Polaris Inc. (PII) Earnings Call Transcript & Summary

Well, good morning, everyone, and thank you for joining us. I'm Joe Altobello, equity research analyst here at Raymond James, covering the household, personal care and leisure sectors. Our next presentation this morning will be Polaris. The company is the leader in North America Powersports, with Snowmobiles, Motorcycles and Boats all complementing its core Off-Road Vehicle business. We are very pleased to have with us today interim CEO, Mike Speetzen; interim CFO, Bob Mack; and Vice President, Investor Relations, Richard Edwards. Welcome, gentlemen. We should have some time at the end of our chat for audience questions as well, which you can submit electronically via open exchange through the chat icon in the upper left of your screen. And so before we begin, I think Mike might have some slides that he wanted to go over. I don't see them up, yet.

Hey, Joe. Can you hear us?

Yes. I can you. If you want to verbally kind of continue.

Okay. So -- just so the audience, for those who are familiar with the company, the company was founded 1954. The Hetteen brothers and David Johnson essentially we're looking for a way to get across the frozen tundra of Northern Minnesota and invented the snowmobile and that kind of started us on a pretty long journey. And the company is very different now than where it was just even 5 or 10 years ago. We're predominantly an Off-Road Vehicle company. We have a nice Indian motorcycle franchise, the Slingshot motorcycle business. Snowmobiles, which is where the company started, is roughly $0.5 billion, but is one of the smaller components of the portfolio. And then we have a #1 position in pontoons and deck boats with our Boat business. And we're predominantly a North American business, but we do have presence internationally. About half of our dealers are throughout the globe. And really, the international markets are very different than North America. And so we have to approach those far more surgically. Certain markets are more predominant with motorcycles. Certain markets are more predominant with Off-Road Vehicles or boats, and we tend to go in and surgically address those markets, and tend to be in the #1 position, not only in North America, but in the majority of those markets. As we look back on 2020, I mean, it was -- to say it was a year of adjustments and learning is an understatement. Our #1 priority has been around employee health and safety. I'm really proud of the work that the team has done to keep employees safe. Our COVID rates inside of the company essentially mirror what we've seen in the communities that we're present in. The spread rates inside the company are incredibly low because we took efforts pretty much immediately. We brought advisers on to make sure that we were following the right protocol. We've got a physician on retainer so that we understand all the implications around things like the vaccine and how we want to approach that. So this has been something that we've taken incredibly seriously. Clearly, with the environment changing, we worked with our dealers to find unique ways to meet customer demand. We were just talking to Joe, obviously, at the beginning of this about how different this conference is this year versus last year, and I think that could be said of our business. And so we innovated things like Click. Deliver. Ride., virtual boat walk-arounds. We made a lot of investment in our websites. We came up with curbside delivery and then obviously put financial support in place for our dealers early on when we thought the pandemic was going to cause a pretty significant recession, which obviously, that didn't play out. The other thing I'd point out is we've brought in ton of new customers, 700,000 new customers. Now granted we do bring them in through areas like Polaris Adventures, so they're not necessarily buying products, but they're getting experience on our vehicles, which is great because we know that they will, down the road, potentially become full-time customers. And it's given us a platform to really innovate off of which I'll talk here in a second. And then obviously, it's no surprise across the industry we've been dealing with supply chain constraints along with factory capacity issues as a result of that. And proud of what the team has done. We've really muted that in terms of it having a huge impact. And I think the surveys that have been done, both the ones we do of our dealers as well as the surveys that are done by analysts like you, Joe, show that Polaris is leading relative to our competitors in terms of being able to resolve those issues and make sure that we're getting as much inventory into the channel as we can. We have started working unique ways to make sure dealers can sell vehicles, even if they don't have them physically in their possession. Our presold vehicles coming out of the factory is now over 30%. If you look back to when things were kind of in a more normal environment, it was less than 5%. So that has really become a way for us to get vehicles slotted for the dealers. And I credit our RFM system that we've invested in over the past several years as really giving us the insight and ability to do that because we can do it and provide the dealers with a lot of confidence around when they're going to see their vehicles. If you look at our results last year, we're really proud