BRP Inc (DOOO) 2015 Q3 法說會逐字稿

We are sorry to inform you that due to technical difficulties, there will not be a French portion today. The French recording will be available shortly. Hello, ladies and gentlemen. (spoken in French).

Welcome to BRP Inc's third-quarter and fiscal-year 2015 financial results. (Spoken in French)

The call is about to begin. I would now like to turn the meeting over to Mr. Pascal Bosse. (spoken in French), please go ahead.

Great. Thank you very much, Maude. Good morning and welcome to BRP's third-quarter results conference call for fiscal year 2015. Joining me this morning on the call are Jose Boisjoli, President and CEO; and Sebastien Martel, Chief Financial Officer.

Before we moved 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 MD&A for a listing of those.

Also during the call, references will be made to supporting slides and you can find the slide presentation on our website at brp.com under the investor relations section.

So with no further ado, I'll turn the call over to Jose.

Thank you, Pascal. Good morning, everyone. BRP reported this morning its financial result for the third quarter and those confirm the expected acceleration in revenue and profitability in the second half of the year.

Revenue increased 6% when compared to the third quarter last year to reach CAD918 million and this increase was driven mostly by seasonal product and part accessories and clothing.

Normalized EBITDA increased 13% from last year third quarter to CAD134 million. Our gross margin also expanded to reach 26.1%, despite the negative impact of currency exchange rate on our profitability.

Finally, normalized diluted earnings per share balanced 20% from prior years to reach CAD0.60 per diluted share. Sebastian will walk you through the detail of our financial performance in a few minutes.

Moving to the business highlight for the third quarter. Our retail sales increased for seasonal and year-round product by 10% when compared to last year. At the end of the quarter, our dividend inventory in the network was unchanged compared to last year, a positive outcome given the impact of inventory at the newly added dealers. On that note, we are on track to meet our target of 65 to 75 new dealers by the end of fiscal year 2015.

At international, our revenue were up 8%, driven by snowmobile shipment to Scandinavia and by strong shipment of the Sea-Doo Spark in Asia Pacific and Western Europe.

To summarize for market dynamics, we are expecting continued momentum in revenue and profitability in the fourth quarter, with the benefit of several new product shipped to dealer. Meanwhile, the situation in Russia has forced our local distributor to reassess its plan for the near term and I will circle back on that subject in a few minutes.

In our operation, we started production of model year 2015 for personal watercraft in Queretaro with the successful reconfiguration of our assembly line to manufacture both the Spark and traditional personal watercraft. We also started the manufacturing of the Spyder 3 in Valcourt, the Evinrude E-TEC G2 in Strathaven, and the Outlander L ATV family and the Maverick X ds in Juarez on plan and on schedule.

Now Russia on slide 6. The situation has deteriorated significantly since the end of October, with a steep decline in the value of the ruble and this makes all imported products more expensive for Russians while affecting customer confidence. Since our last earnings call in September, the purchasing power of the ruble has declined 39% and 45% since the final order were placed by our distributor in July.

As a result, the retail is becoming more challenging and our distributor has cut his ordered by half for the fourth quarter as we enter the peak season for snowmobile deliveries. This will have a financial impact on our Q4 financial result and Sebastian will cover this in a moment.

As I just mentioned, we successfully started production of traditional personal watercraft, an important milestone in the expansion of our operation in Queretaro. The reconfiguration of the assembly line to support the manufacturing of both traditional personal watercraft and the Spark was completed throughout the summer.

I am pleased to report that we ramp up production on time in September for counter season markets. Approximately 50% of model year 2015 traditional personal watercraft will be manufactured in Queretaro this year. The other 50% in Valcourt, and next year, all our personal watercraft are expected to be manufactured in Mexico.

The project is on track with a target of between CAD20 million and CAD25 million in margin improvement expected by fiscal year 2017.

Turning to product category, with seasonal product on slide 8, sales stood at nearly CAD453 million in the third quarter, an 18% increase when compared to the same period last year. Snowmobile shipment were the main driver of the increase and while still early in the season, the industry is up in the 20% range compared to prior year.

We have a solid lineup and we are pleased that Ski-Doo continue to gain market share season to date, keeping its leading position in North America.

In Scandinavia, the [slow recovery] thus far is similar to last year, which was a so-so winter. And we are taking contingency measure to mitigate the volume losses in Russia. In personal watercraft, we ended the model year 2014 season at the end of September, with Sea-Doo gaining market share in North America for the fifth consecutive year.

