And like how much -- you mentioned shipping in line with retail? And then if you could help us quantify sort of the dollar amount of destocking that you're comping. So in other words, if you ship in line with retail and retail is flat, you would still be up just to help us.

So yes, on your question, we have baked in the financial impact of a higher barrel cost on our business obviously, and as I mentioned, to Benoit, about a 60 basis point impact. In terms of industry expectation, we're expecting a flat industry that's going in assumption. Overall for all of the powersports industry, we have a slight increase, the low, low single digit for ORV. And we are expecting market share gains. So ORV, we're expecting market share gains, snowmobile off a good season, inventory corrected. We're expecting a solid season next year. So that's also big then. Where we might see a bit of [ gnarliness ] is on the market share for personal watercraft. Other OEMs have more inventory. They finished the season higher than they were last year. So we might see a bit of market share loss on that front.

And as Sebastien was saying, the first half is already solid by the orders we get from our dealers. And the gains of market share is already -- the momentum is already there because the is really outpacing the market when it comes to U.S., as you asked, SSV ORV, we have 12% growth already in the Q4 only.

Okay. Great. And then -- and just I didn't know if you could help quantify the destocking benefit to your...

Sorry, there was [indiscernible]. So the destocking impact, depending on the guidance range, we're talking, let's say, $350 million to $450 million positive tailwind that we're getting in next year.

Your next question comes from Sabahat Khan from RBC Capital Markets.

This is Arthur on for Saba. I wanted to start with the EPS guidance, specifically the bottom end of the range. I guess just in terms of your outlook for the back half of the year, can you share how you ended up at the assumption behind the mid-single-digit decline outlook?

Well, the -- a mid-single-digit decline outlook. It's probably, let's say, 10% volume reduction in the back half of the year. So 5% to 10% for us, wholesale reduction which we think, again, today is a fair assumption. We don't know where things will go. Things will go sideways, et cetera. We've lived a few disruptions in the last few years with the war in Ukraine last year. the tariff uncertainty. So again, it's the assumption we took in a context where economic uncertainty may grow, consumers are being under pressure, interest rates do not go down or even might go up. So that's the assumption we took. But obviously, there are multiple scenarios we could have run, but we think this is a fair scenario today with what we know. And again, we've already built 60 basis points of headwind coming from higher fuel cost than our number.

Okay. That's helpful. And then maybe switching to inventory. It seems like your inventory is in a good spot for the most part. Can you just comment on how you feel about your current mix? And I guess as a follow-up, I think you mentioned you still see elevated levels of noncurrent inventory from competitors. Can you just talk about maybe what that looks like today compared to the past few quarters?

Yes. Well, as you saw on Slide 6, our inventory down 17% versus last year, 28% versus 2 years ago. When I look at -- even for ORV, our inventory is down prior COVID, so lower than before COVID and our retail has actually gone up by 40%. So again, a super healthy spot. As for the competition and other OEMs, the situation has improved a lot over the last 12 to 18 months. But for ORV, we see a few smaller OEMs that still have a lot of inventory. So they're going to have to work through that. but it's not as meaningful as we saw in past years. And as I mentioned, for Personal Watercraft, some OEMs also have a bit more inventory. But generally, we expect that environment will lead to a less promotional environment, and that's why we built a 50 basis point tailwind coming from programs in our numbers for fiscal '27.

Got it. That's helpful. And then maybe just on retail sales. Last question for me. Another good quarter of share gains. Can you just maybe talk about the uptake of your new product offerings and maybe kind of what the -- what your expectations are for that over the coming year?

