BRP(DOOO) - 2022 Q4 - Annual Report

Executive Summary and Highlights Highlights for FY23 Q4 BRP achieved record revenue growth and strong profitability in Q4 FY2023, with significant retail sales growth in Powersports products and increased market share in North America Key Financial Metrics for FY23 Q4 | Metric | Amount (Million CAD) | Y-o-Y Growth (%) | | :--- | :--- | :--- | | Revenue | $3,076.3 | 31% | | Powersports Product Retail Sales | - | 21% | | Normalized Diluted EPS | $3.85 | 28% | | Diluted EPS | $4.54 | 82% | | Normalized EBITDA | $528.0 | 27% | - Fourth quarter revenue reached a new company record for a single quarter[8] - North American SSV market share experienced growth[8] Highlights for FY23 Full Year In FY2023, BRP's revenue surpassed CAD 10 billion for the first time, Normalized EPS exceeded guidance, and the company achieved significant market share growth in North American Powersports Key Financial Metrics for FY23 Full Year | Metric | Amount (Million CAD) | Y-o-Y Growth (%) | | :--- | :--- | :--- | | Revenue | $10,033.4 | 31% | | Normalized Diluted EPS | $12.05 | 21% | - Revenue exceeded CAD 10 billion for the first time, setting a new historical record[8] - Normalized diluted earnings per share surpassed the upgraded FY2023 guidance range[8] - North American Powersports industry market share increased by over 5 percentage points[8] - Returned CAD 356 million to shareholders through share repurchases and dividend payments[8] - Completed 3 acquisitions, established the LVHA group, and initiated construction of the Can-Am electric two-wheel motorcycle production facility, demonstrating continuous investment in future market-shaping products[8] Overview of FY24 Full-Year Guidance The company projects continued growth in FY2024, with revenue expected to increase by 9% to 12% and Normalized diluted EPS by 2% to 6% - The company anticipates FY2024 revenue to increase by 9% to 12% compared to FY2023[8] - Normalized diluted earnings per share are projected to be between CAD 12.25 and CAD 12.75, representing a 2% to 6% increase from FY2023[8] Fiscal Year 2024 Guidance Financial Guidance BRP provides detailed guidance for FY2024 across product lines and for the overall company, covering revenue, Normalized EBITDA, effective tax rate, and Normalized diluted EPS FY24 Financial Guidance | Financial Metric | FY23 (Million CAD) | FY24 Guidance vs FY23 | | :-------------------------------- | :------------------ | :-------------------- | | Revenue | | | | Year-Round Products | $4,827.1 | Growth 16% to 19% | | Seasonal Products | $3,440.3 | Decrease 4% to Flat | | Powersports PA&A and OEM Engines | $1,276.4 | Growth 3% to 7% | | Marine Products | $489.6 | Growth 45% to 50% | | Total Company Revenue | $10,033.4 | Growth 9% to 12% | | Normalized EBITDA | $1,706.3 | Growth 9% to 13% | | Effective Tax Rate | 24.4% | 24.5% to 25.5% | | Normalized Diluted EPS | $12.05 | $12.25 to $12.75 (Growth 2% to 6%) | | Net Income | $865.4 | Approx. $985M to $1,025M | Other Assumptions FY2024 guidance is based on several operational and financial assumptions, including projected increases in depreciation expense, financing costs, diluted shares, and capital expenditures Other Key Assumptions for FY24 | Metric | FY23 (Million CAD) | FY24 Guidance (Million CAD) | | :-------------------------------- | :------------------ | :--------------------------- | | Adjusted Depreciation Expense | ~$304 | ~$375 | | Adjusted Net Financing Costs | ~$110 | ~$180 | | Diluted Weighted Average Shares | ~80.9 Million Shares | ~80.5 Million Shares | | Capital Expenditures | ~$659 | ~$750 to $800 | Detailed Financial Highlights Overall Financial Performance BRP achieved significant revenue and profit growth in both Q4 and the full year of FY2023, with improvements in Normalized EBITDA and diluted EPS Key Financial Metrics (FY2021-FY2023) | Metric (Million CAD) | FY23 Q4 | FY22 Q4 | FY23 Full Year | FY22 Full Year | FY21 Full Year | | :----------------------------------- | :--------------- | :--------------- | :----------- | :----------- | :----------- | | Revenue | $3,076.3 | $2,347.5 | $10,033.4 | $7,647.9 | $5,952.9 | | Gross Profit | $787.6 | $609.5 | $2,499.4 | $2,132.2 | $1,472.3 | | Gross Margin (%) | 25.6% | 26.0% | 24.9% | 27.9% | 24.7% | | Normalized EBITDA | $528.0 | $416.4 | $1,706.3 | $1,462.1 | $999.0 | | Net Income (Loss) | $365.1 | $209.6 | $865.4 | $794.6 | $362.9 | | Normalized Net Income | $309.2 | $251.3 | $976.7 | $846.5 | $477.0 | | Diluted EPS | $4.54 | $2.50 | $10.67 | $9.31 | $4.10 | | Normalized Diluted EPS | $3.85 | $3.00 | $12.05 | $9.92 | $5.39 | Fourth Quarter Results In Q4 FY2023, BRP delivered strong financial results with substantial growth in revenue and profitability, driven by robust consumer demand, increased production, and new product introductions Revenue (Overall and by Product Line) Fourth quarter total revenue increased by 31.0% to CAD 3,076.3 million, primarily driven by higher wholesale volumes, the introduction of Sea-Doo pontoons, and favorable foreign exchange movements - Total revenue for the fourth quarter increased by 31.0% to CAD 3,076.3 million, primarily driven by higher wholesale volumes, the introduction of Sea-Doo pontoons, and CAD 73 million in favorable foreign exchange movements[15] Q4 Revenue by Product Line (FY2023 vs FY2022) | Product Line | FY23 Q4 Revenue (Million CAD) | FY22 Q4 Revenue (Million CAD) | Change (Million CAD) | Growth (%) | FY23 Q4 Revenue Share (%) | Primary Drivers | | :-------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :--------- | :-------------------- | :---------- | | Year-Round Products | $1,254.8 | $853.1 | +$401.7 | +47.1% | 41% | Higher volumes and favorable pricing, strong SSV demand, improved ATV and 3WV product supply, CAD 35 million favorable FX movement | | Seasonal Products | $1,319.5 | $1,048.9 | +$270.6 | +25.8% | 43% | Increased PWC sales, favorable pricing, Sea-Doo pontoon introduction, CAD 17 million favorable FX movement, partially offset by lower snowmobile sales in Russia | | Powersports PA&A and OEM Engines | $378.3 | $310.7 | +$67.6 | +21.8% | 12% | Increased PA&A sales, favorable pricing, Sea-Doo pontoon introduction, CAD 15 million favorable FX movement | | Marine Products | $128.5 | $139.0 | -$10.5 | -7.6% | 4% | Lower boat sales (supply chain disruptions), partially offset by favorable pricing and improved boat mix, CAD 6 million favorable FX movement | North American Retail Sales North American Powersports retail sales increased by 21% year-over-year, or 19% excluding pontoons, primarily driven by PWC and SSV - North American Powersports product retail sales increased by 21% year-over-year, or 19% excluding pontoons, primarily driven by PWC and SSV[17] - Retail sales growth by product line: Year-Round Products retail sales increased by over 30%, Seasonal Products retail sales increased by over 10%, and Marine boat retail sales decreased by 57%[20] Gross Profit Gross profit increased by 29.2% to CAD 787.6 million, primarily due to favorable volumes in SSV and PWC, and favorable pricing across all product lines - Gross profit increased by 29.2% to CAD 787.6 million, primarily driven by favorable volumes in SSV and PWC, and favorable pricing across all product lines[18] - Gross margin decreased by 40 basis points to 25.6%, mainly due to increased logistics, commodity, and labor costs from supply chain disruptions and inflation, as well as higher sales programs, partially offset by volumes and favorable pricing[18] Operating Expenses Operating expenses increased by 33.4% to CAD 350.7 million, mainly due to higher G&A, R&D, and sales and marketing investments - Operating expenses increased by 33.4% to CAD 350.7 million, primarily due to higher G&A expenses (software infrastructure modernization), increased R&D expenses (supporting future growth), and higher sales and marketing investments[21] Normalized EBITDA