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BRP inc (DOOO) Q3 2022 Earnings Call Transcript

Dec 2, 2021

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BRP inc ( DOOO -3.00% ) Q3 2022 Earnings Call Dec 1, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to the BRP Inc.'s FY '22 Third Quarter Results Conference Call. [Operator Instructions]

Today's Change

(-3.00%) -$2.37

Current Price

$76.74

I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.CADCADCAD

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Philippe Deschenes -- Investor Relations

Thank you, Julie. Good morning and welcome to BRP's conference call for the third quarter of fiscal year '22. Joining me this morning are Jose Boisjoli, President and Chief Executive Officer; and Sebastien Martel, Chief Financial Officer.

Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call, and that actual results could differ from those implied in these statements. The forward-looking information is based on certain assumption and is subject to risks and uncertainties. And I invite you to consult BRP's MDA for a complete list of these. Also during the call, reference will be made to supporting slides and you can find the presentation on our website at brp.com under the Investor Relations section.

So with that, I'll turn the call over to Jose.CADCADCAD

Jose Boisjoli -- President and Chief Executive Officer

Thank you, Philippe. Good morning, everyone, and thank you for joining us. Please turn to Slide 4. In the third quarter, our team once again demonstrated its ability to successfully operate in a tough environment. Their strong execution on multiple fronts over the past nine months positioned us well to deliver on our guidance for the year.

During the quarter, consumer demand remained at an all time high across all product lines. Our recent product introduction, notably the Sea-Doo Switch were very well received by consumers and the media. As a result, we registered record high pre-season consumer certificate, for Sea-Doo Personal Watercraft Pontoon and pre-sold unit for Can-Am off-road vehicles.

Furthermore, we continue to gain market share. During the quarter -- sorry -- furthermore, we continue to gain market share in the Powersports industry. Although our low network inventory and global supply chain disruption limited our ability to grow retail, we continue to outpace the industry in North America, EMEA and Asia Pacific. This is a testament to our strong brand and the dedication of our team. While we were impacted by supply chain pressure, the third quarter was marked by continued solid execution across the organization. As we expected, the availability of certain component was tighter in the quarter, which limited our wholesale and resulted in a higher level of unit awaiting missing components. However, the situation has been improving over some weeks.

We also continue to execute on our key projects. Our new product development initiatives are on plan, and the ramp-up of our production capacity at Juarez 3 and Queretaro is on schedule. That said was delivered better-than-expected profitability in Q3, driven by a higher product mix and tighter management of expenses. Given this performance and our ongoing initiative to mitigate supply chain issue, we are raising the lower end of our normalized diluted EPS guidance by CAD0.75, narrowing the range between CAD9 and CAD9.75 per share. This represents a growth rate of 67% to 81% over last year.

Let's turn to Slide 5, for the key financial highlights of the third quarter. As expected, revenue were down 5% to CAD1.6 billion, primarily due to the supply chain constraints. However, our profitability was stronger than expected. Normalized EBITDA and normalized diluted earnings per share stood at CAD252 million and a CAD1.48 per share, respectively, down about 30% year-over-year.

Turning to Slide 6. As you can observe, key financial metrics for Q3 year-to-date are all up significantly. Revenue are up 28%, normalized EBITDA is up 52%, and normalized diluted earnings per share almost doubled to CAD6.93 per share. These are all record results. In fact, our normalized EBITDA and normalized EPS on the year-to-date basis higher than any single full year in BRP history. As a result, we are confident to achieve our annual guidance and deliver another record year in fiscal year '22.

Turning to Slide 7, for a look at our retail performance for the quarter. Our network inventory remained at very low levels, therefore, our retail sales were roughly equal to our shipment of products. Overall, while our North American Powersport retail sales were down 12% in the quarter, while excluding Snowmobiles we still outpaced the industry, which was down low 20%. When compared to pre-COVID levels, retail sales were actually up 1%. We're able to achieve this despite operating with very low level of inventory in the network. We expect retail to start to grow and improve in Q4, driven by the timing of snowmobile shipments and the additional production capacity from Juarez 3 and Queretaro.

Looking at the global retail picture on Slide 8. Overall, we outpaced the Powersport industry in all key regions, including North America, EMEA and Asia Pacific. In North America specifically, when compared to the industry, we did well with the Side-by-Side vehicles, ATVs and Personal Watercraft product lines. However, we're slightly below the industry in Three-Wheeled vehicles and Snowmobiles because of the timing of shipments due to the shortage of components.

Turning to consumer demand on Slide 9. While our retail growth in the quarter was limited by product availability, we continue to see very strong consumer demand for our products. We continue to attract high level of new entrants with an estimated 36% year-to-date, well above the historical average of about 20%. Website visits remain high and well above pre-COVID levels. For example, our Can-Am off-road websites saw close to 60% more visit in October '21 than the same period two years ago. The momentum with pre-season customer certificate for Personal Watercraft is excellent. As of last Friday, we already had four times the number of certificate versus what we had last year. And recall that we had a record level of pre-season certificate last season. And the launch of ORV pre-orders has been very well received. We've launched it in November 8, and customers' orders are already trending above target. So all-in-all, consumer demand remained very strong and does not show sign of slowing down in near term.

Turning to Slide 10 for an update on Sea-Doo Switch. Another key highlight of the quarter was the very successful launch of the Sea-Doo Switch. Media review and consumer response to our new product were well above our expectation. The launch represents the strongest reach ever for BRP product. It generated over 2.3 billion impressions and over 3 million website visits in the first 30 days. Also Switch has an exceptional pre-season consumer certificate three times higher than we were expecting. Production is planned to start in the later part of the fourth quarter with deliveries expected to be for the next boating season. We are very pleased with the great start we are experiencing with Switch. We truly believe it will be a game changer for the boating world.

