Good morning, everyone. Welcome to our club at Dallas, Texas. This morning we will have presentation by José Boisjoli, our CEO, Sandy Scullion, our Senior Vice President, Global Retail and Services, and Josée Perreault, Senior Vice President, Spyder. Sébastien Martel will also be here to answer your question if you have any. We are also very happy to have three board members with us this morning, Dan O'Neill, Louis Laporte, and Mike Hnatyshyn. Before we move to the presentation, I just want to make sure that you are all aware there will be some forward-looking statements, which are subject to certain risk and uncertainty. I invite you to read BRP's MD&A for listing of these. Also, there is a slide deck available on our website to follow up with that this morning. José will start the presentation, then it is going to be Sandy.
Please keep your question for José for Sandy and Josée Perreault section, because they might answer some of your questions before you ask. I will let José go ahead.
Good morning, everyone. Short night for many of us, but it was a fun night. When you are going into those event and you do not have much product news, you are trying to find stuff to track the hour presentation, and yesterday we had the secret date, in fact, all the product news in an hour and a half, but, it was a very nice evening. Again, very happy about the year, strong H1. We have a good momentum on H2. Good retail on all product lines, but particularly on Side-by-Sides and what we saw last night, I am sure you will believe, you will see sometimes that the momentum will continue. A successful SIB, which is quite unusual in Canada, and we are very happy to have the successful CAD 350 million SIB in Canada and the introduction of the dividend.
This morning, I will talk a bit about the product news of last night, the watercraft, what the product news on Spyder, the product news on Side-by-Side. I will give you a bit more of the highlights of the feature. Sandy will give you more detail about the potential in the business, the sales potential, positioning, and Josée, obviously the story behind the Spyder finding with her team in the last 10 months, and also why we have not named Project S last night. If we start with watercraft. You know, it is funny, we have been designing watercraft for more than 20 years, and we always find ways to again change the business. I am very happy with what the guy has done.
If I just highlight the key feature of the product, first, everyone on the water likes music, but no system were waterproof. Some are splash proof, and if you put something that is designed for a boat, if you put it on a watercraft, it lasts half a day. I'm not kidding you. Lasts half a day. It will work for a few years. Everything that you saw yesterday is custom-made for us, and we're very happy, and we believe it will take three to four years before someone come with something similar on the watercraft as good as we have. I'm very happy about that feature. Priced at CAD 700, we believe a lot of consumer will go for the high-end radio with the product.
In term of storage, the fact that we are now drive-by-wire product, we could remove the handle from the top of the deck. In the past, you always have to go over the handlebar to access the storage, which is very difficult on the water. Try it. You will see how it goes. Now you open everything, and that give you a huge access to the front of the watercraft. We believe that those two feature in a showroom will be incredible appeal. If you take a traditional watercraft of a competitor beside the new product, it will be an incredible appeal when you have the storage access and the radio. The other two things is the living room outboard, with our thinking about the LinQ system and all the flexibility with accessories that we have.
We started that on ATV, Side-by-Side, snowmobile, and now, on watercraft. It give a lot of flexibility to reorganize the back of the vehicle, make it a one-up, two-up, bringing accessories. I'm telling you, accessories on watercraft have never been big, but now we're going aggressively about accessories, and it's just the beginning. The last thing is the stability of the product. We found a way, if you count the driver weight, to reduce the center of gravity by three inch, and this is a huge difference. Again, this morning, you will see on the water, go both feet on the side of the watercraft, you won't be afraid. In the past, we were not able to do that. Very happy about those key feature that the customer will see and appreciate. Behind the scenes, something that is a bit more niche.
The hull is basically the learning that we've done from Spark. When you're designing a watercraft with 60 horsepower, you need to find ways to have better acceleration, better planning. All the learning we've done on Spark, we have Spyder the vehicle last night, the new platform last night, improving the acceleration. For us, it would be three seconds to 2.5 is not a big deal, but for many customers, it's a big deal. All the learning was done also on Spark on the iBR system and the reverse system to make it lower cost. We apply it to the new platform. Last but not least, on all the X packages, now you have a launch control. With the electronic today, you put launch control, full throttle, depending on the weight, depending on your weight, the system will adjust automatically for the perfect launch.
Another thing here on the Watercraft, that helps also the stability, we reduced the weight of the vehicle by 86 pounds going from 1914 pounds to 828, that is making a big difference. We produced two weeks ago, 500 units in Querétaro, full production model mix is starting in Querétaro next week. We are right now rolling out. First unit will go counter season. This is the beginning of their season, the first unit will go counter season for the beginning of the Model Year 17 season over there. Model Year 18 season over there, sorry. Last but not least, this is the capacity we increased in Querétaro. Basically, we had some bottleneck on the assembly line, the big bottleneck was on the capacity of the fiberglass production hull and deck.
Basically, after the investment that we have announced in Q1, we'll have a capacity increase in Querétaro by 20%. That will start in Q1, fiscal year 2019. Basically, we are on plan. The Watercraft market is a very good market. Like I said to many of you many times, what is very nice about this industry, first, it's non-takback. Second, there is not too many OEMs. Dealer make money, we make money, on top of it, customer are happy because the product keep their value when they trade. A very good industry to be in a very good industry to lead those things. Going to Spyder. The BRP Connect, yesterday, obviously, was not the biggest news of the evening, but I can tell you that this was one of the number one feature that customer were asking for.
When you're buying a high-end Spyder for CAD 25,000, you're expecting to get the connectivity all the control that you have into a compatible car. We were happy because we've developed the BRP Connect with Bosch in Germany. Basically, this is a system that is on high-end car. I cannot name the brand, but high-end car that we adapted on the Spyder. It's the same thing in the Apple CarPlay or Android Auto. Very intuitive. That was a big challenge when you're riding a product that with the thumb, you can access all the different screen. Same thing that you have in the car, but what is interesting with the Spyder, you keep your both hands on the vehicle, you can access all the different systems and the different displays. In car, sometimes you have to remove your hands from the steering part. Very happy about this.
