BRP Inc. (DOO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the BRP Inc.'s FY '27 Q2 Conference Call. [Operator Instructions] I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

Thank you. Good morning, and welcome to BRP's conference call for the second quarter of fiscal year '27. 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 is subject to risks and uncertainties, and I invite you to consult BRP's MD&A for a complete list of these. Also during the call, reference will be made to supporting slides, and you can find the presentation on our website, 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 today. Before getting into quarterly results, I want to say a few words about Sebastian's retirement announcement released earlier this morning, as you could see. Sebastien has shared with the company's objective to retire some time ago, and he has since supported the succession planning process. I want to thank Sebastien for his outstanding contribution over more than 2 decades at BRP. He has played a key role in many of the company's significant milestones, including its initial public offering on the TSX in 2013, named at the time, IPO of the year. Sebastien's strong leadership, strategic vision and financial discipline contributed to making BRP what it is today with a proven track record and solid financial performance. This is Sebastien's last quarterly call as a CFO, but he will stay with us for a while as an executive adviser. Effective October 1, [indiscernible], who is with us today are Executive Vice President, Global Corporate and Product Strategy, who some of you already know, will become our new Chief Financial Officer. [indiscernible] joined BRP in 2017. Over the years, he has demonstrated leadership excellence across corporate strategy, merger and acquisition, transformation and product strategy. He has spearhead several initiatives that have driven BRP success, including leading the implementation of our new North American ERP system, developing our M28 strategic plan and paving the way for the company's manufacturing footprint in Asia. Prior to BRP, Minton built deep expertise in investment and corporate banking with Lazar and BMO Capital Markets. His strong financial acumen, sharp business insight and extensive powersports industry experience position him as the right person to lead our finance organization. Minton and Sebastien will work together to ensure a smooth transition until Sebastien officially retires in April 2027. Now to our quarterly results. We delivered another started performance with financial results ahead of our expectations, sustained ORV retail momentum, driving further market share gains and meaningful progress on our key strategic initiatives. We also continue to further improve our net tariff exposure while protecting our competitive position and long-term growth prospects. In this context, at our recent dealer event, we unveiled new models that demonstrate our solid commitment to innovation further expanding our product offering and adapting to the current tariff environment. Our team's ability to manage the business in this volatile geopolitical and macroeconomic environment, combined with our solid performance in ORV and overall strong execution, reinforce our confidence in the outlook. As a result, we are increasing our full year guidance, Sebastien will provide further details later in the presentation. Now let's take a look at the second quarter results on Slide #4. We delivered revenues of $2.2 billion, normalized EBITDA of $139 million and a normalized loss per share of $0.18. It is important to note that these results include an incremental net tariff impact of about $145 million compared with the second quarter of last year. Despite this headwind, our performance came in ahead of our expectations, driven primarily by sustained momentum in ORV retail demand and the benefit of a reduced tariff rate on ATVs. We also generated a strong free cash flow of $193 million, further strengthening our balance sheet and enhancing our financial flexibility as we navigate this volatile environment. Let's turn to our network inventory on Slide #5. Dealer inventory remains healthy, being up only 2% year-over-year. We increased ORV availability and further optimize the mix of current model units across our product line. Together, these actions position us well to capitalize on market opportunities in the second half of the year, while supporting sound profitability for both BRP and our dealers. Turning to Global Retail trends on Slide #6. In North America, market dynamics remained broadly consistent with recent quarters with modest industry growth led by continued strength in SSV. Against this environment, our retail performance tracks the industry with ORV market share gains, offset by softer PWC conditions. Internationally, EMEA market conditions continued to improve, particularly in ORV and PWC, notably supported by strong demand in Eastern Europe and Scandinavia. Our year-over-year retail performance was up low single digits trailing the industry due to softer trends in the 3-wheel vehicles. In Latin America, retail declined 4%, primarily reflecting softer SSV demand in Mexico. In Asia Pacific, Industry retail grew low single digits, driven by continued strength in ORV. We outperformed the industry with retail increasing 8%, gaining further market share in SSV. Overall, we are pleased with our retail performance, particularly in ORV, where we delivered strong results across most regions and continued to gain share in several key markets. Now let's look at our North American performance, beginning with a side-by-side on Slide #7. We ended [ season '26 ] on a strong note with second quarter retail up mid-single digits, outpacing the industry. Our momentum continued driven by the success of the new Defender HD 11, which fueled utility cab retail growth of more than 30%. We delivered our strongest ever second quarter for utility SSV retail. For the full season ended in June, our SSV retail grew by high single digits, outpacing an industry that grew mid-single digits. More importantly, we gained more than 3 points of market share in current model year SSV units, achieving an all-time high in this category with Can-Am capturing nearly 1/3 of units sold. To leverage