Now let's turn to Slide 11 for year-round products. Revenue were down 8% to CAD736 million, mainly due to lower product shipment caused by supply chain constraints and were partially offset by a favorable product mix and increased pricing for Side-by-Side and ATV. Three-Wheeled vehicle were most impacted by lower volume as we prioritize the allocation of component, the product line that were in the retail season.

Now looking at Side-by-Side North American Retail. In the third quarter, Retail was down mid-20% in line with the industry, despite having less units in the fire at our Juarez 2 facility at the end of July. Excluding the impact of the fire, we estimate that our retail would have improved by high-teen percent for the quarter, and would have outpaced the industry. Can-Am Side-by-Side is very well positioned to grow in the coming years. Consumer demand for line-up remains strong, our new products are very well received and we continue ramping up production at our Juarez 3 facility.

Given the strong demand for Side-by-Side vehicles and our ongoing market share gain, we have decided to start the Phase 2 expansion at our Juarez 3 facility, which will effectively double production capacity at that facility. Construction is expected to start at the beginning of the calendar year, and the production ramp-up is forecast to start in the first quarter of fiscal year '24.

Turning to ATV. For the quarter Can-Am North American Retail was down high single-digit percent while the industry was down mid-20%. Our Can-Am ATV lineup continues to gain momentum with market share gain in the high CC category. Turning to Three-Wheeled vehicles. The North American Three-Wheeled vehicle industry completed its Season 21 in October with Retail up close 20%. Our Can-Am Three-Wheeled vehicle retail was up mid 20% over the same period, gaining share in both the Three-Wheeled vehicle and Two-Wheeled Motorcycle industry, and ending the season with the number one market position in Three-Wheeled, and fifth in the motorcycle industry. We had an impressive result even if we missed inventory in the back end of the quarter, which impacted our Retail.

Turning to Slide 12, for an update on Three-Wheeled Vehicles Season 21. It was another very good season for Three-Wheeled not only did we gain market share, we made progress on our key priorities. We continue to generate strong momentum with The Rider Education Program. The total number of riding course completed since the launch of the program is now up to 44,000. The Ryker continue to attract a younger and more diverse consumer base. In fact, 55% of consumers are new entrants; over 38% are woman, a key buyer group, 70% are under the age of 55, and about half are from diverse communities. Moreover, the Women of On-Road community that we initiated last year, has been very successful now accounting close to 12,000 members. All of these initiatives have helped us grow the Three-Wheeled Vehicle market. In fact, we tripled our annual retail sales in North America since the Ryker introduction in Season 2018. We are confident in our ability to continue to grow in the coming season.

Turning to Seasonal Products on Slide 13. Seasonal Products revenue were down 14% to CAD437 million, mainly due to lower product shipment caused by supply chain constraints, and were partially offset by a richer mix of Personal Watercraft and favorable pricing. Now looking at Personal Watercraft retail. For the quarter, North American retail was up high 80%, while the industry was up mid-70% and Sea-Doo continued to gain market share. The North American industry ended its Season 21 on September 30 with Retail up mid-single digits.

Sea-Doo retail was up high-teen percent over the same period ending the season with the number one market position in all segments in the industry, and achieving its highest market share ever. Once again, we ended the season with a very low level of network inventory, down 70% in comparison to the same period last year. In Australia and New Zealand, early in the season, Sea-Doo is off to a good start with retail up over 90%. With low level of inventory and strong pre-season consumer certificate, we are experiencing another very strong year for Personal Watercraft business.

Looking at Snowmobile. While it is currently still early in the season, during the quarter, the North American retail industry was down mid-40% and our Snowmobile sales were also down high 40%. This is mainly due to low product availability given we prioritize the allocation of component to product line that were in season during the quarter. Looking ahead, our retail is rapidly improving as we are now focused on the completion of Snowmobile that we're awaiting missing component. Given this prioritization combined with a record level of unit pre-sold to consumer, we are confident in our ability to deliver a strong fourth quarter.

Continuing on Slide 14, with the look at Powersport -- parts, accessories and apparel and OEM engine. Revenue were up 9% to CAD284 million for the quarter. This growth is driven by higher volume of replacement parts due to the increased product usage combined with strong unit retail with generated increased accessory sales. Our strategy to develop accessories in parallel to vehicle continues to pay off and the Sea-Doo Switch is another great example. With this strong success, we are well on our way to achieve our fiscal year '22 revenue guidance, which forecast to surpass the CAD1 billion mark for first time.

Now looking to Marine on Slide 15. Revenue were up 26% to CAD131 million, driven by higher volume of boats sold and lower sales program. Looking at retail sales, for the quarter both Alumacraft and Manitou retail declined as sales were made earlier in the season compared to last year. However, year-to-date both brands performed well. Alumacraft was down high single-digit due to low level of inventory and Manitou was up about 10%. This said, both brands finished the boating season in North America with low inventory. As far Telwater, we are approaching the upcoming boating season in Australia, and retail is up high single-digit for the year-to-date. We are pleased with the progress we have made in our Marine business and now looking forward to launching new boat with the growth engine in each of the three brands in the second half of 2022.

With that, I turn the call over to Sebastien.

Sebastien Martel -- Chief Financial Officer

Thank you, Jose, and good morning, everyone. As previously anticipated, we managed through supply chain issues throughout the third quarter, which impacted our wholesale and retail. However, the strong demand for our premium model and the continued tight management of our expenses allowed us to deliver better than expected profitability.

