José Boisjoli: I think in some industry, we’re gaining significant market share. And some competitor want to defend their position. And this is why particularly ORV discount. What surprised us is discount on model year ’23 but model year ’24 product at this time of the year, it’s quite aggressive but it’s to defend their market share position.
Operator: Next question will be from Jaime Katz of Morningstar.
Jaime Katz: I hope you can maybe elaborate on an earlier question about the marine business because if revenues are turning positive again, then can we assume profitability, at least at the gross profit line has hit a trough? And if so, could it potentially turn positive again in the fourth quarter?
Sébastien Martel: Well, marine had another tough quarter in Q3. Obviously, the longer ramp-up of both and very little shipments because dealer inventory. And that’s the number 1 reason the weaker industry is obviously not helping. In this quarter, we also had a special charge coming from the legacy Evinrude business where we had a special charge on inventory and that impacted profitability significantly. And so our plan is obviously for the turnaround to happen. Some of it we’ll see in the fourth quarter but the expectation is that next year, we’ll see a much improved profitability on the marine front.
Jaime Katz: Okay. And then from a pricing perspective, I think there’s probably some sentiment that it will be harder to raise prices next year. In which case, could there be some pressure on gross margin? And if so, what levers do you guys have or plan to use to mitigate those headwinds?
Sébastien Martel: Well, obviously, pricing is top of mind, especially in this higher inflationary environment and inflation on cost, on salaries is still there. So we’ll be diligent in making sure that we price our products in line with the cost structure that we have. But one of the huge benefits we have is obviously our manufacturing footprint that is the majority of what we produce is in Mexico. And so obviously, we have a better cost advantage that are coming out of the production facilities we have. And also in our approach to designing our products through modularity and what we’ve just recently launched, a new ATV platform is under this new design approach. And so the majority of our lineup is on this modular design. And so that’s obviously helping us drive better margins, I believe, versus the competition. And so it’s giving us a hefty competitive advantage.
Operator: Next question will be from Luke Hannan at Canaccord Genuity.
Luke Hannan: José, I think you mentioned earlier that for three-wheeled vehicles, it was entry-level sales that were a little bit softer. Is that consistent with what you saw for your other product lines as well? And then maybe just following up on that, how have you been able to — can you maybe describe the share capture that you’ve been able to do within the entry-level portion of your broader product lines versus premium, given that there’s been a bit of a wash out of those lower-end OEMs in the market?
José Boisjoli: Yes. If I give you some data that we follow on the value versus premium trend — and obviously, it’s different from one product that get to the other. But on the side by side in Q3 — and this is the industry, the value product were down about mid-double-digit when the premium was up about 20%. And this is definitely helping us. And our numbers for the three-wheeled vehicle because we closed the season ’23 in Q3, the Ryker category which we consider value with our three-wheeled lineup was down about 20%. But the F3 and the RT, the high-end model were up 20%. Then the trend that we saw since the beginning of the year where there is more traction on the premium and consumer that have lower household income are more hesitant to finance the product is affecting the value, then this is continuing.
That being said, overall, if you step back and you look at the big picture, we want to win in each category but we are more skewed to premium product. And I think this is one of the reasons why we’re continuing to gain share in this tougher environment.
Operator: Next question will be from Cameron Doerksen of National Bank Financial.
Cameron Doerksen: Maybe just a bigger picture question around sort of the competitive environment. I know in the past, you made some commentary about dealing with a potential downturn scenario, there might be an expectation that some of the smaller players in Powersports might choose to exit the industry. We’ve actually seen some exits even in a good environment. So I’m just wondering how your thoughts around if we have kind of a protracted downturn in the industry, call it, a year or so? What do you think will happen with some of the marginal competitors? I mean do you think you’d still want to see — still potentially would we see a trend where these companies will be investing less in Powersports?
José Boisjoli: This is very difficult to predict what our competitor will do. But if we’re focusing on our things and the dealers, the dealer right now with the slowdown in the industry, some dealers have at least they have option to decide and we believe that with the space that now our business is requiring, the space in the service shop, that some dealers could be — would make the decision to drop some product line. And this is — we’re seeing from time to time and this could happen in this downturn. Then I don’t want to comment on what the competition could do. But I think there will be some dealer who’ll have to make some call on do they keep everything or they drop some smaller line for them?
Cameron Doerksen: Okay. That makes sense. And just as a kind of a follow-up and sort of related is just thinking about your CapEx as we look ahead to next year, obviously, you’re not in a position to guide at this point. But part of your market share gains here have been you are continuing to invest in new products. I mean just directionally, what do you think CapEx might do in fiscal 2025? I mean do you think you’ll still obviously continue to invest significantly the product line? Or will we see an easing off of that?
Sébastien Martel: We should see a continued investments in CapEx or a number similar to what we have this year is something that would be reasonable to [indiscernible].
Operator: Next question will be from Mark Petrie at CIBC.
Mark Petrie: Yes and thanks for all the comments thus far, very helpful. Just a couple of follow-ups. I guess, specific to the fiscal ’24 guidance implies about 100 basis points lower EBITDA margins for the year versus what you had previously provided. So Seb, I think you said programs are in line with expectations. So is the lower run rate just simply lost leverage on the slower volumes? Or is there another factor?
Sébastien Martel: The majority of it lower leverage from manufacturing side, given the, we’ll call it the short-term production cut that we did. So less time to rebalance our production and be more efficient and the other one is OpEx as a percentage of revenue will be slightly higher because of the cuts in production.
