Q2 2018 BRP Inc Earnings Call

Sep 01, 2017 AM EDT
DOO.TO - BRP Inc
Q2 2018 BRP Inc Earnings Call
Sep 01, 2017 / 01:00PM GMT 

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Corporate Participants
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   *  José Boisjoli
      BRP Inc. - President, CEO & Director
   *  Philippe Deschenese
   *  Sebastien Martel
      BRP Inc. - CFO

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Conference Call Participants
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   *  Benoit Poirier
      Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst
   *  Cameron Doerksen
      National Bank Financial, Inc., Research Division - Analyst
   *  Craig R. Kennison
      Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst
   *  Gerrick Luke Johnson
      BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst
   *  Jaime M. Katz
      Morningstar Inc., Research Division - Equity Analyst
   *  Mark Robert Petrie
      CIBC World Markets Inc., Research Division - Executive Director of Institutional Equity Research & Research Analyst
   *  Martin Landry
      GMP Securities L.P., Research Division - MD Equity Research & Equity Research Analyst
   *  Robin Margaret Farley
      UBS Investment Bank, Research Division - MD and Research Analyst
   *  Seth Woolf
      Northcoast Research Partners, LLC - VP & Research Analyst
   *  Steven Arthur
      RBC Capital Markets, LLC, Research Division - Analyst
   *  Timothy Andrew Conder
      Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst

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Presentation
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Operator   [1]
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 Good morning, ladies and gentlemen. Welcome to the BRP's Inc.'s FY '18 Second Quarter Results Conference Call.

 I would now like to turn the meeting over to Mr. Philippe Deschenese. Please go ahead, Mr. Deschenese.

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 Philippe Deschenese,    [2]
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 Thank you, Hugo. Good morning, and welcome to BRP's Second Quarter Conference Call for Fiscal 2017. Joining me this morning are José Boisjoli, President and Chief Executive Officer; and Sebastien 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 MD&A 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'll turn the call over to José.

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 José Boisjoli,  BRP Inc. - President, CEO & Director   [3]
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 Thank you, Philippe. Good morning, everyone, and thank you for joining us. First, I lost my voice in the last week because of laryngitis. I will try this morning to go through my script. If I can't, Sebastien will take over.

 We have had a very good summer so far. We kicked it off on a high note with the celebration of the Can-Am Spyder 10th anniversary that saw 3,000 Spyder owners from all over the world visit our hometown in Valcourt. These events are always a great reminder of how fortunate we are to have passionate customers and engaged employees that are both at the core of our success. The piece came together to deliver another solid performance in the quarter. Our revenue reached $1,027,000,000, up 20% from last year second quarter, as we continue to see very strong demand for our product, notably for our Can-Am side-by-side and Sea-Doo personal watercraft. Our normalized EBITDA was up 84% to reach $82 million, and our normalized earnings per share ended at $0.18, up $0.17 from the second quarter of last year. Also, we had a very strong retail performance with our powersports retail sales up 14% compared to an industry that was up low single digit into the quarter. The growth was solid in both the U.S. and in Canada as the 2 countries saw double-digit retail growth. Side-by-side led the way with a 50% retail sales increase in the quarter as customer demand for both the Defender and the Maverick X3 is very strong, and we continue to make market share gain in both the utility and the sports segment. Our Can-Am ATV performance was also impressive as we achieved high-teens retail growth compared to an industry that was up low single digit. Sea-Doo also performed well, continuing to benefit from growing consumer interest for the sport. This performance would not have been possible without the contribution of our engaged dealer network. We have spent the last few years growing our dealer network as we had some gap to fill in certain region to ensure proper coverage of the market for our brands. After adding 289 dealer over the last 4 years, we have reached the appropriate number of store for the current state of our business. And we have shift our focus from adding new one to improving our performance with them. And to achieve that goal, we have put together a plan to win in the dealership by offering the best value proposition to our dealers. Meaning, a strong product portfolio, a dedicated sales territory, a flexible order management system, a certification program that rewards dealer for their dedication and a mutually beneficial incentive system based on the retail performance that offers the best dealer profitability in the industry. I'm glad to say that our efforts are paying off. Not only are we receiving positive feedback from the network, but we are also seeing it in the number as so far this year, our side-by-side retail in the U.S. has grown twice as fast in multiline dealership than in single-line dealership. This demonstrate that the strong dealer value proposition is helping us win in the multiline dealership, and the success is at the core of the solid retail performance that we are experiencing at the moment.

 With this, I will turn to the update by product category, starting with Year-Round Product on Slide 6. Year-Round Product revenue were up 35% in the quarter, driven by higher volume and richer mix of side-by-side. And we continue to meet the growing demand for our side-by-side, notably, the Maverick X3. On the retail side, the ATV industry ended its 2017 season at the end of June with the retail down mid-single digit. For the same period, Can-Am ATV retail is up mid-single digit driven by the continued market share gain in the mid-cc segment. Can-Am ATV maintained its #1 position in Canada and continued gaining ground on the #3 position in the U.S. We also -- we see also good retail momentum continued at the international market driven by Scandinavia, Western Europe and Mexico. In comparison, for the quarter, Can-Am ATV retail was up high-teen percentage compared to an industry that was up low single digit. The growth was primarily driven by market share gain in the high cc segment. Now turning to side-by-side. The North American industry ended its 2017 season up mid-single digit. Can-Am side-by-side continue to outperform the industry in the quarter, with retail up 50%, and ended the 2017 season with retail up in the mid-30%. The demand for the Maverick X3 is strong. Also, the Defender is performing well. It keeps on gaining share every month, and we remain focused on improving the [R & S] for the product as we are still working on establishing ourselves in that segment of the industry. The same trend we are seeing in North America are also visible across the world. Our side-by-side year-to-date retail has grown over 30% in Asia Pacific, over 50% in Europe and over 100% in Latin America. We are pleased with the headway we made with our off-road business over the last season. We remain focused on driving growth for that business through building brand awareness, introducing new product and improving our dealers with the best value proposition.

