# Polaris Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Polaris Inc.](/companies/pii.md) (CIK 931015)
- Form: 10-Q
- Filed: 2023-10-24
- Accepted by EDGAR: Oct 24, 2023, 16:08 ET
- Period: 2023-09-30
- Accession: 0001628280-23-034992
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/931015/000162828023034992/pii-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/931015/000162828023034992/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $2.25bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $6.65bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $1.74bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $5.16bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $508.8m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $1.48bn | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $91.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $281.5m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $201.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $558.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $32.5m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $92.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $30.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $100.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $151.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $399.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $2.62 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $6.90 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $2.66 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $6.98 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 57,800,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 57,900,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $376.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $311.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $110.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $159.4m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $295.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $3.04bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $5.73bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $2.44bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $4.39bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $1.33bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,178 characters.

The following discussion pertains to the results of operations and financial position of Polaris Inc., a Delaware corporation, for the three and nine month period ended September 30, 2023 compared to the three and nine month period ended September 30, 2022. The terms “Polaris,” the “Company,” “we,” “us,” and “our” as used herein refer to the business and operations of Polaris Inc., its subsidiaries and its predecessors, which began doing business in 1954. We design, engineer and manufacture powersports vehicles, which include: off-road vehicles (“ORV”), including all-terrain vehicles (“ATV”) and side-by-side vehicles; military and commercial off-road vehicles; snowmobiles; motorcycles; moto-roadsters; quadricycles; boats; and related Parts, Garments and Accessories (“PG&A”), which includes aftermarket accessories and apparel. Due to the seasonality of certain products and to certain changes in production and shipping cycles, results of such periods are not necessarily indicative of the results to be expected for the complete year. Unless otherwise noted, all “quarter” comparisons are from the third quarter of 2023 to the third quarter of 2022 and all “year-to-date” comparisons are from the nine month period ended September 30, 2023 to the nine month period ended September 30, 2022. Estimates related to industry retail sales are unaudited and based on internally-generated management estimates, including estimates based on extrapolations from third-party surveys of the industries in which we compete, and are subject to change.

### Overview

Third quarter sales totaled $2,248.9 million, a decrease of four percent from last year’s third quarter sales of $2,340.6 million. Our third quarter sales to customers in North America decreased four percent and our sales to customers outside of North America decreased three percent. The decrease in sales in the quarter was primarily driven by decreased shipments.

Our gross profit of $508.8 million decreased nine percent from $559.2 million in the comparable prior year third quarter. Gross profit, as a percentage of sales, decreased primarily due to higher finance interest, unfavorable product mix, and unfavorable foreign currency exchange rate movement.

Net income from continuing operations attributable to Polaris was $151.7 million, or $2.62 per diluted share, compared to 2022 third quarter net income from continuing operations attributable to Polaris of $190.4 million, or $3.17 per diluted share. The decrease in net income from continuing operations was primarily driven by decreased shipments, higher finance interest, and higher marketing expenses. We reported third quarter Adjusted EBITDA of $282.6 million, compared to 2022 third quarter Adjusted EBITDA of $319.8 million. For information on how we define and calculate Adjusted EBITDA and a reconciliation of net income from continuing operations to Adjusted EBITDA, see “Non-GAAP Financial Measures”.

During the third quarter of 2022, we completed the sale of our Transamerican Auto Parts (“TAP”) business, an aftermarket parts business. The results of TAP have been presented as discontinued operations for all periods presented.

### Consolidated Results of Operations

The consolidated results of operations were as follows:

*($ in millions except percentages and share data)*

|  | Three months ended September 30, 2023 | 2022 | Change 2023 vs. 2022 | Nine months ended September 30, 2023 | 2022 | Change 2023 vs. 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $2,248.9 | $2,340.6 | (4)% | $6,645.2 | $6,184.9 | 7% |
| Cost of sales | $1,740.1 | $1,781.4 | (2)% | $5,162.2 | $4,798.4 | 8% |
| Gross profit | $508.8 | $559.2 | (9)% | $1,483.0 | $1,386.5 | 7% |
| Percentage of sales | 22.6% | 23.9% | -127 bps | 22.3% | 22.4% | -10 bps |
| Operating expenses: |  |  |  |  |  |  |
| Selling and marketing | $145.1 | $120.7 | 20% | $415.3 | $347.8 | 19% |
| Research and development | $91.8 | $98.5 | (7)% | $281.5 | $266.1 | 6% |
| General and administrative | $91.3 | $97.8 | (7)% | $285.9 | $258.7 | 11% |
| Total operating expenses | $328.2 | $317.0 | 4% | $982.7 | $872.6 | 13% |
| Percentage of sales | 14.6% | 13.5% | +105 bps | 14.8% | 14.1% | +68 bps |
| Income from financial services | $20.5 | $12.1 | 69% | $57.9 | $33.7 | 72% |
| Operating income | $201.1 | $254.3 | (21)% | $558.2 | $547.6 | 2% |
| Non-operating expense: |  |  |  |  |  |  |
| Interest expense | $32.5 | $20.1 | 62% | $92.2 | $46.8 | 97% |
| Other (income) expense, net | $(13.1) | $(7.4) | 77% | $(33.6) | $(13.9) | 142% |
| Income from continuing operations before income taxes | $181.7 | $241.6 | (25)% | $499.6 | $514.7 | (3)% |
| Provision for income taxes | $30.2 | $50.9 | (41)% | $100.2 | $107.9 | (7)% |
| Effective income tax rate | 16.6% | 21.1% | -443 bps | 20.1% | 21.0% | -89 bps |
| Net income from continuing operations | $151.5 | $190.7 | (21)% | $399.4 | $406.8 | (2)% |
| Net income attributable to noncontrolling interest | $0.2 | $(0.3) | NM | $— | $(0.5) | NM |
| Net income from continuing operations attributable to Polaris Inc. shareholders | $151.7 | $190.4 | (20)% | $399.4 | $406.3 | (2)% |
| Percentage of sales | 6.7% | 8.1% | -139 bps | 6.0% | 6.6% | -56 bps |
| Adjusted EBITDA | $282.6 | $319.8 | (12)% | $786.2 | $738.7 | 6% |
| Adjusted EBITDA Margin | 12.6% | 13.7% | -110 bps | 11.8% | 11.9% | -11 bps |
| Diluted net income from continuing operations per share attributable to Polaris Inc. shareholders | $2.62 | $3.17 | (17)% | $6.90 | $6.71 | 3% |
| Weighted average diluted shares outstanding | 57.8 | 60.0 | (4)% | 57.9 | 60.6 | (4)% |
| NM = not meaningful |  |  |  |  |  |  |

23

### Sales:

The decrease in sales in the quarter was driven primarily by decreased shipments and higher finance interest, partially offset by favorable mix. The sales growth for the year-to-date period was driven primarily by increased shipments.

The components of the consolidated sales change were as follows:

|  | Percent change in total Company sales compared to corresponding period of the prior year Three months ended September 30, 2023 | Nine months ended September 30, 2023 |
| --- | ---: | ---: |
| Volume | (5)% | 5% |
| Product mix and price | 1 | 2 |
| Currency | — | — |
|  | (4)% | 7% |

The volume decrease for the quarter was primarily driven by decreased ORV, Indian Motorcycle, and pontoon shipments, partially offset by increased snowmobile shipments. The volume increase for the year-to-date period was primarily driven by increased snowmobile and ORV shipments. Product mix and price for the quarter and year-to-date periods were favorable as a result of a higher sales mix of premium ORV models.

Sales by geographic region were as follows:

*($ in millions)*

|  | Three months ended September 30, 2023 | Percent of Total Sales | 2022 | Percent of Total Sales | Percent Change 2023 vs. 2022 | Nine months ended September 30, 2023 | Percent of Total Sales | 2022 | Percent of Total Sales | Percent Change 2023 vs. 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| United States | $1,845.5 | 82% | $1,915.1 | 82% | (4)% | $5,285.9 | 80% | $4,861.3 | 79% | 9% |
| Canada | 140.0 | 6% | 153.6 | 6% | (9)% | 425.1 | 6% | 446.9 | 7% | (5)% |
| Other countries | 263.4 | 12% | 271.9 | 12% | (3)% | 934.2 | 14% | 876.7 | 14% | 7% |
| Total sales | $2,248.9 | 100% | $2,340.6 | 100% | (4)% | $6,645.2 | 100% | $6,184.9 | 100% | 7% |

Sales in the United States decreased during the quarter driven by decreased shipments and higher finance interest. Sales increased for the year-to-date period driven by increased shipments and favorable product mix, partially offset by higher finance interest.

Sales in Canada decreased during the quarter and year-to-date periods primarily driven by decreased shipments and unfavorable foreign currency exchange rate movement, partially offset by favorable product mix. Currency rate movements had an unfavorable impact of two and four percentage points on quarter and year-to-date sales, respectively.

Sales in other countries, primarily in Europe, decreased during the quarter, primarily driven by lower ORV and Indian Motorcycle shipments, partially offset by favorable foreign currency rate movement. Sales increased during the year-to-date period primarily driven by favorable product mix, partially offset by lower ORV and Indian Motorcycle shipments. Currency rate movements had a favorable impact of five and one percentage points on quarter and year-to-date sales, respectively.

### Cost of Sales:

The following table reflects our cost of sales in dollars and as a percentage of sales:

*($ in millions)*

|  | Three months ended September 30, 2023 | Percent of Total Cost of Sales | 2022 | Percent of Total Cost of Sales Percent Change 2023 vs. 2022 | Nine months ended September 30, 2023 | Percent of Total Cost of Sales | 2022 | Percent of Total Cost of Sales Percent Change 2023 vs. 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Purchased materials and services | $1,442.1 | 83% | $1,504.6 | 84% (4)% | $4,299.6 | 83% | $4,067.8 | 85% 6% |
| Labor and benefits | 195.7 | 11% | 171.1 | 10% 14% | 573.5 | 11% | 475.4 | 10% 21% |
| Depreciation and amortization | 53.0 | 3% | 45.2 | 3% 17% | 147.4 | 3% | 134.0 | 3% 10% |
| Warranty costs | 49.3 | 3% | 60.5 | 3% (19)% | 141.7 | 3% | 121.2 | 2% 17% |
| Total cost of sales | $1,740.1 | 100% | $1,781.4 | 100% (2)% | $5,162.2 | 100% | $4,798.4 | 100% 8% |
| Percentage of sales | 77.4% |  | 76.1% | +127 bps | 77.7% |  | 77.6% | +10 bps |

Cost of sales decreased during the quarter primarily due to decreased shipments and lower warranty costs, partially offset by higher labor costs. Cost of sales increased during the year-to-date period primarily due to increased shipments and increased labor costs, partially offset by lower logistics costs.

### Gross Profit:

Consolidated gross profit for the quarter, as a percentage of sales, decreased primarily due to higher finance interest, unfavorable product mix, and unfavorable foreign currency exchange rate movement. Consolidated gross profit for the year-to-date period, as a percentage of sales, decreased primarily due to higher finance interest, unfavorable foreign currency exchange rate movement, and unfavorable product mix, partially offset by higher net pricing and lower input costs.

### Operating Expenses:

Operating expenses, in absolute dollars and as a percentage of sales, increased for the quarter and year-to-date periods due to higher selling and marketing expenses.

### Income from Financial Services:

Income from financial services increased for the quarter and year-to-date periods, primarily due to higher wholesale financing income from Polaris Acceptance driven by higher dealer inventory levels.

### Interest Expense:

Interest expense increased for the quarter and year-to-date periods due to higher debt levels and higher interest rates.

### Other (income) expense, net:

Other (income) expense is primarily the result of currency exchange rate movements and the corresponding effects on currency transactions related to the Company’s international subsidiaries.

### Provision for income taxes:

The decrease in the effective income tax rate for the quarter is primarily due to to an increase in research and development credits as well as the favorable impact of lower pre-tax income generated in the quarter.

The decrease in the effective income tax rate for the year-to-date period is primarily due to an increase in research and development credits.

### Adjusted EBITDA:

Adjusted EBITDA, in absolute dollars and as a percentage of sales, decreased during the quarter primarily due to decreased shipments and higher finance interest, partially offset by lower input costs.

Adjusted EBITDA, in absolute dollars, increased during the year-to-date period primarily due to higher net pricing, lower input costs, and increased shipments, partially offset by higher finance interest and higher operating expenses. Adjusted EBITDA, as a percentage of sales, decreased during the year-to-date period primarily due higher finance interest and higher operating expenses, partially offset by higher net pricing and lower input costs.

For information on how we define and calculate Adjusted EBITDA and a reconciliation of net income from continuing operations to Adjusted EBITDA, see “Non-GAAP Financial Measures”.

### Weighted average diluted shares outstanding:

Over the time period within and between the comparable periods, weighted average diluted shares outstanding decreased compared to the comparable prior year periods, primarily due to share repurchases.

### Cash Dividends:

We paid a regular cash dividend of $0.65 per common share on September 15, 2023 to holders of record at the close of business on September 1, 2023. We paid aggregate cash dividends of $1.95 per common share for the nine months ended September 30, 2023.

### Segment Results of Operations

On January 1, 2022, the Company began management of its portfolio of businesses under a new basis as a result of the divestiture of the GEM and Taylor-Dunn businesses. As a such, the Global Adjacent Markets segment was eliminated and the results of the Company’s remaining businesses historically included within the Global Adjacent Markets segment were reclassified to the Off Road and On Road segments. All historical segment results were reclassified for comparability.

On June 30, 2022, the Company again began management of its portfolio of businesses under a new basis as a result of the divestiture of TAP. As such, the Aftermarket segment was eliminated and the results of the Company’s remaining aftermarket businesses historically included within the Aftermarket segment were reclassified to the Off Road and On Road segments. All historical segment results were reclassified for comparability.

The summary that follows provides a discussion of the results of operations of each of our three reportable segments, Off Road, On Road, and Marine. Each of these segments is comprised of various product offerings that serve multiple end markets. We evaluate performance based on sales and gross profit. The Corporate amounts include costs that are not allocated to segments, including certain unallocated manufacturing costs. Businesses that are presented as discontinued operations are excluded from the tables below.

Our sales and gross profit by reporting segment, which includes the respective PG&A, were as follows:

*($ in millions)*

|  | Three months ended September 30, 2023 | Percent of Sales | 2022 | Percent of Sales | Percent Change 2023 vs. 2022 | Nine months ended September 30, 2023 | Percent of Sales | 2022 | Percent of Sales | Percent Change 2023 vs. 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Off Road | $1,844.4 | 82% | $1,746.4 | 75% | 6% | $5,067.6 | 76% | $4,578.9 | 74% | 11% |
| On Road | 270.3 | 12% | 334.0 | 14% | (19)% | 955.4 | 15% | 861.3 | 14% | 11% |
| Marine | 134.2 | 6% | 260.2 | 11% | (48)% | 622.2 | 9% | 744.7 | 12% | (16)% |
| Total sales | $2,248.9 | 100% | $2,340.6 | 100% | (4)% | $6,645.2 | 100% | $6,184.9 | 100% | 7% |

*($ in millions)*

|  | Three months ended September 30, 2023 | Percent of Sales | 2022 | Percent of Sales Percent Change 2023 vs. 2022 | Nine months ended September 30, 2023 | Percent of Sales | 2022 | Percent of Sales Percent Change 2023 vs. 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Off Road | $425.5 | 23.1% | $449.2 | 25.7% (5)% | $1,122.6 | 22.2% | $1,062.1 | 23.2% 6% |
| On Road | 57.7 | 21.3% | 60.1 | 18.0% (4)% | 208.7 | 21.8% | 154.7 | 18.0% 35% |
| Marine | 24.3 | 18.1% | 55.9 | 21.5% (57)% | 143.3 | 23.0% | 169.0 | 22.7% (15)% |
| Corporate | 1.3 |  | (6.0) |  | 8.4 |  | 0.7 |  |
| Total gross profit | $508.8 |  | $559.2 | (9)% | $1,483.0 |  | $1,386.5 | 7% |
| Percentage of sales | 22.6% |  | 23.9% | -127 bps | 22.3% |  | 22.4% | -10 bps |

26

### Off Road:

Off Road sales, inclusive of PG&A sales, increased for the quarter and year-to-date periods driven by increased shipments, partially offset by higher finance interest. The average per unit sales price for the Off Road segment increased approximately one percent and four percent for the quarter and year-to-date periods, respectively, driven by favorable product mix.

Off Road sales to customers outside of North America increased two percent for the quarter driven by higher snowmobile shipments and higher PG&A sales. Off Road sales to customers outside of North America increased one percent for year-to-date period driven by higher PG&A sales.

Gross profit, as a percentage of sales, decreased during the quarter primarily due to unfavorable product mix, unfavorable foreign currency exchange rate movement, and higher finance interest. Gross profit, as a percentage of sales, decreased during the year-to-date period primarily due to unfavorable foreign currency exchange rate movement, higher finance interest, and unfavorable mix, partially offset by favorable net pricing and lower input costs.

Additional information on our end markets for the quarter:

- Polaris North America ATV unit retail sales up mid-single digits percent
- Polaris North America side-by-side unit retail sales up mid-single digits percent
- Total Polaris North America ORV unit retail sales up mid-single digits percent
- Estimated North America industry ORV unit retail sales up low-single digits percent
- Total Polaris North America ORV dealer inventories up approximately 95 percent

### On Road:

On Road sales, inclusive of PG&A sales, decreased for the quarter primarily due to decreased shipments. On Road sales, inclusive of PG&A sales, increased for the year-to-date period primarily due to increased shipments, partially offset by lower net pricing and higher finance interest. The average per unit sales price for the On Road segment increased approximately 11 percent and eight percent for the quarter and year-to-date periods, respectively, primarily due to favorable product mix.

On Road sales to customers outside of North America decreased nine percent for the quarter primarily due to lower Indian Motorcycle shipments. On Road sales to customers outside of North America increased 13 percent for the year-to-date period primarily due to higher Indian Motorcycle shipments and favorable product mix.

Gross profit, as a percentage of sales, increased for the quarter driven by favorable product mix, partially offset by decreased shipments and lower net pricing. Gross profit, as a percentage of sales, increased for the year-to-date period driven by favorable product mix, partially offset by higher finance interest.

Additional information on our end markets for the quarter:

- Indian Motorcycle North America unit retail sales down low-teens percent
- Estimated North America industry 900cc cruiser, touring, and standard motorcycles unit retail sales down mid-teens percent
- Polaris North America motorcycle dealer inventories up approximately 15 percent

### Marine:

Marine sales decreased during the quarter and year-to-date periods primarily driven by decreased shipments and unfavorable product mix, partially offset by higher net pricing. The average per unit sales price for the Marine segment increased approximately three percent and two percent for the quarter and year-to-date periods, respectively, primarily due to favorable net pricing.

Gross profit, as a percentage of sales, decreased during the quarter and year-to-date periods primarily due to a decrease in sales volumes resulting in decreased leverage of manufacturing costs, partially offset by higher net pricing.

Additional information on our end markets for the quarter:

- Polaris U.S pontoon unit retail sales up low-single digits percent
- Estimated U.S. industry pontoon unit retail sales down low-single digits percent
- Polaris U.S deck boat unit retail sales down low-twenties percent
- Estimated U.S. industry deck boat unit retail sales down mid-twenties percent

### Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use the non-GAAP financial measure of Adjusted EBITDA, which is defined as net income from continuing operations, excluding interest expense, income tax expense, depreciation and amortization, and certain other non-cash, non-recurring, or non-operating items impacting net income from continuing operations from time to time. For example, costs associated with our multi-phase supply chain transformation initiative and certain corporate restructuring activities, such as acquisitions and divestitures, are included as non-GAAP adjustments. We use the non-GAAP financial measure of Adjusted EBITDA Margin, which is defined as Adjusted EBITDA divided by net sales. We believe that Adjusted EBITDA and Adjusted EBITDA Margin help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude from Adjusted EBITDA and Adjusted EBITDA Margin.

We believe that these measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to key metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP measures to assist investors in seeing our financial performance through the eyes of management, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA has limitations and should not be considered in isolation from, as a substitute for, or more meaningful than, net income from continuing operations as determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance. Our presentation of Adjusted EBITDA and Adjusted EBITDA Margin should not be construed as an inference that our results will be unaffected by unusual or non-recurring items.

The following table presents a reconciliation of net income from continuing operations, the most comparable GAAP financial measure, to Adjusted EBITDA for each of the periods presented:

*($ in millions)*

|  | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Sales | $2,248.9 | $2,340.6 | $6,645.2 | $6,184.9 |
| Net income from continuing operations | 151.5 | 190.7 | 399.4 | 406.8 |
| Provision for income taxes | 30.2 | 50.9 | 100.2 | 107.9 |
| Interest expense | 32.5 | 20.1 | 92.2 | 46.8 |
| Depreciation | 62.0 | 51.7 | 173.6 | 155.6 |
| Intangible amortization | 4.4 | 4.5 | 13.3 | 14.3 |
| Distributions from other affiliates | — | (0.7) | — | (0.7) |
| Acquisition-related costs (1) | 0.7 | — | 0.7 | — |
| Restructuring and realignment expenses (2) | 0.9 | 1.2 | 1.4 | 5.5 |
| Class action litigation expenses (3) | 0.4 | 1.4 | 5.4 | 2.5 |
| Adjusted EBITDA | $282.6 | $319.8 | $786.2 | $738.7 |
| Adjusted EBITDA Margin | 12.6% | 13.7% | 11.8% | 11.9% |

(1) Represents adjustments for integration and acquisition-related expenses

(2) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation costs

(3) Represents adjustments for certain class action litigation-related expenses

### Liquidity and Capital Resources

Our primary sources of liquidity are expected to be cash provided by operating and financing activities, including funds as needed from our credit facility and issuances of long-term debt. Our primary uses of funds have been for acquisitions, repurchases and retirement of common stock, capital investments, new product development and cash dividends to shareholders. The seasonality of production and shipments cause working capital requirements to fluctuate during the year and year to year.

We believe that existing cash balances, cash flow to be generated from operating activities and, borrowing capacity under the credit facility arrangement and from future issuances or borrowings of long-term debt, will be sufficient to fund operations, new product development, cash dividends, share repurchases, and capital requirements for at least the next 12 months and for the foreseeable future thereafter.

### Cash Flows

The following table summarizes the cash flows from operating, investing and financing activities of continuing operations:

*($ in millions)*

| 2023 Total cash provided by (used for): | Nine months ended September 30, 2022 | Change |  |
| --- | ---: | ---: | ---: |
| Operating activities | $376.0 | $139.4 | $236.6 |
| Investing activities | (345.9) | (152.9) | (193.0) |
| Financing activities | (61.4) | (125.3) | 63.9 |

### Operating Activities:

The increase in net cash provided by operating activities of continuing operations was primarily the result of lower working capital additions.

### Investing Activities:

The primary uses of cash were for the purchase of property, equipment and tooling for continued capacity and capability at our manufacturing, distribution, and product development facilities, and distributions from and contributions to Polaris Acceptance. Net cash used for investing activities of continuing operations increased due to an increase in property, equipment and tooling purchases, as well as strategic investments in the current year.

### Financing Activities:

The decrease in net cash used for financing activities was primarily due to lower share repurchases, partially offset by decreased net borrowings under debt arrangements. We recorded $157.7 million of net borrowings for the nine months ended September 30, 2023, compared to $336.0 million of net borrowings for the comparable period in 2022.

### Financing Arrangements:

We are party to an unsecured Master Note Purchase Agreement, as amended and supplemented, under which we have issued senior notes. As of September 30, 2023, outstanding borrowings under the Master Note Purchase Agreement totaled $350.0 million.

We are also party to an unsecured credit facility, which includes a $1.0 billion variable interest rate Revolving Loan Facility that matures in June 2026, under which we have unsecured borrowings. As of September 30, 2023, there were borrowings of $507.7 million outstanding under the Revolving Loan Facility. Our credit facility also includes a Term Loan Facility, on which $792.0 million was outstanding as of September 30, 2023. Interest is charged at rates based on adjusted Term SOFR for the credit facility. As of September 30, 2023, we had $484.8 million of availability on the Revolving Loan Facility.

In December 2021, the Company amended the credit facility to provide an unsecured incremental 364-day term loan (the “Incremental Term Loan”) in the amount of $500 million, which was fully drawn on closing. In December 2022, the Company further amended its credit facility to extend the maturity date of the Incremental Term Loan to December 15, 2023. There are no required principal payments prior to the maturity date. In addition to the payment of the $500 million Incremental Term Loan, the Company is required to make principal payments under the Term Loan Facility totaling $45 million over the next 12 months.

The agreements governing the facility and the Master Note Purchase Agreement contain covenants that require the Company to maintain certain financial ratios, including minimum interest coverage and maximum leverage ratios. The agreements also require the Company to maintain an interest coverage ratio of not less than 3.00 to 1.00 and a leverage ratio of not more than 3.50 to 1.00 on a rolling four quarter basis.

On July 2, 2018, pursuant to the Agreement and Plan of Merger dated May 29, 2018, the Company completed the acquisition of Boat Holdings, LLC, a privately held Delaware limited liability company, headquartered in Elkhart, Indiana which manufactures boats (“Boat Holdings”). As a component of the Boat Holdings merger agreement, we have committed to make a series of deferred payments to the former owners through July 2030. The original discounted payable was for $76.7 million, of which $49.4 million was outstanding as of September 30, 2023.

As of September 30, 2023, we were in compliance with all debt covenants and our debt to total capital ratio was 62 percent. Additionally, as of September 30, 2023, we had letters of credit outstanding of $36.2 million, primarily related to purchase obligations for raw materials.

### Share Repurchases:

We repurchased a total of 1.4 million shares of our common stock for $159.4 million during the first nine months of 2023, which had a favorable impact on diluted net income from continuing operations per share of eight cents. As of September 30, 2023, our Board of Directors has authorized us to repurchase up to an additional $204.0 million of our common stock.

### Wholesale Customer Financing Arrangements:

We have arrangements with certain finance companies to provide secured floor plan financing for our dealers. These arrangements provide liquidity by financing dealer purchases of our products without the use of our working capital. A majority of the worldwide sales of snowmobiles, ORVs, motorcycles, boats and related PG&A are financed under similar arrangements whereby we receive payment within a few days of shipment of the product. We participate in the cost of dealer financing up to certain limits.

Under these arrangements, we have agreed to repurchase products repossessed by these finance companies. As of September 30, 2023, the potential aggregate repurchase obligations were approximately $423.0 million. Our financial exposure under these repurchase agreements is limited to the difference between the amounts unpaid by the dealer with respect to the repossessed product plus costs of repossession and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements during the periods presented.

### Retail Customer Financing Arrangements:

We have agreements with third-party financing companies to provide financing options to end consumers of our products. We have no material contingent liabilities for residual value or credit collection risk under these agreements.

### Critical Accounting Policies

See our most recent Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our critical accounting policies. There have been no material changes to our critical accounting policies discussed in such report.

### Note Regarding Forward Looking Statements

This report contains not only historical information, but also “forward-looking statements” intended to qualify for the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These “forward-looking statements” can generally be identified as such because the context of the statement will include words such as we or our management “believes,” “should,” “anticipates,” “expects,” “estimates” or words of similar import. Similarly, statements that describe our future plans or trends, objectives or goals, such as future sales, shipments, inventory levels, consumer demand, net income, net income per share, future cash flows and capital requirements, operational initiatives, pricing actions, tariffs, currency fluctuations, interest rates, and commodity costs, are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements, are also forward-looking. Forward-looking statements may also be made from time to time in oral presentations, including telephone conferences and/or webcasts open to the public.

Potential risks and uncertainties include such factors as the severity and duration of the supply-chain related constraints currently impacting the Company; the Company’s ability to successfully source necessary parts and materials on a timely basis; the ability of the Company to manufacture and deliver products to dealers to meet demand; the Company’s ability to identify and meet optimal dealer inventory levels; the Company’s ability to accurately forecast and sustain consumer demand; the Company’s ability to mitigate increasing input costs through pricing or other measures; global pandemics and the resulting impact on the Company’s business, supply chain, and the global economy; the Company’s ability to successfully implement its manufacturing operations strategy and supply chain initiatives; product offerings, promotional activities and pricing strategies by competitors that make our products less attractive to consumers; our ability to strategically invest in innovation and new products, including as compared to our competitors; economic conditions that impact consumer spending or consumer credit including recessionary conditions and changes in interest rates; disruptions in manufacturing facilities; product recalls and/or warranty expenses; product rework costs; impact of changes in Polaris stock price on incentive compensation plan costs; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; commodity costs; freight and tariff costs (tariff relief or ability to mitigate tariffs); changes to international trade policies and agreements; uninsured product liability and class action claims, including claims seeking punitive damages, and other litigation expenses incurred due to the nature of our business; uncertainty in the retail and wholesale credit markets; performance of affiliate partners; changes in tax policy; relationships with dealers and suppliers; and the general overall global economic, social and political environment.

The risks and uncertainties discussed in this report are not exclusive and other factors that we may consider immaterial or do not anticipate may emerge as significant risks and uncertainties.

Any forward-looking statements made in this report or otherwise speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures made on related subjects in future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that are filed with or furnished to the Securities and Exchange Commission.

## Market risk

As filed, 4,990 characters.

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a complete discussion on the Company’s market risk. There have been no material changes in market risk from those disclosed in the Company’s Form 10-K for the year ended December 31, 2022. Refer below for further discussion on commodity cost risk, foreign currency exchange rate risk, and interest rate risk.

### Inflation:

We are subject to market risk from fluctuating market prices of certain purchased commodities and raw materials, including steel, aluminum, petroleum-based resins, certain rare earth metals and diesel fuel. In addition, we are a purchaser of components and parts containing various commodities, including steel, aluminum, rubber and others, which are integrated into our end products. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We generally buy these commodities and components based upon market prices that are established with the vendor as part of the purchase process. Based on our current outlook for commodity prices, the total impact of commodities, including tariff costs, is expected to have a positive impact on our gross profit margins for full-year 2023 when compared to 2022.

### Foreign Exchange Rates:

The changing relationships of the U.S. dollar to foreign currencies can have a material impact on our financial results.

*Euro:* We have operations in the Eurozone through wholly owned subsidiaries and distributors. We also purchase components from certain suppliers directly for our U.S. operations in transactions denominated in Euros. Fluctuations in the Euro to U.S. dollar exchange rate impacts sales, cost of sales, and net income.

*Canadian Dollar:* We operate in Canada through a wholly owned subsidiary. The relationship of the U.S. dollar in relation to the Canadian dollar impacts both sales and net income.

*Other currencies:* We operate in various countries, principally in Europe, Mexico and Australia, through wholly owned subsidiaries. We also sell to certain distributors in other countries. We also purchase components from certain suppliers directly for our U.S. operations in transactions denominated in these foreign currencies. The relationship of the U.S. dollar in relation to these other currencies impacts sales, cost of sales and net income.

We actively manage our exposure to fluctuating foreign currency exchange rates by entering into foreign exchange hedging contracts. A portion of our foreign currency exposure is mitigated with the following open foreign currency hedging contracts as of September 30, 2023:

| Foreign Currency Currency Position | Notional amounts (in millions of U.S. Dollars) | Foreign currency hedging contracts Average exchange rate of open contracts |  |
| --- | --- | ---: | --- |
| Australian Dollar | Long | $9.4 | $0.68 to 1 AUD |
| Canadian Dollar | Long | 170.4 | $0.75 to 1 CAD |
| Mexican Peso | Short | 52.1 | 20 Peso to $1 |

During the quarter and year-to-date periods ended September 30, 2023, after consideration of the existing foreign currency hedging contracts, foreign currencies had a negative impact on net income compared to 2022. We expect currencies to have a negative impact on full-year net income from continuing operations in 2023 compared to 2022.

The assets and liabilities in all our international entities are translated at the foreign exchange rate in effect at the balance sheet date. Translation gains and losses are reflected as a component of accumulated other comprehensive loss, net in the shareholders’ equity section of the consolidated balance sheets. Revenues and expenses in all of our international entities are translated at the average foreign exchange rate in effect for each month of the year. Certain assets and liabilities related to intercompany positions reported on our consolidated balance sheet that are denominated in a currency other than the entity’s functional currency are translated at the foreign exchange rates at the balance sheet date and the associated gains and losses are included in net income.

### Interest Rates:

We are a party to an unsecured credit facility with various lenders consisting of a $1.0 billion revolving loan facility, a $1.2 billion term loan facility, and a $500 million incremental term loan. Interest accrues on the revolving loan, term loans, and the incremental term loan at variable rates based on adjusted Term SOFR plus the applicable add-on percentage as defined. As of September 30, 2023, there was $507.7 million outstanding on the revolving loan, $792.0 million outstanding on the term loan, and $500 million outstanding on the incremental term loan. We enter into interest rate swaps in order to maintain a balanced risk of fixed and floating interest rates associated with our debt. We expect interest rates to have a negative impact on full-year net income from continuing operations in 2023 compared to 2022.

## Controls and procedures

As filed, 1,515 characters.

### Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (2) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

### Changes in Internal Controls

There have been no changes in the Company’s internal control over financial reporting during the latest fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 333 characters.

Please consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes or additions to our risk factors discussed in such report, which could materially affect the Company’s business, financial condition, or future results.

Filed Oct 24, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-034992. Last ingested by Listed: Oct 29, 2026, 16:31 ET. No prices; not investment advice.