Polaris Inc. · NYSE:PII
Polaris — Investor Day (June 2018)
75 slides from Polaris's investor day presentation, Jun 14, 2018
Slide 1: Analyst / Investor Day
POLARIS INDUSTRIES INC. Analyst / Investor Day Wyoming, MN June 14, 2018
Slide 2: Welcome!
POLARIS INDUSTRIES INC. Analyst / Investor Day Welcome! Richard Edwards, VP – Investor Relations June 14, 2018
Slide 3: Agenda – Analyst / Investor Meeting
AGENDA – Analyst / Investor Meeting CDT Topic Presenter 8:00 – 8:10 Welcome / Opening Remarks Scott Wine, Chairman & CEO 8:00 AM – 10:00 AM 8:10 – 8:25 Financial Overview Mike Speetzen, EVP - CFO Central Time 8:25 – 8:45 Operations Overview Ken Pucel, EVP – Operations Wyoming, Minnesota 8:45 – 9:05
Slide 4: Safe Harbor & Non-GAAP Measures
SAFE HARBOR & NON-GAAP MEASURES 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 are forwa
Slide 5: Scott W. Wine
POLARIS INDUSTRIES INC. Analyst / Investor Day Scott W. Wine Chairman & CEO June 14, 2018
Slide 6: Vision & Strategy
G& PeLaARis Vision & Strategy VISION STRATEGIC PURPOSE Gu idi ng Fuel the passion of riders, workers Polaris is committed to being a customer centric, highly efficient growth Pri ncl pl es and outdoor enthusiasts around company. We relentlessly pursue product superiority, safety and value Best P le,
Slide 7: Mike Speetzen
POLARIS INDUSTRIES INC. Analyst / Investor Day Mike Speetzen EVP – Finance & CFO June 14, 2018
Slide 8: Agenda
AGENDA Retail Update CDK Data Accuracy Revised Guidance Reporting Structure Return on Invested Capital Capital Deployment PII Analyst Day 6/14/18 8
Slide 9: North American Quarterly Retail Sales
NORTH AMERICAN QUARTERLY RETAIL SALES +13% Up mid-single +3% digits % (+5% excl. snow) May Up high double digits % -6% -3% -1% April Down mid-single digits % Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 QTD (Apr/May) ORV retail improved significantly in May; April was weak due to weather New ORV model ship
Slide 10: CDK Retail Sales Comparison
CDK RETAIL SALES COMPARISON U.S. Side-by-Sides Retail Sales Quarterly Change Polaris Actual vs. CDK PII Actual SxS PII CDK SxS Monthly/Quarterly CDK volume deviation approx. 5 percentage points from PII actuals (8.0%) more than half the time (5.9%) 7.0% Reasons for Variances: Dealer sample base: ~35
Slide 11: Polaris EPS Adjustments
POLARIS EPS ADJUSTMENTS Revised EPS Structure Beginning Q2’18 FY 2017 FY 2018 Guidance Actual Low High $4.85 $6.05 $6.20 Remains unchanged from Q1 Earnings Call 2018 EPS Guidance* % Change +25% +28% Adjustments Intangible amortization +$0.25 +$0.28 +$0.28 TAP / Aixam / Taylor Dunn Boat Holdings EPS
Slide 12: Return on Invested Capital
RETURN ON INVESTED CAPITAL ROIC critical to all aspects of company management WACC of ~9% utilized as investments are analyzed Capital deployed in 3 major categories: organic investment, returned to shareholders & acquisitions: 1. Organically invested ~$2+ billion over last 5 years in R&D, Capital &
Slide 13: Investment Base & ROIC – 2010 to 2017
INVESTMENT BASE & ROIC – 2010 to 2017 >16% ROIC ~$3B 28% ROIC ~$2B 33% ROIC ~$1B '10 Investment Current PPE / Tooling Other Investment in Organic Acquisitions EPPL '17 Investment base Assets Polaris Value base Acceptance Core ROIC down from 33% to 28% Capacity impacted by plant investments Acquisiti
Slide 14: Investment Base & ROIC – 2017 to 2022
INVESTMENT BASE & ROIC - 2017 to 2022 ~25% ROIC ~$4.5B >16% ROIC ~$3B '17 Investment Current Assets PPE / Tooling Other Boat Holdings Investment in Investments '22 Investment base Polaris base Acceptance Important Drivers Acquisitions improving to mid-teens % Leveraging Huntsville and Opole Exiting
Slide 15: Capital Deployment Framework
Capital Deployment Framework #1 Priority: Organic Investment Enables innovation Generating high returns #2 Priority: Return to Shareholders Dividends: 23 consecutive years of increasing, important component of shareholder return Established based on targeted payout range of operating cash flow Indic
Slide 16: Questions?