 Turning to Spyder. The North American 3-wheel motorcycle industry continue on the same trend as the previous quarter, and it's still down low teen percentage season-to-date. Spyder is performing better than the industry at down mid-single digit over the same period. Remember that we have formed a dedicated team in key U.S. states. And in these states, the retail is up high single digit. The program is providing good results and insights, and we intend to deploy it in more states next year. As you remember, one goal for Spyder for the season was to deplete network inventory. And so far, we are on plan to achieve our goal. Turning to Seasonal Products on Slide 7. Seasonal Products revenue were up 14%, driven by higher volume of personal watercraft. Ten months into the '17 season, the North American personal watercraft industry retail is up low teen percentage, primarily driven by the entry in new segment by competitive OEMs. Meanwhile, Sea-Doo retail sales were up high single digit, and it performed very well in the segment it competes in. The Spark continue to grow in its fourth season, notably with the strong success of the Spark Trixx that achieved the highest sell-through for a season model in our recent history. And we gained market share in the traditional personal watercraft, notably in the recreational and performance segment. Internationally, Scandinavia, Western Europe, Australia, New Zealand, Mexico and China continue to be growth market for Sea-Doo. A quick look at snowmobile. The '17 Scandinavian snowmobile season ended on June 30, with retail down high single digit. The Ski-Doo and Lynx combined retail sales were up low single digit over the same period, driven by the strong demand for the new G4 platform, and we maintain our #1 position into the industry.

 Now looking at Propulsion Systems on Slide 8. Revenue for Propulsion System increased 6%, primarily driven by a higher volume and favorable mix of outboard engines sold. The North American outboard engine industry ended its 2017 season with retail up mid-single digit. For the same period, Evinrude retail was also up mid-single digit. We are happy with the progress made over the last season as we expanded our Evinrude E-TEC G2 engine lineup and continue developing our dealer network. The goal with developing the G2 engine was to provide customer with the best engine to improve their boating experience, and we continue to deliver on that objective as we introduced a new docking system, the Evinrude i-Dock, which allow users to easily maneuver their boat using a joystick for simple docking in even the toughest condition. Because of the Evinrude E-TEC G2 technology, we are able to offer the i-Dock system for a price up to 3x lower than the competitive product. This is just another example of the great customer benefit offered by the G2 engine. Following the announcement earlier this summer of Alain Villemure's upcoming retirement, last Friday, I welcomed Tracy Crocker to the Management Committee as Senior Vice President and General Manager, Evinrude. Tracy bring over 30 years of experience, 20 in senior executive roles, in several global company, most recently in the powersports industry. He is a seasoned business leader who has helped organization connect strategy to action plan and action plan to people. Now looking at Parts, Accessories and Clothing on Slide 9. Revenue of Parts, Accessories and Clothing increased by 10%, resulting from the higher sales of side-by-side accessories sold as there is a very good demand for the Defender and Maverick X3 lineup of over 400 accessories. We are seeing an excellent level of repeat order from the dealers for these accessories, which indicate a strong take rate at the retail level. And with that, I will turn the call over to Sebastien and will return for the closing remarks.

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 Sebastien Martel,  BRP Inc. - CFO   [4]
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 Thank you, José, and good morning, everyone. As José highlighted, our second quarter revenues were up 20% over last year, reaching $1,027,000,000. The growth primarily came from the continued good momentum we have with side-by-side and PWCs, notably in the U.S. and in international markets, where revenues were up, respectively, 27% and 20%. The gross profit margin was up 70 basis points to 20.8%, driven primarily by a positive volume and mix impact coming from side-by-side and PWCs, which was partly offset by unfavorable FX and higher production costs and a higher volume of retail sales program.

 We spent $47 million of CapEx and generated $42 million of free cash flow, up $64 million from the same quarter last year. We also successfully completed the $350 million substantial issuer bid, effectively repurchasing 8.6 million shares. Our balance sheet remains strong following the transaction with a net debt-to-EBITDA ratio of 1.7. Looking at Slide 12. Our normalized net income was up $20 million in the quarter, primarily driven by a positive impact coming from volume, mix, pricing and sales program for $53 million, which was partly offset by higher production costs and operating expenses for $12 million, a negative impact from net financing costs and normalized income tax expense for $13 million and a negative impact from foreign exchange rates for $8 million. This generated a $0.17 growth of normalized diluted earnings per share, which ended the quarter at $0.18. Now turning to Slide 13 for a look at our network inventory, which ended the quarter up 12% from last year. Our network inventory is healthy, with the growth being mostly driven by the ramp-up of shipment of our new side-by-side models to meet demand, most importantly the Maverick X3, and by the growing business of the new dealers we added over the last 4 years. Also, as expected, we carried a higher-than-usual snowmobile inventory due to the weak snow conditions last season. We expect to deplete that inventory over the upcoming season. Offsetting these elements were a decline in inventory of older SSV models and the depletion of our Spyder noncurrent inventory, which, as José mentioned, is progressing in line with our plan.

 And finally, a quick update of our guidance for fiscal '18. With the first half of the year behind us, our outlook for the year remains essentially unchanged. Industries are behaving as we had anticipated. Our operations are running smoothly, and the demand for our products remains strong. We have good visibility on our shipment volumes and our operating expenses for the second half of the year. A weaker U.S. dollar is expected to be a slight headwind to our financial results. But all in all, we are still aiming at revenue growth of 4% to 8%, our normalized EBITDA growth of 10% to 13% and our normalized net income growth of 10% to 16%. As for the normalized EBITDA cadence between the third and fourth quarter, we are forecasting both quarters to be similar to last year. We are reviewing our normalized EPS guidance upward by $0.03 to account for the impact of the lower share count following the SIB. The normalized EPS guidance range is now $2.23 to $2.35, representing an increase of 14% to 20% over last year. Note that the previous share count guidance was assuming the repurchase of up to 3 million shares under the NCIB.

 And with that, I'll turn the call back to José.

