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Welcome to the Polaris First Quarter 2025 Earnings Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to J.C. Weigelt, Vice President of Investor Relations. Please go ahead.

Thank you, Alison, and good morning or afternoon, everyone. I’m J.C. Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2025 first quarter earnings call. We will reference a slide presentation today, which is accessible on our website at ir.polaris.com. Joining me on the call today are Mike Speetzen, our Chief Executive Officer; and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing the 2025 first quarter as well as our expectations for 2025 then we’ll take your questions. During the call, we will be discussing various topics, which should be considered forward-looking for the purpose of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements. You can refer to our 2024 10-K for additional details regarding risks and uncertainties. All references to 2025 first quarter actual results and future period guidance are for our continuing operations, and are reported on an adjusted non-GAAP basis, unless otherwise noted. Please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments. Now I will turn the call over to Mike Speetzen. Go ahead, Mike.

Thanks, J.C., and good morning, everyone. Thank you for joining us today. 2025 has continued to be a dynamic period for our industry. These are certainly challenging times, but we’re managing the situation thoughtfully. And as I mentioned in our last earnings call, it has become increasingly evident over the last several months that one of Polaris’ greatest strength continues to be our determined and unrelenting team, one that is willing and able to conquer any challenge. Today, Bob and I will walk through how the business performed in the first quarter, share more on our strategic approach to mitigating the impact from tariffs and discuss how we intend to emerge stronger to deliver sales growth, stronger earnings power and higher returns. In Q1, we continued to focus on managing what’s within our control. As expected, sales were down 12%, driven by our decision to continue reducing shipments to manage dealer inventory amidst a prolonged downturn in powersports and a higher promotional environment. Margins were slightly below our expectations due to elevated promotions in the industry. Tariffs did not materially impact the first quarter results due to timing and the deferral of related costs. We partially offset these headwinds through ongoing operational savings, including lower manufacturing spend and favorable material and logistics costs during the quarter. Adjusted EPS of negative $0.90 came in at the midpoint of the guidance range we provided in January. North American retail was down 7%, with relatively better performance in our utility business versus recreational products. On our prior earnings call, we highlighted the positive indicators around ridership, pent-up demand and continued interest in the powersports category. This point was reinforced this last quarter in our snowmobile business as late season snow in the flatlands resulted in strong retail growth of approximately 50% in the quarter. Additionally, in a R

