Good morning, and welcome to Brunswick Corporation’s Fourth Quarter and Full-year 2022 Earnings Conference Call. All participants will be in a listen-only mode until the question and answer period. Today’s meeting will be recorded. If you have any questions, you may disconnect at this time.

I’m sorry if you have any objections you may disconnect at this time. I would now like to introduce Neha Clark, Senior Vice President, Enterprise Finance, Brunswick Corporation..

Good morning and thank you for joining us. With me on the call this morning are Dave Foulkes, Brunswick’s CEO, and Ryan Gwillim, CFO. Before we begin with our prepared remarks, I would like to remind everyone that during this call our comments will include certain forward‐looking statements about future results.

Please keep in mind that our actual results could differ materially from these expectations. For details on these factors to consider, please refer to our recent SEC filings and today’s press release. All of these documents are available on our website at Brunswick.com.

During our presentation, we will be referring to certain non‐GAAP financial information. Reconciliations of GAAP to non‐GAAP financial measures are provided in the appendix to this presentation and the reconciliation sections of the unaudited consolidated financial statements accompanying today’s results. I will now turn the call over to Dave..

Thanks Neha, and good morning everyone. We concluded 2022 by delivering record performance of $6.8 billion in net sales and almost $1.05 billion of adjusted operating earnings for the full-year, continuing our exceptional history of strong operating performance and cost control and a challenging macroeconomic environment.

Our full-year adjusted earnings per share of $10.03 highlights the strength of our businesses and leaders and the robustness of our portfolio and earnings profile. All our divisions contributed to the strong performance, with our Boat segment exceeding 10% full-year adjusted operating margins for the first time in company history.

And the Propulsion and Parts and Accessories segments delivering exceptional top-line and operating earnings growth versus prior year. Boat fee inventory levels are recovering, but global units exiting the fourth quarter were more than 5000 units lower versus the same time in 2019, and there is no indication of material wholesale cancellations.

Our boat and engine production levels finished above prior year despite some continuing supply chain challenges. As the overall market sector dislocation continued, we executed $90 million of share repurchases in the fourth quarter, bringing our full-year share repurchases to $450 million. Turning to the segment highlights.

Each segment contributed to the robust adjusted operating margins in the fourth quarter, as compared to the fourth quarter of 2021.

Despite some supply chain shortages earlier in the quarter, our Propulsion business delivered exceptional results with 17% top-line growth versus fourth quarter 2021, enabled by favorable product mix and pricing actions taken earlier in the year.

Mercury has captured significant market share in our boat engines with approximately 300 basis points of retail share gain in the U.S. and more than 10 percentage points in over 300 horsepower engines, since December 2019, which has been a key focus area for our investments.

Our new products continue to perform above expectations with the recently launched V10 outboard engines being extremely well received in the marketplace and met with strong demand.

The capacity expansion project in our Fond du Lac, WI campus, primarily for higher horsepower outboards, is materially complete and will enable increased production for recently underserved international and repower channels, together with new and existing OEM customers in 2023 and beyond.

Our boat business delivered outstanding top‐line and earnings growth in the quarter, reaching 10.2% full‐year adjusted operating margin for the first time in company history. Each product category posted strong top‐line growth and delivered operating earnings expansion for the fourth quarter compared with the same prior year period.

Our boat business continues to diligently manage global pipeline levels which remain healthy at 18,000 units, or 24% below 2019 levels. Freedom Boat Club had strong same store membership sales increases in the quarter, despite its Southwest Florida operations recovering from the impacts of Hurricane Ian.

All hurricane impacted locations have now reopened. Freedom continues to grow globally and now has more than 370 locations and a fleet size of approximately 5,000 boats all while expanding synergies with Mercury Marine and our boat brands. Freedom also recently announced the opening of its first location in Australia.

Our parts and accessories businesses delivered solid adjusted operating earnings and operating margin growth in the fourth quarter.

Operating earnings contributions were broad‐based across our P&A businesses as optimized pricing and the initial benefits of the redesigned Navico Group organization more than offset the negative impact of currency and the return to more normal seasonality in the quarter.

Sales were impacted by certain headwinds, including currency, leading to slightly lower top‐line performance; however, on a full-year basis, revenue was down less than 1% excluding the impact of currency and acquisitions versus a record 2021.

Finally, we have now lapped the one‐year anniversary of the P&A transactions and are very pleased with the integration of the businesses. Shifting to revenue, we continue to deliver growth across regions on a constant currency basis, excluding acquisitions. In the fourth quarter, all regions grew sales versus fourth quarter 2021. Overall, U.S.

sales increased 13% and international sales increased twelve percent versus the prior year quarter. On a full‐year basis, sales increased twelve percent compared to 2021 on a constant currency basis, excluding acquisitions, led by gains in our propulsion and boat segments.

Finally, with increased production capacity in high horsepower outboard engines, we anticipate further share gains via new customers, international markets and repower channels.