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 José Boisjoli,  BRP Inc. - President, CEO & Director   [5]
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 Thank you, Sebastien. The first half of the year was very strong for BRP. The market responded well to our new product. And with our solid execution, we're able to deliver results ahead of our expectation. Looking at the back half of the year, our outlook for the industry is positive, and we see many markets around the world improving. However, we remain cautious as the global environment continue to be volatile. We keep a close eye on the constantly evolving geopolitical situation, the ongoing NAFTA negotiation and recent rapid movement in currency. Still, we are confident in our ability to deliver on our guidance as our business fundamental remains strong. Our snowmobile volume is secure, and the demand for our new platform is strong. Personal watercraft and Spyder season are in line with our expectations so far, and we are approaching the end of this season with appropriate inventory level. We have seen very solid growth for our Can-Am off-road vehicle, and the demand continue to be robust. And our operation are running smoothly as we are making the necessary adjustment to be able to meet demand for fiscal year '19.

 To conclude, we have a lot of good news to share with you at our upcoming BRP Club. I look forward to seeing many of you there on September 20 and 21 in Dallas, Texas. And on that, I will turn the call over to the operator for questions.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) The first question is from Mr. Steve Arthur from RBC Capital Markets.

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 Steven Arthur,  RBC Capital Markets, LLC, Research Division - Analyst   [2]
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 Just a couple of quick follow-up questions. First, on the Spyder does seem to be stabilizing somewhat, and you had interesting comments on the stronger performance in the states with the dedicated teams. Just wondering if you can explain a little bit more what about those teams are and how they're formed, your staff versus dealer staff, and then what the plans are for rolling those out to other regions.

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 José Boisjoli,  BRP Inc. - President, CEO & Director   [3]
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 As I said, basically, what we're finding in those states where we have a dedicated team is, first, the sales funnel on Spyder is about 3x longer than what we see in other product line. The motorcycle license call organization need to be improved; dedication of the dealership to have a specialist Spyder who will take care of the customers; and also, the -- all the momentum that we have with the community that we don't leverage enough. And basically, this is -- the small team this summer was focusing on those element in the key state, and we're very happy with the result going up high single digit in those state. Now all those insight will be packaged, and we'll try to do more and more states next year. Obviously, we're trying to find ways to do it at a cost-efficient position when we expand to more states. But we're very happy with the momentum and what the team have done so far this summer.

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 Steven Arthur,  RBC Capital Markets, LLC, Research Division - Analyst   [4]
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 Okay. And the second question, just on CapEx. Guidance is still the same for $240 million, $250 million for the year, but I think we're only around $80 million or so in the first half. Do you still expect that kind of a ramp in the second half? And what kind of -- what are the key components of that spend?

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 Sebastien Martel,  BRP Inc. - CFO   [5]
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 Yes. And historically, we've always had a larger second half CapEx investment than we we've had in the second half, so it's not unusual to see that trend. And the investments are going to be pretty broad. One, as we've mentioned, we're investing for additional capacity in QUERETARO and [Sunrise] too. But also, with -- the lineups that we're going to be launching in the next few years requires a lot of tooling. And so tooling is going to require a big amount of CapEx as well for the next 6 months. But it's not unusual to see a much higher investment in the second half.

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 Steven Arthur,  RBC Capital Markets, LLC, Research Division - Analyst   [6]
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 All of this is within the current footprint of facilities? There's no new facilities being added?

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 Sebastien Martel,  BRP Inc. - CFO   [7]
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 It's all within the current footprint of facilities. We're adding a lot of equipment to increase capacity within the existing footprints that we have.

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Operator   [8]
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 The next question is from Mark Petrie from CIBC.

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 Mark Robert Petrie,  CIBC World Markets Inc., Research Division - Executive Director of Institutional Equity Research & Research Analyst   [9]
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 I just wanted to ask about the trends with the dealers in the U.S. on the off-road vehicles. Obviously, very strong, particularly within the multiline dealers. But I guess, how do you feel about the outlook from here? I mean, where are your biggest opportunities to grow? Is it continuing to take mind share from the dealers? Is it actually adding more products on the floor? Or is it adding more products to your portfolio?

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 José Boisjoli,  BRP Inc. - President, CEO & Director   [10]
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 First, as you know, we intend to continue to introduce new product. I committed 2 years ago to introduce 8 new model in the coming 4 years -- I mean, a new model every 6 months for the -- the next few years. And right now, we are halfway. In September, we'll introduce a new platform at Club, and we will continue to expand the lineup, penetrating a wide space in the side-by-side industry. Then this is definitely one area. The other one, obviously, with our success, with our value proposition to the dealers, we're seeing many dealers, multiline dealers, converting more floor space to our product line. Then it's a combination of continuing to push on new product introduction and with that momentum and with the value proposition, gaining share in the multiline dealership. That's basically the base of our plan.

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 Mark Robert Petrie,  CIBC World Markets Inc., Research Division - Executive Director of Institutional Equity Research & Research Analyst   [11]
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 And how do you feel about the balance between continuing to gain more floor space with additional products being launched versus the risk of cannibalizing the floor space that you already have?

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 José Boisjoli,  BRP Inc. - President, CEO & Director   [12]
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 We don't see much risk of cannibalizing floor space. We see that we're coming out with very strong product, and it will continue. And dealer realize that our products are easier to retail than some of our competitor, and that's how we view that. We believe we will continue to gain more share of their dealership than cannibalizing the existing floor space.

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 Mark Robert Petrie,  CIBC World Markets Inc., Research Division - Executive Director of Institutional Equity Research & Research Analyst   [13]
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 Okay. And then just a question on PWCs. I wonder if you could just provide a little bit more color on the competitive dynamics there. It sounds like you gained share on the traditional side, but maybe the share gains in Spark slowed down a little bit or reversed. And just could you talk about that, the competitive dynamics? And then anything you're seeing in the used market that might be different?

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 José Boisjoli,  BRP Inc. - President, CEO & Director   [14]
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 No, nothing changed in the used market. What happened, Mark, we're the only one in the -- what -- the segment we created, the Rec Light, and one of our competitor this year have introduced a model to compete against the Spark. Then, obviously, before we had -- for 3 years, we had 100% of their share of the red light -- Rec Light segment. And now this year, they sold some. We're quite happy overall because we still gain volume in the Spark segment. And despite the entry of that competitive product in the Rec Light segment, the Spark did continue to grow in unit. Obviously, with less on market share. But -- and also, the overall market have grown, and we've gained share in the traditional watercraft. And I think at the end of the day, all of this -- all those new products that are coming to the industry is bringing new customer to the industry. And I think overall, it's all positive.

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Operator   [15]
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 The next question is from Martin Landry from GMP Securities.

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 Martin Landry,  GMP Securities L.P., Research Division - MD Equity Research & Equity Research Analyst   [16]
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 You're entering the second half of the year with a very strong momentum in your side-by-side,and your ATVs, and you've really increased your earnings significantly on a year-over-year basis in the first half. So wondering a little bit why you're leaving your guidance unchanged. I hear your comments about concern on -- over the geopolitical issues, but a little bit more color as to what exactly are you seeing. Or is this a matter of being too -- or conservative? Or are you facing real issues that will prevent your earnings from growing materially in the back half?

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 Sebastien Martel,  BRP Inc. - CFO   [17]
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 Martin, this is Sebastien. Well, if you recall in Q1, when we announced results, we announced an increase in guidance overall in the profitability side but also on the Year-Round Products side, and we increased guidance by 2% on Year-Round Products, which was driven by our expected improved demand for side-by-side. We knew the second quarter was going to be a strong quarter for side-by-side on the retail as now we had a full lineup of Defenders out there, we had a full line up as well of Maverick X3 and Maverick X3 MAX. So demand was strong. Demand has continued to be strong. Our plants are running at full capacity for this year, and -- Juarez too. And we're going to be increasing capacity for next year. So we're limited in the amount of units we could ship this year on the side-by-side side. However, when I look at the overall profit distribution between the first half and the second half of this year, we were expecting a slightly weaker first half, so we delivered better on the results coming from increased volume. The second half is still going to be good. It's going to be in line with what delivered last year, which was a strong second half. Don't forget that we had shipped a lot of snowmobiles in the fourth quarter as well. So it was a timing there. But overall, when we look at overall demand, our production capacity, currency rates, which -- where they're trending, there's no unnecessarily extra conservatism in our guidance for the end of the year. I think it reflects the reality of the business, of the industries and where we think things are going to land.

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 Martin Landry,  GMP Securities L.P., Research Division - MD Equity Research & Equity Research Analyst   [18]
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 Okay. And I know it -- this is a difficult question because you have a lot of moving parts, but any sensitivity for the back half on currency with the U.S. dollar and Canadian dollar would be helpful. Is that something you can provide us?

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 Sebastien Martel,  BRP Inc. - CFO   [19]
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 Yes, let me try to give you a bit of color. When we issued guidance, we were looking at a U.S. rate of $1.30. We finished the 6 months at an average rate of $1.32. Our outlook for the remaining 6 months of the year is $1.25. So if things are held up like this, no fluctuation in our guidance. But as you saw in the second quarter, we had an $8 million headwind on currency versus a year ago. And so when you see rapid changes in currencies within a quarter, we might have either positive or negative impacts on our results. But everything holding as it is today, I'd say no fluctuation. But if then -- if there was going to be a significant drop in the value of the U.S. dollar as we had Q2, it might put a bit of pressure on our ability to achieve guidance for the end of the year.

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 Martin Landry,  GMP Securities L.P., Research Division - MD Equity Research & Equity Research Analyst   [20]
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 Okay, okay. That's helpful. And then maybe just lastly on the watercraft side. You do talk a little bit about introduction in the Rec Light. Is the market moving increasingly towards Rec Light and lower price point in the watercraft market? Is that what we're seeing? Have you seen a decline in the average unit selling price over the last 3, 4 years in watercraft?

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 José Boisjoli,  BRP Inc. - President, CEO & Director   [21]
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 No. The first 2 years that we introduced the Spark, obviously, there was a significant growth in the Rec Light segment versus the traditional segment. But what we saw in the last 2 years, Martin, is continuous growth in both segment. Then, overall, we're very happy with -- I believe, Spark -- the reason why we introduced Spark was to bring new customer into the industry and bring excitement to the industry. And what is positive is both category, traditional and Rec Light, the Sparks segment are growing in the last 2 years. Been quite positive overall.

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 Sebastien Martel,  BRP Inc. - CFO   [22]
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 And when I look at the ASP for the first 6 months of the year, so when we ship a lot of personal watercraft, our ASP for personal watercraft is up low percentage points. But it's still up there. So it means the mix is still pretty calibrated versus what we had last year between traditional and entry-level.

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Operator   [23]
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 The next question is from Cameron Doerksen from NBF.

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 Cameron Doerksen,  National Bank Financial, Inc., Research Division - Analyst   [24]
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 Just maybe you can talk a little bit more about your visibility on the snowmobile market. I mean, I think it typically, at this point, you'll have most of your orders kind of locked in, but maybe you can just give us a bit of an update on what you're seeing there.

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 José Boisjoli,  BRP Inc. - President, CEO & Director   [25]
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 No. We have -- like you said, all our order are in around the world, Russia, Scandinavia, North America. Right now, we are in full production in Rovaniemi and in Valcourt. The beauty this year versus last year, last year, we were shipping the new platform a bit late because we had delivered more than what we had planned originally. This year, it's more a normal delivery timing. All the spring break unit that are already retailed or sold to customers will be produced before the end of mid-October. Then we -- coming back on a normal production schedule, then everything is in line.

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 Cameron Doerksen,  National Bank Financial, Inc., Research Division - Analyst   [26]
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 Okay. And maybe just 2 sort of quick, I guess, modeling items for me. Just wondering if you can talk a bit about the tax rate. I mean, sort of the full year number that you're sticking with sort of implies a material increase in the tax rate in the back half of the year. Maybe you can just talk about that. And then also, can you sort of maybe discuss about the R&D expense run rate? Is the Q2 number probably what we should expect through the remainder of the year?

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 Sebastien Martel,  BRP Inc. - CFO   [27]
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 Yes. On the tax rate, obviously, depending on the regional mix that we -- where we have sales in the quarter, you'll have some variations in the tax rate. And there are sometimes, some timing elements as well, so that's why we had a slightly higher normalized tax rate if I look at just the quarter. But for the end of the year, as we've indicated in the guidance, we're looking at a rate between 28% and 29%, which is pretty much in line with what we had last year. In terms of R&D spend and the split between H1 and H2, obviously, when we look at the second half of the year, we are seeing increases compared to a year ago in R&D for Q3 and Q4. And we'll see a higher increase in marketing spend as well in Q3 than we had last year. So when you look at like implied guidance for the second half of the year, you'll have revenues growing between, let's say, minus 2% and plus 5% and EBITDA minus 3% and plus 1%. And most of that is driven because of operating expenses varying between -- compared to last year. In terms of margin, we're expecting gross margins to be fairly similar to last year, slightly weaker in Q3 and stronger in Q4.

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Operator   [28]
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 The next question is from Craig Kennison from Baird.

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 Craig R. Kennison,  Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst   [29]
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 I wanted to ask about your exposure to the region affected by Hurricane Harvey and whether you have dealers that have closed in that area and what the lost selling day impact may be.

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 José Boisjoli,  BRP Inc. - President, CEO & Director   [30]
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 We have about 13 dealers that are in the area that is affected by the hurricane. I would say about half of them are more impacted than the other half -- or 50% of them. It's not too severe, and we believe their business will restart for the -- where the hurricane hit in the center, it's more serious. Then for us, obviously, Texas is an important state. Those things happen all the time around the world, but that's basically what it is.

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 Craig R. Kennison,  Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst   [31]
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 Okay. And then with respect to the marine season, what is your take on recent trends? We've seen some data that suggests the marine market may have slowed a little bit in July, but I know that data can be choppy. I'm interested in your take on recent marine trends.

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 José Boisjoli,  BRP Inc. - President, CEO & Director   [32]
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 I mean, on the outboard side, we saw a very, very solid quarter. As you know, and we said very often, that we are good in repower that is declining and not so good in selling new engine on new boat. And despite that this trend that is still soft for us, we saw our retail better in Q2 than the industry. Then we catch up basically the industry in Q2. And this is the fact that we introduced the G2 200 to 300 3 years ago, the 150 to 200 where there is a lot of volume last summer. We started to ship last fall, and many boats have been delivered in Q2 with this. Then for us, we are somewhat introducing a very popular engine -- a very popular G2 in a very high-number segment, and that's what we saw a very strong retail on our product during Q2.

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 Craig R. Kennison,  Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst   [33]
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 And finally, Seb, a question for you. Debt is a little bit lower than we anticipated after the SIB. How should we think about interest expense for the balance of the year?

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 Sebastien Martel,  BRP Inc. - CFO   [34]
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 Yes, you're right. Debt has -- is slightly lower, driven by currency. We have a U.S. denominated debt. And so with the rates going down, that obviously brings down the overall debt. So we're looking at, let's say, net financing cost for the full year of about $60 million. That's what we're looking at.

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Operator   [35]
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 The next question is from Benoit Poirier from Desjardins Capital Markets.

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 Benoit Poirier,  Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst   [36]
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 If we come back on the Spyder, it seems that you've done a very nice job about reducing inventory. So I was wondering if you could be more specific a little bit and provide some color about the magnitude of the change in the Spyder inventory?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [37]
------------------------------
 Benoit, first, this was planned from last year, and it started with the booking last year when we were booking our dealers last fall for model year '17. We were conservative on the new unit that we were selling. And during the year, we've been quite aggressive of -- with retail promotion but also moving noncurrent inventory between dealers. We really focused early into the year to try to maximize the movement of noncurrent inventory between dealers and the plan had been -- we've been basically on plan. My recall, we are about 75%.

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [38]
------------------------------
 We are slightly lower than that in terms of overall reduction of inventory, but the objective for the end of this season is right, 75%. But, by at the end of Q2, we're at 50% noncurrent reduction.

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [39]
------------------------------
 Yes. Overall, we're on plan.

------------------------------
 Benoit Poirier,  Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst   [40]
------------------------------
 Okay. So overall, it's about 75% noncurrent production and you are now at 50%?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [41]
------------------------------
 Yes.

------------------------------
 Benoit Poirier,  Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst   [42]
------------------------------
 Okay, that's perfect. Okay, that's great color. And with respect to the iDock introduction, it seems a very compelling product. How big can be that market opportunity?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [43]
------------------------------
 But for us -- first, the iDock was planned from the beginning of the development of the G2, and why we can do it for 1/3 of the price of some competitive system is because in the competitive system, you have all the hydraulic cylinder and all the hardware and software around the engine. In our case, everything is integrated into the attachment of the normal G2. Then, our system is basically software and the joystick that you attach to the boat. And that's why we are very efficient. And now you will see a lot of promotion this fall trying to promote twin application on boat, and we believe that it will be very, very attractive package for the customer. If you can -- if you compare 2 engine with their -- 2 engine from the competition with their system versus 2 G2, and our system, we'll have a good price or good value proposal for the customer, and we believe it will help us to sell more G2 next year. Then very happy about the product, and it so far very well received by the marine community.

------------------------------
 Benoit Poirier,  Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst   [44]
------------------------------
 Okay. And when we look at your debt situation, obviously, 1.7x debt EBITDA is still below the optimal level despite the Dutch auction. Just wondering, what's your interest right now about further share buyback at this level? And am I right to say that this is not included in your share account calculation for the year?

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [45]
------------------------------
 Yes, Benoit, you're correct. Further future NCIBs are not included in the share count that we -- that I provided this morning. As you know, we still have the option of purchasing shares on the market. We have the opportunity of purchasing about 3.1 million shares, and that's at our discretion. And so we'll be obviously assessing the market and how the business is evolving and making that decision on a monthly basis.

------------------------------
 Benoit Poirier,  Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst   [46]
------------------------------
 Okay. So you still -- you can still acquire about 3.1 million shares?

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [47]
------------------------------
 Yes.

------------------------------
 Benoit Poirier,  Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst   [48]
------------------------------
 Okay, okay, perfect. And last one for me. Could you maybe provide some color about the second half, how Q3 and Q4 will be split in terms of revenue, EBITDA? And also, if there's any new product introduction that are included that could be made, let's say, at the Club BRP?

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [49]
------------------------------
 Yes, well, I'll give you a bit of -- I'll try to help you on the quarterly gating. Obviously, we don't give quarterly guidance, but I'll try to just give you a bit of insight as to how we see things trending. For Q3, we're seeing revenues slightly higher than last year coming from better shipments with, especially, the side-by-side business, now will be a full quarter of Maverick. And that's why we're going to see a pickup there on revenue. Gross profits, I'm seeing it similar or slightly similar to last year and stronger in Q4. And as I said earlier, marketing is going to be higher in Q3 and R&D as well higher in Q3 and Q4.

------------------------------
 Benoit Poirier,  Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst   [50]
------------------------------
 Okay, okay, perfect. Okay. So EBITDA, bottom line between Q3 and Q4 should be a little bit higher in Q4?

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [51]
------------------------------
 I would say, overall profitability, probably flattish. The better gross margin in the quarter is going to be compensated by higher operating expenses. So I would see normalized EBITDA flattish between -- on both quarters.

------------------------------
Operator   [52]
------------------------------
 And the next question is from Seth Woolf from Northcoast Research.

------------------------------
 Seth Woolf,  Northcoast Research Partners, LLC - VP & Research Analyst   [53]
------------------------------
 I just wanted to start off, I know, Sebastian, you said that the first quarter came in a little bit better than you guys -- or, the first half has come in a little bit better than you originally anticipated and currency is a bit of a headwind. But if I look at the implied revenue for the second half, it looks like it's a low end, it's actually down a bit. Just wanted to see, one, am I missing something? Two, did you really -- you really expected that at this time last quarter? You said that was a possibility if you thought through the last 3 quarters of the year.

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [54]
------------------------------
 Yes, it was. If you look at the implied, we're looking at revenues down minus 2% to up 5%. A few factors can impact revenue. Obviously, currency could be one but also, yes, we have good visibility on pretty much all the orders that we have for the second half of the year, but snowmobile business is a big business for us, and it's a business that also drives a lot of pack sales. And pack is not something what we have from orders from the dealers. And so we can experience some variability there on the pack side, if the snow season were to start a bit later as it did last year. That could influence your overall take rate on the parts side. And so that's why you are seeing a bit of flattish sales guidance.

------------------------------
 Seth Woolf,  Northcoast Research Partners, LLC - VP & Research Analyst   [55]
------------------------------
 Okay. Got it. And then just if we kind of think back to the last quarter's call, a big topic, the whole Q&A was discussing capacity. And I think I remember you saying there could be an opportunity to make incremental gains if you decided to add a third shift at the Juarez II facility. And given the strong retail demand that we've continued to see, have -- is there any update with respect to potentially adding a third shift even though it's not as efficient?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [56]
------------------------------
 We are right now planning to run the factory at full, full capacity. We decided to run the -- the fabrication is running at 3 shifts because it's not too many people. In term of assembly, we're running many, many Saturdays, full, full Saturdays going forward, and we feel it's more because of the law and the rules in Mexico and the longer hour per shift, then you don't have much additional hour on the third shift. And we felt it's more efficient to run 2 full shift for many Saturdays. And all of this is planned on the back half of the year, and that's why we are at the limits right now for Juarez II production.

------------------------------
 Seth Woolf,  Northcoast Research Partners, LLC - VP & Research Analyst   [57]
------------------------------
 Okay. And then the last question for me is just, turning to marine for a moment, looks like pretty compelling price point with this -- with the iDock. And if I think about the competitive dynamics, you've got -- some of the big players have captive both brands, so they kind of have a leg up with respect to penetrating the market with those products, but I was just curious, is there anything you could share with us about how longer term you could drive some demand with the -- or make inroads and take advantage of the price discrepancy that you were talking about?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [58]
------------------------------
 Yes, the industry in -- the marine industry in the North America market is very captive. I mean, you have many, many boat brands that are owned by engine OEMs, and this had been like that for many years. Our strategy with G2 was to come out with a better product to create a pull from the consumer and influence dealers and boatbuilders because many boatbuilders have some flexibility to buy from us. And this is what we're doing and working out. And obviously, we introduced the 200, 300 family G2 3 years ago, but this is quite a low level of units, if you look at the big picture. And that's why we're having quite a lot of success right now with the 150 to 300 where the volume is higher. And we believe that iDock, which apply on all the engine over 150, if you have a twin-engine boat, will be a very attractive value proposition for the consumer. Then -- the dynamic in the industry is it what it is, and we're trying to change that by creating that pull from the consumer.

------------------------------
Operator   [59]
------------------------------
 The next question is from Jamie Katz from Morningstar.

------------------------------
 Jaime M. Katz,  Morningstar Inc., Research Division - Equity Analyst   [60]
------------------------------
 I'm curious if you could talk a little bit about the selling programs you guys have been implementing? It seems like the promotional cadence in the industry has slowed a little bit relative to last summer, and it seems like the programs are working more effectively. So can you talk about what's working and whether you think you can pare back some of that spend maybe next year? Or whether you plan to continue to spend robustly to facilitate sales?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [61]
------------------------------
 If you look at watercrafts and Spyder and, again, the motorcycle industry, I -- we believe that this season was similar promotion than what we saw in the last few years. Where it's more aggressive it's in the off-road business. In the ATV segment, some OEM have too much inventory out there, and the -- they are very, very aggressive with rebate. And this is obviously putting a lot of pressure. What we are very happy with, we have strong momentum with ATV in North America, despite we are not dropping our price as much as some of our competitors -- some of our competition, then we're very, very happy about that. On the side-by-side front, it's a combination of 2 things. A lot of new model coming to the industry and on top of it, again, some OEM have too much inventory and they are extremely aggressive on the promotional front. We didn't change our strategy. Our strategy for ATV and side-by-side is about the same. We have -- we are less aggressive than some of our competitor, and we believe we can continue on that offering going forward. That's what we're planning for.

------------------------------
 Jaime M. Katz,  Morningstar Inc., Research Division - Equity Analyst   [62]
------------------------------
 Okay. And then can you articulate -- I don't know if there's a quantitative way to think about this, but given that Arctic Cat that's gone through sort of this ownership transition, was there any sort of qualitative benefit that you can share with us from the period of time that they went through that transition that may have helped you take a little bit of incremental share in the quarter, if you think that that's what happened?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [63]
------------------------------
 I would say au contraire. I mean, the new owner have -- had very, very aggressive promotion during the quarter to cleanout the inventory, and it didn't affect too much our retail. We had good retail during the quarter then -- the new owner is very aggressive to clean out the Arctic Cat inventory, and this is ongoing, continuing in Q3. Long term, the brand Arctic Cat had been removed from the off-road product. We'll see how the new owner will do with their new brand strategy. And on snowmobile, they kept the same brand, and we don't see much -- the dynamic there change much going forward.

------------------------------
Operator   [64]
------------------------------
 The next question is from Gerrick Johnson from BMO Capital Markets.

------------------------------
 Gerrick Luke Johnson,  BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst   [65]
------------------------------
 I just want to follow up on the sales promotion question. Has there been much of an impact from your strategy to provide dealers with back-end money for better performance?

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [66]
------------------------------
 No, no impact. Obviously, the strong retail that they've had, some of that was built within our -- within the, let's say, the program that we had established with them. So we were compensating for the retail beat that they got. So that was already built in. But no significant variation within it versus our plans. That money has been provided for, and it's been built into our guidance.

------------------------------
 Gerrick Luke Johnson,  BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst   [67]
------------------------------
 Okay. And on product costs, they were called out as higher. You say your systems are running pretty smoothly. So what's driving that? Is that increased input costs?

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [68]
------------------------------
 No. Mainly, operational costs. There is obviously more overtime being paid for employees working in Mexico. There is a bit of competitiveness on the labor workforce as well in Mexico. So we had to increase labor rates there slightly, but still impacting profitability. And we have a bit of warranty -- more warranty expense versus a year ago as normal. When you're launching a new snowmobile platform, it's normal that you accrue for a bit more expenses for a new platform. So these would be the main elements.

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [69]
------------------------------
 Also to add, there is -- we -- obviously, we're increasing capacity in Querétaro and Juarez, and there is some item you cannot capitalize, and this is going to the P&L.

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [70]
------------------------------
 Yes.

------------------------------
 Gerrick Luke Johnson,  BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst   [71]
------------------------------
 Okay. And what's going on with steel, aluminum, all those input costs?

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [72]
------------------------------
 We're not seeing big variations. We are, obviously, exposed to some commodities but not significantly which would create a headwind there. There's exposures that could vary between, let's say, $20 million and $30 million on commodities, but we're not exposed to, let's say, $500 million on steel. And so when there is movements, we have long-term agreements with suppliers, which allow us to smooth the impact of those changes in our results.

------------------------------
 Gerrick Luke Johnson,  BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst   [73]
------------------------------
 Okay. Great. And lastly, on channel fill and Defender and X3, is there still space -- room there? Or are you now on a one-for-one kind of replacement on those models at the dealers?

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [74]
------------------------------
 No, there is still room for increasing inventory, obviously, as you are taking a greater mindshare within the dealer networks. We are working with our floor plan partners to adjust credit limit. And so there is still capacity to increase inventory as retail demand would dictate.

------------------------------
Operator   [75]
------------------------------
 The next question is from Tim Conder from Wells Fargo.

------------------------------
 Timothy Andrew Conder,  Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst   [76]
------------------------------
 Gentlemen, a few things. One, first of all, if you would, on Slide 6 to 8 of your presentation, I just wanted to clarify your industry share comments. So off-road and Evinrude, is that related to June, the June month? Or you talking your July quarter end, when you're talking industry share?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [77]
------------------------------
 Yes, it's quarter end.

------------------------------
 Timothy Andrew Conder,  Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst   [78]
------------------------------
 Quarter end July. Okay.

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [79]
------------------------------
 Yes.

------------------------------
 Timothy Andrew Conder,  Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst   [80]
------------------------------
 Okay. And, José, same question for the PWC. I think you said 10 months, which would also imply the -- for the season there, that being September in the 10 months, correct?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [81]
------------------------------
 Yes.

------------------------------
 Timothy Andrew Conder,  Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst   [82]
------------------------------
 Okay, okay. We had a couple of questions on that this morning. And then the multiline share gains, a little more color here. Is that predominantly coming from North American competitors, Japanese competitors or kind of equally balanced?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [83]
------------------------------
 It's a very good question. We've done a deep analysis in our review here within the division in July where it's coming from because, obviously, we wanted to adjust our strategy if we saw some trend. And it's funny because it's coming from everyone at the same rate, roughly. And we don't see more from Japanese or North American. It's coming from same level from everywhere, everyone.

------------------------------
 Timothy Andrew Conder,  Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst   [84]
------------------------------
 Okay, okay. And then, I guess, in conjunction with that, your order management system ability. Maybe just kind of refresh us by product line the -- sort of the time frame that, that gives you the ability to dealer sells x unit of Defender or pick Spark or whatever, the ability to replenish that in -- is it a couple of weeks? Or just the time frame, just by product line, if you would?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [85]
------------------------------
 Yes. And here, I will talk about North America because international is a bit different. But if you take off-road vehicle, every month, we're taking in orders to be delivered in 2 months. And here, the dealer has full flexibility, can order more X3, more Defender, more of that model, full, full flexibility on that. And this, we're doing it on a monthly basis. And it's running extremely well. The thing that we do on off-road, like we'll introduce new product at Club in a few weeks and when you introduce a new product, you're going with allocation for the first few months. But after those first few months are past, it's full flexibility for the dealer on a monthly basis for delivery to be done in 2 months. On watercraft, we will introduce the product, new lineup model year '18 at Club in September. The dealer will see it. And they will give us at Club, a preliminary order and after that, they go back in their store, they digest, they see the attraction of their customer in the area, and they will finalize the order about 2 months later. Then we'll have final read on the watercraft order by November. In term of snowmobile, right now, we have everything on hand for what we're producing, but it's the same phenomena than watercraft. We introduced the new snowmobile line up in February. Dealers see it, give us at Club, a preliminary order. Snowmobile is a bit different because we have spring break sales where customer can give a deposit to lock their unit and the dealer finalize their order by the end of May -- mid-May, end of May. Then that's the way we work on off-road watercraft and snowmobile. Spyder, same phenomena than watercraft, I should have combine there. We'll show them the lineup in September at Club. They have 2 months to readjust. Outboard engine it's on a monthly basis. We constantly take order for the dealer. Then we have introduced our model year '18 lineup in June. Now the team is doing with many boatbuilder dealer meeting for their brand, their boat brand. And over there, dealers are giving us orders. But the dealers, it's a bit different in the marine business. They are not -- locked in with their numbers. It's the best forecast that they can do, but they are not legally locked in, and we taking order on a monthly basis. And basically that's our system that we have for Year-Round Product versus Seasonal Product.

