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Good morning, ladies and gentlemen. Welcome to BRP Inc.'s FY '26 Third Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Philippe Deschênes. Please go ahead, Mr. Deschênes. Thank you, Joel. Good morning, and welcome to BRP's conference call for the third quarter of fiscal '26. Joining me this morning are Jose 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 and that the actual results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult BRP's MD&A for a complete list 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 Jose.
Thank you, Philippe. Good morning, everyone, and thank you for joining us. We are pleased with our third quarter financial results, which came in ahead of expectation. While we continue operating in a dynamic macroeconomic environment, our teams remain focused on disciplined execution and our hard work paid off. We also gained market share in ORV, fueled by the success of our newly introduced models, notably the Can-Am Defender HD11. Let's turn to Slide 4 for key financial highlights. We ended the quarter with revenue of $2.3 billion, normalized EBITDA of $326 million, normalized EPS of $1.59 and free cash flow of $320 million, all significant increases over last year. On the back of this solid performance, we are increasing our guidance and are now expecting to deliver approximately $5 of normalized EPS for the year. Moving on to Slide 5 for global industry trends. In North America, our retail sales decreased by 4%, or 1% excluding snowmobile, in line with the market.
Our retail in Canada was flat, excluding snowmobile, with a solid performance in the side-by-side category. In the U.S., we were down 3%, in line with our plan, and we expect the trend to improve in Q4. In international markets, Latin America continued to experience solid momentum, with retail up 13%, led by a strong ORV performance in Mexico and by our highly engaged and growing dealer network. Demand remained generally soft in EME, with retail down 4%, while Asia Pacific, our retail decreased 11%. Global industry trends have remained mostly consistent with previous quarters. In general, demand remains stronger for high-end products compared to entry-level models. We view this favorably as we have introduced several new high-end models this year that are well received. Turning to Slide 6 for a look at our retail performance by product line in North America. As anticipated, we have lost market share in all product lines, except ORV due to the industry dynamic in the low volume period of the retail season.
That said, the highlight of the quarter was the strong reception of our 2026 ORV lineup, which drove market share gain for both side-by-side and ETV despite continued promotional activity from other OEMs. As you can see on Slide 7, the momentum created by the new generation of the Defender, the Outlander Backcountry 4x4 and 6x6 and enhancements to our Maverick lineup led to a record month of October at retail for both side-by-side and ETV. Our new model captures consumer attention and earns rave reviews from media representatives who try them. The coverage highlighted our product as the market benchmark in the industry. Building on this momentum, we've launched additional ORV models at the end of November, namely the Defender CAB AGT10, the most affordable HVAC equipped side-by-side in the industry. Now let's turn to Slide 8 for a more detailed look at year-round products. Revenues were up 22% to $1.3 billion, driven by higher ORV shipments following new product launches.
At retail, side-by-side was up high single digit, outpacing the industry. In fact, we delivered our strongest third quarter ever at retail for side-by-side. We continue to strongly outperform in current units, gaining 4 points of market share in the utility category. In ETV, retail was down mid-single digits, outperforming the industry, which was down high single digits. In current units, we've gained double-digit market share points, driven by our Outlander platform and newly introduced models. As for the 3-wheel vehicle, we closed the 2025 season lagging the industry. We continue to experience softer retail for our entry-level Ryker lineup, which is consistent with overall market trends. This said, our high-end Spyder lineup performed better, allowing us to remain number one in the 3-wheel vehicle business with a market share of over 50%. Turning to seasonal products on Slide 9. Revenues were down 2% to $606 million, mainly due to a planned reduction of snowmobile shipments to rightsize network inventory.
Looking at retail, the snowmobile industry saw a very high level of discounted noncurrent units from other OEMs. In fact, about two-thirds of unit retail during the quarter were noncurrent, a level we have not seen for many years. As expected, we lagged the industry given our lower noncurrent inventory and strong retail performance at the end of last season. This dynamic should continue throughout the winter. However, we outperformed in current units as a result of the overall strength of our lineup and elevated level of presold units. Turning to on-water products, the trend remained relatively soft in North America. For the season ended in September, personal watercraft sales were down low teen percent, slightly lagging the industry, but we maintained our number one position in North America. As for pontoon, retail was down mid-20% as the industry is still going through a correction period.
We had a better quarter in counter-seasonal markets, which are entering their peak retail season, with Sea-Doo retail up mid-single digits in both Asia Pacific and Latin America. Moving to Slide 10 for parts, accessories, and apparel and OEM engine. Revenues were up 18% to $379 million due to a higher volume of parts and accessory sales as dealers replenish their inventory. The increase in parts and oil sales shows that consumers are riding our product, which is positive, while higher accessory sales reflect the success of our new product introduction. The revenue increase is also due to a more favorable mix of OEM engine sales. Before turning the call over to Sebastien, I want to give you an update on the sales of our Marine business. In Q3, we've closed the sales of Manitou. As for Telwater in Australia, the transaction remains subject to regulatory approvals. The process is taking longer than initially anticipated, and we expect a decision over the coming weeks.
Thank you, Jose, and good morning, everyone. Thanks to our team's disciplined execution, continued focus on operational efficiency and the strong reception of our newly introduced models, we delivered a solid Q3 with retail and financial results above expectations. Now looking at the numbers. Revenues increased 14% to $2.3 billion, driven by stronger ORV shipments, partly offset by lower snowmobile deliveries. Gross profit reached $541 million, representing a margin of 24.1%, up 210 basis points, mainly driven by better capacity utilization, cost improvement initiatives, lower sales programs, and favorable pricing. These gains were partly offset by the impact of tariffs, the return of variable compensation, and unfavorable foreign exchange rate variations. Normalized EBITDA grew 21% to $326 million, and our normalized earnings per share rose 33% to $1.59. Free cash flow from continuing operations was $320 million, and we closed the quarter with $250 million of cash on hand.
Also during the quarter, we seized the opportunity to further strengthen our balance sheet by extending the maturity of a portion of our long-term debt, lowering the average interest rate of our term facility and repaying about USD 200 million of debt. These actions are expected to generate financing cost savings of about $10 million in fiscal '26 and $30 million annually from fiscal '27 onwards. Given our solid balance sheet and robust free cash flow generation, we are well positioned to enhance the return of capital to shareholders by reactivating our share buyback program. Accordingly, we have renewed our NCIB, allowing us to repurchase up to 3.1 million shares over the next 12 months. Now turning to Slide 13 for an update on our network inventory. We maintained a disciplined approach to network inventory management throughout the quarter, ending Q3 with inventory down 17% versus last year and down 6% below pre-COVID levels.
Importantly, we have made strong progress in key areas of focus with 3-wheel, personal watercraft, switch, and snowmobile, all showing strong double-digit reductions. Meanwhile, our ORV network inventory remains healthy, down 8% year-over-year, with SSV sequentially declining from Q2 levels, notably driven by our solid retail performance. This positions our dealers with significant capacity to take on our newly introduced products as we ramp up production. Looking ahead, aside from snowmobiles for which the season is still unfolding, the rightsizing of our network inventory is largely complete. This will allow us to better align wholesale with retail moving forward. With our robust product lineup and healthy network inventory levels, we believe we are best positioned in the industry to capture demand upside while market conditions improve. With this, let's turn to Slide 14 for an update on fiscal '26.
As I mentioned earlier, we are pleased with our execution and results so far this year. Assuming macroeconomic conditions and tariffs remain stable, we have good visibility on dealer orders for the rest of the year, positioning us to deliver revenues at the higher end of our initial guidance ranges. Additionally, with the continued tight management of our expenses, efficiency gains we are generating across the organization and the benefits of our recent debt transaction, we now expect to deliver better normalized EBITDA and normalized EPS than previously anticipated. As such, we now expect to deliver about $8.3 billion of revenue, $1.1 billion of normalized EBITDA, and about $5 of normalized EPS for the year. Looking ahead, with our successful product introductions, lean network inventory levels, and improving dealer sentiment, we expect to carry our strong momentum into fiscal '27, positioning us to deliver double-digit normalized EPS growth while having the financial flexibility to enhance return of capital to shareholders.
Thank you, Sebastien. Before closing my remarks, I would like to talk about our fourth Yellow Day held on November 20. As an organization, we are committed to making a positive social impact. I was pleased to see a growing number of employees, dealers, and ambassadors worldwide actively engaging with our cause to ride out intimidation. It is rewarding to know that we are making a real difference. In conclusion, I am proud of our accomplishments so far this year. Our strong Q3 performance has resulted in higher guidance for fiscal '26. In the short term, all our teams are aligned internally and focused on delivering against our new M28 strategic plan to capture our full powersport potential. As part of this plan, we introduced a financial objective of $9.5 billion in revenue and $8 in normalized EPS by the end of fiscal '28. We are confident in our ability to reach these objectives. Looking ahead, we are the best positioned OEM to benefit from an industry rebound given our lean inventory position, engaged dealer network, and strong lineup.
We had the most product introductions for model year '26, and we will not stop here. Our goal is to consistently wow consumers with innovative products and unbeatable experiences. With the solid foundation we have built over time, we can create a bright future for BRP and drive long-term profitability. Lastly, about the nomination of the new CEO, the process is ongoing and the Board is still targeting the end of January. I will work closely with the executive team to ensure a smooth transition for my successor. I am proud of what BRP has become. We have built a strong organization, and I have no doubt that we are the best OEM in the industry. This is my last earnings call. It was a pleasure working with all of you. On that, I turn the call over to the operator for questions.
分析師問答
Your first question comes from James Hardiman with Citigroup.
This is Sean Wagner on for James Hardiman. You gained share in the quarter in ORV despite once again calling out the high levels of noncurrent inventory and elevated promotions from the other OEMs. I guess, I'm just wondering if you can give any color on how things looked if we split it up into current versus noncurrent? If you have any thoughts on sort of how that looks in the fourth quarter? I think you mentioned that, that should continue through the winter. But I guess, maybe do you see that sort of normalizing or maybe even improving next year?
As you know, we came out of club with great engagement from the dealers. The dealers were extremely pleased, and the media were extremely pleased with the ETV lineup and also the side-by-side lineup, notably the HD11. The reviews are very good, and we started production and shipment beginning of Q3. And we had the benefit mainly in the second half of Q3 to have a very good retail because the product was at the dealership, and they were selling every day. Then, obviously, like I said in my remarks, with gains in the current, we've lost in noncurrent, which was on plan. But this is basically what I can say. The momentum for side-by-side is very strong, and it was our highest quarter ever in terms of retail. Now for November, obviously, I cannot go into detail. We have our numbers, but we don't have any industry data. But I can say that, again, the retail is quite positive; the HD11 and the ETV Backcountry series, or the 4x4 and 6x6 are extremely well received. Then off-road, we are very happy with the trend in October, but also the trend in one month in November. On the snow side, obviously, we're benefiting from an early snowfall in many regions. And right now, the momentum is improving. Then this is basically what I can say on what happened off-road and our situation in November. But overall, we are very happy with our position in the industry.
Okay. That's very helpful. I guess just following up on that, to your point, you've had a great start to model year '26, it sounds like for ORVs through November. Your fiscal '28 targets assumed low single-digit growth in side-by-side. Has your thinking changed at all there regarding the potential for that segment? Or is this kind of still in line with your expectations? Or is it just too early to say?
No, obviously, we introduced M28 about two months ago then, but as you remember, we reached close to 30% in a few years. We've lost market share in the last 18 months because of our desire to reduce inventory, and we had less noncurrent than the competition. But as we said when we introduced the M28, the plan is to go back to 30% by the end of fiscal year '28.
Your next question comes from Mark Petrie with CIBC.
And first, just let me repeat my congratulations to you, Jose. It's been a pleasure working with you over the last decade plus and I wish you all the best in your next chapter. Obviously, product innovation is a key short-term variable, but I want to hear your comments or if you could just expand on your comments so far about dealer appetite to invest in their business and sort of step up inventory levels, just given macro conditions and uncertainty?
Yes. Mark, when we went to the club in August, we were in an excellent position because we had invested in reducing network inventory, and now we're introducing great products. As dealers evaluate their businesses, they are more inclined to adopt the new models and innovations, which is reflected in our dealer orders. The response is positive. Dealers are always concerned about the macroeconomic situation. Some believe we may have hit the lowest point, and as we see interest rates decrease and inventories tighten across all manufacturers, dealer willingness to take on more inventory, especially new products, is also increasing. Therefore, we are in a strong position and have a very optimistic outlook regarding dealer engagement.
Okay. And if I could follow up on that topic. At the Investor Day, I think you talked about some OpEx being allocated, notwithstanding your lean initiatives, some OpEx being allocated to support dealer engagement. Hoping you could just talk more about those plans and the timing of that, and how you see that affecting your business?
We aim to be the best in the industry with our outstanding product lineup and commitment to delivering an exceptional experience for our dealers. We plan to invest in better supporting our dealers through parts and accessories, training, and providing leads generated from our website. This is an integral part of our strategy. Currently, we are fully engaged with the M28 plan, which has been effectively communicated throughout the organization. Additionally, we intend to expand our dealer network; we set a goal of adding 30 dealers this year and have already reached that target, which is encouraging. Our team is not resting on these achievements for this year but is also focused on securing successes for the following year. Everything you observed in Valcourt regarding M28 is progressing well, and we are pleased with our current position.
Your next question comes from Robin Farley with UBS.
I'm considering your comments on ORV and the fact that other OEMs still have elevated inventory, along with promotions and noncurrent products. It appears that you, along with some larger OEMs and CFMoto, have been confident about your inventory levels for some time. So, is it accurate to think that currently, the other OEMs facing similar excess noncurrent inventory and promotions represent a relatively small percentage of the overall market? I'm interested in your perspective on why this might only account for a single-digit percentage of products. Is this still exerting pressure overall? Additionally, at the current sell-through rate, how much longer do you foresee this situation continuing?
Well, we expect Q4 to still be a noncurrent market. Obviously, we just transitioned into a new model year. And so as OEMs introduce new models, dealers are selling through their noncurrent. Obviously, Q3 is a noncurrent quarter where the bulk of the retail is noncurrent, Q4 as well. But we've seen OEMs being still promotional, even on model year '26 products; we saw OEMs for side-by-side already advertising discounts. So our view is that this environment will be here for maybe another few quarters, and that obviously impacts the profitability of everybody's business. From a consumer point of view, the high-end products are selling well, but the lower-end models, the more entry-level models, traffic is lighter, and therefore, we see some OEMs pushing harder on discounts.
That's helpful. And maybe just as a follow-up, do you have a view on sort of where the industry may shake out for ORV retail in the next 12 months kind of based on everything you're seeing?
Yes. Our going-in assumption for next year is a flat industry. And if I look year-to-date, the industry is down 1%, so you could call it flattish. So our base case for next year is for the industry to remain where it is.
Your next question comes from Benoit Poirier with Desjardins.
Yes. Congrats to Jose, it's been a pleasure working with you over the years.
Thank you.
And maybe first question for Sebastien. When I look at the working capital, you benefited from a strong working capital release in the quarter. Just wondering if this was more of a one-time item in pack, and how should we expect working capital to play in the coming quarters?
Yes. Obviously, we're really happy with our free cash flow generation year-to-date that we're at about $650 million for the first three quarters of the year. My outlook for the year will probably end about, let's say, $650 million to $700 million free cash flow generation. Working capital has been a big focus of the organization, especially off COVID, where we did build up some safety stock, et cetera. Now with better visibility on the supply chain, obviously, everyone has been hands on this element, and we see the benefits to date. So I'm expecting overall for the full year, maybe a slight tailwind on overall working capital, but obviously, very happy with the work that the team is doing in freeing up some cash by reducing our investments in working capital.
Okay. And this morning, there are some headlines about the fact that Trump could decide to withdraw from the USMCA; obviously, you are very well positioned right now, but just wondering what actions you can take to mitigate the risk and how do you deal with this uncertainty.
As we said, Benoit, we're very involved in following the negotiations and even giving our point of view or giving data on our situation with industry associations, but also with some government and the progress of reanalyzing and trying to renew the USMCA is ongoing. We're not reacting to news every day because it would be too painful. Then we're just focusing on better supporting the industry and the government with data and our point of view on different things, and we will see what the outcome will be. But so far, the people are working hard to renew it with minimum changes.
Your next question comes from Craig Kennison with Baird.
Seb, I wanted to follow up on your response to Robin. When you talked about flat retail for the year, were you talking about calendar '26?
Yes, calendar '26.
Thank you for clarifying. And then you were also talking about the low-end consumers still struggling relative to the more affluent consumer. Do you have an assessment of the rate sensitivity of that low-end consumer and the impact of meaningfully lower rates next year?
Yes. Obviously, it's difficult to triangulate how a movement of, let's say, 25 basis points in rate will impact consumers. But what I can tell you is, if we look at Canada versus the U.S., rates are probably about 175 basis points lower in Canada than the U.S. And we've seen good demand and better retail in Canada. So certainly, as rates come down in the U.S., we do hope that we'll see the same impact that it had on Canadian demand.
It seems that HD11 is performing really well, and dealers are selling through it quickly. How quickly are you receiving retail signals to adjust production and ensure you have the right inventory? We've heard that there is a desire for more HD11, but there are too many of the slower-turning units. Have you improved your ability to process those signals?
Yes. To give you a sense, we're still producing both the old platform and the new one, but in Q3, we produced about three-quarters of the new one and one-quarter of the old one. We're definitely transitioning quickly. We're taking orders every month, as you know, and right now, at the beginning of December, we are taking orders for deliveries in February. We have a good ability to adjust to the most popular model at retail. We're very confident in the fast turnover. Once the dealer receives the unit, they PDI it, and it doesn't stay on the floor for very long. Overall, we could not be happier with the reception of the new Defender.
Your next question comes from Martin Landry with Stifel.
I would like to focus a little bit on snowmobiles. Wondering if you can just refresh or remind us what's your inventory level versus your comfort level in terms of snowmobiles right now?
Then just to give you a sense, we finished last season last spring with about 60% market share, in North America I'm talking, and 30% of the inventory, the noncurrent inventory. And obviously, we're planning to lose market share this year because of this unbalanced current, noncurrent ratio from other OEMs. But this was all planned, all included in our guidance. What is good right now in the Northeast, including Quebec, the snow is quite good, good in the upper peninsula. In the West, Canada, U.S., it's a bit patchy. And in Scandinavia, it's good. Then overall, it's a good start of the season. We gained market share in the current, and we have a lot of presold units. We've lost in the noncurrent as planned, and it will be a year of correction and this was all planned.
Okay. So can we expect you to have fully cleared your older models by the end of the snowmobile season?
We were slightly above expectations, but we were in relatively good condition at the end of season '25. We still need to reduce some of that inventory to reach what I would consider normal levels. However, we believe that, aided by the good snow, everything should be realigned by the end of season '26.
Your next question comes from Joe Altobello with Raymond James.
I wanted to go back to the promotional environment. I think in your press release, you mentioned that you saw favorable variations in your sales programs. But this morning, you're talking about still very elevated levels of promotion in the industry. So is it that the industry is still very promotional, but you guys were a little bit lower in terms of sales programs versus last year?
Yes. Well, if you recall last year, Joe, we wanted to address inventory in the network and the noncurrent inventory as well. And so we did put a lot of dollars last year to work in order to flush that inventory, which we were able to do. And so this year, we're probably trending about, let's say, 70 to 80 basis points lower in terms of retail promotion versus last year. So that's the main reason. But nonetheless, I mean, there's still some high levels of promotions that are being advertised out there in the market.
Got it. Okay. And in terms of fiscal '27, you mentioned that wholesale and retail should be largely in alignment. And I think Seb, in the past, you've said that just lapping this year's destocking probably gives you $400 million to $500 million of revenue. Is that still the case? And should we think about that as a base and then layer on whatever assumptions we have on pricing and market share gains?
Yes. Obviously, we are in the middle of our planning for next year, but it's certainly too early to provide a detailed guidance to all of you. And as you mentioned, there are some elements we already know that should serve as your best case for your models for next year. The big tailwind is the element that you mentioned there, just the rightsizing of the inventory that is behind us last year and this year. And so that is a tailwind of about $400 million to $500 million of revenue and probably roughly about $1.25 of EPS. Obviously, there are some headwinds. We're transitioning the production of Ryker to Vietnam. And so with that transition, there will be fewer Ryker deliveries next year. So that's one of the headwinds. Some of the cost drivers as well, depreciated expense will go up probably about $30 million next year. And I'm also expecting my tax rate to go up to historical levels, call it, 25% to 26%.
So if you factor these elements in your base case, Joel, you'd probably end up in an EPS probably up in the mid- to high teen percentages for next year, and probably an EBITDA margin ballpark 14-ish percent. But again, this is a base case. And obviously, over the next few months, we'll see how the business trends. Snowmobile season is an important business for us. And so if the snow sticks, maybe it will be good. The macro environment is also evolving every day. As Benoit mentioned this morning, we have new data on tariffs. We'll see how that unfolds. And obviously, there's competition as well. How are other OEMs going to behave? Are they going to be more aggressive in terms of putting units in the industry and also discounting? So obviously, there's a lot of variables that we're monitoring in order for us to make an educated guess on the industry. But again, with still a few months to go before we issue guidance, we'll be able to give you the full download in March. But again, we're optimistic, especially with the strong lineup that we have in all of the product categories.
Your next question comes from Brian Morrison with TD Cowen.
Jose, it's certainly been a pleasure working together all these years. I want to go back to the inventory, and you've done a very good job explaining ORV and snowmobiles, can you just maybe let us know how CD sits as we enter into the season? And with respect to ORVs, how has the initial reception been with respect to the discounting of your entry-level product line?
I'll take on the first question, Personal Watercraft. If you look at Slide 13 on the deck, personal watercraft is actually down 22% versus last year. So obviously, very happy with where we sit. As I've shared with you in the past, other OEMs do have more inventory in the network. And so we believe it will be a similar dynamic that we see in snowmobiles for the next season with some noncurrent units impacting overall market share performance. But from a current point of view, the lineup we have is obviously very strong. And the orders that we got from the dealers at our club in August also provide us a good outlook for next year. So we are sitting in a very good position, much better than where we were last year. And on the entry-level product, Jose, overall reception?
Yes, consumer trends have not changed significantly since the start of the year. In Q3, new market entrants made up 21%, which aligns with pre-COVID levels. Premium sales outperformed value sales. To give you an idea, our premium unit sales increased by mid-double digits while the industry saw a decline in value sales by low double digits. In terms of utility, sales improved, rising by low double digits, whereas export sales dropped by mid-single digits. The trends remain consistent. Our customers' household income averages at USD 175,000, and that trend is stable. Although we don’t focus on our entry-level product, Spark Ryker, overall, our product range leans more towards high-end offerings, which is beneficial for us.
Right. So one follow-up question, if I can. You renewed your NCIB here this morning. I wonder if you can just reiterate what your target leverage is, and if you expect to be active with the NCIB in the near term?
Yes. Our target leverage for the end of the year is likely around 2x net debt-to-EBITDA. We've consistently stated that our overall target falls between 1x and 2x. We're pleased with the progress of the business and the refinancing we completed a few months ago, which involved repaying USD 200 million of debt and a repricing that will give us a significant advantage of $0.30 next year. I'm very satisfied with the results from our Treasurer and legal team. Regarding the NCIB, we've adopted a cautious approach over the last 15 months, closely monitoring the economy and trade developments. With our leverage decreasing and strong free cash flow generation, we plan to be active with the NCIB in the coming weeks.
Your next question comes from Sabahat Khan with RBC Capital Markets.
I would like to clarify your comments regarding the expected EBITDA margin of around 14% for 2026. Based on your current visibility, what production levels are you anticipating? I'm considering how operating leverage might play a role going forward. Are your factories operating at close to normal capacity, and what can we expect in terms of production for the next year?
We'll still be below average asset utilization rates; again, I talked about a tailwind of, I would say, $400 million to $500 million of revenue. And so it will still bring us in the low 70s asset utilization.
Great. You mentioned the impact of tariffs on the dollar amount in the presentation. Can you discuss how tariffs might change? Is the idea that any additional costs will need to be managed through efficiencies, or is there also a possibility of adjusting pricing based on how tariffs develop?
It really all depends. It's tough to speculate. It will depend on the materiality and what components it impacts, on the flexibility we have with suppliers, can we relocate parts, et cetera. But what I can say is that our teams, our custom brokers are getting smarter, more sophisticated. We have now more granular data that allows us to be a lot more targeted when we do file custom declaration forms. And so that headwind that we have this year is expected to be actually very similar next year as well because of the better processes we have and better collaboration we have with the various partners. But again, we'll monitor, and we'll act accordingly as we usually do. We've always been very proactive in adapting to new situations.
Your next question comes from Luke Hannan with Canaccord Genuity.
I want to follow up on that last line of questioning, Seb. To clarify, if we look back at last quarter, the gross headwind you anticipated for fiscal '27 was around $120 million to $130 million. It should now be closer to $100 million, or rather, $90 million regarding the gross tariff headwind?
Yes, that's correct. We have emphasized that our team is a major focus for us, and we have worked on ways to reduce overall exposure. This has led to a very positive outcome. Therefore, I expect that we should remain relatively flat next year.
Got it. Very helpful. And then for my follow-up here, the higher-level. When we think about the bridge between the new raised guidance that you just put out there and then the mission 2028 target of $8 of EPS, and then we also factor in the mid- to high-teens EPS growth, roughly speaking, that we should expect for next year, it does imply more contribution, I suppose, during the year of fiscal '28 as well. Can you just help us think from a high level what should be the bigger drivers of EPS growth during 2027, fiscal '27 versus '26?
Well, for next year, are you referring to the calendar year or the fiscal year?
Fiscal year, yes.
So I gave you the fiscal details. So the drivers obviously are in the base case is mainly the tailwind coming from retail equal wholesale. But then when you look at '28, obviously, there's a lot of elements of market share gains from the ORV business, the dealer network expansion; all of that will be drivers of growth in '28. So the base case for '27 remains, as I highlighted, and the drivers between '26 and '27, but '28, obviously, there's the product introductions that we'll be doing and the focus on the dealer experience and the dealer network.
Your next question comes from Xian Siew with BNP Paribas.
Could you talk maybe a little bit about how retail and market share gains evolved over the quarter? It sounded like maybe the first couple of months of the quarter were a little bit more promotional and maybe there's some acceleration in October and into November. And if that's the case, I guess, like with the exit rate improving, does that give you kind of more confidence in potential market share gains over the next year or so?
We don’t want to break down the quarters too much because it can get complicated. However, we were discussing off-road vehicles. We launched some exciting new products for model year '26 in August, and production began immediately after that. The timeline from production to shipping and then to dealership preparation is important. That’s why our off-road retail sales in the second half of Q3 were stronger than in the first half; the new models arrived at dealerships when inventory was low. This is primarily about the timing of those new models. I am pleased to see that the positive trend continued in November, which bodes well for the rest of the fiscal year.
Okay. Very helpful. And then maybe on the utilization rate, I think you mentioned like in the 70s percent next year. Can you maybe just remind us this year what is the utilization rate and how like that we can kind of calibrate as utilization steps up, how would you think about margin benefits?
Yes, we're in the average of a 65% utilization rate this year.
Your next question comes from Cameron Doerksen with National Bank.
Let me congratulate Jose again. I know you must be looking forward to the end of January. I wanted to revisit the snowmobile market discussion. If you and the industry finish this season with a healthy dealer inventory and we experience a solid snow season—it's starting off well so far—this could provide a nice boost for you in fiscal 2027. I'm curious if this presents potential upside to the $400 million to $500 million revenue from the alignment of retail and wholesale, or if that is already factored into that assumption.
No. If we have an excellent season, there are many enthusiastic customers in the snowmobile industry. If there is plenty of snow and people are able to ride a lot, we are also expecting significant product news next year. You can anticipate strong customer orders in the spring, which will support the latter half of fiscal year '27. However, we prefer to plan for snowmobile sales conservatively since they heavily rely on snowfall. Each inch of snow translates to more units sold at retail, so we welcome it.
Okay, that's good and helpful. Seb, I just need clarification on the remaining marine sale at Telwater. Jose, you mentioned it should be coming in the next few weeks. What is the expected cash inflow? I think the number is around $200 million. Is that correct? If not, what should we expect?
Well, obviously, we have a good offer from Yamaha for that asset. In the ballpark, it's around that amount of expected cash inflow from the proceeds that are expected.
Okay. So that would come in Q4, assuming that the regulator approves it?
Yes, it will come in Q4 or early Q4.
Your next question comes from Jamie Katz with Morningstar.
I have just a quick one on CapEx. I know it was shifted down a little bit. Were there any particular investments that we should be aware were sort of either pushed out or delayed? And then should we be thinking of CapEx as a percentage of sales still around that 4.5% level longer term?
Yes, nothing special to call out for this year. Obviously, we are diligent in our CapEx spend, and the teams know that if we push a project out, it doesn't mean that they lose it. And so everyone is being responsible in how they deploy CapEx. And for next year, probably in the range of, let's say, $420 million is a fair number in terms of CapEx and for the out years as well. As you might know, we've invested quite a bit in the last few years in capacity. And so we don't necessarily need to build any more capacity out for our plan. That's the good news. And most of the investments are around product and technology.
Okay. And then I don't know that this was called out, but for new-to-brand consumers, is there anything noteworthy on what is getting them to convert sales? Is it promotions, innovation, financing deals, some mix of that all? Just curious what's motivating consumers the most right now?
I'd say innovation is what's motivating customers the most. Obviously, with products that have been out there in the market for quite a bit of time, discounts can drive consumers, but for new to BRP, obviously, when they see the innovation that we have on most of the product line, on all the lineups, that is what's driving the conversion from other brands.
Your next question comes from Eli Lapp with BMO Capital Markets. Sebastien Martel, CFO, stated that innovation is what is motivating customers the most. While discounts can attract consumers for products that have been in the market for a while, new customers to BRP are influenced by the innovation present across most of the product line, which is effectively driving their conversion from other brands.
Two for me. I just wanted to follow up on the potential sale to Yamaha and what you would potentially do with those proceeds, the $200 million? And then just kind of in the same vein, you mentioned $210 million of debt reduction. Could you tell us where your debt stood at the end of the quarter?
Yes. Well, our capital deployment priorities are not changing. The first one is to invest in the business and that will remain. Then the other capital deployment priority is obviously to modestly increase our dividend, and then any excess free cash flow, when the shares trade below what the implied value is, we like to return capital to shareholders. So the good news is we have flexibility. I feel that our cap structure is adequate today with the refinancing that we did just a few months ago. The overall debt stands at USD 1.7 billion today. And so overall leverage is very comfortable, and I don't feel that we need to reduce the overall debt level.
As a follow-up, I believe you mentioned during the call that your long-term guidance was between 1 to 2 times.
1.5 to 2x leverage.
Your next question comes from Jonathan Goldman with Scotiabank.
Most of them have been asked, but maybe just to clarify 1 to begin with. I'm sorry if I missed this. But Seb, did you talk about the base case for next year, including share gains?
Well, again, our plan, if you look at the M28 target, we said modest share gains in the ORV segment. So yes, it does factor a bit of share gains next year, but it would be a modest impact.
Okay. Perfect. And then on the gross margin, I believe, Seb, on the last call, you said you could possibly see a tailwind next year in the 50 bp range. Given where the inventory is in the industry right now and your comments about promo still being somewhat elevated, how are you thinking about potential gross margin expansion next year?
The main factor driving our gross margin is the volume we will regain by aligning retail with wholesale. Additionally, we have various cost initiatives across all our plans and product lines. This focus on asset utilization and cost efficiency is expected to enhance our margins. We also plan to keep investing in the business, particularly in marketing. As a result, I don't anticipate significant operational leverage from operating expenses, possibly around 50 basis points, which could lead us to a 14% EBITDA margin in the base case.
There are no further questions at this time. I will now turn the call over to Mr. Deschênes for closing remarks.
Thank you, Joel, and thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again for our Q4 earnings in March. Thanks again, everyone, and have a good day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.