All participants please standby. Your conference is ready to begin. Good morning ladies and gentlemen and welcome to the BRP, Inc.’s FY ‘20 Fourth Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Philippe Deschênes. Please go ahead, Mr. Deschênes. Philippe Deschênes: Thank you, Amo. Good morning and welcome to BRP conference call for the fourth quarter of fiscal year 2020. Joining me this morning are José Boisjoli, President and Chief Executive Officer and Sébastien 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 that are subject to a number of risks and uncertainties. I invite you to read BRP’s FY ‘20 earnings press release for a listing of these. Also during the call, reference will be made to supporting slides and you can find the presentation on our website at brp.com under the Investor Relations section. So with that, I will turn the call over to José. José Boisjoli: Thank you, Philippe. Good morning, everyone and thank you for joining us. This morning, we will give you the Q4 and fiscal year ‘20 results. However, given how rapidly the situation with COVID-19 is evolving globally, it is difficult to predict its impact on our business. You will understand that we will continue to adjust our plans as things unfold. Let us start by reviewing the current situation. First, the employees of BRP are doing well. We have established clear policy on travel events and health and will continue to update them as government response evolves. We have also adopted work from home practice where applicable. Second, I would like to thank all our employees in particular, our manufacturing workforce who are taking extra care to…

Thank you. [Operator Instructions] Our first question is from Steve Arthur from RBC Capital Markets. Please go ahead.

Great, thank you very much. I am just wondering if you can elaborate on a couple of things. First on dealer inventory, you talked about it at the end of the quarter and comfort there, any comments at all and what you are seeing, how it’s trending over the last few weeks since the quarter end? And with respect to dealer orders that expected delivery in the next coming months, how firm are those or how much flexibility does the dealer have for deferring deliveries or canceling them outright and the revenue recognition impacts there? José Boisjoli: Good morning, Steve. Dealer orders, I will talk to you about the dealer order and Sébastien will cover the inventory. The dealer order right now, obviously in country like Spain, Italy and France, dealer order, I mean, everything is closed and we don’t have any shipment. In North America, we don’t see yet any dealer cancellation. The retail was excellent and that’s why I gave you the color of our retail till last Friday. Our retail was excellent till last Friday and we didn’t see any cancellation of the order at this point. That being said, we believe it will come and I don’t think – I don’t think the dealer will cancel order, but at one point dealer will close and it will be difficult to ship. Obviously, we have firm orders for off-road for the next three months, we have firm orders for Watercraft, we had a deal of Sea-Doo – Ski, snowmobile and three-wheeled vehicle, we have firm order also till the end of the season, but it will depend how this situation will evolve over the next few days. Sébastien Martel: Hi, good morning, Steve. On the inventory, as you saw at the end of January, the retail or for the quarter, the retail was super strong and the inventory position was good as well. And as José indicated in his opening remarks, retail, up to last week, was up 24% when you exclude snowmobile. So the retail continued to be very good. And so the inventory position is still very healthy. Obviously, we will monitor and we are monitoring retail on a daily and weekly basis and we are working with our teams to adjust deliveries and production if needed based on dealer’s ability to take these orders and service consumers.

Okay. And just one final one, clearly, it’s a very rapidly evolving situation, any color on the actions that you’ve taken already or the things that have already been implemented to scale back production at the various facilities and when you look at your stress testing, any color at all on what low case downside scenarios look like over the coming days? José Boisjoli: As of today, all our manufacturing sites are running normally, but you can expect in the coming weeks, some factory will go from two shifts to one shift to slow down production and some could be closed temporarily for a period of time. Obviously, Steve, we will adapt depending of how fast the situation will have the domino impact. What is a bit funny is some industry are doing still very well, our retail on Side-by-Side is strong in ATV, even Watercraft in U.S. is doing well. Then it’s very, very difficult right now to follow the situation and we’ll adjust as fast as we can, when we have a better indication.