------------------------------
 Timothy Andrew Conder,  Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst   [86]
------------------------------
 Okay, okay. Very helpful. And I guess, the last question I have sort of segues from the marine commentary. And how is the momentum there going for G2, Asian versus other outboard manufacturers? Is it balanced? Some, as you'd mentioned earlier in your discussion, have more ties to -- are more captive in with certain boat brands. So is that more balanced? And then also, you talked about the cost differential versus 4-stroke competitors with the iDock system. Is that largely driven by the cost of the engine itself? Or do you have something -- it would seem to be just given the order of the magnitude versus the cost of the docking systems?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [87]
------------------------------
 Yes, 2 things. First, on the outboard business, our share is about 10% worldwide. Then right now, we're gaining, and it's very difficult to say from where. I mean, it's coming from everywhere, and it depend also in which country. In North America, some brand are stronger than international, it's others, then it's coming from everywhere. Why we are able to offer the iDock at this price level is because, again, if you look to the G2, what is unique to the G2, obviously, is the E-TEC technology on the engine, but it's the way that we attach the engine on the boat where the vertical up or down movement and left or right is all integrated into the mounting system. Then for us, the iDock is just an electronic box with a joystick on the boat that are activate this integrated system that you sell with the engine. And that was planned from the get-go when we designed the G2 engine family, but that's why we can offer it at a very competitive price.

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [88]
------------------------------
 And if you were to buy a aftermarket system, all you need is a full hydraulic system and actuators. And that's why the cost differential is much higher.

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [89]
------------------------------
 And we're selling our system from $5,999 and competitive system can go anywhere between $15,000 to $25,000.

------------------------------
Operator   [90]
------------------------------
 The last question is from Robin Farley from UBS.

------------------------------
 Robin Margaret Farley,  UBS Investment Bank, Research Division - MD and Research Analyst   [91]
------------------------------
 A couple of questions. One is just circling back to the idea that your full year guide is unchanged, with Q2 I think coming in I think, higher than expectations. Is it -- was it just really sort of a timing difference of shipments? In other words, was retail in the quarter sort of as you expected?

------------------------------
 Sebastien Martel,  BRP Inc. - CFO   [92]
------------------------------
 Yes, as I highlighted, yes, we were expecting strong retail in the quarter, especially on the ORV side. Side-by-side up 50% is a great result, but we knew that with a full lineup of Maverick X3 this quarter, which we hadn't done last year, we were expecting strong results. And yes, it came -- the overall financials came in better, slightly higher shipments and also tighter -- tight management of operating expenses produced these results. Obviously, when we look at the end of the year, as I mentioned, we are going to be investing more in R&D and in marketing. And that's why we're seeing profitability flat compared to last year for the second half of the year.

------------------------------
 Robin Margaret Farley,  UBS Investment Bank, Research Division - MD and Research Analyst   [93]
------------------------------
 Okay. That's helpful. And then just looking at the off-road market overall, what do you think is sort of driving -- if you look at the industry growth in both ATV and side-by-side, it's better in the July quarter than kind of season-to-date had been, the first 9 months of the season. Is it -- do you think it's better demand from the agriculture sector or oil? Or is it just sort of others introducing new competitive product to offer? What do you think is sort of overall driving that?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [94]
------------------------------
 But first, the spring, as you know, was pretty bad then the month of April. May was very bad in terms of weather, and I think some people had delayed their purchase to Q2. The other thing is some of the competitor. Because we are on the tail end of the season '17, some competitor were very aggressive with promotion, and that's why I believe overall, Q2 was better than the rest of the season '17.

------------------------------
 Robin Margaret Farley,  UBS Investment Bank, Research Division - MD and Research Analyst   [95]
------------------------------
 So you're not necessarily -- it sounds like both of those factors, the weather shifting and maybe competitors doing some aggressive things with promos, not necessarily in your view a change in sort of overall market demand outside of the quarter, right, not sustainable things, is that fair way to interpret?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [96]
------------------------------
 No, I don't see much. The only thing I would say to give you some color is Western Canada has improved a lot in Q2. Western Canada has done better than the East in the motorcycle industry, was better in ATV than last quarter. And watercraft, the Western Canada was equal to Eastern Canada. Then the only thing that I would see has changed overall in North America is maybe Western Canada in Q2 has done a very good quarter.

------------------------------
 Robin Margaret Farley,  UBS Investment Bank, Research Division - MD and Research Analyst   [97]
------------------------------
 Okay. Great. And then my last question is just for the motorcycle business. There's been chatter in the media about a motorcycle brand that may be for sale. And I'm just curious whether it would make any kind of strategic sense in your view for BRP to do something in the 2-wheeled motorcycle segment, knowing that there's a very established brand out there for sale?

------------------------------
 José Boisjoli,  BRP Inc. - President, CEO & Director   [98]
------------------------------
 I mean, as we said, Robin, in many occasion, obviously, we know that Ducati is for sale. But as we said, we cannot comment on the rumors or M&A activity, and nothing we can add to this.

------------------------------
Operator   [99]
------------------------------
 I would now like to turn the meeting back to you, Mr Deschenese.

------------------------------
 Philippe Deschenese,    [100]
------------------------------
 Thank you, and thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again in December for our third quarter conference call. Thanks again, everyone, and have a good day.

------------------------------
Operator   [101]
------------------------------
 Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you very much for your participation.




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