Turning to external factors, we continue to see overall improvement in supply chain stability and delivery but with some persistent issues continuing to require very active management and impacting productivity and efficiency for some product lines. Despite these challenges, our teams continue to work diligently and creatively to optimize production.

Input cost inflation has moderated, and we have essentially returned to historical pricing cadences and price increases. Higher interest rates have become a consideration mainly for buyers of value product.

Consumer interest and boating engagement remains strong with related search activity mostly in‐line with pre‐pandemic levels and appropriate for the low‐season. Early season boat shows have been encouraging with many shows sold out and attendance above prior year levels.

We are also seeing strong attendance and activity at shows outside the U.S., notably at the very recent Dusseldorf International Show, the largest show in Europe, where our brands reported solid sales as well as strong lead generation. Mercury share of outboard engines above 150 horsepower at the show was close to 60%.

From a dealer standpoint, while our channel partners are aware of the macro factors, dealers are appropriately stocking and order levels remain healthy with no signs of material wholesale cancellations. Moving now to the 2022 U.S. retail boat market.

Fourth quarter activity did not materially change full‐year results, with the main powerboat segment down mid‐teens percent from 2021, and approximately 7% lower than 2019. Outboard engine industry data was more favorable, with U.S. industry registrations finishing 2022 down less than 1% versus 2021, and 9% ahead of 2019.

Mercury performance in the fourth quarter remained strong, especially in high‐horsepower, with 360 points of retail share gain in the fourth quarter in 300 plus horsepower engines versus fourth quarter 2021.

Brunswick’s boat retail unit performance in the fourth quarter and full‐year was broadly consistent with the overall market performance, with outperformance in recreational fiberglass products and premium pontoons and underperformance in value aluminum, where we continue to focus successfully on margin maintenance and expansion, and have shifted production to higher margin product lines at the recent expense of some unit share of value aluminum product.

As we look to 2023, we remain confident in post‐COVID boating participation rates with more than 10 million boats still being registered in the U.S. each year and people continuing to have more flexibility in their working arrangements.

Alternative participation models, including Freedom Boat Club, are also driving participation by a more diverse consumer demographic. Over recent history, industry retail sales generally show a positive outlook.

Despite softness in 2021 and 2022 caused by a combination of inventory shortages and macro‐economic factors, industry retail boat sales have increased at a low to mid single-digit CAGR since the end of the Great Financial Crisis.

Unlike in some other industries, although boat sales were somewhat elevated in 2020, inventory constraints prevented a true COVID sales spike and subsequent dislocation between inventory and demand. As we start 2023, industry sales of approximately 170,000 units are similar to 2016 levels, whereas with a fairly constant 10 million boats in the U.S.

boat park and assuming a typical boat useful life of 30-years to 35-years, replacement rates would suggest sales potential close to 300,000 units. On the subject of pipelines, U.S. unit inventory remains 28%, or almost 5,000 units below 2019 levels.

Fiberglass inventory levels remains even lighter, with 31% fewer units in dealer hands at the end of 2022 than in 2019. Boat inventories at dealers outside the U.S. are at similar weeks‐on‐hand levels.

Dealer inventory is very fresh and our brands have done a fantastic job getting our many very exciting new products to our dealers ahead of the prime 2023 selling season. As always, we are continuing to monitor inventory levels and will adjust production accordingly.

Our initial plan for the year is generally to match wholesale with retail, except in premium fiberglass categories where it is still necessary to rebuild from current low levels. I will now turn the call over to Ryan for additional comments on our financial performance..

Thanks Dave, and good morning everyone. Brunswick delivered an excellent fourth quarter, with record sales, operating earnings and EPS for any fourth quarter in our history. When compared to prior year, fourth quarter net sales were up 10.6%, with adjusted operating margins of 12.8%, up 190 basis points.

Operating earnings on an as adjusted basis increased by 29% and adjusted diluted EPS of $1.99 increased by 38%. Sales growth resulted from steady demand, new product performance, and pricing implemented in previous quarters, partially offset by unfavorable changes in foreign currency exchange rates.

All segments contributed to the strong operating earnings and margin growth versus the fourth quarter of 2021, with the net sales growth, coupled with prudent cost containment efforts, partially offset by continued elevated inflationary pressures and spending on growth initiatives, ACES, and new product technology.

Lastly, we delivered free cash flow of $193 million in the fourth quarter, which equates to a FCF conversion of 133% On a full‐year basis, Brunswick has also delivered record results, including net sales of over $6.8 billion and adjusted diluted EPS of $10.03.

We also increased our adjusted operating margins versus a record 2021, a testament to our ability to operate efficiently in a challenging external environment. We successfully executed our capital strategy in 2022, ending the year with over $600 million of cash, while funding growth in our businesses and returning capital to shareholders.

We deployed $388 million for capital expenditures on exciting new products and capacity projects across our businesses, which we believe will drive future revenue and earnings growth.

In addition, as Dave mentioned, we took advantage of market and Brunswick share value dislocation, repurchasing $450 million of our shares, representing approximately six million shares or 8% of the company. We also increased our dividend for the 10th consecutive year.