We believe it will be popular, it come with all the high-end F3 and RT starting production in November. Now, Project S. Obviously, I'm sure you understand the relationship or the parallel with the Spark. Basically, we believe it's the Spark story again that will rewrite for the Spyder business. The big question you might have, why did you announce it one year in advance? Josée Perreault will tell you more about.
It's at a call-in only. I can't hear
done in the U.S. and the rest of the world in the last 10 months, why we have introduced the Spyder S, this Project S one year in advance. I'm sure you will understand the rationale after José explanation. Last but least, the introduction of the Side-by-Side lineup. I believe BRP-
I can't understand this guy.
Industry-
There's orders-
Yes.
Can-Am Spyder, they introduced something new, I think, I can't understand what it is.
Something on the line here. We're the first one to introduce, for example, the crossover slow vehicle when we introduced the Renegade a few years ago. We're the first one to come out with the ATV X mr for the mud racing application. This is basically a continuity. A lot of people are using Maverick X mr, but it was time to come out with a Defender X mr. A lot of people prefer to use a three-seat or a bench product for mud usage. The other one was rock crawling. This is a trend, Sandy will talk about the trend in rock crawling. No OEM has done so far a dedicated product with key feature for the rock crawling application, and we're very happy. When you see the rock crawling the street in the showroom, it's impressive.
It's just the stance of the vehicle, the size of the wheel, the width done, it's very impressive. Yesterday, I was talking in the showroom with many dealers that are not selling to those customers, but they will buy the Q because it makes a difference in the showroom, and it's quite a statement. We're following our plan. This is our fifth introduction in 24 months. We're following our plan. There is three more platform announcements to come in the next, I would say, 18 months. We are right on plan delivering on our commitment to the dealers and to the market. As Sandy will present to you, the 50-inch trail segment is not the biggest into the industry. I'm convinced we will change this, because our product, obviously, it's a new generation of product.
As you will try this morning, our product stands out versus the competition. We did work hard to come out with something, again, reinventing the product category. It's not obvious on page, it's not obvious in the showroom, but when you try it today, I'm sure you will be convinced of the difference. Here's the big thing. It's very difficult to pack two adults sitting side by side within a 48-inch, 50-inch of space for the trail. The team has done an incredible job to come out with a very comfortable capacity for two adults with a lot of place to put your stuff, a lot of compartment, and extremely comfortable with adjustable seat. You will see we'll have a vehicle from the competition at the demo site. You will not ride it, but you can sit with it.
Before you go into our vehicle, go to sit on the vehicle competition just to see the big size. You will be surprised how tight it is. When you come in ours, it's very different. The other thing to improve stability and to give it comfort was the wheelbase. We're coming out with the longer vehicle in the industry for that product category with 90.6-inch wheelbase. Very comfortable ride, giving more stability to the vehicle. It's the optimal weight distribution, 60/40, you're very close to the best in the industry. Despite the long wheelbase, the turning radius is very tight. We like to say it's very predictable, point and shoot. If you align the vehicle, you will see it behave perfectly.
I believe those two features will be making a big difference when the customer will get used to it and try it, and the word of mouth into the industry. Last not least, we came out with price is very important in that product category. We came out with a basic product that can be equipped with 125 accessories from the get go. We're becoming better to develop accessories that goes on all our product. The jelly can, for example, goes on Ski-Doo, Side-by-Side, this product, ATV, Ski-Doo, ATV, Side-by-Side, and also on watercraft. The cooler will go on different product line, and the customer like that. The beauty of it is if they buy one unit with accessories, they have a tendency to buy the other product line with the same accessories because it fits everything.
For us, we work hard to have a good price point on the Maverick Trail product, but also you can equip it with a lot of equipment to accommodate different riding styles. Again, same thing, 500 units were produced in URS2 last week. SOP is planned on October 12th. Obviously, this morning it's an allocation per dealer. We need to continue to produce X3 and Defender, and for the next few months, it will be an allocation per dealer. We will be able to accelerate the pace of Maverick Trail production in the coming months and full open production at the beginning of last year. Sorry. Okay. That's the capacity increase.
Absolutely.
From fiscal year 2018, the new equipment that we're installing, for some of you who visited URS2, it's mainly equipment in the manufacturing site, welding, cutting tube welding, painting that we're having in URS2. When all of this is done at the end of 2018, beginning of fiscal year 2019, basically our capacity in URS2 will have increased by 30% compared to this year. You will say, "Yes, but right now you have a trend of 50% retail growth." If the trend continue, we know what to do to continue the expansion or the additional capacity in URS2 if things continue to progress as planned. Overall, very happy about the momentum we're having this year. Very happy about the product intro. We believe that the momentum will continue in the coming years. Sandy.
Thank you, José. As Josée Perreault will cover Spyder, I will be covering Watercraft Side-by-Side and give you a little bit more perspective on where we're going with the dealer development side. If we start with Watercraft, obviously as you can see here, the industry is very healthy, mostly driven by the Rec Lite segment. We used to be completely alone with the Sparks until season 2017, and the competitor actually helped increase the industry, but Spark also increased in that same segment. The good news is that on the traditional segment, the Watercraft, we actually gained three points of market share still. Really healthy in terms of profit pool. As you can see here, in terms of the premium Watercraft, it represents about a third of the industry.
In terms of profit pool, this is more than half of the industry, and this is where we've invested in a new platform with what we have in the GTX, the Wake Pro, and also the RXP. We should be having a positive mix there going forward with Watercraft. Also saying that in the Rec Lite segment, with the addition of the Spark Trixx three-seater, that will also help on the mix going forward because the Spark Trixx, as you probably know, has been extremely popular this year. We were basically out of products really early into the season. A couple of words on Side-by-Sides. This shows you the progression. This is about less than two years, going from Q4 of fiscal 2016, the power of the second generation of Side-by-Sides that we've introduced, starting with the Defender, the first shipment, as we grew the lineup with the MAXs.
