Polaris(PII) - 2024 Q1 - Quarterly Results

Financial and Operational Highlights Polaris reported significant Q1 2024 financial declines, gaining market share in some segments despite overall market challenges Key Financial Data Polaris's Q1 2024 reported and adjusted financial performance saw significant year-over-year declines across key metrics Q1 2024 Key Financial Data (Reported and Adjusted) | (in millions, except per share data) | Reported Q1 2024 | YoY % Change | Adjusted Q1 2024 | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | Sales | $1,736.4 | (20)% | $1,736.4 | (20)% | | Gross profit margin | 19.0 % | -250 bps | 19.0 % | -248 bps | | Total operating expenses | $313.2 | (4)% | | | | Net income attributable to Polaris | $3.8 | (97)% | $13.0 | (89)% | | Net income attributable to Polaris margin | 0.2 % | -499 bps | | | | Adjusted EBITDA Margin* | | | 6.3 % | -459 bps | | Diluted EPS attributable to Polaris | $0.07 | (96)% | $0.23 | (89)% | CEO Commentary CEO Mike Speetzen noted Q1 sales met expectations, adjusted EPS exceeded plans, and market share grew in ORV, motorcycle, and marine segments - First-quarter sales performance met expectations, with adjusted EPS exceeding plans, and market share gains achieved in ORV, motorcycle, and marine segments, driven by new product launches like RANGER and Indian Scout series[3] - Off-road vehicle business remained strong, but snow products faced challenges due to poor winter conditions, and trends in more recreational categories continued to be soft[3] - The company will continue to focus on solid execution throughout the year, including managing dealer inventory, meeting customer demand, driving ongoing operational improvements, and delivering profitable growth amidst an uncertain macro environment[3] Performance Summary (Reported) Polaris's Q1 2024 global sales and net income significantly declined, with North America sales falling more sharply than international sales Overall Company Performance Polaris's Q1 2024 global sales decreased by 20% to $1.736 billion, with net income attributable to Polaris falling 97% to $4 million Q1 2024 Sales Performance | Metric | Q1 2024 Sales (Millions) | YoY Change | Share of Total Sales | | :--- | :--- | :--- | :--- | | Worldwide Sales | $1,736 | (20)% | 100% | | North America Sales | $1,444 | (22)% | 83% | | International Sales | $292 | (13)% | 17% | Q1 2024 Net Income and EPS (Reported) | Metric | Q1 2024 | YoY Change | | :--- | :--- | :--- | | Net income attributable to Polaris | $4 million | (97)% | | Diluted EPS attributable to Polaris | $0.07 | (96)% | Key Factors Affecting Sales & EPS Q1 2024 sales declined primarily due to lower volume and increased promotional activity, partially offset by a favorable product mix, leading to significant drops in adjusted net income and EPS - The primary factors impacting first-quarter sales were lower volume and decreased net pricing due to increased promotional spending, partially offset by a positive product mix[6] Q1 2024 Adjusted Net Income and EPS | Metric | Q1 2024 | YoY Change | | :--- | :--- | :--- | | Adjusted net income attributable to Polaris | $13 million | (89)% | | Adjusted diluted EPS attributable to Polaris | $0.23 | (89)% | Market Share & Retail Sales Polaris gained market share in ORV, motorcycle, and marine segments in Q1, with powersports retail sales down 10% overall but up 3% excluding snow products - Market share increased in Off-Road Vehicles (ORV), motorcycles, and marine products during the first quarter[6] - Powersports retail sales decreased by 10% year-over-year this quarter, primarily due to a decline in snow products; excluding snow products, retail sales increased by 3%[6] - Polaris North America ORV unit retail sales increased by 3%, outperforming the estimated low-single-digit growth in the North America ORV industry[12] Gross Profit Margin & Operating Expenses Q1 2024 gross profit margin decreased by 250 basis points to 19.0% due to increased promotions and warranty costs, while total operating expenses decreased 4% but rose as a percentage of sales Q1 2024 Gross Profit Margin | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Reported Gross profit margin | 19.0% | 21.5% | -250 bps | | Adjusted Gross profit margin | 19.0% | 21.48% | -248 bps | - The decline in gross profit margin was primarily driven by increased promotional activity and higher warranty costs, partially offset by favorable operating costs[8] Q1 2024 Operating Expenses | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change | | :--- | :--- | :--- | :--- | | Total operating expenses | $313.2 | $324.9 | (4)% | | Operating expenses as % of sales | 18.0% | 14.9% | +314 bps | Segment Highlights (Reported) Polaris's segments experienced varied performance in Q1 2024, with significant sales declines in Off-Road and Marine, while On-Road sales also decreased but improved gross margin Off Road Segment The Off Road segment's sales decreased by 16% to $1.3357 billion, with gross profit margin falling 339 basis points to 17.4%, driven by lower volumes and increased