Finally, our investment grade credit rating remains strong, reflecting a healthy balance sheet where net leverage is at 1.6 times, and there are no material debt maturities until the back‐half of 2024. In addition, our strong liquidity and cash flow generation capabilities continue to provide investment and spending flexibility across the enterprise.

Turning to our segments, our Propulsion business delivered yet another quarter of outstanding top‐line, earnings, and operating margin performance. Revenue increased 17% versus the fourth quarter of 2021 as higher sales were driven by continued gains in global sales volume, favorable product mix, and higher prices as compared to prior year.

Operating margins were up 90 basis points and operating earnings up 24%, each enabled by the increased sales and lower operating expenses, slightly offset by higher inflationary costs and investments in new products and capacity expansion.

Note that the previously discussed capacity expansion at the Fond du Lac, Wisconsin facility, which is adding more than 50% capacity in the 175 horsepower and higher categories, is materially complete and will enable increased sales to underserved repower, international, and consumer markets while also ensuring our OEM partners have the engines they need for the 2023 retail season.

Our parts and accessories business leveraged strong operating margin performance to drive earnings growth versus the fourth quarter of 2021 despite sales being down 8%, or down 5% on a constant currency basis. Note that there is no acquisition impact in the quarter as we have now lapped the anniversary of the 2021 P&A acquisitions.

Aside from the negative impact of currency, fourth quarter P&A sales showed the return to more normal seasonality in the marine channel, while RV OEM customers, primarily in the Navico Group and distribution businesses, deferred purchases into later periods to match their revised production schedule.

On the Navico Group side, retailer restocking continues to trail point of sale retail performance, but trends here continue to improve. Finally, the destruction caused by Hurricane Ian in Southwest Florida did impact our distribution businesses in the area. For the full-year, despite the U.S.

retail boat market being down mid‐teens percent, our total P&A business net sales were down less than 1% once you remove the impact of currency and acquisitions, or still 21% higher than 2020 and 32% higher than 2019, all reinforcing the stability of this annuity‐based business.

Our boat segment had another fantastic quarter, delivering strong top‐line and earnings growth, together with double‐digit operating margins for the third straight quarter. As Dave mentioned earlier, the boat business reported full‐year adjusted operating margins of 10.2%, reaching double‐digits for the first time in Brunswick’s history.

The boat segment reported a 26% increase in net sales and a 60% increase in adjusted operating earnings in the quarter. Segment operating earnings and margin growth were enabled by the increased sales volumes, together with operational efficiencies and positive mix, partially offset by continued cost inflation and limited discounting.

Freedom Boat Club, which is included in Business Acceleration, contributed approximately 5% of the boat segment’s revenue during the quarter.

Moving to our 2023 outlook, we enter the year with the momentum created by a strong 2022, and we remain extremely focused on executing our strategic plan and leading the marine industry in growth and innovation. We do however; recognize that uncertainties in the macro‐economy may impact our consumers and the markets in which we participate.

Our 2023 guidance still remains biased to growth versus 2022 but allows for more variable outcomes should economic conditions worsen.

As a result, we anticipate net sales between $6.8 and $7.2 billion; adjusted operating margin of approximately 15%; a continued focus on operating expenses with a slight increase as a percentage of sales; and adjusted diluted EPS in the range of $9.50 to $11.00.

We also plan to continue our emphasis on generating more cash in 2023 and anticipate free cash flow generation to be in excess of $375 million. I will discuss the various factors in a few slides.

Lastly, we are also providing directional guidance regarding the first quarter, where we anticipate flat to slight growth in net sales versus the first quarter of 2022, with EPS between $2.30 and $2.40. Turning next to our segment outlook, we anticipate that each of our businesses will play a role in our 2023 success.

Our propulsion business looks to leverage the new capacity for high‐horsepower engines to satisfy demand around the world and grow market share from new and existing OEM customers, while still having the available products to reach the recently underserved market channels.

The result is anticipated top‐line growth in the mid to high single-digit percent, with operating margins plus or minus 30 bps versus. 2022.

Our P&A segment sees a top‐line that is flat to slightly up, with benefits from a steady marine market, market share gains, and pricing offsetting continued currency headwinds and a slower RV channel for the early part of the year.

Similar to our propulsion outlook, we believe that P&A operating margins look flattish to 2022, with a bias towards growth.

Lastly, our boat segment comes off a record 2022 and believes its top line will look similar to 2022, with potential upsides in premium boat products and growth in Freedom, balanced against possible reductions in sales of value boat products.

As Dave mentioned earlier, we plan to be very prudent with pipeline inventories and believe we can reach our 2023 goals without adding unnecessary units into the market. Finally, we also believe we can maintain our double‐digit segment margin in the current environment.

I will conclude with an update on certain items that will impact our P&L and cash flow for 2023. We anticipate working capital usage during the first half of the year, but have a keen enterprise‐wide focus on generating working capital in the back half of the year and continuing the second‐half 2022 trend of moderating inventory levels.