Also need to realize that we only started shipping X3 two-seater in Q3, and actually the MAX, which represents the lion's share of the market, in Q1 of fiscal year 2018. If you look at the last 12 months progression, the rolling last 12 months, we're talking about a 50% increase, extremely healthy. This is probably one of the most interesting slides. This gives you the market share of the segments we're in with the Maverick. This is the 64-inch and the 72-inch turbo industry. This, again, is 10 months of retail for the X3 two-seater and 4 months only for the 4-seater, and we're actually at 60% market share in that segment, the only segment we're in. Same story for the Defender. Looking at Texas represents such a big opportunity for us with the special focus that we put the team on.
We're actually three times the volume of last year in Texas, there are obviously other regions like this in the world. We're doing extremely good in Mexico. Mexico representing the biggest country outside of North America in terms of Side-by-Side volumes. The volume increased by 100% there. EMEA, despite softer markets in Russia and the Middle East, we're still able to grow the business by 30% in Side-by-Side. In Australia, doing extremely good, a 50% increase, mostly driven by the Defender segment. We move forward in the product releases, now we're addressing the segment we were not in yet, that's the trail segment, the 50-inch we saw yesterday. This is certainly going to help the business mainly in the snowbelt area, which is where most of the mass of the market is.
Also with the understanding that utility represents the biggest opportunity, the Defender X mr is continuing to fuel that segment, and rock climbing as well in the sports segment. To combine this with what we believe one of the best value propositions, obviously this puts us in a very good position going forward. A little bit about the new segments. José talked about it. The fact is, specifically in that segment, we haven't seen a lot of breakthroughs in the last 5 to 10 years. I think the Maverick Trail is going to make a big difference, focusing on comfort, vehicle stability, and handling. Very happy with the launch of this product. In terms of product expansion, this is interesting. You guys probably know this, but the amount of dollars our customers are putting on building special builds and even specialized builds for Side-by-Sides is just amazing.
This is, like José said, this is the same story again from the X mr, which we introduced with the ATVs at first and now building into a bigger market. We see very positive trends in terms of usage for rock climbing, and as you saw yesterday, that unit is just amazing. Now we're lower body, we've got special tires, we've got the Smart-Lok in there, we got special equipment that makes it not only affordable, but a hell of a package. The new Defender high-value offering, as I said a little bit earlier, we basically started the industry with the mud or the X mr lineup with the ATVs, and you see the [audio distortion] Side-by-Side. This has been growing as an industry significantly in the last few years.
Obviously this is only natural for us with the Defender X mr, hearing the dealers yesterday night talking about it, looking at social media last night to see the reaction, this is going to be great news. We also know that a third of our Side-by-Side customers are also riding on trails, the convenience of bringing a little bit more storage with the Defender XT, better suspension, better comfort with the bolster seats. This again is addressing more specific needs from our market. We've talked a little bit about Texas. Actually, Texas represents, for the Side-by-Side industry, this is twice as big as the second state in volume in the U.S. The specific focus we're putting on Texas, it's mostly driven by the Defender segment.
You can imagine that this represents for us a big opportunity because we have a relatively lower market share in that state. I believe that this is going to be changing really soon. The Defender Lone Star, another reason why we need to focus on that product is the Texas opportunity. I don't know if you had a chance to see it in the showroom, but the trim on this, the accessories we put, the special A-arms we put on that unit, just makes it big and makes it Texan. This is really exciting as well. Couple words on the dealer value proposition, our network development strategy. You're going to be seeing a little bit less of adding dealers into the North American market, a little bit more of increasing the quality of our dealers. We're going to be focusing on that going forward.
I think you've seen the dealer value proposition model. This is a continuously improving model because we have certification in there. We can address specific segment shift performance. This has been extremely successful. On the right side, what you see there is that in multi-line dealers, the lineup we have, but also the engagement we get from the dealers, we're actually growing twice as fast in the multi-line dealers as we are in the single-line dealers. This is taking advantage of the competitive traffic going into the dealers and converting into the Can-Am product. At the end of the day, as I said, despite the softer markets we have in Brazil, Argentina, the Middle East, and in Russia, we're both in all the regions that grow this year. This is extremely positive, and it's mainly driven by the side-by-side and the watercraft market. Okay.
Should we answer any questions or-
Questions or should we on PowerPoint?
Where do you price the MSRP aiming for the trail product to be? Is it below or at par with competitive products?
The question is the positioning of our pricing for the Maverick Trail, and we're basically head-to-head with the competitive answers.
With a better product.
With a better product, obviously.
Yeah. Okay, one specific question on PWC. A lot of innovation. If we look at the manufacturing process and looking also at all the accessories that the option that we can put, what about the margin profile of the new vehicle as opposed to the traditional PWC?
Want to answer that, José?
We've been able to improve the margin on the new platform compared to the old one. If you remember, we removed fiberglass. We insourced fiberglass from a supplier for Querétaro when we started Querétaro. That was one of the reasons why we moved production to Mexico and doing it ourselves. It was like our first attempt at this process, and now we have evolved this process to a better process, and that's how we've been able to reduce the weight of the vehicle, 86 pounds, and weight is dollars. We've been able to improve the margin there. On top of it, when you have feature like the radio, CAD 700 for a radio, there is a very good margin there.
I don't know how we'll beat the mix for the customer, that's why we're offering the radio on all products, all models.
You talked about your production capability going up 30% in 2019, at what point will you be able to ship to demand that is-
The question is, with the capacity increase, by when we'll be able to really supply the demand. By beginning of next year, we'll be in a better position to really ramp up and supply the demand. Obviously José mentioned, this year there is a bit of a capacity limitation, the days of inventories in our network is still very healthy, we don't think we're losing retail. I will be able to push more next year, beginning of next year.
Those equipment takes about a year to order and what all. Right now, we believe we're okay with the 30%. If the retail trend continues about 30%, maybe in a quarter or two, we'll announce an ultra expansion to keep up with the increase. That's a good problem to have, and typically, we don't have much problem with the investment. It's pretty easy to approve this program.
