second quarter 2018 earnings results€¦ · second quarter 2018 summary q2'18 earnings 4...

Second Quarter 2018 Earnings Results

July 25, 2018

POLARIS INDUSTRIES INC.

SAFE HARBOR & NON-GAAP MEASURES

2Q2'18 Earnings

Except for historical information contained herein, the matters set forth in this presentation, including management’s expectations regarding 2018

future sales, shipments, net income, and net income per share, operational initiatives and impact of tax reform, and tariffs and commodity costs are

forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those forward-looking

statements. Potential risks and uncertainties include such factors as the Company’s ability to successfully implement its manufacturing operations

expansion initiatives; product offerings; promotional activities and pricing strategies by competitors; economic conditions that impact consumer

spending; acquisition integration costs; product recalls, warranty expenses; impact of changes in Polaris stock price on incentive compensation

plan costs; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; commodity costs;

freight and tariff costs; changes to international trade agreements; uninsured product liability claims; uncertainty in the retail and wholesale credit

markets; performance of affiliate partners; changes in tax policy and overall economic conditions, including inflation, consumer confidence and

spending and relationships with dealers and suppliers. Investors are also directed to consider other risks and uncertainties discussed in documents

filed by the Company with the Securities and Exchange Commission. The Company does not undertake any duty to any person to provide updates

to its forward-looking statements.

This presentation contains certain non-GAAP financial measures, consisting of “Adjusted” sales, gross profit, income before taxes, net income and

net income per diluted share as measures of our operating performance. Management believes these measures may be useful in performing

meaningful comparisons of past and present operating results, to understand the performance of its ongoing operations and how management

views the business. Reconciliations of Adjusted non-GAAP measures to reported GAAP measures are included in the Appendix of this

presentation. These measures, however, should not be construed as an alternative to any other measure of performance determined in accordance

with GAAP.

Scott W. Wine, Chairman & CEO

July 25, 2018



SECOND QUARTER 2018 SUMMARY

4Q2'18 Earnings

Positive Momentum Going into 2nd Half of Year

Financial results continued positive momentum

N.A. retail sales up 6%; ORV up mid-single digits %; Side-by-sides up mid-single digits %

Indian motorcycles up mid-single digits %

New product demand strong; RANGER XP 1000, RZR Turbo S, RZR RS1, Indian Chieftain Elite

Announced Boat Holding acquisition; solid addition to portfolio

Tariff and commodity pressures intensified significantly; offsetting for now

NORTH AMERICAN POWERSPORTS RETAIL SALES

Polaris N.A. retail up 6% for Q2’18

ORV strong; new products, improved Oil/Gas/Ag regions

Indian retail up mid-single digits; strong Scout/Scout Bobber sales

Polaris promotional expense per unit down year-over-year in Q2

North American Industry retail down low-single digits %

ORV flat; motorcycles down

-3%

Q2 2017 Q2 2018

POLARIS INDUSTRY

Off-Road Vehicles mid-single digits % flat(estimated)

Side-by-Sides

ATVs

mid-single digits %

mid-single digits %

Motorcycles low-single digits % mid-single digits %(900cc & above)

Indian

Slingshot

mid-single digits %

mid-single digits %

Snowmobiles(season-end Mar’18)

(off-season) (off-season)

Q2’18 Retail Sales by Business (vs. Q2’17)Polaris Retail Sales

Q2'18 Earnings 5

Year-Over-Year Retail % Change (units)

ORV

Snowmobiles

Motorcycles

Retails Sales Accelerated in Q2 – Improved Execution / New Product Availability

+6%

Q3 Q4 Q1 Q2

Rolling 4 Qtrs Ending Q2'17

Rolling 4 Qtrs Ending Q2'18

Polaris Q2 2018 N.A. dealer inventory up 10% vs. Q2 2017; up 6% excluding Snow (off-season)