promotions Off Road Segment Performance (Q1 2024) | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change | | :--- | :--- | :--- | :--- | | Sales | $1,335.7 | $1,591.8 | (16)% | | Gross Profit Margin | 17.4% | 20.8% | -339 bps | - Sales were driven by lower snow and off-road vehicle volumes, partially offset by a 5% increase in Parts, Garments, & Accessories (PG&A) sales[12] - Gross profit margin performance was driven by decreased net pricing due to increased promotional activity and higher warranty costs, partially offset by operating improvements[12] On Road Segment The On Road segment's sales decreased by 14% to $277.2 million, but gross profit margin improved by 41 basis points to 21.8%, despite lower volumes and PG&A sales On Road Segment Performance (Q1 2024) | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change | | :--- | :--- | :--- | :--- | | Sales | $277.2 | $323.5 | (14)% | | Gross Profit Margin | 21.8% | 21.4% | +41 bps | - Sales were driven by lower volume, with PG&A sales decreasing by 8%[12] - Gross profit margin performance was driven by a favorable product mix, partially offset by higher warranty costs and decreased net pricing due to increased promotional activity[12] - Indian Motorcycle North America unit retail sales achieved low-double-digit growth, outperforming the comparable motorcycle industry's low-single-digit growth[12] Marine Segment The Marine segment's sales significantly declined by 53% to $123.5 million, with gross profit margin decreasing by 776 basis points to 15.5%, primarily due to lower volumes and net pricing Marine Segment Performance (Q1 2024) | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change | | :--- | :--- | :--- | :--- | | Sales | $123.5 | $264.4 | (53)% | | Gross Profit Margin | 15.5% | 23.3% | -776 bps | - Sales performance was driven by lower volume[12] - Gross profit margin performance was impacted by lower sales volume and decreased net pricing[12] 2024 Business Outlook Polaris reaffirms its full-year 2024 guidance, expecting total company sales to decline by 5% to 7% and adjusted diluted EPS to decrease by 10% to 15% Full Year Guidance Polaris reaffirms its 2024 full-year guidance for total company sales and adjusted earnings - Polaris reaffirmed its 2024 full-year guidance for total company sales and adjusted earnings[6] 2024 Full Year Guidance | Metric | 2024 Outlook (YoY Change) | | :--- | :--- | | Total Company Sales | Down 5% to 7% | | Adjusted Diluted EPS | Down 10% to 15% | Non-GAAP Guidance Reconciliation Note The company does not provide a reconciliation for adjusted EPS guidance to GAAP measures, citing the "unreasonable efforts exception" due to the difficulty in forecasting certain items - The company does not provide a reconciliation for adjusted EPS guidance, citing the "unreasonable efforts exception" due to the difficulty in forecasting items like restructuring and acquisition integration costs[12] Non-GAAP Financial Measures This section defines and explains the use of non-GAAP financial measures, emphasizing their role in providing meaningful operational performance comparisons and understanding ongoing business performance Definition and Use This press release uses "adjusted" non-GAAP financial measures to provide meaningful comparisons of operational performance and understand ongoing business performance - This press release and related earnings conference call include "adjusted" sales, gross profit, income before taxes, net income attributable to Polaris Inc., diluted earnings per share, EBITDA, EBITDA margin, and free cash flow, which management believes are useful for meaningful performance comparisons and understanding ongoing operational performance[13] - Reconciliations of GAAP historical measures to adjusted non-GAAP measures are included in the financial schedules of the press release, but these measures should not be considered substitutes for GAAP measures[13] Earnings Conference Call and Webcast Polaris Inc. held a conference call and webcast on April 23, 2024, to discuss Q1 2024 results, with details available on the investor relations website Event Details Polaris Inc. hosted a conference call and webcast on April 23, 2024, at 9:00 AM CT to discuss Q1 2024 results, led by CEO Mike Speetzen and CFO Bob Mack - Polaris Inc. held a conference call and webcast on April 23, 2024, at 9:00 AM CT to discuss Q1 2024 results, hosted by CEO Mike Speetzen and CFO Bob Mack[14] - The earnings presentation and webcast link are available on the Polaris investor relations website, ir.polaris.com, with conference ID 3619470, and a replay accessible via the same link[14] About Polaris Polaris Inc. is a global powersports leader, established in 1954, offering a wide range of high-quality off-road vehicles, motorcycles, snowmobiles, and marine products Company Overview Polaris Inc. (NYSE: PII) is a global leader in powersports, dedicated to product breakthroughs and enriching outdoor experiences since 1954 - Polaris Inc. (NYSE: PII) is a global leader in powersports, dedicated to product breakthroughs and enriching outdoor experiences since its founding in 1954[15] - The company's product lines include RANGER®, RZR®, Polaris XPEDITION®, and GENERAL™ side-by-side off-road vehicles; Sportsman® all-terrain off-road vehicles; military and commercial off-road vehicles; snowmobiles; Indian Motorcycle® mid-size and heavyweight motorcycles; Slingshot® autocycles; Aixam quadricycles; Goupil electric vehicles; and pontoon and deck boats, including the industry-leading Bennington pontoons[15] - Polaris enhances the riding experience with a robust portfolio of parts, garments, and accessories, headquartered in Minnesota and serving nearly 100 countries worldwide[15] Forward-Looking Statements This section serves as a disclaimer, highlighting that forward-looking statements in the press release involve risks and uncertainties that could cause actual results to differ materially from expectations Disclaimer and Risk Factors Forward-looking statements in this press release, including "2024 Business Outlook" and "CEO Commentary," involve risks and uncertainties that could cause actual results to differ materially - Forward-looking statements in this press release, such as those in "2024 Business Outlook" and "CEO Commentary," involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements[16] - Potential risks include the company's ability to successfully implement manufacturing operations strategies and supply chain initiatives; timely procure necessary components; manufacture and deliver products to meet demand (including supply chain disruptions); identify and maintain optimal dealer inventory levels; accurately predict and sustain consumer demand; mitigate rising input costs through pricing or other actions; competitor product offerings, promotional activities, and pricing strategies that may make the company's products less attractive to consumers; the company's ability to make strategic investments in innovation and new products; economic conditions (including recession and interest rate changes) that affect consumer spending or consumer credit; manufacturing facility disruptions; product recalls and/or warranty costs; product rework costs; the impact of changes in Polaris's stock price on incentive compensation plan costs; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; weather impacts on the company's supply chain, manufacturing operations, and consumer demand; commodity costs; freight and tariff costs; changes in international trade policies and agreements; uninsured product liability and class action claims (including claims seeking punitive damages) and other litigation expenses arising from the nature of the company's business; uncertainties in the consumer retail and wholesale credit markets; the performance of affiliated partners; changes in tax policy; relationships with dealers and suppliers; and the overall global economic, social, and political environment[16] - Investors should also consider other risks and uncertainties discussed in the company's filings with the U.S. Securities and Exchange Commission, and the company undertakes no obligation to provide updates to any forward-looking statements unless required by law[16] Consolidated Financial Statements This section presents the unaudited consolidated financial statements, including statements of income, balance sheets, and cash flows, for the specified periods Consolidated Statements of Income This section provides the unaudited consolidated statements of income for the three months ended March 31, 2024, and 2023, detailing sales, cost of sales, gross profit, operating expenses, and net income attributable to Polaris Inc Consolidated Statements of Income (Q1 2024 vs. Q1 2023) | (In Millions, Except Per Share Data) | 2024 | 2023 | | :--- | :--- | :--- | | Sales | $1,736.4 | $2,179.7 | | Cost of sales | $1,406.1 | $1,710.5 | | Gross profit | $330.3 | $469.2 | | Total operating expenses | $313.2 | $324.9 | | Operating income | $39.0 | $161.1 | | Income from financial services | $21.9 | $16.8 | | Income before income taxes | $7.7 | $145.2 | | Net income attributable to Polaris Inc. | $3.8 | $113.4 | | Diluted EPS attributable to Polaris Inc. | $0.07 | $1.95 | Consolidated Balance Sheets This section presents the unaudited consolidated balance sheets as of March 31, 2024, and March 31, 2023, outlining assets, liabilities, and shareholders' equity Consolidated Balance Sheets (March 31, 2024 vs. March 31, 2023) | (In Millions) | March 31, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $318.8 | $322.9 | | Inventories, net | $1,952.8 | $1,947.2 | | Total current assets | $2,732.6 | $2,787.3 | | Total assets | $5,567.4 | $5,289.9 | | Current financing obligations | $54.0 | $553.6 | | Total current liabilities | $1,860.6 | $2,298.4 | | Total liabilities | $4,175.6 | $4,121.3 | | Total shareholders' equity | $1,378.1 | $1,152.1 | | Total equity | $1,380.6 | $1,154.8 | Consolidated Statements of Cash Flows This section provides the unaudited consolidated statements of cash flows for the three months ended March 31, 2024, and 2023, categorized