On multi-line, you were showing very good sales growth. Can you talk about over the next couple of years, what do you think the key driver of growth in multi-line dealer sales will come from? Is it more floor space, is it greater share of dealer contention and focus?
The sales team used to be more focused on the wholesale. Now this is transitioning into more of them being better business consultants, knowing where their margins are within their own department. As we coach the dealers in being better businessmen and better retailers, obviously, we gain a lot of credibility as a brand because we're helping the dealers make more money. That's all about the dealer engagement. We believe that our recipe will create that better engagement versus the competitive environment. This should help the volume be directed more for us in the future.
Yes.
One question on the SSV. When you look at the whole market, as you do see it's now well over 50%. What is the percentage of the segment that you cover with the Defender right now?
Good idea, José.
First, our market share are quite low still with the Defender intro. We having right now with the product newly introduced a few months, we're covering most of the area. You need to understand that the person buying utility Side-by-Side is a different customer. It's a farmer. You don't have time to come to the dealership to buy the product. We train our dealer right now to have demos that they put on the farm for a weekend, a week, let the farmer keep it, that's the type of thing we're working on. The association that we announced last night with
Luke Bryan
Luke Bryan is another sign how we enter the farmer world. This is more our focus for the coming months, we're continuing, obviously, to expand the Defender, the base is there. Very solid base. We enter that different customer. This is new for us. This will be new for us.
Yep.
Just quickly on the increase in manufacturing capacity, how much of that increase do you think is allocated to X3?
Flexibility. Obviously, for the one who saw the Ascend line, we do a model mix in UI. We could not produce 100% X3 from the line, but we reach ratio this fall of 75%-80% in certain places. We had a lot of capacity depending on the season for Defender, X3, or now Maverick Trail, but quite a flexible system.
On the Spyder, you talked about.
Spyder, yeah.
seven key states where you've been running six customers. Can you discuss the marginal cost associated with doing that versus the marginal return you're getting on retail and potential marginal revenue you should get? Are they costs you have to continuously spend?
Luc Delisle will give you more detail and more color to all of this right now. That's a challenge, Garrett. Definitely, this year, we invested a lot of money with a dedicated team. We had some initiatives that were too costly. We know we cannot do this in 50 states. That's why we started with seven states. Now this is part of the trial. What can we do? What's moving the needle, at what cost? This year was not too bad because it was 25 people in seven states, but how do we apply that to more states in the coming years? That's what Luc Delisle will talk, basically.
One more. Have you been able to calculate return on your investment in that platform?
Boy, I wish. I wish we could.
Obviously, NASCAR has been maybe a three-year program. You've had a first year, going into the second year, and you will have your next year. There's always talk about what the ROI is on the investment, but it's targeting the markets where we believe our key consumers and distributors to Defender. When you look at our overall retail performance and how we performed, while we're extremely happy, some of it is driven by the marketing investments we made, obviously, in NASCAR. Some of it is driven by the dealer engagement, and some of it is also driven by great products that are unique. When we look at the overall business ROI and our excellent and all of the interested parties in the industry will make that decision.
As per se, NASCAR ROI, tough to measure, but overall ROI on the Spyder business, on the [audio distortion] is also strong for us.
I can add one thing. Brand awareness have improved significantly in the last two years. Maybe Phil can come back to you with the right number, but we're one of the lowest into the off-road key brands, one of the lowest. In the last two years, the brand awareness has increased significantly. If my recall is right now it's close to 85%. When you have Sea-Doo and Ski-Doo, that are well-known brands, over 90, then we're getting there quickly, and we convince there is a payback there, and we calculate the payback. There is something there.
I've heard there are some concerns in terms of potential impact of NAFTA negotiations. I know you have employers from Canada and the U.S. that have certain hard stances and different positions. I'm curious to hear if you could describe a little bit on what your plans are in terms of what's going to happen with NAFTA, and if you have any backup plans for raising the stakes all around.
There are so many variables to what could happen. It's very difficult to have.
Just being
Obviously, when the new administration took over, we were a bit concerned because they were very drastic about potential action. Now, I think the process at least is defined. There is 9 rounds of negotiation, 8 rounds of negotiation, a period that will happen before Christmas between the three countries. On top of it, right now, they've only disclosed the color of the negotiation of each round openly. After that, I think you have another 6 months before the Congress and all the system in the U.S. approves the new NAFTA. We believe we could have something. If everything goes right, we believe there will be something out next summer. That's the earliest. After that, with the collaboration between Canada, U.S., and Mexico, I would be very surprised if it will be a drastic change.
We believe that if there are things that will change, they will give to all the OEM. It's not only us car companies. This is the oil company, the energy company. They would give us the appropriate time to give us a chance to implement the change or to face the change. Again, we said that a few times. Between the time we've done the groundbreaking ceremony in Juárez, and when we started the Defender production, it was 12 months. We built the building, we installed the equipment, hired the employee, started production with the new platform, took 12 months. If something that drastic would happen, we believe we'll find ways to turn it for us. Anything to add?
No.
Thank you. You mentioned the product improvements you're making in Watercraft and work on the margin profile. On the Side-by-Side business, is there any opportunity there for margins? I'm sure mix might help, but is there anything you're doing from a manufacturing perspective with capacity to increase your profit margin?
For sure. When you fill up the factory, the last 2,000 units are very profitable, the business. Very good. All those two niche platforms, the RC and the X mr, it's a winner. A customer will spend $16,000-$20,000 to take an X3 and modify it for off-road. We're offering from factory with RSP of product for $2,500 roughly in U.S. That's roughly what we can compare. It's better margin for us, and it's a great value. That's why those specialized segments have been very popular. Same thing for the X mr. Yesterday, I met with a dealer in the showroom. We're a bit upset and happy at the same time. They were making a ton of money modifying regular Defenders to make an X mr. Now they have it from the OEM, but the change, they will be able to sell five instead of one per month.
