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Arctic Cat Inc. (ACAT)

F1Q 2013 Earnings Conference Call

July 26, 2012 12:00 ET


Shawn Brumbaugh – Padilla Speer Beardsley

Claude Jordan – President and Chief Executive Officer

Tim Delmore – Chief Financial Officer


Scott Hamann – KeyBanc Capital Markets

Gerrick Johnson – BMO Capital Markets

Craig Kennison – Robert W. Baird

James Harden – Longbow Research

Beth Lilly – Gabelli Investors

Joe Hovorka – Raymond James



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Good morning, good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Arctic Cat Fiscal 2013 First Quarter Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, July 26, 2012.

I would now like to turn the conference over to our host, Shawn Brumbaugh. Please go ahead ma’am.

Shawn Brumbaugh

Thank you and thank you for joining us this morning. I’m Shawn Brumbaugh with Padilla Speer Beardsley. Before the market opened this mooring, Arctic Cat released results for fiscal 2013 first quarter at June 30 2012. Participating in our call today to discuss the company’s performance and outlook will be President and Chief Executive Officer, Claude Jordan; and Chief Financial Officer, Tim Delmore. Following their remarks, we’ll have time for any questions.

Before we begin, please note that certain comments made today will be forward-looking statements regarding the company’s expectations of future performance. Such statements are subject to risks and uncertainties and actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today’s news release within the company’s filings with the Securities and Exchange Commission. We encourage you to review these documents for a description of risk factors which may affect results.

Now I’ll turn the call over to Arctic Cat CEO, Claude Jordan. Claude?

Claude Jordan

Thanks, Shawn. Good morning everyone and thanks for joining us today. This morning I will cover the individual performance of our three businesses during the first quarter of fiscal 2013 as well as the progress we have made as we continue to focus on increasing sales, profitability and operational excellence.

Following my comments, Tim Delmore, our CFO will review our financial performance. Overall, we are pleased with our financial performance for the first quarter. As we mentioned in May, we set out the gross sales in all product categories, improved gross margins, increased earnings per share, generate additional cash flow, and strengthen our balance sheet. Through the first quarter, we are on track to accomplish each of these.

In regard to the individual businesses, snowmobile sales were up 4% for the quarter, primarily driven by increased mix in pricing. Additionally, snowmobile dealer inventory for North America was lowered by 10% at the end of the first quarter. With the lower dealer inventory, the increased orders we are seeing on the 23 ProCross and ProClimb snowmobile models. We launched last year in the five new models, we launched in March of this year. We are increasing our original guidance to a revised higher guidance is down 2% to up 1%. This increase will be seen in both the North American and the international markets.

On the retail side, we will not see any significant retails until September and October. However, we are once again targeting to gain market share this fiscal year and continue to expect the overall industry to grow in the low single-digits. On the ATV business, sales increased 93% for the quarter. Key drivers for the sales increase were increased North American sales of our Wildcat 1000 sports side-by-side, our HDX Heavy Duty Prowler and our core ATVs.

International sales were also higher due to increased Wildcat sales. Dealer inventory was again a key focus and we were successful in reducing our North American dealer inventory in 18 of ATVs and Prowlers by 16%, excluding the Wildcat. Including the Wildcat, overall dealer inventory was lower by 9%. As we move forward, we will continue to focus on matching wholesale sales with retail sales. We do not expect any further significant decreases in overall dealer inventory.

For the quarter, North American ATV industry retail sales grew by 5.5%, which was the second straight quarter of growth for the industry. Although, we were down versus our prior year quarter, this was primarily due to the strong quarter last year. Our North American ROV retail sales experienced strong growth and sales increased 84%, driven by both the Wildcat and Prowler HDX heavy duty utility vehicles.

Wildcat retail sales continue to be strong and match our expectations. In the latest issue of their tracks, one of the leading power sports magazine the Wildcat won the recent shootout as the top pure sport side-by-side vehicle in the industry. As we look forward, product development will continue to be an area of focus for our ATV business. We’ve launched our model year 2013 models and we’ll begin shipping them next month. In total we will launch five new core ATVs and one Wildcat. The new Wildcat will be Wildcat limited, which will provide our customers a Wildcat with upgraded features consistent of multi-colored seats, upgrade paint, expanded decal package, inflected accessories.

With the lower dealer inventory and the increased orders, we are seeing for our ATV business, we are increasing our original guidance to revised higher guidance of 36% to 41%. In addition to both of our ATV and snowmobile businesses being up, our parts garment and accessory business also showed a sales increase of 3% for the quarter. Increased sales were driven by accessories with the largest driver being Wildcat accessories.

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