of what we delivered, 4% revenue growth, 22% earnings growth. The highest earning s and revenue performance we've had in company history. And if you look back to where we were in the March table timeframe, certainly a lot better than most were thinking. The other thing I'd point out is we only had one of our businesses that actually grew, it was our Off-Road Vehicle business. The other businesses, some were struggling to get back, even though demand was high in the channel, just trying to get our factories ramped up. And other businesses like Global Adjacent Markets, obviously, were more heavily impacted because they serve more business-to-business, university campuses, municipalities where there was just more of a direct impact from the recession that was brought on by COVID-19. So the reason I point that out is it really provides a nice platform as we get into 2021 for continued growth. We came out with our guidance back in late January. Top line growth, 13% to 16%. Earnings growth of 9% to 13%. The earnings growth is suppressed, largely due to the fact that the tariffs that we were able to either mitigate through the extension process or through refunds last year in 2020 has gone. So our tariffs are now north of $100 million, essentially double where they were in 2020. Despite that, the team is still working aggressively. We're still going to see some margin growth from a gross profit perspective. And really proud of the work that the group continues to do to try and mitigate that. At this point, we don't have line of sight to seeing those tariffs go away. We are encouraged with the testimony that the USTR nominee, Katherine Tai, has provided. It is encouraging. The tariffs don't seem to be a weapon that they like. The question is, is if and when those can come down. So in the meantime, we're going to continue to work to mitigate them and find opportunities if we can to move our supply chain to areas that will not deter them. And then really last thing I want to wrap up on is just as we look out through 2021, we think the economic environment is going to be tenuous, but we do think the backdrop has set up well for us. The vaccine rollout is moving, but I think folks are still looking for a safe way to enjoy time with their family. And obviously, the business provides a great opportunity for that. The political landscape is becoming clearer. I am looking forward when we move away from executive orders and start working on more sustained solutions, that we can start to organize our business around. The areas that we're really going to keep an eye on are going to be obviously taxes. The regulatory environment, what happens ultimately with the CPSC, EPA is going to be really important. And obviously, trade is a key area. We do think the powersports industry is set up for continued growth. The supply chain constraints, obviously, in some ways, even worsened into January and February, but that hasn't slowed us down. Our business continues to see better-than-expected retail performance and our ability to meet the demand at our dealers is truly impressive in terms of what our business units and our central ops organization have been able to do. And we're keeping all of our key strategic initiatives on track. So as you see at the bottom of the chart, a lot of work around the supply chain. We just kicked off our third wave under our supply chain transformation program and the results are coming in as we expected. We've got the trajectory to get to the $200 million in gross savings. Digital and connected, the innovation we're making around our business to really take us into the next generation and meet the needs of all these new customers coming in. And as we talked about on the earnings call, we are pioneering the first subscription offering through Polaris Adventures Select. And we're really excited about the results we're getting out of Phoenix here in the last couple of months. And then the last one is electrification. I actually have a video. We obviously announced earlier this week the new electrified RANGER that will be available essentially at the end of the year and for delivery into early 2022. And we're really excited about the opportunity. We're the #1 player in powersports. And so we're positioned incredibly well to innovate and be the leaders within powersports. I don't necessarily see us going to a full electric platform, but I think it's really important for us to have credible, well-performing opportunities within that segment. And I think what you're going to see in terms of the partnership we have with Zero is going to yield just significant progress and opportunities. So what I'm going to do is I'm going to go ahead and start that video. And then after the video, we'll obviously open up for Q&A. [Presentation]

Hey, Joe, I think we're -- I think we're all set for the Q&A.

Thanks for that, Mike. That was a great overview, and you actually touched on a lot of my questions, so -- which is good.

Trying to make your job easier, Joe.

Yes. I appreciate that. So with that said, I thought I'd start by addressing the elephant in the room here. When I introduced both you, Mike and Bob, I used the word interim in front of your titles. With that said, is there a timetable for announcing a permanent CEO and CFO? Is it safe to assume that both of you would be happy to continue in current roles if the Board were so inclined?