That's the difference. That's the type of thing we do that improve the margin. That being said, we see internally sometime this year we're a bit on track with margin because we were selling a ton of 372 and 64 fully dressed. Now we are entering the trail segment, which is a price point segment, lower price point segment. Margin are good, but not as good as on the higher end. It's growing the volume and continuing to expand the platform and trying to come more and more with specialized product, which is good deal for the consumers.
The new Side-by-Sides we're introducing are built on a wide variety of systems that we've talked about in the past, which is driving 400 basis points of margin compared to the first generation of Side-by-Sides.
We'll take a few questions. Digital questions.
We'll have to go digital. Next, that should take a little further. Okay.
Good morning. I can't see with these things here. Okay, if we go back to the history of Spyder, those of you who were there last night, we said that this year marked the 10th anniversary of Spyder. Just want to remind ourselves that 10 years ago, this category did not exist. We created this category. There's important milestone that we went through over the last 10 years. One of them producing over 125,000 Spyders. If we look at the web visits we're getting on Spyder and the interest level we're getting on Spyder, it's around 10 million site visits. I want to go back quickly on what we've been doing in the last two years. The project started two years ago in spring of 2016, where we had two dedicated teams do what we called a Do It.
The two territories where they were experimenting the Do It was California and Florida. What we did when I came on board last October is we extended that test and learn strategy, and we added five other states, which were Texas, the Carolinas, Georgia, and Virginia. Why did we choose these states? It's because, first of all, they're in the Sun Belt, the season is extended, gave us more time to test. Secondly, if you look at Texas, California, and Florida, they're quite big states, better volume potential.
What we did different in terms of these states is that we put dedicated people in these states to push retail, to be in our dealer space, to help them drive the consumer down the funnel, help them demo, help them build a relationship with schools. That was our main approach over the last six months, if I could say. Also, we chose these states because they have different license requirements, and that's really critical because what we've learned in terms of license is probably the key to unlock Spyder's potential. What did we learn? License is a big thing, and I just want to refresh our mind that when I came on board, everybody was telling me, "Quebec, Quebec is the deal. This is the benchmark.
That we need to be at the level of Quebec." If we go back to why Quebec is so strong on sales, we know that our dealers are exclusive to BRP. Okay? We know also that the BRP awareness is probably higher than everywhere else in North America. Mostly our dealers are engaged because they're exclusive to BRP. We have a very organized three-wheel rider education system in Quebec. As well as because our dealers are engaged, they're exclusive, they are giving a lot of demos. Please remind yourself that to purchase a CAD 20,000 or CAD 30,000 unit, and if you can't demo it, that's a barrier to entry, and we need to overcome that barrier. What we tried to do based on the Quebec experience is see what's going on in the other states.
When we arrived in Florida, what we discovered is there were only one school in all the state of Florida giving three-wheel rider education classes. What we did, what the dealers' mandate did at that particular time is open schools and try to bring consumers down the funnel to get their license. Why is that important? Because at the end of the day, there's only three states in the U.S. where you need a car license, with that car license, you can drive a Spyder. All the rest, you either need a two-wheel license or a three-wheel license. What we also found out is as we grew to the other states, that none of the states were organized to offer three-wheel license. Okay? This is also very critical.
At the end of the day, we say that we want to democratize open road, we need to attract these new entrants into the market, and these new entrants do not have a two-wheel license. They need to figure out how to get a license to be able to drive a Spyder. If they can't get a three-wheel license, then we have a problem. That's been the biggest finding, I believe, that we've discovered throughout the last six months. Also, demos. Again, high price point, need a demo. What we realized is that 100% of our dealers in Quebec did offer demos. When we went into key states, 60% of our dealers did not offer demos. Okay? That was an issue.
We needed to figure out how to incentivize our dealers to do offer demos and have a great experience about it to try to push the consumers down the purchasing funnel. Nurturing our clients. As you know, our T and F3 clients are quite older, average around 60 years old. It takes more time for them to purchase. We are evaluated that the purchase funnel is about 12 months. There's a lot of hand-holding that will be required for them to convert. Lastly, well, pricing obviously is an issue.
Do it, you don't want, like.
So-
You wonder why.
This is a few that I covered last night, a few results that we had. Obviously, we're really happy with the results of our key states compared to the U.S. industry trending down. We know that our tactics in terms of rider education and demos are working. We have good conversion there. Our hot leads, which is very important. In the seven key states, we did an approach digitally, and the interest level, where people went into our site, left their names because they wanted a quote and wanted more information, drove 60%. That's very encouraging as well. Obviously, cleaning up, José said it well yesterday, it was a year where we needed to correct Spyder and reducing the inventory level, and we're accomplishing that as well. What's refined for spring, season 2018? Basically, our goal is to have at least one school for every dealer. Okay?
This is the ratio that's working in Florida right now. Our goal in the next 6 to 12 months is to increase that level in about 21 states. If we can go faster, perhaps we will, but at least 20, 21 states is the key to next year's plan. Okay. Also, demo. We need to make sure that more demos are given throughout the states. If I look at the 7 key states where 60% of the dealers weren't offering demos, if we look at it today, it's only 20% of the dealers that are not offering demos. We're working that barrier right now. We're going to announce in an hour to our dealers that we're going to have a more aggressive demo program to help them do that demo, basically. Also, nurture. Nurture is really, really important.
This year, our campaign was 80% digital, and what we found out is through the funnel, we needed to handhold our consumer to bring them to conversion. This is a great learning, and we've done a lot of tests with concierge service, which is a call center, calling our clients to confirm the appointment at school. Once they've done their license, to confirm maybe they could have a demo at the dealer. Really following the client through the funnel to make sure that in the end they convert better. One other big finding is that when I started this program, there was a stigma about our clients, basically, who were driving the RT and F3. Our client is on average 62 years old, and we have to embrace the fact that they're baby boomers and they're above 60, and that's okay.