The industry retail was up high double-digit and Sea-Doo retail grew in the mid-20%, driven mostly by Spark. Looking into model year 2015, we have planned to increase production of the Spark to meet customer demand and we will continue to strategically balance allocation to dealer between Spark and traditional personal watercraft.

Turning to year-round product, revenue stood at CAD228 million in the third quarter. In side-by-side vehicle, as we've said on the last earning call, we are disappointed with the Maverick retail year to date.

However, we believe that the Maverick X ds launched early in September will help us regain momentum in the sport category by taking back the [US] power lead. We have order on hand for December, January, and we are started booking February.

In the REC-Ute category, our Can-Am Commander side-by-side vehicle continue to gain market share, but the segment has contracted season to date. So all in all for side-by-side vehicle, we have tracked slightly behind the industry in the past quarters, but will continue to expand our offering in the coming years.

For ATV, the industry is down low single digit four months into the season, but Can-Am is up low single digit, driven by the Outlander L that drove market share gain in the mid-cc category. Meanwhile, we broke ground for the construction of Juarez 2, our second manufacturing plan dedicated to off-road vehicles. We are still early on this program, but on track for production start up in about 12 month time.

Finally, for Roadster. Despite the cold and long winter and late start of the season, we ended model year 2014 at the end of October with Can-Am Spyder retail up mid-single-digit, better than the industry low single digit. The growth this year for Can-Am Spyder came from our top-of-the-line Spyder RT 1330, a unit that sold very well. Our non-carrying inventory is slightly higher than our plan, but we believe the introduction of the new Spyder F3 will create good momentum in the coming months.

On slide 10, we hosted a club in Connecticut in September where we launched the Spyder F3 and we are pleased of the buzz this created in the trade media. After six years, we know what people like about the Spyder, but we also know why some people would not buy. Offered with unique features such as the cruiser-type adjustable riding position, called UFit, and a bold, muscular look, the Spyder F3 will appeal to a broader pool of riders.

All test riders agree that the experience cruising on the winding roads is very different and this is why we claim that riding is believing. We feel strongly that the Spyder F3 is opening up a new segment for the traditional motorcycle market and will help us accelerate sales growth in this category.

Now turning to propulsion system, our sales stood at CAD83 million, bringing the year-round revenue to CAD265 million, broadly in line with the same period last year. For outboard engine, the industry season to date is up low single digits, while BRP is lagging sadly.

As I mentioned on previous calls, the industry growth is driven mostly by the saltwater and pontoon markets, where we are not as present. The introduction of the Evinrude E-TEC G2 is a game changer. Boat builders understand our unique offering to consumers and this is why nine of them have already teamed up with us to develop Hero package with color matches to their own offering.

Building on this momentum, we have confidence that we can grow our market position with a product that is superior in technology, performance, and unique by design.

Slide 12. Sales from our pack business have increased to CAD154 million, driven by snowmobile pack for the upcoming season. Also with the launch of the Spyder F3, we are introducing three package and over 60 accessories available from day one, which represent the largest offering we have ever made concurrent to a Spyder model launch.

And finally, we have also spent a lot of efforts in developing and introducing a new line of clothing that perfectly fits the styling of the Spyder F3 targeted customers.

Sebastian will now walk you through the financial review in greater detail and I will come back for the outlook.

Thank you, Jose, and good morning, everyone. This morning, we reported revenues of CAD918 million for the third quarter of fiscal 2015, a 6% increase from the third quarter of last year.

For the nine months ended October 31, revenue has amounted to CAD2.5 billion, a 7% increase over fiscal 2014. Our gross profit amounted to CAD239 million for the quarter, resulting in gross margins of 26.1%, a level that is much improved from the first 6 months and slightly above last year, at 25.9%.

Net income stood at CAD37.2 million. Normalized net income stood at CAD71.9 million or CAD0.60 per diluted share, a 22% increase over last year. And finally, normalized EBITDA amounted to CAD134.1 million in the third quarter, bringing the nine months ended October 31 to CAD222 million.

Turning to our revenues by product categories and geographies on slide 15. 49% of our sales came from seasonal products, 25% were from year-round products, 9% from propulsion systems, and 17% from parts, accessories, and clothing. In terms of regional breakdown, 38% of sales this quarter were from the US, 26% from Canada, and 36% from international. Now for the normalized net income bridge on slide 16.

Normalized net income increased by CAD12.9 million as a result of the following items. Volume, mix, and pricing had a net positive impact of CAD20 million. Operating expenses were favorable, CAD9 million, and net financing costs and income tax expense were favorable, CAD3 million.

