Exhibit 99.2

BRP INC.

MANAGEMENT’S

DISCUSSION AND

ANALYSIS

FOR THE THREE- AND NINE-MONTH PERIODS

ENDED OCTOBER 31, 2022

 

Table of contents

 

Glossary			2
Basis of Presentation			3
Forward-Looking Statements and Non-IFRS Measures			3
Business Overview			5
Reporting Segments			5
Factors Affecting the Company’s Results of Operations			6
Executive Summary			9
Retail Performance & Market Statistics			11
Results of Operations			12
Analysis of Results for the Third Quarter of Fiscal 2023			12
Analysis of Segment Results for the Third Quarter of Fiscal 2023			14
Geographical Trends for the Third Quarter of Fiscal 2023			15
Analysis of Results for the nine-month period ended October 31, 2022			16
Analysis of Segment Results for the nine-month period ended October 31, 2022			18
Geographical Trends for the nine-month period ended October 31, 2022			19
Foreign Exchange			20
Liquidity and Capital Resources			21
Contractual Obligations			23
Capital Resources			24
Consolidated Financial Position			27
Off-Balance Sheet Arrangements			28
Transaction Between Related Parties			30
Financial Instruments			30
Non-IFRS Measures and Reconciliation Tables			32
Reconciliation Tables			33
Summary of Consolidated Quarterly Results			35
Reconciliation Table for Consolidated Quarterly Results			36
Critical Accounting Estimates			39
Environmental, Social and Governance			41
Controls and Procedures			42
Risk Factors			43
Disclosure of Outstanding Shares			43
Additional Information			43

 

BRP Inc.		Management’s Discussion and Analysis		1

Glossary

 

Abbreviations		Description		Abbreviations		Description
3WV		Three-Wheeled Vehicles		LIBOR		London Interbank Offered Rate
ATV		All-Terrain Vehicles		NCIB		Normal Course Issuer Bid
BPS		Basis points		MD&A		Management’s Discussion & Analysis
DB		Defined Benefits		OEM		Original Equipment Manufacturer
DC		Defined Contribution		ORV		Off-Road Vehicles
CAPEX		Capital Expenditure		PA&A		Parts, Accessories & Apparel
CGU		Cash Generating Unit		PP&E		Property, Plant & Equipment
EBITDA		Earnings Before Interest, Taxes, Depreciation &  Amortization		PWC		Personal Watercraft
EPS		Earnings Per Share		R&D		Research & development
ESG		Environmental, Social and Governance		SIB		Substantial Issuer Bid
EURIBOR		Euro Interbank Offered Rate		SOFR		Secured Overnight Financing Rate
G&A		General & Administrative		Term SOFR		Defined as the forward-looking term rate based on SOFR plus a customary credit spread adjustment
IAS		International Accounting Standards		SSV		Side-by-Side Vehicles
IFRS		International Financial Reporting Standards		Working Capital		Current assets less current liabilities
International		All region except United States & Canada

 

BRP Inc.		Management’s Discussion and Analysis		2

Basis of Presentation

The following management’s discussion and analysis (“MD&A”) provides information concerning financial condition and results of operations of BRP Inc. (the “Company” or “BRP”) for the third quarter of the fiscal year ending January 31, 2023. This MD&A should be read in conjunction with the unaudited condensed consolidated financial statements for the three- and nine-month periods ended October 31, 2022. Some of the information included in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from underlying forward-looking statements as a result of various factors, including those described in the “Forward-Looking Statements” section of this MD&A. This MD&A reflects information available to the Company as at November 29, 2022.

The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and in accordance with IAS 34 “Interim Financial Reporting”. All amounts presented are in Canadian dollars unless otherwise indicated. The Company’s fiscal year is the twelve-month period ending January 31. All references in this MD&A to “Fiscal 2023” are to the Company’s fiscal year ended January 31, 2023, and references to “Fiscal 2022” are to the Company’s fiscal year ended January 31, 2022 and references to “Fiscal 2021” are to the Company’s fiscal year ended January 31, 2021.

This MD&A, approved by the Board of Directors on November 29, 2022, is based on the Company’s unaudited condensed consolidated interim financial statements and accompanying notes thereto for the three- and nine-month periods ended October 31, 2022 and 2021.

Forward-Looking Statements and Non-IFRS Measures

Forward-Looking Statements

Certain statements in this MD&A about the Company’s current and future plans, prospects, expectations, anticipations, estimates and intentions, results, levels of activity, performance, objectives, targets, goals or achievements, priorities and strategies, financial position, market position, capabilities, competitive strengths, beliefs, the prospects and trends of the industries in which the Company operates, the expected growth in demand for products and services in the markets in which the Company competes, statements relating to the impact that the cybersecurity incident will have on its systems and operations, the Company’s ability to mitigate financial consequences due to the cybersecurity incident, and its lack of impact on its financial-year end guidance, research and product development activities, including projected design, characteristics, capacity or performance of future products and their expected scheduled entry to market expected financial requirements and the availability of capital resources and liquidities or any other future events or developments and other statements that are not historical facts constitute forward-looking statements within the meaning of applicable securities laws. The words “may”, “will”, “would”, “should”, “could”, “expects”, “forecasts”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “outlook”, “predicts”, “projects”, “likely” or “potential” or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements.

 

BRP Inc.		Management’s Discussion and Analysis		3

Forward-looking statements are presented for the purpose of assisting readers in understanding certain key elements of the Company’s current objectives, goals, targets, strategic priorities, expectations and plans, and in obtaining a better understanding of the Company’s business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes; readers should not place undue reliance on forward-looking statements contained herein. Forward-looking statements, by their very nature, involve inherent risks and uncertainties and are based on a number of assumptions, both general and specific. The Company cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although believed reasonable at the time they were made, subject to greater uncertainty. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Company or the industry to be materially different from the outlook or any future results or performance implied by such statements. In addition, many factors could cause the Company’s actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risk factors discussed in greater detail under the heading “Risk Factors” of its Annual Information Form dated March 24, 2022.

The forward-looking statements contained in this MD&A are made as of the date of this MD&A, and the Company has no intention and undertakes no obligation to update or revise any forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable securities regulations. In the event that the Company does update any forward-looking statements contained in this MD&A, no inference should be made that the Company will make additional updates with respect to that statement, related matters or any other forward-looking statement. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.

The Company made a number of economic, market and operational assumptions in preparing and making certain forward-looking statements contained in this MD&A, including the following: reasonable industry growth ranging from slightly down to up high-single digits, that is based on the assumption that the supply chain disruptions do not worsen; market share that will remain constant or moderately increase; stable global and North American economic conditions, a limited impact from the military hostilities in Ukraine and the ongoing global health crisis; main currencies in which the Company operates will remain at near current levels; inflation is expected to remain elevated from strong demand, supply shortages and high energy prices, and is expected to gradually decline as central banks gradually increase interest rates; there will be no significant changes in tax laws or free trade arrangements or treaties applicable to the Company; the Company’s margins, will remain at current levels; the supply base will remain able to support product development and planned production rates on commercially acceptable terms in a timely manner; the cybersecurity incident and its consequences will be adequately contained and will have limited impact on the planned wholesale; no new trade barriers will be imposed amongst jurisdictions in which the Company carries operations; the absence of unusually adverse weather conditions, especially in peak seasons. BRP cautions that its assumptions may not materialize and current economic conditions may render such assumptions, although believed reasonable at the time they were made, subject to greater uncertainty.

Non-IFRS Measures

This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS.

The Company defines and reconciles these measures in the “Non-IFRS Measures and Reconciliation Tables” section of this MD&A.

 

BRP Inc.		Management’s Discussion and Analysis		4

Business Overview

BRP is a global leader in the design, development, manufacturing, distribution and marketing of powersports and marine products. The Company is a diversified manufacturer of powersports and marine products, providing enthusiasts with a variety of exhilarating, stylish and powerful products for year-round use on a variety of terrains. The Company’s diversified portfolio of brands and products includes for Powersports: Can-Am ATVs, SSVs, 3WVs, Ski-Doo and Lynx snowmobiles, Sea-Doo PWCs and pontoons, as well as Rotax engines for karts and recreational aircraft. For Marine, the portfolio of brands and products includes Alumacraft and Quintrex boats, Manitou pontoons and Rotax engines for jet boats and outboard engine, with stealth technology. Additionally, the Company supports its line of products with a dedicated PA&A business.

The Company employs close to 20,000 people mainly in manufacturing and distribution sites in Mexico, Canada, Austria, the United States, Finland, Australia and Germany. The Company sells its products in over 120 countries. The products are sold directly through a network of approximately 2,800 dealers in 21 countries, as well as through approximately 170 distributors serving approximately 460 additional dealers.

Reporting Segments

BRP and its subsidiaries (the “Company”) design, develop, manufacture and sell powersports and marine products. The Company has two operating segments consisting of Powersports (Year-Round Products, Seasonal Products and PA&A and OEM engines) and Marine Products.

Powersports

Year-Round Products

Year-Round Products consist of BRP vehicles that are sold and used throughout the year in most climates and include ATVs, SSVs and 3WVs product lines. All products within the Year-Round Product category are sold under the Can-Am brand. Can-Am ATVs, SSVs and 3WVs all leverage BRP’s Rotax engines.