Thanks, Mike. And good morning or afternoon to everyone on the call today. Our first quarter sales met expectations and the decline versus prior year was driven by planned production cuts to help manage dealer inventory. Promotions were higher than we expected, which was somewhat offset by slightly more volume than we had expected as our plants continue to improve build rates. Our international business dropped 16% due to weak markets in Off-Road and On-Road. We believe our international dealer inventory is healthier now and now positioned to grow once retail demand returns. PG&A sales were flat year-over-year, with strong parts in aftermarket apparel sales offsetting attachments on lower whole good volumes. The main challenges to our margins were volume, promotions and FX, partially offset by lower operational and warranty expenses. There was no material impact on our results from tariff cost this quarter with much of the current tariff costs deferred to later periods. Turning to Off-Road, sales were down 10% due to lower volume and higher promotions, somewhat offset by a favorable mix. The ORV industry in North America continues to be driven by weakness in consumer sentiment and dealer focused on inventory levels. While inventory continues to improve for the industry, it seems there is still more work to do before dealers feel comfortable with their position in this current environment. That said, we believe inventory levels of our vehicles and dealerships are healthy, both relative to historical norms and in comparison to other OEMs. While the late snow did not have a material impact on our sales, it did provide some relief in dealer inventory after two consecutive weeks of snow seasons. The strong retail in Q1 resulted in sequential dealer inventory coming down over 20% from Q4 2024 to Q1 2025. Gross profit margin was down 147 basis points with much of the drag being driven by promotions and the prolonged downturn in powersports and the macro economy. I do want to touch on warranty expense as this was a positive contributor to the quarter. We have invested heavily in quality over the past five-plus years, and believe we are beginning to see positive results from those investments in our model year 2025 vehicles. Like our progress with lean and operational efficiencies, we should start to see improvements in warranty positively contribute to our margins in a normalized environment. In addition, customers are taking notice of these investments as indicated by our NPS scores for product, sales and service, which are at five-year highs. Switching to On-Road, sales during the quarter were down 20%, driven by a challenging motorcycle market and the timing of engine deliveries at our Aixam business in France. For Aixam, we expect this issue to be resolved this quarter and to make up lost sales in the back half of the year. For motorcycles, it was encouraging to see the heavyweight business turnaround in the quarter, but that was not enough to offset a declining market. Indian Motorcycles gained meaningful market share during the quarter, driven by our heavyweight business. Adjusted gross profit was down 489 basis points, driven by a year-over-year mix headwinds in elevated promotions. Margins were better than we had planned due to operational efficiencies. In Marine, sales were down 7%, in line with our planned reduction in shipments as we continue to take a build-to-order approach. The latest industry data we have shows the pontoon industry is down 11% year-to-date, which is a continuation of the prolonged downturn we have seen in Marine since 2023. Within Bennington, we continue to see good traction with our new M Series pontoon, which has a rich mix versus the prior model it replaced. Also in Bennington, we recently started to ship a pontoon with standard features at a nationally advertised price, which is being well received by both dealers and consumers. Gross profit in Marine was down given unfavorable absorption from lower volumes. Moving to our financial position, we have instituted our recessionary playbook given the combination of this prolonged downturn in powersports, coupled with the uncertainty ahead of us around trade and economic policy. We did not make this decision lightly and this operating model could be short-lived if we have favorable clarity after the 90-day pause on tariffs. However, we thought it was prudent to enact these principles proactively to protect cash and maintain strategic flexibility. Our first priority is cash preservation. We made good progress in Q1 reducing working capital and generating stronger than normal free cash flow. We have also taken a fresh look at the CapEx budget and have identified a list of actions to defer at this time. These actions are focused more on maintenance versus growth or innovation. Emerging stronger is a key part of this operating model and while you will see modest reductions in R&D, these reductions will not have an impact on product launch timing. The last big bucket of actions involves managing costs. We have removed approximately 10% of our salaried workforce last year and have paused spending in some areas to help control costs. We are also evaluating a number of opportunities that would be acted upon after we have clarity on tariffs, and it makes sense both financially and strategically. We intend to be very prudent with capital until we return to a more predictable environment. But just to be clear, even as we model downside scenarios for Q2 given the current economic landscape, we do not anticipate concerns with liquidity. We are maintaining our regular dialogue with existing lending partners, including evaluating options for additional flexibility. Therefore, we plan to remain agile in this environment and expect to have more clarity around tariffs in the coming weeks. In the meantime, we are positioning ourselves prudently to withstand the turbulence and come out stronger for our employees, dealers, customers and shareholders. Given that we have withdrawn full year guidance, we thought it would be helpful to provide more information on our second quarter assumptions with the caveat that these do not incorporate any change in the current global tariff policy as it stands today. We also do not know what the impact the current environment will have on retail demand and thus, our assumptions today assume retail remains modestly lower year-over-year. First, we expect second quarter sales to be between $1.6 billion and $1.8 billion. We intend on shipping fewer units than we retail due to softer retail environment and our desire to hold dealer inventory close to current levels, coupled with our decision to delay some shipments to Canada and Europe. We are also assuming the current elevated promotional environment continues. We estimate incremental tariffs will impact the P&L between $10 million to $20 million for the quarter. Within our tariff mitigation strategy, we think it’s important to know we have three buckets of action items. The first are live actions we are already executing; second, includes actions we are reviewing and likely to execute soon; the last bucket of actions requires more clarity on trade policies before we can act. As Mike noted, if the current tariff levels do not change, particularly for China, we estimate the fiscal year 2025 net new tariff impact to our P&L after mitigation and deferral will be less than $225 million. We are in the early stages of these efforts, and the goal is to significantly reduce this burden. This does not include the original $60 million to $70 million of tariff costs we budgeted for the Section 301 tariffs. We have strong relationships with our dealers, our innovation is winning in the market and we continue to realize operational efficiencies. We do not see anything in this current environment that derails our long-term strategy to make Polaris a company with stronger earnings power and greater returns. Yes, these are certainly interesting times, but a sound strategy has us aligned so we can manage through this dynamic environment with the goal of emerging stronger. With that, I’ll turn it back over to Mike to wrap up the call. Go ahead, Mike.

