Good morning, ladies and gentlemen. Welcome to the BRP Inc.'s FY27 Q2 conference call. For participants who use the telephone line, it is recommended to turn off the sound on your device. 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 risk 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 Sebastien's retirement announcement released earlier this morning, as you could see. Sebastien had shared with the company his objective to retire some time ago, and he has since supported the succession planning process. I want to thank Sebastien for his outstanding contributions over more than two 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 advisor. Effective October 1st, Mintan Pran, who is with us today, our Executive Vice President Global Corporate and Product Strategy, who some of you already know, will become our new Chief Financial Officer. Mintan joined BRP in 2017. Over the years, he has demonstrated leadership excellence across corporate strategy, merger and acquisition, transformation, and product strategy. He has spearheaded several initiatives that have driven BRP's 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, Mintan built deep expertise in investment and corporate banking with Lazar and BMO Capital Markets. His strong financial acumen, sharp business insight, and extensive power sport industry experience position him as the right person to lead our finance organization. Mintan 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 solid 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 events, 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 number four. We delivered revenues of 2.2 billion, normalized EBITDA of 139 million, and a normalized loss per share of 18 cents. 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 number five. Data inventory remains healthy, being up only 2% year over year. We increased ORV availability and further optimized the mix of current model year units across our product line. Together, these actions positioned as 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 number six. In North America, market dynamics remain broadly consistent with recent quarter with modest industry growth led by continuous strength in SSV. Against this environment, our retail performance tracked 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 three-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 continuous 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 number seven. 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 HD11, 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 three points of market share in current model year SSV units, achieving an all-time high in this category, with Can-Am capturing nearly one-third of units sold. To leverage higher-than-expected demand, we have 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 extended to ATV, as shown on slide number 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 number 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 segments, demonstrating the success of our products. Retail of current modeling units increased by nearly 20%, allowing Can-Am to finish the season as the number one brand in the category. Overall, we are pleased with our ORV performance, which reflects Can-Am'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 continue to pressure non-current 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 shipment 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 number 10 for another view of our retail performance in North America in other product categories. In three-wheel, retail declined mid-single digits, with premium models continuing to account for most sales, underscoring resilient demand at the higher end of the category. As for pontoon, retail declined almost 30%, reflecting softness across the marine industry. That said, we made solid progress in reducing non-current 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 continues to face softer industry conditions, our ORV business remains very strong and we deliver solid results across several higher margin segments, particularly in current model year 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 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 Sea-Doo lineup, which includes the all-new SparkX model, more powerful than ever and packed with premium features. We also launched the Sea-Doo RXP-X Senna 350 as a tribute to F1 legend Ayrton Senna who inspired the world to push boundaries on the racetrack and beyond. Our collaboration with Senna brand is already making waves, elevating Sea-Doo's global visibility. This limited edition is powered by the all-new 350 horsepower Rotax 1630 ACE engine, The most powerful factory installed engine ever offered in the category.

This engine is also available across the other Sea-Doo performance models.

In three wheels vehicle, we introduced the most significant evolution of the Can-Am Riker 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 ORV lineup, including new models, added features, and stronger value proposition, set us up to sustain our momentum and drive further market share gains in both ATV and SSD. More importantly, we strengthened our position in what we see as the industry's most attractive growth opportunity utility SSD cabs, shown on slide number 12. Over the past six years, the segment has more than quadrupled and now represents nearly half of the utility side-by-side industry. For model year 27, we strengthened the defender lineup with the all-new HD10 platform for the mid-HP segment and the XU, a new and enhanced utility offering. Built for customers who depend on their vehicle in demanding work environments, the XU brings together factory-installed accessories, greater capability, and exceptional value in a purpose-built package. Finally, let's turn to slide 13. During Club BRP, we demonstrated how serious we are about Can-Am becoming North America's leading off-road brand. We brought to life two visionary concepts, the Defender Pre-Runner and the Maverick R X-Ray, While neither is a production announcement, both showcase the creativity and engineering excellence shaping our product pipeline. Last but not least, we committed to introducing major off-road product news every six months for the next four 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 riders. I am extremely proud of what we achieved at Club ERP. 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' expectations and challenge us 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 ORV 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 two primary factors, tariff headwinds for approximately 740 basis points and the one-time impact of a supplier financial restructuring, which impacted gross margin by approximately 330 basis points, but was excluded from our normalized metrics. Excluding these two 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 1.6 times. 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 and 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 DPS 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 increase 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 tariffs 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 revised tax rate assumptions and lower shutdown resulting from the completion of our NCIB program. Incorporating all these changes, we now expect revenues between $9,225,000 and $9,475,000, normalized EBITDA between $1,025,000 and $1,075,000, 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 exceptional brands, a compelling product portfolio, and a highly capable leadership team led by Denis. I am confident that together with our talented finance organization, Mintan 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 demonstrates 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 Club VIP reinforcing our commitment to capturing our full power sport potential. Our recent ORV success shows our ability to translate insights into market-shaping products that resonate with customers and drive market share gains. We remain focused on becoming the number one 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 Mintan, and congratulations to Sebastien, operator.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Sabaha Khan with RBC Capital Markets. Your line is now open.