ORV up due to improved new product availability

Indian Motorcycles & Slingshot down; moderating shipments in weak market

Side-by-side RFM improving delivering cadence

Q2 Total N.A. Dealer InventoryPolaris N.A. Total Dealer Inventory

NORTH AMERICAN DEALER INVENTORY

Q2 2017 Existing ORVModels

New ORVModels

Snowmobiles Motorcycles Q2 2018

+10%

Q2'18 Earnings 6

Year-over-year % Change in Units

+6%+5%

-1%

Dealer Inventory Adequate in Total, Excluding Snow; Product Mix Improving

0%

+6%excl. snow

+10%

MFY’17 Sales

BOAT HOLDINGS ACQUISITION

#1 seller of Pontoon Boats in U.S.

~26% market share in 2017

Acquisition closed July 2, 2018

Supports Polaris’ long-term growth and profitable goals

Will operate as a distinct business

Integration team in place

Q2'18 Earnings 7

Broadens Polaris’ Powersports Portfolio of High Quality, Enjoyable Outdoor Products

Jake VogelCEO – Boat Holdings

2nd generation leader

10+ years of boat experience

30%#1 Pontoon Brand

70%

Sterndrive/

outboard boats

#3 Pontoon Brand

#1 Deck Boat Brand

MULTI-BRAND DISTRIBUTION CENTER

Fernley, Nevada

Aftermarket and Polaris PG&A

Open Q2 2019

~500,000 sq. ft. distribution center

Will service entire west coast in 1-2 days

Q2'18 Earnings 8

Will Significantly Improve Polaris PG&A / Aftermarket Delivery Times to Customer

Multi-Brand Distribution Center

Fernley, NV

Fernley, NV

TARIFFS’ IMPACT

9Q2'18 Earnings

Trade Wars Generating Significant Cost Pressures & Uncertainty in Marketplace

~$40M* FY’18 Impact

CANADA

CHINA

EUROPEAN

UNION

MEXICO

Youth

vehicles,

steel,

aluminum,

components

Steel,

aluminum

Steel,

aluminum

EU Retaliatory

Tariff,

Motorcycles

232 Steel / Aluminum

Raw steel & aluminum – Polaris procured

Components – supplier procured

Suppler price increases – market driven

301 List 1

Youth vehicles – China produced

Components – Polaris and supplier procured

Supplier price increases – market driven

Retaliatory Tariffs

Motorcycles / Boats

Undefined Potential Future Risks (not in guidance)

301 – lists 2 & 3

232 automobile/auto parts; may impact RZR/RANGER/TAP

NAFTA re-negotiations

Other retaliatory actions from effected countries

*Estimated based on items included and the effective dates of the changes as we understand them today. Assumes no mitigating pricing or sourcing actions and is subject to change as

events continue to develop.

REST OF

WORLD

Steel,

aluminum

Steel,

aluminum

Canada

Retaliatory

Tariff,

Boats

Mike Speetzen, EVP–Finance & CFO

July 25, 2018



Q2 2018 FINANCIAL RESULTS

Solid Q2 Results Demonstrate Improved Execution

$ in millions, except EPS

*See GAAP/Non-GAAP Reconciliation in Appendix

Strong ORV, Adjacent Markets including PG&A & International sales growth

Average selling price is up 2% (excluding Victory)

Lower tax rate driven by U.S. tax reform and excess tax benefit from stock options exercised

GAAP

($/% Change)

ADJUSTED*

($/% Change)

$1,359$1,505

Q2 2017 Q2 2018

$1.22

$1.77

Q2 2017 Q2 2018

45%11%

SALES EPS

$1,503

10%

$1.43

47%

Q2'18 Earnings 11

NET INCOME

$78

$115

Q2 2017 Q2 2018

47%

$93

49%

MILLION

OFF-ROAD VEHICLES (ORV) / SNOWMOBILES

New product demand strong; availability improved

Promotional spending per unit down year-over-year

Average selling price for ORV up 3%

Solid Growth Driven by New Product IntroductionsQ2'18 Earnings 12

$846

*Adjusted Results: See GAAP/Non-GAAP Reconciliation in Appendix

Off-Road

Vehicles

19%PG&A

13%

Snowmobiles

21%

Q2 2018 ORV/Snow Segment Sales*($ millions)