Thanks, Bob. I’ll wrap up with a few comments. First, we have a plan in place to mitigate a portion of the tariff costs impacting our business. We are positioned to execute additional mitigation strategies as we gain clarity on tariff policy, including being prepared for the end of the 90-day reciprocal tariff pause on most countries. We’ve implemented our recession playbook focused on cash preservation and liquidity. We decided to implement this operating model as our industry has been in a prolonged downturn, coupled with uncertainty around tariffs and consumer health. We’ll continue to monitor the evolving environment and adapt our approach accordingly. Lastly, we haven’t lost sight of our long-term strategy, I’ve been talking about since 2022. We strongly believe in our position as the global leader in powersports. We have clear long-term financial targets that can unlock value for our shareholders. This is taking longer than we expected due to macroeconomic factors, but trust that we can measure meaningful changes happening within our operations and dealer partnerships that give me great confidence that we are making significant progress. We’re focused on the items within our control, and I believe with a little clarity, it will become more evident that all the work we’ve done has positioned Polaris to emerge stronger from this. We appreciate your continued support. And with that, I will turn it over to Alison to open the line up for questions.

Thank you. And we will now being the question-and-answer session. [Operator Instructions] And our first question today will come from Joe Altobello with Raymond James. Please go ahead.

Thanks. Hey guys, good morning. Just want to circle back on the tariff mitigation efforts that you guys are undertaking here. You did allude to potential pricing strategies, and I’m just curious how much pricing might play a role, particularly in off-road? I would think that you guys would be kind of a first mover there. And so I’m curious how much are we thinking about? And when might you need to make that call?

Yes. We provided clarity to our dealers late last week that pricing is going to remain as is through the end of May. I mean, look, the reality is, we’re going to be bearing significantly more costs than many of our competitors. But we’re also dealing with an industry that has, I would say, a fairly inelastic buyer. We’ve got retail rates that are continuing to be down. We’ve clearly been in a recession from a powersports perspective. And so adding price at this point becomes a very difficult proposition. So what I’ve done is I’ve told the team, we’re not looking at that as a relief valve. We’ve got to look inside. It’s why we’re moving so aggressive around the supply chain. The team is making really good progress. I mean the fact that we had moved 15% of the content from China out prior to 2025, and in 2025, we’re going to get that number up to 30%. And quite frankly, we’ve got the team out investigating that they can go even further or faster. And I’m not ready to throw in the towel on the negotiations with the administration. I was encouraged with the news that came out last night, whether it’s substantiated or not, it’s tough to know around relief for the automotive sector. I think the administration has a far greater appreciation for some of the very detailed dynamics that we and others who manufacture in the United States and employ labor that works on high-margin vehicles and the fact that we’re relying on less than 9% of our total cost of goods sold coming in from China. So it’s very low. And I think there’s an appreciation for that. And I think we can find a way to work through that. So we’ve got a lot of different avenues, and we’re not viewing price as some very easily movable item. We obviously will take a look at it. It’ll probably be very detailed segment-by-segment, country-by-country, and there’ll be more to come on that down the road.

Very helpful. And just to kind of follow-up on that. In terms of off-road, you talked about the elevated promotion levels and a lot of your competitors that need to clean up some aged inventory. Where are we in terms of – if you look at it as a baseball game, what inning are we in, in terms of that cleanup process? And when do you think you guys might be able to start regaining market share again?

Yes. I think as it relates to off-road, I would say we’re probably getting into the later innings of the game. The good news is, is that everybody has improved from where they were last year. But we still have some competitors that have DSOs that are 2x where we’re at. And granted, they’re a much smaller player than us. But the days sales that they have sitting at the dealer are 2x and other competitors are 20%, maybe 30% above where we’re at. And their non-current mix is unfavorable relative to us at the dealer level. And I think the concern is that we continue to see that non-current discounting that’s got a heavy impact. And we’re just not going to participate in that. Those are likely not buyers of our product anyway. Many of these products are being offered at $5,000, $10,000 off to clear out inventory that’s two, maybe three years old. So I think we’re – there’s definitely been progress made, and it’s really going to depend on when retail starts to stabilize because the two are heavily correlated. But we’re confident that once we get into an environment that the inventory is much cleaner throughout the network, there is some progress against that and the consumer starts to stabilize. We’re going to be in a great spot to win. I talked about it. The new products that we’ve been coming out with as well as what we have left to come out this year, we know from talking with our dealers, they’re resonating with our customer set. And I mentioned the Razor survey. We’re doing a lot of work behind the scenes to understand the dynamics with our customers. And the great news is they’re sticking with Polaris. The great news is they’re still using their product. The bad news is they’re deferring repurchase and trade-in because of the current market conditions. So I think getting market condition clarity is going to be good on many levels, and I think we’re well-positioned to take advantage of that.

Got it. Thank you, Mike.

You bet.

Next question today will come from Megan Clapp of Morgan Stanley. Please go ahead.

Hey, good morning. Unsurprisingly, I wanted to follow-up on tariffs. Obviously, a lot of helpful detail in the slides, so I appreciate that. I guess, you’re saying less than $225 million of net new post-mitigation tariff impact this year, most of that in the back half. So if we just say, let’s say, $200 million, the simple math of just doubling that would suggest it could be $426 million, but I guess, presumably, some of your mitigation strategies also might ramp over the year. So any possibility just to help us with how we should be thinking about at current rates, what the annualized impact from tariffs would be in 2026?

Yes. We intentionally, Megan, steer away from that because of what you mentioned as you were asking the question. I mean, the team is working the mitigation. I mean a lot of it is really coming down to resourcing components out of China. And so it’s difficult to get at a run rate. Your math – the simple math works, but I would argue ignores the fact that we will have taken 30% of the China purchase content out as we go through the course of 2025. And so you have to annualize that. And then obviously, we’re looking to accelerate and do more in 2025. We don’t have a number on that yet, but the team is off working on it. And then obviously, we have plans around 2026, which would then make further reductions as we layer those resourcing opportunities and through the course of the year, so a lot of detailed math. I mean, to be honest with you, we’re just spending our time trying to get our arms around the current year. As you can imagine, it’s a highly complex environment. And as you’ve seen just in the course of the last few days, it tends to change pretty rapidly. And so we’re really focused on just understanding the current impact, where do we think that’s going? And we’ll have more to say as we get later in the year and have more clarity around tariffs as well as the output from our sourcing initiatives.

I think the other thing to think about, Megan, is the bulk of our tariff pressure is coming from the increased reciprocal [indiscernible] tariffs on China. There’s been discussion yesterday about potential relief from the – for the autos because they have the same tariff stacking challenge we do. That’s obviously a conversation we’re having with the administration as well. And of all the tariffs that are out there, I think the one that’s likely to come under the most pressure is the – for us is a total of about 175% when you stack it all on China because that’s creating a lot of pressure on the overall economy and the retail CEOs and the rest of the folks have been up in D.C., the last week or so and talking to the administration about what that’s going to mean at retail level in places like Target and Walmart and Best Buy and how that’s going to impact the consumer. And so I think we’ll see action on that probably ahead of many of the others, and that’s the biggest impact for us.

And look, I’ll give the administration a lot of credit. I mean Bob alluded to it, they – we attended a dinner last week here in Minneapolis and had a chance to talk to the CFO of Target. Obviously, Brian Cornell, who runs Target was up with Home Depot and Walmart. We were in Washington last week at the White House. We had the opportunity to sit down with the Director of the Economic Adviser to Trump. We’re going to be talking to the Commerce Secretary this week. So they are asking a lot of questions to really understand how this is all embedded in the economy. And so things are developing fast and furious, and we’re trying to stay close to it and make sure that we have a voice that they understand how it works. The nice part is, we’re able to draft somewhat with auto because it’s a very similar operating model. And so we’ll obviously have more to say. But I would steer you away from trying to just annualize what we’ve got in front of us because there are a lot of moving parts.

Okay. That’s really helpful. Thank you. And as a follow-up, I just wanted to ask about the balance sheet and liquidity. Bob, you did mention like even modeling downside scenarios, you don’t anticipate any concerns with liquidity. I guess I’d just be curious whether those downside scenarios that you’re modeling would contemplate any additional actions to preserve cash, whether it be maybe cutting the dividend or taking actions to raise equity? And I guess, the reason I ask is, even in a base case scenario, I guess, assuming that just put that tariff impact into our model, it does seem like leverage could be hitting 6, 7 times at some point this year. Obviously, a lot of assumptions have to go into that, but would just be curious in those downside scenarios, how you’d think about additional actions to preserve cash?

Yes. Yes. I’ll – let me start, and then I’ll flip it over to Bob. First and foremost, I mean we’ve been a dividend payer for 29 years as a dividend aristocrat. That’s important. This company has sustained that through a lot of challenging times. That said, liquidity is more important. And so that will factor in heavily in our calculus. We’re early days. We’re not going to jump to a decision. Like I said earlier, I mean, I was preparing for this call and saw the Wall Street Journal article pop across the screen that Trump was contemplating a relief for the autos. I would hate to make a decision that takes away 29 years’ worth of history without having all the facts. So it is an item that is on the list. It’s something that we will talk like we do with our Board at every Board meeting. But our immediate focus is going to be around things like working with our lending group to see what kind of flexibility we have around covenants. And we’re doing everything we can to preserve liquidity and trying to work to stave off those things that could take the liquidity away primarily around tariffs. Bob, anything you’d add?

Yes. So at the end of the quarter, we had $1.1 billion available on our revolver, plus another $300 million in cash, so effectively $1.4 billion of available liquidity. We have been making progress on working capital. We had good strong cash generation for the quarter. So we’re very focused on that as a first level just because it’s fairly immediate. CapEx, we’re reviewing. As we said, we started the year with a plan of about $215 million. Right now, we’re targeting about $200 million. I think there’s more opportunity there as we continue to go through that. As Mike said, it’s early innings here. So we’re continuing to scrub that and make sure that we keep it focused on innovation and growth, but look to defer things that aren’t critical for this year. We’ve been focusing on unprofitable business lines. As you’ve seen, we discontinued production of FTR and Timbersled as those were not profitable businesses for us so wound those up. And we’re just going to – we’ll continue to look at all the other options that are out there, as Mike talked about, but we’re also going to be conservative to not make any long-term decisions that, that really deal with a short-term problem if we can avoid it. We do have a great bank group. It’s been our bank group for many, many years. They’ve been supportive historically. In these type of situations, they were extremely supportive of us during COVID. We’ve had a lot of discussions with them. They’re aware of our projections as we look out through the year. And so we’ll continue to discuss with them as we needed covenant holidays, things like that and likely an extension of the $400 million term loan that comes up in July. So we’re actively looking at those issues and working through how we’ll deal with them. But like I said, we have a very supportive bank group, and I don’t foresee that being a problem.

Okay. Thanks, Mike and Bob.

Thank you.

And our next question today will come from Alice Wycklendt of Baird. Please go ahead.

Yes, good morning. Thanks, gentlemen, for all the helpful color on tariffs, obviously, dealing with a lot. But maybe just switching gears, I want to just dig in on retail a little bit more. I mean, you talked about some pretty wild swings month-to-month in the quarter. Maybe share a little more detail on that, what you think is driving that? And is there any color you can share on what you’ve seen so far in April?

Yes. It’s really tough to draw any conclusions. I mean, the problem is there was so much noise. Weather wasn’t great. You had the fits and starts around tariffs, economic data. I think when we step back, it’s – I think it’s going to be chalked up to a lot of the same attributes we’ve been speaking to in terms of persistently high inflation, interest rates, obviously remaining high. But I think what’s getting added to that is the uncertainty index has gone through the roof, and you can see that showing up in things like the consumer confidence index, which is now, I think, at a 12 or a 14-year low. I think people are just nervous and they’re seeing – there’s a good portion of our customer base that is invested in the stock market, 401(k)s, et cetera., and they’re seeing these wild swings. And when they look at products like ours, of which about 40% are highly discretionary, things like Razor, Snowmobiles, spending a lot of money when you’re worried about the – could there be higher inflation in the economy, is there a risk to your job, I think those things are all playing in, and we’re seeing that volatility. I would tell you, April, really, we haven’t seen anything much different than what we saw in March. The good news is we haven’t seen it get significantly weak relative to where we were expecting. But at the same time, we were hoping to start to see some positive green shoots. And I think just the overhang created from tariffs as well as just the uncertainty that, that drives into the broader economic equation is probably causing a fair amount of consumer reluctance to spend on very large items – purchase items.

Mike talked about promo. And obviously, we’ve seen promo in the market to move used or older units in prior model year units with some of the Japanese as they look to clean up that inventory. But the other piece of promo that’s come in has been a fair amount of interest rate buydown, and that has been relatively effective in getting retail moving. I think all the manufacturers put more interest rate promo in the market in March, and that sort of turned the tide a bit from February. We continue to see that in April. So what that shows is that part of the consumer reluctance to buy is driven by interest rates. And I think now people are pretty convinced that we’re not going to see interest rates come down in the near-term. So that type of promo has been effective, unfortunately, it’s kind of expensive.

Well, that’s helpful color. Thank you. Then just – on the warranty side, it sounds like great improvements there, obviously, a lot of moving pieces. But as you look out over the next year or maybe even if you think about a more normalized environment, what type of impact could that have on your margin?

Look, I think the bottom line is it’s going to be a tailwind. It’s not going to move as fast as we would like because you still are dealing with older product that was manufactured under different standards than what we’ve got in place today in terms of design and lean principles. So it will help us improved margins. I don’t know that it’s going to be the largest adder. I think all the work that Mark and team are doing around lean and factory efficiency, coupled with the work we’re doing around sourcing are going to be the primary drivers. More important is it’s a huge driver of customer satisfaction. We heard that play back in spades from our dealer council. They’re seeing it show up and many years ago, we were probably rated at the bottom of the pack and now we’re being told by dealers that we’re top tier, if not top in this regard, and we want a great customer experience. So we need to do it for the right reasons, and it will have a secondary benefit of benefiting the margins.

Thanks. That’s it for me.

Thank you.

Next question today will come from Noah

Hi, thanks for taking my questions. I guess first, I think you mentioned you’re kind of thinking about retail down modestly this year. So wondering how you’re planning shipment levels, and relatedly, what you’re targeting for inventory levels to end the year? Thanks.

Yes. So we’re planning to ship lower than retail to continue to bring dealer inventory down. I would say, right now, our targets are for ORV to be down mid to high single digits, motorcycles to be down low single digits and marine to be down mid to high single digits to low double digits, depending on how their season goes. But obviously, it’s a moving target depending on what we see as future retail strength. I mean, if the back half of the year were stronger than what we’re thinking, we’d probably bring dealer inventory down less, and obviously, the reverse is true, bring it down more. We are committed. Mike and I have been out with dealers a lot as we talked about during the earlier part of the call. And the feedback has been really positive. Dealers feel like we’ve done a great job of getting dealer inventory in line with where it needs to be, get their – they feel good about where their profiles are. It was much less of a discussion in our meetings than it had been the last six months. So that tells me we’re pretty close to the mark, but we are committed to keeping it there. And so we’ll continue to adjust as this year plays out.

And I mean, look, I’ll reiterate, there’s a reason we withdrew our guidance. It was two things. One is trying to get our arms around where tariffs are headed and things could change by the time we get off this call. The second is the top line of the business, and that’s going to have a direct correlation to what ends up happening with tariffs. And so, at the end of the day, the commitment we have with our dealers is if we see retail softening further from what we expect, we’re going to be making adjustments to shipments. And so I think the key for you all is to just know that the progress we’ve made with the dealer network, the shipment levels or the dealer inventory levels that they have recognized, and we need to make sure that we protect them in volatile times. And if we see things get worse, and we’re obviously going to take the right action. If things improve with greater clarity around tariffs, we’ll obviously be able to ramp our factories and support improved retail.

Really helpful. Maybe just one more. You mentioned implementing the recession playbook and maybe some of this is obvious, but just hoping you could kind of help put a finer point on some of the ways that differs from normal operations? And how quickly you’d be able to kind of pivot back toward normal operations if circumstances were to change? Thanks.

Yes. I mean, obviously, when you’re in a challenging time, the first thing you focus on is cash and liquidity. And so that gets to working capital and CapEx. We’ve been – working capital, we were being pretty aggressive on anyway. So that’s not a huge change. We needed to improve our working capital performance coming out of COVID and a lot of things got built up. There was a lot of stuff in the system. And I think we’ve made really good strides in that, Mark and his team. One of the disappointing things with all this noise in the environment, is that what you’re not seeing is the great work of the operations team and what they’ve been able to do around the efficiency of our plants, attainment of our build schedules and that allows us to better align working capital. So we’ll continue to make progress there. We’ll focus on CapEx, and making sure we’re only spending money where we absolutely need to. We deferred a couple of projects that can go into next year. We’ll continue to look to do that. On the operations side, last year, as I said, we had about a 10% salaried headcount reduction. We’ve been very disciplined about adding backfills, so not adding people after that reduction, but we’ve been disciplined about backfills. We’ve been kind of targeting 50% backfill levels last year, and we’re continuing to look at that this year. So prudently managing headcount. And then looking at investments on the innovation side. But as Mike said, we’re not going to cut things now in the short-term that will help us continue to drive market leadership in the long-term. We’re in a really good place from a product standpoint. We’ve got products out there that our competitors don’t have. We’ve got some of the most current product portfolio in the industry, and we’re not going to – we had lost that kind of innovation edge several years ago, and I think we’ve done a nice job of getting it back and we’re not going to back off of that. So none of the things we’re doing are things we can’t reverse fairly quickly. It’s really just like you would do in your own personal budget, right, being prudent in challenging times.

Very helpful. Thanks.

Our next question today will come from Alex Perry of Bank of America. Please go ahead.

Hi. Thanks for taking my questions here. I guess first, just another follow-up on tariffs. It looks like through mitigation actions and deferrals, there could be a $55 million offset to tariffs this year at current rates sort of at the midpoint of your tariff guide. Is there a chance that the offset could go higher? And what would drive that? Or is it that the supply shifts take a lot of time, which seem to be the primary mitigating factor and these have pretty long lead times. But how sort of sticky is that offset number that you provided?

Yes. I think that’s – as we talked about, it’s difficult to give. You don’t want to take the guidance and assume that, that translates into a full year run rate. We did take or we have a plan to take 30% of our China sourcing out this year. That’s – I plan to take it out this year, so there’ll be – some of that inventory that’s tariff would – if the tariffs stay in place would carry over into 2026. Some of it you’d be able to enact sooner. So it’s just going to depend when it happens in the year. We’re looking at options to go faster than that. And make more progress before the end of the year. As Mike talked about, there’s a little bit of drag from non-U.S. MCA stuff that we bring up from our plant and other suppliers in Mexico. We’re working on correcting that to make sure we can reduce that tariff. And then obviously, there’s the – what happens with the – all the other countries. And then there’s the deferral, which is part of what you’re seeing in the impact of full year versus what’s going to actually hit the financials. And about 20% of that of what we buy this year will get deferred into next year. So with all of those things, plus what’s happening in terms of the discussions with the administration and what they’re going to do, it’s just very hard to really forecast a full year run rate right now.

Perfect. Really helpful. And then my follow-up is, I guess, higher level, if you look at the three segments, which segments has your view changed the most in terms of top line versus the prior expectations when you provided 1Q segment guide? Are there any areas where maybe you feel a bit better than when you guided last quarter versus some where you think may be more pressured? Thanks.

Yes, tough to answer. Nothing stands out relative to each other. And I think for the most part, our retail guide is not too dramatically different than what we were thinking. And I think it’s early days. I think there’s a lot that has to get sorted out from a broader economic perspective before we’re going to have a good view as to what the trajectory is likely to be.

As Mike said earlier, we saw a lot of choppiness in the quarter. And so it’s really difficult to take that data and come up with what a trend is. And that’s been really true, I would say, the last five quarters where it’s – the months are tend to be somewhat dramatically different. Some of it weather driven, some of it just economic news driven, and so a little bit tough to say. But like Mike, I don’t see anything that’s dramatic at any particular product. I would say, good retail – to be a tough industry, but good retail in heavyweight motorcycles. We took a bunch of share in the quarter. It’s good to see those new products performing well. We’ve invested team has done a nice job of building that portfolio over the last few years. And so it’s good to see that start to pay-off again.

Perfect. That’s very helpful Best of luck going forward.

Thank you.

Your next question today will come from Tristan Thomas-Martin of BMO Capital Markets. Please go ahead.

Hey good morning.

Good morning.

Question, the alternative non-Chinese sourcing, if we were to kind of remove tariffs and look at it on a like-for-like basis, how does that compare price-wise to sourcing at that product comparable product to China versus somewhere else in the world?

Yes. We’re not going to get into that level of detail. I mean, the reality is there’s probably a top 20 or 30 supplier list. And the answer to that question is different for each and every one of them. Obviously, getting greater clarity on where the Chinese tariff ultimately is going to end is going to be important to this discussion. There are some areas that were already underway that were obviously beneficial at the old tariff regime. I am – we’re not banking on it going back to the old level of 25%, but those areas are being aggressively prioritized and worked. And then when the tariff situation settles down, and we know what we’re contending with, that will help us with where we draw the line and work it from there. I think the point I would make is, this isn’t just as easy as finding a new supplier. I mean, in many instances, we have to cultivate a new supplier, and in many instances, we have to go through a requalification or retesting of the components. Many of these components are in critical areas like wheels, tires, engine components, electrical components. And so the switching cost of this is not to be taken lightly. But at the current tariff regime, it would say we’ve got to get everything out, and you’ll be able to find an alternative supply. I think the reality when this settles out, there’ll still be some level that will make economic sense, but it’s early days and too soon to get any more specific around numbers.

Okay. And then just really quick, have you noticed any changes in kind of utility ORV demand given China has paused ordering of U.S. agricultural products? Thanks.

Nothing substantial.

Yes, I would say anything that would be called a trend. Frank, Mike said earlier, the premium products have performed really, really well, which is good for us because we’re strong in that end of the segment and the non-premium stuff has been a little bit slower, but it’s not any kind of dramatic change from what we’ve been seeing.

Okay. Thank you.

Thanks.

Thank you.

And our next question today will come from James Hardiman of Citi. Please go ahead.

Hey good morning. Thanks for taking my call. So as we think about the withdrawn guidance, I mean, you had $1.10 previously. You’ve given us a tariff estimate. So $225 million is about $3 in earnings. So that math seems pretty straightforward, and I can appreciate that, that is a moving target. But I guess I’m curious about the $1.10, right, the pre-tariff or ex-tariff number. It sounds like were we not to be factoring in the explicit tariff impact that, that number would be coming down, but maybe give us an idea of how we should be sort of thinking about the ex-tariff number going forward? And again, I can appreciate all the uncertainty, but like would that be coming down meaningfully here? And I guess – well, I’ll ask my follow-up in a second.