Great. Thanks, and good morning. 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 you get a little bit more detail around, you know, 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. I would obviously give a dollar amount, but just what are you assuming for the tariff backdrop? I think there was some commentary around the ability to get some exemptions, maybe how much of that is baked in here. We'd love to get some color on sort of the setup into the back half of what's evolved since the beginning of the year, both on tariffs and on the fundamental outlook.

Good morning. 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 autographs, as Denis mentioned in his opening remarks. That is a small tailwind net of about 10 to 15 cents. 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 50 cent 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 a dollar. Now to your second question as to what the puts and takes on the tariff. Just let me give you an update as to 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 LMN 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 power sport industry. It's very targeted to either specific vehicle categories and sometimes even specific vehicle configurations. 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 on an annualized basis.

Great. Thanks for that, Kolar. And just for my follow-up, just given this sort of evolving backdrop, can you maybe talk about the production ramp you sort of talked about and maybe how 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. Thanks.

Yeah, we're obviously, the last thing we want to do is overproduce and have too much inventory in the network. 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.

Yeah, on that one, as I said, you know, the cab now is half of the utility and that's 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.

Thanks so much.

Your next question comes from Craig Keniston with Baird. Your line is now open.

Hey, good morning. Thanks for taking my question, 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.

Yeah, well, 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, I've 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, you know, what their downstream implications to their relationship with that company and any sort of details around that beyond the $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'll 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 bulk of it is reflected in the quarter.

Thank you. Appreciate it.

You're welcome. Your next question comes from Brian Morrison with TD Cowan. Your line is now open.

Yes, good morning. Thanks very much. It's been a true pleasure both professionally and personally. I've enjoyed every minute of this ride 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 then 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 you 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. So we're more looking at a net impact for H2 of 55 million, which brings us to 200. And so for the total next year, it's going to be 225. Why proportionately is it less this year? Because we actually paid tariffs because of the mix of products that we shipped 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, the investor day, the EBITDA implied was about 1.45 billion and then the 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 20 with respect to EBITDA for 2028 prior to taking into account these net tariffs?

Yeah, 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 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 some 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've expected 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 initiatives. 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 12 to 18 months. But we certainly feel as a management team that that number is still achievable net of tariffs.

Yeah, this is what we are still 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, will almost reach The 2.5 billion that we were chasing for last year.

That's very helpful. Thank you.

Your next question comes from James Hardiman with Citi. Your line is now open.

Hey, good morning. I was hoping we could drill down a little bit on the inflation piece. Obviously, you know, freight and transportation are a big deal. Any incremental color you could give us there in terms of sort of overland versus ocean freight, you know, how that's proceeded? I think you've given us some numbers that sort of give us Thanks. Yeah, well, 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 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 pressure on the barrel has come down. But the pump and refined products has continued to go up and therefore plastics and 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 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, are rates playing? And then, from a market share perspective, you guys seem to be gaining significant share. To listen to Polaris Sounds like they're gaining share. Kawasaki has some compelling products that they're bringing to the market. DF 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 gaining, 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.

Yeah, there is a strong momentum behind this, which is a shift from used to be kind of a recreational segment to the utility segment, quad by quad, year after year. As we said, it quadrupled in the last four years, and we see a continued growth on this one. This goes from, you know, farming to construction business to first response business. I mean, there's a lot of applications which are now turning to SSE applications. And we are, of course, into this at a great position with our defender, especially with the defender cab. So we see that two things at the same time. The strong momentum on the segment itself, I think it will continue, make the global ORV growth at least in North America from that standpoint. And the second thing is that we have product offer like the XU 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 us think that yes for the next years to come there is still growth on that segment and it's a major change into the clients that are buying the SSV in the US.

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

Thank you.

Your next question comes from Benoit Poirier with Deschamps. Your line is now open.