We have to start talking to them and not pretend they're 30 years younger. That's what we're starting to do. Okay. If I go back to the announcement of yesterday, which was Project S. I said it a bit, when the vision of Spyder, when it was first introduced 10 years ago, was to democratize the open road. Democratizing means making it more accessible. I believe, newbie coming in, that we've been really good at extending the careers of motorcyclists. The fact that new entrants coming into the funnel can't get their license is a big deal because they can't drive a Spyder. This is why the license requirement is super important when you plan going forward.
If you look at industry trends, basically everything in a two-wheel and a three-wheel environment points to the fact that a lower price is an option that's tracking right now. If you look at the two-wheel industry, the segment below CAD 12,000 is tracking more than the segments above. If you look at the pre-owned in our three-wheel industry, it's also increasing at a bigger level. Project S, below CAD 10,000. Not that I'm going to show you much more. The video that was shown yesterday was very short-lived. It will only be shown yesterday. We are not going to communicate it on social media or to our consumer. The video that was shown yesterday was really to engage our dealer and tell them that we're in, we're investing in BRP and in Spyder. Again, nobody's going to show that video anymore.
This is the picture you're stuck with. Just to give you a few more hints. If we look at the design DNA of how the Project S was built, this was the brief. Fun to ride, affordable, versatile, easy to use. We gave you a hint on the affordable part. Not that I will give you more hints on the rest, but that was the brief. You can imagine that this will drive different specs in terms of material, in terms of looks, design DNA, in terms of ride, and in terms of target client. The analogy we drove with Jos on the stage with me yesterday was the Sea-Doo Spark analogy. This is the one I want to drive home today. When you look at these two units, very different, like I said, material, design, look, ride, et cetera.
I am a new entrant into the Spyder market as well as into the Sea-Doo market. I had the chance this summer to ride these two units all summer. I can tell you from a new entrant perspective, the ride is very different. I had also the chance to have ridden Project S, and obviously, I've ridden F3 and RT. I can tell you that the ride of Project S compared to the other models in the lineup is the same thing as riding a Spark versus a GTX. This is what we're going to drive to our dealers later this morning. The drive is different. We feel that the cannibalization into the lineup will be minimal because an RT consumer above 60 who likes to drive 300,000 a weekend will not want to drive a Spark or a Project S.
This is the biggest analogy we can bring to the table today, is the Sea-Doo Spark story versus what we're going to introduce with Project S. Another big thing, new entrants. We said yesterday that Spark brought a lot of new entrants into the market. We believe it's going to do the same thing with Project S. All the research shows that it's mostly new entrants coming into market. These new entrants are younger. More female. Right now, our current status in terms of profile is 20% of our consumer base is women. We believe that's going to increase considerably with the new Project S and also more diverse. This is really important for our dealers later this morning because new entrants bring new types of business. They need gloves, helmets, jackets.
It's the first time they ride a motorcycle or a three-wheel. They need more accessories. This is a big value proposition for our dealers. Lastly, why did we announce now is because we really want our consumer engaged in Spyder. We need to show them that we're investing. Obviously when I said that we were dedicating our business plan in the last year to the seven key states, we injected most of our dollars and our resources in the seven key states. People outside the key states might have felt abandoned or less paid attention to. Right now, we really need to tell them, "Mr. Dealers, we're with you. We're investing in Spyder. It's going to come." This is the main reason. Second big reason is we need to develop the school system.
The best model of school system is an ecosystem with the dealer. Okay. Basically, dealer talks to the school to dealer, they talk about the consumer coming and getting the course done. Once they get the course, they call the dealer. He's ready to demo. He's ready to convert. This ecosystem between the dealership and the school is critical, we need the participation of our dealers to get this going. That's it. Yep.
I had a question about the infrastructure that's required. I'm trying to think about it from a dealer's perspective about what you're asking me to do in terms of a client investing in infrastructure and money.
It's not much, honestly.
Okay.
At the end of the day, what worked in Florida is that we are doing most of the legwork in terms of going to see the school. We've developed a value proposition for our schools, because one of the main reasons the schools didn't want to offer three-wheeled rider education is, first of all, they didn't know how, secondly, it was not profitable for them for different reasons. We worked with the Motorcycle Safety Foundation, we worked with a few schools to test what could make them attractive to offer three-wheel education, Florida was our test base. We found what the best value proposition was for the school, okay. Exactly tomorrow, the MSF is doing a mega conference where all the schools will be attending, we have an hour and a half to pitch our value proposition.
Hopefully, this will get the demand pinging in terms of the interest of these schools offering three-wheel. For the dealer, there's no investment. It's on our part, the efforts to develop the structure. Also, one part of the success of the Florida test is that we did subsidize part of the course, meaning that a consumer who's going to need to take his three-wheel license will pay on average $250. To make sure that we take that barrier away, we subsidize in the range of $150-$200 for them to take the course. That's the investment on our part. What we're only asking the dealers is to develop that relationship with the school. Yep.
I'm assuming that getting a three-wheel license in states is easier to get than a two-wheel license. My question is, how many states have three-wheel licenses that are different from two-wheel licenses, that are separate?
I don't have the details right now. What I can tell you, there's only three states in the U.S. that you need a car license. That's California, Nevada, and South Carolina. All the rest, you either need a two-wheel and a three-wheel. The problem is the complexity of getting a two and a three-wheel differs by state.
Wow.
Yeah.
That's very difficult.
Yeah
because I have one. It took a long time.
Yeah. With respect to the Project S, Josée, what is your expectation down the road in the next three years? Where would you be happy, disappointed, and the kind of the objective you foresee with the Project S?
Well, I said it yesterday. I believe it's going to restart the industry. We need, Simon too, we need more entrance. We need more butts on the seat. The minute you're going to see more Spyders on the road, it's going to take off. For the lineup, for this Project S as well. Our goal is really to put more people on the road, and I think that's going to bring it back.
Okay.
Maybe I can add to this. Before Spark in the watercraft industry, it was sluggish. What was frustrating is to see in the summer months, in the three months prime time for watercraft, to see the ATV, the motorcycle ATV Side-by-Side in front of the store, and Spark, the watercraft in the back. When you generate volume, you get dealer attention, and they put it. Now you go in any watercraft dealer, the watercraft in the summer months are at the front. We believe that the Project S, when we introduce it will be an exciting product. Right price, attracting new customer, and bringing the activity around Spyder and sustaining the engagement of the dealers.