Of course, I understand. Thanks very much. Stay well. José Boisjoli: Thank you.

Thank you. Our following question is from Mark Petrie from CIBC. Please go ahead.

Hey, good morning. Just to follow-up on that topic, with regards to sort of the production of specific types of products at each of your facilities, can you just remind us about your ability to potentially sort of consolidate across the facilities as opposed to just sort of shutting down your line? José Boisjoli: No, at this point, we don’t think about consolidation. It’s a lot more efficient to go from two shifts to one shift and if the demand stop totally, to stop totally the operation. Consolidation takes time and we’re not there. I think – I think we’ll go through a period of time and this is the big question. How deep and how long this will last? And we are not in that space of looking at consolidation, this could last a few months, this could last –I don’t know, then we’ll adjust our plan. But right now it’s a lot easier to reduce line speed and temporary closing than consolidation.

Yes. Okay, fair enough. And then could you just give us a sense sort of why your buckets of troughs, be it cost of goods and then your various OpEx lines. How much of that would sort of be kind of fixed or just pure overhead and how much would be variable or semi-variable? Sébastien Martel: Yes, good morning, Mark. Obviously, when we look at our business and we look at adjusting level operations, OpEx and overhead will be the big element. And then just to give you a bit of color, most of [indiscernible] in terms of fixed versus variable, we have about, let’s say, probably 90% of the costs and overhead is fixed and then the cost of goods sold bucket, 85% of the costs are variable, 15% of that is fixed and of that 15%, 90% is pretty much difficult to reduce because of either depreciation or leases that you have on the building. So, 85% is variable, 15% of it is fixed and of that, 90% is pretty much frozen. And so overall, in COGS, about 13% is fixed and then on OpEx, well that is pretty much variable, you probably have 80%, 85% of that, that’s variable. Sorry, is that good?

Yes, yes, no, we got there. And then could you just sort of talk at a high level like when you – I mean, obviously, we are not there yet, but there is going to be a point where presumably there is a scenario where a lot of your dealers are under some pretty significant financial pressure. And could you just talk about the structures or past experiences in terms of providing financial relief to dealers and what that has looked like? José Boisjoli: First, you know, we have been growing and the economy has been strong for more than 10 years. Then the dealer overall were in good financial situation compared to ‘08/09 when the situation deteriorated for a few years before to hit the crisis in ‘08/09. Then, first, I think the dealer today worldwide, are in better shape than they were in ‘08/09. That’s the first thing. I think everyone is managing their inventory better compared to what we are doing before and dealer right now are trying to operate. Just to give you a sense, in U.S., Wednesday, we have done a survey in North America, we have done a survey Wednesday and only 4% of the dealer work flows, about 20 were thinking about closing and the other were still operating, but changing a bit their habit. Some are trying to sell product from digital, some are doing VIP delivery, then everyone is trying to find new ways to keep going, very difficult to know, but no doubt that we are in better shape than we were before.

Okay. Appreciate it. I will pass the line. Thanks.

Thank you. Our following question is from Benoit Poirier from Desjardins Capital Markets. Please go ahead.

Yes, good morning, everyone. Could you talk, José, a little bit about the situation back in 2008, 2009 and also what kind of flexibility do you have from a CapEx standpoint kind of your ability to reduce your CapEx going forward to which level? José Boisjoli: Yes. In ‘08/09 and we have looked obviously of how the situation deteriorate, but the big difference is in ‘08/09, you had like about 10 months of declining in sales. After that, we hit the bottom and it took a long time to recover. This time it’s different as you saw and that’s why I gave you the color on our retail up to last Friday, everything was rolling full blast and now we know that there will be a slowdown, but the big question is how deep and how long. And right now we are monitoring obviously the health of our employee we are monitoring closely all our expenses, all the CapEx that we can depending how things evolve that we can delay and obviously doing that trying to protect our short-term growth, our growth and the economy bounce back. We want to be – our goal is to be extremely well-positioned when the economy bounce back. Sébastien Martel: And on your CapEx question, Benoit, we had shared some preliminary numbers last fall that are looking at fiscal year ‘21 and we had said that our plan for fiscal year ‘21 was CapEx north of $400 million. We are still in the planning phase. Obviously, we’re taking it very seriously, and we’re looking at all the cash elements of the business. We don’t have a number yet for ‘21, but if we need to bring that number in the low $200 million, it’s certainly something that is feasible when I look at the high level plan. But obviously we’ll be doing a bottom-up in the next few weeks.

