ACAT

Arctic Cat Inc. (ACAT)

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Arctic Cat Inc. (ACAT)

F3Q12 Earnings Call

January 26, 2012 12:00 pm ET

Executives

Shawn Brumbaugh – Director, Investor Relations & Corporate Communications

Claude J. Jordan – President and Chief Executive Officer

Timothy C. Delmore – Chief Financial Officer and Secretary

Analysts

Lisa M. Brozewicz – KeyBanc Capital Markets

Craig R. Kennison – Robert W. Baird & Co., Inc.

Joseph D. Hovorka – Raymond James & Associates

Rommel T. Dionisio – Wedbush Securities, Inc.

Mark Eric Smith – Feltl & Co.

Phil Anderson – Longbow Research

Jake Crandlemire – Ramsey Asset Management

Presentation

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to the Arctic Cat Fiscal 2012 Third Quarter Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Thursday, January 26, 2012.

I’d now like to turn the conference over to Shawn Brumbaugh. Please go ahead.

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 morning, Arctic Cat released results for the fiscal 2012 third quarter ended December 31, 2011.

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 some of the comments made today will be forward-looking statements regarding the company’s expectations, 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 and in the company’s filings with the Securities and Exchange Commission. We encourage you to review these documents for a description of risk factors that may affect results.

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

Claude J. Jordan

Thanks, Shawn. Good morning, everyone, and thanks for joining us today. This morning I’ll cover the individual performance of our three businesses; as well as the progress we have made in operations as we continue to focus on sales, profitability and strengthening our balance sheet. Following my comments, Tim Delmore, our CFO will review our financial performance.

Overall, we’re pleased with our performance for the quarter, especially our double-digit sales and earnings growth. As we mentioned at the beginning of the year, we set out to grow sales in all product categories, improve gross margins, increase earnings per share, and reduce dealer inventory. Through the third quarter, we remain on track to accomplish each of these.

In regards to the individual businesses, snowmobile sales were up 61% for the quarter, primarily driven by increased volume and to a lesser degree pricing and product mix. We continue to focus on matching wholesale to retail to ensure dealers have the right product during the high retail seasons and to drive dealer inventory lower. With this focus, we were successful in lowering the North American dealer inventory by 10%, when compared to the same time last year. The lower dealer inventory will position us Snowmobile business well as we look forward to next year.

Regarding the industry retail sales for the year, sales are up in the mid single-digits when compared to the prior year. However, Arctic Cat continued to see strong growth in retail sales up more than 15%, driven by the 23 all new ProCross, ProClone snowmobile models we launched this year. Although, we believe industry retail sales will slow slightly over the next three months. We continue to believe our retail sales will outperform the industry and we will continue to take market share.

With the ATV business, sales increased 12% for the quarter, driven primarily by international in North American side-by-side sales. Additionally, we continue to focus on matching our wholesale sales to retail sales to lower our dealer inventory. For the year, our dealers have retailed 38% more units than we have shipped, which has allowed us to lower our North American dealer inventory by 22%.

To assist our dealers in managing their inventory, we have now shifted from taking orders three times per year to a monthly ordering system. This new ordering system will allow the dealers to better respond to market conditions and ensure they have the right quantity and mix of products to meet the needs of their customers.

Industry retail ATV sales for North America had another difficult quarter as sales decreased by 7%. During the third quarter, our core ATV retail business also decreased. However, we continue to see year-over-year retail growth in our Prowler side-by-side business. In addition to our year-over-year Prowler side-by-side growth, we also started to ship our Araneae side-by-side the Wildcat and have already started to see retail sales.

As we previously stated, our plan was to ship the limited number of Wildcat in the third quarter with the objective of increasing shipments during the fourth quarter. Sales of our parts, garment, and accessory business continued to perform well and were up 7% for the quarter. The increased sales were driven by the Snowmobile and ATV accessories, as well as ATV parts.

During the quarter, we also launched the e-commerce website for our Canadian customers, which when combined with our Prowler launch for the U.S. market gives our North American customers the ability to purchase their parts, garments, and accessories online.

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