Yes, for sure. So there's a lot of new product coming in the year, right? But what we can say is that the momentum is based on innovation, right? So this is a healthy momentum that we're having and the growth that we're posting for next year is based on that. The skid starting very well with the new 600 cc engine that we've launched, which is a top or changing with very low inertia very responsive, and we have a very, very good order trend on the skid for that reason, right? We also renewed all our platforms on the utility for the ski does. But of course, the most the most important innovation in the way is the Defender HD level we talked about, right? Because the fund G11 is a complete new platform, new engines. We have a new dashboard. We have a 10-inch screen on an SSD. This is a very big hit. And more importantly, this is the biggest growing segment by far is the cap. And here, we're having a success, we can hardly produce as the demand is going. So this is a very, very good position that we have in for the future. So this is mostly the 2 that are fueling the growth for '27.

Your next question comes from Joe Altobello from Raymond James.

I guess first question for you, and it's probably a tough d1 because you've been in the seat for all of 2 months here. But what sort of changes can we expect at BRP either strategically or operationally or financially?

Yes, it's not a tough question. It's a bad question because actually, I don't see the point to make changes. I'm sitting in the company which is growing 7% in revenue to 8.4 billion, as you saw, which is posting 8.9 billion or 9 billion revenue for next year and also is believing hard in its M28 plan of 9.5 billion revenue 2 years down the road. So I don't think that it's the moment for very quick and short-term changes, right? But still, beyond our plan for 28, there will be the longer-term plan that we have to build all together in the company. And this is going to be one of my jobs. I'm very confident in the short-term position in the business that we are running. I can tell you that the product lineup that I've seen, that you haven't seen, for the years to come is very, very solid. And this is a chance that I'm having because we have a plan our plan is solid and we believe in it. So it gives me a little time in order to prepare with the team the next longer-term plan. And this is where potentially there could be a novelty, but this will come in due time.

Got it. Very helpful. And just to follow up on that, you mentioned the M28 targets. Glad to hear that you're backing them this morning. If I take the high end of guidance this year on EPS of $6.50, it's quite a leap to $8. Can you remind us what's driving that largely margin expansion in 28?

Well, the driving margin expansion is going to come with the volume growth. Obviously, part of the M28 plan is gains in market share in ORV and especially in side-by-side. And so with that, we're also -- it's going to be fueled by dealer network expansion. As you saw this year, we finished above our target. We have a target of opening new dealers as well in the coming year. So it's a combination of volume efficiency gain with the lean initiatives that we have and also continuing to execute and build dealer engagement around the brand.

Got it. And can I sneak in one more on tariffs? I think somebody asked earlier, I'm not sure we got a number, but what was the incremental tariff in '26 and what's the expected tariff in '27?

Yes. The expectation is a flat year-over-year tariff assumption. So we've only built -- we did not build anything coming out of the recent Supreme Court ruling in terms of sitting. So we have a $90 million impact built in our guidance for this year, and it was also ballpark $90 million as well last year. So a flattish tariff impact.

Your next question comes from Mark Petrie from CIBC.

I wanted to ask, actually, you just touched on it, but on the dealer network growth, as you noted, you added a little bit more or a few more than planned for fiscal '26, I think the plan was 40% for fiscal '27. Just to update that. And then I'm curious just to hear anecdotally, what sort of reaction you're hearing from your existing dealers? And then any color you can add just with regards to sort of where those dealers are going and a sense of, yes, sort of the geographic opportunities?

Yes. Maybe I'll take this one. We grew in North America, maybe in the U.S. by 36 dealers this year, right? Of course, you can imagine with the momentum that we're having on our products, the growth that we're having. This movement is partially natural, if I may say, right? We are attractive to dealers, as I said before, the dealer sentiment is increasing, and we work on that. Going forward, as Seb just said, we still -- the biggest potential we're having is still in the ORV in North America and especially in the U.S. The momentum is right, with the HD11, with a 12% growth in Q4. So this is something that we are hardly working on. And I would say that apart from this, we are also growing in Brazil. We are also growing in other zones of the world where we can also expand the size of our dealerships.