POLARIS INDUSTRIES INC. Analyst / Investor Day Mike Speetzen EVP – Finance & CFO Questions?
Slide 17: Ken Pucel
POLARIS INDUSTRIES INC. Analyst / Investor Day Ken Pucel EVP – Operations, Engineering & Lean June 14, 2018
Slide 18: Polaris Global Operations 2018-2022 Strategy
POLARIS GLOBAL OPERATIONS 2018-2022 STRATEGY Polaris Operations strategy is focused on delivering Operational performance to support the Polaris Strategy. We will achieve Best-in-Class performance in SQDC-New Products. 2022 Goals: Safety: Continued strong workplace safety Quality: ~30% improvement o
Slide 19: Occupational Safety, Quality, Delivery, Cost – 2018 Performance
OCCUPATIONAL SAFETY, QUALITY, DELIVERY, COST – 2018 PERFORMANCE Occupational Safety (TRIR) Quality (Rework %) Driving a Zero Incidents Culture Focused on Improving Performance TAP TAP 2014 2015 2016 2017 1Q 2018 2014 2015 2016 2017 1Q 2018 Delivery Adjusted Gross Profit % 25.4 25.4 Product Delivery
Slide 20: Safety and Quality Systems Progress
SAFETY AND QUALITY SYSTEMS PROGRESS Polaris aims to continually improving product safety and quality by focusing on systems and execution. Quality System Focus Areas 2018 Improvements (vs. same time 2017) Post Sales Surveillance Warranty Claims / Unit 25% Design Controls Rework 50% Supplier Quality
Slide 21: Commodity and Logistics Update
COMMODITY AND LOGISTICS UPDATE Commodity and Logistic Trends 2017 Economics Logistics Line-haul Rate per Mile Related Spend ~$400M 1Q 2018: Higher Industry rates due to driver shortage and strong U.S. economic conditions FY 2018: Mitigations include route optimization and negotiations Steel $ per Po
Slide 22: Gross Profit Dynamics
GROSS PROFIT DYNAMICS PII Gross Profit % Headwinds/Tailwinds ~ 30%** 28.4% ’15-’17 ’18-’22 25.9%* VIP Price / Promo Pricing Environment Warranty Improves and Supply Chain Leverage Transformation Savings Ramp-up Mix 2015 2017 2022E FX * See Appendix for GAAP/Non-GAAP Reconciliation ** Ex. Boat Holdin
Slide 23: VIP – Value Improvement Program
VIP – VALUE IMPROVEMENT PROGRAM Performance Summary Key Strategies >4,500 Lean and Continuous Improvement projects complete 2015-2018 2018-2022 VIP Contribution: $500M $400M 2018 – 2022 Materials $300M 2015 – 2017 Supply Chain Transformation Project >$200M Manufacturing (Lean and PNO) $100M Logistic
Slide 24: Supply Chain Transformation Program
SUPPLY CHAIN TRANSFORMATION PROGRAM Cost Savings Target Project Timing Wave 1 Highlights >$200 Million 4 Waves / 4 Years Fabrication Plastics Logistics Fabrication Cast/Machine Drivelines Batteries ~$1 billion annual spend, $80M+ target 900 Suppliers Engaged, 75% new to Polaris Supplier Rationalizat
Slide 25: Polaris Manufacturing Capacity Utilization
POLARIS MANUFACTURING CAPACITY UTILIZATION Leverage volume growth: Fully lever Monterrey Grow Huntsville - Ranger/Slingshot Motorcycle growth in Spirit Lake Plant Network Configuration Optimization: Configure for RFM Delivery Insource capabilities into Roseau Milford Closure - Complete Lean improvem
Slide 26: Questions?
POLARIS INDUSTRIES INC. Analyst / Investor Day Ken Pucel EVP – Operations, Engineering & Lean Questions?