Normalized EBITDA increased by 26.8% to CAD 528.0 million, driven by higher gross profit, partially offset by increased operating expenses - Normalized EBITDA increased by 26.8% to CAD 528.0 million, primarily due to higher gross profit, partially offset by increased operating expenses[22] Net Income Net income increased by 74.2% to CAD 365.1 million, primarily due to higher operating income and favorable foreign exchange movements on USD-denominated long-term debt - Net income increased by 74.2% to CAD 365.1 million, primarily due to higher operating income and favorable foreign exchange movements on USD-denominated long-term debt, partially offset by increased net financing costs and income tax expense[23] Twelve-Month Period Ended January 31, 2023 (Full Year) For the full FY2023, BRP's revenue surpassed CAD 10 billion for the first time, with growth in Normalized EBITDA and net income, primarily driven by increased volumes, new product introductions, and favorable pricing Revenue Full-year revenue increased by 31.2% to CAD 10,033.4 million, driven by higher volumes across multiple product lines, Sea-Doo pontoon introduction, and favorable pricing - Full-year revenue increased by 31.2% to CAD 10,033.4 million, primarily due to higher volumes in SSV, snowmobiles, 3WV, and PWC, the introduction of Sea-Doo pontoons, and favorable pricing across all product lines, including CAD 107 million in favorable foreign exchange movements[24] Normalized EBITDA Normalized EBITDA increased by 16.7% to CAD 1,706.3 million, primarily due to higher gross profit, partially offset by increased operating expenses like R&D and G&A - Normalized EBITDA increased by 16.7% to CAD 1,706.3 million, primarily due to higher gross profit, partially offset by increased operating expenses such as R&D and G&A[25] Net Income Net income increased by 8.9% to CAD 865.4 million, primarily due to higher operating income and lower net financing costs, partially offset by unfavorable foreign exchange impacts - Net income increased by 8.9% to CAD 865.4 million, primarily due to higher operating income and lower net financing costs, partially offset by unfavorable foreign exchange impacts on USD-denominated long-term debt and increased income tax expense[26] Liquidity and Capital Resources Cash Flow and Investments In FY2023, the company experienced a decrease in cash flow from operating activities but still made significant capital expenditures and business acquisitions, returning funds to shareholders - Net cash flow from operating activities was CAD 649.5 million, lower than CAD 770.0 million in FY2022[28] - Invested approximately CAD 660 million in capital expenditures (for increased production capacity and software infrastructure modernization) and CAD 208 million in business combinations[29] - Returned CAD 356 million to shareholders through share repurchases and dividend payments[29] Debt and Financing The company added a new USD 500 million term loan in December 2022 and fully repaid a USD 100 million term loan B-2 - On December 13, 2022, the company added a USD 500 million term loan, maturing on December 13, 2029, which is exempt from financial covenants[30] - On the same day, the company fully repaid the then-outstanding USD 100 million Term Loan B-2, amounting to CAD 135 million[30] Dividend Distribution The Board of Directors declared a quarterly dividend of CAD 0.18 per share - On March 22, 2023, the company's Board of Directors declared a quarterly dividend of CAD 0.18 per share for holders of multiple voting shares and subordinate voting shares[31] - The dividend will be paid on April 17, 2023, to shareholders of record at the close of business on April 3, 2023[31] Company Information Conference Call and Webcast Presentation BRP will host a conference call and webcast on March 23, 2023, at 9:00 AM ET to discuss its Q4 FY2023 results - The conference call and webcast will be held on March 23, 2023, at 9:00 AM ET, hosted by President