And to your last question, in terms of dealer feedback, in some states in the U.S., we are underpenetrated, and we haven't expanded our dealer network in the last 5, 6 years, and so we were overdue to do it. And most of the dealers that we open are actually existing dealers that decide to open a new rooftop either by acquiring a dealer and bringing in the brand or adding a rooftop. And so given this underpenetration, we're not seeing any -- a lot of friction from the existing dealer base.

Okay. And then I just wanted to follow up and just to sort of clarify, you aren't seeing any reaction from consumers or dealers in the last month or so as macro uncertainties have elevated? Or how are those sort of conversations with the dealers gone or evolved in that time frame?

No. The inventory being lower and the momentum being high, we cannot say today that we have a reaction by our dealers on that one on the country we are manufacturing as quickly as we can. From the client standpoint, remember what Motor Sports is our clients are rather wealthy households. We are above $150,000 a year, but in the north of that to $170-something per year. So there is probably a distance between what's happening short term and what the reaction of the market will be. So that's why with the team, we decided to have this confirming the first half of the year and being cautious on the second half of the year in our guidance.

Your next question comes from Anthony Bonadio from Wells Fargo.

So I wanted to start out with your lean value initiative. I think you guys had another $200 million to go from the original $350 million when you presented to us in October. So can you just talk about how much benefit you're expecting in fiscal '27? And maybe how you're thinking about the level of flow through there versus reinvestment at this point?

Yes. Well, obviously, it's a big priority of the team to drive lean. We saw we delivered $150 million last year. The expectation this year is 100 basis points value coming from this lean initiative. So that's what's baked into the guidance. Obviously, we are facing inflation as we do every year, and the expectation is that pricing will be -- will offset inflationary costs that we see. So globally, I'm happy with how we're tracking what we're driving. And again, this year, if we deliver the 100 basis points, we'll make delivering the M28 objective certainly achievable for next year.

Got it. That's helpful. And then just a follow-up question on tariffs. I know there's sort of a refund request process underway. Can you just talk about maybe how you're thinking about getting any of that money back? And just any thoughts on the time line at this point?

Yes. We're not -- honestly, we're not in a -- obviously, we'd like to get the money as quick as possible, but we're going to -- we're still monitoring. We're going to see how the process is and the likelihood of capturing it. I'm not a big fan of spending money on lawyers if we're not able to get that money. But obviously, we won't leave any money on the table. And once the process is clearly established and the certainty is there, we will obviously file for refunds. Yes, we haven't baked in our guidance, obviously.

Your next question comes from Martin Landry from Stifel.

I was wondering how -- if there is a correlation between industry demand and oil prices, have you looked at how the industry behaved in the past period of oil shocks? And just trying to understand a little bit if there's any at all correlations. I understand that so far, you haven't seen any impact on demand, but it would be great to have a little bit more color on and if there's any correlation between oil prices and industry demand.

Yes, fair question, Martin. Obviously, when we look to the last time we saw oil prices this high was when the Ukraine war started. And we did not see an impact on demand. It's all a question of where the barrel goes, how long does it stay there? And what's the impact on the overall economy. I think that's the biggest factor. So there's a question of the nature. So how big it is it? The extent along it last and which market is being more impacted. So that's why we've preferred this morning to issue kind of a low -- a wider guidance range and provide a kind of a potential downside scenario for the back half of the year.

Okay. That's fair. And in light of that, rent has gone up a lot more than WTI. So I was wondering you're talking about your guidance assuming flat industry demand. Can you break that down between regions? Just trying to see what assumptions you've used for North America. And then what assumptions you've used for EMEA, LatAm and Asia Pacific, if possible?

Yes. Again, I think when you look at it -- we do look at it more from a macro level. Our volumes in the Middle East are quite low, less than 1%. So obviously, we were more pessimistic there. But generally, given that all consumers can be impacted from higher oil prices from inflation, from interest rates. And given the affluency of our customers, it's pretty much standard around the world, we decided to apply a similar assumption globally, which will still permit growth, I don't misunderstand because last year, it was about snow for Europe. So hopefully, store will begin this season. We outpaced the market even if they are flattish in Latin America and Asia. And as we said already during the call, our growth in North America will most be the market share in the in the U.S. So...