These are partly offset by a higher depreciation charge for CAD5 million and negative foreign exchange impact of CAD14 million. Now moving to the balance sheet items.

We consumed approximately CAD29 million of cash in working cap in the first nine months, driven in part by increased inventory for the upcoming Q4 deliveries. Our long-term debt increased from year-end levels by CAD34 million, mostly due to new financing agreements and unfavorable foreign exchange rates.

Capital expenditures increased CAD14 million compared to prior year and we expect CapEx to ramp up in Q4, so we are reaffirming our guidance of CAD165 million to CAD175 million for the year. As expected, free cash flow turned positive in the third quarter and we expect to generate good free cash flow in the fourth quarter.

Now slide 18 for a look at BRP's powersport dealer inventory for North America at the end of October. Worth noting is that dealer inventories are flat compared to last year, despite increased deliveries of snowmobiles and of the new Outlander L family of ATVs. As such, we are comfortable with our current dealer inventory position.

And finally, our guidance for fiscal 2015 on slide 19. As mentioned by Jose, our distributor in Russia has cut by half his planned orders for the fourth quarter. And this is at the peak of snowmobile deliveries.

As such, we are reducing revenue guidance for seasonal products to up 10% to 14%, from up 12% to 16%, and adjusting total Company revenue guidance from up 9% to 13%, to up 8% to 12%. We estimate the result of these reduced deliveries to impact normalized EPS negatively by approximately CAD0.10. Therefore, normalized EBITDA is revised to an increase of 7% to 11%.

We are also adjusting our assumption for tax rate from a range of 26% to 27% to 24.5% to 25.5% as a result of a change in statutory income tax legislation enacted in Canada.

Normalized net income is going from up 10% to 17% to up 4% to 11%. Normalized diluted earnings per share is therefore reduced to account for lower deliveries in Russia, which is offset by about CAD0.02 per share for a lower consolidated income tax rate. This results in a normalized EPS expected to grow between 4% and 11% to between CAD1.47 to CAD1.57 per share.

And on that note, I will turn the call back to Jose.

Thank you, Sebastian. BRP has a short history as a public company, but a long heritage as a leader in the powersport business. We communicated early in the year that our financial performance was typically stronger in the second half of the year and our result are confirming this pattern.

The third quarter was in line with our plan and I am pleased with our result year to date. We have launched new products and they have been well received by our dealer and by the end consumer.

Our dealer expansion plan is on track. We had several prospective dealers in attendance at the club in last September, where we successfully signed the majority of them. We are confident we will meet our 65 to 75 new dealer by the end of fiscal year.

In Mexico, the transaction to Queretaro is progressing well and we started manufacturing traditional personal watercraft alongside the Sea-Doo Spark.

The Canadian dollar lost in value against the US dollar. However, we also witnessed the depreciation of the euro. Overall, the CAD29 million -- or CAD0.24 per share negative impact of currency fluctuation on normalized EPS was worse than we expected.

And for Russia, back in March, we assumed an approximate 20% reduction in revenue from the CAD200 million of sales in fiscal year 2014, and we trended in line with the plan for the first nine months. Unfortunately, the recent currency drop is now making important product much more expensive, which is affecting retail and our shipment will be down more than the planned 20% in the fourth quarter.

In light of this emerging issue that, admittedly, was difficult to forecast, we believe it is fair and appropriate to update the market and we have adjusted our guidance.

So to summarize, we managed well the thing under our control. Our first half of the year was weak, with a long winter and a late spring, but our second half is expected to be stronger with a solid fourth quarter.

Again, we have a good lineup and we will keep bringing innovative and exciting new products to further grow our business. I very much look forward to the next quarters.

I thank you for your time and support and I will turn it back the call to Pascal for questions.

Great. Thank you very much, Jose. So Maude, we are now ready to take questions and we would ask our participants to ask only a couple of questions at a time and return to the queue to allow for the maximum number of participants.

(Operator Instructions) Benoit Poirier, Desjardins Capital Markets.

Good morning, gentlemen. First question, thanks for updating the FY15 guidance. I'm just wondering -- I know it's still early, but could you maybe provide more color on any trend we might see in fiscal 2016 in terms of potential margin expansion and the impact of new products' introduction?

Good morning, Benoit. Unfortunately today, we won't be providing you any information on fiscal year 2016 guidance. We will keep that for when we publish our Q4 results.