Depreciation and amortization will be higher than 2022 reflecting the increased capital spend in recent years on new products and capacity, with acquisition amortization expected to be similar to 2022.

On taxes, and assuming no material changes to the federal tax legislation, we anticipate a federal effective tax rate of approximately 23%, with a slightly lower cash tax rate. Lastly, consistent with the past several years, we expect to execute a balanced capital strategy in 2023, leveraging our strong cash position and liquidity.

With the Mercury capacity project mainly behind us, we believe our capital expenditures will decrease versus 2022, resulting in $350 million of CapEx spend for the year, primarily used for new product investments, cost reduction and automation projects in all our businesses.

Note that we have the ability to significantly reduce this capital spend during the year should economic conditions dictate.

We plan to spend around $150 million on share repurchases, but similar to 2022, we have the ability to aggressively increase this figure should market conditions or a dislocated share price create opportunities to be more aggressive. I will note that we have already purchased almost $15 million of shares this month.

We have approximately $80 million of long‐term debt coming due in 2023, but given our fixed debt profile and low cost of debt, we do not plan to retire additional debt during the year. Our net interest expense is estimated to be approximately $100 million. Note that FX will continue to be a headwind despite recent rate moderation.

From a currency exposure perspective, favorable EUR rate movements will be more than offset by unfavorable CAD, AUD and JPY comparisons. In addition, our hedging benefits will be lower due to a less favorable effective hedge rate which reflects the trailing impact of USD strength.

We continue to execute our systematic hedging strategy which effectively reduces year‐over‐year volatility. I will now turn the call back to Dave for concluding remarks..

Thanks Ryan. Before we close out, I wanted to share a few more recent updates. In 2022, we received 95 awards recognizing exceptional product, business and individual performance across our enterprise; the highest number of awards we have won in a calendar year.

I’m extremely proud of this recognition which reflects the extraordinary talent across our organization, our inclusive culture, and our commitment to moving our Company and industry forward.

We began a new year at the 2023 Consumer Electronics Show in Las Vegas with a very exciting exhibit and the launch of a major refresh of the Brunswick brand, including a new company tagline, Next Never Rests, that signifies our long‐term commitment to technological and business model innovation.

At the show, we officially launched the Mercury Avator 7.5e electric outboard engine and our new boat brand, Veer. Avator and Veer generated huge interest from consumers, channel partners and dealers. As I previewed earlier in the year, 2022 and early 2023 has been an extraordinary period for new product introductions across our businesses.

In November, Mercury introduced the all‐new V10 350 and 400hp Verado outboard engines, the smoothest, lightest and quietest engines in their class running 45% quieter than a leading competitor at cruise.

In addition, the new engines come with optional dual‐mode 48 volt/12volt alternators, a first in marine, to seamlessly pair with Navico Group’s new Fathom II e‐Power System, providing boaters the opportunity to eliminate the onboard generator system. Demand has been outstanding and we expect to see many at the upcoming Miami Boat Show.

As I mentioned, at the beginning the year, we began the launch of the Mercury Avator electric outboard family, with the unveiling of the Mercury Avator 7.5e which has now begun mass production.

These engines are designed with the same outstanding customer‐focused features, quality, and durability as all Mercury products, and consumer interest is very high. Also in January, we launched Veer, an all‐new boat brand designed to support electric propulsion and expand access to boating.

The first model, the V13, is a 13‐foot fishing and multi‐purpose vessel built from durable rotomolded polyethylene designed to be powered by Mercury Avator electric propulsion systems and conventional Mercury outboards.

In addition to the Fathom II ePower system, our Navico Group launched two new fishfinders, the Lowrance HDS Live and HDS Pro, and finally, last week we launched the next generation Sea Ray SPX 210, with the new Sea Ray design DNA and the new Bayliner M19, at the Dusseldorf International Boat Show.

And the excitement is not over, we will be launching more new products at the upcoming Miami Boat Show.

So, before I close, I would like to remind you about our Investor and Analyst Event on February 16, 2023 at the Miami International Boat Show, where we look forward to hosting you to see our latest products and technologies from across our brands and businesses as well as meet with members of our management team. Thank you for joining the call.

That concludes our prepared remarks. We will now open the line for questions..

[Operator Instructions] Our first question comes from the line of Xian Siew with BNP Paribas. Please proceed with your question..

Hi guys, thanks for the question. Maybe first, you talked about modest retail pressure or declines in 2023.

Can you maybe elaborate on what that means that down maybe mid-single digits, low single digits, and then within guidance, a little bit of a wide range is the difference between the top end and the low end, just better retail, like low single-digit, maybe on the high end and high single-digit decline on the low end or maybe any color on that would be helpful..

HI Xian, it is Dave. Thanks for the question very much. Maybe I will start with the guidance range for - that was certainly has a lot of internal discussion on that. I think a couple of things reflected there.

One is we are coming off several years where external factors have played an outsized role, I think, in business overall and certainly, to some extent, in our results, although I think we have been extremely resilient.