Denis, welcome.

Your next question comes from Xian Siew from BNP Paribas.

I wanted to ask first about the first quarter, you talked about EBITDA being up 40%. Can you maybe give us a little bit more in terms of what's underlying -- the underlying assumptions for the quarter in terms of like revenue because it does feel like you have kind of a lot of more visibility to 1Q. So yes, just curious on some more guidance on that.

Yes. Certainly, last year, you might recall that it was a quarter where we undershipped because of the inventory depletion, especially on personal watercraft. It's a quarter where we reported a provision related to snowmobile. It was a tough story see them. So we could see revenues grow quite sizably obviously, to drive this big growth in EBITDA. And also on year round, we'll be seeing increases as well in terms of overall revenue growth. From the HD11, the side-by-side and also RV. So ballpark, you could see a $300 million of revenue growth in the quarter, and that obviously is trickling down to solid EBITDA and EPS.

Okay. Great. Then I wanted to ask about the Utility segment. Obviously, you guys are making a lot of progress on the new platform is quite impressive. But just kind of wondering like the share gains, do you think it's from new customers, existing customers kind of trading up, maybe customers who entered the industry, I don't know, in 2020 and are now kind of looking to upgrade their product? Or like I'm just curious about kind of the customer base that you're attracting and if you're kind of seeing a replacement cycle in utility?

Yes. We have both actually because that's true. We are growing in the utility, which means that we are bringing more people, let's say, conquest on the market that maybe we are on the reg part of the segment. As a global figure, I would tell you that we are bringing like 230,000 new people to our family every year, right? So we are really on the dynamic of growing our market share and growing our base of clients. So we are attracting people. And the offer coming to utility that we're having again on the HD11 is really hit, right, by the vehicle, by the new 3-cylinder engine, we're having positioning on the vehicle makes it -- I mean, a complete on the subsegment of the utility, and we are really producing full speed on that one.

Your next question comes from Luke Hannan from Canaccord Genuity.

Welcome, Denis. Seb, I wanted to follow up. You mentioned as far as what you're baking in the guidance right now, I think you had said a 50 basis point tailwind from sales programs. assuming you stay within the top half of the guidance range there, what would be implied for you then to be at the lower end of the guidance range? Would you assume sort of no tailwinds from sales programs? Or would there be a headwind there?

Yes. The lower end of the guidance, obviously, it means a tougher macro, more competitiveness as well, a more promotional environment. So certainly, we would lose that tailwind of 50 basis coming from programs, and we have an impact -- have a favorable impact at the top end of the guidance coming from volume and mix of about 40 basis points and probably lose a big part of that as well.

And then I wanted to follow up also with Telwater and basically just where things stand as of today and when we might expect your a little more on that.

The -- well, as you probably saw, the Telwater business is still classified as a discounting operation. So that means that it's still available for sale. It is a great business, great management team as well, running the operations there, probably revenues likely above the $100 million range with EBITDA margin potential in the low teens. So good business. We're not in a rush to sell it. So obviously, we're in the market. If there are buyers that are interested, they'll approach us but that's where we stand today. Yes.

Your next question comes from Tristan Thomas-Martin from BMO Capital Markets.

Denis, looking forward to working with you. Just a question on the HD11 production kind of ramp. I think you said you're producing full speed. Does that mean you're at 100% of where you want to be? Or is that still ramping?

No, no. We are 100% of where we want it to be. The ramp-up is totally finished, and we are at the right level of production right now. Now I just mentioned that because this is one of the products which is a real hit on the market, and it's a good thing that we are -- most of the parts of the factory are working 3 ships on this vehicle.

Okay. Great. And then just curious, in times of like elevated oil and gas prices, have you seen increased utility demand in those regions?

I can't say there's a high correlation. Obviously, we are if there were to be a slowdown, we would expect less of a slowdown in utility because of the novelty of the HD11. but there's obviously impacts on the ag market as well on construction industry, et cetera, coming from higher oil prices. So it's difficult to call a show as to what the actual outcome. That will be the global economy more, yes.

Your next question comes from Jaime Katz from Morningstar.

We haven't heard too much about demand trends on premium or whether you guys have seen any sort of value-seeking behavior. So I guess if you have any color on whether attachment rates are staying consistent or if there has been any value-seeking behavior, that would be really helpful to hear about.

Sorry, Jamie, we lost you. I hope you're still there. Operator, maybe we go to the next question and we bring back my later?

I may able to hear Jamie. [Technical Difficulty]

So I guess I was interested in hearing more about demand trends given your tilt to premium, whether you guys have seen any value-seeking behavior, buying things like attachment rates stayed the same? Or is there anything that is changing given sort of the increasing uncertainty in the macroeconomic environment?

We haven't seen any changes. The trend has been towards more the affluent customer in the last, let's say, 12 to 18 months and that trend continues. And BRP is obviously, as you well know, position more towards the higher end. And so that consumer is, I guess, more isolated from inflationary pressures, high interest rates, et cetera. And so even that kind of shield us a bit from the potential slowdown if it were to happen. But nonetheless, we monitor overall retail trends continuously to make sure that we understand where the trend is going towards.

Yes. And I guess on that note, is there -- has there been any difference in mix in finance versus cash purchases?

No. Generally, we still see about 30% of the retail financing going through our dedicated partners. FICO scores remain high. And so I haven't seen any changes between this quarter and any previous quarters.

Your next question comes from Cameron Doerksen from National Bank.

A question on free cash flow. You had a very strong year in fiscal '26. There was a pretty nice tailwind from working capital. So just wondering what your expectations here are for fiscal '27 on free cash flow and what we should expect from the working capital?

Yes. It depends on where we land on the guidance, but we're expecting another strong year next year on free cash flow, maybe in the range of, let's say, $750 million to $800 million. CapEx, in the $400 million range, as you saw. So another good year next year.

Okay. And in that context, it looks like you're going to continue to build cash on the balance sheet. So obviously, you've announced the dividend increase this morning. But I guess where are the capital allocation priorities here? I mean the CapEx is fairly stable. But just wondering what your expectation is here for capital deployment?

Yes. We've strengthened further the balance sheet last year with debt refund and debt maturity extension. So we're obviously in a very good position. We still have 2.6 million shares to repurchase under the Inside B, and our intention is to be active on that front.

And as I said -- sorry, Denis speaking, and this gives us a solid ground to prepare the next plan that we will be preparing during the year.

Absolutely. No, it's a good position to be in.

Your next question comes from [ Alice Rickland ] from Baird.

I wanted to touch in a little more detail on the utility side-by-side segment and particularly that CAB category that you called out. Maybe provide a little more detail on the impact that that's having and how long you think momentum can be sustained in that product category?

Well, it's a trend we've seen over the last few years, and we've invested one in capacity because it's different to build a unit than a non-cat unit in the plant. So we have invested in capacity. And the new Defender platform was designed around it being a CAB units, so that specifically design purpose. What we're seeing is that consumers are seeking automotive features more and more in the vehicles. So obviously, an enclosed space, heating, air conditioning, connectivity, and that's what we're offering. And now the HD11 was the first model on the new platform. And obviously, we will be introducing other models in the HD10, HD8 in the coming years and flat obviously is going to increase the addressable market that we have. So we expect continued growth on the utility segment for the next few years.

That's helpful. And then maybe just checking the box on guidance, what kind of interest rate assumptions are embedded in your outlook?

We've assumed a flat interest rate compared to this year. No changes in the federal reserve rates.

Your next question comes from [ Catherine Song ] from TD Cowen.

Just a follow-up on the margin guidance. Is the EV rightsizing be a benefit to the [indiscernible] in outlook?

It is a benefit. We -- last year, we were investing in the launching of the 2-wheel products. And so when you look at the overall EBITDA margin growth that we're planning this year compared to last year, [indiscernible] is a tailwind of about 50 basis points. which is going to be offset by investments that we are making on the M28 plan, i.e., R&D, so product lineup despite having a very fresh lineup. We're going to continue investing and also on the sales organization and network organization as well. So we're expecting no operational leverage coming from OpEx investments this year versus last year. So yes, a tailwind, but compensated by other investments.

Your next question comes from Gerrick Johnson from Seaport Research.

Denis, welcome. So maybe a finer point on the oil impact on costs, Sebastiaen. Can you remind us the percent of cost of goods sold that shipping would be? And then also resins? And then how far are those contracted out? How locked in are you on those prices?

Yes. From a commodity point of view, we do have long-term agreements with our suppliers. And so we are pretty much hedged. And obviously, freight costs, I probably won't go in too much detail for competitive reasons, but it is an important part of our business. And as I mentioned, going from $60 to $100 per barrel is a 60 basis point impact on our business, Gerrick.

Okay. Okay. You're going to make us do the math. That's fine on volatility.

Given your back, I'll have you work a bit.

On utility back on that topic, are your dealers see any sort of impact or increase in demand for utility from businesses, farmers or [indiscernible], et cetera, owing to the statement of bonus depreciation of 100% in the U.S.?

Yes. Well, certainly, that has been a driver for small businesses as well and not just call it, the commercial business. And we also have commercial programs in place to drive awareness on that consumer group. And so yes, we are seeing a benefit coming from, we'll call it, the commercial business. It's 100% driven by the accelerated depreciation. I don't know. But certainly, it's an area that we focused on.

Your next question comes from Jonathan Goldman from Scotiabank.

Most of them have been asked, but just maybe to put a finer point on it, the walk to margin expansion, gross margin expansion year-on-year. Can you remind me of the drivers there? There's a tailwind from lower promo freight headwind of 60 bps of volume mix tailwind to 40 bps. Is that right?

Yes. Let me give you the color -- let me give you the EBITDA margin bridge. But OpEx stable year-over-year. as a percentage. Volume and mix, a tailwind of 40 bps. Sales program, 50 bps. Pricing, net of inflation, that's a wash. Lean cost improvement, 100 bps. Overhead investments in the gross margin, about 40 bps negative. So that brings us to 150 bps. And then the recent events, when we talked about oil prices being higher at 60 bps. So at the top end of the guidance range, we're looking at a number just shy of 14% EBITDA margin. And at the lower end of the guidance, we're about just north of 13%.

Okay. That's helpful. And then maybe another one on the competitive environment. I know you've baked in some conservatism to the guide kind of a wide range of outcomes. But have you seen any other competitors maybe move quicker to try and respond to consumer anxiety and kind of lower prices to take some share ahead of any sort of headwinds?

No, we haven't seen anything, given I think the big plus we have as an industry is that everyone has been diligent in reducing inventories over the last 18 months. And so I think it pushes in everyone and the industry in a good position to face a potential downside if it were to happen.

And then I guess related to that last one on the industry inventory, could you give us an update on where we are versus current and noncurrent and maybe it's obviously defers by product line?

Yes. I did share a bit of comments earlier, but snowmobile there's -- we're in a decent shape. Obviously, spring has -- winter has decided to hang around a bit longer than we all would like. And obviously, that helps on this [indiscernible] side. But personal watercraft, some OEMs have a bit more noncurrent inventory. And so that's going to probably hurt our market share for the next season. But generally, aside from a few small OEMs, the overall ORV inventory is in good sharpe.

And there are no more questions. I will turn the call back over to Mr. Deschenes to close the meeting.

Thank you, Julie, and thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again on May 28 for our first quarter conference call. Thanks, again, everyone, and have a good day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.