Sébastien Martel: Well, customarily we have usually higher margins in the back half of the year. Q3 is a quarter where we have strong margins, the mix is very strong in snowmobile, and also we’re expecting very strong mix in side-by-side. As I said and highlighted, the teams are over-performing from an operations point of view and from a [indiscernible] point of view, which is also driving good savings, which will be there next year. As you know, next year is our M25 anniversary date and so where we have ambitious financial objectives, and our plans are still very much in line with the M25 objective. When you look at what we have delivered since we have done our investor meeting last June, or last year, on the side-by-side side we are just shy of that 30% market share objective that we had given ourselves, and especially with the recent product introductions, that will obviously drive continued market share gains.
ATV, we finished very strong this season with 20% market share, and there’s going to be continued momentum as we’ve just started delivering the new platform. We finished the season with record market share in snowmobile and personal watercraft, so that obviously bodes well for next year. Sea-Doo Switch, we always said we want this to be a $500 million business. This year, we will be at $500 million, so again continuation next year, so everything in power sports is in line and even better than our plan. Again, if I want to put things into perspective, if you look at the last 12 months, we’ve gained about six points of market share in the power sport industry, and every point of market share we gain is about $190 million of revenue, so with the recent product introductions, the momentum, the brand, the dealer engagements, we are well positioned for next year.
Marine, softer than expected but we are obviously making the necessary steps to position it well for next year. [Indiscernible] is going very well, as I mentioned. The modular design is paying off and we have a greater proportion of vehicles being produced in Mexico, so all in all if the industry remains the same and consumer demand is maintained, we feel very comfortable with our plans for next year, Martin.
Martin Landry: Okay, that’s helpful. Congrats on your results.
José Boisjoli: Thank you.
Operator: Your next question comes from Jaime Katz from Morningstar. Please go ahead.
Jaime Katz: Hi, good morning. I hope you can just dissect your outlook on gross margin a little bit more, just on the ability to take pricing, the premiumization of the mix, and then how much more of the logistics tailwinds are left to help hold that metric up. Thanks.
Sébastien Martel: Yes, obviously we had very good gross margin in the second quarter. When I look at the puts and takes of the margin, obviously pricing net of inflation was a big driver – that was a tailwind of 170 basis points, offset by programs. We said our expectation for the year was 200 basis point headwind; this quarter, it was 170 basis points. Floor plan costs are higher as well – that’s a headwind of 100 basis points, and in terms of turbulence, we’re looking at a 250 basis point tailwind. A big tailwind in Q1, big tailwind in Q2, that’s going to taper down in Q3 and Q4, as even last year Q4, we saw benefits from turbulence costs, but overall in line with our–in our plan, plus adjustments we’ve made in the guidance, and as we mentioned, we had FX, which was a headwind for 180 basis points in the quarter.
Obviously strong gross margins, strong EBITDA margins driven by again the great mix, product that commands these margins, and as well great operational efficiency from the teams.
Jaime Katz: Then are there any inefficiencies that will stem from pushing the facility out that will weigh on gross margin next year, the build-out of that marine facility? Thanks.
Sébastien Martel: Not significant when you look at the cost to build a plant. Yes, there is some operating expenses associated with it, but when you look in the grand scheme of things, it’s not that material.
Jaime Katz: Thanks, helpful.
Operator: Your next question comes from Joe Altobello from Raymond James. Please go ahead.
Joe Altobello: Thanks. Hey guys, good morning. Just wanted to go back to your comments regarding M25. You mentioned power sports is trending well, marine not so much, and you mentioned you’re pushing back capacity expansion by 12 months. Is it safe to assume that we should think about the marine M25 targets as getting pushed back a year as well, and has your long term outlook for that segment changed at all?
José Boisjoli: Yes, if you remember, in the M25 we were targeting by the end of fiscal year ’25 to be at $1 billion. It’s too early to say if we–what will happen. I think we need to wait to see how the industry will unfold, beginning of the year, the boat show and all this. But you know, for me this is short term. For the marine, the vision that we have is working, it’s just a matter of execution this year, and we will realign for next year then. I think it’s too early for the $1 billion in M25 or fiscal year ’25 for marine, but it doesn’t change the overall picture, like Sébastien described, for the overall BRP M25 objective next year.
Joe Altobello: Okay, that’s helpful. Maybe just a quick question for Séb, I wanted to better understand how you see overall gross margins versus opex playing out this year. I think the prior expectation was gross margins would be up 50 basis points, opex up 50 basis points so they sort of offset, but it sounds like that’s still the case on the gross margin line but we’re looking to see maybe some lower, or less of an increase in opex. I’m curious if I have that right and where that’s coming from.
Sébastien Martel: Yes, the initial estimate when we issued guidance was that we’d get a tailwind on gross margin of 50 and we’d get a headwind on opex of 50, so net flat EBITDA margin year-over-year at 17%. Now with the revised numbers, gross margin, it will be a tailwind of about 100 basis points, and we’d get a tailwind from opex of 50, so–pardon? Yes, and so that would be for this year, delivering strong EBITDA margin this year.
Joe Altobello: Okay, great. Thank you guys.
Operator: Your next question comes from Luke Hannan from Canaccord. Please go ahead.
Luke Hannan: Thanks and good morning. I’ll start off with a quick one. Sébastien, I believe you said last quarter that for the year, you expected working capital [indiscernible] roughly $400 million. I may have missed it if you mentioned it earlier in the call, but do you still expect to see that level of tailwind for the year?
Sébastien Martel: Yes, we’ve generated strong cash flow, free cash flow since the beginning of the year, over $500 million for the first six months total free cash flow, with minimal working capital benefit, as I said. We’re still running with higher levels of inventory, we’ll call it safety stock, but obviously with the good results that we’re seeing from the supply chain turbulence, the expectation is that we will be able to achieve our $400 million working capital benefit at the end of the year.
Luke Hannan: Okay, and then a higher level question here. I appreciate the commentary earlier in the call, José, about the market share that you’ve been able to gain in SSV, particularly in Canada, but I guess just taking a step back and from a higher level structurally, when it comes to the competitive dynamics or anything else inherent to that product line specifically, is there any reason why longer term, you wouldn’t be able to achieve a market share in SSV similar to what you have right now in snowmobiles and personal watercraft?
José Boisjoli: There is no reason. You know, we’re going step by step. On the M25, the objective was to reach 30% market share. We’re almost there and we will pass that 30% next year. After that, with the momentum that we have and the product innovation, we will not stop there, like I said in my prepared remarks. For us, you know, it’s always, like I said, in some–many investors are asking why are you gaining so much versus others that are not able, but as we said, in 2015 when we introduced the Defender, we wanted to convey a strong message about our commitment in the side-by-side industry, and that’s where we committed of a new model every six months for the next four years. That message convinced many dealers to convert more space to BRP, and with our capacity to come out with innovative products, pushing technology, pushing design, combined with that commitment, it was like a big wheel that did start in motion, and today the wheel is really in motion.