and CEO José Boisjoli and CFO Sébastien Martel[32] - The webcast presentation has been published in the 'Quarterly Reports' section of BRP's website[33] About BRP BRP Inc. is a global leader in powersports products, propulsion systems, and boats, with over 80 years of innovation and a portfolio of brands including Ski-Doo, Sea-Doo, and Can-Am - BRP Inc. is a global leader in powersports products, propulsion systems, and boats, with over 80 years of innovation[34] - The company owns industry-leading brands such as Ski-Doo and Lynx snowmobiles, Sea-Doo watercraft and pontoons, Can-Am on- and off-road vehicles, Alumacraft and Quintrex boats, Manitou pontoons, and Rotax marine propulsion systems and engines for karts and recreational aircraft[34] - Headquartered in Quebec, Canada, with CAD 10 billion in annual sales, operations in over 130 countries, and nearly 23,000 employees worldwide[34] - Committed to responsible growth, developing electric models for existing product lines, and exploring new low-voltage and human-assisted product categories[34] Forward-Looking Statements and Assumptions Caution Concerning Forward-Looking Statements Forward-looking statements in the report involve risks and uncertainties that could cause actual results to differ materially from expectations, despite reflecting the company's future performance, financial guidance, plans, and expectations - Forward-looking statements are intended to help readers understand the company's objectives, strategic priorities, and anticipated operating environment, but should not be unduly relied upon[37] - Factors that could cause actual results to differ materially from forward-looking statements include adverse economic conditions (such as high interest rates and inflation), foreign exchange fluctuations, supply chain issues, talent loss, IT system failures, reliance on international sales, ineffective execution of growth strategies, adverse weather, business seasonality, reliance on dealer networks, product safety compliance, fixed cost base, competitive pressures, internal control failures, brand reputation, product liability claims, inventory management, intellectual property infringement, manufacturing capacity limitations, increased freight costs, changes in tax laws, and others[38][39] Key Assumptions The company's forward-looking statements are based on various economic, market, and operational assumptions, including improved supply chains, stable market share, global economic stability, stable exchange rates, gradual inflation decline, and no significant tax or trade policy changes - Key assumptions include continued improvement in supply chain disruptions, industry growth ranging from a slight decrease to a slight increase; market share remaining constant or moderately increasing; stable global and North American economic conditions, with limited impact from the Russia-Ukraine conflict and the COVID-19 pandemic[40] - Major operating currency exchange rates remaining near current levels; inflation expected to remain high but gradually decline; no significant changes in tax laws or free trade agreements; company margins remaining at current levels; supplier base capable of timely supporting product development and production; no new trade barriers; and no unusually severe weather conditions[40] Non-IFRS Measures Reconciliation Non-IFRS Measures Definitions BRP uses several non-IFRS measures, such as Normalized EBITDA, Normalized Net Income, Normalized Income Tax Expense, Normalized Effective Tax Rate, and Normalized Diluted EPS, to provide a deeper understanding of its operational performance and facilitate period-over-period comparisons - Non-IFRS measures are not recognized under IFRS and have no standardized meaning, but are used as supplementary information to understand the company's operating results from management's perspective[41] Non-IFRS Measures and Their Definitions | Non-IFRS Measure | Definition | Reason for Use | | :----------------------------------- | :--------- | :------------- | | Normalized EBITDA | Net income adjusted for financing costs, financing income, income tax expense (recovery), depreciation expense, and normalization items | Assists investors in consistently determining the financial performance of the company's operating activities by excluding non-cash items such as depreciation expense, impairment charges, foreign exchange gains or losses on USD-denominated long-term debt and certain lease liabilities, as well as items not reflective of the company's operating performance such as restructuring and liquidation costs, litigation gains or losses, and acquisition-related costs | | Normalized Net Income | Net income adjusted for normalization items and their tax impact | In addition to the financial performance of operating activities, these measures also consider the impact of investing activities, financing activities, and income taxes on the company's financial performance | | Normalized Income Tax Expense | Income tax expense adjusted to reflect the tax impact of normalization items and to normalize specific tax items | | | Normalized Effective Tax Rate | Based on Normalized Net Income before Normalized Income Tax Expense | | | Normalized Diluted EPS | Calculated by dividing Normalized Net Income by the diluted weighted average number of shares | | Reconciliation Tables Detailed reconciliation tables are provided for Net Income to Normalized Net Income and Normalized EBITDA, Depreciation Expense, Income Tax Expense, Financing Costs, Financing Income, and Cash Flow from Operating Activities to Free Cash Flow Reconciliation of Net Income to Normalized Net Income and Normalized EBITDA | (Million CAD) | FY23 Q4 | FY22 Q4 | FY23 Full Year | FY22 Full Year | FY21 Full Year | | :----------------------------------- | :--------------- | :--------------- | :----------- | :----------- | :----------- | | Net Income | $365.1 | $209.6 | $865.4 | $794.6 | $362.9 | | Normalization Items (Adjustments) | (56.6) to 4.3 | 48.4 to (8.7) | 92.4 to 1.0 | (13.3) to 3.8 | (121.8) to 4.1 | | Income Tax Adjustment | (4.3) | 1.2 | (15.2) | (5.8) | (45.7) | | Normalized Net Income | $309.2 | $251.3 | $976.7 | $846.5 | $477.0 | | Normalized Income Tax Expense | $96.3 | $77.9 | $315.7 | $287.9 | $167.1 | | Adjusted Financing Costs | $36.5 | $14.0 | $113.9 | $63.4 | $107.3 | | Adjusted Financing Income | (1.4) | (0.3) | (4.2) | (3.8) | (7.6) | | Adjusted Depreciation Expense | $87.4 | $73.5 | $304.2 | $268.1 | $255.2 | | Normalized EBITDA | $528.0 | $416.4 | $1,706.3 | $1,462.1 | $999.0 | Normalized EPS Calculation and Other Reconciliation Tables | (Million CAD, except per share data) | FY23 Q4 | FY22 Q4 | FY23 Full Year | FY22 Full Year | FY21 Full Year | | :---------------------------------------------------- | :--------------- | :--------------- | :----------- | :----------- | :----------- | | Depreciation Expense | $90.0 | $74.5 | $310.4 | $273.6 | $260.8 | | Adjusted Depreciation Expense | $87.4 | $73.5 | $304.2 | $268.1 | $255.2 | | Income Tax Expense | $92.0 | $79.2 | $300.5 | $282.1 | $121.4 | | Normalized Income Tax Expense | $96.3 | $77.9 | $315.7 | $287.9 | $167.1 | | Financing Costs | $37.5 | $14.0 | $114.8 | $128.9 | $120.0 | | Adjusted Financing Costs | $36.5 | $14.0 | $113.9 | $63.4 | $107.3 | | Financing Income | $(1.4) | $(0.3) | $(6.0) | $(3.8) | $(19.8) | | Adjusted Financing Income | $(1.4) | $(0.3) | $(4.2) | $(3.8) | $(7.6) | | Normalized Diluted EPS | $3.85 | $3.00 | $12.05 | $9.92 | $5.39 | Reconciliation of Cash Flow from Operating Activities to Free Cash Flow | (Million CAD) | FY23 Full Year | FY22 Full Year | | :--------------------------------------- | :----------- | :----------- | | Net Cash Flow from Operating Activities | $649.5 | $770.0 | | Acquisition of Property, Plant and Equipment | 601.0 | 628.9 | | Acquisition of Intangible Assets | 58.4 | 68.8 | | Free Cash Flow | $(9.9) | $72.3 |