Looking at the numbers. We generated CAD411 million of gross profit, representing a margin of 25.9%, and delivered CAD252 million of normalized EBITDA. Our normalized income came in at CAD128 million, down CAD71 million from Q3 last year due to lower volume of unit delivery, higher production and distribution costs, and a slight increase in operating expenses, which are partly offset by better mix, lower financing costs and tax expense as well as favorable FX impact. This resulted in a normalized earnings per share of CAD1.48 coming ahead of expectation.

From a cash flow perspective, we had negative free cash flow in the quarter as we continued investing in the business, notably with CAD136 million in capex to support our growth project and CAD485 million in working capital, given that we continued operating with the higher level of work-in process inventory as we are managing through the supply chain constraints.

Moving to our network inventory situation on Slide 18. Year-over-year, our network inventory is down 44% with all product lines seeing declines despite lapping a very low level of inventory at this time last year. Well looking versus Q2, our inventory is slightly up driven by Snowmobile shipments ahead of the winter season. As you know, in order to deliver on our commitment of fulfilling all dealer orders in the context of supply chain constraints, we are shipping incomplete units to dealers for which the retrofit is simple and rapid. This approach brings the product closer to the final consumer and should lead the timing of retail once the final components are received by the dealers. These incomplete units are excluded from our reported network inventory until we ship the required components.

If we were to include these units on our network inventory, our inventory level would be down only 14% year-over-year instead of the 44% decline we reported. And therefore, positioning us well to deliver on our wholesale and retail plan in Q4 as we accelerate the shipment of components to our dealers. And looking ahead, we still have a significant inventory replenishment opportunity representing roughly the equivalent of our full quarter of wholesale to get back to more normalized levels, a sizable growth driver for the quarters to come.

Now moving on to the updated guidance starting with a bit of context on Slide 19. With just a couple of months to go into fiscal '22, we now have better visibility on our production for the rest of the year. While we expect to continue operating through a tight supply chain environment, the actions we took throughout the year to adapt our processes to this new reality are paying off, making the situation more manageable and allowing us to deliver increased volume in the fourth quarter.

Looking at revenues, we have adjusted our year-on product guidance to reflect the impact of supply chain constraints on wholesale and the timing in Three-Wheeled production, which is now concentrated more in fiscal '23 Q1, as we prioritize production capacity and components availability for Snowmobiles in Q4. We have also adjusted upward the lower end of the guidance ranges for other product categories reflect the increased visibility we have on our expected production output for the year. With these volume adjustments, we are increasing the lower end of our profitability metrics to reflect the expectations for a continued favorable product mix, and lower than previously anticipated operating expenses. Our guidance also accounts for increased commodity and logistics costs, which are expected to be offset by improved pricing and lower sales program.

Finally, we are also increasing our capex guidance to a range of CAD705 million to CAD730 million to reflect the opportunistic acquisition of the Juarez 2 and Queretaro facilities which we are -- which we were leasing until now. This transaction is expected to close in the coming months.

Looking at the numbers on Slide 20. With these adjustments, we now expect our total company revenue to grow between 25% and 30%, our normalized EBITDA to grow between 38% and 47%, and our normalized EPS is now expected to end between CAD9 and CAD9.75, representing a growth of 67% to 81%. While we are comfortable with our plan for the year, we expect to continue operating in a tight supply chain environment, which may lead to variability in the timing of reception of components from suppliers and in turn, may impact our production and shipment schedules.

Given this situation, we are operating with lower visibility than we usually do. And this is why we have kept a wider than usual guidance range for this time of the year. Still, we are confident in our ability to achieve our guidance and given our expectation for a strong fourth quarter and continued solid growth in fiscal '23, the Board of Directors has approved the launch of the normal course issuer bid under which we will be allowed to repurchase up to 3.8 million shares over the next 12 months.

On that, I turn the call over to Jose.

Jose Boisjoli -- President and Chief Executive Officer

Thank you, Sebastien. To conclude, we delivered record results in the first nine months of the year. Thanks to the selling execution of our team and strong consumer demand. Given this performance and our ongoing initiatives to mitigate supply chain disruption, we expect to report solid Q4 results, achieve our guidance and deliver another record year in fiscal year '22.

Building on this momentum, we are well positioned to deliver strong growth in fiscal year '23, as we expect to benefit from numerous key initiatives and trends including a sustained strong consumer interest in Powersports and Marine, the upcoming significant inventory replenishment cycle, which is expected to take place over the next 12 to 18 months, the continued robust demand for our product lineups, the first year of the Sea-Doo Switch, which is proving to be very promising, and additional products -- and additional production capacity from Juarez 3 and Queretaro.

In addition, we have a solid pipeline of projects to sustain our long-term growth, including continued investment in innovation, the ramp-up of additional production capacity at Juarez 3 Phase 2, our new entrant strategy, which is progressing well, new product introduction in the Marine business such as Project Ghost as well as offering electric option in each of our product line by 2026. As you can see, we are well positioned to drive short-term and long-term growth.

Finally, I would like to thank all our employees for their hard work and dedication in this very busy time, our suppliers for doing everything they possibly can to meet our orders and our dealers for their support and patience. Also a special thank you to our customers for their confidence and loyalty.

On that note, I turn the call over to the operator for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from Craig Kennison from Baird. Please go ahead.