Yes. Look, I think the Board is working through their process. I mean, obviously, these are 2 incredibly important roles for the company. And I think they just want to make sure that they've taken the time. I mean the good thing is, that Bob and I both have worked together for -- going on almost 6 years now and have great experience with our Board. And I think I speak for Bob and the Board when I say we would be thrilled to stay in these positions long term. And frankly, at this point, we're just focused on running the business. I mean, obviously, as I went through the charts, we got a lot in front of us. And I would say that probably occupies 99.9% of our thought process. And the other 0.1% is worrying about the jobs. And look, we've got a great board, and they're going to make the right decision for the company from a long-term perspective. So I would hope here in the next couple of months we would know a little bit more.

Perfect. Thank you. So having dispensed with that, you had an incredible year in 2020, as you mentioned, from a number of perspectives. Heading into the spring, like many companies, you were concerned about maintaining your liquidity at the onset of the pandemic very quickly. However, it became readily apparent that liquidity was not your biggest problem, but rather keeping up with the unprecedented demand that you saw throughout much of -- that we saw throughout much of powersports. So with that as a backdrop, can you give us maybe an update on what you're seeing today from a retail standpoint? You mentioned on your Q4 earnings call that January was better than you expected. So it seems like that momentum has continued here into early '21.

Yes. It really has. I mean the retail momentum in January continued and just, again, record performance. Same thing in February. We continue to see better than what we expected. And obviously, that just creates a bigger challenge for us. When you stack on top of that, the supply chain challenges have not necessarily abated. They also haven't necessarily significantly worsened, and the good thing is that our team has adapted to this new environment. I think I mentioned in the earnings call that we had deployed someone out to the ports on the West Coast kind of late last year. Well, we're doing that again, because as you've probably heard through your conference, the ports are pretty well jammed. And making sure that we have somebody out there working with our freight forwarders to advocate, get a priority around our containers, making sure that we're getting everything in loaded so we get it to our factories. We did end up shutting our Monterrey facility down for a day as a result of the weather that went through the south here a few weeks ago, which actually provided us a great opportunity to kind of get things reorganized through the course of the day and get things back up and running so that we had the plant working incredibly efficiently. And the team has been able to work through that. The dealer inventory levels, I'm sure you'll hear as you guys go through into your dealer surveys, it continues to be at low -- record low levels. We understand the challenges that, that has. And as I mentioned in my prepared remarks, we're doing everything we can to work with our dealers to make sure that we're getting them the much-needed inventory as consumer demand continues to hold up quite well.

Got it. So we did see an influx of buyers last year that were new to powersports, as you pointed out. So I'm curious here of really 2 things. First, what are you guys doing to ensure that they stay in powersports, if that's possible? And second, are you seeing any evidence of sort of a network effect where they're bringing in friends who are also new to powersports, thereby growing the pie even further?

Yes. It's one of the things that works so well in our business, is our new customers become some of our best salespeople, because as they get enthusiastic about the sport, they want to bring their friends around it. It's a sport that isn't about the individual, even motorcycle riding. You can take somebody on the bike with you, but you tend to ride with others. One of the things that's been interesting is in our Off-Road Vehicle space around our RZR platform, historically, we had sold about 30% of our vehicles for 4 seaters. That now has approached 50%. And the reason that's important is it tells you that they're coming in with vehicles where they can bring more than just themselves and maybe another rider with them. And that becomes a really incredible advocacy, because once people get into our vehicles, they go out on the trail, the dunes and they experience that. Then they started saying, "Hey, this is a great way. I can get into something like this." The stickiness around the customers is something we're spending a lot of time. We invested over the past several years to the CRM, customer relationship management system, in the company. And the reason that's important is because everybody that comes in, they are a customer, whether they're buying a hat, T-shirt, taking a rental ride at Polaris Adventures and ride a vehicle, and we're treating them the same. Now we're tailoring offers so we can get them to come back. Through Polaris Adventures, we obviously are going to start targeting rebate offers so that we can encourage them to go maybe look at buying a vehicle. There's going to be great opportunities to move them up into maybe a subscription or a membership model. And then obviously, for folks who have vehicles, knowing who they are, the age of the vehicles and being able to tailor offers to them, and that's something that Steve Menneto and his team have done just a spectacular job of. And you heard us talk historically about promotional efficiency, and that's what it's really about, is rather than putting a broad-based offer out there, looking surgically to say, "Hey, Joe's had a RANGER for 7 years. Let's -- and we know what type of RANGER. Let's put an offer in front of Joe that encourages how to look at the new Northstar full-on cab edition. And that becomes a better way to incent people to come back who have been buying vehicles for a while as well as just offering accessories. One of the things that we pioneered is mobile service through our ride-ready platform. And that not only allows us to touch the vehicle again from a service perspective, and we know that 70% of vehicles don't come back for service, but it also allows us to offer accessories. So if we're going to come out and do an oil change in a RANGER and then suddenly, you see that we've got a cooler or a gun attachment or a winch, you may be incented at that point to say, "Hey, you're going to be out here anyway, let's throw a couple of accessories on." So there's a lot we're doing to create that stickiness and that ecosystem around the customer because we know that's going to be the fuel that continues to propel the growth going forward.