But the top end of our range, we are not counting on kind of market support to get to the top end of our range if Retail is flat to even slightly down. We can access the top end of that range.

It would need to be something much more significant for us to get to the lower end, there would be external factors involved and Ryan can walk you through some of those.

I think I would note, though, that even the lower end of our range is significantly above some of the kind of worst-case scenarios that we laid out 18-months or so ago in our investor presentations. So I think we wanted to be balanced and hopefully, we can spend the year walking it up and not talking too much about the lower end of that range.

In terms of what is going on this year, what has been quite difficult is to kind of call the shape of the year because I think even at a macro level, it is been difficult for economists to call the shape of the year. I would say the early year is up versus 2019 in retail and a bit down versus 2022 in retail.

If you would ask me two-months ago, what I take for, I absolutely would have taken it. I think some of the highlights have been boat show attendance and really strong consumer interest in purchasing. But then we also are facing a consumer that is under pressure.

So I would say that we currently believe we will see continued strong performance in kind of premium of fiberglass with some underperformance in aluminum and the underperformance in aluminum could be down, mid, could be down high, but not really sure how to call it right now.

But I would just reinforce that we can still access the top end of our guidance even if the market is flat to slightly down..

Okay and then maybe on propulsion.

Maybe can you break down a little bit more your expectations for volume, mix and price within the revenue guidance because with the capacity expansion and it is higher horsepower, I would think that mix is a benefit, and then maybe you have some share gains, but at the same time, maybe the organic volume is a little bit lower, so that maybe the volume is flat and mix of benefit and pricing you kind of hold.

Is that kind of how you are thinking of it?.

Yes, Xian, I will take this one for you. This is really a high horsepower story. The demand for high horsepower engines, certainly Mercury’s high horsepower engines is extremely strong all over the world.

And now with the capacity materially behind us, we have the chance really to go out there and service our current OEMs, conquest new ones and reach repower international commercial markets, that frankly just haven’t gotten marked up, have not gotten units for quite a bit.

So I would tell you, of the three overall volume, if you look across all of our horsepower nodes, may not be much greater than this year, but it will be greater in the higher horsepower, which is obviously a mixed up, both on revenue and on margin.

And then there is probably a little bit of price baked in at the back half of the year, like Dave said, normal price increases that are anticipated. And you know that means it is generally low kind of low single digits on the Mercury side.

So lots of mix, high horsepower, not a whole lot of price and volume certainly up on high horsepower, but certainly could be flat to slightly down on the small stuff under 60 horsepower..

Great. That is very helpful, thank you guys. good luck..

Our next question comes from the line of James Hardiman with Citi. Please proceed with your question..

Hey good morning. Thanks for taking my call so I wanted to dig into - David, you alluded to it a little bit. You had given us some potential downside scenarios a year-ago, the $8 and the $6 scenarios, it seems like at the low end of your guidance this year, we are getting pretty darn close to that 30% cut to the industry, versus 2021, I believe.

It is $160, $170, I think, was sort of the range to get to that $8, I guess, what has changed? It seems like there is some incremental earnings power even at that - I don’t want to say worst-case scenario, but unfortunate case scenario. What is ultimately changed there to at least get us to the $950 million.

I understand that the whole goal will be get towards the higher end of that guide. But I’m just trying to sort of shape up the downside here as we sit here and your stock is trading at nine times even that lower end a bad case scenario, so to speak..

Thank you, James, for the question. Yes, I think - well, maybe a couple of things are different. Although I think we would say that the market is probably over a couple of years down 20% plus, I would say, but probably not 30%, maybe in the mid-teens this year and something in the kind of mid singles to maybe high singles last year.

I think what we have - that, that is a unit basis, obviously. We haven’t really talked about the fact that we have had two years of pretty strong pricing that the top end of the market particularly the premium end of fiberglass remains very strong. So we are benefiting from mix.

And we have deliberately responded to some of that weakness on the boat side by mixing up in terms of producing fewer of the really kind of lower end value product than we used to and focusing more on some of the top end.

Another factor is, I think, as you saw that, although the boat market is down, the outboard engine market is anything but, so even though it was essentially flat to last year, I think you know what is happening with our share gains, and we anticipate those share gains continuing as we get the capacity online.

And I’m even excited about the introduction of Avator. We expect to make thousands of units of Avator this year, and we expect them to be profitable as well. So I think outboard engines in which was a real big strength of ours are not down with the market. And then what we have seen is pretty robust.

I know that we were a bit down in the fourth quarter, which we can talk about, but pretty robust voting participation, which led to our P&A business being pretty much flat on a constant currency acquisitions basis. So we continue to see that good participation. So I think some components of that downside story occurred to some extent.

But I think our response to it and the way that the market has developed in our favor, particularly in high horsepower, more premium product has mitigated a lot of that impact, and we don’t foresee that changing. Ryan, I don’t know if you have any other ..