And as you can appreciate in terms of product introductions for next year, we will -- for sure, we will have some product announcements as we do on a yearly basis. But we will keep that as well for next year.

Okay. And specifically for the propulsion systems, you mentioned a comment about the pontoon and also the saltwater. Just wondering if there is some customers awaiting for the G2, so it creates kind of a vacuum in the short term?

Benoit, good morning. Definitely, the G2 is gaining traction right now. We have a tour right now in the United States and some other country where we let the customer try the G2 and the dealers and the enthusiasm is quite good.

We started production in November in Strathaven and we are ramping up at a high pace in December, January. That's why we will have a lot of G2 deliveries in Q4, and we are shipping to boat dealers and also boat builders to prepare for the upcoming season.

And definitely, our focus is to improve our performance in the saltwater market and the pontoon market and we believe the G2 will help this going further.

Okay. And last question, if I may, just in terms of fuel environment, I'm just wondering if you see positive comments from consumer, given they have now more discretionary spending?

Let's say that -- we think this is overall positive and the impact of lower fuel price is threefold. First, there is an impact on consumer and the cost to operate the product, but just to give you a sense, a typical snowmobiler will spend CAD400 in fuel during a season, about half for someone who use it off-road and we don't think this is a big impact.

The second impact is cost reduction on our costs overall. Transportation and some component like plastic should go down in costs in time if the oil price stay where it is.

But finally, and you're totally right, we believe the largest impact is the increase of disposable income. There is some markets like Russia or Western Canada that could have some negative impact, but we believe worldwide this is a positive driver and that could be positive on the demand for our product. So we view this trend favorably.

Okay, thanks for the time.

Robin Farley, UBS.

Just looking at your guidance for year-round product, which is unchanged, so year to date, year round, product is down 5% and your guidance unchanged is implying maybe a 50% increase in Q4. And I just struggle with trying to understand what would be such a significant driver in Q4.

And I wonder if -- since we are halfway through Q4, if you could -- on this public conference call is kind of your opportunity to give investors some assurance about what you have already shipped in Q4, maybe?

And I know you don't normally do that, but it's probably the only time you can make a public comment once a quarter to sort of give investors comfort that there is something so significantly different happening right now with your shipments than what we have seen year to date. Just I -- I just struggle with the difference in Q4 versus the rest of the year.

Good morning, Robin. Obviously, I won't go in the detail you are asking for, but I will give you some colors.

If you remember, we had a slow start in North America with the long winter for off-road sales. And we're not happy with the Maverick -- the model year 2014 Maverick momentum, but we've been successful during the summer and the fall to deplete inventory at a very good level.

And in Q4, we have a heavy shipment of the Outlander L family that is gaining traction right now in the network and also the Maverick X ds. We started production, I think, the last week of November. I was in Queretaro and Juarez a month ago and the line was full of Maverick. Then it's an AV every quarter for Maverick X ds shipment that we introduced last September and we are shipping worldwide.

And the third element is the Spyder F3. We started production in December in Valcourt and we will be starting shipment in January. And for all those product we have for North America order on hand and for international, those product are popular and we believe that our planning is reasonable for Q4.

So with the North American orders on hand that you mentioned, in Q3, was there any change from the orders you had on hand for Q3 and what you ultimately shipped in Q3? Just to sort of think about how much risk there could be to Q4, given that you have the orders. Was there any variation between orders and what you ultimately shipped in the quarter just reported?

Yes, hi, Robin. It's -- yes, the -- our numbers for Q3 were actually in line with our plan. We had a strong Q3, Q4 seasonal product snowmobile shipment. And we didn't see any variation versus what was anticipated from our North American market.

And that's why, again, we are confident for our Q4 numbers and our ability to deliver these units to our dealers and distributors in the fourth quarter.

Also -- also maybe if I could add just a bit of color, what is driving also a bit of the growth is propulsion systems. We will have a strong quarter as well in Q4. And that is driven by the deliveries of the new G2 Evinrude engine to our dealers and OEMs.

But I guess I was just trying to understand specifically for the year-round products. So I know the seasonal -- the snow product in Q3 was -- there was no variation in dealer orders, but just trying -- just to clarify, were dealer orders for year-round product in Q3 -- was there any variation from orders on hand for dealers for year-round product in Q3 versus what you ultimately shipped?

No, there was no material variance.

Okay, thank you.

Steve Arthur, RBC.

Great, thank you. First, just to clarify the outlook for snowmobiles coming down in Q4, is that all related specifically to the Russian situation? So there's no indication of orders being pulled back elsewhere across the network or inventories building further than you wanted?

Good morning, Steve. To give you a bit colors on how snowmobile seasonality work, we ended production in Valcourt last -- this week. In fact, middle of the week. And by the end of next week, all the snowmobile produced in Valcourt will be shipped and we have order on hand for North American dealers.

We have Russia -- we've discussed about it, our distributor, when -- our distributor done a dealer meeting on November 17 and 18th. This is typical in their country. And at that time, the ruble had declined significantly and that's why they call force majeure and they said we need to drop the deliveries for Q4, but we comfortable with the 50% drop that we are planning.

And in -- there is some risk in Scandinavia, but Scandinavia -- the winter is so, so, so far, but winter is long, but we feel overall okay with our snowmobile planning for Q4.

With that 50% drop in the order, did that come early enough that you are able to adjust production or did that mean extra units were produced?

No, what we decided to do, because all the raw material is in the pipeline, we decided to produce the vehicle production, typically in Finland, and mid-January. Then we decided to produce all those units, because typically, we end shipment in Russia at the end of January. But here, we believe that some dealers could take some of those model in February or March because the winter over there is quite long.

And you need to understand that right now in Russia, some bank are squeezing the credit line of some of our dealers. And this is putting pressure on the inventory buildup that we do typically at this time of the year. Then all of this -- because of all those situation that is very, very difficult to plan or predict, that's why we decided to drop our shipment in Q4.

Okay, I understand. Secondly, just a different topic. Just looking at the earnings outlook. If we are doing our math correctly, to be at roughly the midpoint of the full-year earnings outlook, it looks like gross margins for Q4 needs to be kind of in the 27%, 28% range.

Does that sound reasonable, that math? That's higher than we've seen before and just wanted to gauge your comfort level with that kind of a margin level.

Yes, again, we're going to be -- we are -- the plan for Q4 is a strong quarter. And yes, when you look at the midpoint of the guidance, it is actually quite strong. Volumes will be high and therefore that usually drive better margins. And so you should see a considerable appreciation in the margin compared what we've had since the beginning of the year.

Okay. And final point --

Your range is fair.

Okay. And final point, just -- we saw in the MD&A a CAD7 million severance charge for the quarter to, I think, you said optimize workforce. Just wanted to understand a little bit about the nature of that and is that complete and what kind of a cost impact should that have?

Yes, it is complete. It's something we announced in October. We had been looking at it over the last few months and then -- so making the preliminary plans. So in October, we made the announcements.

All of the -- all of the costs are related to -- let's say, over 90% are related to severance costs and all the employees were advised in October, and it should be all of -- very little cost in Q4, below CAD1 million, if there's anything that's going to be recorded. So all the costs were recorded in Q3.

Okay. And is that a number that we should see some impact on overall operating expenses or --

Looking forward next year, again, we're growing business. I would not expect to see a saving and operating expenses next year. As the business is growing, you'll see our overhead increasing. So I wouldn't necessarily model that in your financials for next year.

Understand. Thank you.

Martin Landry, GMP Securities.

Good morning. So I wanted to touch on Russia a little bit, just to be clear. You mentioned today that the decrease in your guidance is roughly CAD0.10 related to Russia and at the beginning of the year, you had also indicated that the headwind in Russia was costing you another CAD0.10.

So is it fair to say that on a year-over-year basis for the full year, Russia is probably impacting your EPS by CAD0.20?

Hi, Martin. Yes, you are absolutely right. When we look at it on an annual basis, compared to fiscal year 2014, CAD0.20 is the number we have in terms of a Russia impact for fiscal year 2015.

Okay. And can you help us understand what's the seasonality of the business in Russia? Could you give us maybe the proportion of sales per quarter? I'm just trying to assess a little bit how does that kind of rollover into next year.

Yes, I don't have the numbers right off here, but I can tell you that Q3 and Q4 are probably in the range of -- let me see if we can pull it out. Probably in the range of about 70%, but I'll give you full precision probably off-line or once I get them. But Q3 and Q4 are the big quarters, because snowmobile is our big -- is the big market for us in Russia.

Okay, okay. And switching on your inventory levels in North America, you are saying that it's flat on a year-over-year basis because -- and then you are saying that you do have -- expanded your dealer network. Any chance we can have your inventory levels per dealer so that we can better assess where does it stand?

Again, it's not the type of information we want to share. We have some big dealers and some smaller dealers, so there's a lot of variability in the inventory level as a whole. And there is also seasonality in where they are located geographically. That's going impact that number.

So we disclose the -- in our financials, the value of that inventory in the network and you can divide by the number of dealers we have, which is about 1,000, if you want to create that proxy for you.

Okay, okay. All right, and then just lastly, is there any -- is your distributor in Russia taking some steps to mitigate the foreign exchange? Is he hedging his purchases -- or is there any steps that these guys can take to mitigate the huge fluctuations in the ruble?

There is -- they don't hedge, because typically -- and we sell to them in euro and they convert it in ruble because in the past, in the history, there is quite a good correlation between the ruble and the euro. And they were able to go together and it was easier to manage. They don't hedge.

Obviously, in those situation, we try to help them. Then we give them some discount on some model to help them to absorb and to take more time to increase the price at the end consumer. They also chip in on their side, but it's a difficult situation.

And at the end, those -- power loss and purchasing power loss will end up in the price of consumers. And all other OEM -- all imported product in Russia right now is going through the same drastic change.

Okay, thank you very much.

Derek Dley, Canaccord Genuity.

Yes, thanks. Hi, guys. I was just wondering if you could give us an update on some of the feedback on your guys's new products that you've gotten from the dealers. Are the products resonating well at the dealer level?

We are very happy, Derek, with the overall. The Maverick X ds review is good. We are starting delivering right now -- we started to deliver early December and so far it's going well -- extremely well received in some regions, like North America and the Middle East.

The Outlander -- despite our F3, it's received as expected in North America, because North America is a big cruiser market for motorcycle than [xacs] is expected in North America to be on better than expected at the international.

You know that the cruiser market in Europe or in Australia are not as popular as in North America and so far, the consumers there don't make the link between the F3 and the cruiser motorcycle market. They just say it's a new Spyder, fun to ride, and we are very, very enthusiastic about this.

The Outlander L is doing well. You know we have less than 5% market share in the mid-cc category, and so far, we are tracking at a good pace and we increased momentum since we started to deliver the product.

Even the old G2, very happy about the reception and there is more and more builder that we signing, more and more builder do Hero package. And so far, reception is good.

And the snowmobile lineup that we introduced in February, that is very popular. When I look at all of this, I'm very happy because on the product side, we have execute extremely well and the reception from customer is good.

Okay, thank you for the color there. And then just in the -- at the dealer channel, can you just comment on the level of promotional activity? Is it down year over year? What are you guys seeing on that front?

Let's say that each product line is different for -- give you some examples. Snowmobile right now, on our side, we don't have much program because the industry is up by about 20%. We're gaining share, then the momentum is very good.

On the off-road side, there is, I believe, a bit more program than typically. And we've just launched what we call right now our holiday blitz, our Christmas program in US and Canada for side-by-side and ATVs. And there is some different program versus depending of the model.

Then I will say on off-road, it's a bit heavier than we typically see. On the rest of the lineup, it's -- I will say it's typical. Then a bit less on snowmobile, a bit more on off-road. The rest, typical.

Okay, thank you very much.

Anthony Zicha, Scotiabank.

Yes, good morning. Jose, can you give us a bit of an update in terms of your international operations, especially Latin America? And any change in consumer demand in Europe, ex-Russia, of course?

Okay, let's see if we start with Western Europe. To be honest, it's a growing at a low pace, but still growing every quarter. Then if you take France, Germany, Italy, UK, and you do the average of all this, it's growing at a low pace, again, but growing well.

Latin America is difficult. You know that Brazil that the economy is difficult right now. And I would like to highlight, I believe we're still growing there by high single-digit, but it's lower than what we had planned originally at the beginning of the season, but we're still growing there.

Argentina is very difficult. They don't authorize much product to go into the country; then it's significantly down versus two years ago. But we believe long term, Argentina will come back.

And Australia, New Zealand, China, it overall has planned growth -- good growth. And if you take our overall international sales year to date, we're growing 7%, including Russia. And if you exclude Russia, we growing at 13%, which is a pretty good rate, considering all the ups and downs that we see worldwide.

Okay. And when we look at the competitive landscape, how have some of your Japanese competitors reacted with the advantage currency?

We see some of them being more aggressive lately, mainly on the outboard business. They getting more aggressive. It started a few months ago outside North America, and now some of the competitor are more aggressive on the outboard business.

Overall, for the rest, I think it's still within what I see a reasonable range. They are aggressive, but we don't see big drop in MSRP because of the yen fluctuation.

Okay. Well, thank you, Jose.

Mark Petrie, CIBC.

Yes, good morning. I just wanted to come back to the year-round products and the outlook there. And inventory numbers at the dealers have been tracking down and it looks like low single digits, kind of Q1 through Q3.

But can you just talk about what your expectations for dealer inventories in year round are for Q4 and maybe the first half of next year?

Yes, we will see -- again, because of the strong deliveries we are doing in Q4, we will see an increase in year-round product inventory at the dealer network. We are building inventory for that coming roadster season, and it's a strong retail period in spring for ORVs, and therefore, that's why we need to make sure that we have adequate products in the field.

However, our plan is to manage the inventory tightly. And that's why we have seen our days of inventory -- or our overall inventory levels remain quite flattish, despite a growing business and expanding dealer network, because again, we want to manage appropriately the doubles there and avoid unnecessary noncurrent inventories in the field. And progressively, we are reducing the number of future retail, of ORV units, in the field.

I can add some color, Mark, there. You know that our dealer network is very strong in the snowmobile area. A bit weaker in the South and that's why we focusing more there in the new dealer sign up.

And that's why it's normal for us to ramp up deliveries of year-round product in Q4 to prepare for the upcoming spring. And maybe we are a bit more skewed in the spring than some of our competitor who are weak -- or stronger than us in the South.

So should we expect dealer inventories to be up low single digits? Mid-single digits? What's a reasonable range?

I wouldn't be able to comment this morning. Again, we are managing to make sure that they have sufficient units in the field. There should be a natural increase as we're expanding the dealer network, but that increase is going to take -- it won't happen over a quarter. It's going to take several quarters for that to happen.

As we are introducing new products as well down the road, we will be seeing our inventory buildup as well with the Can-Am Outlander L that we introduced. That is for sure increasing the level of inventory because it increases the offering. And as we increase our offering in side-by-side and Spyder as well, that will naturally have an effect on the inventory levels.

Can you give some sense on order of magnitude in terms of the days of inventory change at the dealer level?

Not this morning, no. I wouldn't be able to give you any strong appreciation as to the number of days and what's going to be the impact going forward.

Yes.

Okay. And then just in terms of Russia, just cycling back, it sounds like basically year to date -- or sorry, for this year, Russia's going to be down about 30%, with that obviously accelerating in the back end. How should we think about 2016? Is there any reason to be more optimistic than what we're going to see in Q4?

Well, if you recall, the first nine months of the year, we are tracking as planned. We had forecasted a 20% reduction in Russia year over year. And so we were tracking as planned and with what we announced today for Q4, obviously we're going to be below that 20%.

So we will -- is that Q4 event going to materialize for a full year next year and we're going to be 30% to 40% down? Today, I would say it's too early to call. We will see how the situation evolves.

We will see how the retail goes as well with the dealers in Russia, what's the inventory level at the end of the season, and then we will be able to make a more educated guess as to what the impact is going to be for fiscal year 2016.

Okay. And then just a broader question, coming back to the guidance and the guidance ranges. Given that we are so far through the year and we've really only got seven weeks left in the full fiscal year, did you think about tightening the guidance range in terms of revenue growth or earnings growth and why did you decide not to do that?

Yes, it's something we discussed around the table and whether or not we wanted to bring it there or -- however, if you look at our guidance, we are planning to deliver a high level of EBITDA for the quarter. And therefore, with those levels, we felt that the existing guidance range was adequate, considering, again, we are a global business and we are sometimes influenced by externalities that we do not fully control, such as foreign exchange rates. We felt that it was appropriate to remain at that level.

Okay, thanks very much.

Gerrick Johnson, BMO Capital Markets.

Good morning. Can you just discuss gross margin? Give us some of the pluses and minuses in the quarter? And also I think I saw in your MD&A something about a CAD3.2 million inventory revaluation. If you can talk about that, too. Thank you.

Yes, in terms of our gross margin impact, volume and mix were the two favorable items. Probably be bringing you around 1.5% to 2% improvement in gross margin.

And the other impact, which is negative, is FX. We got good impact on topline; however, in Q3, we are short US dollars, so we don't see the benefit on the gross margin, so that brings gross margins down by about 110 basis points. And then depreciation for about 50 basis points. It's what would drive the bridge in gross margin.

And in terms of inventory adjustment, it's something we do on a recurring quarterly basis. We -- again, we have a lot of parts inventory and when a season ends, we see what's remaining, especially on the clothing side. And then do the inventory true-up and adjustments that are required per GAAP.

So nothing out of the ordinary, Gerrick, for the CAD3 million adjustment this quarter.

Okay, okay. And then in your MD&A, you mentioned that year-round retail in the quarter declined low single digits. In the presentation, you'd talked about season to date. So I was hoping you could talk about your year-round retail and break it out in between off-road and on-road and how those performed at retail in the quarter?

In the quarter? Let's say, if we took ATV, the ATV in the quarter was down mid-single digit and we are about flat and we are gaining momentum caused mainly by the Outlander L.

If we look side-by-side, the industry was up high -- sorry, mid-double digit and we were slightly below that growth, because we started to ship the Maverick -- we are doing good in the Commander, but the existing 2014 Maverick has lost momentum and we started to ship the Maverick X ds in December.

And on the Roadster side, it's very, very little numbers. We are within the industry range, but very, very low activity in Q3.

Okay, that makes sense. Thank you.

(Operator Instructions) Craig Kennison, Robert W. Baird.

Good morning and thank you for taking my question. You have addressed many of my questions already. But I wanted to ask about the regulatory environment. It's our understanding that the Consumer Product Safety Commission in the United States is looking to create additional safety rules around side-by-side vehicles.

Maybe tell us what your position is on some of those changes and how you might expect that to affect your sales environment?

Yes. ROHVA, of which BRP is a member, has indeed had many discussions with CPSC lately on defining an appropriate construction standard for the side-by-side vehicle. I would say the dialogue is positive and we are confident that we will find a solution between the association, CPSC, and the OEMs.

In parallel, our engineer are closely following the situation to ensure that we will comply with the result of the side-by-side construction standard. And so far, we feel okay about the situation.

Is there a timeline you expect unfold as this comment period comes to a close?

Very difficult to say, Craig. I believe we can see something firming up probably in the next 12 months, but that don't mean it will be enforced right away. Sometimes, those agencies give a period of time for OEM to adjust, but this is a very difficult one to predict.

That's why we stay very close and see if we have some gap and try to find solution to make sure we following the regulation.

Great, thanks for taking the question.

Marc Torrente, Wells Fargo.

Hey, this is Marc Torrente for Tim Conder. We were just wondering if you could provide any color on your US dealer base goals for fiscal 2016 and 2017? And then also given you guys are seeking more of a balance between the OEM and re-power market for outboards, are you expecting to gain share with your new G2 outboard?

First, we are on track with our dealer plan. And if you remember, the optimum goal, we believe the sweet spot is about 1,250 dealer in North America by the end of fiscal year 2017. And we still are within that range for our long-term goal.

Then on this, we are on track -- we're on track last year, we are on track this year, and we believe we will be on track for the next two years to reach the 1,250 in North America for recreational product dealers.

On the other side, the outboard engine, we've been flattish, at about 10% market share worldwide with our outboard business in the last few years. Obviously, as we explained before, we are strong in the re-power, but that portion of the segment declined in the last few years.

We definitely believe now that with the Evinrude G2 -- and that was the goal of that program -- that we are gaining momentum with both OEMs. And definitely one of our goal is to increase our market share going forward in outboard business.

And so far, I would say we wanted to come out with a new type of outboard engine that would be different enough to make a difference in the industry, and so far, the G2 is delivering.

Okay. Thank you for taking our questions.

Gerrick Johnson, BMO Capital Markets.

Hey, hello again. The jet boat market has been a strong one so far this year. Are you seeing growth in jet propulsion to your boat OEM partners?

Yes -- well, it is a growing market. This year, as you might be aware, we are working with two partners -- Rec Boat Holding and Chaparral are our two primary partners we are working with the North America for development of boats. We had good shipments for them to them this year as they were ramping up the business.

Rec Boats started earlier, so we had deliveries in fiscal year 2014, strong deliveries this year. The retail went okay. We are -- but they probably have a bit more units than they'd like in the field, so we are not necessarily seeing a growth next year in terms of deliveries to our partners.

And Chaparral is doing also a good job and launched several new boats with our jet powerpack in them. And they are now starting to retail these boats and orders for next year were also good, but not necessarily big growth for us next year in terms of wholesale shipments.

Great, that's helpful. Thank you very much.

Thank you. There are no further questions registered at this time. I would now like to turn the meeting back over to you, Mr. Bosse.

Great. Thank you very much, Maude. So this concludes today's call. I want to thank all of our participants for their interest and support and invite you to join us for our fourth-quarter earnings call to be held at the end of March. So thank you very much and wishing you all a happy holidays. Thank you.

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