Great. Thanks for that. So in terms of your outlook for the year, I believe North America powersports industry growth -- or decline, you're looking at high single digits. And I think you said Polaris, you should be a little bit better than that. Down, but not quite as down as the industry. Now to be clear, this is often a very strong base period, obviously. So it still represents some pretty good growth in 2019. So can you help us understand the underpinnings behind that outlook given -- obviously, you have tough compares later on this year. But it sounds like January and February have been pretty good months. How are you thinking about that outlook?

Yes. I mean we're trying not to let January and February get us too excited because they're typically pretty small months. It is encouraging. And look, it's always good to have momentum, coming in strong out of the gate because it just gets us off running hard. I think for us, it's really going to be watching what happens in March and April, because if you remember late March is when retail rates dropped off 40%. Dealers were closed. Consumers were scared. Everybody kind of retreated. And then April came back. And then May came back incredibly strong. That series of months are going to be the ones that we're going to watch incredibly close just to make sure that we understand what the cadence is. I suspect, given the cadence of the vaccine rollout, that I think, for probably a good portion of the summer, we're still probably going to be in this kind of fits and starts in terms of people being comfortable going out. Have they been vaccinated? Maybe their friends aren't. And so I think we're going to see a little bit of that continuing to play out. So I suspect demand will remain strong. I mean, certainly, we're encouraged with January and February being as strong as they were. And frankly, and you all will see the data in one way or another, but our share performance continued in January and February relative to gaining in our Off-Road Vehicle business. So on my side, it's really about that relative game. We've got to continue to be better than the competition and making sure we're knocking down the supply chain issues, being smart with how we get our vehicles into the dealership and then working in partnership with our dealers to make sure they can meet consumer demand.

Got it. And you talked about earlier the supply chain issues that you guys are still experiencing here in early '21. It sounds like it hasn't gotten better, but it hasn't gotten materially worse, in your words. Where is it most acute? Is it mostly Off-Road Vehicles? Or is it really across the board?

It's -- I would say, for us, it's most acute around our Off-Road Vehicle business, but we do have these issues that arise. A couple of weeks ago in our Boats business, there were issues because of the weather down in the south. We're getting seats out of Texas. So I think it's tough to make it a generic statement because it tends to move, depending on where the issues pop up. The good thing is, and I've talked about this a number of different times, when we started the supply chain transformation, one of the benefits was we became so intimate with our supply base, because we had to go study it, understand our current set of suppliers, who were the potential suppliers that we want to bring in. And the reason that's important is it gives us, one, we've got strength of partnership now that we've gotten through 2 waves of the transformation, but we also know where the alternative sources are that we can go to if we need to. And we've got an incredibly strong operational team that we can deploy. We've had to send them into a couple of different suppliers that essentially, I don't want to say take them over, but get in there and really help them get their operations up and running because the demand that has been put on them in this environment, coupled with high absentee rates and then their own supply challenges, as you can imagine, for some these smaller suppliers, has been quite challenging. So I give the team a lot of credit. They've been incredibly agile and nimble. I worry because they've been working nonstop. They ended up a lot of them didn't even take the holidays off. Christmas, New Year's, things like that. So we're making sure we're staying focused because I want to make sure they're safe. When people get tired, people can get hurt. And we haven't had that happen, and we want to make sure that we continue to maintain that. And then just making sure that we're getting other resources in there to give people the time that they need off. So we're not -- we talked about it, Bob talked about it on the earnings call, we are sparing no expense. We're not just throwing money at issues, but if it's -- if we need to spend a little bit of money to accelerate getting product in or we need to spend a little bit of money to have extra direct labor in the factories, we're doing that, because this unique moment in history is going to play out. This was the opportunity for us to make sure we grab as much share as we could. And we're making sure that we're pivoting and putting the priority around the customer.