Q2 2017GAAP*

Q2 2018GAAP*

Q2 2017Adjusted*

Q2 2018Adjusted*

17%$991

$846

17%$993

MILLION

Q2 2017GAAP*

Q2 2018GAAP*

Q2 2017Adjusted*

Q2 2018Adjusted*

MOTORCYCLES

Q2 2018 Motorcycles Segment Sales*

Q2'18 Earnings 13

($ millions)

10%$172

$192

Mid-size (Scout / Scout 60 / Scout Bobber) sales remain strong

Heavyweight sales down – weak industry

Indian gained market share in a down market

Average selling price down 6% (excl. Victory), mid-size mix shift

Indian Motorcycle Market Share Gains Continued

Indian

Slingshot

13%PG&A

8%

*Adjusted Results: See GAAP/Non-GAAP Reconciliation in Appendix

13%$171

$198

Indian FTR1200 Custom Concept

MILLION

GLOBAL ADJACENT MARKETS (GAM)

Q2 2018 GAM Segment Sales

Growth driven by Goupil and Government/Defense business

PICNIC demand solid for Goupil vehicles

Strong orders for Police/Fire and Defense vehicles

Polaris Adventures on plan and gaining momentum

~50 outfitters signed to-date

Q2'18 Earnings 14

($ millions)

Goupil and Government/Defense Driving Growth in Adjacent Markets

Q2 2017 Q2 2018

17%$113

$97

Commercial,

Gov’t/Defense,

& Aixam

18%

PG&A

11%

AFTERMARKET

Q2 2018 Aftermarket Segment Sales

TAP 4-Wheel Parts retail store sales improved

TAP Proprietary brand sales down due to late Jeep Wrangler shipments

and delayed product development – new products released in June

Countermeasuring to improve results in 2nd half

Other Aftermarket brands up, increase driven by Klim/Kolpin

Q2'18 Earnings 15

($ millions)

Expect 2H Improvement from Improved Execution / Pricing Actions

MILLION

TAP

1%

Other

Aftermarket

8%

Q2 2017 Q2 2018

1%$227$224

Transamercian Auto Parts

Latin America

INTERNATIONAL

Q2 2018 International Sales*

EMEA growth continued strong, particularly France/Scandinavian region

ORV and motorcycles drivers of growth

EU trade war significant risk, working alternatives

Q2'18 Earnings 16

($ millions)

International Q2 Results Strong; Tariffs Concerning

MILLION

Q2 2017 Q2 2018

7%(cc +3%)

$204$191

Q2 2017 Q2 2018

-1%

(cc +3%)

$20

Asia Pacific(includes Australia/New Zealand)

Q2 2017 Q2 2018

-3%

(cc -4%)

$36

EMEA

Q2 2017 Q2 2018

+11%

(cc +4%)

$148

ORV / Snow

3%

Global

Adjacent

Markets

12%

Motorcycles

9%

$20

$37

$134

ORV / Snow

Motorcycles

GAM

*Included in respective reporting segments

cc = constant currency

ORV / Snow

Motorcycles

GAM

MILLION

MILLION

PG&A

Q2 2018 Core Parts, Garments & Accessories (PG&A) Sales*

Strong accessory growth - all businesses

Fill rate > 95%; stock-outs improving

New west coast distribution center opening in ’19

Will shorten delivery time further

Implemented price increase and freight surcharge

Somewhat offset tariff cost pressures

Q2'18 Earnings 17

($ millions)

Solid Q2 Performance; Countermeasuring to Offset Tariff in 2H 2018

Q2 2017GAAP

Q2 2018GAAP

11%$215

$193 ORV / Snow

13%

Adjacent

Markets

11%

Motorcycles

2%

Accessories

18%

Apparel

54%

Parts

3%

Sales by Segment

Sales by Category

*Included in respective reporting segments

SALESGROSS PROFIT MARGINS

(% of Sales)