Craig Kennison -- Baird -- Analyst

Hey, good morning. Thank you for taking my question. Obviously, there are many consumers who show up at dealers that is choosing to do. Are they switching to another BRP --

Jose Boisjoli -- President and Chief Executive Officer

Craig?

Craig Kennison -- Baird -- Analyst

Hello.

Jose Boisjoli -- President and Chief Executive Officer

Craig, we don't hear you.

Philippe Deschenes -- Investor Relations

We move to another question. We come back to you operator. Maybe operator we move to another question and we come back to Craig later on.

Operator

And your next question comes from the line of Martin Landry. Please go ahead.

Martin Landry -- Stifel GMP -- Analyst

Hi, good morning Jose, Sebastien, Philippe. This is Tony on the line for Martin. You seem to be handling the supply chain situation quite well also in the industry, maybe units in the stores. I'm just wondering if you can shed any light on some of the initiatives, facilities and working in the facilities in Mexico we have no labor, modular parts, and anything to shed will be helpful. Thanks.

Jose Boisjoli -- President and Chief Executive Officer

Hey, good morning. First, I don't know guys if you hear me well. But as you know, our goal is to meet all dealer and customer orders. Then basically we have improved on our process -- do you hear us?

Martin Landry -- Stifel GMP -- Analyst

Yeah. I hear you with a little bit of background noise, but I can hear you.

Jose Boisjoli -- President and Chief Executive Officer

Then, as you know the goal is to meet all dealer and customer orders. And we have -- basically, we have improved our process over the years. And the first one, we allocate products to minimize sectorial changes. And basically we allocate products to dealers to make sure that we minimize the change that will come from them.

Second, we have the chance to be -- to have many product line, and we have the possibility to prioritize certain products depending of their sustainability. And I give an example, in Q3, we prioritized components on ORV products and Personal Watercraft controlled season because they were in the peak retail versus Three-Wheeled vehicle and Snow because the usage of the product of Three-Wheeled and Snow in August to October is limited. Q4 we will prioritize ORV and Snow versus Three-Wheeled and Watercraft, and in Q1 our product line will be prioritized. Then this give us, I believe more flexibility than some of our competitors.

The other thing is, we decided to run our assembly line doing some BOs either we retrofit them in-house or we have the dealer to retrofit them. Then when the dealer do it, it's more people who can do the retrofit. And on top of it, it's saving the shipping time. And the last thing, you know that we have high percentage of our production with Made in Mexico, where we have low labor shortage. This is what's going on in Canada and United States. Then overall, supply chain is still challenging, but with those initiative is more manageable.

Do you hear us? Operator?

Operator

Yeah. Martin's line is open.

Jose Boisjoli -- President and Chief Executive Officer

Okay.

Martin Landry -- Stifel GMP -- Analyst

Yeah. Okay. So just a quick follow-up on, you mentioned that we'll see more product introductions over the next three years than in the last three years. So how should we think about how that could impact some of your expenses of research and development? Is there going to be any sort of step change or material change and how that is relative to your revenue in the coming three years?

Sebastien Martel -- Chief Financial Officer

Well, historically we've always invested around 4% to 4.5% of RD as a percentage of revenue and the expectation is that we continue on that trend. Innovation is part of winning in this industry and we need to continue fueling innovation.

Martin Landry -- Stifel GMP -- Analyst

Okay. Thank you.

Operator

Your next question comes from Gerrick Johnson from BMO Capital Markets. Please go ahead.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Hey, good morning guys. On last quarter, you talked about growing revenue and earnings by double-digit percent in fiscal '23. I did not hear that this time you backing off of that guidance?

Sebastien Martel -- Chief Financial Officer

Good morning, Gerrick. No, we're not backing off of that guidance. Obviously, assuming the supply chain continues to improve and it remains manageable as we expect for Q4. You know that we have a lot of growth opportunities for next year as Jose alluded to them, but obviously we have added capacity for Side-by-Side, Personal Watercraft, The Switch, The Ghost, the restocking of inventory in the network. And also, we will have a few surprises next year in terms of product introduction. So if you take the midpoint of the guidance range on EPS for fiscal year '22, we are confident in our ability to deliver again double-digit EPS growth for next year.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Okay. Great. Thank you for that. And in the quarter with revenues lower, what was the profitability surprise? Was it -- I think, you said it was operating expense, what they're surprised due to the -- to be a benefit?

Sebastien Martel -- Chief Financial Officer

Yeah. Well we came in lower than what we were anticipating. Obviously, with the low level of network inventory that we have in the field, continued strong consumer interest, we scale back on some of the marketing spend that we are planning to do.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Okay.

Sebastien Martel -- Chief Financial Officer

...favorable.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Okay. I have one more and I'll jump back in queue. If you ship an incomplete unit, when do you recognize that revenue?

Sebastien Martel -- Chief Financial Officer

Very important question. We recognize revenue only when the final components are shipped to the dealer. So as I've said in my call, any retrofit units or incomplete units that we shipped to the network are actually excluded from network inventory because we haven't recognized revenue and will be recording revenue when we ship the components. So that's why now that we're sitting with, if you compare year-over-year, minus 14% of total inventory, including incomplete units, obviously it bodes well for wholesale plan for the fourth quarter.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Okay. Great. Thank you very much.

Operator

Your next question comes from Cameron Doerksen from National Bank Financial. Please go ahead.

Cameron Doerksen -- National Bank Financial -- Analyst

Yeah. Thanks very much. Good morning. And just a follow-up on that last question. I guess, that's largely the -- especially on the Snowmobile side, that largely explains that the fairly significant implied sequential revenue growth in Seasonal Products in Q4 is the fact that you've got these units at the dealers that are basically kind of ready to ship?