Okay, perfect. And how much of your sales do you expect, if we look at fiscal ‘21, nil guidance, although you expect growth in every product line. So how much of the revenues is already baked in terms of the people that already pre-order snowmobiles that will be received in November and December? And how should we expect dealer inventory to evolve, let’s say, in the coming quarters? José Boisjoli: Obviously, the situation is still very, very fluid, it’s unprecedented. We do have firm orders for Personal Watercraft. If we wanted to, we have the orders for Q1, for Q2, there is super good visibility there for ORV. We also have good visibility for snowmobile, dealers have placed their orders for next season, but obviously it’s one thing to produce them, but then you need to have dealers that are able to take them and consumers that are able to buy them as well. And so today, I think it would be optimistic to think we are able to sell all of the pre-ordered units for our consumers and as we said, we will be adjusting our plans accordingly and we will be working with our dealers, plan partners to make sure that we do the right thing for the business in the long-term.

Okay, perfect. Thank you very much.

Thank you. Our following question is from Tim Conder from Wells Fargo Securities. Please go ahead.

Hey, good morning. This is actually Marc Torrente on for Tim. Thank you for taking our questions. First, just given where oil prices are now, could you remind us of your direct and indirect exposure to the oil patch regions, maybe as a percentage of your total off-road vehicle sales or sales overall? José Boisjoli: Yes, I mean, our exposure to the oil space are fairly limited and we still have a lot of market shares to gain in those states. And we do – we don’t do much B2B, we do most of our sales B2C. But just to give you a sense, it’s about 20% of our U.S. sales, the seven states, like Texas, Oklahoma, New Mexico, Colorado, Wyoming, North Dakota and California. And so far, I mean we are growing – this season, we are growing over 20% in those states. And so far we don’t see any direct impact but because we are fairly small in those area we still believe that we have some runway.

Okay, great. And then certain environment, is there any, I guess, consideration at this point to change product launch cadence throughout the year? Sébastien Martel: Though it’s still too early to call out, obviously our product launches are scheduled several years in advance. I mean we have our teams working on product launches, one year, two years. And so too early to say what we are going to be announcing in June. And what we’re going to be announcing in September. We might adjust our plans based on how the economy is evolving but most of the engineering work is done for these products. So we still have a healthy pipeline of product introductions to do. Obviously, the situation will dictate what we announce and when.

Okay, thanks. And then in the deck, you provided some commentary on your 2021 plan prior to the virus impact. Could you provide any more detail on what your segment outlooks could have looked like without the impact for the year? Sébastien Martel: What the – what could have looked like, sorry, Mark, I missed the... José Boisjoli: Segment.

Your segment outlooks for the year. Sébastien Martel: Yes, we were – obviously you saw the results that we delivered last year and you saw the retail how it kicked off early this year. And so our outlook for fiscal year ‘21 before this whole situation was very favorable. Obviously ORV and off-road was a segment where we were looking for growth and solid growth snowmobile with the product introductions that we did last, last winter and a few months ago at our club. We were also optimistic for that product line and we have a very solid lineup with Personal Watercraft and with our three-wheeled business. So honestly before this, we were actually very, very bullish for fiscal year ‘21.

Okay, great. Thank you.

Thank you. Our following question is from Robin Farley from UBS. Please go ahead.