Good morning, everyone, and congrats, Seb, on your successful career and congrats, Mintan, 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's 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, which is a lot of work, by the way. And you've seen how quick we could react in just one quarter on this net impact that we have been here diminishing in the magnitude that you just saw. We continue working on that. This implicates, of course, product offers. continuing on all the levers which is from the overhead to the lead management with the supplier of course to the new product that we are offering and will continue offering and of course any projects 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. Now, the thing is, what we need to go further in what we are doing is to deem that we are in an environment of tariffs which is predictable 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, you know, productivity in the environment.

Okay, that's great. And on ORV's 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 on those presents and side-by-side given their declining market share?

Well, I will certainly not comment on competitive strategy. You know, 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 XU 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 buyback. So just curious to hear some color about the opportunities that you foresee coming. In terms of incremental capital deployment, whether it's on the buyback or maybe a boost on CapEx requirements for next year, given all the opportunities that you see ahead?

Well, obviously, yes, strong free cash flow generation this year. CapEx, no 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. Perfect.

Okay. Thank you.

Your next question comes from Robin Farley with UBS. Your line is now open.

Great, thank you. 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 have 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 two quarters. And then if you wouldn't mind clarifying, if it's 55 million tariff impact in the second half, you know, seems to be double next year. You mentioned some of that was a mix of products. Can you kind of quantify how much of that is incremental 338 tariff, and how much is that mixed issue that you mentioned? Thanks.

Yeah, well, obviously going into the granular kind of gets complicated, but what I can say 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, 35 million easily of tariffs in Q3 and the remaining in Q4.

Okay, great. That's very helpful. Thank you. Oh, and I didn't know if you had a comment, I'm sorry, on next year on how much of the incremental was, yeah.

Yeah, well, next year, again, 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 ORV units. And then also we have Spider kicking in next year. which is about so let's call it 60 to 65 million dollar headwind that we're facing with SPDR.

Okay great thank you very much.

The next question comes from Joe Altobello with Raymond James. Your line is now open.

Thanks hey guys good morning. Seb congratulations I know everyone said it already but it's been great working with you and obviously, Mint Ben, 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 weighing, I guess, on that third quarter margin?

Well, the other element, 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, in 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 points 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 HD11 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 three elements which are impacting our gross margin.

Got it. Very helpful. And just to 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?

All the utility and on the cab units, the luxury models are very strong. We talked about our average household income of $176,000 at the investor meeting. That obviously results in us being able to sell higher-end models. And Denis mentioned that we are increasing capacity for cab units because the demand is strong and dealers see the door swings fast. from these consumers for this novelty that we're bringing to the market.

And you can see it's mostly our upper range, upper segment, upper power in the engines that we are selling and in the current business. Okay, because this is where we are very big and we are gaining three points of market on the ORV and on the APV and six points of market in the PwC in the current model year business, which also reflects how wealthy our clients are.

Okay, great. Thank you.

Your next question comes from Cameron Dirksen with National Bank. Your line is now open.

Yeah, thanks very much. Good morning, and let me echo my congratulations to Seb as well. Well-deserved retirement. I hope you have many trips planned in the next few years. But I guess maybe my question is really around the year-round revenue guide. Obviously, you indicated that the ORV sales are performing ahead of expectations you had earlier this year. I guess for the four-year guide, though, it sort of implies – Relatively modest, I guess, year-over-year revenue growth in year-round products. Just wondering what you're seeing there. Is there some element of conservatism built into your second half guide? And you can also make comment on what you're seeing just in the retail so far here in your fiscal Q3.

Yeah, I'll comment on the first part and I'll let Denis comment on the retail. As I mentioned to Joe earlier, obviously, again, last year was a very strong second half with HD11 deliveries, so a very rich mix. This year, we had product news, obviously. We're going to the HD10 and open cab models as well. So the mix is a bit more balanced this year, and so that is providing less top-line growth than you could have expected. But from a retail perspective, the expectation is good for the second half because we're now having full cab in the network. and that should help retail. But I'll let Denis comment more specifically on the trends for Q3.

Yeah, globally on the market, if we are on the ORV, specifically SFV in North America, the momentum is good, but the momentum in size is, if you take, for instance, the Q2, the market is up low single. Okay, the market is up low single. The cab on the utility is very strong. We are plus 30% year over year, but it's a piece of the market. But globally, what we plan for is this upload single growth of the market in the H2 and for next year, and we are very confident that this will happen. Inside of the market, we are playing the switch of our own mix of sales, which is way higher on the utility and the cab. That's the point.

Okay, that's helpful. I appreciate the time.

Welcome, Kevin. Your next question comes from Martin Landrieu with Stifel. Your line is now open.