Maybe the two points I would remind people is our OpEx control, our ability to really watch cost and counteract some of the market implications has been proven this year, and I think we will continue to be disciplined throughout 2023.

The other item that we kind of talk about every call, every new product that comes out is at a stronger margin profile than the one it is replacing and the focus on design for manufacturing at the right cost continues to really be able to keep a higher floor on propulsion certainly and in P&A.

James, if you look at the $9.50 case, if you go down and look at kind of the - that really has to assume the worst of all of our guidance pieces, which we find very unlikely to happen in an environment that we are seeing today, certainly held up by propulsion and P&A with the boat business continue to be healthy despite lower value..

Got it and then one more question for me. You talked about how, in most cases, wholesale is going to match retail this year, except for that premium segment. Maybe you can help us quantify how big that exception is. And ultimately, if I think about wholesale versus retail and units, what sort of a delta we are looking at.

And I guess, how much that adds to these numbers that is sort of that remaining inventory fill, if there is a way to think about that from an earnings perspective?.

Yes. I don’t know if I can connect all the dots, so I might ask help from right. I would say a significant factor here is we were all through last year, essentially ramping up a second large Boston Whaler facility and Boston Whaler, retail and wholesale will continue to be constrained.

So we could have sold a lot more Boston Whalers, last year, we were better off with Sea Ray. So Boston Whaler inventory continues to be very low. That facility is now up and running and being productive. So currently, we are anticipating that facility running pretty much at capacity unless something materially changes.

I still do not anticipate at least for Boston Whaler that we will get fully to equilibrium. This year, we might be Sea ray.

Ryan, do you have anything?.

Yes, that is a good way to put it. I mean, from a unit perspective, James, you know that our premium is kind of a third of the overall volume with value being the rest. But it flip flops more or less on the dollar side.

And so you have got Sea Ray, Whaler, Lund on some of our premium pontoons, all of those areas, we think we are still going to be relatively strong and pipelines are low. And so from a wholesale in total could be down a couple of thousand units where premium is up a little bit on wholesale with pipeline staying about the same.

We have no interest in putting more - putting outsized inventory in the field. But we do have work to do certainly on Whaler and certainly on bigger Sea Rays, and we will be working on that throughout the year..

Got it. That is really helpful. Thanks guys..

Our next question comes from the line of Fred Wightman with Wolf Research. Please proceed with your question..

Hey guys. I just have one quick clarification. You guys keep referring to the engine capacity project is materially complete.

Was there a delay versus planned or is that just sort of in-line with the original timing?.

No, it is in line with the original timing. Some parts of the project just were already planned to spill into this year. It is really a project, I think I said at one point, there were 150 different projects. And some of you actually visited the facility in citing that was going on that needed to be completed.

But essentially, we have access to all of the volume that we need now. We did mention in the call that when we do the - or at least in I’m sorry, in the deck that we not only had to get the facility up to capacity. We also had to get the supply base up to capacity.

If you look at Q4, if - we have that now, but if we get a little bit of a slower start with some suppliers. We took a bit more time to get up to full speed than we would have liked.

We have that behind us now, but that did cost us some revenue in Q4 in propulsion, which is, to be honest, most of the gap between what we anticipated fourth quarter revenue to be and what it ended up being. But now we are in very good shape.

Things are running extremely well across all the product lines, supply base is up to speed and producing as we need them to satisfy volumes this year..

Makes sense and then I thought that earlier there was a fear that there would be some headwinds from tariff exemption expirations impacting 2023 numbers.

Did that wind up happening? Is there anything that you guys are sort of baking into guidance on a year-over-year basis?.

Fred, I will take this we had hoped to get through a call without talking tariffs, but you have to get there we are. The tariff we are taking advantage of certain exclusions for 2023, but they expire kind of midyear-ish right now.

On the flip side of that, we are taking more components, slightly more components from China that are subject to tariffs that we don’t have the exclusions from. So net-net, our year-over-year tariff impact is about the same. It is probably a little bit worse and by a little bit, I mean a couple of million dollars worth maybe five-ish.

It is still a $50 million headwind to the overall P&L versus the no tariff world. But the reason we kind of dropped it from the year-over-year guidance slide is it is kind of status quo from a total dollar tariff impact despite the fact that the pieces are different..

Got it. Thank you..

Our next question comes from the line of Mike Schwartz with Truist Securities. Please proceed with your question..

Hey guys, just a question on the boat business. I think you’ve mentioned now for, I think, the second conference call in a row that you are kind of you are kind of prioritizing some of the premium and value boat lines and understanding that probably has to do with some of the market demand that you are seeing.

But is there any resource allocation to think about as you think about the Boat business and maybe model make up longer term and then if you are shifting more towards the premium side of the boat business, is the supply chain where it needs to be.

Obviously, those are more heavily contented models, usually are there any potential hiccups or risks to that?.

Yes, Mike. Yes. So shifting doesn’t necessarily mean a kind of wholesale move from aluminum to fiberglass or something like that. It is really shifting to different model lines within those categories. So as you know, we make both the cost $1500 small aluminum jumbos.