Thanks. I wanted to clarify on the retail that you gave, was that season to date or was that just from February 1? You gave that retail number from last Friday I guess from the start of that period and then also if you can clarify – if you suspend production, would you be maintaining labor expense? I just – I know you gave some of the fixed versus variable, but thinking about some of the variable being labor expense and whether that will be maintained? Thanks. José Boisjoli: First, the retail I gave you in fiscal year ‘21 was from Feb 1 this year to last Friday, March 13 and just to repeat, we are up 11% overall and excluding snowmobile we are up 24%. Then this is – we had a very, very good momentum. In term of labor, if we close temporarily, we will adapt to the country rules. In some – in North America and in Europe, there is a – there is program for employee who are temporarily off, then it will depend of the country where we have the operation or we have our sales team, we will adapt to each region.

So, then potentially, a couple of weeks of continuing labor cost, is that kind of the idea? I’m sorry, is that what you’re suggesting? Sébastien Martel: The line is very bad, Robin, you are breaking up. Sorry.

Just clarify that there would be a couple of weeks of maybe maintaining labor for a brief period maintaining this labor cost. Sébastien Martel: If we do temporary shutdowns, most of the government programs kick in immediately, the first day of temporarily off. And so we wouldn’t necessarily need to – most of the countries need to maintain the labor cost for a few weeks if we shut down for a few weeks.

Okay, great. Thank you very much.

Thank you. Our following question is from Craig Kennison from Baird. Please go ahead.

Hey, good morning. Thank you for taking my questions as well. So I understand you are undergoing a liquidity review right now, but just wondering if there are any particular covenants in play that are top of mind for you? Sébastien Martel: Good morning, Craig. Good question. We’ve – José and I were both there in ‘08 and ‘09 and back then we had a long term debt with covenants. And so we have to navigate through that period of uncertainty and manage the business through covenants. And one of the takeaways we had back then is that, if ever there was another slowdown, we don’t want to be hindered by jeopardizing or making sacrifices to the business because we need to comply with covenants. So we’ve been very stubborn and diligent in maintaining a covenant-light debt and so today our debt is covenant-light. There are no financial covenants associated with our Term B. We have also been very diligent at always extending the maturities. So we don’t want to be stuck with any short term debt reimbursement. And last January, the markets were good the pricing was good as well. And we decided proactively to extend the maturity on our debt by an additional two years. And so now our Term B has a covenant-light structure and a repayment date of 2027. And so that’s one of the lessons that we learned back in ‘08 and ‘09 and today well, knock on wood, this is one good decision that we’ve taken and it provides us with added flexibility in these types of situations.

Thank you. That’s very helpful. And then, I’m wondering if you’ve had conversations with your credit partners either on the floor plan side or those who provide loans to consumers, and just curious what they might be saying to you at this time? Sébastien Martel: Absolutely. We have been – we are working with TCF in North America for floor plan. We work with Wells Fargo as well at international and we’re in constant communication with both partners. They are extremely supportive. They understand the situation. They have been through this before. We are working hand-in-hand to support our dealers. We are adjusting our payment terms. We are extending floor plan as well to our dealers. We need our dealers in the long-term and we need healthy dealers. And so we understand that TCF and Wells Fargo understands that as well. And so we are proactively working to try to lessen the burden on them as much as possible.

Thanks. And lastly, I don’t know if you commented on retail in the last week, obviously it’s early, but things have changed a lot, have you seen any statistics on retail since the end of last week? José Boisjoli: Yes, we will give you some colors, Craig and we are monitoring this worldwide then and just to give you a sense, our retail was about 10% since the beginning of the year, last 2 weeks, last week and the rolling last 2 weeks and last week was about 10% up, it was down 9% in the last 3 days. Then you can see that it’s starting to affect and obviously in Europe, France, Spain and Italy are down, then this is totally normal and in U.S., like I said in my comments, 4% of the dealer are closed right now. Then this is what we don’t know is how big it will be and how fast, how deep and how long it will be.