by operating, investing, and financing activities Consolidated Statements of Cash Flows (Q1 2024 vs. Q1 2023) | (In Millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $(105.4) | $124.2 | | Net cash used for investing activities | $(56.7) | $(89.1) | | Net cash provided by (used for) financing activities | $115.7 | $(41.6) | | Net decrease in cash, cash equivalents and restricted cash | $(49.2) | $(1.6) | | Cash, cash equivalents and restricted cash at end of period | $333.7 | $338.1 | Non-GAAP Reconciliation This section provides detailed reconciliations of GAAP to non-GAAP financial measures, including adjustments for restructuring, acquisition-related costs, intangible amortization, and litigation expenses Non-GAAP Reconciliation of Results This section provides a detailed reconciliation of GAAP to non-GAAP financial metrics for the three months ended March 31, 2024, and 2023, including adjustments for restructuring, acquisition costs, intangible amortization, and class action litigation expenses Key Financial Metrics Non-GAAP Reconciliation (Q1 2024 vs. Q1 2023) | (In Millions, Except Per Share Data) | 2024 (Adjusted) | 2023 (Adjusted) | | :--- | :--- | :--- | | Adjusted gross profit | $330.7 | $469.2 | | Adjusted income before income taxes | $19.7 | $152.4 | | Adjusted net income attributable to Polaris Inc. | $13.0 | $119.0 | | Adjusted diluted EPS attributable to Polaris Inc. | $0.23 | $2.05 | | Adjusted EBITDA | $110.0 | $238.1 | | Adjusted EBITDA Margin | 6.3% | 10.9% | - Adjustments include acquisition-related costs, restructuring expenses, intangible asset amortization, and class action litigation-related expenses[26] Reconciliation of GAAP Operating Cash Flow to Non-GAAP Free Cash Flow This section reconciles net cash provided by (used for) operating activities to adjusted free cash flow for the three months ended March 31, 2024, and 2023, by adjusting for property and equipment purchases and finance affiliate distributions GAAP Operating Cash Flow to Non-GAAP Free Cash Flow Reconciliation (Q1 2024 vs. Q1 2023) | (In Millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $(105.4) | $124.2 | | Purchase of property and equipment | $(72.1) | $(94.4) | | Distributions from (investment in) finance affiliate, net | $15.4 | $5.3 | | Adjusted free cash flow | $(162.1) | $35.1 | Non-GAAP Reconciliation of Segment Results This section provides non-GAAP reconciliations for gross profit across Off Road, On Road, Marine, and Corporate segments, showing minor adjustments for the Corporate segment in Q1 2024 Segment Gross Profit Non-GAAP Reconciliation (Q1 2024 vs. Q1 2023) | (In Millions) | 2024 (Adjusted) | 2023 (Adjusted) | | :--- | :--- | :--- | | Adjusted Off Road segment gross profit | $233.0 | $331.6 | | Adjusted On Road segment gross profit | $60.4 | $69.2 | | Adjusted Marine segment gross profit | $19.2 | $61.5 | | Adjusted Corporate segment gross profit | $18.1 | $6.9 | | Adjusted total gross profit | $330.7 | $469.2 | - In Q1 2024, only the Corporate segment gross profit had a $0.4 million non-GAAP adjustment for restructuring[30] Non-GAAP Adjustments This section details the specific non-GAAP adjustments made by Polaris, including restructuring and acquisition-related costs, intangible asset amortization, and exclusions for 2024 guidance Restructuring and Acquisition Related Costs Polaris recorded $5.7 million in restructuring and acquisition-related costs in Q1 2024 as non-GAAP adjustments, linked to efficiency-driven restructuring and the Walker Evans business acquisition - Polaris recorded $5.7 million in restructuring and acquisition-related costs in Q1 2024, which were treated as non-GAAP adjustments[32] - These costs are related to the company's efficiency-driven restructuring activities, including the divestitures of the GEM, Taylor-Dunn, and Transamerican Auto Parts businesses, as well as costs associated with the Walker Evans business acquisition in Q3 2023[32] Intangible Amortization Related to Acquisitions The company excludes intangible asset amortization from all historical acquisitions when calculating adjusted net income to better reflect ongoing operational performance, with $4.5 million excluded in Q1 2024 - The company uses adjusted net income, excluding intangible asset amortization from all historical business acquisitions, to better understand its operating performance and the ongoing performance of the underlying business[33] - In Q1 2024, Polaris recorded $4.5 million in acquisition-related intangible asset amortization, which was excluded as a non-GAAP adjustment[33] 2024 Adjusted Guidance Exclusions The 2024 adjusted guidance excludes approximately $8 million in pre-tax restructuring costs, $20 million in class action litigation-related expenses, and $18 million in intangible amortization from all acquisitions 2024 Adjusted Guidance Exclusions (Pre-Tax) | Exclusion Type | Estimated Amount (Millions) | | :--- | :--- | | Restructuring costs | ~$8 | | Class action litigation-related expenses | ~$20 | | Intangible amortization (all acquisitions) | ~$18 |