So you're currently running your plants above ideal capacity. What are you guys doing to ensure that, that product quality doesn't slip? And are you seeing any evidence that it is?

Yes. It's actually a big issue. Obviously, we've made a lot of investments over the years in improving our quality. And it's something Ken Pucel has responsibility for our quality system. And it's something that he and I spend a lot of time talking about, because our biggest issue right now is that we're keeping our factories running. And that means we may be producing vehicles that may be short a certain component. And then we have to come back around and rework those vehicles. We are putting significant inspection procedures around that to make sure that we're keeping an eye on the quality of the vehicle. And then we obviously have a significant investment around our Post Sales Surveillance system so we are able to see if issues crop up. And at this point, we really haven't seen anything. And we've been doing this for a while again. This process that we're doing right now, it didn't just start. We were doing this back in the third and fourth quarter. So I think we've got at least a pretty good sample of vehicles out there and everybody down to a factory floor knows that quality is job 1 around here and that we can't send vehicles out that aren't going to meet those specifications. And so we're -- again, we're pivoting and making sure we got the resources. If we need to bring temp labor in to help us go through and inspect vehicles do the rework, we're doing all that, because I don't want us to end up having a quality issue down the road because, one, that's incredibly inconvenient for the customers. And especially if we have a bunch of new customers coming in. That's not how we want to make our first impression. And number two, from a cost perspective, it just -- we're better off investing upfront to make sure we've got the right quality versus trying to go and pick something later on.

That's helpful. So you mentioned this earlier, but I wanted to go back to it. Dealer inventories, obviously, a big issue. Robust retail demand has depleted those inventories. I think, in fact, you ended the year down about 50% from where you were at the end of 2019. The good news is that you've been able to offset through -- offset a lot of that through an increase in, as you pointed out, preselling. What does that entail? And is that a competitive advantage for you relative to some of your competitors?

Yes. I mean, I see it as a huge competitive advantage because it gets back to the whole RFM principle in terms of having visibility through the network. And that has allowed us, which we're still doing to this day, to be able to move vehicles between dealers. The old days, it was a dealer calling around in the network he has within a certain radius and saying, "Hey, do you have a 4-seat RZR that's orange?" We now have everything from an inventory perspective that the dealer -- we can go to the dealer and say, "Hey, look, you've got a customer looking for this type of RZR. We've got 1. We can have it there within a day." and relocate it from another dealer who may not be able to move that vehicle because the market just isn't there for them. And then I think just the visibility we have in our manufacturing facility in terms of what's coming down the line as well as the flexibility to be able to change those schedules around so that we can get the vehicles produced. And frankly, a customer is going to want to get the vehicle as soon as they can. Obviously, they walk in, they like to take it home that day. But if the dealer is able to very quickly say, "Hey, look, I've got the red 4-seat Pro XP Ultimate and it will be here in 1.5 weeks. And I know what your VIN number is. I know where it's at in the production process down in Monterrey, Mexico." That's a huge selling point. And I would argue that many of our competitors are just not positioned to be able to do that.

That's helpful. So in terms of overall inventories, when do you expect those to normalize? I know you've talked about some time in the second half of '21. But if this retail demand continues apace, that might get pushed off a little bit. So I'm curious what -- when you're thinking that once it normalizes, so...

Well I think retail -- even if retail ultimately plays out like we were thinking this year, it's still going to be '22 before we get things back to what I'd say is a comfortable level. And obviously, retail plays out even better, then we're going to be chasing that even longer into 2022. And that's back to my comments around kind of looking at that March, April, May time frame, that's really going to help us understand what the cadence looks like for the rest of the year. Because those are typically pretty high selling months anyway. Those are going to be the months when we're going to be up against the toughest comps. And I think if there's strong performance, then obviously we're going to be looking at probably late 2022 versus, say, early 2022 to get inventories back to what I'd say is a more normalized level, which is lower than where we have been historically. So it's not try and get our -- we look at a lot of different metrics in terms of things like days sales outstanding and how many days of inventory the dealer is testing on their lot. We're not going to be getting back to the historic levels that we've had because the system has improved so much through this environment. But we're still well below where we need to be.