OPERATING EXPENSE($ / % of Sales) TAX RATE Adjusted EPS**

2017 Actuals Adjusted*

Intangible Amortization$5,428

-

25.9%

-

$1,008 18.6%

(26) (0.5%)

30.5%

-

$4.85

$0.25

Revised 2017 Actuals $5,428 25.9% $ 982 18.1% 30.5% $5.10

2018 Guidance** 11% to 12% 60 to 80 bps 130 to 140 bps (% of Sales)

~22% $6.48 to $6.58

27% to 29%

Guidance Change Increased Lowered Improved Lowered Narrowed/Revised

• Boats +$260 to $270M

• Pricing actions

• Improved demand

Tariffs/commodity/Boats

Logistics

Intangible amortization

Boats op expense lower

Leverage

Stock-based comp tax benefits

Intangible amort. $0.28 per share

Boats $0.10 per share

FULL YEAR 2018 GUIDANCE

Full Year 2018 EPS Guidance Narrowed / Adjusted for Acquired Intangible Amortization

Additional Expectations

− Financial Services up low-single digits % (unchanged) − Share count up ~2%, dilutive impacts (unchanged)

− Interest expense up due to debt levels / rising interest rates (increased) − Foreign Exchange slightly favorable at current spot rates lowered (unchanged)


**See Appendix for discussion regarding non-GAAP adjustments excluded from 2018 guidance

Q2'18 Earnings 18

(in millions, except EPS)

2018Guidance

AftermarketORV/Snowmobiles

FY 2017 FY 2018Guidance

FY 2017 FY 2018Guidance

ORV & GAM Improvement Continues, Plus Addition of Boats19Q2'18 Earnings

2018 FULL YEAR GUIDANCE BY SEGMENT

FY 2017Adjusted*

FY 2018Guidance

FY 2017 2018Guidance

Global Adjacent MarketsMotorcycles Boats

high-single

digits %

Increased

$3.6B

ORV

PG&A

Snow

ORV

PG&A

Snow

PG&A

$574

Indian

Slingshot

PG&A

low-singledigits %

Lowered

Indian

Slingshot

PG&APG&A

Commercial

Gov’t/

Defense

Aixam

low-double

digits %

Increased$397

mid-single

digits %

Unchanged$885

($ millions) ($ millions) ($ millions)($ billions)

Commercial

Gov’t/

Defense

Aixam


($ millions)

$260 to $270

New Segment (effective 7/2/18)