Hi, good morning. I'd like to dig a little bit into your dealer inventory. You say that your dealer inventory in North America is up 2% year-over-year in units. I'm just trying to reconcile that with your sales. Looking at your sales of seasonal and year-round products, they're up, I think, 26% year-to-date. Your retail sales are mostly flat year-to-date in North America. So I understand that I'm comparing units versus sales, but pricing can't be up that much to explain the difference. So I was wondering if you can help me better understand why your inventory at dealership is only up 2%. That'd be great.

Yeah, you need to look at it versus where we were in January, at the end of January. That's probably a better way to look at it. And so we had very, very lean inventory in January. So that's how you would need to run the math in looking at wholesale, retail, and inventory. We are actually happy with where the inventory is. ORV is in a good place. We're probably at 100 days of inventory and quite much lower on the cab units. We finished snowmobile inventory at the end of the season down 30% versus a year ago. So again, in a good position. One area where we do have more inventory is personal watercraft. And as Denis mentioned in the prepared remarks, the season was softer than expected. So we're cutting production in order to start the season off in a good position and help protect dealer profitability. So when I look at it in a nutshell, I think we are well balanced to make sure that we have enough inventory to support retail, but also the right amount of inventory to protect the dealer's profitability.

Yeah. Given the momentum, this is a healthy position.

And is there a difference between your inventory level globally versus North America?

Well, in international, dealers tend to hold less inventory, very similar to the auto industry. Obviously, you can comment on that part at international, but we see the same trend. So there is less of a... Thank you for joining us.

And we have good movements, as you could notice in my speech, also at international rate, like Asia-Pacific retail was very high. We are good in Scandinavia, Eastern Europe, on most of the product lines. So we don't have a problem there.

Okay, thank you, Sebastien. Congrats on your career. Best of luck on the next chapter. And Nintan, well done. Congrats on your appointment.

Your next question comes from Tristan Thomas Barton with BMO Capital Markets. Your line is now open.

Hey, good morning. And like everyone has said, congrats. I was just curious, you kind of alluded to it in one of the prior questions, but how many dealerships have you added relative to your 100-plus target from the M28 plan?

Well, if you take last year, 36, we targeted 30, and this year we're targeting or modeling that it would be around 40 that we are chasing, and we already signed 20. And more importantly, you know, at the club we talk about there are prospects which are visiting us, you know, to take a decision, and we have a lot of contacts, so we are super confident with increasing by 40 this year.

Okay, great. And then just really quick, anything you want to flag on the overall kind of promotional backdrop?

Well, nothing particular to call out. Inventories are healthy, and so we see OEMs being less promotional. We expect a positive tailwind from less promotion this year, similar to what we shared back in May of about 50 basis points.

Great. Thank you. Your next question comes from Anthony Bonadio with Wells Fargo. Your line is now open.

Yeah, hey, good morning. Thanks, guys. At 7, Minton, congrats to you both. I just wanted to dig in on the Model XU a little bit, the Defender. Can you just maybe talk about how penetration of that could evolve, just given the reception you got from dealers at the Orlando event, and just any thoughts on the anticipated mix of that versus other models next year?

Yeah, the mix is continuously growing. I would just repeat one figure. We took three points in the current business of market share, and this is mostly due to this new offer on the Defender, obviously, right? So this is big because it drives most of our growth on the segment. and we want to continue so. So that's why we're also investing on the cabs as well as on the defenders, as I said before, right? So we are now pushing, as we did in the club, the offer on the utility with the XU series that you certainly have seen, right? And also continuing investing in the factory in order to follow. But most of our growth, and I repeat, this is a three-point on the entire current model business, which is mostly coming from this defender.

That's helpful, thanks. And then just on the BRP financial services announcement, can you maybe talk a little bit more about that decision? Why was now the appropriate time for that? And then just thoughts on implications to the P&L as that ramps and we look to model that.

Yeah, it was a big non-product news club. Very, very good reception from the dealers. It's all about elevating the dealer network experience, elevating the consumer experience as well. Dealers and consumers are expecting OEMs to provide them the same service level that car OEMs are providing. And so that was the number one objective. The other objective as well is being closer to the customer and knowing our customer better, understanding repurchase rates, influencing repurchase rates as well. And the other element as well is we'll be more tactical in how we hone promotions as well, how we target certain credit scores in the market vis-a-vis certain product lines. So it is certainly a huge news. Dealers reacted favorably. After two weeks, we have 90% of our dealer network already signed up. We're originating loans already, so it's very happy with the results. And yes, it may have a positive financial implication, but I think the broader implication is about BRP becoming the OEM of choice for dealers and consumers and building that brand aura around BRP.