Jose Boisjoli -- President and Chief Executive Officer

Yeah. This is -- yeah, exactly.

Sebastien Martel -- Chief Financial Officer

And Jose mentioned as well, purposefully we prioritize other product lines versus Snowmobiles in Q4. So that's why you'll see a heavier lift in wholesale in Q4 for Snowmobiles. Yes.

Cameron Doerksen -- National Bank Financial -- Analyst

Okay. Perfect. And I guess sort of related question for me, just on the working capital in Q4. I guess, presumably, you'll have a significant, obviously, we've seen inventory, I guess, increased sequentially the last number of quarters. I would -- as your expectation that we'll see that that decline in Q4. And I guess maybe my other question is, we saw a fairly big jump in accounts receivable in Q3? I'm just wondering what kind of explain that.

Sebastien Martel -- Chief Financial Officer

Well, if you look at the overall investment in working capital year-to-date at the end of Q3, it's about CAD855 million. And my expectation is that will go down in the fourth quarter, probably to the tune of CAD200 million to CAD250 million, so positive cash generation. And yes, AR has increased, obviously, with the shipment of goods to dealers in the last period of the month. So that obviously increases overall AR.

Cameron Doerksen -- National Bank Financial -- Analyst

Okay. That's very good. I'll jump back in queue. Thanks very much.

Operator

Your next question comes from Joe Altobello from Raymond James. Please go ahead.

Joe Altobello -- Raymond James -- Analyst

Thanks. Hey guys, good morning. I guess, the first question on supply chain constraints. You did mention earlier, it's improving in recent weeks. I was hoping you could elaborate on that a little bit. Is it on the logistics side or components procurement or was it pretty much across the board?

Jose Boisjoli -- President and Chief Executive Officer

Good morning, Joe. I would say on the semiconductors, we see some improvement. We have a better visibility of what's coming. This is definitely a plus. The logistic is still difficult with the Christmas high season, there is a shortage of, as you know, container, boats, plane and all of it. Then this is creating some disruption. That being said, and that's what I've tried to explain the way the process that we put together to better manage the volatility, I believe, is good for us then.

Again, and again, I'm not sure if you heard well, but we allocate products to dealers and we have them to pre-sell those products, not what they don't know, if they will get it. We -- because we have multi-product line, we have the product -- possibility prioritize certain product line versus other depending of the riding season. We decided to run our assembly line some would be that will retrofit year or at the dealer level. Then this is another lever that expedite unit that retail. And the last thing is, because we have quite a high level of production in Mexico where there is no labor shortage, we feel it's helping. Then all of this is helping us to better mileage the high volatility of the supply chain.

Joe Altobello -- Raymond James -- Analyst

Okay. That's very helpful. And then maybe thinking about fiscal '23, you did mention earlier, you're still expecting double-digit EPS growth. Your EBITDA margins this year are looking around 18% to 19%. I think you've said they should be flattish next year. So could you help us understand sort of the puts and takes in fiscal '23 in terms of margins? I assume you're expecting some normalization in sales programs and I would think that would be offset largely by cost savings and other drivers?

Sebastien Martel -- Chief Financial Officer

Yeah. When we give you some color on the EBITDA margin for next year, what we said was expectation is that would be in line with what we had in fiscal year '21, which was a phenomenal year in terms of our profitability and EBITDA margin. Obviously, the pluses are -- the volume is going to be a big plus for next year. Pricing is also going to be a plus. But the headwinds that we're seeing, obviously, we're benefiting this year from a very favorable commercial environment on the sales program. We're expecting a headwind on sales program. We're expecting a headwind on mix as well. This year we tend to favor higher margin products because production was limited. And so that's what we put on the top of the list. And also commodities are going to be a headwind. We're seeing it this year, we're expecting it to continue being high next year.

Probably, less disruption in the, what we'll call it a weekly management of operations, so less cost there, but certainly an inflationary pressure from a commodity's point of view and a salary's point of view as well.

Joe Altobello -- Raymond James -- Analyst

Got it. Great. Thank you guys.

Operator

Your next question comes from Brian Morrison from TD Securities. Please go ahead.

Brian Morrison -- TD Securities -- Analyst

Thank you. Good morning. So I want to go back to the pre-builds with your whip up about CAD500 million. What percentage of that is Snow? And do you expect that elevated whip to normalize all in Q4? Or could this be ongoing with the supply chain visibility?

Sebastien Martel -- Chief Financial Officer

Well, if I look at my overall retrofit situation there, Q3 was the quarter which for us, we believe is the peak in terms of unit retrofit. We are about 2.5 times higher than where we were at the end of Q2. And our expectation is that number is going to go down in Q4 by about 25%. So we'll still be at high levels -- higher than we would like, but still very manageable. And the expectation is in Q1 and in Q2, we will be depleting that retrofit inventory, obviously, the beauty with our business is that we have multiple product lines. So we can prioritize units and that provides us with a lot of flexibility and that's what we're doing.

Brian Morrison -- TD Securities -- Analyst

Okay. And then maybe for Jose. You made commentary about Phase 2 already with Juarez 3. What market share and unit volume does that imply then? By my math, it looks like you're going up to about 200,000 units of capacity and 40% market share. Is that correct?