Slide 27: Chris Musso
POLARIS INDUSTRIES INC. Analyst / Investor Day Chris Musso President – Off-Road Vehicles June 14, 2018
Slide 28: PII Analyst Day 6/14/18
PII Analyst Day 6/14/18 28
Slide 29: Market Evolution
MARKET EVOLUTION 2018 Polaris 2017 Returns to Retail & Share Growth In SxS RANGER XP 2015 1000 Launch & ATV 2016 Transforms 2014 Competitive Utility CPSC Settlement Attack in Utility RZR Turbo – Industry… 2012 RZR XP 1000 Market Ultimate Again Resets the Performance 2008 RANGER XP Performance Compet
Slide 30: ORV Industry Overview
ORV INDUSTRY OVERVIEW N.A. INDUSTRY BREAKDOWN REC SxS 12% of units 20% of revenue UTILITY SXS 3 YR unit CAGR MSD growth 40% of units CROSSOVER SxS 43% of revenue 6% units 3 YR unit CAGR MSD 10% of revenue growth 3 YR unit CAGR HSD growth Other ATV OPPORTUNITY 40% of units 25% of revenue Grow Overall
Slide 31: Strong Brand Position
STRONG BRAND POSITION PII Analyst Day 6/14/18 31
Slide 32: Strong Dealer Partnership
STRONG DEALER PARTNERSHIP Preferred OEM Partner If you could only do business with one of any of your current OEM partners, 32% which one would you choose? 14% 10% 10% 9% 7% 3% 3% 3% 3% 2% 2% 2% Rover Suzuki BRP Yamaha Hyosung BMW Polaris Honda Harley-Davidson Kawasaki Textron Cub Cadet CF MOTO POLA
Slide 33: Strides in Dealer Profitability
STRIDES IN DEALER PROFITABILITY 1. 84% of dealers surveyed view Polaris as “equally (17%) or more (67%) profitable compared to other OEMs” 3rd Party Profitability Survey 2. Dealers leveraging 5 profit centers think more positively of Polaris profitability PII programs designed to support dealer prof
Slide 34: Strong Dealer Partnership
STRONG DEALER PARTNERSHIP ORV Dealer Count (from websites) PII Wholegoods Retail Installed ORV Fleet UNITS/DEALER INSTALLED BASE/DEALER POLARIS ~1,450 POLARIS POLARIS ORV ORV YAMAHA HONDA HONDA HONDA CAN-AM CAN-AM YAMAHA CAN-AM YAMAHA PG&A Retail Rewards MORE 11PT MARGIN/DEALER 3X THAN 2016 PROGRAMS
Slide 35: Off to a Strong Start YTD
OFF TO A STRONG START YTD REVENUE RETAIL ATV & SXS SHARE PROMOTIONAL WARRANTY SPEND PER PER UNIT UNIT PII Analyst Day 6/14/18 35
Slide 36: Customer-Centric Approach: How We Win
HOW WE WIN NEW BEST MARKET PARTNER IN ATTACKS LEAPFROG POWERSPORTS CUSTOMER- PRODUCT CENTRIC INNOVATION APPROACH PII Analyst Day 6/14/18 36
Slide 37: Customer-Centric Approach
CUSTOMER-CENTRIC APPROACH ACTIVATE 2M+ ATTRACTING INSTALLED BASE NEW CUSTOMERS Personalized Messaging Digital Investment Tailored Promo New to Lead Generation & Conversion Unique Experiences Polaris ORV Target New Markets Leverage CRM Current Precision Targeting Customers CUSTOMER AS TRUE NEEDS-BASE
Slide 38: Product Innovation: Leapfrogging the Competition
PRODUCT INNOVATION: LEAPFROGGING THE COMPETITION Consistent Launch Cadence New Products Have: YoY Growth >2X Market No Rebates More Price Minimal Dealer Discounting PII Analyst Day 6/14/18 38
Slide 39: Engineering Investment Driving Features & Demand
ENGINEERING INVESTMENT DRIVING FEATURES & DEMAND IMPROVED POWERTRAIN POLARIS PULSE BUSBAR NORTHSTAR EDITION CLEARVIEW DOORS ACCESSORIES ACTIVE SUSPENSION DRIVER CONNECTIVITY RAPID RECOVERY WINCH ENGINEERING INVESTMENT UP SIGNIFICANTLY PII Analyst Day 6/14/18 39
Slide 40: Best Partner in Powersports
BEST PARTNER IN POWERSPORTS ELEVATING THE FROM DEALER GAME In-store Experience Sales Training Dealer Standards ELEVATING OUR GAME TO RFM MAP Sales Transformation PII Analyst Day 6/14/18 40
Slide 41: Polaris ORV – Great Opportunity
POLARIS ORV – GREAT OPPORTUNITY #1 IN POWERSPORTS BEST DEALER PARTNER Enhancing Profitability LARGEST CUSTOMER BASE Building Loyalty, Finding New Customers NEW PRODUCTS & PIPELINE Beat All Competitors CONTINUING TO WIN > OUTGROWING INDUSTRY IN VOLUME, REVENUE AND MARGINS PII Analyst Day 6/14/18 41
Slide 42: Questions?