And if I may, coming from the auto industry, I have some experience on that one. And being closer to the client is super important, not only for the network, but also for us, because this opens the door for new projects to come about, you know, renewal of the financial and renewal of the products, sorry, and even a certified pre-owned program, et cetera. This is all related. So creating the link with the client has an immense value for both our dealers and also our company.

Thanks, guys.

Your next question comes from Brandon Rowe with Lubit Capital. Your line is now open.

Good morning. Thank you for taking my questions. And again, to echo everyone else's comments, congratulations, Seb, on the retirement. Just, you know, a couple questions for me. First, on tariffs, could you just talk about maybe the portion of the tariff mitigation efforts that are potentially structural in nature, you know, maybe once tariffs, you know, are repealed or get rolled back?

Well, in May, we talked about $200 million of, call it, tactical operational elements we were putting in place. That's still much in force today. And we expect some of that as well to carry over next year, probably not to the level of what it is this year. but certainly there and obviously it's all about building better business practices and who knows if tariffs do leave one day. Mintan will be the CFO and I know he'll be controlling a tight leash and so maybe he's going to want to keep some of that to the bottom line. I certainly hope he does.

Okay, great. And then just looking at the second half guide, what is the underlying assumption for ORV retail in the back half of the year? Thank you.

Well, as you saw, year-to-date or side-by-side retail up 7%, ATV 4%, so good retail performance year-to-date. The expectation is that the industry will remain as we had it in the second half, and our expectation is good retail momentum, especially that we have, we'll call it a full six months of Defender HD11s in the network.

Okay, great. Thank you.

Your next question comes from Garrick Johnson with Seaport Research Partner. Your line is now open.

Thank you. Good morning. Congratulations, Sebastien. Congratulations, Minh Thanh. I have a question on factory expansion you were talking about. I presume this is Suarez too. What are you doing there? It seems like you're expanding capacity pretty quickly. So is it just more throughput or is there actual capital that needs to go in?

It's not very big in terms of capex, indeed. What we are doing here is more like the physical line organization because, of course, when you do a cabin, you need more space because there are some steps of manufacturing that you add on the main line. And we do this by a bypass to this line, so we are just mostly extending the building. So we're extending a building so that we can have a throughput of this, which is increased by roughly 33% of what we are doing right now, which will be impacting, of course, on our commercial performance. And as Sebastien said before, our dealer inventory is rather low on this one. The demand is still there. So we are super confident that the market will absorb this.

Okay, great. And, you know, it would be super wonderful if recreational demand kicked in. Just for edification, what was recreational ORV retail in a quarter?

I don't have that granular data with me, but we can certainly try to share something later.

Okay, what's your guess? Probably down significantly or down a little bit or...

Down in the high teens. Okay. I don't like to guesstimate, and so we'll provide you harder numbers. Okay. Fair enough.

Talk to you later. Thank you.

Thanks. Ladies and gentlemen, as a reminder, should you have any questions, please press star 1. Your next question comes from Jonathan Goldman with Scotiabank. Your line is now open.

Hey, good morning, team. And let me be the last one to sign the retirement card. Congratulations, particularly on managing through the last five or six years environment. And congratulations to you as well. I look forward to connecting. Most of my questions have the ask. So just a couple, I guess, clarification ones. Are you able to discuss in the core of the revenue growth, maybe break it down in terms of volume, share gains, how much was pricing and mix?

Yeah, well, if I look at the overall margin evolution this quarter, as we said in our prepared remarks, look at gross profit was hit by 740 basis points from tariffs. We have the supplier restructuring 330. And so net, we're looking at the 140 basis point over year improvement when you include the two previous items I mentioned. And so what drove the gross margin improvements? Obviously, leverage on fixed costs is about 110 basis points. Pricing, 80 basis points positive. Manufacturing efficiencies, about 110 basis points. And then in terms of a headwind, we have inflation FX and other for about 160 in the quarter.

Okay, that's useful. Then maybe one more. You kind of discussed this, I guess, on a question or two ago, but Just thinking more broadly, have you changed your assumption on the North American teleports industry retail? I think you were talking about Flattish on the previous couple of calls.

No change in assumption, no.

Okay, perfect. Thanks for taking my questions.

Thank you. There are no further questions at this time. I will now turn the call over to Mr. Deschenes to close the meeting.

Great. Thank you, Joël, and thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again for a third quarter conference call planned for December 3rd. Thanks again, everyone, and have a good day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.