Have you decided if the product would be manufactured in Valcourt, or you could be thinking about moving this line to Mexico?
It will be manufactured in the U.S., yes.
Yes.
What percentage of these Spyder riders are former two-wheel motorcyclists?
I don't have the stats on the top of my head, but it's quite a lot because right now, because of the three-wheel license requirement, it's a big barrier. It's mostly people converting to extending their career, that's what we say.
Quickly on customer growth. Do you expect any impact given you already relatively lengthening purchasing period? Do you expect any consumers to start to delay potential purchases so they can test drive the new product in September?
Look, maybe there's a risk, we feel that the risk is less in the fact that it is a different client, for sure. We know that through focus group and research, the 55, 60-year-old client is still gravitating around the RT and the F3. This is something that we'll drive later this morning, we'll drive throughout the next two days.
That was part of the debate on the decision that Pierre announced about. We believe that it's probably going to have more youth vehicle sales where the acquisition price is merely to the CAD 10,000-CAD 13,000.
As they said, they should be zero here. All of them have a list of customers waiting for new units. Typically, they have 20, 30 customers in the list that are waiting an ST, an RS different model that we felt that it was more positive for the long term to introduce the concept yesterday than wait for you.
Who's going to bill for the demo unit for each dealer?
It's a program that we offer our dealers. Basically, it's a discount program that they have. They have 10% on the unit. They have to put so many miles on it, and then they put it back into the inventory and it's considered a used unit after six months. The dealers are quite happy, too.
Good. I guess that's helpful because you have 10% for used.
Yeah, exactly.
Okay.
This licensing requirement issue is good in the shop and hear about since before I discovered the company, it was an issue for Polaris, too, with their Slingshot, that they were able to get a new classification just about every state called autocycle, and they were very good in being able to exclude you guys from autocycle. Can you just talk about your government affairs team, who you have working on this, and how close are we getting to getting maybe Spyder into autocycle? Or, I'm just kind of confused. I don't know how many states require or have a three-wheel license requirement, because again, between pricing and licensing, that's been-
We know. We have a team dedicated to the development of the three-wheel license curriculum at BRP in my team. We have people running around all these states and talking to the governing bodies and the senates and the college communities, everything, because each state is very different. On the top of my head, I can't tell you the details right now, but trust me, I have a dedicated team doing that. Why is it not like Slingshot? I think this is two different units, honestly. I can't consider a Spyder like a car. It's more a motorcycle. It is that fact.
Also, I think having the three-wheel license requirement, once we have a system in place, it's a good hook to get the new entrants in, because at the end of the day, when you take your license, you're spending about 4 hours on the unit, and it's a great demo at the same time. You're gaining confidence in driving the units, which when in states where you don't have that requirement, you have a 20 minutes demo at the dealership. Sometimes that's more a barrier.
Put maybe a different way. Do you have an estimated timeline where you can get Spyder licensable without a two-wheel license?
Well, our goal this year is to go from seven states to 21 states, then the following year, hopefully we can maximize that coverage to most of the U.S.
Perfect. If we look at the auto industry, there were a lot of things announced around the electric side. I know Powersports is not a big fan of electric so far. When you talk to the dealers, the customers, do you see a change on the electric side? Also, if we look at automatic braking system, this will be mandatory by 2022. Is there an opportunity to offer such a system for the older people that do not have-
I know Alain's going to answer that question.
First, the electric. Obviously, we've done Commander electric, we're selling at cost and we've sold not too many, because off-road vehicle, electric don't match because you can find a plug. Spyder would be probably the best product in our portfolio to go electric, we have a Spyder electric, but we cannot pack enough batteries to have a reasonable range. The Spyder electric we have, the Z1 with the CT in Sherbrooke, we have a range of 125 km, which is not enough for recreational electricity. Then we're following what's happening in the electric world, and we believe it will come, but it's not the right time and it's too expensive. That's the first thing. In term of all the feature that autonomous car is applying to their vehicle, obviously in many situation, car is a utility product, recreational product is different.
I don't believe we will see soon an autonomous ATV or an autonomous watercraft, which defeats the purpose why you're buying it. That being said, there are many features, safety features, that they will develop that we will implement for our product in time. When costs are reasonable, and we see the customer demand, we could implement many features in our product.
How do the margins on the Powersports unit compare to the other units?
Margins would be comparable to very traditional PWC products. We use the same approach. We understand that that margin on that entry level is lower, overall, this will be a family of products that we will be introducing to the business over time, and the whole family will be driving decent enough margins for BRP. Overall, on a margin percentage, it's going to be better than PWC.
Yes.
Could you give any kind of range, order of magnitude in terms of a CAD investment expected next season?
For the
In terms of marketing investment or in terms of R&D.
In terms of just projects on Spyder getting more dealers involved, demo units, license requirements.
Basically what we did is we So they say reallocate our time. We've spent a lot on TV, and she said TV does not bring the customers in the store. This money is better invested in, call it guerrilla marketing or guerrilla sales tactics. It's a reallocation of funds towards those tactics. It's not a material increment to our overall spend, it's a better use of money.
Okay. Thank you. Maybe just a quick one. You mentioned that the purchase funnel for 62-year-old people is about a year, 12 months for the Spyder. What about the purchase funnel for younger people? Is it much quicker?
Yeah. What we found out through research is below CAD 10,000 investment, you don't need to ask permission. Mostly it's permission from the wife. Note to self. That's a big criteria. It is faster.
Is that a couple of months rather than 12, I assume, or
Pardon me?
It's material in terms of-
It's material because in a lot of cases, it's a cash purchase, and in the cases where it is financed, the monthly payments, everybody says that it's lower than a cellphone bill payment, so much easier to swallow. It is much faster.
Good. Thanks.
If you want to highlight, when we had the 10th anniversary in Valcourt, we had 3,000 customers riding to Valcourt, spending the night, weekend for a carnival. People have done all the demo rides, all the visits. There is a few things. One journalist who's been in the motorcycle industry for years said there is two companies who are able to do this, and we're the third one, Harley-Davidson, KTM, and us. No other brand can attract so many loyal customers like this from all over the world. That was an interesting comment. The other thing is about the 62 years old. In so respect, we've done a mistake. We would always try to attract younger customers to Spyder. When you think about it, today our customer average age is 62. They have disposable income, they have time.
They want to look or be looking for social activity together with friends, it will be a change. Talking to them, we always try to talk to younger, and now with José leadership, we said that we will continue to talk, but the younger, but the main focus will be the 62 years old customer, which is a perfect target. We've been searching for too long, trying to attract newcomers. I'm looking to that earlier discussion in marketing of the board. That was a big debate. How you attract We said, from now we're talking to those people. We believe it will be better.
Is there any more questions?
Yes.
I have a general question for José, number one.
BRP.
Go ahead. Can you just talk about, in general, your view on the macro, both U.S., Canada, worldwide, where we are right now and what you're outlook is?
When you look at the big picture, like you say, you cannot speak to the economy is not great, but it's ongoing. There is always that geopolitical risk that you know what will happen with North Korea and those things that we need to be careful. We are very confident that if the situation stay like this, the momentum will continue and deliver our numbers. Why? I said it a few times. I believe that the most important thing for a household is to have a job. Unemployment rate is very low in most of the industrial countries where we're selling our product. The other thing is the second important thing for a family is a house. The housing market is very good right now.
Because of those global trends, our population, we believe that globally our industry will continue to do quite well. We cannot say that our industry are booming right now, but we are very good in market share in every product line. When we look at the big picture, if the geopolitical situation stay like this, quite stable, we believe we can continue to grow at CAD 3 billion-CAD 6 billion in 2024.
I guess just following on that, when you look across your dealer network, both for the dealer and for the dealer customer, how would you say the credit environment is for both of those groups, and how does it differ from different points in the cycle? If you see something terrible [audio distortion]
The credit environment is stable, and it's like we increased in rates this year. I had a meeting yesterday with our retail partners for the financing business. We have more partners now going into the retail financial products. It's not been put out for over a year. Volumes are there, so there's a better offering for the consumers. I looked at the acceptance rates. They're stable over time. Penetration rates seem to be customers are largely signing up for retail financing also. Constant, the terms that are being offered, we're seeing 22 months, 24 months being offered out there. The supply is good. No big changes
Their credit ratings and their assets are also stable. We don't see retail partners being more. [audio distortion]
Hello.
Yes. At your last investor day in Mexico, you were talking about the potential look at the new growth sector. Given what you introduced, given that you still have more models to introduce, given there's still a lot of market share to gain, is that decision can be postponed or pushed to the right, or?
No, because today, if you look at the sixth product line, we know where there is wide space. We have a plan to increase market share and sell in most of the product lines. We know that that's what we need to reach the CAD 6 billion. What's next? The end of the road is not CAD 6 billion to continue to grow the business. We need those additional either seven products that we do ourselves, acquisition, or partnership to continue to grow the business beyond the CAD 6 billion.
How important is it to drive growth in the propulsion business? As you think about additional growth, is that an area you'd be looking at?
I think it's, we're just scratching the surface of the propulsion potential. Don't forget, it's been a long acquisition of Evinrude was more complicated and difficult than what we had anticipated. If I just redo the story, we acquired the bankruptcy of Volvo Penta in 2001. When you do acquire a bankruptcy, you believe you know what's inside, but we discover a few things. What we discover is, the E-TEC, the Ficht technology that was developed by Volvo Penta at the time, was a very good technology, but it's not well-executed. That's what we've done in the first three years, to develop, E-TEC is the Ficht, but a better execution of the Ficht. After we have done the E-TEC, we developed the E-TEC technology or industrialized the E-TEC technology. We apply it to all the engines, it was a race.
It was a race because we had the [audio distortion] , they're getting stronger every year. To beat the average, to be able to beat the average requirement, we have to race to put a modern E-TEC technology in a 20-year-old block, which is ridiculous. We've done that, at the end, their product was very good. The Tier 1 family was a very good family of products. What we're doing with the G2, we're bringing it to the next level. I think you're now just starting, just to see the benefits of the G2. We have the G2 now from 150 to 200, we introduced this summer the iDock that we're selling for CAD 6,000.
You should take a competitive product for iDock, you will pay anywhere between CAD 16,000-CAD 25,000 with not a sophisticated system, hydraulic shocks, wiring harness everywhere, it's not well done. For us, everything is included into the G2 structure and the G2 design with the iDock for CAD 6,000, we're just scratching the surface. Don't know if you know, yesterday we won, two days ago, the NMMA award for Innovation of the Year with iDock. Obviously, we'll promote that. I was last night with the E-TEC team, the other team that was in the showroom. There is a lot of interest right now from boat builders, that now are ready to talk to us because they see the value proposition of the twin engine application with iDock and what we can do with the technology from the propeller.
I think there is more to come from the propulsion system than what we have done.
We are still going. One more question.
Yeah.
Maybe even more than that.
The goal of CAD 6 billion by 2025 involves any M&A for the first three. Also, have you announced everything, you know, catalyst-wise? Do you have everything in place that you would like?
On the catalyst side, yes. We have increased our CapEx over the last three years, and you can expect this to remain. Like I said to many investors, by 2020, if we miss by CAD 160 million the top line what we delivered in CAD 260 million, nobody is too upset if this scenario would happen. We're not counting much on the M&A side to be part of the CAD 6 billion, but you can see I mean, if we do a move shortly, we'll do some move shortly, you would see that it will be a slow ramp-up if it's a new product line, if it's an association or partnership with something, but we're not counting on that for CAD 6 billion. If we do a major acquisition, we'll rethink the CAD 6 billion.
No more questions. Thanks, everyone, for joining us this morning, and this will end the presentation.