Polaris Inc

Consolidated Results of Operations

The consolidated results of operations were as follows:

Sales:

The decrease in sales for the quarter was due to decreased shipments, product mix, and lower net price driven by higher promotional costs. The decrease in sales for the year-to-date period was due to decreased shipments and lower net pricing driven by higher promotional costs, partially offset by product mix.

The components of the consolidated sales change were as follows:

The volume decrease for the quarter and year-to-date periods was the result of decreased shipments in all segments. Product mix and price was unfavorable for the quarter as a result of a lower sales mix of ORVs and motorcycles and lower net pricing driven by higher promotional costs. Product mix and price was favorable for the year-to-date period as a result of a higher sales mix of ORVs.

Sales by geographic region were as follows:

Sales in the United States decreased during the quarter and year-to-date periods primarily as a result of lower shipments in all segments.

Sales in Canada decreased during the quarter and year-to-date periods primarily as a result of decreased snowmobile shipments. Currency rate movements had an unfavorable impact of one percentage point on both quarter and year-to-date sales.

Sales in other countries decreased during the quarter and year-to-dates periods, primarily as a result of lower ORV and motorcycle shipments. Currency rate movements had an unfavorable impact of one percentage point on quarter sales and no impact on year-to-date sales.

Cost of Sales:

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

Cost of sales decreased during the quarter and year-to-date periods primarily as a result of reduced sales volumes driving lower purchased materials and decreased labor costs.

Gross Profit:

Gross profit for the quarter, as a percentage of sales, decreased primarily due to product mix, lower net pricing driven by higher promotional costs, decreased leverage of fixed costs as a result of reduced sales volumes, and higher finance interest, partially offset by favorable operational costs. Gross profit for the year-to-date period, as a percentage of sales, decreased primarily due to lower net pricing driven by higher promotional costs, decreased leverage of fixed costs as a result of reduced sales volumes, product mix, and higher finance interest, partially offset by favorable operational costs.

Operating Expenses:

Operating expenses for the quarter and year-to-date periods, in absolute dollars, decreased due to reduced selling and marketing and research and development expenses, partially offset by increased general and administrative expenses. As a percentage of sales, operating expenses increased for both the quarter and year-to-date periods due to decreased leverage of fixed costs as a result of reduced sales volumes.

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 primarily as a result of higher interest rates.

Other income, net:

Other income is primarily the result of currency exchange rate movements and the corresponding effects on currency transactions related to our international subsidiaries.

Provision for income taxes:

The increase in the effective income tax rate for the quarter was primarily due to unfavorable impacts related to research and development credits and Foreign Derived Intangible Income (“FDII”) on lower pre-tax income.

The increase in the effective tax rate for the year-to-date period was primarily due to unfavorable impacts related to research and development credits, FDII, and share-based compensation adjustments on lower pre-tax income.

Adjusted EBITDA:

Adjusted EBITDA, in absolute dollars and as a percentage of sales, decreased during the quarter and year-to-date periods primarily as a result of decreased shipments, lower net pricing driven by higher promotional costs and product mix. These decreases were partially offset by favorable operating costs.

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 and a reduction in the dilutive effect of share-based equity awards.

Cash Dividends:

We paid a regular cash dividend of $0.66 per common share on September 16, 2024 to holders of record at the close of business on September 3, 2024. We paid aggregate cash dividends of $1.98 per common share for the nine months ended September 30, 2024.

Segment Results of Operations

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 and the impacts from certain foreign currency transactions.

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

Off Road:

Off Road sales, inclusive of PG&A sales, decreased for the quarter and year-to-date periods primarily due to decreased ORV and snowmobile shipments, as well as decreased PG&A sales. The average per unit sales price for the Off Road segment decreased approximately nine percent and one percent for the quarter and year-to-date periods, respectively. These decreases were primarily due to lower net pricing driven by higher promotional costs and product mix.

Sales to customers outside of North America decreased 7 percent and 12 percent for the quarter and year-to-date periods, respectively. The sales decrease for the quarter was primarily due to lower ORV shipments. The sales decrease for the year-to-date period was primarily due to lower ORV and snowmobile shipments.

Gross profit, as a percentage of sales, decreased for the quarter and year-to-date periods primarily due to lower net pricing driven by higher promotional costs, decreased leverage of fixed costs as a result of reduced sales volumes, product mix, and higher finance interest, partially offset by favorable operational costs.

Additional information on our end markets for the quarter:

•Polaris North America Utility unit retail sales down low-single digits percent

•Polaris North America Recreation unit retail sales down low-single digits percent

•Total Polaris North America ORV unit retail sales down low-single digits percent

•Estimated North America industry ORV unit retail sales down low-single digits percent

•Total Polaris North America ORV dealer inventories up approximately 15 percent

On Road:

On Road sales, inclusive of PG&A sales, decreased for the quarter and year-to-date periods primarily due to decreased shipments across the product portfolio. The average per unit sales price for the On Road segment decreased approximately 11 percent and five percent for the quarter and year-to-date periods, respectively. The decrease for the quarter was due to product mix. The decrease for the year-to-date period was due to product mix and lower net pricing driven by higher promotional costs.

Sales to customers outside of North America decreased 3 percent and 11 percent for the quarter and year-to-date periods, respectively, primarily as a result of lower Indian Motorcycle shipments.

Gross profit, as a percentage of sales, decreased for the quarter primarily due to product mix and higher warranty expense, partially offset by favorable operational costs. Gross profit, as a percentage of sales, decreased for the year-to-date period due to product mix, lower net pricing driven by higher promotional costs, and higher warranty expense, partially offset by favorable operational costs.

Additional information on our end markets for the quarter:

•Indian Motorcycle North America unit retail sales down low-double digits percent

•Estimated North America industry 900cc cruiser, touring, and standard motorcycles unit retail sales down high-single digits percent

•Polaris North America motorcycle dealer inventories up approximately 20 percent

Marine:

Marine sales decreased for the quarter and year-to-date periods primarily due to decreased shipments. The average per unit sales price for the Marine segment increased approximately four percent for both the quarter and year-to-date periods. These increases were primarily driven by product mix and partially offset by lower net pricing driven by higher promotional costs.

Gross profit, as a percentage of sales, decreased for the quarter primarily as a result of decreased leverage of fixed costs as a result of reduced sales volumes and product mix, partially offset by lower finance interest. Gross profit, as a percentage of sales, decreased for the year-to-date period primarily as a result of product mix, decreased leverage of fixed costs as a result of reduced sales volumes, and lower net pricing driven by higher promotional costs.

Additional information on our end markets for the two-month period ended August 2024:

•Polaris U.S pontoon unit retail sales down high-teens percent

•Estimated U.S. industry pontoon unit retail sales down high-single digits percent

•Polaris U.S deck boat unit retail sales down high-forties percent

•Estimated U.S. industry deck boat unit retail sales down low-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, excluding interest expense, income tax expense, depreciation and amortization, and certain other non-cash, non-recurring, or non-operating items impacting net income from time to time. For example, costs associated with 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 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, the most comparable GAAP financial measure, to Adjusted EBITDA for each of the periods presented:

(1)Represents amortization expense for intangible assets acquired through business combinations and asset acquisitions

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

(3) Represents adjustments for corporate restructuring

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