So if that's the case, we do get to a normalized level that's below where we were historically. How does that impact your P&L from a margin and from a sales standpoint?

Well, I mean, I think I don't know that it impacts it. I think what will impact us the most will be getting rid of all the inefficiencies. And these are tens of millions of dollars. And probably getting close to rivaling how much money we've got hitting us from a tariff standpoint. But it's obviously driving incremental revenues, so the incremental margins are still relatively strong. And I think the key will be making sure that those inefficiencies don't live through. Bob is doing a lot of work to work with our finance teams to make sure that these one-off costs that we have, things like expediting fees that we're incurring on a monthly basis, they're not getting rolled back in the standard so that our operations thinks that, that's just kind of the new base of activity. We're going to make sure we go back to and hold them accountable once shipping rates start to come down, commodity prices are to recede a little bit, do everything we can to make sure that we're getting those costs back in line. So I think that's the biggest opportunity. I think then you'll start to see our sales and our retail start to not perfectly correlate because there's always a time lag between the 2, but it will be a lot tighter than what it's been. You almost have to take '20 and '21 and kind of sandwich them together to get a good read because the retail picked up so fast and we're still trying to catch up from a revenue standpoint.

In terms of fewer vehicles -- sorry. Go ahead, Bob.

I think -- I would say the other way to think about that, too, Joe, is if we can get retail, the deliveries closer to the retail demand, it keeps you from building up kind of inefficient inventory in the channel and that helps dealer profitability, which is good for us and for the dealers, but it also helps decrease promo, because a chunk of promo is the spring sale, we're moving out inventory that's old model here. And as inventory buildup, we can run the dealers with less inventory and still deliver the retail that customers want. Less likely to have that inventory buildup, less promo.

He's right on the mark there. And one of the things that we've gotten asked about in the past is does RFM actually work against you because your competitors aren't doing it? They're stacking inventory out with the dealers. And I actually think that because of what we're doing and what we're proving to the dealers, I actually think the dealers are probably going to put pressure where we have multi lines in a dealer. I think they're going to put pressure back on the other OEMs to put inventory levels down at a lower level because Bob's right. It takes the pressure off of the dealer and it becomes more surgical in terms of how you can approach promotional spending. And that's really good for the dealer because if I look at where we're spending money today, it's either those specific offers that tailor offers to the consumer, so you're getting a repeat customer back in. But a lot of the money is actually going directly to the dealer. So it's volume thresholds. It's SPIFs for the sales force. And that's great because then the dealer is making more margin on the vehicles. And so I think because of the position we have, that's probably going to start to put pressure on the other guys to start to play the game a little bit smarter so that we don't get into these environments where we'd stack them high and watch them fly old philosophy. I think that's probably going to come to an end as a result of, A, everything we've done; and, B, I think this environment we've been in for the past couple of years.

Less promotion, lower flooring cost. It's probably a win-win, I would think, for everybody.

Yes.

Yes. I want to switch gears a little bit to Polaris Adventures. A few things here. One, kind of explain to people what that is. Talk about the subscription model that you rolled out, which I think is very interesting. And how big could that business ultimately be from a revenue standpoint? Or is it really more of, I guess, a customer funnel to get people to buy vehicles?