POLARIS INDUSTRIES INC. Analyst / Investor Day Chris Musso President – Off-Road Vehicles Questions?
Slide 43: Julie Gilbert
POLARIS INDUSTRIES INC. Analyst / Investor Day Julie Gilbert Chief Customer Experience & Growth Officer June 14, 2018
Slide 44: Powersports Enthusiast Life-Long Rider
POWERSPORTS ENTHUSIAST LIFE-LONG RIDER SNOWMOBILES MOTORCYCLES ATVs PII Analyst Day 6/14/18 44
Slide 45: 20+ Years Growing Brands & Businesses
20+ YEARS GROWING BRANDS & BUSINESSES BS, MBA, 25+ Year CPA New Market & Business Development Founder & CEO of Global Fortune 100 to 500 Clients, Spanning North America, Asia, Europe and Others Mobile Engaging Communications, Marketing and Big Data Analytics Finance & Consulting Founder & CEO of PII
Slide 46: Bold Goals
BOLD GOALS Expand Market Size in Powersports Space Engage New Customers in Powersports Create New Engagement Models for Customers PII Analyst Day 6/14/18 46
Slide 47: Powersports Customer Profile
POWERSPORTS CUSTOMER PROFILE CURRENT CUSTOMER BASE TARGET AUDIENCE 47 > Women Average Age ~3M 90% Male > Multicultural 81% Married/with Partner > Age Ranges ~25M $96K Median Income > % of 13 Million 17% Multi-Acre Military Veteran Homeowners Customer-Centric CRM/Big Data Polaris Adventures ??? PII A
Slide 48: Questions?
POLARIS INDUSTRIES INC. Analyst / Investor Day Julie Gilbert Chief Customer Experience & Growth Officer Questions?
Slide 49: Pam Kermisch
POLARIS INDUSTRIES INC. Analyst / Investor Day Pam Kermisch VP of Marketing - Motorcycles June 14, 2018
Slide 50: Customer Behavior Is Changing
CUSTOMER BEHAVIOR IS CHANGING 24 Direct Mail touchpoints before a customer is ready to purchase 95% use online sources I CAN’T KEEP CALM 1.3 90% dealer visits THERE’S ONLY of customers that buy, before SEVEN DAYS buy within 1 week of purchase TO GO visiting a dealership 2000 2010 2017 Digital is Key
Slide 51: Growth Strategies
GROWTH STRATEGIES Cultivate Our Customer Base Enable the Shopping Experience Make Owners Our VIPs Expand to New Targets Driving Momentum PII Analyst Day 6/14/18 51
Slide 52: Cultivate Our Customer Base: Score Segment
CULTIVATE OUR CUSTOMER BASE SCORE SEGMENT VERY HOT WARM COLD What’s Your #? MARKET Score and Segment Our Customers PII Analyst Day 6/14/18 52
Slide 53: Cultivate Our Customer Base
CULTIVATE OUR CUSTOMER BASE Relevant Messaging to Each Customer PII Analyst Day 6/14/18 53
Slide 54: Enable the Shopping Experience
ENABLE THE SHOPPING EXPERIENCE Inventory Search Ratings & Reviews Build and Quote Trade in Valuator Make it Easy to Get What They Want, When They Want it PII Analyst Day 6/14/18 54
Slide 55: Enable the Shopping Experience
ENABLE THE SHOPPING EXPERIENCE Focus on the Dealership Experience PII Analyst Day 6/14/18 55
Slide 56: Make Owners Our VIPs
MAKE OWNERS OUR VIPS Private Events Recognition Exclusive Content Global Presence Access Customer Experience Drives Repeat & Referral PII Analyst Day 6/14/18 56
Slide 57: Expand to New Targets
EXPAND TO NEW TARGETS Indian Scout Market Share Low 20’s % … and Growing Introducing Indian Motorcycle to More Riders PII Analyst Day 6/14/18 57
Slide 58: Questions?
POLARIS INDUSTRIES INC. Analyst / Investor Day Pam Kermisch VP of Marketing - Motorcycles Questions?