Very helpful. Thank you.

Thank you. Our following question is from Cameron Doerksen from National Bank Financial. Please go ahead. He just removed himself from the queue. So we are going to go with Gerrick Johnson from BMO Capital Markets. Please go ahead.

Great, thank you. Hey, Sébastien, can you tell us what the capacity utilization was prior to the virus outbreak? Sébastien Martel: On the revolver?

No, no, no, factory capacity utilization, where were you prior to the outbreak? Sébastien Martel: We were running full capacity in side-by-side, personal watercraft as well. So we were running pretty high base. Obviously, snowmobile is in off-season, so it was not running but – and three-wheeled vehicle business as well. We were – we started production of the new RT model in late January and so that’s in production in the Ryker and the Ryker as well shipping for the summer season.

Okay, great. Can you repeat what you said about the $700 million revolver? Sébastien Martel: Yes. Well, in my prepared remarks, what I indicated is that, last Wednesday, we decided to draw the full amount on the revolver.

Okay. Sébastien Martel: In order to provide us with the necessary liquidity when needed.

Was there a chance that it would go away, why did you need to pull on it right now? Sébastien Martel: Well, when we look at the overall market situation, when we look at the uncertainty, obviously you are reading the news like everyone else is, a lot of the businesses are going through tough times. And back in ‘08 and ‘09, there was the concerns about access to liquidity and how banks would fare in all of this, we are not worried because we have Canadian chartered banks behind the revolver, but at a certain point, we wanted to be proactive and prudent in our managing of the business and that’s why we decided to pull on the revolver.

Okay, got it. And lastly, similar to Robin’s line of questioning, on OpEx, I think you said 85% is variable. I mean, I get it on R&D and perhaps sales and marketing, but G&A, I would think would be pretty darn fixed, especially if it’s people and labor behind that. So can you just talk about your operating expense a little bit more in detail on how it is 85% variable? Sébastien Martel: Yes. Well, maybe I will just – I probably didn’t do a good job when Robin asked her question earlier in terms of fixed versus variable. So, let me redo that over again. We will start with the cost of goods sold line. When you look at the cost of goods sold, of the cost of goods sold, 15% is overhead and depreciation and about 90% of that is fixed. The rest of the COGS is material labor, freight, warranty, etcetera and that’s 85% of the cost of goods sold and that’s variable. In terms of OpEx, yes, there is a lot of salaries, yes, there is advertising, there is consultants. I would say 80% to 85% of that is variable and addressable. Yes, there are some salaries, but if the situation warrants that we need to adjust our workforce, we will adjust our workforce accordingly. Obviously, these actions will be measured. We want their certain skills and competencies that we want to protect and make sure that they are there when the economy turns around. But the way we look at it is everything should be addressable in terms of spend and then we will take the measured decisions as needed.

Okay, great. Thank you.

Thank you. Our following question is from Brandon Rollé from Northcoast Research. Please go ahead. Brandon Rollé: Good morning. I just wanted to ask about your largest North American RV competitor. They’ve gotten much more aggressive this year. Have you seen any impact on your retail demand since maybe mid-February? And in the future, do you plan to compete with lower pricing on, or do you plan to just continue bidding on innovation? Thank you. José Boisjoli: No, I think – I mean, we didn’t see any slowdown in our retail. As you saw in Q4, we were over 30% in retail versus last year and we had a very, very strong start of fiscal year ‘21. Then obviously there is great competition between our biggest competitor and us, but we didn’t see any slowdown in our retail. Brandon Rollé: Okay, great. Thank you.

Thank you. Our following question is from Brian Morrison from TD Securities. Please go ahead.