Well, it's interesting. We started Polaris Adventures a few years back, and Bob can obviously chime in here because he had responsibility for a number of years. And we did it because we started looking more broadly at how people get exposed to Polaris. And one of the areas, and I knew this well because it was where I got exposed to it, was through rental operations. So we sent a small team out. And what we found horrified us, because it's old vehicles. They're not well maintained. And if that's really how people were seeing our brand and our product, it's kind of embarrassing. And so we embarked on a mission and said, look, we're not going to go out and own these ride locations, but we're going to create -- I'll call it a franchise, but it's not really a franchise. We're going to create this Polaris Adventures umbrella that is it's more than just vehicles. There's a whole system attached to it. We've got a really cool iPad sign-in solution, goes through the safety waivers, instructions, tracking of the consumers. So that we've got the ability to follow up with tailored offers, those types of things. And then we put our best vehicles in. They've got GPS systems on them so that the riders can select from different trail options, so that if they're a beginner, they can go on the beginner trails, because we don't want them to go on a trail that they don't have the capability for and potentially have a problem that makes the experience bad. And it really provided an avenue for us to make these operators healthy from a financial standpoint, because part of why they were holding vehicles for 10 years was because they want to make money. And the only way to make money is to depreciate those vehicles as fast as you can and get the revenue off of them. Well, we basically charge them a fee for access to the vehicles. And then we take the vehicles back. And then we offer them into our dealer network as a used vehicle solution. And then if they don't want them, then we'll take them into auction, so we can control the pricing as best we can. I went up and used our Polaris Adventures in Sedona, Arizona a few years back. And I remember talking, and it was one of the first locations and talking to the owner, and he was like, this is great. You guys get to go on relatively new equipment, because the RZRs I was running before had like 60,000 miles on. I was like, "You've going to be kidding me." We had a full maintenance department. Now that's down to 1 or 2 guys that are just doing routine kind of oil changes and things like that. But it really is a turnkey solution for people who just want to go out, don't have the ability to own. And it took off as we went through the stats. I mean, we brought in over 290,000 customers last year through that. And some of those customers will go buy vehicles, which is great. Some of them may never buy vehicles. But we look at it and say, "Boy, there's got to be something between buying a vehicle and renting. And that's where Polaris Adventures Select came up in terms of, we need to come up with a subscription or a membership program that kind of meets people between the 2, people who don't want to just rent something but they don't have -- maybe they live in a city or have a home with a small garage. They don't have the space to store something, but they want access to, say, a motorcycle during the summer, an Off-Road Vehicle during the fall. It really provides an opportunity for them to sign up for a program using points based on a monthly fee that they pay. That gives them access. And the vehicle can be delivered to their home, it can be delivered to a ride site. They can come pick it up themselves. Trailer will be included. It's really a unique opportunity. And obviously, we have a lot to do to prove it out financially. But right now, it's really just -- we want to make sure there's consumer acceptance. And the encouraging part of it is what we've seen down in Phoenix is it's exactly the target group that we thought it would be. It's people that are in their 20s and 30s, largely living in apartments, who have a past in Off-Road Vehicles, group riding, dirt bikes, ATVs, things like that, have a young family, newly married and they just don't have the money for the home or the location be able to store the vehicles but they want to get back into it. And this just kind of hit that sweet spot. And so I think we're going to learn a lot as we go through it. And I think it just speaks to the innovation. We're not just about product innovation. We're also innovating our business models nonstop. And I'm just really excited about what that can portend for the future.

Is it sort of like a boat club, I guess, is the best way to think about it?

Yes. I mean, in some ways, it just -- I don't know that I would say it's a straight boat club-type model because those tend to have a fixed number of boats sitting there. This is probably going to have a lot more flexibility. We'll have distribution centers that will have Off-Road Vehicles. And you may pay then to have access, but you're not necessarily going to get that same number of vehicle each and every time. And we may be rotating vehicles in and out, depending on usage. But it's really about how do you give people that access point. Probably depending on the level that you buy into the subscription, it may not give you access as frequently as, say, as a Boat club does, but it will give you access and the flexibility to use the vehicles when you see fit. And I think it could also end up being a great solution for people who already own vehicles. One of our Board members was talking to me about one of his former colleagues has a couple of RZRs and he had friends coming in town, and he was like, "Boy, I really wish there was a way for me to get access to another couple of machines that are in good shape to have them go ride with us." Because he was asking if we could borrow some. And to me, that becomes a huge opportunity. They can pay in a small fee, and that gives them the ability to have that flexibility for another machine if they want. I don't know, Bob, if you've had anything.