higher-than-expected demand, we expanded capacity within our existing manufacturing footprint. This should enable us to sustain our growth trajectory through the balance of the year and beyond. These positive trends also expanded to ATV as shown on Slide #8. While the industry declined low single digits during the quarter, our retail increased mid-single digits significantly outperforming the market. This strong performance moved us into the #2 position within striking distance of the leader. For the full season, our retail grew low single digits, outperforming an industry that declined low single digits. We gained share in the key mid- and high CC segment, demonstrating the success of our products. Retail of current model units increased by nearly 20%, allowing CanAm to finish the season as the #1 brand in the category. Overall, we are pleased with our ORV performance, which reflects Canam's industry-leading product lineup, the effectiveness of our innovation strategy and the disciplined execution of our business plan. Turning to PWC. Our retail declined low single digits during the season's key quarter in line with the industry. From a market share perspective, elevated levels of discounted carryover inventory from other OEMs continued to pressure noncurrent units. However, our current model year performance remains strong with market share increasing by more than 6 points, ending the quarter above 60%. Given softer than anticipated industry demand, we have proactively decided to further reduce shipments for the balance of the year. This disciplined approach will optimize network inventory, support retail execution, and position both our dealer and BRP for a stronger start to next season. Let's turn to Slide #10 for an overview of our retail performance in North America in other product categories. In 3-wheel, retail declined mid-single digits, with premium models continuing to account for most days, underscoring resilient demand at the higher end of the category. [indiscernible] tools, retail declined almost 30%, reflecting softness across the marine industry. That said, we made solid progress in reducing noncurrent inventory. Finally, snowmobile retail was up more than 20% on low off-season volume. Overall, we are pleased with our second quarter performance while PWC continued to face softer industry conditions, our ORV business remained very strong, and we delivered solid results across several higher-margin segments, particularly in current model units. Moving on to Slide 11 for a recap of key announcements from our recent club BRP. Attending this major event for the first time since joining the company, I had the privilege of meeting several dealers and business partners. The energy and engagement were remarkable with nearly 3,000 participants present in person, representing more than 90 countries. On the commercial side, we launched BRP Financial Services, our new U.S. retail financing program. It is designed to provide customers with a seamless financing experience while giving us greater flexibility to support retail growth and build stronger direct relationships with our consumers. In line with our objective of strengthening dealer engagement and experience, we also enhance our commercial programs to strengthen our dealer value proposition and support profitable long-term growth across the network. From a product perspective, our focus is clear, delivering more value to customers while reinforcing our leadership in innovation. In PWC, we announced our 2027 C2 lineup which includes the all-new Spark X model, more powerful than ever and packed with premium features. We also launched the [indiscernible] RXPX 350 as a tribute to F1 legend [indiscernible] Stena who inspired the world to push ban the reason the racetrack and beyond. Our collaboration with [indiscernible] is already making ways, elevating [indiscernible] global visibility. This limited edition is powered by the all new 350-horsepower Rotax 1630 ACE engine, the most powerful factory installed engine ever after in the category. This engine is also available across the other [indiscernible] performance model. In 3-wheeled vehicle, we introduced the most significant evolution of the Can-Am [indiscernible] since its initial launch, improving handling and overall riding experience. It will be the first model manufactured our new facility in Vietnam. Finally, meaningful upgrades across our OLV lineup, including new models, added feature and stronger value proposition set up to sustain our momentum and drive further market share gains in both ATV and SSV. More importantly, we strengthened our position in what we see as the industry most attractive growth opportunity, utility SSV cabs shown on Slide 12. Over the past 6 years, the segment has more than quadrupled and now represent nearly half of the utility side-by-side industry. For model year '27, we strengthened the Defender lineup with the all new HD 10 platform for the mid-HP segment and the X, a new and enhanced utility offering, built for customers who depend on their vehicle in demanding work environment, the X brings together factory installed accessories, greater capability and exceptional value in a purpose-built package. Finally, let's turn to Slide 13. [indiscernible] Club BRP, we demonstrated how serious we are about Can-Am becoming North America's leading off-road brand. We brought to life 2 visionary concepts the defender pre-runner and the Maverick X-ray, while needle is a production announcement, both showcased the creativity and engineering excellence, shaping our product pipeline. Last but not least, we committed to introducing major off-road product news every 6 months for the next 4 years. This commitment reflects our confidence in the category's long-term potential and our determination to remain the OEM of choice for dealers and writers. I am extremely proud of what we achieved at Club BRP. It was inspiring to see so many people come together to carry the message of our iconic brands and what we stand for. Moments like these keep us closely connected to our riders expectation and challenges to find new ways to raise the bar. With that, Sebastien, my friend, for the 50th and last time over to you for a more detailed review of our financial performance and guidance for the year.