Seasonal Products

Seasonal products consist of BRP products that are mostly used in specific seasons. These products include snowmobiles, which are mainly used during the winter season with sales to dealers concentrated in the months of September to January. PWC and Sea-Doo pontoons, which are mainly used during the summer season, with sales to dealers concentrated in the months of January to April. All these products leverage BRP’s Rotax engines.

Parts, Accessories & Apparel and OEM engines

PA&A and Rotax engines consist of parts, accessories and apparel (referred to as “PA&A”), engines for karts and recreational aircraft and other services.

Marine

Marine consists of boats, pontoons, jet boat and outboard engines and related PA&A and other services. BRP competes in the boat product category with Alumacraft and Quintrex boats, Manitou pontoons and in the marine engine product category with the Rotax engines for jet boats and outboard engine with stealth technology.

 

BRP Inc.		Management’s Discussion and Analysis		5

The following table shows the percentage of total revenues for each segment:

 

Proportion of Total Revenues  (in percentages)		Three-month periods ended								Nine-month periods ended
		October 31, 2022				October 31, 2021				October 31, 2022				October 31, 2021
Year-Round Products			47.2%				46.4%				51.3%				49.3%
Seasonal Products			37.7%				27.5%				30.5%				27.8%
Powersports PA&A and OEM Engines			11.0%				17.9%				12.9%				15.8%
Total Powersports			95.9%				91.8%				94.7%				92.9%
Marine			4.1%				8.2%				5.3%				7.1%
Total Revenues			100.0%				100.0%				100.0%				100.0%

Factors Affecting the Company’s Results of Operations

Revenues and Sales Program Costs

The Company’s revenues are primarily derived from the wholesale activities to dealers and distributors of the Company’s manufactured vehicles, including Year-Round Products, Seasonal Products, Powersports PA&A and OEM Engines, as well as Marine products. Revenue recognition normally occurs when products are shipped to dealers or distributors from the Company’s facilities.

In order to support the wholesale activities of the Company and the retail activities of dealers and distributors, the Company may provide support in the form of various sales programs consisting of cash and non-cash incentives. The cash incentives consist mainly of rebates given to dealers, distributors and consumers, volume discounts to dealers and distributors, free or extended coverage period under dealer and distributor inventory financing programs, and retail financing programs. The cost of these cash incentives is recorded as a reduction of revenues. The non-cash incentives mainly consist of extended warranty coverage or free PA&A. When an extended warranty coverage is given with the purchase of a product, a portion of the revenue recognized upon the sale of that product is deferred and recognized during the extended warranty coverage period. The cost of the free PA&A is recorded in cost of sales.

The support provided to dealers, distributors and consumers tends to increase when general economic conditions are difficult, when changing market conditions require the launch of new or more competitive programs, or when dealer and distributor inventory is above appropriate levels.

Under dealer and distributor inventory financing arrangements, the Company could be required to purchase repossessed new and unused products in certain cases of default by dealers or distributors. The cost of repossession tends to increase when dealers or distributors are facing challenging and prolonged difficult retail conditions and when their non-current inventory level is high. During the current fiscal year and previous fiscal year, the Company did not experience significant repossessions under its dealer and distributor inventory financing arrangements. Refer to the “Off-Balance Sheet Arrangements” section of this MD&A for more information on dealer and distributor inventory financing arrangements.

Commodity Costs

Approximately 75% of the Company’s cost of sales consists of material used in the manufacturing process. Therefore, the Company is exposed to the fluctuation of prices of certain raw materials such as aluminum, steel, plastic, resins, stainless steel, copper, rubber and certain rare earth metals. Additionally, the Company is exposed to fuel price fluctuations related to its procurement and distribution activities. The Company does not hedge its long-term exposure to such price fluctuations. Therefore, an increase in commodity prices could negatively impact the Company’s operating results if it is not able to transfer these cost increases to dealers, distributors or consumers.

 

BRP Inc.		Management’s Discussion and Analysis		6

Warranty Costs

The Company’s regular warranty generally covers periods ranging from six months to five years for most products. In certain circumstances, the Company provides extended warranty coverage as a result of sales programs, under certain commercial accounts, or as required by local regulations. During the warranty period, the Company reimburses dealers and distributors for the entire cost of repair or replacement performed on the products (mainly composed of parts or accessories provided by the Company and labour costs incurred by dealers or distributors). In addition, the Company sells in the normal course of business and provides under certain sales programs extended product warranties.

During its product development process, the Company ensures that high quality standards are maintained at each development stage of a new product. This includes the development of detailed product specifications, the evaluation of the quality of the supply chain and the manufacturing methods and detailed testing requirements over the development stage of the products. Additionally, product quality is ensured by quality inspections during and after the manufacturing process.

The Company records a regular warranty provision when products are sold. Management believes that, based on available information, the Company has adequate provisions to cover any future warranty claims on products sold. However, future claim amounts can differ significantly from provisions that are recorded in the condensed consolidated interim statements of financial position. For extended warranty, the claims are recorded in cost of sales as incurred.

Foreign Exchange

The Company’s revenues are reported in Canadian dollars but are mostly generated in U.S. dollars, Canadian dollars and euros. The Company’s revenues reported in Canadian dollars are to a lesser extent exposed to foreign exchange fluctuations with the Australian dollar, the Brazilian real, the Swedish krona, the Norwegian krone, the British pound, the New Zealand dollar, Mexican pesos and the Russian ruble. The costs incurred by the Company are mainly denominated in Canadian dollars, U.S. dollars and euros and to a lesser extent in Mexican pesos. Therefore, recorded revenues, gross profit and operating income in Canadian dollars are exposed to foreign exchange fluctuations. The Company’s facilities are located in different countries, which helps mitigate some of its foreign currency exposure.

As of October 31, 2022, the Company had an outstanding balance of U.S. $1,581.0 million ($2,156.6 million) under its U.S. $1,635.0 million ($2,230.3 million) term facility agreement (the “Term Facility”), which results in a gain or loss in net income when the U.S. dollar/Canadian dollar exchange rate at the end of the period varies from the opening period rate. Additionally, the Company’s interest expense on the Term Facility is exposed to U.S. dollar/Canadian dollar exchange rate fluctuations. The Company does not currently hedge the U.S. dollar/Canadian dollar exchange rate fluctuation exposures related to its Term Facility, and therefore, an increase in the value of the U.S. dollar against the Canadian dollar could negatively impact the Company’s net income.

For further detail relating to the Company’s exposure to foreign currency fluctuations, see “Financial Instruments – Foreign Exchange Risk” section of this MD&A.

 

BRP Inc.		Management’s Discussion and Analysis		7

Net Financing Costs (Financing Costs less Financing Income)

Net financing costs are incurred principally on long-term debt, defined benefit pension plan liabilities and revolving credit facilities. As at October 31, 2022, the Company’s long-term debt of $2,332.0 million was mainly comprised of the Term Facility, which bears interest at LIBOR plus 2.00% and Term SOFR plus 3.00%. The Company entered into interest rate cap contracts, which limit its exposure to interest rates increases.

Income Taxes

The Company is subject to federal, state and provincial income taxes in jurisdictions in which it conducts business. The Canadian income tax statutory rate was 26.5% for the three- and nine-month periods ended October 31, 2022. However, the Company’s effective consolidated tax rate is influenced by various factors, including the mix of accounting profits or losses before income tax among tax jurisdictions in which it operates and the foreign exchange gain or loss on the Term Facility. The Company expects to pay cash taxes in all tax jurisdictions for Fiscal 2023, except in the United States where the Company plans to utilize its tax attributes to offset taxable income or income tax payable.

Seasonality

The Company’s revenues and operating income experience substantial fluctuations from quarter to quarter. In general, wholesale sales of the Company’s products are highest in the period immediately preceding their respective season and during the said season of use. However, the mix of product sales may vary considerably, from time to time, as a result of changes in seasonal and geographic demand, the introduction of new products and models, and production scheduling for particular types of products. As a result, the Company’s financial results are likely to fluctuate significantly from period to period.

 

BRP Inc.		Management’s Discussion and Analysis		8

Executive Summary

Following the global coronavirus (“COVID-19”) pandemic and the resulting worldwide enacting emergency measures, the Company’s solid position was only strengthened as its products provide an attractive outdoor and social-distancing solution for new and existing powersports consumers. This increase in commercial activity, felt across multiple industries, heightened the pressure on the global supply chain network as demand grew stronger and, in turn, forced multiple market participants, including BRP, to innovate and find alternate ways to source materials, revise and adapt production schedules, pursue strategic pricing initiatives aimed at offsetting inflationary pressures and deliver units to its dealer network, faced with an unprecedented retail demand.

Despite these challenges, and the recent cybersecurity incident, the Company increased revenues during the third quarter of Fiscal 2023, notably by increasing its production output and the conversion rate of substantially completed units available for retail. The increase in revenues for the three and nine-month periods this fiscal year compared to Fiscal 2022 is explained by the strong consumer demand and supported by the additional available capacity such as the new Juarez-3 facility dedicated to SSV production. However, the deliveries of PWC and 3WV in the quarter occurred after the peak in the retail season and drove an increase in the dealer network inventory at the end of the third quarter.

Financial Highlights

 

(in millions of Canadian dollars, except per share data and margin)		Three-month periods ended																Nine-month periods ended
		October 31, 2022				October 31, 2021				Variance ($)				Variance (%)				October 31, 2022				October 31, 2021				Variance ($)				Variance (%)
Income Statement
Revenues			$2,709.3				$1,588.0				$1,121.3				70.6%				$6,957.1				$5,300.4				$1,656.7				31.3%
Gross Profit			654.7				410.6				244.1				59.4%				1,711.8				1,522.7				189.1				12.4%
Gross Profit margin (%)			24.2%				25.9%				N/A				(170bps)				24.6%				28.7%				N/A				(410bps)
Operating income			384.8				185.5				199.3				107.4%				930.2				840.4				89.8				10.7%
Normalized EBITDA[1]			487.9				251.7				236.2				93.8%				1,178.3				1,045.7				132.6				12.7%
Net income			141.6				127.7				13.9				10.9%				500.3				585.0				(84.7	)			(14.5%)
Normalized net income[1]			292.5				123.7				168.8				136.5%				667.5				595.2				72.3				12.1%
EPS - diluted			1.76				1.53				0.23				15.0%				6.15				6.81				(0.66	)			(9.7%)
Normalized EPS – diluted [1]			3.64				1.48				2.16				145.9%				8.21				6.93				1.28				18.5%

 ^[1] See “Non-IFRS Measures” section.

 

BRP Inc.		Management’s Discussion and Analysis		9

Significant transactions during the three-month period ended October 31, 2022

Acquisitions

On August 4, 2022, the Company completed the acquisition of 80% of the outstanding shares of Pinion GmbH (“Pinion”) for a consideration of €61.9 million ($81.4 million) paid in cash. Pinion is located in Denkendorf, Germany and designs, develops, assembles, and sells mechanical gearboxes for traditional and electric bicycles.

This acquisition is expected to enhance BRP’s expertise in electric powertrain technology for existing product lines and upcoming product introductions.

On October 5, 2022, the Company completed the acquisition of substantially all the assets related to the powersports business of Kongsberg Automotive ASA and its subsidiary Kongsberg Inc. located in Shawinigan, Quebec (“KA Shawinigan”) for a consideration of $127.8 million.

KA Shawinigan is a leading player in the development and manufacturing of electronic and mechatronic products and a long-standing supplier of BRP. This acquisition is in line with BRP’s product strategy, particularly as it relates to its electrification plan. It is expected to allow the Company to gain further expertise in mechatronics and bolster its innovation capabilities.

Following the acquisitions of Pinion and KA Shawinigan, the Company created a new Low Voltage & Human Assisted Group (“LVHA”). The creation of LVHA is intended to allow the Company to pursue its growth strategy with product categories that overlap recreational, urban mobility and services with low voltage and human assisted products. LVHA is not a reportable segment for the Company.

Recent events

On November 29, 2022, the Company’s Board of Directors authorized the renewal of its normal course issuer bid program which allows for the purchase for cancellation of up to approximately 3,519,398 million subordinate voting shares over the next twelve months, representing approximately 10% of the Company’s public float.

 

BRP Inc.		Management’s Discussion and Analysis		10

Retail Performance & Market Statistics

North American dealer inventories

As at October 31, 2022, North American dealer inventories for Powersports products increased by 217% compared to October 31, 2021. The increase is across all product lines and mainly due to a significantly low level of inventory in Fiscal 2022 combined with shipment of PWC and 3WC late into the season after retail peak due to supply chain disruptions.

North American dealer inventories for Powersports products as at October 31, 2022 were down 19% compared to October 31, 2019 which further highlights the relatively low level of inventory in the Company’s dealer network in Fiscal 2022, despite the increase observed when comparing Fiscal 2023 and Fiscal 2022 levels.

North American retail sales - for the Third Quarter of Fiscal 2023

The Company’s North American retail sales for Powersports products increased by 43%^[1] for the three-month period ended October 31, 2022 compared to the three-month period ended October 31, 2021. The increase was mainly attributable to PWC and SSV.

 

✓

North American Year-Round Products retail sales increased on a percentage basis in the high-twenties range compared to the three-month period ended October 31, 2021. In comparison, the Year-Round Products industry recorded an increase on a percentage basis in the low single-digits over the same period.

✓

North American Seasonal Products retail sales increased on a percentage basis in the high-seventies range compared to the three-month period ended October 31, 2021. In comparison, the Seasonal Products industry increased on a percentage basis in the low-teens range over the same period while the Company increased on a percentage basis in the low-sixties range when excluding pontoons.

The Company’s North American retail sales for Marine products decreased by 47% compared to the three-month period ended October 31, 2021 as a result of lower product availability.

North American retail sales - for the nine-month period ended October 31, 2022

The Company’s North American retail sales for Powersports products increased by 1%^[1] for the nine-month period ended October 31, 2022 compared to the nine-month period ended October 31, 2021, mainly due to limited product availability driven by supply chain disruptions.

 

✓

North American Year-Round Products retail sales increased on a percentage basis in the low single-digits compared to the nine-month period ended October 31, 2021. In comparison, the Year-Round Products industry recorded a decrease on a percentage basis in the low-teens range over the same period.

✓

North American Seasonal Products retail sales decreased on a percentage basis in the low single-digits compared to the nine-month period ended October 31, 2021. In comparison, the Seasonal Products industry recorded a decrease on a percentage basis in the high single-digits over the same period while the Company decreased on a percentage basis in the high single-digits when excluding pontoons.

The Company’s North American retail sales for Marine products decreased by 29% compared to the nine-month period ended October 31, 2021 as a result of lower product availability.

^[1] Including Sea-Doo pontoons.

 

BRP Inc.		Management’s Discussion and Analysis		11

Results of Operations

Analysis of Results for the Third Quarter of Fiscal 2023

The following section provides an overview of the financial performance of the Company for the three-month period ended October 31, 2022 compared to the same period ended October 31, 2021.

 

(in millions of Canadian dollars, except per share data and margin)		Three-month periods ended
		October 31, 2022				October 31, 2021				Variance ($)				Variance (%)
Income Statement
Revenues			$2,709.3				$1,588.0				$1,121.3				70.6%
Gross Profit			654.7				410.6				244.1				59.4%
Gross Profit margin (%)			24.2%				25.9%				N/A				(170bps)
Operating Expenses			269.9				225.1				44.8				19.9%
Normalized EBITDA[1]			487.9				251.7				236.2				93.8%
Net Financing Costs			32.8				15.8				17.0				107.6%
Income Taxes			77.8				51.9				25.9				49.9%
Net income			141.6				127.7				13.9				10.9%

 ^[1] See “Non-IFRS Measures” section

Revenues

The increase in revenue was primarily due to a higher wholesale volume of SSV, PWC, 3WV and snowmobile sold and the introduction of the Sea-Doo pontoon. The increase includes a favourable foreign exchange rate variation of $51 million.

Gross Profit

The increase in gross profit was primarily due to the favourable volume of SSV and PWC sold and a favourable pricing across all product lines. The decrease in gross profit margin percentage was attributable to higher logistics, commodities and labour costs due to inefficiencies related to supply chain disruptions, idle costs related to the cybersecurity incident and higher sales programs resulting from historical low levels in Fiscal 2022. The decrease was partially offset by higher volume and favourable pricing. The increase in gross profit includes a favourable foreign exchange rate variation of $29 million.

Operating Expenses

The following table provides a breakdown of the Company’s Operating Expenses for the three-month period ended October 31, 2022 compared to the three-month period ended October 31, 2021:

 

(in millions of Canadian dollars)		Three-month periods ended
		October 31, 2022				October 31, 2021				Variance ($)				Variance (%)
Selling and marketing			$113.3				$97.8				$15.5				15.8%
Research and development			80.6				70.6				10.0				14.2%
General and administrative			74.9				65.2				9.7				14.9%
Other operating expenses (income)			1.1				(8.5)				9.6				NM[a]
Operating Expenses			$269.9				$225.1				$44.8				19.9%

^[a] NM – Not Meaningful

The increase in operating expenses was mainly attributable to an increase in selling and marketing and R&D expenses to support future growth and from continued product investments and higher G&A expenses mainly for the modernization of the Company’s software infrastructure to support future growth.

 

BRP Inc.		Management’s Discussion and Analysis		12

Normalized EBITDA ^[1]

The normalized EBITDA ^[1] increase was primarily due to higher gross profit partially offset by higher operating expenses.

Net Financing Costs

The increase in net financing costs primarily resulted from higher interest expense on the Term Facility due to a higher average interest rate and a higher interest expense on revolving credit facilities as a result of a higher usage.

Income Taxes

The increase in income tax expense was primarily due to a higher operating income, partially offset by the tax and accounting treatment of the property, plant and equipment from Mexican operations. The effective income tax rate amounted to 35.5% for the three-month period ended October 31, 2022 compared to the 28.9% for the three-month period ended October 31, 2021. The increase resulted primarily from the tax and accounting treatment of the foreign exchange (gain) loss on the Term Facility. The increase was partially offset by the tax and accounting treatment of property, plant and equipment from Mexican operations and by the unrecognized tax benefits related to certain intangibles during the period ended October 31, 2021.

Net Income

The increase in net income was primarily due to a higher operating income, partially offset by an unfavourable foreign exchange rate variation impact on the U.S. denominated long-term debt.

^[1] See “Non-IFRS Measures” section.

 

BRP Inc.		Management’s Discussion and Analysis		13

Analysis of Segment Results for the Third Quarter of Fiscal 2023

The following section provides an overview of the financial performance of the Company’s segments for the three-month period ended October 31, 2022 compared to the same period ended October 31, 2021. The inter-segment transactions are included in the analysis.

 

Segment results  (in millions of Canadian dollars)		Three-month periods ended								Variance ($)				Variance (%)
		October 31, 2022				October 31, 2021
Revenues [1]
Powersports
Year-Round			$1,279.8				$736.3				$543.5				73.8%
Seasonal			1,020.9				437.3				583.6				133.5%
Powersports PA&A and OEM Engines			298.0				283.9				14.1				5.0%
Marine			118.8				136.3				(17.5)				(12.8%	)
Gross profit
Powersports			648.8				390.0				258.8				66.4%
As a percentage of revenues			25.0%				26.8%				N/A				(180bps	)
Marine			5.9				20.6				(14.7)				(71.4%	)
As a percentage of revenues			5.0%				15.1%				N/A				(1010bps	)

 ^[1] Including inter-segment transactions.

Powersports

Revenues

Year-Round Products

The increase in revenues was due to a higher volume of SSV and 3WV sold. The higher volume of SSV sold was due to added capacity and improved supply chain. The increase in 3WV volume was the result of the late shipments of model year 2022 which are usually delivered during the second quarter. The increase includes a favourable foreign exchange rate variation of $47 million.

Seasonal Products

The increase in revenues was primarily attributable to a higher volume of PWC sold due to late shipments of model year 2022 which are usually delivered during the second quarter. The increase was also attributable to a higher volume of snowmobile sold and the introduction of the Sea-Doo pontoon.

Powersports PA&A and OEM Engines

The increase in revenues was driven by favourable pricing and the introduction of the Sea-Doo pontoon.

Gross Profit

The increase in gross profit was mainly attributable to the favourable volume of SSV and PWC sold and favourable pricing across all product lines. The decrease in the gross profit margin percentage was the result of higher logistics, commodities and labour costs due to inefficiencies relating to supply chain disruptions, as well as idle costs relating to the cybersecurity incident and higher sales programs, resulting from historical low levels in Fiscal 2022. The decrease was partially offset by higher volume and favourable pricing. The increase in gross profit includes a favourable foreign exchange rate variation of $30 million.

 

BRP Inc.		Management’s Discussion and Analysis		14

Marine

Revenues

The decrease in revenues was primarily due to a lower volume of boats sold due to supply chain disruptions and the cybersecurity incident which delayed the new product introductions, partially offset by favourable pricing and a favourable mix of boats sold. The decrease includes a favourable foreign exchange rate variation of $2 million.

Gross Profit

The gross profit decrease was primarily due to higher logistics, commodities and labour costs due to inefficiencies relating to supply chain disruptions, partially offset by favourable pricing.

Geographical Trends for the Third Quarter of Fiscal 2023

Revenues

 

Revenues by geography  (in millions of Canadian dollars)		Three-month periods ended								Variance ($)				Variance (%)
		October 31, 2022				October 31, 2021
Revenues ($)
United States			$1,683.3				$836.8				846.5				101.2%
Canada			441.9				294.7				147.2				49.9%
International			584.1				456.5				127.6				28.0%
Total Revenues ($)			2,709.3				1,588.0
Revenues (%)
United States			62.1%				52.7%				N/A				940bps
Canada			16.3%				18.6%				N/A				(230bps)
International			21.6%				28.7%				N/A				(710bps)
Total Revenues (%)			100.0%				100.0%

United States

The increase in revenues from the United States was mainly attributable to a higher volume of Year-Round Products and Seasonal Products sold and favourable pricing across all product lines. The increase includes a favourable foreign exchange impact of $51 million.

Canada

The increase in revenues from Canada was mainly attributable to a higher volume of Year-Round Products and Seasonal Products sold.

International

The increase in revenues from International was mainly attributable to a higher volume of Year-Round Products and Seasonal Products sold.

 

BRP Inc.		Management’s Discussion and Analysis		15

Analysis of Results for the nine-month period ended October 31, 2022

The following section provides an overview of the Company’s financial performance for the nine-month period ended October 31, 2022 compared to the same period ended October 31, 2021.

 

(in millions of Canadian dollars, except margin data)		Nine-month periods ended
		October 31, 2022				October 31, 2021				Variance ($)				Variance (%)
Income Statement
Revenues			$6,957.1				$5,300.4				$1,656.7				31.3%
Gross Profit			1,711.8				1,522.7				189.1				12.4%
Gross Profit margin (%)			24.6%				28.7%				N/A				(410bps)
Operating Expenses			781.6				682.3				99.3				14.6%
Normalized EBITDA[1]			1,178.3				1,045.7				132.6				12.7%
Net Financing Costs			72.8				111.4				(38.6	)			(34.6%)
Income Taxes			208.5				202.9				5.6				2.8%
Net income			500.3				585.0				(84.7	)			(14.5%)

 ^[1] See “Non-IFRS Measures” section

Revenues

The increase in revenue was primarily due to a higher volume of SSV, snowmobile, 3WV and PWC sold, the introduction of Sea-Doo pontoons and favourable pricing across all product lines. The increase includes a favourable foreign exchange rate variation of $34 million.

Gross Profit

The increase in gross profit was the result of a favourable volume of SSV, 3WV, snowmobile and PWC sold and favourable pricing, partially offset by higher logistics, commodities and labour costs due to inefficiencies relating to supply chain disruptions, as well as higher sales programs resulting from historical low levels in Fiscal 2022. The decrease in gross profit margin percentage was mainly attributable to higher logistics, commodities and labour costs, partially offset by favourable pricing. The increase in gross profit includes a favourable foreign exchange rate variation of $27 million.

Operating Expenses

The following table provides a breakdown of the Company’s Operating Expenses for the nine-month period ended October 31, 2022 compared to the nine-month period ended October 31, 2021:

 

(in millions of Canadian dollars)		Nine-month periods ended
		October 31, 2022				October 31, 2021				Variance ($)				Variance (%)
Selling and marketing			$316.0				$293.3				$22.7				7.7%
Research and development			246.7				204.7				42.0				20.5%
General and administrative			219.3				187.4				31.9				17.0%
Other operating income			(0.4)				(3.1)				2.7				NM[a]
Operating Expenses			$781.6				$682.3				$99.3				14.6%

 ^[a] NM – Not Meaningful

The increase in operating expenses was mainly attributable to an increase in R&D expenses to support future growth, higher G&A expenses mainly related to the modernization of the Company’s software infrastructure to support future growth and higher selling and marketing expenses mainly attributable to continued product investments.

 

BRP Inc.		Management’s Discussion and Analysis		16

Normalized EBITDA ^[1]

The increase in normalized EBITDA ^[1] was primarily due to higher gross profit, partially offset by higher operating expenses.

Net Financing Costs

The decrease in net financing costs was primarily attributable to transaction costs incurred on the Term Facility following the amendment completed during the first quarter of Fiscal 2022, as well as the $21.3 million loss on the NCIB in Fiscal 2022 compared to the $1.8 million gain in the first quarter of Fiscal 2023. The gains and losses on the NCIB represent the difference between the share price used to establish the financial liability and the amount actually paid to repurchase shares during the regulatory restrictions or self-imposed blackout periods. The decrease was partially offset by higher interest expense on the Term Facility due to a higher average interest rate and a higher interest expense on revolving credit facilities due to a higher usage.

Income Taxes

The increase in income tax expense was primarily due to a higher operating income, partially offset by the tax and accounting treatment of the property, plant and equipment from Mexican operations. The effective income tax rate amounted to 29.4% for the nine-month period ended October 31, 2022 compared to the 25.8% for the nine-month period ended October 31, 2021. The increase resulted primarily from the tax and accounting treatment of the foreign exchange (gain) loss on the Term Facility, partially offset by the tax and accounting treatment of property, plant and equipment from Mexican operations.

Net Income

The decrease in net income was primarily due to the unfavourable impact of the foreign exchange rate variation on the U.S. denominated long-term debt, partially offset by a higher operating income and lower net financing costs.

^[1] See “Non-IFRS Measures” section.

 

BRP Inc.		Management’s Discussion and Analysis		17

Analysis of Segment Results for the nine-month period ended October 31, 2022

The following section provides an overview of the financial performance of the Company’s segments for the nine-month period ended October 31, 2022 compared to the same period ended October 31, 2021. The inter-segment transactions are included in the analysis.

 

Segment results  (in millions of Canadian dollars)		Nine-month period ended								Variance ($)				Variance (%)
		October 31, 2022				October 31, 2021
Revenues [1]
Powersports
Year-Round			$3,572.3				$2,614.4				$957.9				36.6%
Seasonal			2,120.8				1,475.2				645.6				43.8%
Powersports PA&A and OEM Engines			899.1				833.2				65.9				7.9%
Marine			390.4				392.7				(2.3	)			(0.6%)
Gross profit
Powersports			1,666.5				1,465.7				200.8				13.7%
As a percentage of revenues			25.3%				29.8%				N/A				(450bps)
Marine			45.3				57.0				(11.7	)			(20.5%)
As a percentage of revenues			11.6%				14.5%				N/A				(290bps)

 ^[1] Including inter-segment transactions.

Powersports

Revenues

Year-Round Products

The increase in revenues from Year-Round Products was primarily attributable to a higher volume of SSV sold due to added capacity, a higher volume of 3WV sold and favourable pricing across all product lines. The increase includes a favourable foreign exchange rate variation of $51 million.

Seasonal Products

The increase in revenues from Seasonal Products is primarily attributable to a higher volume of snowmobiles sold due to late shipments of model year 2022 units completed in the first quarter of Fiscal 2023 caused by supply chain disruptions, the introduction of the Sea-Doo pontoon and a higher volume of PWC sold. The increase was also attributable to a favourable pricing of PWC and snowmobiles sold. The increase includes an unfavourable foreign exchange rate variation of $14 million.

Powersports PA&A and OEM Engines

The increase in revenues from Powersports PA&A and OEM Engines was mainly attributable to favourable pricing and the introduction of the Sea-Doo pontoon. The increase includes an unfavourable foreign exchange rate variation of $6 million.

Gross Profit

The increase in gross profit was the result of a favourable volume of SSV, 3WV, snowmobiles and PWC sold and a favourable pricing, partially offset by higher logistics, commodities and labour costs due to inefficiencies relating to supply chain disruptions, as well as higher sales programs resulting from historical low levels in Fiscal 2022. The decrease in gross profit margin percentage was mainly attributable to higher logistics, commodities and labour costs, partially offset by favourable pricing. The increase in gross profit includes a favourable foreign exchange rate variation of $29 million.

 

BRP Inc.		Management’s Discussion and Analysis		18

Marine

Revenues

The decrease in revenues from the Marine segment was mainly due to a lower volume of boats and PA&A sold in light of supply chain disruptions, partially offset by a favourable product mix of boats sold, as well as favourable pricing.

Gross Profit

The gross profit decrease was primarily due to higher logistics, commodities and labour costs due to inefficiencies relating to supply chain disruptions, partially offset by favourable pricing.

Geographical Trends for the nine-month period ended October 31, 2022

Revenues

 

Revenues by geography  (in millions of Canadian dollars)		Nine-month periods ended								Variance ($)				Variance (%)
		October 31, 2022				October 31, 2021
Revenues ($)
United States			$4,264.8				$2,981.9				$1,282.9				43.0%
Canada			1,077.9				864.8				213.1				24.6%
International			1,614.4				1,453.7				160.7				11.1%
Total Revenues ($)			$6,957.1				$5,300.4
Revenues (%)
United States			61.3%				56.3%				N/A				500bps
Canada			15.5%				16.3%				N/A				(80bps)
International			23.2%				27.4%				N/A				(420bps)
Total Revenues (%)			100.0%				100.0%

United States

The increase in revenues from the United States was primarily due to the favourable volume of Year-Round Products and Seasonal Products sold, as well as favourable pricing across all product lines. The increase includes a favourable foreign exchange impact of $110 million.

Canada

The increase in revenues from Canada was primarily due to a higher volume of Year-Round Products and Seasonal Products and a favourable pricing across all product lines, partially offset by higher sales programs.

International

The increase in revenues from International was primarily due to a higher volume of Year-Round Products and Seasonal Products, as well as a favourable pricing across all product lines. The increase includes an unfavourable foreign exchange impact of $76 million.

 

BRP Inc.		Management’s Discussion and Analysis		19

Foreign Exchange

The key average exchange rates used to translate foreign-denominated revenues and expenses, excluding any effect of the Company’s hedging program for the three- and nine-month periods ended October 31, 2022 were as follows:

		Three-month periods ended								Nine-month periods ended
		October 31, 2022				October 31, 2021				October 31, 2022				October 31, 2021
U.S. dollars (CA$/US$)			1.3314				1.2569				1.2950				1.2480
Euro (CA$/€)			1.3255				1.4719				1.3562				1.4855

The key period-end exchange rates used to translate foreign-denominated assets and liabilities were as follows:

 

		October 31, 2022								January 31, 2022
U.S. dollars (CA$/US$)			1.3641								1.2696
Euro (CA$/€)			1.3482								1.4234

When comparing the operating income and the income before income tax for the three- and nine-month periods ended October 31, 2022 and 2021, the impact of foreign exchange fluctuations were as follows:

 

		Foreign exchange (gain) loss
(in millions of Canadian dollars)		Three-month period				Nine-month period
Revenues			$(51.0)				$(34.0)
Cost of sales			22.0				7.0
Impact of foreign exchange fluctuations on gross profit			(29.0)				(27.0)
Operating expenses			6.6				(0.6)
Impact of foreign exchange fluctuations on operating income			(22.4)				(27.6)
Long-term debt			142.5				207.5
Net financing costs			3.0				2.3
Impact of foreign exchange fluctuations on income before income taxes			$123.1				$182.2

 

BRP Inc.		Management’s Discussion and Analysis		20

Liquidity and Capital Resources

Liquidity

The Company’s primary sources of cash consist of existing cash balances, operating activities and available borrowings under the Revolving Credit Facilities and Term Facility.

The Company’s primary use of cash is to fund operations, working capital requirements and capital expenditures in connection with product development and manufacturing infrastructure. The fluctuation of working capital requirements is primarily due to the seasonality of the Company’s production schedule and product shipments.

A summary of net cash flows by activity for the nine-month periods ended October 31, 2022 and 2021 is presented below:

 

		Nine-month periods ended
(millions of Canadian dollars)		October 31, 2022				October 31, 2021
Net cash flows generated from operating activities			$342.3				$61.2
Net cash flows used in investing activities			(599.5)				(358.8)
Net cash flows generated from (used in) financing activities			80.6				(1,004.2)
Effect of exchange rate changes on cash and cash equivalents			(29.3)				10.4
Net decrease in cash and cash equivalents			(205.9)				(1,291.4)
Cash and cash equivalents at beginning of period			265.8				1,325.7
Cash and cash equivalents at end of period			$59.9				$34.3
Free cash flow [1]			$(54.2)				$(303.5)

Net Cash Flows Generated from Operating Activities

A summary of cash flows from operating activities for the nine-month periods ended October 31, 2022 and 2021 is presented below:

 

		Nine-month periods ended
(millions of Canadian dollars)		October 31, 2022				October 31, 2021
Net income			$500.3				$585.0
Non-cash and non-operating items			650.3				469.9
Changes in working capital			(528.3)				(854.4)
Income taxes paid, net of refunds			(280.0)				(139.3)
Net cash flows generated from operating activities			$342.3				$61.2

Net cash flows generated from operating activities totalled $342.3 million for the nine-month period ended October 31, 2022 compared to $61.2 million for the nine-month period ended October 31, 2021. The $281.1 million increase in net cash flows generated was mainly due to favourable changes in working capital. The favourable changes in working capital were primarily driven by higher provisions. These are attributable to higher sales programs resulting from historical low levels in Fiscal 2022. The increase was partially offset by higher income taxes paid, mainly due to a higher income taxes expense for Fiscal 2022.

^[1] See “Non-IFRS Measures” section.

 

BRP Inc.		Management’s Discussion and Analysis		21

Net Cash Flows Used in Investing Activities

A summary of cash flows from investing activities for the nine-month periods ended October 31, 2022 and 2021 is presented below:

 

		Nine-month periods ended
(millions of Canadian dollars)		October 31, 2022				October 31, 2021
Additions to property, plant and equipment			$(353.1)				$(319.9)
Additions to intangible assets			(43.4)				(44.8)
Business combinations, net of acquired cash			(208.8)				—
Other			5.8				5.9
Net cash flows used in investing activities			$(599.5)				$(358.8)

Net cash flows used in investing activities totalled $599.5 million for the nine-month period ended October 31, 2022 compared to $358.8 million for the nine-month period ended October 31, 2021. The $240.7 million increase was mainly attributable to the acquisition of Pinion and KA Shawinigan.

Net Cash Flows Generated from (Used in) Financing Activities

A summary of cash flows from financing activities for the nine-month periods ended October 31, 2022 and 2021 is presented below:

 

		Nine-month periods ended
(millions of Canadian dollars)		October 31, 2022				October 31, 2021
Increase in revolving credit facilities and bank overdraft			$365.1				$58.5
Repurchase of subordinate voting shares			(305.5)				(638.2)
Dividends paid			(38.2)				(32.4)
Issuance of long-term debt			244.5				410.0
Repayment of long-term debt			(94.8)				(774.1)
Other			(90.5)				(28.0)
Net cash flows generated from (used in) financing activities			$80.6				$(1,004.2)

Net cash flows generated from financing activities totalled $80.6 million for the nine-month period ended October 31, 2022 compared to net cash flows used in financing activities in the amount of $1,004.2 million for the nine-month period ended October 31, 2021. The $1,084.8 million increase in net cash flows generated was mainly attributable to a lower net repayment of debt, an increase in revolving credit facilities used and a lower amount invested to repurchase shares for cancelation under the Company’s NCIB in the nine-month period ended October 31, 2022.

 

BRP Inc.		Management’s Discussion and Analysis		22

Contractual Obligations

The following table summarizes the Company’s significant contractual obligations as at October 31, 2022:

 

(millions of Canadian dollars)		Less than 1 year				1-3 years				4-5 years				More than 5 years				Total amount
Trade payables and accruals			$1,858.4				$—				$—				$—				$1,858.4
Long-term debt (including interest)			179.5				485.6				2,175.1				56.4				2,896.6
Lease liabilities (including interest)			39.9				59.2				31.7				45.8				176.6
Derivative financial instruments			70.0				11.2				—				—				81.2
Other financial liabilities			65.5				25.5				0.5				26.9				118.4
Total			$2,213.3				$581.5				$2,207.3				$129.1				$5,131.2

The Company enters into purchasing agreements with suppliers related to material used in production. These agreements are usually entered into before production begins and may specify a fixed or variable quantity of material to be purchased. Due to the uncertainty as to the amount and pricing of material that may be purchased, the Company is not able to determine with precision its commitments in connection with these supply agreements.

Management believes that the Company’s operating activities and available financing capacity will provide adequate sources of liquidity to meet its short-term and long-term needs.

 

BRP Inc.		Management’s Discussion and Analysis		23

Capital Resources

Revolving Credit Facilities

On February 16, 2022, the Company amended its $800.0 million revolving credit facilities to increase the availability to $1,100.0 million and replace LIBOR with the Secured Overnight Financing Rate (‘‘SOFR’’) as the benchmark interest rate. Subsequently, on June 10, 2022, the Company added an additional $400 million to its available commitment under its revolving credit facilities, increasing the total availability to $1,500.0 million. The pricing grid and other conditions remained unchanged for both increases.

The applicable interest rates vary depending on a leverage ratio. The leverage ratio is defined in the Revolving Credit Facilities agreement by the ratio of net debt to consolidated cash flows of the Company (the “Leverage ratio”). The applicable interest rates are as follows:

 

Currency		Applicable Interest Rates
U.S. dollars at either		◾   Term SOFR plus 1.45% to 3.00% per annum; or ◾   U.S. Base Rate plus 0.45% to 2.00% per annum; or ◾   U.S. Prime Rate plus 0.45% to 2.00% per annum;
Canadian dollars at either		◾   Bankers’ Acceptance plus 1.45% to 3.00% per annum; or ◾   Canadian Prime Rate plus 0.45% to 2.00% per annum
Euros		◾   EURIBOR plus 1.45% to 3.00% per annum

In addition, the Company incurs commitment fees of 0.25% to 0.40% per annum on the undrawn amount of the Revolving Credit Facilities.

As at October 31, 2022, the cost of borrowing under the Revolving Credit Facilities was as follows:

 

Currency		Cost of Borrowing
U.S. dollars at either		◾   Term SOFR plus 1.70% per annum; or ◾   U.S. Base Rate plus 0.70% per annum; or ◾   U.S. Prime Rate plus 0.70% per annum;
Canadian dollars at either		◾   Bankers’ Acceptance plus 1.70% per annum; or ◾   Canadian Prime Rate plus 0.70% per annum
Euros		◾   EURIBOR plus 1.70% per annum

As at October 31, 2022, the commitment fees on the undrawn amount of the Revolving Credit Facilities were 0.25% per annum.

Under certain conditions, the Company is required to maintain a minimum fixed charge coverage ratio in order to have full access to its Revolving Credit Facilities. Additionally, the total available borrowing under the Revolving Credit Facilities is subject to a borrowing base calculation representing 75% of the carrying amount of trade and other receivables plus 50% of the carrying amount of inventories.

As at October 31, 2022 and January 31, 2022, the Company had contracted the following indebtedness:

 

(millions of Canadian dollars)		October 31, 2022				January 31, 2022
Revolving credit facilities and bank overdraft			$363.1				$—
Issued letters of credit			30.8				20.6
Outstanding letters of credit under other bank agreements			5.5				4.5

 

BRP Inc.		Management’s Discussion and Analysis		24

Term Facility

On June 14, 2022, the Company entered into an incremental U.S. $100.0 million tranche under its Term Facility. This new tranche matures in June 2024 and, consistent with the existing tranche of the Term Facility, is exempt of financial covenants. The Company incurred transaction costs of $1.1 million, which have been incorporated in the carrying amount of this new tranche of the Term Facility and are amortized over its expected life using the effective interest rate method.

As at October 31, 2022, the cost of borrowing under the Term Loan was as follows:

 

Loan		Cost of Borrowing
Term Loan B-1		◾   2.00% per annum, with a LIBOR floor of 0.00%; or ◾   U.S. Base Rate plus 1.00%; or ◾   U.S. Prime Rate plus 1.00%
Term Loan B-2		◾   Term SOFR plus 3.00% per annum, with a Term SOFR floor of 0.5%; or ◾   U.S. Base Rate plus 2.00%

Under the Term Facility, the cost of borrowing in U.S. Base Rate or U.S. Prime Rate cannot be lower than the cost of borrowing in LIBOR.

The Company is required to repay a minimum of 0.25% of the nominal amount each quarter. Consequently, the Company repaid an amount of U.S. $11.4 million ($14.9 million) during the nine-month period ended October 31, 2022. Also, the Company may be required to repay a portion of the Term Facility in the event that it has an excess cash position at the end of the fiscal year and its leverage ratio is above a certain threshold level. As at October 31, 2022, the Company was not required to repay any portion of the Term Facility under this requirement.

Austrian Term Loans

On May 5, 2022, the Company fully repaid the balance of its €55.0 million ($74.2 million) unsecured loan contracted under an Austrian government COVID-19 program in Fiscal 2021.

During the nine-month period ended October 31, 2022, the Company entered into unsecured loan agreements at favourable interest rates under an Austrian government program. This program supports research and development projects based on the Company’s incurred expenses in Austria. The term loans have a nominal amount of €86.8 million ($116.7 million) with an interest rate varying between 0.50% and 0.84% with maturity dates varying from June 2025 to June 2029

As at October 31, 2022, the Company had €138.8 million ($187.1 million) outstanding under its Austrian term loans bearing interest at a range between 0.80% and 2.70% and maturing between December 2022 and December 2030.

Lease Liabilities

As at October 31, 2022, the contractual obligations in relation to assets acquired under lease agreements amounted to $176.6 million.

Normal Course Issuer Bid Program

During the nine-month period ended October 31, 2022, the Company continued its repurchases under the NCIB that was announced and started during the fiscal year ended January 31, 2022 and repurchased for cancellation 463,950 subordinate voting shares for a total consideration of $47.2 million.

 

BRP Inc.		Management’s Discussion and Analysis		25

Substantial issuer bid offer

During the nine-month period ended October 31, 2022, the Company repurchased for cancellation 2,427,184 subordinate voting shares following the completion of its SIB for a total consideration of $250.0 million. Prior to the completion of the SIB, 570,779 multiple voting shares were converted into an equivalent number of subordinate voting shares. These converted shares were repurchased in the SIB. The Company incurred $1.0 million of fees and expenses related to the SIB, which were recorded in capital stock.

Dividend

On November 29, 2022, the Company’s Board of Directors declared a quarterly dividend of $0.16 per share for holders of its multiple voting shares and subordinate voting shares. The dividend will be paid on January 13, 2023 to shareholders of record at the close of business on December 30, 2022.

The Board of Directors has determined that this quarterly dividend is appropriate based on several relevant factors, including, without limitation, the Company’s results of operations, current and anticipated cash requirements and surplus, financial condition, contractual restrictions and financing agreement covenants (including restrictions in the Term Facility and the Revolving Credit Facilities or other material agreements) and solvency tests imposed by corporate law.

The payment of each quarterly dividend remains subject to the declaration of that dividend by the Board of Directors. The actual amount, the declaration date, the record date and the payment date of each quarterly dividend are subject to the discretion of the Board of Directors.

 

BRP Inc.		Management’s Discussion and Analysis		26

Consolidated Financial Position

The following table reflects the main variances that have occurred in the Company’s unaudited condensed consolidated interim statements of financial position between October 31, 2022 and January 31, 2022, the impact of the fluctuation of exchange rates on such variances, the related net variance (excluding the impact of the fluctuation of exchange rates on such variances) as well as explanations for the net variance:

 

(millions of Canadian  dollars)		October 31, 2022				January 31, 2022				Variance				Exchange Rate Impact				Net Variance				Explanation of Net Variance
Trade and other  receivables			$523.7				$465.7				$58.0				$8.6				$66.6			Mostly explained by an increase of sales not financed by third-party financing service providers
Inventories			2,474.8				1,691.3				783.5				(32.7)				750.8			Mostly explained by higher work in progress inventory due to supply chain disruptions, by higher raw material inventory for upcoming production and by higher finished product inventory for upcoming deliveries
Property, plant  and equipment			1,614.0				1,441.9				172.1				8.9				181.0			Mostly explained by continued capacity investments in property, plant and equipment
Trade payables and  accruals			1,858.4				1,622.9				235.5				(16.9)				218.6			Mostly explained by higher purchases for upcoming production, partially offset by adjusted payment terms to suppliers as part of a sourcing strategy amid the global supply chain disruptions
Provisions			600.6				414.3				186.3				(21.5)				164.8			Mostly explained by higher sales programs resulting from historic low levels in Fiscal 2022
Deferred revenues			249.3				355.2				(105.9)				(15.5)				(121.4)			Mostly explained by the lower value of substantially completed units at dealers
Long-term debt,  including current portion			2,332.0				2,040.5				291.5				(141.7)				149.8			Mostly explained by the new U.S. $100.0 million Term B-2 tranche.
Employee future benefit  liabilities			84.8				220.2				(135.4)				5.7				(129.7)			Mostly explained by the 190bps increase in discount rate for the Canadian defined benefit obligations and 265bps for the foreign plans.

 

BRP Inc.		Management’s Discussion and Analysis		27

Off-Balance Sheet Arrangements

Dealer and Distributor Financing Arrangements

The Company, most of its independent dealers and some of its independent distributors are parties to agreements with third-party financing service providers. These agreements provide financing to facilitate the purchase of the Company’s products and improve the Company’s working capital by allowing an earlier collection of accounts receivable from dealers and distributors. Approximately three-quarters of the Company’s sales are made under such agreements. The parties listed above have agreements with Huntington Distribution Finance, Inc., Huntington Commercial Finance Canada Inc., Huntington Commercial Finance LLC and Huntington Commercial Finance New Zealand Ltd (collectively, “Huntington”), to provide financing facilities in North America, Australia and New Zealand, and with Wells Fargo Commercial Distribution Finance, Wells Fargo Bank International, Wells Fargo International Finance LLC and Wells Fargo International Finance (New Zealand) Limited (collectively “Wells Fargo”) for financing facilities in North America, Europe and Australia. The agreement between the Company and Huntington will expire on January 31, 2023. For most of the contracts with Wells Fargo, the maximum commitment period is up to November 29, 2023.

The total amount of financing provided to the Company’s independent dealers and distributors totalled $2,097.7 million and $5,862.9 million for the three- and nine-month periods ended October 31, 2022, compared to $1,042.1 million and $4,108.1 million for the three- and nine-month periods ended October 31, 2021. The outstanding financing between the Company’s independent dealers and distributors and third-party finance companies amounted to $2,262.4 million and $1,319.4 million as at October 31, 2022, and January 31, 2022, respectively.

The breakdown of outstanding amounts by country and local currency between the Company’s independent dealers and distributors with third-party finance companies were as follows, as at:

 

(in millions)		Currency				October  31, 2022				January  31, 2022
Total outstanding			CAD				$2,262				$1,319
United States			USD				$1,151				$737
Canada			CAD				$533				$266
Europe			EUR				€51				€32
Australia and New Zealand			AUD				$104				$81

The costs incurred by the Company under the dealers’ and distributors’ financing agreements totalled $26.9 million and $56.0 million for the three- and nine-month periods ended October 31, 2022 compared to $4.7 million and $17.6 million for the three- and nine-month periods ended October 31, 2021.

Under the dealer and distributor financing agreements, in the event of default, the Company may be required to purchase, from the finance companies, repossessed new and unused products at the total unpaid principal balance of the dealer or distributor to the finance companies. During Fiscal 2022, the Company renegotiated and regrouped some of its repurchase obligations for obligations that were held with the same third-party financing providers. Henceforth, the obligations are limited to the higher of U.S. $14.0 million ($19.1 million) or 15% of the calendar year twelve-month average amount of financing outstanding under the financing agreements and U.S. $25.0 million ($34.1 million) or 10% of the last twelve-month average amount of financing outstanding under the financing agreements ($139.6 million as at October 31, 2022).

The maximum amount subject to the Company’s obligation to purchase repossessed new and unused products from the finance companies was $159 million as at October 31, 2022 and $102 million as at January 31, 2022.

The Company did not incur significant losses related to new and unused products repossessed by the finance companies for the three- and nine-month periods ended October 31, 2022 and 2021.

 

BRP Inc.		Management’s Discussion and Analysis		28

Substantially completed units financing

During Fiscal 2022, the Company amended one of its dealer and distributor financing agreement to allow for the financing of the substantially completed units shipped at the Company’s dealers. The financing of those substantially completed units is conditional upon certain financial thresholds. Under the amended agreement, the Company’s dealers are required to respect certain thresholds regarding the substantially completed units shipped to them (“Thresholds”).

As at October 31, 2022, the total maximum outstanding obligations of all dealers for substantially completed units could not exceed U.S. $600 million ($818.5 million). This limit is set to be gradually reduced to reach U.S. $300.0 million ($409.2 million) as of January 31, 2024 and nil as of April 30, 2024. The maximum outstanding obligations of any individual dealer at any time for substantially completed units shall not exceed U.S. $18 million ($24.6 million). In addition, the maximum obligations by all dealers for seasonal products are limited to U.S. $50 million ($68.2 million) for snowmobiles as at April 30, 2023 and U.S. $225 million ($306.9 million) for PWC as at October 30, 2022.

In the event one of the Thresholds is exceeded, the Company would be required to reduce the outstanding dealers’ financing by assuming such financing until compliance with Thresholds. The substantially completed units stop being considered within the Thresholds limits when all the missing components are installed by the dealers. The Company was in compliance with the Thresholds as at October 31, 2022.

Consumer Financing Arrangements

The Company has contractual relationships with third-party financing companies in order to facilitate consumer credit for the purchase of its products in North America. The agreements generally allow the Company to offer a subsidized interest rate to consumers for a certain limited period under certain sales programs. In Canada, the Company has agreements with TD Financing Services and the Fédération des caisses Desjardins du Québec for such purposes. In the United States, the Company has agreements with Sheffield Financial, Citi Retail Services and Roadrunner Financial. Under these contracts, the Company’s financial obligations are related to the commitments made under certain sales programs.

 

BRP Inc.		Management’s Discussion and Analysis		29

Transaction Between Related Parties

Transactions with Bombardier Inc., a Company Related to Beaudier Group

Pursuant to the purchase agreement entered into in 2003 in connection with the acquisition of the recreational product business of Bombardier Inc., the Company committed to reimburse to Bombardier Inc. income taxes amounting to $23.1 million as at October 31, 2022 and $22.1 million as at January 31, 2022, respectively. The payments will begin when Bombardier Inc. starts making income tax payments in Canada and/or in the United States. The Company does not expect to make any payments to Bombardier Inc. in relation to that obligation for Fiscal 2023.

Financial Instruments

The Company’s financial instruments, divided into financial assets and financial liabilities, are measured at the end of each period at fair value or amortized costs using the effective interest method depending on their classification determined by IFRS. By nature, financial assets are exposed to credit risk whereas financial liabilities are exposed to liquidity risk. Additionally, the Company’s financial instruments and transactions could be denominated in foreign currency creating a foreign exchange exposure that could be mitigated by the use of derivative financial instruments. The Company is to a lesser extent exposed to interest risk associated to its Revolving Credit Facilities, Term Facility and Austrian term loans.

Foreign Exchange Risk

The elements reported in the consolidated statements of net income, in the consolidated statements of financial position and in the consolidated statements of cash flows presented in the Company’s unaudited condensed consolidated interim financial statements in Canadian dollars are significantly exposed to the fluctuation of exchange rates, mainly the Canadian dollar/U.S. dollar rate and the Canadian dollar/euro rate.

The Company’s cash inflows and outflows are mainly comprised of Canadian dollars, U.S. dollars and euros. The Company intends to maintain, as a result of its business transactions, a certain offset position on U.S. dollar and euro denominated cash inflows and outflows.    

For some currencies over which the Company cannot achieve an offset through its recurring business transactions, mainly the U.S. dollar, the Australian dollar, the Swedish krona, the Norwegian krone and the British pound, the Company uses foreign exchange contracts according to the Company’s hedging strategy. Management periodically reviews the relevant hedging position and may hedge at any level within the authorized parameters of the policy, up to the maximum percentage allowed. Those contracts are accounted for under the cash flow hedge model covering highly probable forecasted sales in these currencies, and the gains or losses on those derivatives are recorded in net income only when the forecasted sales occur.    

Finally, the Company reduces the exposure on its net income arising from the revaluation at period-end of monetary items denominated in a different functional currency by using foreign exchange contracts. Those contracts are recorded in net income at each period end in order to mitigate the gains or losses resulting from the revaluation at spot rate of these foreign-denominated liabilities.

While the Company’s operating income is protected, to a certain extent, from significant fluctuations of foreign exchange rates resulting from the application of the Company’s hedging strategy, the net income is significantly exposed to Canadian dollar/U.S. dollar rate fluctuations due to the U.S. dollar-denominated long-term debt. However, there is a monetary impact for the Company only to the extent the Term Facility is repaid.

 

BRP Inc.		Management’s Discussion and Analysis		30

Liquidity Risk

The Company is exposed to the risk of encountering difficulty in meeting obligations related to its financial liabilities. In order to manage its liquidity risk accurately, the Company continuously monitors its operating cash requirements taking into account the seasonality of the Company’s working capital needs, revenues and expenses. The Company believes the cash flows generated from operations combined with its cash on hand and the availability of funds under its credit facilities ensures its financial flexibility and mitigates its liquidity risk.

Credit Risk

The Company could be exposed, in the normal course of business, to the potential inability of dealers, distributors and other business partners to meet their contractual obligations on financial assets and on amounts guaranteed under dealer and distributor financing arrangements with Huntington and Wells Fargo.

The Company considers that its credit risk associated with its trade receivables and its limited responsibilities under the dealer and distributor financing agreements with Huntington and Wells Fargo does not represent a significant concentration of risk and loss due to the large number of dealers, distributors and other business partners and their dispersion across many geographic areas. Moreover, the Company mitigates such risk by doing business through its own distribution channels and by monitoring the creditworthiness of the dealers and distributors in the different geographic areas.

Interest Rate Risk

The Company is exposed to the variation of interest rates mainly resulting from the LIBOR and SOFR on its Term Facility. However, the Company entered into interest rate cap contracts, which limit its exposure to interest rate increase.

 

BRP Inc.		Management’s Discussion and Analysis		31

Non-IFRS Measures and Reconciliation Tables

The Company uses non-IFRS measures and ratio, including the following:

 

Non-IFRS measures		Definition		Reason for use
Normalized EBITDA		Net income before financing costs, financing income, income tax expense (recovery), depreciation expense and normalized elements		Assist management and investors in determining the financial performance of the Company’s operating activities on a consistent basis by excluding certain non-cash elements such as depreciation expense, impairment charge, foreign exchange gain or loss on the Company’s long-term debt denominated in U.S. dollars and foreign exchange gain or loss on certain of the Company’s lease liabilities. Other elements, such as restructuring, cybersecurity incident and wind-down costs, non-recurring gain or loss and acquisition-related costs, may be excluded from net income in the determination of Normalized EBITDA as they are considered not being reflective of the operational performance of the Company
Normalized net income		Net income adjusted of normalized elements and related tax effect		In addition to the financial performance of operating activities, these measures consider the impact of investing activities, financing activities and income taxes on the Company’s financial results
Normalized income tax expense		Income tax expense adjusted to reflect the tax effect on normalized elements and to normalize specific tax elements
Normalized effective tax rate		Based on Normalized net income before Normalized income tax expense
Normalized earnings per share – basic & diluted		Calculated respectively by dividing the Normalized net income by the weighted average number of shares – basic and the weighted average number of shares – diluted
Free cash flow		Cash flows from operating activities less additions to PP&E and intangible assets		Assist management and investors in assessing the Company’s liquidity generation abilities that could be available for shareholders’ distributions, debt repayment and business combination, after capital expenditures

The Company believes non-IFRS measures are important supplemental measures of financial performance because they eliminate items that have less bearing on the Company’s financial performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS measures. The Company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of companies, many of which present similar metrics when reporting their results. Management also uses non-IFRS measures in order to facilitate financial performance comparisons from period to period, prepare annual operating budgets, assess the Company’s ability to meet its future debt service, capital expenditure and working capital requirements and also as a component in the determination of the short-term incentive compensation for the Company’s employees. Because other companies may calculate these non-IFRS measures differently than the Company does, these metrics are not comparable to similarly titled measures reported by other companies.

 

BRP Inc.		Management’s Discussion and Analysis		32

Reconciliation Tables

The following table presents the reconciliation of Net income to Normalized net income ^[1] and Normalized EBITDA ^[1].

 

		Three-month periods ended								Nine-month periods ended
(in millions of Canadian dollars)		October 31, 2022				October 31, 2021				October 31, 2022				October 31, 2021
Net income			$141.6				$127.7				$500.3				$585.0
Normalized elements
Foreign exchange (gain) loss on long-term debt and lease liabilities			133.0				(10.4)				149.0				(61.7)
Cybersecurity incident costs [2]			23.3				—				23.3				—
(Gain) loss on NCIB			—				—				(1.8)				21.3
Depreciation of intangible assets related to business combinations			1.5				1.0				3.6				3.1
Transaction costs and other related expenses [3]			2.1				—				2.1				5.8
Evinrude outboard engine wind-down [4]			—				(0.7)				—				1.7
Restructuring and related costs [5]			0.8				—				0.8				(0.1)
Transaction costs on long-term debt [6]			—				—				—				44.3
Other elements			—				0.1				1.1				2.9
Income tax adjustment [1] [7]			(9.8)				6.0				(10.9)				(7.1)
Normalized net income [1]			292.5				123.7				667.5				595.2
Normalized income tax expense			87.6				45.9				219.4				210.0
Financing costs adjusted			33.3				16.4				77.4				49.4
Financing income adjusted			(0.3)				(0.7)				(2.8)				(3.5)
Depreciation expense adjusted			74.8				66.4				216.8				194.6
Normalized EBITDA [1]			$487.9				$251.7				$1,178.3				$1,045.7

 

[1]	See “Non-IFRS Measures” section.

 

[2]	During Fiscal 2023, the Company incurred costs related to a cybersecurity incident. These costs are mainly comprised of recovery costs, idle costs such as direct labor during shutdown period, etc.

 

[3]	Costs related to business combinations.

 

[4]	The Company incurred costs related to the wind-down of the outboard engine production such as, but not limited to, idle costs and other exit costs.

 

[5]	The Company is involved, from time to time, in restructuring and reorganization activities in order to gain flexibility and improve efficiency. The costs related to these activities are mainly composed of severance costs and retention salaries.

 

[6]	During Fiscal 2022, the Company incurred a prepayment premium of $15.1 million and derecognized unamortized transaction costs of $29.2 million related to the full repayment of its outstanding U.S. $597.0 million Term Loan B-2.

 

[7]

Income tax adjustment is related to the income tax on Normalized elements subject to tax and for which income tax has been recognized, adjustment related to the impact of foreign currency translation from Mexican operations, as well as the unrecognized tax benefits related to Evinrude outboard engine wind-down in Fiscal 2021.

The following table presents the reconciliation of Net Cash Flows from Operating Activities to Free Cash Flow ^[1].

 

(millions of Canadian dollars)		Nine-month periods ended
		October 31, 2022				October 31, 2021
Net cash flows generated from operating activities			$342.3				$61.2
Additions to property, plant and equipment			353.1				319.9
Additions to intangible assets			43.4				44.8
Free cash flow [1]			$(54.2)				$(303.5	)

 ^[1] See “Non-IFRS Measures” section.

 

BRP Inc.		Management’s Discussion and Analysis		33

The following table presents the reconciliation of items as included in the Normalized net income^[1] and Normalized EBITDA ^[1] compared to respective IFRS measures as well as the Normalized EPS – basic and diluted ^[1] calculation.

 

(millions of Canadian dollars, except per share data)		Three-month periods ended								Nine-month periods ended
		October 31, 2022				October 31, 2021				October 31, 2022				October 31, 2021
Depreciation expense reconciliation
Depreciation expense			$76.3				$67.4				$220.4				$199.1
Depreciation of intangible assets related to business combinations			1.5				1.0				3.6				3.1
Evinrude outboard engine wind-down [2]			—				—				—				1.4
Depreciation expense adjusted			$74.8				$66.4				$216.8				$194.6
Income tax expense reconciliation
Income tax expense			$77.8				$51.9				$208.5				$202.9
Income tax adjustment [3]			(9.8)				6.0				(10.9)				(7.1)
Normalized income tax expense [1]			$87.6				$45.9				$219.4				$210.0
Financing costs reconciliation
Financing costs			$33.1				$16.5				$77.4				$114.9
Transaction costs on long-term debt [4]			—				—				—				44.3
Loss on NCIB			—				—				—				21.3
Other			(0.2)				0.1				—				(0.1)
Financing costs adjusted			$33.3				$16.4				$77.4				$49.4
Financing income reconciliation
Financing income			$(0.3)				$(0.7)				$(4.6)				$(3.5)
Gain on NCIB			—				—				(1.8)				—
Financing income adjusted			$(0.3)				$(0.7)				$(2.8)				$(3.5)
Normalized EPS - basic [1] calculation
Normalized net income [1]			$292.5				$123.7				$667.5				$595.2
Non-controlling interests			0.4				0.1				1.7				0.5
Weighted average number of shares - basic			78,735,106				81,168,487				79,573,969				83,312,905
Normalized EPS - basic [1]			$3.71				$1.52				$8.37				$7.14
Normalized EPS - diluted [1] calculation
Normalized net income [1]			$292.5				$123.7				$667.5				$595.2
Non-controlling interests			0.4				0.1				1.7				0.5
Weighted average number of shares - Diluted			80,253,434				83,525,890				81,137,287				85,791,361
Normalized EPS - diluted [1]			$3.64				$1.48				$8.21				$6.93

 

[1]	See “Non-IFRS Measures” section.

 

[2]	During Fiscal 2022, the Company incurred costs related to the wind-down of the outboard engine production such as, but not limited to, idle costs and other exit costs.

 

[3]

Income tax adjustment is related to the income tax on Normalized elements subject to tax and for which income tax has been recognized, adjustment related to the impact of foreign currency translation from Mexican operations, as well as the unrecognized tax benefits related to Evinrude outboard engine wind-down in Fiscal 2021.

 

[4]	During Fiscal 2022, the Company incurred a prepayment premium of $15.1 million and derecognized unamortized transaction costs of $29.2 million related to the full repayment of its outstanding U.S. $597.0 million Term Loan B-2.

 

BRP Inc.		Management’s Discussion and Analysis		34