Yes. I mean I think the core adventures model still got a lot of runway. We have a couple of hundred locations, and we're obviously focused on the major riding areas and the big vacation centers. But I think there's a lot of opportunity to continue to build that out. And like Mike said, I think the select opportunity as we proved it out in Phoenix and look to roll it out across the country, there's a lot of metro markets where people want to ride and they just don't have the ability to store those machines and -- or they're disappointed quite frankly. So I think thus if we can continue to expand that model, that gives us a way to bring in people into the sport, and they can try it. If they really get into it, they can buy them. If not, they can continue to be Select customers. And you referenced boat clubs and it is kind of a similar model. I mean, in our boat business, we partner with a lot of boat clubs to supply boats. And some manufacturers think it's a good thing. Some think it's a threat to new boat sales. I'm very much in the camp of it's a good thing. I mean if we want customers to see our boat, you got to partner with quality boat clubs. Like Mike said, we don't want to be with the guy who's got 7-year-old pontoons, but somebody that own their fleet on a pretty regular basis, and we have rules around that with our stuff that we'll sell to a boat club. Because it brings a customer into it, they see their experiences on a Bennington or a Godfrey or a Hurricane, that's likely the boat they're going to buy when they go to buy it if they had a good experience. So we think it's a big positive for the industry.

It would seem like the best way to sell a side-by-side is to get someone on a side-by-side at the end of the day.

There's just no question. You mean if you'd have them on it, first time you take them on a ride, they -- it -- that really gives them a whole new perspective.

Okay. Well, we've got about a minute or so left, and I apologize because this is probably a question you could spend more time on. But electric vehicles, you mentioned the partnership with Zero. Curious, this is not your first foray into electric vehicle. So why the partnership with Zero? And what have you learned from your previous endeavors in this space that would make you successful?

Yes. I mean, I think we learned a couple of things. One, we need to meet the customer where they want to be as opposed to, hey, if we can build something, they're going to buy it. I think we learned that with our electric motorcycle. We had the Empulse TT, Victory Empulse TT, and it sold really well when we offered them to our employees for $3,500. It didn't sell well when we were trying to sell them for $30,000. And that's one where, hey, we were able to do it, but consumers were just not either willing or ready for something like that. The other thing I'd say is we can't necessarily do it all ourselves. And I think that's where we stood back and said, "Look, we need to partner with someone who's got the proven capability." And people always kind of look at us and go Zero Motorcycles, but you're not doing motorcycles, you're going Off-Road Vehicles. And it's because of the capability they bring in terms of the compact battery configuration, the power, the horsepower range that we're looking for, and then we can focus on the things that we do well. And I'd say the difference you'll see from this new RANGER that we have coming out is it's probably going to be our best vehicle ever as opposed to, "Hey, let's just slap some batteries in and try and come up with a solution to say we've got an electric RANGER and then it just doesn't perform well. It's noisy. It's not reliable." So we took a whole, hey, let's go back to -- from the ground up, get the right powertrain partner in here to help us work through getting the right components and configuration. And we focus on the pieces that we do incredibly well. And I think what you're going to see is that's going to play out really strong for us in terms of the product capability. Bob worked a lot on partnership with Zero. Bob, I don't know if you want to...

Yes. I mean, so we looked at Zero. We looked at, obviously, a ton of different partners, Chris Musso and I spent a ton of time going around the country really evaluating what the opportunities were. And we really felt like Zero was the best fit organizationally and technologically because they were working in motorcycles, as Mike said, which is a lot closer in terms of the operating environment, the size, the weight, the right horsepower, the right voltage, than, say, automotive partners would be. We figured, you're not talking about a 400-volt product in an off-road space, at least not right now. So we really felt Zero was going to be a good partner and would accelerate -- we could leverage everything they've learned. I mean they're the biggest seller of electric motorcycles. They've been doing it for 10 years. A lot of value in that knowledge. And so we wanted to come out of the box with a really super high-performing, high-quality product, and we really felt like Zero gave us an advantage there. So it's been a really good partnership so far.

Great. Well, I think we are out of time. So with that, Mike, Bob, Richard, thank you for your time today. We really appreciate it, and everyone listening, thanks for your time as well. And I hope everyone enjoys the rest of the conference.

All right. Thanks, Joe. Thank you for having us.

Thanks, Joe.

Thank you.