Polaris(PII) - 2025 Q2 - Quarterly Report

Part I FINANCIAL INFORMATION Financial Statements Polaris reported a significant net loss of $145.8 million for H1 2025, driven by lower sales and impairment charges Consolidated Financial Highlights (Six Months Ended June 30) | Financial Metric | 2025 (In millions) | 2024 (In millions) | Change | | :--- | :--- | :--- | :--- | | Income Statement | | | | | Sales | $3,388.5 | $3,697.6 | -8.4% | | Gross Profit | $604.2 | $754.3 | -19.9% | | Operating (Loss) Income | $(49.0) | $158.7 | NM | | Net (Loss) Income | $(145.8) | $72.8 | NM | | Diluted (Loss) Income Per Share | $(2.57) | $1.27 | NM | | Balance Sheet (as of June 30) | | | | | Total Assets | $5,388.0 | $5,525.2 (as of Dec 31, 2024) | -2.5% | | Total Liabilities | $4,194.1 | $4,224.7 (as of Dec 31, 2024) | -0.7% | | Total Equity | $1,189.4 | $1,294.1 (as of Dec 31, 2024) | -8.1% | | Cash Flow Statement | | | | | Net Cash from Operating Activities | $403.5 | $40.9 | +886.5% | | Net Cash Used for Investing Activities | $(59.7) | $(165.8) | -64.0% | | Net Cash Used for Financing Activities | $(328.9) | $87.4 (Provided) | NM | - The company recorded a goodwill impairment charge of $52.6 million related to the On Road reporting unit during Q2 2025, eliminating the entire goodwill balance for that segment[55][58] - An impairment of $49.4 million was recorded on a strategic investment in a nonmarketable security, which was included in 'other expense (income), net'[28] - The company paid dividends of $0.67 per share in Q2 2025, an increase from $0.66 in Q2 2024, for a six-month total of $1.34 per share[17][18] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the sales decline, impairment charges, and a recent credit facility amendment to gain covenant relief Results of Operations Q2 sales fell 6% and gross margin contracted, leading to a net loss driven by significant impairment charges Q2 2025 vs Q2 2024 Performance | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Sales | $1,852.7M | $1,961.2M | -6% | | Gross Profit | $359.2M | $424.0M | -15% | | Gross Margin | 19.4% | 21.6% | -223 bps | | Operating (Loss) Income | $(12.9)M | $119.7M | NM | | Net (Loss) Income | $(79.3)M | $68.7M | NM | | Diluted EPS | $(1.39) | $1.21 | NM | - The sales decrease was composed of a 4% decline in volume and a 2% decline from product mix and price, primarily due to lower ORV shipments and higher promotional costs[94] - A goodwill impairment of $52.6M and an investment impairment of $49.4M were the primary drivers of the operating loss and net loss for the quarter[90][100][103] Segment Results The Off Road and On Road segments saw sales declines, while the Marine segment grew, though margins fell across all segments Q2 2025 Segment Sales Performance | Segment | Q2 2025 Sales (M) | Q2 2024 Sales (M) | % Change | | :--- | :--- | :--- | :--- | | Off Road | $1,408.4 | $1,533.8 | -8% | | On Road | $289.0 | $293.3 | -1% | | Marine | $155.3 | $134.1 | +16% | | Total | $1,852.7 | $1,961.2 | -6% | - Off Road: Sales and gross profit decreased due to lower ORV shipments and higher promotional costs; North America ORV dealer inventories were down 18%[112][117] - On Road: Sales decreased due to lower shipments in Europe, though Indian Motorcycle retail sales in North America were up low-double digits, outperforming the industry[114][118] - Marine: Sales increased due to higher shipments, but gross profit margin decreased due to unfavorable product mix and higher operational costs[116][119] Liquidity and Capital Resources Operating cash flow improved significantly due to working capital management, and a credit facility amendment provides covenant relief Cash Flow Summary (Six Months Ended June 30) | Activity | 2025 (In millions) | 2024 (In millions) | | :--- | :--- | :--- | | Operating | $403.5 | $40.9 | | Investing | $(59.7) | $(165.8) | | Financing | $(328.9) | $87.4 | - In June 2025, the company amended its credit facility to modify financial covenants for a 'Covenant Relief Period' lasting until June 30, 2026, providing flexibility but limiting share repurchases[49][52][132] - The company did not repurchase any shares during the first six months of 2025; the remaining authorization under the share repurchase program is approximately $1.11 billion[61][138] - As of June 30, 2025, total financing obligations were $1.83 billion, down from $2.07 billion at year-end 2024, after prepaying $350.0 million of senior notes[46][131] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from inflation, foreign currency, and interest rates, with hedging strategies in place - The company is exposed to fluctuating commodity prices and expects a neutral impact on gross profit margins for full-year 2025, excluding tariffs[149] - Foreign exchange rate movements are expected to have a negative impact on full-year net income in 2025, though the company uses hedging contracts to mitigate risk[154] - The company manages interest rate risk on its $1.2875 billion of variable-rate debt through interest rate swaps[156] Controls and Procedures The CEO and CFO concluded that disclosure controls and internal controls over financial reporting were effective as of June 30, 2025 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[158] - No material changes in internal control over financial reporting occurred during the quarter[159] Part II OTHER INFORMATION Legal Proceedings The company is involved in ongoing class action lawsuits regarding off-road vehicle safety features with an unknown potential loss - Polaris is a party to several class action lawsuits related to rollover protection structures on its off-road vehicles[161] - The company cannot reasonably evaluate the likelihood of a loss or estimate the range of possible loss from these legal proceedings[162] Risk Factors A supplemental risk factor highlights the potential material negative impact of trade tariffs on profitability for fiscal 2025 - A supplemental risk factor was provided regarding the adverse effects of trade matters and tariffs on the company's business[163][164] - The company is vulnerable to increased costs and supply chain challenges from tariffs on components and manufacturing in Mexico[164] Unregistered Sales of Equity Securities and Use of Proceeds No common stock was repurchased in Q2 2025, with approximately $1.11 billion remaining under the share repurchase authorization Share Repurchases (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 1 – 30, 2025 | — | $ — | | May 1 – 31, 2025 | — | $ — | | June 1 – 30, 2025 | — | $ — | | Total | — | $ — | - As of June 30, 2025, the company was authorized to repurchase up to an additional $1,109.3 million of its common stock[166] Other Information No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter[167] Exhibits Filed exhibits include an amendment to the credit agreement, amended joint venture agreements, and executive certifications - Key exhibits filed include Amendment No. 9 to the Credit Agreement, providing for the covenant relief[168] - Certifications from the CEO and CFO as required by the Sarbanes-Oxley Act were also filed[168]