GROSS PROFIT MARGIN GUIDANCE

Adjusted* Gross Profit Margin FY 2018 GuidanceGross Profit Margin Q2 2018

Q2 ACTUAL 2018 GUIDANCE

Q2 2017

GAAP

Q2 2018

GAAP

Q2 2017

Adjusted*

Q2 2018

Adjusted*

FY 2017

GAAP

FY 2017

Adjusted*

2018

Expectations

YoY Directional Change

from Prior Guidance

ORV/Snow 31.5% 30.0% 31.5% 30.1% 29.5% 29.6% Lowered

Motorcycles 10.7% 14.4% 15.6% 14.5% 2.9% 13.0% Unchanged

Adjacent Markets 21.9% 24.8% 26.3% 24.8% 23.9% 26.7% Lowered

Aftermarket 26.7% 25.5% 26.7% 25.5% 25.5% 26.9% Unchanged

Boats - - - - - - High-teens % New Segment

Q2'18 Earnings 20

2018 Gross Margin Reduction Driven by Increased Tariff / Commodity Costs

KEY: Improvement Headwind Neutral

VIP

Warranty

F/X

Promos/Price

Boats

Tariffs/Commodities

Logistics

Product Mix

25.7% 25.6% 26.8% 25.9%

Q2 2017GAAP

Q2 2018GAAP

Q2 2017Adjusted**

Q2 2018Adjusted**

VIP

Warranty

F/X

Promos/Price

Tariffs/Commodities

Logistics

Product Mix

FY 2018

Down 60 to 80 bpsDecreased

Gross Profit Margin by Segment


**See Appendix for discussion regarding non-GAAP adjustments excluded from 2018 guidance

Guidance

$580

FY 2017 FY 2018

Q2 2018 FINANCIAL POSITION & 2018 EXPECTATIONS

21Q2'18 Earnings

Capital Summary June 2018Cash Drivers

Variance to

June 2017

Cash $ 182 +43%

Debt /Capital Lease Obligations $1,113 +4%

Shareholders’ Equity $ 878 +3%

Total Capital $1,991 +4%

Debt to Total Capital 56% Flat

Operating cash flow down as expected, but slightly improved

Factory inventory up, model year change over

Cash Flow expectations improved:

Cap Ex higher than 2017; distribution/tooling

Op cash flow lower; timing of accrual payments & higher w/c needs

Operating Cash Flow

Continued Strong Financial Position – Net Debt Improving

CashYE 2017

OperatingActivities

Dividends Capex Net Debt ShareRepurchase

Other CashQ2 2018

$138$182

($ millions) ($ millions)

($ millions)

Q2 2018 Summary

FY 2018 Expectations

Down

High-single

digits %

(Improved)

Expectations

+$165

-$76

-$105

+$201

-$192

+$51

$263

YTD 2017 YTD 2018

-37%

$165

Scott W. Wine, Chairman & CEO

July 25, 2018



23Q2'18 Earnings

CLOSING COMMENTS

Polaris’ Underlying Business Performance Improved; Global Trade War Concerning

First half financial results strong with improving execution

U.S. economy and off-road vehicle market, particularly side-by-sides, remains robust

Global trade war bringing uncertainty and significantly higher cost pressures

Supply chain initiative on pace; logistical phase accelerated given cost pressures

International business growth continuing

New Boat asset brings another financially solid leg to the Polaris Powersports portfolio

Thank You

QUESTIONS?



APPENDIX

NON-GAAP RECONCILIATIONS

NON-GAAP RECONCILIATIONS - SEGMENTS

2018 GUIDANCE ADJUSTMENTS

Q2'18 Earnings 25

NON-GAAP RECONCILIATIONS

26Q2'18 Earnings

Key Definitions: Throughout this presentation, the word “Adjusted” is used to

refer to GAAP results excluding: TAP inventory step-up purchase accounting /

integration expenses, corporate restructuring, network realignment and supply

chain transformation costs, EPPL impairment, gain on Brammo investment,

and impacts associated with the Victory Motorcycles® wind down.

Reconciliation of GAAP "Reported" Results to Non-GAAP "Adjusted" Results(In Thousands, Except Per Share Data; Unaudited)

Adjustments:

(1) Represents adjustments for the wind down of Victory Motorcycles, including wholegoods, accessories and apparel

(2) Represents adjustments for integration and acquisition-related expenses and purchase accounting adjustments

(3) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation

(4) Represents adjustments for the impacts of tax reform and non-recurring litigation expenses

(5) Represents adjustments for the impairment of the Company's equity investment in Eicher-Polaris Private Limited (EPPL)

(6) Represents a gain on the Company's investment in Brammo, Inc.