Thank you very much, Denis, and good morning, everyone. Our team once again executed well in a dynamic environment, capitalizing on stronger-than-expected demand in RV to deliver second quarter results ahead of our expectations. This, combined with an improved estimated net tariff exposure is placing us well for the second half of the year and supports our full year guidance increase. Looking at the financial results. Revenues grew 18% to $2.2 billion primarily driven by higher ORV shipments, a favorable SSV product mix and positive pricing net of programs. Turning to profitability on Slide 16. We generated gross profit of $263 million representing a margin of 11.7%. The year-over-year decline in gross margin reflects 2 primary factors: tariff headwinds for approximately 740 basis points and the onetime impact of a supplier financial restructuring, which impacted gross margin by approximately 330 basis points but was excluded from our normalized metrics. Excluding these 2 items, gross profit margin would have increased by approximately 140 basis points year-over-year, reflecting the underlying strength of the business. Normalized EBITDA was $139 million, while normalized EPS ended at a loss of $0.18 per share. We generated strong free cash flow of $193 million during the quarter and $560 million year-to-date, further strengthening an already solid balance sheet. As a result, we ended the quarter with more than $600 million in cash and a net leverage ratio of 1.6x. Now turning to Slide 17 for our revised fiscal '27 guidance. With the first half of the year now behind us, we have delivered results ahead of our expectations, supported by continued strength in ORV demand and solid execution across the business. While the macroeconomic, geopolitical and trade environments remain volatile, the momentum in off-road, together with an improvement in our expected net tariff exposure has enabled us to absorb a portion of the other headwinds we are facing and increase our normalized EPS guidance by $1 to a range of $4 to $4.50. Looking at the key drivers of the guidance update. From a product perspective, we expect continued momentum in ORV supported by recent product launches and additional production capacity coming online to more than offset our decision to lower volumes and increased sales programs in personal watercraft in light of a softer-than-expected trends in the industry. We believe these actions will position the business for a healthier start to next season, particularly given the strong reception of our new models at Club BRP. On the cost front, like many companies, we continue to face higher commodity and freight costs due to elevated oil and energy prices and ongoing transportation pressures. These factors are affecting our gross margin and are reflected in our updated guidance. As for tariffs, factoring the latest tariff development and our revised business assumptions, we now expect Section 232 and 338 net tariff exposure to be $200 million for the year, which would represent approximately $225 million of net tariff exposure on an annualized basis. Finally, our updated guidance incorporates the revised tax rate assumptions and lower share count resulting from the completion of our NCIB program. Incorporating all these changes, we now expect revenues between $9.225 billion and $9.475 billion, normalized EBITDA between $1.025 billion and $1.075 billion and normalized EPS between $4 and $4.50. From a cadence perspective, we expect third quarter normalized EPS to be down 50% to 60% year-over-year, mainly due to the incremental tariff impact. This implies a much stronger Q4 normalized EPS compared to Q3. With these revised assumptions, we now expect to generate more than $800 million of free cash flow for the year, providing additional flexibility and further strengthening our balance sheet. As I mentioned last quarter, we do not believe this outlook reflects the full earnings potential of our business. BRP continues to benefit from strong fundamentals and attractive long-term growth opportunities. Over time, we expect our earnings to better reflect this potential as we continue expanding our plan and as the trade environment becomes more stable and predictable. And finally, before I pass the call back to Denis, I would like to say a few words. As Denis mentioned earlier, after 22 years with BRP, I have decided it is time to let the new generation lead the finance team. It has been an incredible privilege to be part of this organization and to work alongside such talented people throughout my career at BRP. BRP is in a strong position with external brands and compelling product portfolio and a highly capable leadership team led by Denis. I am confident that together with our talented finance organization, Minton will build on the strong foundation we have established and help take BRP to the next level. Having worked closely with him for many years, I know he has a deep understanding of our business, our strategy and our financial priorities and that he is the right person for the job. To all of you on the line, thank you for your trust, feedback and continued support over the years. Obviously, I look forward to watching BRP's continued success in the years ahead. And with that, I will turn the call back to Denis.