Jose Boisjoli -- President and Chief Executive Officer

Yeah. I mean, obviously, we felt that at the rate that the market is growing and the way we gaining market share today, 30% is a lot more than what we thought three years ago. And our Juarez 3 factory was designed to be build in two phases. And when I look at the overall picture, if you take the peak of the Off-road Vehicle market in 2006, this industry, if you combine ATV and Side-by-Side was 1,350,000 units. Now it's still 85% of that volume. Obviously, Side-by-Side is growing faster than -- and ATV have declined. But we still are 15% below the peak of 2006. And when we see all the new product that OEM bring in, we believe that there is still runway for the industry to grow. And again, our target is to grow at 30%, and we want up at 30 -- when the 30 is reached, there will be another goal.

Brian Morrison -- TD Securities -- Analyst

Okay. And last one. Very quickly. Just the days outstanding that your dealers you usually provide that number, I assume is still sort of in the mid 20's?

Sebastien Martel -- Chief Financial Officer

Yes. That's correct.

Brian Morrison -- TD Securities -- Analyst

All right. Thank you all.

Operator

Your next question comes from Robin Farley from UBS. Please go ahead.

Robin Farley -- UBS -- Analyst

Great. Thanks. I just wanted to clarify one of your comments on the call about shipping incomplete products. Did I understand you to say that the amount at dealers is equivalent to a full quarter of shipments? And with that, is that true for Off-road or with that mostly a comment about Snow?

Sebastien Martel -- Chief Financial Officer

Just one clarification, when we talked about the fourth quarter of production, I was referring to the whole inventory replenishment opportunity. As you see, inventory down sequentially significant versus last year and versus three years ago, even more. So that's the color I provided Robin.

Robin Farley -- UBS -- Analyst

Okay. Great. That's helpful. Thanks. And then in terms of the capacity increase that the Juarez expansion from the -- not the new one you've announced, but the one that came online in August. Can you just quantify for us the capacity increase that would represent, but then, kind of where you are -- the fact that, I guess the supply chain like what percent of that increase? I guess, what I'm trying to get to is, are you not able to hit because of the supply chain? So just trying to get a sense of what it's actually adding today versus what it can add when the supply chain issues are normalized?

Sebastien Martel -- Chief Financial Officer

Yeah. Well, obviously -- you're right. With the supply chain issues, we're not able to benefit from this full added capacity in the third quarter. But we do have an aggressive capacity ramp-up plan and the expectation is that come Feb 1, we would be able to use that additional capacity. Now Juarez 3 Phase 1 offered an additional 50% of capacity increase versus what we had prior to opening of that facility. And so, as the supply chain normalizes, the teams are working to make sure that we're able to benefit from that added capacity as soon as possible.

Robin Farley -- UBS -- Analyst

So Feb 1 will be what percent increase off of kind of last year's -- the pre-August '21?

Sebastien Martel -- Chief Financial Officer

Well, the target is to be at 50%. Obviously, the supply chain needs to normalize will be -- we will be there. Time will tell. We still have a few months to go, but that's the target.

Robin Farley -- UBS -- Analyst

That's what I was going to try to understand whether you were saying that February 1 that you thought your supply chain issues would be normalized, but you're kind of not saying you're not saying that --

Sebastien Martel -- Chief Financial Officer

I'm not saying that it's going to be. Obviously, it's a weekly management. Visibility improves. We are better at managing yet. But we've saw few hiccups over the last 12 months with many companies have. So time will tell.

Robin Farley -- UBS -- Analyst

Okay. Great. And then maybe just a final thing. You mentioned the new dealer order program that was started in November. Do you have any way of sort of quantifying what -- without having had that formal off order system, what dealer deposits -- so not European all, but the dealers taking deposits from consumers waiting for products? Anyway to quantify how that looked at the end of Q3 versus the end of Q2, kind of just sequentially?

Jose Boisjoli -- President and Chief Executive Officer

Then you know, Robin, we've been having those pre-order systems for Snowmobile, Watercraft and Three-Wheeled for many years. And I would say the most successful one was Snowmobile because this is part of the history of Snowmobile and customer liked it is their best special model for the upcoming season, but lately all product lines are going with the shortage of product -- all consumer -- many consumers are placing more orders. Then on Snow, Watercraft and Three-Wheeled, it existed for many years. Now we introduced it on the ORV but different than some of our competitor, we said to the dealer pre-sell only the unit that has been allocated to you.

Then right now, the dealer know how many off-road you will receive in December, January, February. And they are allowed to pre-sell those units, not the thing that they believe they will sell in July because we want to give to the consumer a good idea of when they would receive their unit. That's part of customer satisfaction. Then, obviously, on Snow, Watercraft and Three-Wheeled, we have that -- that's not to compare, but is brand new that we just started on November 8. But I can tell you is growing very fast right now. Dealers are somewhat securing the consumer to make sure they get their unit in the next, but we don't have any specific number.

Robin Farley -- UBS -- Analyst

But that's -- the new system that's started in November is still only allowing dealers to pre-sell the sort of next quarter of shipments. Is that right?

Jose Boisjoli -- President and Chief Executive Officer

Exactly.

Robin Farley -- UBS -- Analyst

Okay. All right. Thanks very much.

Operator

Your next question comes from Fred Wightman from Wolfe Research. Please go ahead.

Fred Wightman -- Wolfe Research -- Analyst

Hey, guys. Good morning. The 14% decline on a year-over-year basis for the semi-finished inventory, can you put that in the context with where that was exiting the second quarter?

Sebastien Martel -- Chief Financial Officer

As I said, the total number of retrofit units is about 2.5 times higher than when we were at the second quarter. But what's important to note is when I look at the total units shipped to dealers in this quarter, that's including the complete units and also the semi-finished units, total deliveries are equal to where we were last year. Obviously, wholesale is impacted because we have more retrofit units than we have last year. But the good news is, we're on plan in terms of production, we're on plan on overall shipments to our dealers this quarter. It's just the mix that's a bit different versus what we had initially anticipated.