Slide 59: Mike Donoughe
POLARIS INDUSTRIES INC. Analyst / Investor Day Mike Donoughe SVP – Chief Technical Officer June 14, 2018
Slide 60: Introductions – Mike Donoughe
INTRODUCTIONS – MIKE DONOUGHE Career History: BSME, MSME, MBA Automotive Career Focused on The “Front Lines” of Product Creation: Engineering | Manufacturing | Supply Chain | Quality Since 2012 – Focused on Technology Development & Commercialization PII Analyst Day 6/14/18 60
Slide 61: Why Polaris? Product, People, Potential
WHY POLARIS? PRODUCT PEOPLE POTENTIAL PII Analyst Day 6/14/18 61
Slide 62: Engineering “Product Creation Powerhouse”
ENGINEERING “PRODUCT CREATION POWERHOUSE” ENGINEERING VISION Establish a Product Creation Powerhouse with a customer- centric focus that results in products that meet/exceed total ownership experience expectations across Polaris’ product portfolio. ROLLING FORWARD TO “ACHIEVE EXCELLENCE IN EVERYTHIN
Slide 63: Strategic Themes
STRATEGIC THEMES SAFETY & QUALITY As powersports industry leader, Polaris leads in Safety & Quality INNOVATIVE TECHNOLOGY APPLICATION As powersports industry leader, Polaris continues to innovate with technologies to enhance our customers’ experiences PLATFORM MINDSET Polaris leverages its platforms
Slide 64: Attributes
ATTRIBUTES VISION Ensure the basic attributes of Polaris’ Product Creation Powerhouse serve to enable creation of Customer Focused products that truly resonate with their desired experiences OBJECTIVES Best People, Best Team Focused on culture and talent management – acquisition, development and dep
Slide 65: Polaris Global Engineering Footprint
POLARIS GLOBAL ENGINEERING FOOTPRINT Operating Considerations Technical Talent Availability Organizational Synergies (co-location) Product Proximity (embed teams in manufacturing locations) “Follow the Sun” Effectiveness and Efficiency PII Analyst Day 6/14/18 65
Slide 66: Future Advanced Technology & Innovation Focus
FUTURE ADVANCED TECHNOLOGY & INNOVATION FOCUS POWERTRAIN & DRIVELINE LIGHT WEIGHTING, ADVANCED MATERIALS AND PROCESSES ELECTRIFICATION CONNECTED VEHICLES AND EXPERIENCES ADVANCED DRIVER ASSISTANCE SYSTEMS PII Analyst Day 6/14/18 66
Slide 67: New Product Development
NEW PRODUCT DEVELOPMENT Product Development Vitality Index Product Design Focus 86% Increasing Investments into a Product Creation Powerhouse 84% 80% Product Innovation: 75% Superior Ride and Handling 72% Electrification and Autonomy Exceptional Powertrains – Gas and Electric Connected Vehicles and
Slide 68: Polaris Wyoming Product Development Site
POLARIS WYOMING PRODUCT DEVELOPMENT SITE Site Summary 620 Acres to accommodate on-site tests and riding Total facility 283,000 SF Ph 1: 126,000 SF / April 2005 Ph 2: 157,000 SF / June 2012 Product Dev. Staff = ~750 Designed for project teams efficiency Product group presence in Wyoming Motorcycles -
Slide 69: Wyoming R&D Tour – What You Will See & Experience
WYOMING R&D TOUR – WHAT YOU WILL SEE & EXPERIENCE PII Analyst Day 6/14/18 69
Slide 70: Questions?
POLARIS INDUSTRIES INC. Analyst / Investor Day Mike Donoughe SVP – Chief Technical Officer Questions?
Slide 71: Q&A
POLARIS INDUSTRIES INC. Analyst / Investor Day Q&A
Slide 72: Appendix
APPENDIX FY 2017 NON-GAAP RECONCILIATIONS Q1 2018 NON-GAAP RECONCILIATIONS 2018 GUIDANCE ADJUSTMENTS PII Analyst Day 6/14/18 72
Slide 73: FY 2017 Non-GAAP Reconciliations
FY 2017 NON-GAAP RECONCILIATIONS Reconciliation of GAAP "Reported" Results to Non-GAAP "Adjusted" Results (In Thousands, except per share data; Unaudited) Years ended December 31, 2017 2016 Key Definitions: Throughout this presentation, the word Sales $ 5,428,477 $ 4,516,629 “Adjusted” is used to re
Slide 74: Q1 2018 Non-GAAP Reconciliations
Q1 2018 NON-GAAP RECONCILIATIONS Reconciliation of GAAP "Reported" Results to Non-GAAP "Adjusted" Results (In Thousands, Except Per Share Data; Unaudited) Three months ended March 31, 2018 2017 Sales $ 1,297,473 $ 1,153,782 Key Definitions: Throughout this presentation, the word “Adjusted” is used t
Slide 75: 2018 Guidance Adjustments
2018 GUIDANCE ADJUSTMENTS 2018 guidance excludes the pre-tax effect of acquisition integration costs of approximately $10 million, supply chain transformation costs of approximately $10 million to $20 million, network realignment costs of approximately $5 million and the remaining impacts associated