Thank you, Sebastien. Thank you very much. And as everybody understood, we are satisfied with our first half performance, our financial results reflect sustained momentum in ORV, while our response to a volatile environment once again demonstrate BRP's agility and flexibility. We quickly identified factors within our control and acted on them with precision and discipline. In parallel, we continue to advance our M28 strategic plan with the announcement made at BRP reinforcing our commitment to capturing our full powersports potential. Our recent ORV success shows our ability to translate insights into market-shaping product that resonates with customers and drive market share gains. We remain focused on becoming the #1 ORV brand in North America, and on increasing our competitive edge across our portfolio. In closing, driven by our strong lineups and engaged dealer network, we are confident in our ability to reinforce BRP's competitive position, sustain profitable growth and create lasting value for shareholders. As we're currently working on our next long-term plan, I look forward to sharing our vision for the road ahead. On that note, I will turn the call over to the operator for questions. And once again, welcome to Minton, and congratulations to Sebastien. Operator?

[Operator Instructions] Your first question comes from Sabahat Khan with RBC Capital Markets.

Great. And just before getting into questions, all the best, Seb, with the next chapter. Just on, sort of, the commentary around the guidance update that you guys have shared, hoping to get a little bit more detail around -- just breaking that out, how much of this was just maybe the environment getting a little bit better, whether it's on the macro? And then secondly, if you can just detail the puts and takes around the evolution of tariffs [indiscernible]. Obviously, your dollar amount, but just what are you assuming for the tariff backdrop? Maybe give us some commentary around the ability to get some exemptions, maybe how much of that is baked in here. Would love to get some color on, sort of, the setup into the back half and what's evolved since the beginning of the year, both on tariffs and on the fundamental outlook.

Sure. Well, first on the guidance, if we look at the puts and takes, obviously, when you look at the top line, the movement is coming from better ORVs deliveries this year offset a bit by the adjustments in production that we're doing and deliveries for personal watercrafts that he mentioned in his opening remarks. That is a small tailwind net-net of about $0.10 to $0.15. Obviously, inflation is top of mind with a lot of people with a lot of companies, and so we're feeling that impact as well. We are talking about another, call it, 50-ish basis points impact on our profitability this year. So that's roughly $0.50 headwind. And the rest is primarily related to our net tariff exposure that has evolved in the last few months, which is bringing the guidance up by $1. Now to your second question as to what the puts and takes on the tariff, just let me just give you an update as what has changed since the last time we talked in May. The first thing is Section 232 tariffs for ATVs has gone from 25% to 15%. And the second [ element ] is a new tariff Section 338 tariffs for imports from Canada into the U.S., which are now subject to 50% tariff rate. And this product line that is impacted is Spyder. Not a huge impact this year because most of the deliveries for the year have been done in the first half of the year, but will have an impact next year. And then the other element, and it's something I've shared with you in the past as well, when we talk about Section 232 tariffs, it's not a broad stroke that the U.S. administration has taken on the powersport industry, it's very targeted to either specific vehicle categories and sometimes even specific vehicle configuration. And so at BRP Club, we introduced new models, which cater to a growing segment of the market, more specifically utility. And some of these models that we are introduced are not subject to 232 tariffs. And so a different tax treatment applies to them. And that provides us with a benefit because what we've seen after Club is that the mix of demand from consumers and from dealers has shifted towards these models. So net-net, when you add all of this, we're talking about a net exposure this year of $200 million and next year of $225 million on an annualized basis.