(7) Represents amortization expense for acquisition-related intangible assets

(8) The Company used its estimated statutory tax rate of 23.8% and 37.1% for the non-GAAP adjustments in 2018 and 2017, respectively, except for the non-deductible items and the tax reform related changes noted in Item 4

NON-GAAP RECONCILIATIONS - SEGMENTS

27Q2'18 Earnings

Non-GAAP Reconciliation of Segment Results (In Thousands, Unaudited)

Three months ended June 30, Six months ended June 30,

SEGMENT SALES 2018 2017 2018 2017

ORV/Snow segment sales $ 990,841 $ 845,508 $ 1,823,405 $ 1,569,611

Restructuring & realignment (3) 1,659 — 2,129 —

Adjusted ORV/Snow segment sales 992,500 845,508 1,825,534 1,569,611

Motorcycles segment sales 171,412 197,997 302,969 318,286

Victory wind down (1) 798 (6,157) 249 (1,053)

Adjusted Motorcycles segment sales 172,210 191,840 303,218 317,233

Global Adjacent Markets (GAM) segment sales 113,418 97,022 226,745 188,577

No adjustment — — — —

Adjusted GAM segment sales 113,418 97,022 226,745 188,577

Aftermarket segment sales 226,861 224,393 446,886 442,228

No adjustment — — — —

Adjusted Aftermarket sales 226,861 224,393 446,886 442,228

Total sales 1,502,532 1,364,920 2,800,005 2,518,702

Total adjustments 2,457 (6,157) 2,378 (1,053)

Adjusted total sales $ 1,504,989 $ 1,358,763 $ 2,802,383 $ 2,517,649

Adjustments:

(1) Represents adjustments for the wind down of Victory Motorcycles, including wholegoods, accessories and apparel

(2) Represents adjustments for integration expenses and purchase accounting adjustments

(3) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation

Three months ended June 30, Six months ended June 30,

SEGMENT GROSS PROFIT 2018 2017 2018 2017

ORV/Snow segment gross profit $ 297,221 $ 266,150 540,782 479,109


Adjusted ORV/Snow segment gross profit 298,880 266,150 542,911 479,109

Motorcycles segment gross profit 24,672 21,116 41,240 1,235

Victory wind down (1) (874) 8,852 (822) 47,415


Adjusted Motorcycles segment gross profit 24,983 29,968 41,603 48,650

Global Adjacent Markets (GAM) segment gross profit 28,107 21,216 59,365 49,314

Restructuring & realignment (3) (11) 4,303 434 4,303

Adjusted GAM segment gross profit 28,096 25,519 59,799 53,617

Aftermarket segment gross profit 57,747 59,918 116,199 101,482

Acquisition-related costs (2) — 53 — 12,950

Adjusted Aftermarket segment gross profit 57,747 59,971 116,199 114,432

Corporate segment gross profit (22,571) (18,014) (48,929) (38,263)


Adjusted Corporate segment gross profit (19,359) (18,014) (40,840) (38,263)

Total gross profit 385,176 350,386 708,657 592,877

Total adjustments 5,171 13,208 11,015 64,668

Adjusted total gross profit $ 390,347 $ 363,594 719,672 657,545

2018 GUIDANCE ADJUSTMENTS

28Q2'18 Earnings

2018 guidance excludes the pre-tax effect of acquisition integration costs of approximately $25 million to $30 million, supply

chain transformation and network realignment costs of approximately $20 million to $25 million and the remaining impacts

associated with the Victory wind down which is estimated to be approximately $5 million. Additionally, 2018 guidance excludes

the pre-tax gain of $13 million related to the Company's investment in Brammo and charges of $23 million, including the

impairment of the Company's equity investment in the Eicher-Polaris joint venture in India and related wind down costs, recorded

in the first half of 2018. Additional costs associated with the wind down of the joint venture, if any, are expected to be immaterial

for the remainder of 2018. Intangible amortization related to all acquisitions has also been excluded. 2018 adjusted sales

guidance excludes any Victory wholegood, accessories and apparel sales and corresponding promotional costs as the Company

is in the process of exiting the brand. The Company has not provided reconciliations of guidance for adjusted diluted net income

per share, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The Company

is unable, without unreasonable efforts, to forecast certain items required to develop meaningful comparable GAAP financial

measures. These items include costs associated with the Victory wind down and acquisition integration costs that are difficult to

predict in advance in order to include in a GAAP estimate.

second quarter 2018 earnings results€¦ · second quarter 2018 summary q2'18 earnings 4...

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