Fred Wightman -- Wolfe Research -- Analyst

Perfect. And as we think about that new entrant mix of the new customer mix, you guys quoted a year-to-date figure of 36%. I think that was in the low 40s last quarter. So is there anything to call out from a timing perspective for anything unusual going on there? I know it's still above sort of that 20% pre-COVID, but any other color?

Jose Boisjoli -- President and Chief Executive Officer

Yeah. The new entrant ratio vary depending product line, the two highest products that have the highest new entrant is Watercraft and Three-Wheeled. And because it's going more in the half season in Q3 and Q4, that's why we had a slight decrease on new entrant level. But if you look at it on the 12 month basis, we're pretty well in line with what we were at last year.

Fred Wightman -- Wolfe Research -- Analyst

Great. Thank you.

Operator

Your next question comes from Jaime Katz from Morningstar. Please go ahead.

Jaime Katz -- Morningstar -- Analyst

Hi, good morning. I'm hoping first we could dive a little bit into Three-Wheeled vehicle performance, because I think the commentary surrounded share gains for the year. But it looks like for the quarter, they were down. So was there anything time wise to see into that or was there something else leading to that ceding share?

Jose Boisjoli -- President and Chief Executive Officer

Yeah. Two things. We had no inventory. We have almost no inventory left in the network and, obviously, level is very, very low. The lowest we never had in the Three-Wheeled vehicle business history. And second, like Sebastien explained, in Q3, we shipped -- we produced some Three-Wheeled that we shipped to dealer. But we prioritized ORV and Watercraft counter season model versus Snowmobile and Three-Wheeled. And this is why -- the -- we missed unit on the last, I would say, month and a half of the quarter because of inventory level.

Jaime Katz -- Morningstar -- Analyst

Does that prioritization continue then as we move into the next quarter or two by product line and then sort of normalizes into the middle of next year when the supply chain starts to unstrangle?

Jose Boisjoli -- President and Chief Executive Officer

But the way we prioritize is always depending of the riding season. Then in Q3, like I said on my remarks, we will prioritize ORV and Snowmobile because snow is here and Three-Wheeled and Watercraft and ORV will be heavily prioritized in Q1.

Jaime Katz -- Morningstar -- Analyst

Okay. And then for capital expenditures next year, since there is more investment, looking like it's coming up. Should we expect that figure should remain elevated through fiscal 2023 sort of at a similar level or should that start to decelerate?

Sebastien Martel -- Chief Financial Officer

You should expect it to be at a similar level as what we have this year any updated guidance.

Jaime Katz -- Morningstar -- Analyst

Thank you.

Operator

Your next question comes from Benoit Poirier from Desjardins. Please go ahead.

Benoit Poirier -- Desjardins -- Analyst

Yeah. Good morning, everyone, and congrats again. With respect to the Three-Wheeled vehicle sales, obviously, you tripled the sales over the 2018 season. So, now that you've each initial expectation. What should we expect for this segment throughout the fiscal year '25?

Jose Boisjoli -- President and Chief Executive Officer

Good morning, Benoit. Like we said, we're very, very proud of what we have accomplished with Three-Wheeled with the Ryker introduction because when Juarez and the team launched the Ryker, we came out with new initiative, new focus on the Rider Education Program. Like I said 44,000 people have took advantage of the program in the last three years. I'm pleased with the ratio of new entrant at 55% women. 38% of the people come to Three-Wheeled are women. And the ratio of customer under 55, and the minority is very high.

Then for us, we learned with spark and we learn with Ryker how to talk to different customers. And now we are applying those, I would say, recipe to other product lines and we're quite optimistic about the future. Then again, we believe that Three-Wheeled has good potential to grow. When that -- this morning, give you any target number for fiscal year '25, but we believe that there is more runaway on Three-Wheeled to grow going forward.

Benoit Poirier -- Desjardins -- Analyst

Okay. That's great color. And could you -- with respect to the opportunity to purchase two manufacturing plants in Mexico, could you talk about the reasons behind this capital deployment?

Sebastien Martel -- Chief Financial Officer

Yeah. Well, first, we have a right of first refusal to buy these buildings and the owner of the buildings, put them on market. And so we decided to exercise that right and match the offer. There is definitely a cash flow benefit as the borrowing cost is obviously much better than the cap rate on these leases. But strategically, we're in Mexico to stay in Mexico these sites are purposefully built for us. Our intention was not to move out of these buildings when the lease term would expire. So from a long-term perspective, it was a good thing to do as it provides us with more flexibility and it's -- we are continuing to invest in these sites and grow these sites. So long-term wise, it was the right move to make.

Benoit Poirier -- Desjardins -- Analyst

Okay. And through the pandemic, obviously, a big trend has been toward digital. Could you talk about your ability to capitalize on the strength of your website to potentially drive e-commerce sales? Just wondering how you're progressing with this initiative?

Jose Boisjoli -- President and Chief Executive Officer

Yeah. I believe we're doing very well. I mean you saw our website visits growing up 60% versus last year on off-road. But more and more, we have great ambassador that we -- that promote our brand. And we've learned that this has a lot more benefit when an ambassador talk about our product versus us. Then that's why we're using a lot of the ambassador to promote our products. And on our side, we try to guide them well that they do well. This is one.

The other thing we do well is the -- how to reveal where we showed the customers how to ride the product, where to ride the product. And this is impressive. We've done more than 90 videos how to ride and use the product. Obviously, we promote more and more the experience. And we have right now 58 rental operators in the US doing unchartered society. And we're building the community -- building strong community. And the Women of On-Road community with 12,000 members after one year is very impressive. Then I believe there was definitely a trend there. And we are very happy with all those initiatives and the results.

Benoit Poirier -- Desjardins -- Analyst

Okay. That's it. Thank you very much.

Operator

Your next question comes from Craig Kennison from Baird. Please go ahead.

Craig Kennison -- Baird -- Analyst

Hey, thanks for coming back to me. Hopefully this connection is better. But I was going to ask just a follow-up to Robin's question on product availability at the dealer level. Consumers are showing up the product isn't there. Do you have any data on what that consumer is choosing to do? I mean their choices would be to switch to another BRP product and other brand to buy used, to buy a production slot now or just walking away? Do you have any sense of what that consumer who is unable to get product today is looking to do?

Jose Boisjoli -- President and Chief Executive Officer

Yeah. Good morning, Craig. A lot clear than the first call. Yeah. Then, I give an example, we informed to some customers who had purchased the spring break Snowmobile that will have about a month delay on the delivery of their unit. We offered to those customers to transfer their deposit on next year model, but most of them hold to their orders. Then we hear few customers decided to move to next year to wait, but most of them so far what we hearing are holding to their orders -- waiting for the product.

Craig Kennison -- Baird -- Analyst

Great. Thank you.

Operator

Your next question comes from Mark Petrie from CIBC. Please go ahead.

Mark Petrie -- CIBC -- Analyst

Yeah. Good morning. Thanks for your comments thus far. I just wanted to ask, Seb, you highlighted how you adjusted your marketing spend and approach in Q3, and I think we had heard that earlier this year as well. So just wanted to ask about how you're thinking about marketing plans for fiscal '23? Does that sort of key -- do you think that looks a lot like fiscal '22? Or is it more like sort of pre-pandemic?

Sebastien Martel -- Chief Financial Officer

Certainly, not pre-pandemic. Obviously, we'll modulate along with our inventory availability and our retail forecast. But for sure, we want to make sure that we stay relevant in the minds of the consumers. And so, investments in marketing and brand awareness and product awareness are required. And we'll certainly continue investing. And so that's why, when I look at my overall operating expense next year as a percentage of sales should remain in line with what we saw this year. So like -- by a good percentage of investment probably in around the range of 6% to 6.5% of overall marketing spend would be a fair estimate.

Mark Petrie -- CIBC -- Analyst

Okay. I appreciate it. Thank you.

Operator

[Operator Instructions] And your next question comes from Gerrick Johnson from BMO Capital Markets. Please go ahead.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Great. Thanks. I'm curious about price increases and the MSRP. Are you -- well, what was the average price increase if you take your entire portfolio the average price increase implemented? And how does that breakout between increase in MSRP and additional freight surcharges?

Sebastien Martel -- Chief Financial Officer

Well, when we look at how we approach pricing obviously in this environment, we look at it in three ways. One, the short-term disruptions that we're seeing from production, i.e., we need to pay over time, we need to pay special freight. These are costs that we have decided to absorb as a company because, obviously, we don't want to be knee-jerking with pricing. If it's a mid-term impact, i.e., higher freight costs from either Maritime or outbound freight for our unit, special price increases that we're getting from suppliers because they are incurring higher costs and they say, well, it's going to be for three, four months.

So these mid-term inflationary pressures we're seeing we're addressing it through surcharges and that's where the majority of the price increases are happening. And then the latter which are longer-term inflationary trends that we're seeing, that word rising through pricing. So I'd say probably two-thirds of the pricing increase that we've done have been done through surcharges, a third have been done through permanent pricing increase. We've announced some pricing increase in the middle of the summer, about 1.7% overall increase in pricing surcharges, and an additional 1% coming from pricing. And we'll be announcing more in the next month as we are continuing to see higher inflationary costs, Gerrick.

Jose Boisjoli -- President and Chief Executive Officer

One key thing, Gerrick, to complete Sebastien answer. If you go on our website, you will see we're displaying now for each model, the MSRP and the commodity surcharge. And the dealer know that it could go up or down depending on the cost. But since we displayed the commodity surcharge customer or the -- most of the customers understand and they accept it.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Yeah. Noticed that. I think that's a great idea. Thank you very much.

Jose Boisjoli -- President and Chief Executive Officer

Thank you.

Operator

And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

Jose Boisjoli -- President and Chief Executive Officer

Thank you, Julie. And thanks everyone for joining us this morning and for your interest in BRP. We want to take the opportunity to wish you all happy and safe holiday season. And we look forward to speaking with you again for our fourth quarter conference call on March 25. Thank you again, and have a good day.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Philippe Deschenes -- Investor Relations

Jose Boisjoli -- President and Chief Executive Officer

Sebastien Martel -- Chief Financial Officer

Craig Kennison -- Baird -- Analyst

Martin Landry -- Stifel GMP -- Analyst

Gerrick Johnson -- BMO Capital Markets -- Analyst

Cameron Doerksen -- National Bank Financial -- Analyst

Joe Altobello -- Raymond James -- Analyst

Brian Morrison -- TD Securities -- Analyst

Robin Farley -- UBS -- Analyst

Fred Wightman -- Wolfe Research -- Analyst

Jaime Katz -- Morningstar -- Analyst

Benoit Poirier -- Desjardins -- Analyst

Mark Petrie -- CIBC -- Analyst

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