Great. And just for my follow-up, just given the, sort of, evolving backdrop, can you maybe talk about, sort of, the production ramp you, sort of, talked about and maybe how, sort of, production, manufacturing and just any early thoughts on how you're positioning that side of the business as you head into, sort of, maybe a more favorable operating backdrop. And just maybe you can tie in, sort of, the retail demand outlook there as well.

Yes. We're obviously -- the last thing we want to do is overproduced and have too much inventory in [indiscernible]. We're seeing greater demand from cab units. And so that is where we're adding capacity for cab units. Dealers are asking for it, consumers are asking for it. And so it's a decision that we've been looking at or an alternative we've been looking at for quite a few quarters. And so we're going to increase capacity on that front.

Yes. On that one, as I said, the cap now is half of the utility and has quadrupled. So this is a very big trend Defender is behaving very well in that category. So this is why we are investing on that one.

Your next question comes from Craig Kennison with Baird.

Seb, it's really been a pleasure working with you. I wanted to ask about the supplier financial restructuring line item. Maybe just shed more light on that issue, please?

Yes. Well, we've -- it's something we do not do in normal circumstances, but we had an important supplier that was going through financial difficulties and in order to ensure continued supply of parts, we needed to step in and provide this type of financial support. But obviously, it's been with this company for 22 years, and it's the first time we've had to do this. So it's an exceptional circumstance.

Can you shed light on, sort of, the nature of the transaction itself and whether their downstream implications to relationship with that company? Any, sort of, details around that because your $75 million hit.

The objective is to maintain the relationship with the supplier. It's a good supplier and good quality parts. So the objective is to maintain that relationship. Obviously, there is potential increases in prices that we will get from that supplier in order to make sure that the profitability is maintained for the supplier, but nothing too material. And so I'd say the most material element is the adjustment we've done this quarter on the results.

So as we look forward on that particular line item, the bulk of it or all of it was the [indiscernible].

The most of it is reflected in the quarter.

Your next question comes from Brian Morrison with TD Cowen.

Seb, it's been a true pleasure both professionally and personally. I have enjoyed every unit that this drive together, and I wish you all the best in the next chapter. That said, I want to dive a bit more into these tariffs. So I think you stated $145 million for the first half of the year and $225 million for the full year this year. So that's $80 million in the back half. And I think you said $225 million for next year as well. Is that correct? And if so, why does the prorated $80 million for the second half accelerate for next year?

Well, this year, when we talk about the net tariff impact, we're actually looking at offsets as well that we've announced in May. So we need to factor that. So the margin impact on tariffs this year was more in the range of $165 million. The bottom line impact is about $145 million because of the offsets we did on the operational front. So total for the year, we talked about $200 million. So we're more looking at a net impact for H2 of $55 million which brings the $200 million and so for the total next year is going to be $225 million. Why proportionately, is it less this year because we actually paid tariffs because of the mix of products that we ship in H1. And so we expect the mix to improve next year, and that's why we're seeing a reduced overall annualized impact coming down.

Okay. So if I can follow up, if I recall correctly back at [ Mission '28 ] at the Investor Day, the EBITDA implied is about $1.45 billion. And then Q1 of this year, you added another $50 million for improved fundamentals. Would that be the starting point that we should think about for mission '28 with respect to EBITDA for 2028 prior to take into account these net tariffs?

Yes. Well, when we look at M28, obviously, the fundamentals of M28 are very much in place. I mean we've talked about dealer network expansion that is online. We've talked about ORV. The market share gains that is progressing even better than planned. The industry as well is healthy. We have more product introductions coming in. Our lean initiatives as well are in line and even we've pulled them forward this year to offset some of the tariff headwinds we were facing. The big variable is commodity prices and inflation, which is higher than what we this year, we're looking at probably 100 to 125 basis points higher than the initial M28, but we believe we can offset that with more volume and also continued lean initiative. So the M28 objective of $8 for next year is still very much reachable net of tariffs. Obviously, the macro and the geopolitical will dictate how things trend over the next, let's say, 12 to 18 months, but we certainly feel as a management team that, that number is still achievable net of tariffs.

Yes. This is what we are working on guys. The top line is in pretty good shape. And I would even add that the international, as we speak this year, fiscal '27, we'll almost reach the $2.5 billion that we were chasing for last year.

Your next question comes from James Hartman with Citi.

I was hoping we could drill down a little bit on the inflation piece. Obviously, freight and transportation are a big deal. Any incremental color you could give us there in terms of, sort of, overland versus ocean freight how that's proceeded, I think you've given us some numbers that, sort of, give us an idea for this year and next year, but maybe just, sort of, underline those as we think about how this issue progresses?

Yes. When we talked last quarter, I talked about a 70 to 75 basis point headwind coming from inflation. And now with the updated guidance, we're looking more at the 100 to 125 basis points. There are many variables driving this. We haven't seen the price at the pump for fuel come down despite the barrel has kind of -- the pressure on the barrel has come down, but the pump and refined products has continued to go up, and therefore, plastics in certain commodities is higher. We're seeing steel and copper as well being higher. And your question on freight and transportation, most of the challenges is on land. Obviously, the availability of trailers, the availability of drivers has tightened a lot in the last 12 months, and that has continued to put pressure on on our pricing. And so that's why we've built in an additional 50 basis points in the guidance.

Got it. That's helpful. And then maybe just give us a state of the ORV industry. Obviously, the industry grew in the second quarter, you grew even more, I guess, a, why do you think ORVs have outperformed some of these other big-ticket discretionary categories. What role, if any, of our rates playing. And then from a market share perspective, you guys seem to be gaining significant share to listen to Polaris. It sounds like they're gaining share. Kawasaki has some compelling products that they're bringing to the market. CF Moto doesn't seem like they're going anywhere. So maybe, sort of, how we should think about the market share landscape if you're gaming who's losing sort of thing? And ultimately, just help us understand the forward outlook for ORVs and then the sustainability of your share gains?

Yes. There is a strong momentum behind this, which is a shift from used to be, kind of, a recreational segment to the utility segment quarter by a year after year. As we said, the quadrupled in the last for years, and we see a continued growth on this one. This goes from farming to construction business to first respond business. I mean, there's a lot of applications which are now turning to SSV applications. And we are, of course, into this as a great position with our Defender, especially with the Defender [indiscernible]. So we see the 2 things at the same time. The strong momentum on the segment itself, I think it will continue to make the global ORV growth at least in North America from that standpoint. And the second thing is that we are a product offer, like the [indiscernible] we just introduced that was really very well received by the dealer, which is really a rough and tough application for construction that we are doing here and the continued investment we're having, we mentioned also on the manufacturing capacity that we are having, makes you think that, yes, for the next years to come, there is still growth in that segment, and it's a major change into the clients that are buying the SSV in the U.S.

That's helpful color. And I'll reiterate what a lot of people have said, Seb. Congrats on the retirement. It's been great working with you. And Minton congrats on the new role, looking forward to expanding the relationship.

Your next question comes from Benoit Poirier with Desjardins.

Yes. Congrats on your successful carrier and congrats into for your new role. Just in terms of tariffs, you did a pretty good job so far managing the tariff exposure still $225 million impact for next year. So I was just curious to see if there is any other mitigation factors that you currently consider that exist that might erase a good portion of the remaining tariff impact.

For sure, it's possible. Being agile means being ready. And we are constantly working on trying to be ready, okay, which is a lot of work, by the way. And you've seen how quick we could react in just 1 quarter on this net impact that we have been here [indiscernible] in the magnitude that you just saw. We continue working on that, okay? This is the case, of course, product offers continuing on all the levers, which is from the overhead to the lean management with a supplier of course, to the new product that we are offering, and we'll continue offering. And of course, any project that we're having on potential move of the manufacturing or whatever is also here because I'm sure it's going to be a question, but what we are doing is that we are getting ready for any kind of situation. The other thing is what we need to go further in what we are doing is to deem that we are in an environment of tariff, which is predictable and fix, okay, over the time. And I think you will agree with me, this is not the time as we speak. So difficult to elaborate on what's going next, once we don't have a minimum of productivity in the environment.

Okay. That's great. And on the ORV side, you've been quite successful in terms of market share gain. It looks like that the competitive landscape is evolving on side-by-side with Yamaha exiting the market. What's your expectation, Denis, on whether they will remain in the ATV market? And what about Endo's presence side-by-side given their declining market share?

Well, I will certainly not comment on competitor strategy. The thing you have to have in mind is that this is the place of the market that we are investing the most. I mean our momentum is tremendous. The Defender is gaining by the day market share. And as I explained before, with the lineup with the investment we are making in our capacity to produce the product that the dealers and the clients are demanding for, I'm super confident on our position on the market.

Okay. That's great. And just one for Seb. In terms of free cash flow, obviously, you see some upside for the year. you've been quite aggressive in terms of buybacks. So just curious to hear some color about the opportunities that you foresee in terms of incremental capital deployment, whether it's on the buyback or maybe a boost on CapEx requirement for next year given all the opportunities that you see ahead?

Well, obviously, strong free cash flow generation this year big variation planned this year and next year. Obviously, we're continuing to invest in the business. We have a solid portfolio of products that are going to be introduced, but certainly, we have another NCIB window that's opening up early December. And so we could deploy easily an additional $200 million of cash towards buybacks from now to the end of the year. And the good news is we have the flexibility to do it if we decide to execute on it.

Your next question comes from Robin Farley with UBS.

Great. Seb, best wishes. It's been so nice working with you. You'll definitely be missed. And then sorry to pivot right into a tariff question from that. But I wonder if you could give a little bit of color on tariff in Q3 versus Q4 because there's just something about the tariff cadence that just seems a little unclear. So just the split of the tariff impact between those 2 quarters. And then if you wouldn't mind clarifying if it's $55 million tariff impact in the second half, seems to be double next year. You mentioned some of that was the mix of products. Can you kind of quantify how much of that is incremental 338 tariffs? And how much is that mix issue that you mentioned?

Yes. Well, obviously, going into the granular, kind of, gets complicated. But what I could say on the -- just on the cadence of tariffs is that we would expect higher tariffs in Q3 versus Q4 because the transition to the new products we've recently launched is going to be happening mostly in Q4. So you'll see some probably in the range of $30 million to $35 million easily of tariffs in Q3 and the remaining in Q4.

Okay. Great. That's very helpful. And I didn't know if you had a comment, I'm sorry, on next year on the -- how much of the implemental is?

Yes. Well this year, again, it depends on the mix of the product and the timing by quarter. And so that obviously influences the payout but the cadence should be pretty much probably more skewed in the first half of the year as we ship or the unit. And then also, we have Spyder kicking in next year, which is about, let's call it, $60 million to $65 million headwind that we're facing with fighter.

Your next question comes from Joe Altobello with Raymond James.

Seb, congratulations. I know I haven't said it already, but it's been great working with you. And obviously, then good luck as well. A couple of questions here. I guess, first, on the guidance, and I want to follow up your response to Robin's question. If I look at your third quarter guidance, it implies EBITDA margin down a few hundred basis points, kind of, similar to what we saw in the second quarter, even though the bulk of the margin -- or I'm sorry, the tariff pressure is, sort of, behind you here. So what else is wane, I guess, on that third quarter margin?

Well, other than the tariff, there's still some tariffs remaining in the third quarter, but the other element that is there in the Q3, Q4, the second half of the year is the inflationary pressure. So we've been increasing or reducing our guidance because of inflation. So we're at 125 basis point headwind. And so a lot of that will be happening in the second half of the year. So more amplified. And then the other element is product mix. Last year, we had a very rich mix with shipments of Defender HD 11 and also personal watercraft. This year, the mix is a bit more stabilized and also we're reducing our personal watercraft deliveries. I'd say these are the 3 elements which are impacting gross margin.

Got it. Very helpful. And just a follow-up on that. You called out ORV demand pretty healthy. Obviously, you're taking share, but the industry is also growing nicely coming from the utility side. But in terms of the end user or buyer, where are you seeing the most pockets of strength?