Hi, good morning. Séb, in your commentary, you talked about your CapEx and the flexibility to take it from potentially $400 million down to $200 million. Can you maybe just talk about some of the major projects that comprise that $400 million and might be amenable that you can take it down to $200 million? Sébastien Martel: Yes, well, obviously, you’ve seen our business evolve over the last two years, and you’ve seen us grow and our plans for fiscal year ‘21 and we’re to continue to grow. And so we were making investments in capacity in most of our sites and so obviously we will re-question capacity investments in the short term. Some – we also had some projects that had more longer term returns, certain investments in our systems and all that. And so these are items that we can re-question as well. And obviously in situations like these, well, some improvements that you might want to make to some of the buildings that are not necessarily critical can be postponed to waive a future time and obviously these are things that we will also be addressing in our plans.

Okay, thank you. And then one follow-up if I can. Back in your prospectus you provided some color on the impact of volumes and revenues and EBITDA and the impact back in ‘08 and ‘09. Can you maybe talk about what happened to your free cash flow at that time as well just to get a color – some color on the impact? Sébastien Martel: Yes, well, obviously, cash generation was impacted back in ‘08 and ‘09. We were – in ‘08 and ‘09, we did consume some cash in the first year and it took about two years before we came back to positive cash generation. And so that’s why we are taking a prudent approach in managing the business. That’s why we took the decision to postpone the dividend payment, the quarterly dividend payment. We have ample flexibility with our revolver, but as José indicated, the duration and the extent of this crisis is unknown today and we prefer to be prudent and adjust accordingly if things are better than what people anticipate.

Thank you very much.

Thank you. Our following question is from Derek Dley from Canaccord Genuity. Please go ahead.

Yes, hi, thanks. Just one last one on the CapEx, so that low $200 million number you quoted, is that what you would define as maintenance CapEx right now within the system? Sébastien Martel: Too early to call. I just wanted to give you an appreciation of – as to the flexibility that we have on our CapEx. As I talked earlier, obviously, we’ll be selective in what we decide to do and not to do. But like any companies, we were growing, and so we were making investments, some of them that are paying more in the short term, some of them that are paying more in the long term. The good news is that we have flexibility to adjust our plans, and we do not believe that it could jeopardize the business in the long term. So we’ll be very, very selective in what we decide to do.

Okay, thanks. And just in terms of your exposure to more oil and gas focused regions, I am assuming the majority of that exposure would be in Year Round products and likely within the utility segment of Year Round. Can you just comment on like where your market share is on that? I mean that was obviously a big growth vertical for you and I suspect that you still have room to gain market share even in what could be a very challenged market? José Boisjoli: Yes. The popular product in those regions is the defender, the utility side-by-side. This is the product that was the big seller in those regions and again, we introduced the new defender, the defender in 2015. Then that’s why we started from almost zero market share and we have been growing since that time at a very good pace. Then this is why we believe we still have runway despite the oil price that have declined lately.

Can you give us any color on the market share? José Boisjoli: The market share, I mean it’s low to mid-teen percent.

Great. Thank you very much.

Thank you. Our following question is from Benoit Poirier from Desjardins Capital Markets. Please go ahead.

Yes. With respect to capital deployment opportunities, could you maybe provide your view about how do you look at share buyback given the pullback in your stock price, whether it represent an opportunity in your view? And maybe if you believe there might be some M&A opportunities down the road and if it’s something that you are – will be looking at in the market environment? Thanks. José Boisjoli: Benoit, as long as we don’t have better visibility on the situation, we will be very prudent. Again, I think it’s the first time we are writing history right now and the big question is how deep and how long this crisis will last and as long as we don’t have better visibility, we will be very careful to protect our cash position.

That’s great. Okay, thanks.

Thank you. We have no further questions registered at this time. I would now like to turn the meeting back over to Mr. Deschênes. Philippe Deschênes: Thank you, Maude and thanks everyone for joining us this morning. Our next conference call will be on May 28 for our first quarter conference call for fiscal ‘21. Thanks again everyone and have a good day.

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.