But we make them in the same facility aluminum facilities where we make $100,000 Lund premium fishing, aluminum fishing boats.

So that kind of emphasis, if you like and certainly, it does and has involved resource allocations within facilities, essentially means producing less of those commoditized type products within a facility and more of the premium product lines with higher margins, it isn’t a wholesale shift from like Crestliner to some way or something like that.

What we have really seen in the market in the value aluminum is none of the - with kind of major players are gaining share.

What has happened is some of the small kind of let’s more scrappy, I guess, I would say, players in that really value aluminum segment that were dominant during COVID and really challenged by supply chain have kind of come back to life and taken some share in that really kind of value, value and the aluminum market.

We are just not interested in kind of chasing that much, when we can reallocate resources to more premium aluminum product lines, particularly Lund and Pontoon product lines.

So there really is a huge difference between what you see in terms of unit volumes in the marketplace and where the profit pools are and it is more about product line resource allocations versus a major shift of emphasis..

And maybe on the supply chain, Mike, I think, yes, the supply chain is coming along with us. But I will say that we have made concerted efforts to in-source some of those pain points. Several examples would be furniture at Whaler, pontoon, fencing that we brought in-house.

A lot of these, not surprisingly, where we share with RVs and when they are running really hot, it is kind of hard to get value. But we have taken a lot of our pain points and start doing them ourselves. Mercury has always been famous for their vertical integration and the boat business has been concentrating on it as well.

So we are working with our supply chain to ensure their up to the task. But when they are not or where we see challenges, we are very happy to take it in-house..

Okay. Great. And then maybe just one follow-up on the guidance, I think your moving pieces would suggest that gross margin may be flattish to down 50 basis points or something of that nature. Maybe walk us through the moving parts, the pluses and minuses as we think about gross margin.

I’m sure currency is a big one, but maybe some of the other things we are not thinking about specifically?.

Yes. No, you are in the ballpark, Mike. And at this point of the year, it is hard to judge where everything is going to land. Currency certainly it is a bad guy, and it is primarily the first half of the year, where the comparisons are challenging.

But gross - I would say gross margins have the ability to be flat to slightly up or slightly down versus a pretty good year, as we think about inflation, some other things, that continues to be elevated by getting a little better and then really the mix throughout the portfolio.

So there is both mix within product lines, which we have said is angling more premium, but also just the mix of our overall revenue, a little bit heavier in propulsion and P&A a little lighter in boats as we have said. So that will have help on keeping those gross margins pretty buoyant. ..

Okay. Great, thank you..

Our next question comes from the line of Anna Glaessgen with Jefferies. Please proceed with your question..

Hey good morning, thanks for taking my question. I just wanted to touch on the retail outlook.

We have had reports from Marine Max and one water this morning, kind of what is driving the delta between the flattish to slightly down retail with what you are seeing in the market?.

Anna, I think the part of that is trying to understand the shape of the year this earlier in the year is extremely difficult. So I would not be at all surprised to see a relatively wide range of outlooks.

Certainly, there are some - I wouldn’t call them mixed signals exactly, but different points of reference at this time of the year, we are continuing to see, I would say, early boat shows more encouraging than we anticipated. We are obviously more of a global footprint than MarineMax.

We saw a very strong Dusseldorf Boat Show, for example, somewhat stronger than we anticipated, where we sold higher - our revenues, for example, the Sea Ray brand were up about 10% or something like that and certainly up over two-years ago. So there might be an element of mix in there.

But I think, to be honest, there just isn’t a common set of data points at the moment. I think we - as I mentioned earlier, one thing that is a bit of a delta is Boston Whaler remains a significant part of the market. And you could say that Boston Whaler volume has probably been holding back that portion of the market a little bit.

So as we free up more volume in there, I think it is not going to - obviously, we will over index on that, but probably the market will be up a bit more, too..

Great. And on the last quarter call, you talked about how improvements at Navico could bring the delta narrowed versus the overall P&A business.

I guess where do we stand there and when does that provide a tailwind?.

Well, I think you began to see it really in the fourth quarter where we did the first kind of consolidation integration efforts. And mid-third quarter, and we again see the margins flow through. We had a nice bump in the operating margins in Q4, I think, despite top line being down a bit. But there is more to go.

We have to - as we go through a big integration like this, when we integrated Navico we are essentially kind of doubling the size of that group. So we have to take it in chunks. But yes, there is considerably more to be done beyond what we have already accomplished, and we are hard at work on that right now..

Yes. I know it seems looking backwards, it seems not to be the case, but Navico is only been in the portfolio now for 15-months. And the deal model assumed cost and revenue synergies growing for the first three-years, four-years, to a run rate kind of by starting year five. So we are really only in kind of the early innings and there is work to do.

Like Dave said, really nice proof point there in the fourth quarter. And that is also at a time. Navico itself is about 10% RV. And we did we are - obviously being a supplier to the RV industry, didn’t get a whole lot of sales there as they shutdown production here in the first quarter.