Yes. I mean, James, you’re asking me to provide guidance around our withdrawal of guidance, and we’re not going to do that. And the reason I can’t give you that is because they’re interrelated, right? If the tariffs remain at the level they are, my opinion, and my opinion alone is that I think that has an economic impact, and I think consumer’s spending will slow even further. And so you can’t look at them independently. And at this stage, it’s too early. I mean this stuff is developing every single day. We know firsthand from having been in Washington as well as spending time with representatives and senators from each of the key districts that we have manufacturing that these discussions are rapidly evolving. And so putting a pin in this, I mean, that’s why we and I think a lot of others that already have and will withdrew guidance. Right now, my focus is not trying to use a crystal ball to get where this thing is going, it’s to deal with the here and now. It’s why we’re working so hard on the sourcing side of this equation because we know that it takes time as well as spending our time making sure that our representatives who have been very willing and very open to talk with us, listen to us, dialogue with us, that we continue to keep those efforts up. So what I would remind everybody is if you look back two, three years ago, some of the basic operations of this company, we were struggling, that isn’t the case anymore. Basic operations are in a great spot. Innovation is in a great spot. We’ve done a lot to get the liquidity and balance sheet of this company in a good spot. So we’re in a good position to weather a near-term storm, and that’s what we’re really focused on is making sure that we navigate this in a very thoughtful manner.

That’s totally fair. And maybe as I think about offset just from a near-term perspective, one of the things that I think is difficult for us to model is the incentive comp piece rate. So that was a big tailwind last year. You talked about it being north of $1 of a headwind initially this year. Help us understand incentive comp based on some of these various scenarios. Does that – is that $1 plus then towing back into your favor? And then as we try to put together numbers for next year, right, and obviously, there are million unknowns as we think about next year, but does that then become another headwind for next year? And I guess it’s another way of asking a question of like, is it just based on your initial guide no matter how low that is, or longer term, how should we think about that incentive comp piece if this tariff situation proves to be a longer-term issue?

Yes. I mean, look, it’s a discussion that we have with our Compensation Committee every quarter in terms of the underlying performance of the company. What I would tell you though is that the vast majority of that, I don’t refer to as incentive comp, it’s profit share, and it’s an important part of the compensation package for our employees. And as we’ve talked about that compensation goes all the way down to the factory floor, not completely in every facility, but in most. And we’ve got employees that are working incredibly hard right now, and everything that we are contending with is outside their control. So it would not be my desire to impact that number negatively, but that isn’t just my call. I’ve got to have that discussion with the Board. And again, we’re more focused on trying to make sure the environment we’re working in is managed and contend with the challenges right in front of us and those types of decisions will be made on down the road.

Totally fair. Thanks.

Our next question today will come from Sabahat Khan of RBC Capital Markets. Please go ahead.

Hey, good morning. This is Arthur on for Saba. Just want to touch on retail sales quickly. Within ORV utility was down more meaningfully than it has been in recent quarters. Is there anything you would call out across the customer base here, given this has historically been a more resilient business line?

Yes. I mean if you look at utility, I would say it was – if not for February, it would have been relatively flat. February was a bit of an anomaly. There was a lot of new promo came in the market. Weather was bad in a lot of key states where you typically have good performance for utility. Trend seems to be more normalized as we get into April and the weakness was more pronounced in ATV, as Mike said earlier, premium RANGER continued and XPEDITION continued to perform really well. So a little bit of a – a little bit more down than it had been, but I don’t think necessarily a trend, and it did feel like a one-month anomaly.

Well, you also have to think through the comps. Q1 of last year for ORV was still pretty strong. We were up 3%, and then the subsequent quarters, we were down. So you’re lagging probably the last strong comp that we really had.

Okay. That’s helpful. And then you mentioned the Japanese OEMs are continuing to be aggressive on promotions. Has this dynamic changed at all in the past few months here, especially with the yen strengthening more recently? Or do you still expect this, I guess, to be a factor for the foreseeable future going forward?

Hasn’t changed. I think the only thing that’s going to change it is if their inventory practices improve.

Yes. I mean their – for two of the three Japanese, their inventory levels have come down, but they’re still meaningfully higher than the rest of the industry. So I would say we’ve seen a little bit of progress, but not enough to tell us that this dynamic is going to change in Q2.

Okay. That’s all for me. Thank you.

Thanks.