So there is always tense, but we believe that integration is right on track, and you will see a strong 23% from that business. ..

Great, thanks for taking that questions..

Our next question comes from the line of Eric Wold with B. Riley Securities. Please proceed with your question..

Thanks. Just maybe kind of a multipart question on the Mercury expansion.

Can you just update us on kind of or the visibility in terms of orders for the year and then how do we think about - a lot of these will be new customers, new OEM customers that are coming over from other competing brands or didn’t have access to before, which I assume they are coming in at higher price points, higher margins than someone who has been an established customer for some time.

How does that play into it and then my assumption would be that in the following years to become more an established customer that pricing margin would be kind of more normalized.

If that is the case, how do you kind of work to offset that?.

Yes. Thanks, Eric, very much for the question. So I think our - and Fund du Luc unit volumes were up 13% or 14% this Q4 over last Q4. And obviously, in the course of Q4, we were ramping up, so that doesn’t reflect the kind of terminal rate of kind of production increase, I guess. So we are going to be exercising the facility above that rate in Q1.

Some of the - as we have mentioned earlier, the in order for us to do the OEM conversions, we needed to be clear to them on what we could supply and when we could supply it. And we also needed to make sure that we could satisfy our existing OEMs.

And to be honest, some of the existing OEMs would have liked more product from us this year than we were able to provide. So we have to get for existing OEMs, the products that they need, which will require additional volume from us and then we will bring on board the new OEMs.

And I would say the model year changeover point, which is typically in June will be the point of - a particular point of high conversion where you will see those conversions really materialize as OEMs do the model year changeover.

We certainly do have a lot of opportunity, obviously, right now, there are no V10s, for example, in going to dealers or going into the aftermarket or repower and very few have made it to international markets so far. So you will begin to see those work their way out through the various channels in the course of the year.

So we anticipate that we will use a substantial portion of that additional capacity and continue to be ramping up through the first half of the year as we get to the changeover..

Yes. At full go, Eric, the capacity project is adding 50% capacity and 150-horsepower and above. Does it mean we are going to use - be able to use all of that right away, but that is the number we have quoted and that is where it stands..

Got it. Thank you both..

Our next question comes from the line of Scott Stember with MKM Partners. Please proceed with your question..

Good morning and thanks for taking my questions. Moving over to P&A, obviously, the RV business, notably with the OEMs and supply is quite different than we are seeing in the powerboat market right now.

So if you were to flesh out, I guess, the Navico business with the RVs is it safe to assume that the P&A business was closer to being flat?.

I think it is safe to assume that - Oh, I see what you mean. Okay. Yes, overall, I mean..

Currency RV, you get a lot closer don’t get our -..

Yes, I meant adjusting for currency, yes..

Yes, probably right yes..

Land and sea, our distribution business also has kind of high single-digit percent going to the RV business. So it is an impact, albeit relatively small..

Okay. And then last question on engines. I know that you have been constrained from being able to put more of your engine production into the repower market.

How does that shape up for 2023 by midyear, do you think you will be able to take more advantage of that part of the market?.

Yes, I think we will. I mean we have been generally shortening that part of the market for some period. I don’t see any reason now why we can’t supply the demand in that market. It might take us a bit of time to make sure that we get through ramping up our existing OEMs and ramping in some others.

But yes, by the middle of the year, I don’t see why we shouldn’t have the capacity to satisfy that demand fully..

Got it. Thanks again..

Thank you..

At this time, I would like to turn the call back to Dave for some concluding remarks..

Well, thank you all for joining us. Thanks for the great questions. I think as you have seen, despite the very dynamic external environment, we delivered another very strong year. Revenue up 70%, EPS up over 20%, our businesses are all operating well.

I do want to congratulate our boat group for getting into those double-digit margins that we have been promising to this group for some time. Despite the kind of muted economic backdrop, there is a lot to be excited about in 2023.

The new engine capacity coming online, new electric product lines in propulsion and beyond, 60 new products that we put into the market next year - last year coming into the market now and experiencing that first full-year and a lot of other things going on.

As we mentioned earlier, we did set an unusually large guidance window, not because we think there’s a high chance we will be at the bottom of guidance. But because we had several years where external events has really played an outsized role so we wanted to make sure we reflected that in the guidance.

But as we talked about earlier, even the low end of our guidance is well above the kind of worst cases that we talked about 12-months or 18-months ago. And none of the guidance scenarios anticipate an up retail market. So we can get an access to that top end with no real help from the market.

It is difficult to call the shape of this year exactly, but I certainly am encouraged by the early season boat shows, which have indicated a lot of consumer interest, which is what we need to - that is the basis of how we get to sales. Just a reminder to please join us at our investor event at the Miami Boat Show, which will be very exciting for us.

There will be new products introduced, and you will get a chance to look at those new products and technologies and speak with our management team on February 16th. So I hope to see you all there and thank you very much, indeed. Bye for now..

And this concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation..